Financial Information and References

Financial Review
Operating Results
Overview
In the fiscal year ended March 31, 2020, SECOM CO., LTD. andits consolidated subsidiaries (collectively, “the Company”) sought
to provide 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 real estate and other services segments.
Thanks to increases in all segments, consolidated net sales
and operating revenue in the period under review advanced
4.4%, or ¥49.1 billion, to ¥1,160.7 billion. Despite the impact of
forward-looking investments to reinforce the Company’s operating foundation with the aim of ensuring sustainable growth,
operating income rose 5.5%, or ¥6.9 billion, to ¥130.6 billion,
bolstered by operating income growth in the fire protection services, BPO and ICT services, geospatial information services, realestate and other services, and medical services segments, as well
as by a smaller operating loss in the insurance services segment.
Nonetheless, owing to a ¥139 million loss on private equity investments, compared with a ¥4.7 billion gain on such investments inthe fiscal year ended March 31, 2019, together with an increase
in income taxes that reflected a larger reversal of the valuation
allowance in the preceding period, net income attributable
to SECOM CO., LTD., decreased 2.8%, or ¥2.6 billion, to¥87.1 billion.

Other Income and Expenses
Other income decreased ¥1.3 billion, to ¥10.0 billion, owing
primarily to a loss on private equity investments of ¥139 million,
compared with a gain of ¥4.7 billion in the preceding period,
although this was partially offset by a ¥2.3 billion gain on sales of
securities, net, resulting from the sale of a U.S. subsidiary in thegeospatial information services business during the period underreview, compared with a ¥115 million loss on sales of securities,
net, in the previous fiscal year. Other expenses rose ¥116 million,
to ¥6.5 billion. Net other income thus amounted to ¥3.5 billion,
down ¥1.4 billion.

Net Sales and Operating Revenue
Consolidated net sales and operating revenue in the period underreview rose 4.4%, or ¥49.1 billion, to ¥1,160.7 billion, thanks
to increases in all segments. (For further information, please see
Segment Information below.)

Equity in Net Income of Affiliated Companies
Equity in net income of affiliated companies slipped ¥348 million,
to ¥6.7 billion.

Costs and Expenses
Total costs and expenses advanced 4.3%, or ¥42.3 billion, to¥1,030.1 billion. Cost of sales rose 4.5%, or ¥34.9 billion, to¥819.9 billion, and was equivalent to 70.6% of net sales andoperating revenue, essentially level with the previous fiscal year.
Selling, general and administrative (SG&A) expenses were up
2.4%, or ¥4.9 billion, to ¥205.8 billion, equivalent to 17.7%of net sales and operating revenue, an improvement from
18.1% in the preceding period. Impairment loss on long-lived
assets increased ¥357 million, to ¥952 million. The Company
also reported an impairment loss on goodwill of ¥758 million.
Additionally, the Company reported a loss on sales and disposalof fixed assets, net, of ¥2.8 billion, ¥1.3 billion more than in
the previous fiscal year, reflecting the disposal of certain existingbuildings as a consequence of reconstruction, a decline in salesof real estate for lease and other factors.
Operating Income
Operating income rose 5.5%, or ¥6.9 billion, to ¥130.6 billion.
This was largely attributable to the increase in net sales andoperating revenue, which absorbed higher costs and expenses.
The operating margin edged up to 11.2%, from 11.1%.

Income from Continuing Operations before Income Taxes
and Equity in Net Income of Affiliated Companies
The aforementioned results yielded income from continuing
operations before income taxes and equity in net income of affiliated companies of ¥134.0 billion, up 4.3%, or ¥5.5 billion, fromthe preceding period.
Income Taxes
Income taxes amounted to ¥40.9 billion, an increase of ¥5.8 billion, owing to a larger reversal of the valuation allowance in theprevious fiscal year. This was equivalent to 30.5% of income fromcontinuing operations before income taxes and equity in net
income of affiliated companies, up from 27.3%.

Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests rose ¥1.9
billion, to ¥12.6 billion. The principal factor behind this result wasincreases in operating income in the fire protection services andgeospatial information services segments.
Net Income Attributable to SECOM CO., LTD.
Net income attributable to SECOM CO., LTD., decreased 2.8%, or¥2.6 billion, to ¥87.1 billion, equivalent to 7.5% of net sales andoperating revenue, declining from 8.1% in the preceding period.
Net income attributable to SECOM CO., LTD., per share was¥399.23, down from ¥410.91. At the Ordinary General Meetingof Shareholders held on June 25, 2020, a proposal to pay a yearend dividend of ¥85.00 was approved. As a result, cash dividends
for the period—which also included an interim dividend of ¥85.00
per share approved at the Board of Directors meeting held on
November 8, 2019—amounted to ¥170.00, an increase of ¥5.00.
However, the figure of ¥170.00 for cash dividends per share thatappears in the consolidated financial statements represents cash
dividends paid to shareholders during the period, namely, the¥85.00 per share year-end dividend for the year ended March 31,
2019, approved at the Ordinary General Meeting of Shareholders
held on June 26, 2019, and the ¥85.00 per share interim dividend
for the previous fiscal year, determined by the Board of Directors
and paid to shareholders of record as of September 30, 2019.

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Financial Review

Segment Information
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 fiscal year ended
March 31, 2020, net sales and operating income in this segmentrose 2.3%, or ¥13.3 billion, to ¥580.5 billion. Excludingintersegment transactions, segment net sales and operating
income amounted to ¥577.3 billion, representing 49.7% of
overall net sales and operating revenue, down from 50.8% in
the preceding period.
In addition to on-line commercial and home security systems,
electronic security services include large-scale proprietary security
systems, which focus on surveillance services for subscribers’premises. On-line commercial and home security systems use
sensors, controllers and other equipment installed at subscribers’premises to detect events, including intrusions, fires and equipment malfunctions. Equipment is linked to a SECOM control
center via telecommunications circuits to facilitate around-theclock monitoring. Should an irregularity be detected, relevant
information is relayed to the control center, where staff dispatch
emergency response personnel to take appropriate measures. If
necessary, control center staff also notify the police, fire
department or other emergency services.
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 for subscribers andguarantees the quality and stability 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 declining balancemethod principally over five years.
The Company takes full responsibility for all aspects of its
on-line commercial and home security systems, from R&D throughto equipment manufacturing, security planning, installation,
monitoring, emergency response services and equipment maintenance. This integrated approach leverages the Company’s halfcentury-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.
Net sales and operating revenue from electronic security
services edged up 0.8%, or ¥2.9 billion, to ¥347.2 billion. Thiswas due to increased sales of on-line security systems, underpinned by expanded sales of high-value-added commercial
systems that respond to diverse security needs and peripheralservices, and of SECOM Home Security NEO and other home
security services that address growing needs for help in caring
for vulnerable members of society.

