Financial Review
Operating Results
Overview
In the fiscal year ended March 31, 2017,
SECOM CO., LTD. and its subsidiaries (collectively, “the Company”) sought to provide 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 rose 4.9%, or ¥47.8 billion, to¥1,031.3 billion. Principal factors behind
this result were the inclusion of a full yearof results for subsidiary Asahi Security,
consolidated on December 1, 2015, andhigher revenue from on-line security
systems. Bolstered by increased net sales
and operating revenue and a decrease inimpairment loss on long-lived assets,
among others, operating income advanced
9.5%, or ¥11.3 billion, to ¥130.2 billion.
Increases in operating income and gain on
private equity investments and other factors pushed net income attributable to
SECOM CO., LTD., up 8.7%, or ¥7.3
billion, to ¥91.4 billion.
Net Sales and Operating Revenue
Net sales and operating revenue was up
4.9%, or ¥47.8 billion, to ¥1,031.3 billion.
The security services, real estate and otherservices, medical services, insurance services, and information and communication
related services segments reported
increases, while the fire protection services
and geographic information services segments posted declines. (For further details,
please see Segment Information below.)

Operating Income
Operating income advanced 9.5%, or¥11.3 billion, to ¥130.2 billion, equivalent
to 12.6% of net sales and operating revenue, up from 12.1% in the previous fiscal
year. This was due to increased net sales
and operating revenue and a decrease inimpairment loss on long-lived assets,
among others. The Company’s segments,
in order of size of contribution to operating income, were security services, fire
protection services, insurance services,
information and communication related
services, real estate and other services, andmedical services. (For further details,
please see Segment Information below.)
Other Income and Expenses
Other income rose ¥10.5 billion, to ¥18.1
billion, while other expenses declined ¥1.0
billion, to ¥3.1 billion, resulting in net
other income of ¥15.0 billion, up ¥11.5
billion from the previous fiscal year.
Principal factors behind this result includea ¥12.2 billion increase in gain on private
equity investments, to ¥13.9 billion.
Income from Continuing Operations
before Income Taxes and Equity in Net
Income of Affiliated Companies
Income from continuing operations before
income taxes and equity in net income ofaffiliated companies advanced 18.6%, or¥22.8 billion, to ¥145.2 billion, bolsteredby increases in operating income and net
other income.

Income Taxes
Income taxes amounted to ¥47.0 billion,
an increase of ¥6.7 billion, and wereequivalent to 32.4% of income fromcontinuing operations before income taxes
and equity in net income of affiliatedcompanies, compared with 32.9% in theprevious fiscal year.
Equity in Net Income of AffiliatedCompanies
Equity in net income of affiliated companies, at ¥5.2 billion, was down ¥2.0
billion. This result primarily reflected
decreases in equity in net income ofcertain affiliated companies overseas.
Net Income Attributable to
Noncontrolling Interests
Net income attributable to noncontrollinginterests amounted to ¥12.0 billion, up¥6.8 billion from the previous fiscal year,
reflecting increases in gain on private
equity investments and operating incomein the information and communication
related services segment.
Net Income Attributable to SECOM
CO., LTD.
Net income attributable to SECOM CO.,LTD. advanced 8.7%, or ¥7.3 billion, to¥91.4 billion, equivalent to 8.9% of net
sales and operating revenue, comparedwith 8.5% in the previous fiscal year. Net
income attributable to SECOM CO., LTD.
per share was ¥418.71, up from ¥385.19.
At the Ordinary General Meeting of
Shareholders held on June 27, 2017, a
proposal to pay a year-end dividend of¥75.00 was approved. As a consequence,
cash dividends for the period—which also
included an interim dividend of ¥70.00
approved at the Board of Directors’ meeting held on November 9, 2016—rose¥10.00, to ¥145.00 per share. However,
because both the ¥70.00 per share yearend dividend for the year ended March 31,
2016, approved at the Ordinary General
Meeting of Shareholders held on June 24,
2016, and the ¥70.00 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, 2016, were paid during the period,
cash dividends paid to shareholders in the
period under review—the figure thatappears in the financial statements—
amounted to ¥140.00 per share.

