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FY2019

Presentation of Financial Results in FY2019

May 12, 2020

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Question and Answer Summary
What changes in core user behavior have you perceived following the spread of COVID-19?

While we believe there has been an increase in the frequency of people playing games given the current restrictions on going outdoors, it is possible that less leisure time will be available in the future due to factors such as reduced summer vacation time at schools. As such, our view overall is that on average there will not be a major change.

Capcom is perceived as being cautious with its approach to new hardware. What is your policy regarding support for the next-generation of platforms?

While we are unable to provide specific details at this time, we intend to approach the next-generation of platforms in step with our multi-platform strategy.

I imagine there are obstacles to production of visuals and audio recording while situated in a work-from-home environment. How is Capcom addressing this?

While our initiatives are not drastically different from those of our peers in the industry, we are working to increase efficiency and have been carrying out talks with key members of game development, adjusting the times our creators come to work in order to maintain our release schedule for this fiscal year.

What comparisons can be drawn between past economic disasters and the current COVID-19 crisis?

Both the Great East Japan Earthquake and the 2008 Financial Crisis were defined by factors such as geography and field; the crisis surrounding COVID-19, however, is one that affects all of humanity. It is challenging to carry out work in these circumstances as we normally would. Currently, it is unclear when this crisis will be under control; however, we will continue to carry out business while making the lives of our employees, customers and all stakeholders our top priority.

When will we get some visibility on which specific new major titles will be released in FY2020?

With the exception of Resident Evil 3, which was released on April 3, 2020, we are currently considering the timing of all other title announcements. We will formulate a schedule after giving further consideration to overall factors, such as the market situation and any movement on the part of platform holders.

Tell me about the pipeline from FY2021 onward.

While we are unable to provide any details on specific titles or dates at this time, we plan to release major IP at the optimal time according to our 60-month development roadmap.

Tell me about your marketing initiatives to further increase the ratio of digital sales.

We are strengthening our support for the PC platform, as it has a large global install base and the ratio of digital sales on the platform is high. In recent years, we have also carried out cooperative marketing campaigns with PC and PC device manufactures.

Tell me about your activities in China and emerging markets.

We currently sell titles digitally in over 200 countries and regions and have extended the sales life of our games through initiatives that include leveraging our back catalog of titles. Going forward, we will grow sales globally through effectively utilizing one of our strengths: our robust library of IP, which have established a world-wide presence via licensing, such as in film adaptations.

Regarding further growth in the Mobile business, what are your objectives and how will you approach matters such as in-house development and alliances?

We launched a number of new titles in the previous fiscal year, however we believe that more than ever before experience in mobile game development and operations will be needed going forward. We will continue to amass know-how in this area via both in-house development and operations, as well as through working with external partners with a successful track record in the mobile game market.

Which do you give more importance to for the purposes of future profit growth: improving profit margins or top-line growth? Also, what will be the drivers of top-line growth?

Releasing multiple major new titles on a consistent, annual basis is our priority in achieving increased operating income each fiscal year. The primary reasons for this are, not only can we anticipate increased revenue through bolstering our lineup of titles with new releases, but also in the following fiscal year and onward we are able to improve margin contributions as these games become highly profitable catalog titles. Moreover, these games can further be used to capture fans in newly cultivated regional markets, such as developing countries, when sold as value-priced titles whose development costs have been fully depreciated.

What business opportunities do you see with 5G?

5G utilization is currently limited primarily to mobile devices, whose small display screens are less suited to delivering the stunning visual experiences that can be provided by the types of PC and console games for which we are known. We are now working on the technical research that will enable us to take advantage of potential major changes that may occur in this area in another 5 to 10 years, while also building out our global sales network.

A number of new platforms, including streaming services, have entered the market. What is Capcom’s policy for supporting these platforms?

While we are in multiple talks, we are unable to provide details regarding a standard policy of platform support since many of these new services will be just beginning to enter full-fledged operations. As such, we will evaluate developments for each opportunity in our considerations going forward.

