Financial Review
Operating Results

Overview
In the year ended March 31, 2015,
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 advanced 2.6%, or ¥24.1 billion,to ¥945.2 billion. Principal contributing
factors included higher net sales andoperating revenue in the security services
and medical services segments—theformer underpinned by increased revenue
from on-line security systems and higher
sales of large-scale security systems andsecurity camera systems and the latter by
the expansion and rebuilding of hospitals
and a robust performance by the pharmaceuticals dispensing services business—andthe inclusion of a full year of operating
results for a subsidiary newly consolidated
in the fourth quarter of the fiscal year
ended March 31, 2014. Operating income
rose 1.6%, or ¥1.9 billion, to ¥122.0
billion, bolstered by gains in the insurance
services and the security services segments
ascribed to, respectively, a decline in losses
incurred due to damage caused by natural
disasters and the increase in net sales andoperating revenue. Net income attributable to SECOM CO., LTD., was up 8.4%,
or ¥6.2 billion, to ¥80.2 billion, owing
mainly to the increase in operating income
and to lower income taxes, which primarilyreflected a statutory tax rate reduction that
resulted from tax reform in Japan.

Costs and Expenses
Total costs and expenses were up 2.8%,
or ¥22.2 billion, to ¥823.2 billion. Costof sales, at ¥644.2 billion, was up 2.4%,
or ¥15.3 billion, and was equivalent to68.2% of net sales and operating revenue,
an improvement from 68.3% in the­previous fiscal year.

Operating Income
Operating income rose 1.6%, or ¥1.9
billion, to ¥122.0 billion, equivalent to12.9% of net sales and operating revenue,compared with 13.0% in the previous
fiscal year. The Company’s segments, inorder of size of contribution to operating
income, were security services, fire protection services, insurance services, real estateand other services, geographic information
services, medical services, and informationand communication related services.
(For further details, please see Segment
Information below.)
Other Income and Expenses
Other income declined ¥2.4 billion,to ¥9.3 billion, while other expenses
increased ¥448 million, to ¥3.4 billion,
resulting in net other income of ¥5.9 billion, down ¥2.8 billion from the previous
fiscal year. Principal factors behind thisresult included decreases of ¥1.5 billion ingain on private equity investments, to ¥4.1
billion, and ¥879 million in loss on gain on
sales of securities, net, to ¥56 million.
Income Before Income Taxes andEquity in Net Income of AffiliatedCompanies
Income before income taxes and equity
in net income of affiliated companies
decreased 0.7%, or ¥884 million, to¥127.9 billion, reflecting the gain in
operating income and the decline in net
other income.
Income Taxes
Income taxes were down ¥3.7 billion,to ¥46.0 billion, equivalent to 36.0% ofincome before income taxes and equity
in net income of affiliated companies,
compared with 38.6% in the previous
fiscal year. This result was due mainly toa decline in the statutory tax rate as aconsequence of tax reform in Japan.

Equity in Net Income of AffiliatedCompanies
Equity in net income of affiliatedcompanies increased ¥1.7 billion from theprevious fiscal year, to ¥5.8 billion, owing
primarily to increases in equity in the net
income of certain overseas affiliates.
Income from Discontinued Operations
Discontinued operations include any
component of an entity with its own
identifiable operations and cash flows thathas been disposed of or is to be sold andin which the Company has no significant
continuous involvement. As a result of thedivestiture of a business in the real estateand other services segment, the Company
reported income from discontinued
operations, net of tax, of ¥814 million,
compared with a loss from such operationsof ¥132 million in the previous fiscal year.
Net Income Attributable to
Noncontrolling Interests
Net income attributable to noncontrollinginterests amounted to ¥8.3 billion, down
¥678 million from the previous fiscal year.
Net Income Attributable to
SECOM CO., LTD.
Net income attributable to SECOM CO.,LTD., advanced 8.4%, or ¥6.2 billion, to¥80.2 billion, equivalent to 8.5% of net
sales and operating revenue, up from
8.0% in the previous fiscal year. Net
income attributable to SECOM CO., LTD.
per share was ¥367.37, up from ¥338.94.
At the general shareholders meeting heldon June 25, 2015, a proposal to pay a
year-end cash dividend of ¥65.0 per share
was approved. Dividends for the year
ended March 31, 2015—¥125.00 per
share, an increase of ¥10.00 from the previous fiscal year—comprise the year-end
dividend and a newly inaugurated interim
dividend of ¥60.00, determined by the
Board of Directors. However, because boththe ¥115.0 per share annual dividend forthe year ended March 31, 2014, approvedat the general shareholders’ meeting heldon June 25, 2014, and the ¥60.00 fiscal
2014 interim dividend for the year ended
March 31, 2015, determined by the Boardof Directors and paid to shareholders ofrecord as of September 30, 2014, were
paid during the period, dividends paid toshareholders in the period under review
amounted to ¥175.0 per share.

