Financial Review
Operating Results

Net Sales and Operating Revenue
Net sales and operating revenue rose
4.0%, or ¥38.2 billion, to ¥983.4 billion.
The security services, fire protection services, medical services, insurance services
and information and communication
related services segments reported
increases, while the geographic information services and real estate and otherservices segments posted declines. (Forfurther details, please see Segment
Information below.)
Costs and Expenses
Total costs and expenses rose 5.0%,
or ¥41.3 billion, to ¥864.5 billion. Costof sales, at ¥674.5 billion, was up 4.7%,
or ¥30.3 billion, and was equivalent to68.6% of net sales and operating revenue,compared with 68.2% in the previous
fiscal year, owing largely to an increasein the cost of sales ratio in the geographic
information services segment.

Selling, general and administrative(SG&A) expenses rose 4.6%, or ¥7.7
billion, to ¥176.3 billion. SG&A expenses
were equivalent to 17.9% of net sales andoperating revenue, compared with 17.8%
in the previous fiscal year.
Impairment loss on long-lived assets
increased ¥5.2 billion, to ¥11.8 billion,
as the Company recognized impairment
losses on certain business assets in theinformation and communication related
services segment and on certain real estate
assets, the use of which it had reconsidered. Loss on sales and disposal of fixed
assets, net, decreased ¥660 million, to¥1.9 billion. Despite impairment loss on
goodwill of ¥1.3 billion in the previous
fiscal year, the Company did not reportsuch a loss in the period under review.
Operating Income
Operating income slipped 2.5%, or ¥3.1
billion, to ¥118.9 billion, equivalent to12.1% of net sales and operating revenue,
down from 12.9% in the previous fiscal
year. The Company’s segments, in order ofsize of contribution to operating income,were security services, fire protection services, insurance services, real estate andother services, medical services, andinformation and communication related
services. (For further details, please see
Segment Information below.)
Other Income and Expenses
Other income declined ¥1.6 billion, to¥7.7 billion, while other expenses rose
¥680 million, to ¥4.1 billion, resulting in
net other income of ¥3.6 billion, down
¥2.3 billion from the previous fiscal year.
Principal factors behind this result include
a decrease of ¥2.3 billion in gain on private equity investments, to ¥1.7 billion.
Income from Continuing Operations
before Income Taxes and Equity in Net
Income of Affiliated Companies
Income from continuing operations before
income taxes and equity in net income ofaffiliated companies, at ¥122.5 billion,
was down 4.2%, or ¥5.4 billion, owing
to declines in operating income and net
other income.

result was due mainly to a decline in thestatutory tax rate, a consequence of tax
reform in Japan.

Financial Review

Overview
In the year ended March 31, 2016,
SECOM CO., LTD. and its subsidiaries(collectively, “the Company”) sought toprovide high-quality products and services
that respond to the needs of customers in
its core security services segment, as wellas in its fire protection services, medical
services, insurance services, geographic
information services, information andcommunication related services, and realestate and other services segments.
Consolidated net sales and operating
revenue rose 4.0%, or ¥38.2 billion, to¥983.4 billion. Principal factors behind thisresult included higher net sales and operating revenue in the security services
segment—underpinned by an upsurge inrevenue from on-line security systems andan increase in the number of consolidated
subsidiaries—as well as in the fire protection services and medical services segments, the former due to higher orders
and the latter to elevated sales of pharmaceuticals and rising patient numbers at
hospitals. Despite gains in the security
services, medical services and fire protection services segments, operating income
slipped 2.5%, or ¥3.1 billion, to ¥118.9
billion, with contributing factors including
an increase in impairment losses on longlived assets. Nonetheless, net income
attributable to SECOM CO., LTD., was up
4.8%, or ¥3.9 billion, to ¥84.1 billion,
owing to, among others, a decrease inincome taxes resulting from a decline in
the statutory tax rate, a consequence oftax reform in Japan.

