A MESSAGE TOSHAREHOLDERS

Makoto Iida
Founder

Consolidated Operating Results
Despite rising crude oil prices and other causes
for concern, the Japanese economy appeared on
track for recovery, as a rise in corporate profitsand capital investment was accompanied by arally in consumer spending.
In the year ended March 31, 2005, SECOM
continued to forge ahead with measures aimed attaking the Social System Industry to the next level.
These measures included stepping up efforts in
our various businesses to offer services and products that respond to evolving customer needs, aswell as to expand sales channels. We also sought
to combine products and services into comprehensive packages that meet the demands of ourcustomers. Solid results in all business segments,including our core security services segment, contributed to consolidated net sales and operating
revenue of ¥552.4 billion, up 6.7% from the previous fiscal year. Steady sales gains and the absenceof a loss resulting from a revision of pension plansin the previous period supported a 39.8% increasein operating income, to ¥75.6 billion. Net income
increased 122.0%, to ¥52.1 billion. Net income
per share was ¥231.66.
Calculated using Japanese GAAP, we recorded
consolidated revenue of ¥547.2 billion, an increaseof 3.8%; operating profit and ordinary profit of¥83.0 billion and ¥83.5 billion, respectively—bothrecord highs; and net income of ¥48.5 billion, up
18.0%. Net income per share was ¥214.41. In
light of this performance, cash dividends per shareof ¥50.00 were proposed and approved at thegeneral shareholders’ meeting held on June 29,2005, up ¥5.00 from the previous period.
Management Changes
At a meeting of the Board of Directors onNovember 25, 2004, several changes to thepositions and responsibilities of directors wereapproved. As a consequence, effective April 1,2005, Kanemasa Haraguchi replaced Shohei
Kimura as President and Representative Directorand Mr. Kimura assumed the position of Chairman.

2 SECOM CO., LTD.

ANNUAL REPORT 2005

The Current Business Environment
In recent years, we have witnessed significant qualitative changes in the operating environment in ourcore security services business in Japan. Basically,
people’s perceptions of security are beginning tochange. In the past, customers sought security
services “just in case.” Today, however, many customers accept there is a significantly high chancethey will at some point face an emergency situation.
Public security has deteriorated, as shown by theincreasing frequency of brutal muggings and childabductions. We are also seeing a rise in the number of incidents involving personal information
leaks, further highlighting the increasingly diverse
needs of customers for security and peace of mind.
These changes are transforming the commercial
and home security service markets.
In the market for commercial security services,
contract cancellations and pressure to discount—owing to the integration of financial institutions
and other outlets—has run its course, and theeconomic recovery in Japan has prompted a turnaround in capital investment by businesses. In thisenvironment, customers today need protection for
more than just cash and other tangible assets.
Crimes involving the theft of information are on therise and businesses must be vigilant both night andday to ensure information assets are protected. The
Law Concerning Protection of Personal Information(“Personal Information Protection Law”), whichcame into effect on April 1, 2005, has triggered
an increase in the need for companies to havesuperior-quality security systems.
The market for home security services
is expanding to encompass a wide range ofcustomers, including ordinary families, elderly
couples, young condominium residents andindividuals of all ages living alone. We are alsoseeing growth in demand for security not only
when homes are empty but also when the occupants are present. The market has thus recently
expanded from services designed simply to protect
homes from break-ins when the occupants areabsent toward those that also protect occupants athome against intruders. Paralleling this shift,demand is expanding rapidly for comprehensive
solutions that combine, for example, on-line home
security with image monitoring cameras, highimpact breakage-resistant window glass and otherproducts and services designed to prevent crimes.
Against this background of change, we are facing intensified competition from companies in thesecurity services industry, as well as from newmarket entrants from other industries. The natureof the security services industry makes it difficult
to achieve viability in the short term. This has long
been a barrier to new market entrants to both thecommercial and home security services markets.
It is difficult for commercial security services firms
to enter the home security services market, owing
to the more meticulous service requirements of thelatter and the need for new investment to accommodate a different service area. Home security
services specialists face an equally difficult situation, as the modest size of residential contracts
and a lack of experience in commercial security
services—effectively precluding participation inthis market—continue to hinder sales growth andprofitability. The home security services market
has expanded, however, leading to the emergenceof generic home security systems at lower prices,which have often been realized by reducing thenumber of sensors installed at customers’ homes.
Responding to Change and Enhancing Growthand Efficiency
SECOM believes it is impossible to compromise on
quality when it comes to security. Our commitment to quality has earned us the support of customers and enabled us to achieve steady growth.
In addition to the aforementioned changes in thebusiness environment, the purchasing inclinationsof today’s consumers have reaffirmed our conviction that customers today demand quality products
and services that deliver value.
We are endeavoring to take advantage of theopportunities afforded by changes in the security
services market by emphasizing two key priorities
that will underpin strategies going forward: growthand efficiency.

