Financial Review
Operating Results
Overview
In the fiscal year ended March 31, 2018,
SECOM CO., LTD. and its subsidiaries (collectively, “the Company”) sought to provide highquality products and services that respond to
the needs of customers in its core security services segment, as well as in its fire protection
services, medical services, insurance services,
geographic information services, BPO and ICT
services, and real estate and other services
segments.
Bolstered by a solid performance in the
security services and fire protection services
segments and the addition of results for new
subsidiary TMJ, consolidated on October 2,
2017, consolidated net sales and operating
revenue in the period under review rose 5.0%,
or ¥51.5 billion, to ¥1,082.8 billion. Operating
income increased 9.7%, or ¥12.7 billion, to¥142.8 billion, bolstered by higher net sales
and operating revenue in six segments,
including security services. Despite a decline
in gain on private equity investments, theincrease in operating income pushed net
income attributable to SECOM CO., LTD., up
5.7%, or ¥5.2 billion, to ¥96.6 billion.
Net Sales and Operating Revenue
Consolidated net sales and operating revenue
were up 5.0%, or ¥51.5 billion, to ¥1,082.8
billion. The BPO and ICT services, security
services, fire protection services, medical
services and insurance services segments
reported increases while the geographic
information services and real estate andother services segments reported decreases.
(For further details, please see Segment
Information below.)
Cost and Expenses
Total costs and expenses, at ¥940.0 billion,rose 4.3%, or ¥38.9 billion. Cost of sales
advanced 5.7%, or ¥40.5 billion, to ¥750.4 billion, and was equivalent to 69.3% of net sales
and operating revenue, up from 68.8% in thepreceding fiscal year. Principal factors behind
this result were the acquisition of a newly
consolidated subsidiary with a comparatively
high cost of sales ratio and an increase in thecost of sales ratio in the insurance services
segment as a consequence of typhoons.
Selling, general and administrative (SG&A)
expenses were up 3.1%, or ¥5.7 billion, to¥190.2 billion, improving to 17.6% of net sales
and operating revenue, from 17.9% in theprevious period.

Impairment loss on long-lived assets
amounted to ¥841 million, down from the¥2.7 billion in the preceding fiscal year when
the company recognized losses on certain
assets in the geographic information services
segment. The Company also recognized an
impairment loss on goodwill of ¥11 million in
the medical services segment, while in theprevious period it recognized an impairment
loss on goodwill of ¥1.2 billion in the security
services segment. Additionally, the Company
reported a gain on sales and disposal of fixed
assets, net, of ¥1.5 billion, reflecting increased
income from real estate sales, compared witha net loss of ¥2.8 billion in the preceding
fiscal year.
Operating Income
Operating income rose 9.7%, or ¥12.7 billion,to ¥142.8 billion, equivalent to 13.2% of net
sales and operating revenue, up from 12.6% in
the previous period. Principal factors behind
this result included the increase in net sales
and operating revenue, together with a gainon sales and disposal of fixed assets, net,compared with a loss in the preceding fiscal
year, a decline in impairment loss on longlived assets and impairment loss on goodwill.
Segments, in order of contribution to operating income, were security services, fire protection services, BPO and ICT services, real estateand other services, insurance services, medical
services and geographic information services.
(For further details, please see Segment
Information below.)
Other Income and Expenses
Other income decreased ¥7.4 billion, to ¥10.7
billion, owing primarily to a ¥8.0 billion
decline in gain on private equity investments,
to ¥5.9 billion, while other expenses were
down ¥315 million, to ¥2.8 billion, reflecting adecline in net exchange losses, to ¥213 million, from ¥454 million in the preceding fiscal
year. The result was net other income of ¥8.0
billion, a decrease of ¥7.1 billion.
Income from Continuing Operations
before Income Taxes and Equity in
Net Income of Affiliated Companies
Despite a decline in net other income, income
from continuing operations before income
taxes and equity in net income of affiliatedcompanies rose 3.8%, or ¥5.6 billion, to ¥150.8
billion, bolstered by higher operating income.