Equity in Net Income of AffiliatedCompanies
Equity in net income of affiliated companies rose ¥1.4 billion, to ¥7.2 billion.
This result primarily reflected increases
in equity in the net income of certain
overseas affiliates.
Net Income Attributable to
Noncontrolling Interests
Net Income attributable to noncontrollinginterests amounted to ¥5.2 billion, down
¥3.0 billion from the previous fiscal year.
Net Income Attributable to SECOM
CO., LTD.
Net income attributable to SECOM CO.,LTD., rose 4.8%, or ¥3.9 billion, to ¥84.1
billion, equivalent to 8.5% of net sales
and operating revenue. Net income attributable to SECOM CO., LTD. per share was¥385.19, up from ¥367.37 in the previous
fiscal year. At the Ordinary General
Meeting of Shareholders held on June 24,
2016, a proposal to pay a year-end cash
dividend of ¥70.00 was approved. As aconsequence, cash dividends for the year,
which also included an interim dividend—inaugurated in the previous fiscal year—of¥65.00, increased ¥10.00, to ¥135.00 per
share. However, because both the ¥65.00
per share year-end dividend for the year
ended March 31, 2015, approved at theOrdinary General Meeting of Shareholders
held on June 25, 2015, and the ¥65.00
per share interim dividend for the previous
fiscal year, determined by the Board of
Directors and paid to shareholders ofrecord as of September 30, 2015, were
paid during the period, cash dividends
paid to shareholders in the period underreview—the figure that appears in thefinancial statements—amounted to¥130.00 per share.

Income Taxes
Income taxes amounted to ¥40.3 billion, adecrease of ¥5.7 billion from the previous
fiscal year, and were equivalent to 32.9%
of income from continuing operations
before income taxes and equity in net
income of affiliated companies, comparedwith 36.0% in the previous fiscal year. This

SECOM Annual Report 201633

Financial Review
Segment Information(For further information, please see Note 27 of
the accompanying Notes to the Consolidated
Financial Statements.)

Security Services
The security services segment comprises
electronic security services, which centeron on-line security systems; other security
services; and merchandise and other. In
the period under review, net sales andoperating revenue in this segment
advanced 3.7%, or ¥18.1 billion, to¥508.1 billion. Excluding intersegment
transactions, net sales and operating revenue in this segment amounted to ¥505.1
billion, equivalent to 51.4% of overall net
sales and operating revenue, comparedwith 51.5% in the previous fiscal year.
In addition to on-line commercial andhome security systems, electronic security
services include large-scale proprietary
security systems, which center on surveillance services for the subscriber’s premises.
On-line commercial and home security
systems use sensors, controllers and otherequipment installed at the subscriber’s
premises to detect events, including intrusions, fires and equipment malfunctions.
Equipment is linked to a SECOM control
center via telecommunications circuits tofacilitate around-the-clock remote monitoring. Should an irregularity be detected,
relevant information is relayed to thecontrol center, where staff dispatch emergency response personnel to take appropriate measures. Control center staff also
notify the police or fire department, if necessary. The Company has established an
integrated approach, whereby it takes full
responsibility for all aspects of its on-line
commercial and home security systems,
from R&D through to equipment manufacturing, sales, security planning, installation,
monitoring, emergency response services
and equipment maintenance. Net sales
and operating revenue from electronic
security services rose 1.4%, or ¥4.5 billion,to ¥330.8 billion, primarily reflecting an
expanded lineup of value-added services
that respond to diverse security needs.
Other security services include static
guard services and armored car services.
Static guard services, which are provided
by highly trained professional security
guards for situations requiring humanjudgment and flexible responsiveness,
generated net sales and operating revenueof ¥55.9 billion, up 3.9%, or ¥2.1 billion.
Armored car services, which involve thetransport of cash, securities and othervaluables using specially fitted armoredcars and security professionals, reported
net sales and operating revenue of ¥33.0
billion, up 57.0%, or ¥12.0 billion, owing

