Financial Information and References

Financial Review

Operating Results
Overview
In the fiscal year ended March 31, 2023, SECOM CO., LTD. and its
consolidated subsidiaries (collectively, “the Company”) sought toprovide high-quality services and products that respond to thediverse needs of customers in its core security services
segment, as well as in its fire protection services, medical
services, insurance services, geospatial information services,
BPO and ICT services, and other services segments.
Consolidated net sales and operating revenue for the period
under review amounted to ¥1,227.3 billion, up 5.2%, or ¥61.2
billion, from the previous fiscal year, owing to contributions from
Senon, which became a consolidated subsidiary in July 2022,
and to increases in all segments except fire protection services.
Operating income declined 6.9%, or ¥10.9 billion, to ¥145.6
billion, owing to the fact that the security services and fire
protection services segments benefited from comparatively
profitable projects in the preceding period, as well as toinvestments in growth, primarily in the security services
segment, an increase in losses due to natural disasters in
the insurance services segment and an elevated fuel costadjustment unit price in the BPO and ICT services segment.
Net income attributable to SECOM CO., LTD., rose 3.6%, or ¥3.8
billion, to ¥111.6 billion, reflecting factors such as increases ingain on private equity investments and equity in net income ofaffiliated companies.

Net Sales and Operating Revenue
Consolidated net sales and operating revenue in the period
under review amounted to ¥1,227.3 billion, up 5.2%, or ¥61.2
billion, owing to contributions from Senon, which became aconsolidated subsidiary in July 2022, and to increases in all
segments except fire protection services. (For further
information, please see Segment Information below.)

Costs and Expenses
Total costs and expenses advanced 7.1%, or ¥72.1 billion, to¥1,081.8 billion. Cost of sales, at ¥861.8 billion, rose 7.4%, or¥59.4 billion. This accounted for 70.2% of net sales andoperating revenue, up from 68.8%, boosted by higher cost of
sales ratios in the insurance services and the BPO and ICT
services segments, attributable to, respectively, increased
losses due to natural disasters and rising electric power
charges due to an elevated fuel cost adjustment unit price.
Selling, general and administrative (SG&A) expenses, rose 5.8%,
or ¥11.8 billion, to ¥216.0 billion, and represented 17.6% of net
sales and operating revenue, up from 17.5%. Impairment loss on
long-lived assets climbed ¥2.5 billion, to ¥2.6 billion, owing to,among others, the recognition of impairment losses on groundsystems related to the failure to launch of an advanced opticalsatellite in the geospatial information services segment.
However, because losses related to the satellite’s failure tolaunch are covered by insurance, a related insurance payout
will be reported in the fiscal year ending March 31, 2024.
Impairment loss on goodwill increased ¥1.2 billion, to

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SECOM REPORT 2023

¥1.5 billion. The Company also posted a ¥173 million gainon sales and disposal of fixed assets, net, compared witha ¥2.7 billion loss in the preceding period.

Operating Income
Operating income declined 6.9%, or ¥10.9 billion, to ¥145.6
billion, owing mainly to decreases in the security services, fire
protection services, medical services, insurance services, andBPO and ICT services segments. The operating margin fell to
11.9%, down from 13.4%. (For further information, please see
Segment Information below.)

Other Income and Expenses
Other income rose ¥10.4 billion, to ¥20.0 billion. In contrast,
other expenses decreased ¥1.8 billion, to ¥2.6 billion. Net otherincome thus amounted to ¥17.4 billion, advancing ¥12.2 billion.
This was due largely to an ¥11.8 billion gain on private equity
investments, up ¥8.7 billion.

Income Taxes
Income taxes amounted to ¥49.5 billion, an increase of¥292 million. This was equivalent to 30.3% of income fromcontinuing operations before income taxes and equity in net
income of affiliated companies, compared with 30.4% in thepreceding period.

Equity in Net Income of Affiliated Companies
Equity in net income of affiliated companies rose ¥1.5 billion, to¥8.2 billion. This primarily reflected higher equity in net incomeof such companies overseas.

Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests slipped¥1.3 billion, to ¥10.1 billion, hindered mainly by decreases
in operating income in the fire protection services and the
BPO and ICT services segments, as well as to the fact that
Secom Joshinetsu became a wholly owned subsidiary in thepreceding period.

Net Income Attributable to SECOM CO., LTD.
Net income attributable to SECOM CO., LTD., advanced 3.6%,
or ¥3.8 billion, to ¥111.6 billion, equivalent to 9.1% of net sales
and operating revenue, edging down from 9.2%. Net income
attributable to SECOM CO., LTD., per share was ¥516.68, up from¥492.83. The figure of ¥180.00 for cash dividends per share thatappears in the consolidated financial statements represents
cash dividends approved and paid to shareholders during theperiod under review, namely, a ¥90.00 per share year-end
dividend for the fiscal year ended March 31, 2022, approved at
the Ordinary General Meeting of Shareholders held on June 28,2022, and a ¥90.00 per share interim dividend determined by
the Board of Directors and paid to shareholders of record as of
September 30, 2022. The year-end cash dividend for the fiscal
year ended March 31, 2023, approved at the Ordinary General
Meeting of Shareholders held on June 27, 2023, was ¥95.00
per share.

Segment Information
Security Services
Security services include electronic security services, whichcenter on on-line security systems, other security services, andmerchandise and other. In the fiscal year ended March 31, 2023,
net sales and operating revenue in this segment rose 5.9%, or¥33.6 billion, from the previous fiscal year, to ¥600.3 billion.
Excluding intersegment transactions, segment net sales andoperating revenue totaled ¥597.1 billion, representing 48.6% of
overall net sales and operating revenue, up from 48.3%.
Electronic security services generated net sales andoperating revenue of ¥357.0 billion, up 2.4%, or ¥8.2 billion. This
primarily reflected an increase in sales by overseas Group
companies and the impact of currency exchange rates on thesesales, contributions from newly consolidated subsidiary Senon
and firm sales of on-line commercial and home security
systems in Japan. Other security services include static guard
and armored car services. Sales and operating revenue fromstatic guard services, which are provided by highly trained
professional security guards for systems requiring humanjudgment and flexible responsiveness, rose 18.2%, or ¥13.7
billion, to ¥89.2 billion. This was despite a negative reboundafter the Company’s provision of security services forcompetition venues and other facilities for the Olympic andParalympic Games Tokyo 2020, held in the preceding period, andwas thanks to the inclusion of the results of Senon, among
others. Net sales and operating revenue from armored car
services, which involve the transport of cash, securities andother valuables using specially fitted armored cars and security
professionals, edged up 0.7%, or ¥453 million, to ¥62.9 billion.
Merchandise and other, which includes security camera
systems, access control systems, automated fire extinguishingsystems and external monitoring systems that can be
freestanding or linked to on-line security systems, generated
net sales and operating revenue of ¥88.0 billion, an increase of
14.3%, or ¥11.0 billion, underpinned by robust sales-type leasesof large-scale security systems in Japan and rising sales ofsuch systems overseas.
Operating income in the security services segment declined
3.5%, or ¥4.0 billion, to ¥109.4 billion. The operating margin
slipped to 18.2%, from 20.0%. Principal factors behind theseresults included comparatively profitable projects in thepreceding period; higher SG&A expenses, attributable toinvestments in growth; and a ¥1.0 billion increase in impairment
loss on goodwill, to ¥1.1 billion.

Fire Protection Services
The fire protection services segment focuses on high-grade,tailored automatic fire alarm systems, fire extinguishingsystems and other fire protection systems for a wide range ofapplications, including office buildings, production facilities,
tunnels, cultural properties, ships and homes. In the period
under review, the segment’s core companies, Nohmi Bosai andNittan, leaders in Japan’s fire protection services market, sought
to leverage their respective operating foundations, productdevelopment capabilities and other strengths to secure orders.