In promoting growth, we will seek to further
enhance the quality of our security services,
thereby strengthening our competitive edge.
Our ability to offer distinctive, high-quality
services reflects our accumulated expertise andmanagement resources in the security services
business. SECOM boasts outstanding people,
systems and communication networks—key
management assets unmatched in the industry.
These include our well-trained employees,
in-house research and development (R&D) andmanufacturing departments that enable us todevelop and offer products and services that
respond promptly to customers’ needs, and our
information infrastructure comprising both stationary (using telecommunications circuits) and mobile(COCO-SECOM) services. Moreover, having a
non-life insurance company in the SECOM Group
enables us to offer seamless services encompassing security systems, which offer prior protection,and insurance, which protects customers in theevent of misfortune—something only SECOM cando. These capabilities are enabling us to develop
an ever-expanding range of services.
Of course, we recognize growth depends on
being able to grasp and respond promptly to theneeds of customers. In the area of commercial
security services, for example, we are steppingup efforts to assist existing customers to respondto changes in security requirements arising fromJapan’s new Personal Information Protection Law
and at the same time identify latent demand. In
the home security services market, we are responding to our increasingly diverse customers, each ofwhom has different security needs, by offering
carefully tailored systems. We are also accommodating demand for more rigorous home security
systems by rolling out new residential security
products and offering solutions that combine
such products with on-line security systems.
We also believe growth must be accompaniedby corresponding improvements in efficiency. To
this end, we will strive to break down tired conventions by implementing key reforms designed tooverhaul outdated practices and eliminating

SECOM CO., LTD.

Shohei Kimura
ChairmanKanemasa Haraguchi
President andRepresentative Director

ANNUAL REPORT 2005 3

A MESSAGE TOSHAREHOLDERS

structural redundancies. For example, we will strive
to enhance the efficiency of sales by making more
effective use of the vast wealth of data available tous. Greater efficiency will in turn free up funds forstrategic investments aimed at enhancing andaccelerating growth.
Attracting new customers in overseas markets
will be another key to expanding our operations.
Other Asian markets, notably the PRC, are of particular importance. We have operated in the PRC
for more than a decade now, primarily providing
security services for foreign-owned firms, including subsidiaries of other Asian companies thatare SECOM customers and seek a similar levelof security as they enjoy outside of the PRC.
Enhancing our operations in the PRC will also
depend on expanding commercial security
services for local firms.
Toward a Society Free of Apprehension
By implementing strategies based on our twinpriorities of growth and efficiency, we will reinforce
our already significant competitive advantage inthe security services business. We will also pursue
strategic mergers and acquisitions to enhance ourcapabilities not only in our core businesses but

Makoto Iida
Founder

4 SECOM CO., LTD.

ANNUAL REPORT 2005

also in other areas, thereby cultivating a lineup ofservices that contribute to security and peace ofmind in the home and the workplace.
As part of our mission to realize our Social
System Industry vision and contribute to a world inwhich people can enjoy security, convenience andpeace of mind, we have entered various businessareas, including security, medical, insurance,information and GIS services. Our expansion has
been fueled not only by a desire to exploit potential synergies but also by the need to combine
these various businesses into a single, coherent
service framework. To this end, management
strives to ensure SECOM employees share acommon understanding and dedication.
By accelerating our growth strategies, we willseek to reinforce the trust of our customers andrespond to their evolving needs. Moreover, by
shedding old practices to enhance efficiency wewill put SECOM on a new course for the future andensure it remains a company to which people turnfor solutions to security and related problems. We
look forward to your continued support in theseendeavors.
August 31, 2005

Shohei Kimura
ChairmanKanemasa Haraguchi
President and Representative Director