Tell me the details of the impairment in Q4.

We are unable to discuss details such as the specific monetary amount, however this was recorded in business sub-segments including Consumer and Mobile.

Following the cancellation of E3 and the Tokyo Game Show, what changes have there been to Capcom’s marketing strategy?

We are considering our future promotional strategy while looking at the activities of each platform holder and the possibilities of working together. Further, as the Tokyo Game Show organizers are considering an online event as an alternative, we will seek ways to utilize this with an eye toward optimizing our promotional activities.

When will Capcom begin support for next-generation platforms?

As we have done in the past, we will release titles at a time that is beneficial to us while considering factors such as the platform’s installation base.

Will there be any difficulties in releasing new titles if the state of emergency in Japan is extended?

In the past, when physical packaged games were the mainstream it would have been possible that retail store closures could have an impact on new title releases; however, at present, digital sales are widespread, and we believe any impact should be minimal. Also, while work from home has had some effect on content development, we are working to minimize its impact through innovating work efficiencies.

3rd Quarter in FY2019 Presentation of Financial Results

February 4, 2020

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Question and Answer Summary
How is Monster Hunter World: Iceborne performing, and how do you plan to improve upon this performance going forward?

We are aware that our initial sales plan for the game, which was formulated based on input such as the performance of both Monster Hunter: World and what has been traditionally known as the "G" version of titles in the series, was aggressive compared to the game’s current sales. Given the highly positive reception of the game itself, we will focus on growing sales over the long-term by continuing to analyze the purchasing trends and status of players, along with game completion rates and sources of user attrition.

What is your evaluation of and outlook on the Amusement Equipments business, which operates in the amusement machines market?

As the major players in this space have readied their lineup of type 6 machines, we have received a fair amount of orders for our first type 6 model, indicating positive feedback. That being said, we have only released a single model this fiscal year, which is a situation that we’ll look to address. Thus, we aim to make improvements such as bolstering development and personnel resources, reducing costs and increasing the precision with which we handle certification testing.

What factors contributed to growth of sales for catalog titles such as Resident Evil 2 and Devil May Cry 5?

In addition to building steady results during other times of the year, this was driven primarily by promotional sales held during Tokyo Game Show, Black Friday and Christmas. Going forward, we will continue to promote sales while closely watching consumer demand.

Considering MHW:I’s results, how do you plan to sell and grow the Monster Hunter brand, including sequels to MH:W?

While the proportion of units sold in North America and Europe for MHW:I exceeded our expectations for those regions, it is also true that there is still room for us to improve in boosting the attachment rate from MH:W to MHW:I and increasing player motivation in those same regions. Currently we are carrying out analysis of play data, which we will utilize in developing strategies for matters such as how we market expansions going forward.

Why have corporate operating expenses increased in the revised plan?

As a part of the changes to our revenue structure due to the shift to digital, we are forecasting these corporate operating expenses to reflect a changeover to digital operations that extends beyond our Consumer and Mobile sub-segments. This includes building out foundational digital capabilities in our management and administration functions throughout the organization.

When will the first physical shipments of Resident Evil 3 be recognized as revenue?

It depends on the accounting standards of each country, however we expect to recognize revenue for initial shipments of the Japanese version in the fiscal year ending March 31, 2020, while shipments of overseas versions are expected to be recognized in the fiscal year ending March 31, 2021.

Tell me about the timing of booking costs associated with recognizing revenue for your Consumer titles.

Costs are booked in accordance to the amount of net sales at the same time revenue is recognized.

Has the expected lifetime unit sales for MH:W changed since seeing the sales performance of MHW:I?

As unit sales for MH:W continue to grow even now, there have been no notable changes at this time.

2nd Quarter in FY2019 Presentation of Financial Results

October 29, 2019

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Question and Answer Summary
How do you calculate unit sales for Monster Hunter World: Iceborne (MHW:I) Master Edition? Are they being double-counted with Monster Hunter: World (MHW)?