Income Taxes
Income taxes totaled ¥48.1 billion, an increaseof ¥1.1 billion. This was equivalent to 31.9% ofincome from continuing operations before
income taxes and equity in net income ofaffiliated companies, compared with 32.4% in
the previous period, owing to the inclusion ofoverseas income tax-related income.
Equity in Net Income of
Affiliated Companies
Equity in net income of affiliated companies,
at ¥7.2 billion, was up ¥2.0 billion. This result
was due largely to the fact that equity in
net income of certain affiliated companies
overseas was down in the preceding
fiscal year.
Net Income Attributable to
Noncontrolling Interests
Net income attributable to noncontrollinginterests amounted to ¥13.2 billion, up ¥1.2
billion from the previous period. Principal
factors behind this result were a decline ingain on private equity investments and anincrease in operating income in the fire
protection services segment.
Net Income Attributable to
SECOM CO., LTD.
Net income attributable to SECOM CO., LTD.,advanced 5.7%, or ¥5.2 billion, to ¥96.6 billion,
equivalent to 8.9% of net sales and operating
revenue, level with the previous period. Net
income attributable to SECOM CO., LTD. pershare was ¥442.70, up from ¥418.71.
At the Ordinary General Meeting of
Shareholders held on June 26, 2018, a proposal to pay a year-end dividend of ¥80.00
was approved. As a consequence, cash dividends for the period—which also included aninterim dividend of ¥75.00 approved at theBoard of Directors’ meeting held on
November 9, 2017—amounted to ¥155.00 per
share, an increase of ¥10.00. However,
because both the ¥75.00 per share year-end
dividend for the year ended March 31, 2017,
approved at the Ordinary General Meeting of
Shareholders held on June 27, 2017, and the¥75.00 per share interim dividend for the preceding fiscal year, determined by the Board of
Directors and paid to shareholders of record
as of September 30, 2017, were paid during
the period, cash dividends paid to shareholders in the period under review—the figurethat appears in the financial statements—
amounted to ¥150.00 per share.

SECOM Annual Report 201845

Financial Review

Segment Information(For further details, please see note 26 of the Notes to the Consolidated Financial Statements.)

Security Services
The security services segment comprises
electronic security services, which center on
on-line security systems; other security services; and merchandise and other. In the
period under review, net sales and operating
revenue in this segment advanced 3.5%, or¥18.9 billion, to ¥565.4 billion. Excluding intersegment transactions, net sales and operating
revenue in this segment amounted to ¥562.3
billion, representing 51.9% of overall net sales
and operating revenue, compared with 52.7%
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 surveillanceservices for the subscriber’s premises. On-line
commercial and home security systems use
sensors, controllers and other equipment
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 to facilitate around-the-clock
remote monitoring. Should an irregularity be
detected, relevant information is relayed tothe control center, where staff dispatch
emergency response personnel to takeappropriate measures. Control center staff
also notify the police, fire department or otherauthorities, if necessary.
The Company employs a rental format,
whereby it maintains ownership of security
equipment and provides it to subscribers ona rental basis. This minimizes initial costs forsubscribers and guarantees the quality andstability of its services. The initial contract
period for security services is five years, with
contracts renewed automatically each subsequent year. Depreciation for security equipment is computed using the straight-line
method principally over five years.
The Company 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. This
integrated approach leverages the Company’s
half-century-plus of experience and knowhow in providing electronic security services,
together with its R&D team’s ability to recognize and address false alarms, to ensure highly
efficient operations.
In the period under review, net sales andoperating revenue from electronic security
services edged up 0.7%, or ¥2.4 billion, to¥341.2 billion, despite a decline in installationsof large-scale security systems, among others,
thanks to expanded sales of value-added

