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Financial Review

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(as of May 8, 2014)

Capcom Co., Ltd. would like to announce that net sales increased to 102,200 million yen (up 8.6% from the previous fiscal year) fiscal year ended March 31, 2014. As for profits, operating income increased to 10,299 million yen (up 1.5% from the previous fiscal year), and ordinary income increased to 10,946 million yen (up 0.0% from the previous fiscal year). Net income for the current period was raised to 3,444 million yen (up 15.9% from the previous fiscal year).

1. Qualitative information and consolidated financial statements

During the fiscal year ended March 31, 2014, the Japanese economy has got on the road to recovery owing to steady consumer spending, the yen's depreciation and brisk exports, plus the improvement in the employment/income environment and rises in stock prices, as well as Tokyo being selected to host the 2020 Olympic Games.

In the industry, the home video game market entered a transition period with weak performance, due in part to next-generation home video game consoles not yet being released in Japan even as such were already released in other areas including North America and Europe simultaneously in November last year.

Meanwhile, the social game market saw native app games surge amid the shift from feature phones (conventional mobile phones) to smartphones (high-function mobile phones) as the mainstream platform. Additionally, the market environment has been rapidly changing with the spread of tablet devices (multi-functional mobile terminals) and the rise of LINE, an app that allows users to call and chat for free, which promoted multi-polarization of business structures and led to increased presence of social game market.

Under such circumstances, the long-awaited flagship title "Monster Hunter 4" which Capcom released in September 2013 displayed explosive popularity with long lines forming at major retailers across the nation since the release date. With more than four million units sold, the game was a smash hit, and the total number of units sold in the series exceeded 28 million.

In addition, in order to adapt to the changes of external business environments, Capcom worked on improvement of the development process and earnings management by clarifying the operational chain and responsibility through reorganization of the development structure and speeding up of decision making, as well as by increasing the ratio of in-house development through such measures as progressively reducing the outsourcing of development, especially those to overseas developers.

In addition, "Monster Hunter Festa '13", which Capcom held in five cities in Japan including Tokyo and Osaka last fall, turned out to be a success bringing in nearly 50,000 fans being participated in total.

Furthermore, our branding development gained further momentum through the event "Monster Hunter The Real 2014" held this February in collaboration with Universal Studios Japan, a theme park in Osaka, as it was popular with visitors.

Given the above, net sales increased to 102,200 million yen (up 8.6% from the previous fiscal year).

In terms of earnings, operating income leveled off at 10,299 million yen (up 1.5% from the previous fiscal year) and ordinary income, however, decreased to 10,946 million yen (up 0.0% from the previous fiscal year) due to such factors as loss on closing stores.

Net income amounted to 3,444 million yen (up 15.9% from the previous fiscal year) despite the recording of special losses including restructuring charges primarily due to the slump of mobile content.

Capcom is fully recognizing the importance of diversity of human resources in recent years while actively utilizing female workers and making evaluations according to performance and not based on gender, age and such. As part of such efforts, we are promoting executive positions of female employees, and so far we have two female corporate officers and 20 female employees in management positions such as general managers and senior managers.

Status of each operational department

1. Digital Contents business

In the Digital Contents business, the featured title "Monster Hunter 4" (for Nintendo 3DS) was supported by overwhelming popularity, as mentioned above, and created a huge buzz even comparable to a sort of social phenomenon. Moreover, sales of "Dead Rising 3" (for Xbox One) that has been geared toward the European and U.S. markets, and "Resident Evil Revelations" (for PlayStation 3, Xbox 360, Wii U and PC) exceeded a million titles each and so three titles have become million-sellers.

In addition, "Dragon's Dogma: Dark Arisen" (for PlayStation 3 and Xbox 360) showed firm sales while projected sales were basically achieved for "Phoenix Wright: Ace Attorney Dual Destinies" (for Nintendo 3DS).

Furthermore, full-game digital titles, which respond to changes in forms of distribution, contributed to the expansion of sales by growing significantly both at home and overseas in line with the progress in diversification of business models. This included the over-performance of "DuckTales: Remastered" for overseas in addition to the aforementioned "Monster Hunter 4" showing strong sales.

Sales of "Lost Planet 3" (for PlayStation 3, Xbox 360 and PC), were below expectations due in part to intensifying competition in the European and U.S. markets.

Meanwhile, the online game "Monster Hunter Frontier G" (for PC, Xbox 360, PlayStation 3 and Wii U) performed lower than anticipated, but the browser game "Onimusha Soul" which was distributed in Taiwan with the aim of expanding Capcom's business fields, garnered a great deal of attention and ranked first in popularity. This thereby marked the beginnings of gaining a foothold in the market for the local corporation, which was established two years ago.