Segment net sales and operating revenue was ¥148.8 billion,a decline of 2.2%, or ¥3.3 billion, primarily reflecting theabsence of major projects that benefited the segment in thepreceding period. Owing to the concentration of comparatively
profitable projects in the preceding period, among others,
segment operating income declined 20.4%, or ¥3.0 billion, to¥11.6 billion, while the operating margin was 7.8%, downfrom 9.5%.

Medical Services
Medical services include the provision of home nursing services,
pharmaceutical dispensing services, support for affiliatedmedical institutions in Japan, sales of medical equipment, theoperation of a general hospital in India, the operation ofresidences for seniors and other personal care services, healthand preventative care services, and ICT-based medical services,notably electronic medical report systems. The operations ofvariable interest entities (VIEs) of which the Company is theprimary beneficiary, which manage hospitals and healthcare–related institutions, are also accounted for in this segment.
Net sales and operating revenue in this segment edged up
0.2%, or ¥423 million, to ¥196.5 billion. This was despite
deteriorating revenue at affiliated hospitals in Japan and lower
sales in the pharmaceutical dispensing services business, thelatter due to the revision of drug reimbursement prices under
the country’s National Health Insurance system, and reflected,
among others, an increase in patient numbers at the Company’s
general hospital in India. Owing to factors such as declining
profits at domestic affiliated hospitals, operating income fell
23.0%, or ¥3.1 billion, to ¥10.5 billion. The operating margin was
5.3%, down from 7.0%.

Insurance Services
The insurance services segment continued to expand sales ofan extensive lineup of distinctive non-life insurance policies,
including 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 extend discounts
on premiums to customers who have installed on-line security
systems, recognizing this as a risk-mitigating factor), the
MEDCOM unrestricted cancer treatment policy, which covers theentire cost of medical treatment for cancer, and SECOM Anshin
My Car, a comprehensive automobile insurance policy thatoffers on-site support services provided by SECOM emergency
response personnel should the policyholders be involved inan accident.
Segment net sales and operating revenue rose 12.7%, or¥7.0 billion, to ¥61.9 billion, owing to firm sales of MEDCOM, aswell as to net realized investment gains (including gains onother-than-temporary impairments of investment securities) of¥5.0 billion, compared with net realized investment losses of¥1.2 billion in the previous fiscal year. Operating income, at ¥7.1
billion, was down 17.0%, or ¥1.5 billion, owing to an increase inlosses due to natural disasters, although this was partially
offset by the aforementioned net realized investment gains.

SECOM REPORT 2023

67

Geospatial Information Services
Geospatial information services center on the collection ofgeographic data using commercial satellites, aircraft andsurveying with proprietary vehicles, among others, which is
integrated, processed and analyzed to provide geospatial
information services to public-sector entities—including
national and local governments—and customers in the private
sector in Japan. These services are also offered to government
agencies overseas.
Net sales and operating revenue in this segment advanced
10.2%, or ¥5.7 billion, to ¥62.3 billion, primarily reflecting higher
revenue from domestic public sector entities and overseas
customers. Despite an increase in impairment loss on long-lived
assets, operating income climbed 49.9%, or ¥1.9 billion, to ¥5.8
billion, thanks to an improvement in the cost of sales ratio forservices provided to domestic public-sector entities. The
operating margin rose to 9.3%, from 6.8%.

BPO and ICT Services
BPO and ICT services, which focus on the provision of data
center services, also encompass distinctively SECOM BCP
support, information security and cloud-based services, andBPO services, which include the operation of contact centers.
Segment net sales and operating revenue rose 11.3%, or¥14.1 billion, to ¥138.9 billion, as revenue advanced in the BPO
services business—underpinned by the expansion of services
related to COVID-19, the cultivation of new customers andexpanded orders from existing customers—and in the data
center services business. Operating income declined 10.0%, or¥1.5 billion, to ¥13.1 billion, notwithstanding the positive impactof higher net sales and operating revenue, as an elevated fuelcost adjustment unit price pushed up costs in data center
services. The operating margin declined to 9.4%, from 11.7%.

