Financial Review
Operating Results
Overview
In the fiscal year ended March 31, 2019,
SECOM CO., LTD. and its subsidiaries (collectively, “the Company”) sought to provide highquality products and services that respond to
the diverse 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 andother services segments.
Thanks to the inclusion of a full year of
results for TMJ, acquired in October 2017, andan increase in the medical services segment,
bolstered by a rise in the number of patientsat associated hospitals, among others, consolidated net sales and operating revenue in the
period under review rose 2.7%, or ¥28.8 billion, to ¥1,111.6 billion. Nonetheless, operating income declined 11.7%, or ¥16.4 billion, to¥123.7 billion, owing to a variety of factors,
including the occurrence of multiple major
natural disasters and a greater loss on otherthan-temporary impairment of investment
securities, as a result of which the insurance
services segment reported an operating loss,
and the impact of forward-looking investments to reinforce the Company’s operating
foundation with the aim of ensuring sustainable growth. Net income attributable to
SECOM CO., LTD., was down 7.2%, or ¥6.9
billion, to ¥89.7 billion.
Net Sales and Operating Revenue
Owing to the inclusion of a full year of resultsfor TMJ, acquired in October 2017, and anincrease in the medical services segment,
underpinned by a rise in the number ofpatients at associated hospitals, among others, consolidated net sales and operating revenue in the period under review rose 2.7%, or¥28.8 billion, to ¥1,111.6 billion. (For further
details, please see Segment Information
below.)
Cost and Expenses
Total costs and expenses advanced 4.8%, or¥45.2 billion, to ¥987.9 billion. Cost of salesrose 4.4%, or ¥33.0 billion, to ¥784.9 billion,
and was equivalent to 70.6% of net sales andoperating revenue, up from 69.4% in theprevious fiscal year. Principle factors behind
this result included an increase in cost of
sales in the insurance services segment,
which reflected the occurrence of multiple
major natural disasters and a greater loss onother-than-temporary impairment of investment securities, and the inclusion of a fullyear of results for TMJ, which has a comparatively high cost of sales ratio. Owing to theapplication of a new accounting standard,“Recognition and Measurement of Financial
Assets and Financial Liabilities,” whereby
equity investments are recognized at fairvalue at end of year, effective from the period
under review gains or losses on equity
investments are charged to income forthe period.
Selling, general and administrative (SG&A)
expenses rose 5.0%, or ¥9.5 billion, to ¥200.9
billion, reflecting an increase in up-front
expenses, accounted for 18.1% of net sales
and operating revenue, up from 17.7% in thepreceding period. Impairment loss on longlived assets declined to ¥595 million, from¥841 million. Additionally, the Company
reported a loss on sales and disposal of fixed
assets, net, of ¥1.4 billion, compared with a
net gain of ¥1.5 billion in the previous fiscal
year attributable to income from real estate
sales and other factors.
Operating Income
Operating income decreased 11.7%, or¥16.4 billion to ¥123.7 billion, despite higher
net sales and operating revenue, as boththe cost of sales and SG&A expense ratios
rose. The operating margin slipped to 11.1%,
from 12.9%.
Other Income and Expenses
Other income declined ¥2.2 billion, to¥11.2 billion. This was attributable largely
to a ¥1.2 billion decrease in gain on private
equity investments to ¥4.7 billion. Other
expenses amounted to ¥6.4 billion, up ¥3.6
billion, reflecting a ¥3.9 billion increase inloss on other-than-temporary impairmentof investment securities, to ¥4.0 billion. As aconsequence, net other income was ¥4.9
billion, down ¥5.8 billion from the previous
fiscal year.
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 affiliatedcompanies of ¥128.6 billion, down 14.7%, or¥22.2 billion, from the preceding period.