They are counted toward unit sales for MHW:I.

Why were Consumer retail sales prices lower in Q2?

This was primarily due to executing pricing strategies such as discount sales for major catalog titles that had been contributing at nearly full price through Q1.

The media has reported that MH:W has been approved for release in China. Is this true?

While we are aware of these news reports, we have not officially confirmed their validity at this time.

I would like a rough estimate of the amount written down in the Mobile sub-segment during Q2.

While we have not disclosed the details, in the range of 1 billion yen would be a fair approximation, which would include certain new titles and cancelled projects.

The amount depreciated for content in Q2 feels small. Why is this?

The cost of sales is lower in Q2 because aside from MHW:I, our other titles have all nearly been completely depreciated, while general costs have been trending downward due to the shift to digital. Also, MHW:I has just been released and we expect it to have a long sales life as well as a long deprecation schedule.

Why did you invest less into esports than initially planned for the first half of the fiscal year?

While there is nothing that merits special mention, our focus on large-scale events scheduled for the second half of the year and onward, such as the Intel World Open and Capcom Cup, could be cited as contributing factors.

What should we look to as performance indicators of growth in esports?

At present, how much we can expect to earn in revenue in the future is still to be determined. We feel that our first priority is increasing the numbers around event attendance and viewership while strengthening the base of people who are interested in Street Fighter as much as possible.

You've launched mobile titles at a consistent pace during FY2019. Please give me an update on the performance of each.

Sengoku BASARA Battle Party performed well at launch but is currently slower in growth. As Gundam Breaker Mobile and Teppen are both alliance titles we will refrain from commenting on their performance, however we are working with our partners to grow each game.

What was the reason for the write-down in the Mobile sub-segment?

Our criteria for evaluating titles has not changed; as with our Consumer sub-segment, we reevaluate all titles in our Mobile sub-segment that significantly deviate from their sales plan. This is not out of the ordinary even for titles in their launch year.

Will Mobile return to profitability next fiscal year?

We aim to return to profitability next year, and to that end will continue to develop and launch both internally-developed and co-developed titles in order to grow the Mobile sub-segment into another revenue pillar.

How will Street Fighter's inclusion in the Intel World Open esports tournament impact revenue?

Through working with Intel Corporation, we believe we can grow awareness of both Street Fighter and esports. We do not expect any significant impact on revenue.

Considering the launch of MHW:I, a massive expansion that was downloadable, what is your future outlook and policy regarding sales of digital download content?

Since the lifecycle of games has grown longer, the question of how best to utilize digital download content going forward is certainly one of significance, especially with the growing need to keep content fresh. As we still have the January 2020 release of MHW:I for PC on the horizon, we feel it is too early to give a summary review.

What is your Mobile strategy going forward?

With the roll-out of 5G on the horizon in the global market, as well as in considering the potential for new kinds of content that goes beyond the traditional scope of mobile games, yet is enjoyed utilizing mobile devices, we are currently discussing our future strategy here.

Has there been a change to your 2H Mobile title release schedule?

There have been no changes. We plan to release both internally- and jointly-developed titles.

What was the unit sales trend for MH:W in Q2?

We successfully executed pricing strategies, leading to growth of primarily the PC version of the game. We also believe that building buzz for the launch of the console version of MHW:I positively contributed to sales of the PC version of the base game.

What is your strategy to grow sales for MHW:I going forward?

Looking toward the holiday shopping season, we are considering a number of measures focused around promoting the content of the game in overseas markets. It is possible that we will evaluate a price drop, however, as this would influence market trends we have not made specific plans at this time. MHW:I is our first massive digital expansion, and we look to stimulating the market in order to grow sales for the title.

How would you evaluate MHW:I's performance at this point in time, and how has it done in each region?