SECOM Annual Report 2017

Financial Review

Costs and Expenses
Total costs and expenses rose 4.2%, or¥36.6 billion, to ¥901.1 billion. Cost of
sales, at ¥710.0 billion, was up 5.3%, or¥35.4 billion, and was equivalent to68.8% of net sales and operating revenue,compared with 68.6% in the previous
fiscal year, owing mainly to the inclusionof a full year of results for subsidiary Asahi
Security, for which the costs of sales ratio
is comparatively high.
Selling, general and administrative(SG&A) expenses, at ¥184.5 billion, wereup 4.7%, or ¥8.2 billion. SG&A expenses
were equivalent to 17.9% of net sales andoperating revenue, level with the previous
fiscal year.

Impairment loss on long-lived assets
amounted to ¥2.7 billion, as the Company
recognized losses on certain businessassets in the geographic information services segment. This represented a declineof ¥9.1 billion from ¥11.8 billion in theprevious fiscal year, which reflected,
among others, losses on certain businessassets in the information and communication related services segment and on certain real estate assets, the use of which it
had reconsidered. The Company also recognized an impairment loss on goodwill of¥1.2 billion, owing to, among others, adecrease in projected cash flows of apreviously acquired security services subsidiary. Additionally, loss on sales anddisposal of fixed assets, net, rose ¥845
million, to ¥2.8 billion.

31

Financial Review

Segment Information(For further information, please see Note 27of 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
7.6%, or ¥38.4 billion, to ¥546.5 billion.
Excluding intersegment transactions, net
sales and operating revenue in this segment amounted to ¥543.5 billion, representing 52.7% of overall net sales andoperating revenue, up from 51.4% in theprevious fiscal year.
In addition to on-line commercial andhome security systems, electronic security
services include large-scale proprietary
security systems, which center on surveillance services for the subscriber’s premises.
On-line commercial and home security
systems use sensors, controllers and otherequipment 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 tofacilitate 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 take appropriate
measures. Control center staff also notify
the police, fire department or other authorities, if necessary. The Company has established an integrated approach, whereby ittakes full responsibility for all aspects of its
on-line commercial and home security systems, from R&D through to equipment
manufacturing, marketing, security planning, installation, monitoring, emergency
response services and equipment maintenance. Net sales and operating revenue
from electronic security services rose 2.4%,
or ¥7.9 billion, to ¥338.7 billion, primarilyreflecting expanded sales of value-added
services that respond to diverse security
needs, which bolstered sales of on-line
security systems, and an increase in revenue
from installation attributable to higher salesof large-scale 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 humanjudgment and flexible responsiveness, generated net sales and operating revenue of¥56.4 billion, up 0.9%, or ¥510 million.
Armored car services, which involve thetransport of cash, securities and other valuables using specially fitted armored cars
and security professionals, reported net
sales and operating revenue of ¥57.9 billion, up 75.4%, or ¥24.9 billion, owing
principally to the inclusion of a full year of
results for Asahi Security, consolidated on
December 1, 2015.