Other services
The other services segment provides real estate leasing, as wellas construction and installation services. The vehicle fleet
operation services business of Senon, which became aconsolidated subsidiary in July 2022, is also accounted for inthis segment. Net sales and operating revenue in this segmentrose 16.1%, or ¥5.7 billion, to ¥41.1 billion, with contributing

factors including the consolidation of Senon. Operating income
advanced 22.9%, or ¥1.4 billion, to ¥7.5 billion, while theoperating margin was 18.3%, up from ¥17.3%.

Financial Position
Total assets as of March 31, 2023, amounted to ¥2,277.4 billion,
an increase of ¥93.9 billion from the end of the previous fiscal
year. Total current assets rose ¥9.8 billion, to ¥1,036.5 billion,
and accounted for 45.5% of total assets. The current ratio was
2.4 times, level with the end of the previous fiscal year.
Cash and cash equivalents, the principal component of
current assets, was ¥524.8 billion, down ¥6.8 billion. (For further
information, please see Cash Flows, which follows this section.)
Notes and accounts receivable, trade, increased ¥7.5 billion, to¥172.9 billion, a result of such factors as higher net sales andoperating revenue in the geospatial information services
segment. Notes and accounts receivable, trade, are affected by
the fact that net sales and operating revenue in the fire
protection services and geospatial information services
segments tends to be concentrated toward the end of the fiscal
year. Cash deposits for armored car services declined ¥1.0
billion, to ¥135.5 billion. These cash deposits are funded largely
through bank overdrafts and deposits and their use by theCompany is restricted. Inventories, at ¥46.8 billion, were up ¥8.6
billion, owing primarily to steps taken to expand inventories ofcomponents for fire protection services–related products tocircumvent procurement difficulties.
Investments and long-term receivables, at ¥383.7 billion,
advanced ¥34.2 billion, and represented 16.8% of total assets.
This was due mainly to investment securities of ¥235.0 billion,
an increase of ¥20.0 billion, bolstered by a gain on private equity
investments, and to investments in affiliated companies of ¥79.6
billion, up ¥8.0 billion, thanks to strong performances byoverseas affiliated companies combined with yen depreciation.
Property, plant and equipment, less accumulated
depreciation, rose ¥11.2 billion, to ¥436.0 billion, accounting for19.1% of total assets. This largely reflected a ¥10.8 billion
increase in construction in progress, to ¥20.6 billion,
underpinned by investments in the construction of new data
centers.

Cash Flows
The Company is committed to maintaining sufficient liquidity toallow flexibility in its operations and ensure a solid financial
foundation. To the best of its ability, the Company is also firmly
committed to financing strategic investments with cash
generated by its operating activities.
In the fiscal year ended March 31, 2023, net cash provided
by operating activities amounted to ¥156.2 billion. Principal
components of this included net income of ¥121.7 billion, anddepreciation and amortization, including amortization ofdeferred charges, of ¥78.7 billion. Key negative adjustments