SECOM Annual Report 2015

Financial Review

Net Sales and Operating Revenue
Consolidated net sales and operating
revenue increased 2.6%, or ¥24.1 billion,to ¥945.2 billion, bolstered by increases
in the security services, medical services,
real estate and other services, insurance
services and information and communication related services segments, although
the geographic information services andfire protection services segments reported
declines. (For further details, please see
Segment Information below.)

Selling, general and administrative(SG&A) expenses rose 1.5%, or ¥2.5
billion, to ¥168.6 billion. SG&A expenses
were equivalent to 17.8% of net sales andoperating revenue, an improvement from
18.0% in the previous fiscal year.
Due to the recognition of impairment
losses on certain business-related assets
in the information and communication
related services segment, impairment loss
on long-lived assets rose to ¥6.6 billion,
an increase of ¥3.8 billion, while an
impairment loss on goodwill in the medical
services business pushed impairment loss
on goodwill up ¥1.2 billion, to ¥1.3 billion.
In contrast, loss on sales and disposal of
fixed assets, net, declined ¥627 million, to¥2.6 billion.

33

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 and operating revenue in this segment increased
3.1%, or ¥14.8 billion, to ¥490.0 billion.
Excluding intersegment transactions, net
sales and operating revenue in this segment
amounted to ¥487.1 billion, representing
51.5% of overall net sales and operating
revenue, up from 51.3% in the previous
fiscal year.
In addition to on-line commercial
and home security systems, electronic
security services include large-scale
proprietary security systems, which centeron surveillance services for the subscriber’s
premises. On-line commercial and home
security systems use sensors, controllers
and other equipment installed at thesubscriber’s premises to detect events,
including intrusions, fires and equipment
malfunctions. Equipment is linked to a
SECOM control center via telecommunications circuits to facilitate around-the-clock
remote monitoring. Should an irregularity
be detected, relevant information is relayed
to the control center, where staff dispatch
emergency response personnel to takeappropriate 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 2.6%, or ¥8.2 billion,to ¥326.3 billion, owing to an increasein net sales and operating revenue in thissegment in Japan, reflecting an expanded
lineup of value-added services that respondto diverse security needs, as well as to thepositive impact of yen depreciation andhigher sales of large-scale security systems
on the net sales and operating revenue ofoverseas subsidiaries.
Other security services include static
guard services and armored car services.
Static guard services, which are provided byhighly trained professional security guards
for situations requiring human judgment
and flexible responsiveness, generated
net sales and operating revenue of ¥53.8
billion, up 4.1%, or ¥2.1 billion, as legal
and regulatory changes reinforced needs