34

SECOM Annual Report 2016

principally to the inclusion of results for
Asahi Security, newly consolidated on
December 1, 2015.
The merchandise and other category
encompasses sales of a wide range of
security products, including security camera systems, access control systems, automated fire extinguishing systems andexternal monitoring systems, which can be
freestanding or linked to on-line security
systems. Net sales and operating revenue
in this category edged down 0.8%, or¥647 million, to ¥85.3 billion, owing to
the absence of leases of large-scale security systems, which pushed up sales in theprevious fiscal year, although this was partially offset by an increase in sales of security camera systems and the inclusion of
results for Kumalift, newly consolidated on
August 31, 2015.
Operating income in the security services segment rose 3.6%, or ¥3.8 billion,to ¥110.9 billion. The operating margin
was 21.8%, compared with 21.9% in
the previous fiscal year. This increase wasattributable to higher net sales and operating revenue for on-line security systems
in Japan.
Fire Protection Services
The fire protection services segment
focuses on high-grade, tailored, automatic
fire alarm systems, fire extinguishing systems and other fire protection systems fora wide range of applications, including
office buildings, plants, tunnels, culturalproperties, ships and residences. In the
period under review, Nohmi Bosai andNittan, two of Japan’s leading domestic
fire protection services providers, sought toleverage their respective business foundations and product development capabilities
to secure orders for fire protection
systems.
Net sales and operating revenue in thissegment increased 7.3%, or ¥9.2 billion,to ¥135.5 billion, bolstered by a numberof major orders. Operating income was up
9.1%, or ¥1.1 billion, to ¥13.7 billion, andthe operating margin improved to 10.1%,
from 9.9%, a consequence largely of theincrease in net sales and operating revenue
and efforts to constrain SG&A expenses.
Medical Services
The medical services segment encompasses home medical services, which center on home nursing and pharmaceuticaldispensing services, as well as the operation of residences for seniors, electronic
medical report systems, sales of medical
equipment, personal care services, andsupport for the management of hospitals
and health care-related institutions. The
segment also includes the operations ofvariable interest entities of which theCompany is the primary beneficiary, which
manage hospitals and health care-related
institutions.
Segment net sales and operating revenue rose 4.9%, or ¥7.7 billion, to ¥163.7
billion. The principal factors behind thisresult were an increase in sales of pharmaceuticals, among others, and a rise inpatient numbers accompanying the
expansion and modification of hospitals
operated by the aforementioned variableinterest entities. Operating income climbed
92.0%, or ¥1.4 billion, to ¥2.9 billion,
while the operating margin improved to
1.8%, from 1.0%, owing mainly to therecognition of an impairment loss on
goodwill of certain variable interest
entities in the previous fiscal year.
Insurance Services
The insurance services segment offers anextensive lineup that includes the Security
Discount Fire Policy, a commercial fire
insurance policy, and SECOM Anshin My
Home, a comprehensive fire insurance
policy for homes—both of which offer
discounts on premiums to customers who
have installed on-line security systems,
recognizing this as a risk-mitigating
factor—and SECOM Anshin My Car, acomprehensive automobile insurance
policy that offers onsite support services
provided by SECOM emergency response
personnel should the policyholders be
involved in an accident. Other offerings
include MEDCOM, an unrestricted cancer
treatment policy that covers the entire costof medical treatment for cancer.
Net sales and operating revenue in thissegment advanced 5.1%, or ¥2.1 billion,to ¥43.6 billion, spurred by higher insurance premiums due to expanded sales offire insurance policies and the MEDCOM
unrestricted cancer treatment policy.
Operating income was down 14.9%, or¥1.2 billion, to ¥6.8 billion, while theoperating margin declined to 15.7%, from
19.4% in the previous fiscal year, owing toan increase in losses incurred as a result of
damage caused by natural disasters.
Geographic Information Services
The geographic information services
segment includes the collection of geographic data from satellite images, aerial
photography, and vehicle/ground andother types of surveying, which it integrates, processes and analyzes to provide
a variety of geospatial information services
to public sector entities, including national
and local governments, and private sector
customers in Japan. The Company also
extends geospatial information services togovernment agencies overseas, including

Information and Communication
Related Services
The information and communication
related services segment focuses on data
center services, as well as uniquely SECOM
BCP support services, information security
services and cloud-based services.
Net sales and operating revenue in thissegment advanced 3.5%, or ¥1.9 billion,to ¥55.8 billion, bolstered by the launchof the SECOM Anshin My Number service,among others. Operating income fell
65.5%, or ¥586 million, to ¥308 million,
and the operating margin declined to
0.6%, from 1.7% in the previous fiscal
year, with the recognition of impairment
losses on certain business assets among
factors behind these results.