Equity in Net Income of
Affiliated Companies
Equity in net income of affiliated companies
edged down ¥177 million, to ¥7.0 billion.
Net Income Attributable to
Noncontrolling Interests
Net income attributable to noncontrollinginterests amounted to ¥10.8 billion, down
¥2.5 billion. Principal factors behind this result
included a decline in operating income in
the fire protection services segment, an
operating loss in the insurance services
segment and a decrease in gain on private
equity investments.
Net Income Attributable to
SECOM CO., LTD.
Net income attributable to SECOM CO., LTD.,at ¥89.7 billion, declined 7.2%, or ¥6.9 billion.
Net income attributable to SECOM CO., LTD.,
as a percentage of net sales and operating
revenue was 8.1%, compared with 8.9% in theprevious fiscal year. Net income attributable
to SECOM CO., LTD. per share was ¥410.91,
down from ¥442.70.
At the Ordinary General Meeting of
Shareholders held on June 26, 2019, a proposal to pay a year-end dividend of ¥85.00
was approved. As a consequence, cash dividends for the period—which also included
an interim dividend of ¥80.00 approvedat the Board of Directors’ meeting held on
November 8, 2018—amounted to ¥165.00
per share, an increase of ¥10.00. However,
because both the ¥80.00 per share year-end
dividend for the year ended March 31, 2018,
approved at the Ordinary General Meetingof Shareholders held on June 26, 2018, andthe ¥80.00 per share interim dividend for thepreceding period, determined by the Board of
Directors and paid to shareholders of record
as of September 30, 2018, were paid during
the period, cash dividends paid to shareholders in the period under review—the figurethat appears in the financial statements—
amounted to ¥160.00 per share.

Income Taxes
Income taxes totaled ¥35.1 billion, a decreaseof ¥13.0 billion. This was equivalent to 27.3%
of income from continuing operations before
income taxes and equity in net income ofaffiliated companies, compared with 31.9% in
the previous fiscal year, owing to a reversal ofthe valuation allowance and other factors.

SECOM Annual Report 201955

Financial Review
Segment Information(For further details, please see note 27 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 edged up 0.3%, or¥1.8 billion, to ¥567.2 billion. Excluding intersegment transactions, net sales and operating
revenue in this segment amounted to ¥563.7
billion, representing 50.8% of overall net sales
and operating revenue, compared with 51.9%
in the previous fiscal year.
In addition to on-line commercial andhome security systems, electronic security
services include large-scale proprietary
security systems, which focus on surveillanceservices for the subscriber’ 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-clockmonitoring. Should an irregularity be
detected, relevant information is relayed
to the control center, where staff dispatch
emergency response personnel to takeappropriate 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 forsubscribers and guarantees the quality andstability of its services. The initial contract
period for security services is five years, with
contracts renewed automatically eachsubsequent year. Depreciation for security
equipment is computed using the decliningbalance method principally over five years.
The Company takes full responsibility for
all aspects of its on-line commercial andhome security systems, from R&D throughto 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.
Net sales and operating revenue fromelectronic security services rose 0.9%, or¥3.1 billion, to ¥344.3 billion. Despite adecline in large-scale installations, among
others, sales of on-line security systems
advanced, bolstered by expanded sales ofhigh-value-added commercial security services that respond to diverse security needs
and of SECOM Home Security NEO and other
home security systems that addresses growing needs for help in caring for vulnerable
members of society.

56

SECOM Annual Report 2019

Other security services include static guard
services 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, rose 12.3%, or ¥7.2 billion, to¥66.3 billion, reflecting contributions from
Secom Tosec Co., Ltd., in which we acquired
an 80.1% stake in August 2018 and firm
demand for these services. Armored car services, which involve the transport of cash,
securities and other valuables using speciallyfitted armored cars and security professionals,
generated net sales and operating revenue of¥62.4 billion, up 2.2%, or ¥1.3 billion. Principal
factors behind this result included an increasein sales at Asahi Security, which principally
provides cash collection 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 andoperating revenue in this category were
down 10.1%, or ¥10.2 billion, to ¥90.8 billion,
owing mainly to the absence of large-scale
sales-type leases, which pushed up results inthe preceding period.
Operating income in the security services
segment declined 3.8%, or ¥4.3 billion, to ¥110.1
billion. The operating margin slipped to 19.4%,
from 20.2% 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 to absence of large-scale
sales-type leases, a key factor in the previous
fiscal year.
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
and residences. 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 ¥144.1 billion, up 2.4%,
or ¥3.4 billion, underpinned by contributions
from major projects, a result of robust sales
efforts, and other factors. Operating income
decreased 9.8%, or ¥1.5 billion, to ¥14.2 billion,
a consequence of factors such as a cluster ofprojects with a higher cost of sales ratio thanin the preceding period and an increase in
SG&A expenses, reflecting higher R&D andpersonnel costs. The operating margin was