34

SECOM Annual Report 2015

for effective security. Armored car services,which involve the transport of cash, securities and other valuables using specially fitted armored cars and security professionals,
reported net sales and operating revenueof ¥21.0 billion, up 1.2%, or ¥243 million.
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 inthis category increased 5.0%, or ¥4.1 billion, to ¥86.0 billion, bolstered by increases
in leases of large-scale security systems andsales of security camera systems.
Operating income in the security
services segment increased 2.9%, or ¥3.0
billion, to ¥107.1 billion. The operating
margin was level at 21.9%. This result was
attributable to the increase in net sales
and operating revenue for on-line security
systems in Japan and the positive impact ofyen depreciation and higher sales of largescale security systems on the operating
income of overseas subsidiaries.
Fire Protection Services
This segment focuses on high-grade,tailored, automatic fire alarm systems,
fire extinguishing systems and other fire
protection systems for a wide range ofapplications, including office buildings,
plants, tunnels, cultural properties, ships
and residences. In the period under review,
Nohmi Bosai and Nittan, two of Japan’s
leading domestic fire protection services
providers, sought to leverage their respective business foundations and productdevelopment capabilities to secure orders
for fire protection systems.
Net sales and operating revenue inthis segment edged down 0.7%, or ¥841
million, to ¥126.3 billion. In contrast,
operating income advanced 19.5%, or¥2.0 billion, to ¥12.5 billion, and theoperating margin improved to 9.9%, from
8.2%, a consequence largely of efforts toboost operating efficiency, which reduced
both cost of sales and SG&A expenses, andto a decrease in loss-making orders thanks
to an improved order environment.
Medical Services
The medical services segment encompasses
home medical services, which center onhome nursing and pharmaceutical dispensing services, as well as the operation ofresidences for seniors, electronic medical
report systems, sales of medical equipment,
personal care services, and support forthe management of hospitals and healthcare-related institutions. The segment also
includes the operations of variable interest

entities of which the Company is the primary beneficiary, which manage hospitals
and health care-related institutions.
Segment net sales and operating
revenue rose 3.6%, or ¥5.4 billion, to¥156.0 billion. The principal factors behind
this result were an increase in contributions
from operations of the aforementioned
variable interest entities arising from the
expansion and modification of hospitals,
and a robust performance in the pharmaceuticals dispensing services business.
Operating income fell 43.8%, or ¥1.2
billion, to ¥1.5 billion, while the operating
margin slipped to 1.0%, from 1.8%, owing
mainly to the aforementioned expansion
and refurbishment of hospitals and to
the recognition of impairment losses on
goodwill of certain variable interest entities.
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 forhomes—both of which offer discounts onpremiums to customers who have installed
on-line security systems, recognizing
this as a risk-mitigating factor—and
SECOM Anshin My Car, a comprehensive
automobile insurance policy that offers
onsite support services provided by SECOM
emergency response personnel should thepolicyholders be involved in an accident.
Other offerings include MEDCOM, anunrestricted cancer treatment policy thatcovers the entire cost of medical treatment
for cancer.
Net sales and operating revenue in thissegment increased 3.9%, or ¥1.5 billion,to ¥41.5 billion, despite a decline in net
realized investment gains, spurred by anincrease in insurance premiums due toexpanded sales of fire insurance policies
and the MEDCOM unrestricted cancer
treatment policy. Operating income climbed
300.7%, or ¥6.0 billion, to ¥8.0 billion,
and the operating margin improved to
19.4%, from 5.0% in the previous fiscal
year, thanks to a decline 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-based ground 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 to government agencies

overseas, including in emerging economies
and developing countries.
Segment net sales and operating
revenue declined 3.3%, or ¥1.8 billion, to¥52.9 billion, reflecting declines in net sales
and operating revenue from services forthe public sector in Japan and for overseas
customers. Operating income fell 34.4%,
or ¥1.3 billion, to ¥2.4 billion, as the cost
ratio increased. The operating margin was
4.6%, compared with 6.8% in the previous
fiscal year.
Information and Communication
Related Services
Information and communication related
services focus on data center services,

Real Estate and Other Services
The real estate and other services segment
encompasses the development and sales ofcondominiums equipped with sophisticatedsecurity and disaster-preparedness features,
as well as real estate leasing, construction
and installation and other services.
Segment net sales and operating
revenue increased 13.2%, or ¥5.3 billion,to ¥44.9 billion, despite falling sales of condominiums, thanks to the inclusion of a fullyear of results for a construction and installation subsidiary consolidated in the fourth
quarter of the preceding period. Owing
to an increase in operating income in theconstruction and installation business, segment operating income advanced 8.6%, or¥402 million, to ¥5.1 billion, although theoperating margin edged down to 11.3%,
from 11.8% in the previous fiscal year.