46

SECOM Annual Report 2018services that respond to diverse security
needs, which bolstered sales of on-line
security systems.
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 human judgment and flexible
responsiveness, generated net sales andoperating revenue of ¥59.0 billion, up 4.6%, or¥2.6 billion, bolstered by solid demand and achange in the status of an overseas Group
company from equity-method affiliate toconsolidated subsidiary. Armored car services,which involve the transport of cash, securities
and other valuables using specially fittedarmored cars and security professionals,
reported net sales and operating revenue of¥61.1 billion, up 5.6%, or ¥3.2 billion, owing
principally to firm sales in the area ofcollection and delivery services.
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 and external monitoring systems, which can be freestanding or
linked to on-line security systems. Net sales
and operating revenue in this category
advanced 11.6%, or ¥10.5 billion, to ¥101.0
billion, owing to robust results for large-scale
sales-type leases.
Operating income in the security services
segment rose 3.5%, or ¥3.9 billion, to ¥116.6
billion. The operating margin remained levelwith the preceding fiscal year at 20.6%. These
results primarily reflected higher sales in thearea of on-line security systems and theabsence of an impairment loss on goodwill
reported in the previous period.
Fire Protection Services
The fire protection services segment focuseson high-grade, tailored, automatic fire alarmsystems, fire extinguishing systems and otherfire protection systems for a wide range ofapplications, including office buildings, plants,
tunnels, cultural properties, ships andresidences. 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 product development capabilities to secure orders for fire
protection systems.
Net sales and operating revenue in thissegment amounted to ¥140.7 billion, up 8.5%,
or ¥11.0 billion, from the previous period,
bolstered by contributions from major projects, a result of robust sales efforts. Operating
income climbed 20.0%, or ¥2.6 billion, to ¥15.8

billion, as greater business efficiency led to an
improved cost of sales ratio. The operating
margin improved to 11.2%, from 10.1% in theprevious period.
Medical Services
The medical services segment encompasses
home medical services, which center onhome nursing and pharmaceutical dispensing
services, as well as the operation of residences
for seniors, electronic medical report systems,
sales of medical equipment, personal careservices, and support 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 carerelated institutions.
Segment net sales and operating revenue
advanced 3.8%, or ¥6.5 billion, to ¥175.5 billion. The principal factors behind this result
were increases in sales and operating revenues for variable interest entities, underpinned by the expansion and modification of
hospitals and the opening of new wards inrecent years, which boosted user numbers;
the inclusion of a full year of results for a hospital management company in India that wasconsolidated in the preceding fiscal year; andan expanded number of users of our pharmaceutical dispensing services. Operating
income soared 136.1%, or ¥2.4 billion, to ¥4.1
billion, while the operating margin rose to2.3%, from 1.0%, owing mainly to an improvement in the profitability of hospitals managed
by variable interest entities and an absence ofan impairment loss on long-lived assets
reported in the preceding fiscal year.
Insurance Services
The insurance services segment continued to
expand sales of an extensive lineup of distinctive products, including the Security DiscountFire Policy, a commercial fire insurance policy,
and SECOM Anshin My Home, a comprehensive fire insurance policy for homes—both ofwhich 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, a comprehensive automobile insurance policy thatoffers 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 thatcovers the entire cost of medical treatment
for cancer.
Despite a ¥310 million decline in net
realized investment gain, net sales andoperating revenue in this segment rose 1.8%,
or ¥843 million, to ¥47.7 billion, with contributing factors including favorable sales of
MEDCOM and fire insurance policies.
Operating income fell 14.5%, or ¥1.1 billion,
to ¥6.2 billion, while the operating margin
dipped to 13.1%, from 15.6% in the previous
fiscal year, owing to an increase in losses
incurred as a result of typhoons.
Geographic Information Services
The geographic information services segment
includes the collection of geographic datafrom satellite images, aerial photography, andvehicle/ground and other types of surveying,
which it integrates, processes and analyzes toprovide 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.
Segment net sales and operating revenue
decreased 1.5%, or ¥758 million, to ¥51.1 billion, owing to a decline in net sales and operating revenue from services for overseas
customers. The segment reported operating
income of ¥1.9 billion, compared with anoperating loss of ¥944 million in the previous
fiscal year. The principal factors behind thisresult were a ¥1.1 billion decrease in impairment loss on long-lived assets and the reversal of a provision against futures losses
recorded in the previous period.
BPO and ICT Services
The BPO and ICT services segment encompasses data center services, as well as BCP
support services, information security services,cloud-based services and BPO services. In
October 2017, we acquired all shares in TMJ,
which provides contact center and other BPO
services, as a result of which the company
became a consolidated subsidiary. With theaim of integrating TMJ’s capabilities with ourexisting data center and other informationand communications related services to further grow these businesses, we changed thedesignation of this segment—formerly“information and communication related
services”—to BPO and ICT services. Thischange involved no reclassification ofreporting segments.
Net sales and operating revenue in thissegment soared 35.3%, or ¥20.0 billion, to¥76.8 billion, bolstered chiefly bycontributions from newly acquired subsidiary
TMJ and higher revenue from data center
services. Operating income rose 13.1%, or¥1.0 billion, to ¥8.2 billion, although theoperating margin declined to 10.7%, from
12.8% in the previous fiscal year. This reflected
the addition of TMJ’s operating income andthe fact that TMJ has a comparatively lower
operating margin.
Real Estate and Other Services
The real estate and other services segment
encompasses the development and salesof, among others, condominiums equippedwith sophisticated security and disasterpreparedness features, as well as real estateleasing, construction and installation, andother services.
Segment net sales and operating revenue
declined 8.2%, or ¥4.1 billion, to ¥45.5 billion.
Principal factors behind this result included a
decrease in the real estate development andsales business. Operating income climbed
32.0%, or ¥1.7 billion, to ¥6.9 billion. The operating margin climbed to 15.2%, from 10.6% in
the previous fiscal year. Higher operating
income reflected increased income from realestate sales.