9.8%, down from 11.2% in the previous
fiscal year.
Medical Services
The medical services segment emphasizes
Home Medical Services, which comprise
home nursing and pharmaceutical dispensing
services, support for affiliated medical institutions, sales of medical equipment and pharmaceuticals, the operation of residences forseniors, personal care services, and the provision of electronic medical reporting and other
ICT-based systems in Japan, as well as theoperation of a hospital in India. The segment
also includes the operations of variable interest entities (VIEs) of which the Company is theprimary beneficiary, which manage hospitals
and health care-related institutions.
Segment net sales and operating revenue
advanced 3.6%, or ¥6.4 billion, to ¥181.9 billion, owing to an increase in the net sales andoperating revenue of VIEs, bolstered by a risein the number of patients at associated hospitals, among others. Despite an increase in thecost of sales ratio accompanying the revisionof drug prices in Japan, operating income
climbed 43.3%, or ¥1.7 billion, to ¥5.8 billion
and the operating margin improved to 3.2%,
from 2.3% in the previous fiscal year, reflecting
an improvement in the profitability of
hospitals managed by VIEs.
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
on premiums to customers who have installed
on-line security systems, recognizing this as arisk-mitigating factor—and SECOM Anshin My
Car, a comprehensive automobile insurance
policy that offers onsite support services provided by SECOM emergency response personnel should the policyholders be involvedin an accident, and MEDCOM, an unrestricted
cancer treatment policy that covers the entire
cost of medical treatment for cancer.
Net sales and operating revenue in thissegment declined 6.2%, of ¥3.0 billion, to¥44.8 billion, despite robust sales of MEDCOM
and fire insurance policies. This result was
attributable mainly to the application of the
new “Recognition and Measurement of
Financial Assets and Financial Liabilities”
accounting standard, which resulted in an
increase in loss on other-than-temporary
impairment of investment securities. The
segment reported an operating loss of ¥4.9
billion, compared with operating income of¥6.2 billion in the preceding period, owing
primarily to increases in losses incurred as aresult of the aforementioned major natural
disasters and loss on other-than-temporary
impairment of investment securities.

Geospatial Information Services
The geospatial information services segment
centers on the collection of geographic datausing commercial satellites, aircraft and surveying using proprietary vehicles, among
others, which is integrated, processed andanalyzed 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 thissegment edged up 1.6%, or ¥814 million, to¥51.9 billion, bolstered by an increase in sales
to domestic customers. Operating income
rose 12.1%, or ¥202 million, to ¥1.9 billion,
thanks to an improved cost of sales ratio inJapan and a decline in SG&A expenses. The
operating margin improved to 3.6%, from
3.3% in the previous fiscal year. The name ofthis segment was changed to geospatial

information services, from geographic information services, effective from the period
under review. This change did not entail any
reclassification of reportable segments.
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 and operating revenue
climbed 31.8%, or ¥24.4 billion, to ¥101.3 billion, owing to contributions from TMJ, whichbecame a consolidated subsidiary in October
2017, and higher revenue from the data center services, among others. Operating income
was up 15.5%, or ¥1.3 billion, to ¥9.4 billion,
and the operating margin decreased to 9.3%,
from 10.6%. This reflected comparatively
profitable systems development projects, theinclusion of a full year of results for TMJ and a
decline in impairment loss on long-lived

assets, as well as the fact that TMJ has acomparatively lower operating margin.
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 thissegment rose 2.4%, or ¥1.1 billion, to ¥46.6
billion, with contributing factors including an
increase in the construction and installation
business, as well as to the sale of blocks ofrenovated pre-owned condominiums.
Operating income fell 26.4%, or ¥1.8 billion, to¥5.1 billion, owing to the absence of income
from real estate sales reported in the preceding period. The operating margin declined to
10.9%, from 15.2% in the previous fiscal year.