32

SECOM Annual Report 2017

The merchandise and other category
encompasses sales of a wide range of security products, including security camera
systems, access control systems, automatedfire extinguishing systems and externalmonitoring systems, which can be freestanding or linked to on-line security systems. Net sales and operating revenue inthis category advanced 6.1%, or ¥5.2 billion, to ¥90.5 billion, owing to the robust
sales of access control systems and theinclusion of a full year of results for
Kumalift, consolidated on August 31, 2015.
Operating income in the security services segment rose 1.6%, or ¥1.8 billion,to ¥112.7 billion. The operating margin
was 20.6%, compared with 21.8% in theprevious fiscal year. Higher operating
income primarily reflected the inclusion ofa full year of results for Asahi Security andhigher net sales and operating revenue foron-line security systems and merchandise.
The decline in the operating margin was
due to an impairment loss on goodwill—
attributable to a decrease in projected cash
flows of a previously acquired security
services subsidiary—and an increase inadvertising and promotional costs.
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 fora wide range of applications, including
office buildings, plants, tunnels, culturalproperties, ships and residences. In the
period under review, Nohmi Bosai andNittan, two of Japan’s leading domestic fire
protection services providers, sought toleverage their respective business foundations and product development capabilities
to secure orders for fire protection systems.
Net sales and operating revenue in thissegment amounted to ¥129.7 billion,
down 4.3%, or ¥5.8 billion, from the previous period, which benefited from a number of major orders. Operating income
declined 3.8%, or ¥525 million, to ¥13.1
billion, while the operating margin
remained level at 10.1%.
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
for the management of hospitals andhealth care-related institutions. The
segment also includes the operations ofvariable interest entities of which theCompany is the primary beneficiary, which
manage hospitals and health care-related
institutions.
Segment net sales and operating revenue rose 3.2%, or ¥5.3 billion, to ¥169.0
billion. The principal factors behind thisresult were the consolidation of a hospitalmanagement company in India, andincreases in sales and operating revenuesof the aforementioned variable interest
entities and from pharmaceutical dispensing services. Operating income fell 40.7%,
or ¥1.2 billion, to ¥1.7 billion, while theoperating margin declined to 1.0%, from
1.8% owing mainly to the expansion andmodification of hospitals managed by variable interest entities and an increase inimpairment loss on long-lived assets.
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 for homes—both of which 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, acomprehensive automobile insurance
policy that offers onsite support services
provided by SECOM emergency response
personnel should the policyholder be
involved in an accident. Other offerings
include MEDCOM, an unrestricted cancer
treatment policy that covers the entire costof medical treatment for cancer.
Net sales and operating revenue in thissegment advanced 7.5%, or ¥3.3 billion,to ¥46.9 billion, spurred by favorable salesof the MEDCOM unrestricted cancer treatment policy and the fact that a decline in
net premiums written—a consequence ofthe termination of sales of fire insurance
policies with terms of 10 years or longer in
October 2015—was exceeded by adecrease in provision for policy reserves.
Operating income rose 6.5%, or ¥447
million, to ¥7.3 billion, while the operating
margin edged down to 15.6%, from
15.7% in the previous fiscal year. The principal factor behind the increase in operating income was higher net realized
investment gains.
Geographic Information Services
The geographic information services segment includes the collection of geographic
data from satellite images, aerial photography, and vehicle/ground and other types ofsurveying, which are integrated, processed
and analyzed to facilitate the provision 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.
Segment net sales and operating revenue decreased 1.7%, or ¥896 million, to¥51.8 billion, owing to a decline in net
sales and operating revenue from services
for overseas customers. The segment
reported an operating loss of ¥944 million,
compared with an operating loss of ¥268
million in the previous fiscal year. The
principal factor behind this result was anincrease in impairment loss on long-lived
assets arising from, among others, agreater risk of decline in the profitability ofsatellite operation software and thereplacement of satellite signal receiving
equipment.
Information and Communication
Related Services
Information and communication related
services focus on data center services, aswell as BCP support services, information
security services and cloud-based services.
Net sales and operating revenue in thissegment advanced 1.7%, or ¥1.0 billion,to ¥56.8 billion, bolstered by, among
others, a full year of contributions fromsales of the SECOM Anshin My Number
service, launched in the previous fiscal year.
Operating income climbed to ¥7.3 billion,

from ¥308 million, while the operating
margin rose to 12.8%, from 0.6% in theprevious fiscal year. A decline in impairment loss on long-lived assets to ¥485
million, from ¥5.6 billion in the previous
fiscal year, together with decreases incharges for electricity and rental expenses
in the data center business—the former
attributable to falling crude oil prices andlatter to the purchase of certain previously
rented facilities—were among factors
contributing to the operating income result.
Real Estate and Other Services
The real estate and other services segment
encompasses the development and salesof, among others, condominiums equippedwith sophisticated security and disaster-

preparedness features, as well as realestate leasing, construction, andinstallation and other services.
Segment net sales and operating revenue rose 12.4%, or ¥5.5 billion, to ¥49.5
billion. Principal factors behind this result
included an increase in the real estatedevelopment and sales business. Operating
income, at ¥5.2 billion, was up 7.0%, or¥341 million. The operating margin slipped
to 10.6%, from 11.1% in the previous
fiscal year. Higher operating income
reflected an improvement in the profitability of construction and installation projects
and an increase in net sales and operating
revenue in the real estate development andsales business.