Financial Position
Total assets as of March 31, 2018, amounted
to ¥1,838.9 billion, up ¥75.7 billion from theend of the previous fiscal year. Total current
assets rose ¥34.0 billion, to ¥807.9 billion, andaccounted for 43.9% of total assets. The current ratio was level at 2.0 times. Cash and cash
equivalents totaled ¥316.7 billion, an increaseof ¥17.1 billion, reflecting the fact that net
cash provided by operating activities
exceeded net cash used in investing andfinancing activities. (For further details, please
see Cash Flows, which follows this section.)
Notes and accounts receivable, trade, climbed¥9.9 billion, to ¥144.7 billion, reflecting an

increase in net sales and operating revenue inthe fire protection services segment. Notes
and accounts receivable are affected by thefact that income in the fire protection services
and geographic information services segments tend to be concentrated toward theend of the fiscal year. Cash deposits forarmored car services advanced ¥5.2 billion, to¥135.8 billion, with contributing factors
including an increase in service contracts. Realestate for sale, at ¥44.5 billion, was up ¥16.9
billion, as a consequence of which inventories
rose ¥19.4 billion, to ¥82.1 billion.

Investments and long-term receivables
increased ¥8.6 billion, to ¥358.2 billion. This
represented 19.5% of total assets. Property,
plant and equipment, less accumulated
depreciation, fell ¥1.7 billion, to ¥412.3 billion,
equivalent to 22.4% of total assets, with contributing factors including sales of real estate
for lease.
Other assets totaled ¥260.5 billion, up¥34.7 billion, and accounted for 14.2% of total
assets. The consolidation of TMJ, among
others, boosted goodwill ¥17.6 billion, to¥106.5 billion, and other intangible assets¥6.3 billion, to ¥57.0 billion. Prepaid pension

Percentage of Consolidated
Net Sales and Operating Revenue*

SECOM CO., LTD.
Shareholders’ Equity per ShareTotal Assets(Year ended March 31, 2018)(In yen)(In billions of yen)

5,000

2,000

4,000

1,600

3,000

1,200

2,000

800

1,000

400

6.4%

4.0%

4.7%
4.2%
16.2%

51.9%

12.6%

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

Fire Protection Services
Insurance Services
BPO and ICT Services0

14 15 16 17 18

0

14 15 16 17 18* Pie chart shows percentage of consolidated net sales andoperating revenue (excluding intersegment transactions)

SECOM Annual Report 201847

Financial Review

and severance costs rose ¥6.1 billion, to ¥41.4
billion, bolstered by increases in the fair valueof plan assets. Owing to the revision of an
accounting standard governing balance sheet
classification whereby deferred tax assets andliabilities must be classified as noncurrent
assets and liabilities on the balance sheets,
deferred income taxes climbed ¥5.0 billion,to ¥13.2 billion.
Total liabilities as of March 31, 2018,
amounted to ¥707.6 billion, down ¥4.2 billion
from the end of the previous fiscal year, andaccounted for 38.5% of total liabilities andequity. Total current liabilities were ¥399.7
billion, an increase of ¥5.7 billion, andaccounted for 21.7% of total liabilities andequity. Deposits received rose ¥6.8 billion, to¥118.9 billion, as an increase in service
contracts pushed up cash deposits forarmored car services.
Total long-term liabilities, at ¥308.0 billion,
were down ¥9.9 billion, and represented
16.8% of total liabilities and equity. Long-term
debt, at ¥50.3 billion, was down ¥3.9 billion,
owing to repayments, as well as to the shift ofcertain debt to the bank loans category,among others. The revision of an accounting
standard was one of several factors contributing to a ¥7.3 billion decrease in deferredincome taxes, to ¥26.5 billion.