as of March 31, 2015, compared with 2.0
times at the previous fiscal year-end.
Investments and long-term receivablesrose ¥32.9 billion, to ¥357.6 billion, equivalent to 23.4% of total assets. Investment
securities increased ¥26.1 billion to ¥230.7
billion, a consequence primarily of thepurchase of bonds in the insurance services
and other businesses, an upturn in the fairvalue of investment securities held and anincrease in the fair value of private equity
investments. Investments in affiliatedcompanies, at ¥56.2 billion, were up ¥6.4
billion, underpinned by expanded earnings
at overseas affiliated companies and thedepreciation of the yen.
Property, plant and equipment, lessaccumulated depreciation, rose ¥2.3 billion,to ¥396.7 billion, or 26.0% of total assets.
The purchase of real estate adjacent to a
hospital operated as part of the medical
services segment and of a site for a firepro­tection services segment production
facility pushed land up ¥4.8 billion, to¥118.0 billion. Security equipment andcontrol stations advanced ¥10.5 billion, to¥302.7 billion, owing to an increase in contract v­ olume in the security services business. The completion of work to expand
and modify certain hospitals managed byvariable interest entities led to a decline in­construction in progress and a commensurate increase in buildings and improvements as well as an increase in machinery,equipment and automobiles.
Other assets totaled ¥155.6 billion, up¥12.0 billion, and represented 10.2% of
total assets. Prepaid pension and severance
costs rose ¥13.0 billion, to ¥35.0 billion,
reflecting increases in the fair value ofplan assets.
Total liabilities as of March 31, 2015,
amounted to ¥586.7 billion, an increaseof ¥6.3 billion, and accounted for 38.5%

as well as uniquely SECOM BCP support
services, information security services andcloud-based services.
Net sales and operating revenue in thissegment rose 1.1%, or ¥566 million, to¥53.9 billion. In contrast, operating income
dropped 86.0%, or ¥5.5 billion, to ¥894
million, pushing the operating margin
down to 1.7%, from 11.9% in the previous
fiscal year, owing to the recognition of
impairment losses on certain businessrelated assets and an increase in operating
costs for data center facilities.

Financial Position
Total assets as of March 31, 2015,
amounted to ¥1,525.9 billion, ¥85.2 billion
higher than at the end of the previous fiscal
year. Total current assets, at ¥616.0 billion,
were up ¥38.0 billion, and accounted
for 40.4% of total assets. Cash and cash
equivalents totaled ¥248.6 billion, an
increase of ¥17.9 billion, owing to the factthat net cash provided by operating activities exceeded net cash used in investing
and financing activities. (For further details,
please see Cash Flows, which follows thissection.) Notes and accounts receivable,
trade, decreased ¥8 million, to ¥128.0 billion. Inventories, at ¥60.6 billion, were up¥8.8 billion, reflecting an increase in workin process in the real estate business andother factors. Short-term investments rose
¥15.0 billion, to ¥25.0 billion, as bonds due
within one year formerly included in investment securities were reclassified to thiscategory. The current ratio was 2.1 times

SECOM CO., LTD.
Shareholders’ Equity per ShareTotal Assets(Year ended March 31, 2015)(In yen)
4,000(In billions of yen)

3,000

1,200

2,000

800

1,000

400

5.0%

4.5%

5.6%
4.1%

16.5%

51.5%

12.8%

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

Fire Protection Services
Insurance Services
Information andCommunication
Related Services

Financial Review

Percentage of Consolidated
Net Sales and Operating Revenue*

1,600

0

0

11 12 13 14 15

11 12 13 14 15* Pie chart shows percentage of consolidated net sales andoperating revenue (excluding intersegment transactions)

SECOM Annual Report 201535

Financial Review

of total liabilities and equity. Total current
liabilities, at ¥286.6 billion, were down
¥8.6 billion, and represented 18.8% of
total liabilities and equity. Bank loans
declined ¥8.6 billion, to ¥43.9 billion, anddeposits received decreased ¥1.5 billion,to ¥20.9 billion, largely because of a temporary shift in the balance of bank loans
and deposits received for cash collection
and deposit services. Notes and accounts
payable, trade, declined ¥5.7 billion, to¥44.3 billion, owing to the settlement ofaccounts related to the purchase of assets
for lease and construction orders in the
security services business, which rose at theprevious fiscal year-end.