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SECOM REPORT 2020

Other security services include static guard and armored car
services. Net sales and operating revenue generated by static
guard services which are provided by highly trained professional
security guards for systems requiring human judgment and flexible
responsiveness, advanced 5.7%, or ¥3.8 billion, to ¥70.0 billion.
This was a consequence of the first full year of contributions from
Secom Tosec Co., Ltd., in which we acquired an 80.1% stake inAugust 2018, as well as solid demand for static guard services.
Armored car services, which involve the transport of cash, securities and other valuables using special fitted armored cars andsecurity professionals, generated net sales and operating revenueof ¥63.6 billion, up 1.9%, or ¥1.2 billion. Principal factors behind
this result included an increase in the sales of Asahi Security,
which principally provides cash collection and delivery services.
The merchandise and other category encompasses 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 thiscategory rose 6.3%, or ¥5.7 billion, to ¥96.5 billion, underpinnedby an increase in sales-type leases of large-scale security systems
and higher sales of access control and custom-built systems.
Operating income in the security services segment declined
1.1%, or ¥1.2 billion, to ¥108.9 billion. The operating margin
slipped to 18.8%, from 19.4% in the previous fiscal year. These
results primarily reflected forward-looking investments to reinforce
the Company’s operating foundation with the aim of ensuring
sustainable growth and an impairment loss on goodwill.
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 for a wide range of applications,
including office buildings, plants, tunnels, cultural properties, ships
and residences. In the period under review, Nohmi Bosai andNittan, 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.
Segment net sales and operating revenue increased 8.2%, or¥11.8 billion, to ¥155.9 billion, bolstered by contributions fromlarge-, medium- and small-scale projects, a result of potent sales
efforts. Operating income climbed 25.6%, or ¥3.6 billion, to¥17.8 billion, owing to the increase in net sales and operating
revenue, as well as to a number of comparatively profitableprojects and a decline in cost of sales due to improved operating
efficiency. The operating margin was 11.4%, up from 9.8% in
the preceding period.

Financial Information and References

Medical Services
The medical services segment provides home nursing services,
pharmaceutical dispensing services, support for affiliated medical
institutions in Japan, sales of medical equipment, the operation ofa general hospital in India, the operation of residences for seniors
and other personal care services, health and preventative careservices, and ICT-based services, which included electronic medical
report systems. Additionally, this segment includes the operationsof variable interest entities (VIEs) of which the Company is theprimary beneficiary, which manage hospitals and health carerelated institutions.
Net sales and operating revenue in this segment were up
3.0%, or ¥5.4 billion, to ¥187.3 billion, a consequence ofincreases in the net sales and operating revenue of VIEs, underpinned by a rising number of patients at affiliated medical institutions, as well as to higher sales of pharmaceuticals and medical
equipment and revenue from pharmaceutical dispensing services.
Operating income advanced 7.8%, or ¥450 million, to ¥6.2
billion, reflecting an improvement in the operating income of a
hospital operated by the Company in India. The operating margin
improved to 3.3%, from 3.2% in the previous fiscal year.
Insurance Services
The insurance services segment continued to expand sales of an
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 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 thatoffers onsite support services provided by SECOM emergency
response personnel should the policyholders be involved in an
accident, and MEDCOM, an unrestricted cancer treatment policythat covers the entire cost of medical treatment for cancer.
Segment net sales and operating revenue, at ¥46.9 billion,
increased 4.9%, or ¥2.2 billion, bolstered by brisk sales of
MEDCOM and fire and automobile insurance policies. The
segment reported an operating loss of ¥4.3 billion, an improvement from ¥4.9 billion in the preceding period, attributable tohigher net sales and operating revenue, as well as to a decreasein losses incurred as a result of multiple major natural disasters.

Geospatial Information Services
The geospatial information services segment centers on thecollection of geographic data using commercial satellites, aircraft
and surveying using 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 rose 3.5%, or ¥1.8
billion, to ¥53.7 billion, bolstered by an increase in revenue fromdomestic public-sector customers, owing to the expanded provision of surveying services employing aerial lasers to such customers. Operating income jumped 61.3%, or ¥1.2 billion, to ¥3.0
billion, while the operating margin improved to 5.6%, from 3.6%.
This primarily reflected declines in depreciation expenses andimpairment losses.
BPO and ICT Services
BPO and ICT services encompass the provision of data center
services, BCP support services, information security services,cloud-based services and BPO services. Segment net sales andoperating revenue increased 9.5%, or ¥9.7 billion, to ¥110.9
billion, bolstered by higher revenue from data center services andcontributions from subsidiary TMJ, a provider of contact center,back office support and other BPO services. Operating income, at¥10.6 billion, was up 13.1%, or ¥1.2 billion, and the operating
margin rose to 9.6%, from 9.3%, reflecting an improvement in
the cost of sales ratio attributable to higher sales in the data
center business.
Real Estate and Other Services
The real estate and other services segment includes the development and sale of, among others, condominiums equipped with
distinctive security and disaster preparedness features, as well as
real estate leasing, construction and installation, and other services. Net sales and operating revenue in this segment advanced
9.9%, or ¥4.6 billion, to ¥51.2 billion, with contributing factors
including an increase in condominium development and sales.
Operating income rose 17.9%, or ¥912 million, to ¥6.0 billion,
and the operating margin increased to11.7%, from 10.9%.