However, mobile contents underperformed as a whole due in part to a lack of major titles and the fiercely competitive environment even though "Monster Hunter Hunting Quest" performed steadily.

As a result, net sales were 65,824 million yen (up 3.4% from the previous fiscal year), and operating income was 4,489 million yen (down 36.4% from the previous fiscal year).

2. Arcade Operations business

In the Arcade Operations business, under the continuous stagnant market circumstances, Capcom has been working to expand customer base. In an effort to reach potential customers, Capcom developed elaborate activities such as conducting "free game experiencing tours" for middle-aged and seniors, and setting up "kids' corners" for pre-school children, while it endeavored to capture a wider range of customers including core customers, repeat customers and families by renovating arcades and holding various events.

However, the lack of high-performing game machines, intensification of competition with other entertainment and bad weather adversely impacted efforts to attract customers.

With the promotion of a scrap-and-build policy in accordance with changes in the environment, Capcom opened an arcade in Shizuoka City and closed two unprofitable arcades during the period under review, bringing the total number of arcades to 33 as of the end of the period under review.

As a result, net sales were 10,620 million yen (down 3.0% from the previous fiscal year), and operating income was 1,617 million yen (down 5.4% from the previous fiscal year).

3. Amusement Equipments business

In the Pachinko & Pachislo business, "Monster Hunter: Gekka Raimei", in which the motif is a title for which Capcom is known, served to lead the increase of sales and support earnings as it showed a good start due to its synergy with home video game software. In addition, "Devil May Cry 4", which was released last September, realized better-than-expected sales, contributing to the increase of sales.

On the other hand, in the Arcade Games Sales business, the new coin-operated game machines "Monster Hunter Medal Hunting Compact" and "Mario Party Fushigi no Korokoro Catcher 2" performed solidly.

As a result, net sales were 23,160 million yen (up 38.0% from the previous fiscal year), and operating income was 7,131 million yen (up 45.8% from the previous fiscal year).

4. Other Businesses

In Other Businesses, which is mainly the publication of game guidebooks, etc. and selling of character and other goods, net sales were 2,594 million yen (down 4.3% from the previous year), and operating income was 1,001 million yen (up 35.2% from the previous year).

2. Analysis of the consolidated financial position

1. Assets

Total assets as of the end of the current fiscal year decreased by 7,754 million yen from the end of the previous fiscal year to 96,611 million yen. The primary increase was 6,446 million yen in notes and accounts receivable, trade. The primary decreases were 8,533 million yen in work-in-progress for game software, 1,801 million yen in cash on hand and in banks, 595 million yen in raw materials and supplies and 564 million yen in merchandise and finished goods.

2. Liabilities

Total liabilities as of the end of the current fiscal year decreased by 8,801 million yen from the end of the previous fiscal year to 32,735 million yen. The primary decreases were 7,144 million yen in short-term borrowings, 3,000 million yen in long-term borrowings.

3. Net assets

Net assets as of the end of the current fiscal year increased by 1,047 million yen from the previous fiscal year to 63,875 million yen. The primary increases were 3,444 million yen in net income for the current fiscal year and 2,333 million yen in cumulative translation adjustments which related to foreign exchange translation of the net assets of foreign consolidated subsidiaries. The primary decrease was 2,286 million yen in treasury stock and 2,283 million yen in cash dividends.

3. Prospects for the next fiscal year

As for future prospects, the transition of business models is expected to accelerate in the home video game market due to the emergence of next-generation machines with diverse networking functions in light of the rise of online games thanks to the proliferation of smartphones and such.

On the other hand, we expect that the burden on software makers will increase further as the surge of development costs, due to the higher-spec hardware, will be unavoidable.

Furthermore, with the rise of the social gaming market, which has a low barrier to entry, a major transformation is in progress as the struggle to take initiative among gaming consoles, smartphones and such intensifies further. It is expected that the overall market size will increase due to the expansion of the user base caused by the synergy between the two, and the landscape may transform rapidly due to the intensification of competition between companies.

Under the circumstances of drastic changes in the business environment, Capcom will focus on increasing the corporate value of the whole group with agile management development through selection and concentration, such as by inputting management resources in focused businesses and growth areas through the review of earnings structures and business models as well as by withdrawing from unprofitable businesses.

For this, Capcom will focus on marketing of digital download contents and PC online games for which continued growth is expected. Also, Capcom will enhance the Pachislo business which has been growing steadily in the last few years, while aiming for the early rebuilding of Mobile Contents business. Furthermore, taking with utmost seriousness the fact that extraordinary losses were recorded for the second consecutive fiscal year following the previous fiscal year, Capcom recognizes that in order to break through this situation the important issue in management is the establishment of a corporate structure that secures stable earnings without being influenced by changes in the environment.

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