Financial Position
Total assets as of March 31, 2017,
amounted to ¥1,763.3 billion, ¥81.9 billion higher than at the end of the previous
fiscal year. Total current assets, at ¥773.9
billion, were up ¥68.3 billion, andaccounted for 43.9% of total assets. The
current ratio rose to 2.0 times, from 1.8
times in the previous fiscal year. Cash andcash equivalents totaled ¥299.6 billion, an
increase of ¥70.6 billion, reflecting 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 this section.) Notes and accounts
receivable declined ¥1.8 billion, to ¥134.8
billion. Notes and accounts receivable areaffected by the fact that income in the fire
protection services and geographic information services segments tend to be concentrated toward the end of the fiscal
year. Cash deposits for armored car
services rose ¥2.4 billion, to ¥130.6 billion,

with contributing factors including an
increase in service contracts at Asahi
Security. Despite a ¥1.0 billion increase inreal estate for sale, to ¥27.5 billion, inventories declined ¥1.1 billion, to ¥62.7 billion, owing to a ¥1.9 billion decline insecurity merchandise, to ¥7.0 billion,
among others.
Investments and long-term receivablesrose ¥13.2 billion, to ¥349.6 billion, equivalent to 19.8% of total assets. Investment
securities advanced ¥14.8 billion, to¥227.2 billion, a consequence of higher
unrealized gains on securities and otherfactors.
Property, plant and equipment, lessaccumulated depreciation, decreased ¥84
million, to ¥414.1 billion, representing
23.5% of total assets. Buildings andimprovements increased ¥13.1 billion, to¥329.6 billion, owing to the expansion
and modification of hospitals managed byvariable interest entities and the acquisitionof information and communications
assets, including the purchase of certain
previously rented data center facilities. In
contrast, machinery, equipment and automobiles declined ¥11.0 billion, to ¥143.8
billion. These factors led to an increase inproperty, plant and equipment before thededuction of accumulated depreciation of¥3.8 billion, to ¥913.7 billion. Accumulated depreciation rose ¥3.9 billion, to¥499.6 billion.
Other assets totaled ¥225.8 billion, up¥529 million, and accounted for 12.8% of
total assets. Impairment losses, among
others, resulted in a ¥1.3 billion decline ingoodwill, to ¥89.0 billion. Amortizationand other factors pushed other intangible
assets down ¥3.2 billion, to ¥50.7 billion.
In contrast, prepaid pension and severance
costs rose ¥4.5 billion, to ¥35.3 billion,
reflecting increases in the fair value of plan
assets.

SECOM CO., LTD.
Shareholders’ Equity per ShareTotal Assets(Year ended March 31, 2017)(In yen)
5,000(In billions of yen)

4,000

1,600

3,000

1,200

2,000

800

1,000

400

4.8%

4.6%

5.0%
4.3%

16.4%

Financial Review

Percentage of Consolidated
Net Sales and Operating Revenue*

2,000

52.7%

12.2%

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

Fire Protection Services
Insurance Services
Information andCommunication
Related Services00

13 14 15 16 17

13 14 15 16 17* Pie chart shows percentage of consolidated net sales andoperating revenue (excluding intersegment transactions)

SECOM Annual Report 201733

Financial Review

Total current liabilities amounted to¥393.9 billion, an increase of ¥6.1 billion,
and accounted for 22.3% of total liabilities
and equity. Deposits received rose ¥7.1 billion, to ¥112.1 billion, as an increase inservice contracts at Asahi Security pushed
up cash deposits for armored car services.
Bank loans declined ¥13.6 billion, to ¥42.1
billion, while notes and accounts payablerose ¥3.4 billion, to ¥46.3 billion, andaccrued income taxes advanced ¥5.2
billion, to ¥27.6 billion.