Financial Position
Total assets as of March 31, 2019, amounted
to ¥1,879.7 billion, an increase of ¥40.8 billion
from the end of the preceding period. Total
current assets rose ¥62.4 billion, to ¥870.3 billion, and accounted for 46.3% of total assets.
The current ratio edged up to 2.1 times, from
2.0 times. Cash and cash equivalents totaled¥349.7 billion, up ¥33.0 billion, reflecting thefact that 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, trade,climbed ¥12.2 billion, to ¥156.9 billion, owing
to factors such as an increase attributable tothe application of a new accounting standard,“Revenue from Contracts with Customers,”
as well as to higher net sales and operating
revenue. Notes and accounts receivable areaffected by the fact that income in the fire

protection services and geospatial information segments tend to be concentrated
toward the end of the fiscal year. Cash deposits for armored car services advanced ¥6.5
billion, to ¥142.3 billion, with contributing
factors including the expansion of cash collection and delivery service contracts. Inventories
were down ¥16.1 billion, to ¥65.9 billion, as
the application of the new “Revenue fromContracts with Customers” accounting standard resulted in a decrease in costs related toincomplete construction contracts, leading
to declines of ¥8.3 billion in inventories of fire
protection-related products, to ¥12.2 billion,and ¥7.8 billion in inventories of real estate forsale, to ¥36.6 billion.
Investments and long-term receivables
decreased ¥16.8 billion, to ¥341.4 billion. This
represented 18.2% of total assets. Investment
securities, at ¥212.6 billion, were down ¥14.6

billion. This was due to the reclassification of
corporate bonds and other debt securities
due within one year in current assets, as wellas to a greater loss on other-than-temporary
impairment of investment securities.
Property, plant and equipment, at ¥416.2
billion, was down ¥3.9 billion, equivalent to22.1% of total assets. Land rose ¥2.6 billion, to¥116.5 billion, reflecting an increase in realestate for lease.
Other assets declined ¥8.7 billion, to ¥251.8
billion, and accounted for 13.4% of total
assets. Goodwill was up ¥1.6 billion, to ¥108.1
billion and other intangible assets rose ¥865
million, to ¥57.9 billion. Deferred charges
decreased ¥17.1 billion, to ¥25.2 billion, aconsequence of the application of the new“Revenue from Contracts with Customers”
accounting standard. Deferred income taxes
advanced ¥8.8 billion, to ¥22.1 billion, with

Percentage of Consolidated
Net Sales and Operating Revenue*

SECOM CO., LTD.
Shareholders’ Equity per ShareTotal Assets(Year ended March 31, 2019)(In yen)(In billions of yen)

5,000

2,000

4,000

1,600

3,000

1,200

2,000

800

1,000

400

7.9%

4.0%

4.6%
3.8%
16.3%

50.8%

12.6%
Security Services
Medical Services
Geospatial Information Services
Real Estate and Other Services

Fire Protection Services
Insurance Services
BPO and ICT Services0

15 16 17 18 19

0

15 16 17 18 19* Pie chart shows percentage of consolidated net sales andoperating revenue (excluding intersegment transactions)