Total SECOM CO., LTD. shareholders’ equity
advanced ¥71.0 billion, to ¥1,000.3 billion.
Retained earnings rose ¥63.8 billion, to ¥896.6
billion, with contributing factors including an
increase in net income attributable to SECOM
CO., LTD. and the payment of dividends. A
positive pension liability adjustment of ¥1.6
billion, compared with a negative adjustmentof ¥3.5 billion in the preceding fiscal year,
boosted accumulated other comprehensive
income ¥7.1 billion, to ¥27.2 billion. As a result,the equity ratio was 54.4%, compared with
52.7% as of March 31, 2017.

billion decrease in accrued income taxes,
compared with a ¥4.3 billion increase in thepreceding fiscal year; and other, net, of ¥2.8
billion, down from ¥9.3 billion provided bythis item in the previous period. The decline in
cash provided in the other, net, category, primarily reflected the impact on the preceding
period’s result of payments received from theCompany’s principal partner in a joint condominium development and sales project,which served as lead manager.
Net cash used in investing activities was¥61.5 billion. This result reflected payments forpurchases of property, plant and equipmentof ¥53.8 billion, reflecting outlays for security
equipment and control stations necessitatedby an increase in the number of security services subscribers; payments for purchases ofinvestment securities of ¥51.1 billion, primarily
in the insurance services segment andthrough private equity investments in the
United States; and acquisitions, net of cash
acquired, of ¥23.3 billion, owing to the acquisition of TMJ, among others. These outlays
were partially offset by proceeds from sales
and redemptions of investment securities of¥69.4 billion.

Net cash used in investing activities was¥14.3 billion higher than in the fiscal year
ended March 31, 2017. Contributing factors
included a ¥23.1 billion increase inacquisitions, net of cash acquired.
Net cash used in financing activities
amounted to ¥55.0 billion. This was attributable primarily to dividends paid to SECOM
CO., LTD. shareholders of ¥32.7 billion andrepayments of long-term debt of ¥20.6 billion.
Net cash used in financing activities was¥4.8 billion lower than in the preceding fiscal
year. Factors behind this change included
increases of ¥2.2 billion in dividends paid to
SECOM CO., LTD. and ¥1.9 billion in dividends
paid to noncontrolling interests and adecrease in bank loans, net, of ¥3.4 billion,
compared with a decrease of ¥13.5 billion in
the previous period.
The Company’s operating, investing andfinancing activities in the period under review
yielded net cash and cash equivalents at endof year of ¥316.7 billion, up ¥17.1 billion fromnet cash and cash equivalents at beginning ofyear, which were ¥299.6 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, the Company
is also firmly committed to financing strategic investments with cash generated by its
operating activities.
In the period under review, net cash provided by operating activities amounted to¥133.3 billion. The principal components ofthis were net income of ¥109.9 billion; depreciation and amortization, including amortization of deferred charges, a non-cash item, of¥79.0 billion; an increase in inventories of¥18.6 billion; and an increase in deferredcharges of ¥15.9 billion, attributable primarily
to the deferral of costs related to the installation of equipment used to provide on-line
security systems. (For further details, pleasesee note 12 of the Notes to the Consolidated
Financial Statements.)
Net cash provided by operating activitieswas ¥45.4 billion lower than in fiscal year
ended March 31, 2017. Factors behind thisdecline included an ¥18.6 billion increase ininventories, compared with an decrease of¥187 million in the previous period; a ¥2.4

Depreciation andAmortization

Purchases of Property,
Plant and Equipment
and Intangible Assets

Cash Flows(In billions of yen)

(In billions of yen)

(In billions of yen)

100

80

200

75

60

50

40

150
100
50
0
25

–50

20

–100
0

14 15 16 17 18

0

14 15 16 17 18

–150

16

17

18

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

48

SECOM Annual Report 2018