Real Estate and Other Services
The real estate and other services segment
encompasses the development and salesof condominiums equipped with sophisticated security and disaster-preparedness
features, as well as real estate leasing,construction, and installation and otherservices.
Segment net sales and operating
revenue slipped 1.9%, or ¥849 million,to ¥44.1 billion, as results in the real estatedevelopment and sales business flagged.
Operating income, at ¥4.9 billion, wasdown 3.5%, or ¥180 million. The operating margin edged down to 11.1%, from
11.3% in the previous fiscal year.

in work in process and other factors. Duefrom subscribers was up ¥5.8 billion, to¥43.7 billion, owing to the consolidationof Asahi Security. Short-term investments
rose ¥6.4 billion, to ¥31.4 billion, as bonds
due within one year formerly included ininvestment securities were reclassified tothis category. The current ratio was 1.8
times, compared with 2.1 times at theprevious fiscal year-end.
Investments and long-term receivables
declined ¥21.2 billion, to ¥336.4 billion,
equivalent to 20.0% of total assets.
Investment securities, at ¥212.5 billion,
were down ¥18.2 billion, a consequenceof a downturn in the fair value of investment securities and the reclassification ofbonds in current assets.
Property, plant and equipment, lessaccumulated depreciation, rose ¥17.5

billion, to ¥414.2 billion, and represented
24.6% of total assets. Machinery, equipment and automobiles rose ¥41.7 billion,to ¥154.8 billion owing primarily to theconsolidation of Asahi Security. An
increase in the number of consolidated
subsidiaries and the expansion andmodification of hospitals managed byvariable interest entities were among
factors that led to an increase in buildings
and improvements up ¥15.8 billion, to¥316.6 billion.
Other assets totaled ¥225.2 billion, up¥69.7 billion, and accounted for 13.4% of
total assets. This was largely attributable
to increases of ¥58.6 billion in goodwill,to ¥90.3 billion, and ¥13.7 billion in otherintangible assets, to ¥53.9 billion, arisingfrom the consolidation of Asahi Security.

Financial Review

in emerging economies and developing
countries.
Segment net sales and operating
revenue edged down 0.4%, or ¥201 million, to ¥52.7 billion, despite an increasein net sales and operating revenue fromservices for overseas customers, as thatfrom services for the public and private
sectors in Japan declined. The segment
reported an operating loss of ¥268 million,
compared with operating income of¥2.4 billion in the previous fiscal year,
reflecting a higher cost ratio for services
for the public sector and a provision
against anticipated future losses, as wellas the recognition of impairment losses
on software and other assets.

Financial Position
Total assets as of March 31, 2016,
amounted to ¥1,681.3 billion, ¥155.5
billion higher than at the end of theprevious fiscal year. Total current assets,
at ¥705.5 billion, were up ¥89.5 billion,
and accounted for 42.0% of total assets.
Cash and cash equivalents totaled ¥229.0
billion, a decline of ¥19.6 billion, owing
to the fact that net cash used in investing
and financing activities exceeded net cash
provided by operating activities. (For further details, please see Cash Flows, which
follows this section.) Notes and accounts
receivable, trade, advanced ¥8.6 billion,to ¥136.6 billion. The consolidation of
Asahi Security was the principal cause of
an increase in cash deposits for armoredcar services of ¥77.9 billion, to ¥128.3
billion. Inventories, at ¥63.8 billion, were
¥3.2 billion higher, reflecting an increase

Percentage of Consolidated
Net Sales and Operating Revenue*

SECOM CO., LTD.
Shareholders’ Equity per ShareTotal Assets(Year ended March 31, 2016)(In yen)(In billions of yen)

4,000

2,000

3,200

1,600

2,400

1,200

1,600

800

800

400

4.9%

4.2%

5.4%
4.1%

16.6%

51.4%

13.4%

Security Services
Medical Services
Geographic Information Services
Real Estate and Other Services

Fire Protection Services
Insurance Services
Information andCommunication
Related Services00

12 13 14 15 16

12 13 14 15 16* Pie chart shows percentage of consolidated net sales andoperating revenue (excluding intersegment transactions)

SECOM Annual Report 201635

Financial Review
Total liabilities as of March 31, 2016,
amounted to ¥704.7 billion, an increaseof ¥118.0 billion, and represented 41.9%
of total liabilities and equity. Total current
liabilities, at ¥387.8 billion, were up¥101.2 billion, accounting for 23.1%
of total liabilities and equity. Deposits
received climbed ¥84.1 billion, to ¥105.0
billion, owing primarily to the consolidation of Asahi Security, which resulted in an
increase in deposits received for armoredcar services. Bank loans increased ¥11.7
billion, to ¥55.7 billion.