SECOM Annual Report 201957

Financial Review
contributing factors including a reversal of thevaluation allowance.
Total liabilities as of March 31, 2019,
amounted to ¥703.8 billion, a decline of ¥3.8
billion from the end of the previous fiscal year,
and accounted for 37.4% of total liabilities andequity. Total current liabilities were ¥405.4 billion, an increase of ¥5.7 billion, and accounted
for 21.5% of total liabilities and equity. Deposits
received rose ¥8.7 billion, to ¥127.6 billion, as
the expansion of service contracts pushed up
cash deposits for armored car services.
Total long-term liabilities, at ¥298.4 billion,
were down ¥9.5 billion, and represented 15.9%of total liabilities and equity. Long-term debt
declined ¥5.0 billion, to ¥45.3 billion, owing to
repayments, as well as to the transfer of certain debt to “bank loans” in current liabilities,
among others. Deferred income taxes fell
¥10.5 billion, to ¥16.0 billion, reflecting areversal of the valuation allowance.
Total SECOM CO., LTD. shareholders’ equity
increased ¥43.9 billion, to ¥1,044.2 billion.
Retained earnings climbed ¥71.1 billion, to¥967.7 billion, with contributing factors
including net income attributable to SECOM
CO., LTD. and the payment of dividends, aswell as cumulative-effect adjustment fromunrealized gains on securities to retained
earnings at the beginning of the fiscal yearof ¥20.8 billion. Accumulated other comprehensive loss was ¥78 million, compared withaccumulated other comprehensive income of¥27.2 billion in the preceding period, owing to
a decrease in unrealized gains on securities,
which was a significant factor in the previous
fiscal year. As a result, the equity ratio was
55.6%, compared with 54.4% at the end of theprevious fiscal year.

declines in inventories of real estate for saleand of fire protection-related products, thelatter reflecting a decrease in costs related toincomplete construction contracts.
Net cash used in investing activities was¥64.4 billion. This result was despite proceedsfrom sales and redemptions of investment
securities of ¥43.6 billion and was a consequence of payments for purchases of property, plant and equipment of ¥56.4 billion,
owing to outlays for security equipment andforward-looking investments to reinforce theCompany’s operating foundation; paymentsfor purchases of intangible assets of ¥11.5 billion, attributable to forward-looking investments to reinforce the Company’s operating
foundation; and payments for purchases ofinvestment securities of ¥36.7 billion, primarily
in the insurance services segment andthrough private equity investments in the
United States.
Net cash used in investing activities was¥3.0 billion higher than in the fiscal year
ended March 31, 2018, despite a decline inoutlays for acquisitions, net of cash acquired,
which rose in the previous period as a resultof the acquisition of TMJ, among others.
Factors behind this result included cash

generated by an increase in short-term
investments and net proceeds from sales andredemption of investment securities of ¥2.7
billion, compared with ¥17.1 billion in the preceding period, and an increase in outlays forpurchases of property, plant and equipment
and of intangible assets.
Net cash used in financing activities was¥60.3 billion. This was due primarily to dividends paid to SECOM CO., LTD. shareholdersof ¥34.9 billion, and repayments of long-term
debt of ¥20.2 billion.
Net cash used in financing activities was¥5.3 billon higher than in in the fiscal year
ended March 31, 2018. This primarily reflected
dividends paid to noncontrolling interests
arising from the purchase of treasury stock by
subsidiary Secom Joshinetsu Co., Ltd., adecline in proceeds from long-term debt andthe increase in dividends paid to SECOM CO.,LTD. shareholders.
The Company’s operating, investing andfinancing activities in the period under review
yielded net cash and cash equivalents of¥349.7 billion, up ¥33.0 billion from net cash
and cash equivalents at the beginning of theperiod, which were of ¥316.7 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¥158.3 billion. The principal components ofthis were net income of ¥100.4 billion, anddepreciation and amortization, including
amortization of deferred charges, a non-cash
item, of ¥75.3 billion, which were partially offset by an increase in receivables and due fromsubscribers, net of allowances, of ¥17.4 billion
and an increase in deferred charges of ¥10.7
billion. Deferred charges consisted primarily of
costs related to the installation of equipment
for on-line security systems. (For further
details, please see note 2 (12) of the Notes to
the Consolidated Financial Statements.)
Net cash provided by operating activitieswas ¥25.1 billion higher than in the fiscal year
ended March 31, 2018. Factors behind thisincrease included a ¥4.3 billion decrease ininventories, compared with an ¥18.6 billion
increase in the previous fiscal year, owing toDepreciation 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

15 16 17 18 19

0

15 16 17 18 19

-150

17

18

19

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

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SECOM Annual Report 2019