Total long-term liabilities, at ¥317.9 billion, were up ¥928 million, representing
18.0% of total liabilities and equity.
Unearned premiums and other insurance
liabilities advanced ¥4.4 billion, to ¥110.0
billion. Long-term debt, at ¥54.1 billion,
was down ¥7.5 billion, owing to the shiftof certain debt to the bank loans category,among others. An increase in unrealized
gains on private equity investments in the
United States was one of several factors
contributing to a ¥7.8 billion increase indeferred income taxes, to ¥33.8 billion.

Total SECOM CO., LTD. shareholders’equity advanced ¥64.0 billion, to ¥929.2
billion. Retained earnings rose ¥60.7 billion, to ¥832.8 billion, with contributing
factors including an increase in net income
attributable to SECOM CO., LTD. and thepayment of dividends. Unrealized gains on
securities rose ¥4.4 billion, to ¥22.5 billion,
underpinning a ¥3.2 billion increase inaccumulated other comprehensive income,to ¥20.1 billion. As a result, the equity
ratio was 52.7%, compared with 51.5%
as of March 31, 2016.

receipt of payments from the Company’s
principal partner in a joint condominium
development and sales project, which
served as lead manager.
Net cash used in investing activities
amounted to ¥47.2 billion. This result wasdue primarily to payments for purchases ofproperty, plant and equipment of ¥51.2
billion, reflecting outlays for security
equipment and control stations—
attributable to an increase in the numberof security services subscribers—and thepurchase of certain previously rented data
center facilities, and other business assets
in the information and communication
related services segment; payments forpurchases of investment securities of¥32.6 billion, primarily in the insurance
services segment and through private
equity investments in the United States;and payments for purchases of intangible
assets of ¥7.3 billion. These outlays werepartially offset by proceeds from sales andredemptions of investment securities of¥43.3 billion.
Net cash used in investing activitieswas ¥85.5 billion lower than in the preceding period. Factors contributing to thisresult included a decline in outlays foracquisitions, net of cash acquired, to ¥167
million, from ¥73.5 billion in the previous
period, a figure that reflected factors suchas the acquisition of Asahi Security.
Net cash used in financing activities
amounted to ¥59.8 billion. This result
reflected dividends paid to SECOM CO.,LTD. shareholders of ¥30.6 billion, repayments of long-term debt of ¥20.1 billion
and a decrease in bank loans, net, of¥13.5 billion, which were partially offset
by proceeds from long-term debt of¥8.4 billion.
Net cash used in financing activitieswas ¥30.8 billion higher than in the preceding period. Factors contributing to thisresult include the ¥13.5 billion decrease inbank loans, compared with an increase of¥8.7 billion in the previous fiscal year,
owing to the repayment of loans undertaken in the previous period to boost
working capital.
The Company’s operating, investing
and financing activities in the period underreview yielded net cash and cash equivalents at end of year of ¥299.6 billion, up¥70.6 billion from net cash and cash
equivalents at beginning of year, whichwere ¥229.0 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 ¥178.6 billion. The principal components of this were net income of ¥103.4
billion and depreciation and amortization,
including amortization of deferredcharges, of ¥78.2 billion, a non-cash item.
Net cash provided by operating activities was ¥35.8 billion higher than in theprevious fiscal year. Factors behind thisincrease included an increase in receivables
and due from subscribers, net of allowances of ¥1.3 billion, down from ¥9.7 billion in the previous fiscal year; a decreasein accrued consumption tax of ¥879 million, compared with a decrease of ¥7.0
billion in the preceding period due to a
consumption tax rate hike; and other, net,
which provided ¥9.3 billion, comparedwith the previous period, when this item
used ¥473 million. Cash provided in theother, net, category primarily reflected thePurchases of Property,
Plant and Equipment
and Intangible Assets

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

–150

0

13 14 15 16 17

13 14 15 16 17

15

16

17

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

34

SECOM Annual Report 2017