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Financial Review

Financial Position
Total assets as of March 31, 2020, amounted to ¥2,081.1 billion,
an increase of ¥201.4 billion from the end of the previous fiscal
year. Total current assets rose ¥65.6 billion, to ¥935.9 billion,
and accounted for 45.0% of total assets. The current ratio was
2.2 times, up from 2.1 times. Cash and cash equivalents totaled¥414.7 billion, an increase of ¥64.9 billion, reflecting the factthat net cash provided by operating activities exceeded net cashused in investing and financing activities. (For further details,
please see Cash Flows, which follows this section.) Notes andaccounts receivable, trade, rose ¥9.7 billion, to ¥166.6 billion,
owing to higher net sales and operating revenue. Notes andaccounts receivable are affected by the fact that income in the fire
protection services and geospatial information services businesses
tend to be concentrated toward the end of the fiscal year. Cashdeposits for armored car services declined ¥1.4 billion, to ¥140.9
billion. These cash deposits are funded primarily through bankoverdrafts and deposits and their use by the company is restricted.
The sales of real estate for sale and other factors led to a decline
in inventories of ¥9.6 billion, to ¥56.3 billion.
Investments and long-term receivables decreased ¥16.1 billion,to ¥325.3 billion, which represented 15.6% of total assets.
Investment securities, at ¥194.8 billion, were down ¥17.8 billion.
Contributing factors included the reclassification of corporate
bonds and other debt securities due within one year as current
assets.
Property, plant and equipment, less accumulated depreciation,amounted to ¥425.5 billion, up ¥9.3 billion and equivalent to20.4% of total assets. This primarily reflected increases in buildings
and improvements, attributable to data center business–related
investments, and in security equipment and control stations, a
result of purchases of security equipment necessitated by a risingnumber of security services subscribers.

Other assets, at ¥394.4 billion, were up ¥142.6 billion andaccounted for 19.0% of total assets. Owing to the application of
Accounting Standards Update (ASU) No. 2016-02, “Leases,” fromthe beginning of the period under review, the Company was
required to recognize almost all lease assets and lease liabilities
arising from lease contracts, which are classified as operatingleases, on its balance sheets. As a consequence, operating leaseright-of-use assets of ¥143.5 billion were included in otherassets. In addition, prepaid pension and severance costs declined¥6.7 billion, to ¥31.8 billion, reflecting deteriorating investment
conditions, while deferred income taxes rose ¥3.7 billion, to¥25.8 billion.
Total liabilities as of March 31, 2020, amounted to ¥853.7
billion, up ¥149.9 billion from the end of the preceding period,
and accounted for 41.0% of total liabilities and equity. Total
current liabilities, at ¥431.2 billion were up ¥25.8 billion andrepresented 20.7% of total liabilities and equity, owing largely
to the application of ASU No. 2016-02, which resulted in the
inclusion of current operating lease liabilities of ¥19.2 billion,
and to a ¥4.9 billion increase in other current liabilities, to ¥37.9
billion, as a consumption tax rate hike led to an increase inaccrued consumption tax.
Total long-term liabilities rose ¥124.1 billion, to ¥422.5 billion,
and represented 20.3% of total liabilities and equity. This increaseprimarily reflected the inclusion of long-term operating leaseliabilities of ¥124.3 billion as a result of the application of ASU
No. 2016-02.
Total SECOM CO., LTD., shareholders’ equity increased¥44.6 billion, to ¥1,088.7 billion. Retained earnings rose ¥50.0
billion, to ¥1,017.7 billion, owing principally to net income
attributable to SECOM CO., LTD., and the payment of dividends.
Accumulated other comprehensive loss rose ¥7.0 billion, to ¥7.1
billion. As a consequence, the equity ratio was 52.3%, comparedwith 55.6% at the end of the previous fiscal year.