Total long-term liabilities increased¥14.9 billion, to ¥300.1 billion, and represented 19.7% of total liabilities and equity.
Deferred income taxes, at ¥28.4 billion,
were up ¥9.3 billion, a consequence mainlyof increases in the fair value of pension
plan assets and investment securities. Longterm debt rose ¥6.0 billion, to ¥53.8 billion,
with contributing factors including thepurchase of assets for lease in the security
services business.
Total SECOM CO., LTD. shareholders’equity advanced ¥72.9 billion, to ¥826.0
billion. Net income attributable to SECOM
CO., LTD., less the payment of cash dividends, resulted in a ¥41.9 billion increase

in retained earnings, to ¥716.5 billion.
Accumulated other comprehensive income
was ¥33.0 billion, up ¥31.2 billion fromthe previous fiscal year, as unrealized gains
on securities rose ¥13.0 billion, to ¥25.6
billion, and foreign currency translation
adjustments yielded income of ¥9.5 billion,
compared with a loss of ¥1.9 billion in theprevious fiscal year. As a result, the equity
ratio was 54.1%, compared with 52.3% asof March 31, 2014.

fiscal year. Contributing factors included
decreases in receivables and due from sub­scribers, net of allowances, owing to thecollection of amount due, and in cash
deposits for cash collection and deposit
services, and an increase in accrued consumption tax arising from a consumption
tax rate hike in the period under review.
Net cash used in investing activities
amounted to ¥69. 3 billion. This result
reflected payments for purchases ofproperty, plant and equipment of ¥56.3
billion—reflecting outlays for security
equipment and control stations attributable
to an increase in the number of security
services subscribers and for the expansion
and modification of hospitals managed byvariable interest entities—and payments forpurchases of investment securities of ¥51.6
billion, including outlays for purchasesof investment securities in the insurance
services business and for private equity
investments in the United States, which
was partially offset by proceeds from sales
and redemption of investment securitiesof ¥38.2 billion. Net cash used in investing
activities was down ¥26.0 billion fromthe previous fiscal year, owing mainly toa decrease in payments for purchases ofinvestment securities.
Net cash used in financing activities
amounted to ¥49.1 billion. In addition todividends paid to SECOM CO., LTD. shareholders of ¥38.2 billion, this included a
decrease in bank loans, net, of ¥8.6 billion.
Net cash used in financing activities was¥27.3 billion higher than in the previous fiscal year. Principal factors behind this result
were a decrease in bank loans for cash
collection and deposit services and the payment of an interim dividend—inaugurated
in the period under review—and a year-end
dividend.
The Company’s operating, investing
and financing activities in the period
under review yielded net cash and cash
equivalents at end of year of ¥248.6 billion,up ¥17.9 billion from net cash and cash
equivalents at beginning of year, whichwere ¥230.8 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 ¥134.9 billion. Significant factors contributing to this result included net incomeof ¥88.5 billion and non-cash items,
notably depreciation and amortization,
including amortization of deferred charges,of ¥68.9 billion, which were partially offset
by an increase in deferred charges of ¥17.2
billion, and an increase in inventories of¥11.1 billion. Deferred charges consisted
primarily of costs related to the installationof equipment as part of on-line security
systems. (For further details, please see
Note 2 (12) of the accompanying Notes toConsolidated Financial Statements.) Net
cash provided by operating activities was¥11.7 billion higher than in the previous

Capital Expenditures

Cash Flows(In billions of yen)

(In billions of yen)

(In billions of yen)

80

80

200

60

60

40

40

Depreciation andAmortization

150
100
50
0
20

–50

20

–100
0

11 12 13 14 150

11 12 13 14 15

–150

13

14

15

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

36

SECOM Annual Report 2015