While we would like to evaluate its performance following the launch of the PC version, in Q2 the game shipped 2.8 million units and is overall in-line with our expectations. Further, regional sales of the game have grown in Japan, however this is to be expected considering the domestic fan base is familiar with the "G" versions of past games in the Monster Hunter series, which have included a large amount of additional content.

Please give a breakdown of the sub-segments in the Digital Contents business for which you revised the plan for profit.

Primarily, the revision is in consideration of the write-down in the Mobile sub-segment.

You previously stated that you restructured the development organization of your fighting games. Can you give a status update?

As they represent one of our major IPs, we did carry out a reorganization here, however simply doing so once does not mean the matter is settled; even under the new structure we are continuing game development while carrying out a trial-and-error-based improvement cycle.

1st Quarter in FY2019 Presentation of Financial Results

August 1, 2019

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Question and Answer Summary
Catalog sales of Resident Evil 2 and Devil May Cry 5 were favorable in the first quarter. Do you expect these to continue to grow in the second quarter and beyond?

We believe that through carrying out promotions such as discounts for digital versions of these titles that even further sales growth is possible, and have forecasted these titles to sell more than 1 million units each for the fiscal year ending March 31, 2020.

What has been the response leading up to the release of Monster Hunter World: Iceborne (MHW:I)?

We are refraining from making a statement regarding this because, in addition to this being our first attempt at launching a massive expansion digitally, we have no option in place for pre-ordering/shipping this title in digital sales, thus it is difficult for us to give an estimate of the first shipment until after the release date.

Tell me why first quarter same store sales were strong for the Arcade Operations business.

Major factors included the extended national holiday during April and May, in addition to poor weekend weather across the country during June that caused an increase in customers. This resulted in the steady performance of merchandiser machines, our primary genre of games, which drove sales.

What are the details of the one-time revenue recognized in the first quarter?

While this revenue was booked under our Digital Contents business, we are unable to provide further details due to confidential aspects of the associated deals. This revenue is already reflected in our guidance.

Tell me about the amortization of development costs recognized under cost of sales in the first quarter.

We recognized development costs for primarily new small and mid-sized titles, such as ports for Nintendo Switch as well as titles released in the previous fiscal year and earlier.

What drove growth of catalog sales for Monster Hunter: World (MH:W)?

We believe that the announcement of the massive expansion MHW:I as well as strategic discounts of MH:W stimulated sales among new customers, driving sales growth.

What percentage of players have finished MH:W? What is the rate of current active users?

We have not disclosed the rate of active users or the percentage of players who have finished MH:W. However, because it is necessary to have finished MH:W to play MHW:I, we are placing a greater relative importance on the percentage of players who have finished the game.

I believe the retail price for Consumer titles in the first quarter was higher than expected. Will there be any changes in criteria for carrying out discounts going forward?

We maintained higher average prices as our major titles were performing well. We carry out discounts for digital titles taking sales trends into consideration and have no plans to change our criteria regarding this.

Tell me how Sengoku BASARA Battle Party for mobile is performing.

It is currently performing to our expectations. Because we expect this title to serve as an indicator for our future mobile initiatives we are carefully monitoring its daily activity.

You announced TEPPEN for mobile. What led to working with GungHo on this title?

After speaking with a number of companies as potential mobile alliance partners, we decided to work with GungHo because we believe that both companies would be able to leverage their strengths, namely Capcom's IP and GungHo's knowhow and track record in the mobile market. We are coordinating with GungHo on the global rollout for TEPPEN, which has been launched first in the North American and European markets and is scheduled for release in Japan at a later date.

What will the retail price be for MHW:I?

MHW:I alone will cost MSRP $39.99, while the Master Edition version, which includes MH:W, will cost MSRP $59.99.

How much revenue has Capcom earned from esports in the first quarter, and what should we expect for the next two or three years?

The esports business generates an insignificant amount of revenue at present. Over the next few years our focus will be on viewership, audience size and player numbers rather than on monetization, as we are prioritizing growth of the esports ecosystem. We therefore do not have revenue goals that we can share at this time.

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