Percentage of Consolidated
Net Sales and Operating Revenue*

SECOM CO., LTD.
Shareholders’ Equity per ShareTotal Assets(Year ended March 31, 2020)(In yen)(In billions of yen)

5,000

2,500

4,000

2,000

3,000

1,500

2,000

1,000

1,000

500

8.4%

4.3%

4.6%
3.8%
16.1%

49.7%

13.1%
Security Services
Medical Services
Geospatial Information Services
Real Estate and Other Services

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

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SECOM REPORT 2020

00

16 17 18 19 20

16 17 18 19 20

Financial Information and References

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 ¥184.4 billion. The principal componentsof this were net income of ¥99.8 billion and an adjustment for
depreciation and amortization, including amortization of deferredcharges, a non-cash item, of ¥77.6 billion. Net cash provided byoperating activities was ¥26.1 billion higher than in the fiscal year
ended March 31, 2019. Factors behind this result included a ¥5.1
billion increase in accrued income taxes, compared with a ¥4.9
billion decrease in the previous fiscal year; a decrease in deferredincome taxes of ¥7.4 billion; an increase in receivables and duefrom subscribers, net of allowances, of ¥10.6 billion, comparedwith an increase of ¥17.4 billion in the preceding period; and anincrease in accrued consumption tax of ¥4.5 billion, comparedwith a decrease of ¥831 million in the previous fiscal year.
Net cash used in investing activities amounted to ¥66.6
billion. Principal components of this were payments for purchasesof property, plant and equipment of ¥63.1 billion, owing topurchases of security equipment necessitated by a rising numberof security services subscribers and forward-looking investments
to reinforce the Company’s operating foundation; payments forpurchases of intangible assets of ¥11.7 billion, attributable toforward-looking investments to reinforce the Company’s operating
foundation; and payments for purchases of investment securities

Depreciation andAmortizationof ¥45.3 billion, primarily in the insurance services segment
and through private-equity investments in the United States,
exceeding proceeds from sales and redemptions of investment
securities of ¥50.3 billion. Net cash used in investing activities rose
¥2.2 billion from the previous fiscal year, with contributing factors
including a ¥1.6 billion decrease in time deposits, compared witha ¥1.3 billion increase in the preceding period, and payments forpurchases of property, plant and equipment, which were up ¥6.7
billion from the previous fiscal year. Owing to investments in theinsurance services segment and private equity investments in the
United States, net cash generated by an increase in short-term
investments and net proceeds from sales and redemptions ofinvestment securities rose to ¥3.6 billion, from ¥2.7 billion in theprevious fiscal year.
Net cash used in financing activities was ¥52.9 billion. This
primarily reflected dividends paid to SECOM CO., LTD. shareholders of ¥37.1 billion and repayments of long-term debt of ¥18.8
billion. Net cash used in financing activities was ¥7.4 billion lessthan in the preceding period. This was due largely to declines in
dividends paid to noncontrolling interests and payments for acquisition of shares of consolidated subsidiaries from noncontrollinginterest holders, the latter a result of the absence of the purchaseof treasury stock by subsidiary Secom Joshinetsu, which pushed
up outlays in the previous fiscal year.
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 ¥414.7 billion, up ¥64.9 billion fromcash equivalents at beginning of year, which were ¥349.7 billion.

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

150
100
50

40

25

20

50
0
-50

0

16 17 18 19 20

-100

0

16 17 18 19 20

18

19

20

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

SECOM REPORT 202061