Total long-term liabilities rose ¥16.8
billion, to ¥317.0 billion, and represented
18.9% of total liabilities and equity.
Unearned premiums and other insurance
liabilities rose ¥6.0 billion, to ¥105.6
billion. Long-term debt, at ¥61.6 billion,
was up ¥7.8 billion, a consequence of theconsolidation of Asahi Security, which led
to an increase in lease liabilities.
Total SECOM CO., LTD. shareholders’equity advanced ¥39.3 billion, to¥865.3 billion. Net income attributable
to SECOM CO., LTD., less the paymentof cash dividends, resulted in a ¥55.6
billion increase in retained earnings,
to ¥772.1 billion. Accumulated othercomprehensive income was ¥16.9 billion,
down ¥16.0 billion, as unrealized gains on
securities declined ¥7.4 billion, to ¥18.2
billion, and pension liability adjustments
yielded a loss of ¥7.9 billion, comparedwith ¥2.1 billion. As a result, the equity
ratio was 51.5%, compared with 54.1%
as of March 31, 2015.

increase in inventories and increases in
accrued income taxes, and unearned
premiums and other insurance liabilities.
Net cash used in investing activities
amounted to ¥132.7 billion. This result
was due principally to acquisitions, net ofcash acquired, of ¥73.5 billion, owing to
the acquisition of Asahi Security, and payments for purchase of property, plant andequipment of ¥59.5 billion, reflecting outlays for security equipment and control
stations—attributable to an increase in thenumber of security services subscribers—
and for the expansion and modificationof hospitals managed by variable interest
entities, as well as to payments for purchases of investment securities of ¥49.4
billion, primarily in the insurance services
business and through private equity investments in the United States. These werepartially offset by proceeds from sales andredemptions of investment securities of¥55.0 billion. Net cash used in investing
activities was ¥63.4 billion higher thanin the previous fiscal year, owing mainly
to an increase in acquisitions, net ofcash acquired.

Net cash used in financing activities
amounted to ¥29.0 billion. This result
reflected dividends paid to SECOM CO.,LTD. shareholders of ¥28.4 billion andrepayments of long-term debt of ¥15.2
billion, which were partially offset by proceeds from long-term debt of ¥9.4 billion
and an increase in bank loans, net, of ¥8.7
billion. Net cash used in financing activitieswas ¥20.1 billion lower than in the previous fiscal year. Factors contributing to thisresult include an increase in bank loans
and a decline in dividends paid to SECOM
CO., LTD. shareholders, which had
increased in the previous year with thepayment of a newly inaugurated interim
dividend, as well as a year-end dividend.
The Company’s operating, investing
and financing activities in the period underreview yielded net cash and cash equivalents at end of year of ¥229.0 billion,
down ¥19.6 billion from net cash and cash
equivalents at beginning of year, whichwere ¥248.6 billion.

Cash Flows
The Company is committed to maintaining
sufficient liquidity to allow flexibility in its
operations and ensure a solid financial
foundation. To the best of its ability, theCompany is also firmly committed tofinancing strategic investments with cash
generated by its operating activities.
In the period under review, net cash
provided by operating activities amounted
to ¥142.9 billion. Factors behind this result
included net income of ¥89.3 billion anddepreciation and amortization, including
amortization of deferred charges of ¥72.5
billion, a non-cash item, which were partially offset by an increase in deferredcharges of ¥15.5 billion. Deferred charges
consisted primarily of costs related to theinstallation of equipment for on-line security systems. For further details, please see
Note 2 (12) of the accompanying Notes
to Consolidated Financial Statements.
Net cash provided by operating activitieswas ¥7.9 billion higher than in the previous fiscal year, despite a decrease inaccrued consumption tax, which had
increased in the previous period as aconsequence of a consumption tax rate
hike, owing to such factors as a smaller

Purchases of Property,
Plant and Equipment
and Intangible Assets

Cash Flows(In billions of yen)

(In billions of yen)

(In billions of yen)

80

80

150

60

60

Depreciation andAmortization

100
50
40

40

20

20

0
–50
–100

0

–150

0

12 13 14 15 16

12 13 14 15 16

14

15

16

Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities

36

SECOM Annual Report 2016