included a gain on private equity investments of ¥11.8 billion,
equity in net income of affiliated companies of ¥8.2 billion,
an increase in inventories of ¥9.0 billion and an increase indeferred charges of ¥8.0 billion. Net cash provided byoperating activities was down ¥29.1 billion from the fiscal year
ended March 31, 2022, with major causes including a decline
in operating income and a ¥4.0 billion decrease in accrued
income taxes, compared with a ¥4.0 billion increase in thepreceding period.
Net cash used in investing activities was ¥77.3 billion. The
main applications of cash included payments for purchases ofproperty, plant and equipment of ¥52.8 billion, used primarily
for purchases of equipment necessitated by expanded
subscriptions for security services; and acquisitions, net ofcash acquired, of ¥18.9 billion, a consequence primarily of theacquisition of Senon. With the principal contributing factor being
the aforementioned ¥18.9 billion applied to acquisitions, net ofcash acquired, net cash used in investing activities was up¥17.0 billion from the previous fiscal year, when there were no
acquisitions. Investments in the insurance services segment
and private equity investments in the United States yielded net
proceeds from sales and redemptions of investment securitiesof ¥1.9 billion, up from ¥1.6 billion.
Net cash used in financing activities amounted to ¥87.2
billion. This was due mainly to dividends paid to SECOM CO., LTD.
shareholders of ¥39.1 billion, an increase in treasury stock, net,of ¥29.8 billion attributable to the purchase of treasury stock on
the open market, and repayments of long-term debt of ¥16.7
billion. Net cash used in financing activities was down ¥10.1
billion from the previous fiscal year, despite the increase intreasury stock, net, largely reflecting the absence of ¥28.6
billion in payments for acquisition of shares of consolidated
subsidiaries from noncontrolling interest holders in thepreceding period, mainly in relation to the acquisition of theownership interests of Secom Joshinetsu via a tender offer.
Owing to the Company’s operating, investing and financing
activities in the period under review, cash and cash equivalents
at end of year amounted to ¥524.8 billion, down ¥6.8 billion fromcash and cash equivalents at beginning of year of ¥531.6 billion.

Percentage of Consolidated
Net Sales and Operating Revenue*

SECOM CO., LTD.
Shareholders’ Equity per ShareTotal Assets

Depreciation and Amortization

Purchases of Property, Plant andEquipment and Intangible Assets

Cash Flows(Year ended March 31, 2023)(In yen)(In billions of yen)

(In billions of yen)

(In billions of yen)

(In billions of yen)

10.4%

3.2%
2,500

6,000

5.1%
4.8%

5,000
16.0%

75

60

200

Fire Protection Services
Insurance Services
BPO and ICT Services*Pie chart shows percentage of consolidated net
sales and operating revenue (excludingintersegment transactions)

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

150
100

1,500
3,000

SECOM REPORT 2023

80

4,000

11.9%

Security Services
Medical Services
Geospatial Information
Services
Other Services

100

2,000

48.6%

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Other assets climbed ¥38.7 billion, to ¥421.1 billion,
equivalent to 18.5% of total assets, a consequence primarily of
the acquisition of Senon, which boosted goodwill ¥32.0 billion,to ¥141.6 billion, and other intangible assets ¥7.1 billion, to¥65.7 billion.
Total liabilities as of March 31, 2023, amounted to ¥841.9
billion, up ¥3.4 billion, and represented 37.0% of total liabilities
and equity. Total current liabilities rose ¥14.9 billion, to ¥434.1
billion, accounting for 19.1% of total liabilities and equity. Thiswas due mainly to an increase in other current liabilities of¥13.9 billion, to ¥44.5 billion, reflecting higher payables for thepurchase of equipment for the construction of new data centers.
Total long-term liabilities declined ¥11.6 billion, to ¥407.8 billion,
equivalent to 17.9% of total liabilities and equity.
Total SECOM CO., LTD. shareholders’ equity advanced ¥57.7
billion, to ¥1,267.2 billion, lifting the equity ratio to 55.6%, from
55.4% a year earlier. Retained earnings rose ¥72.4 billion, to¥1,212.3 billion, with contributing factors including net income
attributable to SECOM CO., LTD., and the payment of dividends.
As a result of yen depreciation, foreign currency translation
adjustments climbed ¥16.1 billion, to ¥19.0 billion, boosting
accumulated other comprehensive income by ¥14.9 billion, to¥23.6 billion. Common stock in treasury, at cost, was ¥109.2
billion, an increase of ¥29.8 billion, owing to the purchase oftreasury stock on the open market. Noncontrolling interests, at¥168.3 billion, were up ¥32.9 billion, equivalent to 7.4% of total
liabilities and equity, a consequence primarily of the acquisitionof Senon.

50

40

25

20

50

1,000
0

2,000
500

1,000

-50

0

0
2019 2020 2021 2022 2023

-100

0

0
2019 2020 2021 2022 2023

2019 2020 2021 2022 2023

2019 2020 2021 2022 2023

2021

2022

2023

SECOM REPORT 2023

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