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Presentation of Financial Results in FY2012

May 9, 2013

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FY2012 Financial Results Question and Answer Summary
Please explain the reasons for your decision to recognize business restructuring expenses in the fiscal year ended March 2013. Could you also let us know whether the possibility exists that you may regularly recognize similar special losses in the future?

We do not acknowledge the special losses booked in the previous fiscal year as being regular or periodic in nature. One of the causes was that, since 2009, we actively pursued a policy of using development companies in other countries which created additional challenges when compared to in-house development, and led to some titles not attaining the anticipated quality standard. Consequently, we chose to cancel some of the titles under development with external companies as well as additional titles that did not meet market demands of the digital contents distribution. As a result, we booked business restructuring expenses to reduce future special losses and the transition to in-house production.

What are your plans and forecasts for the Chinese version of "Monster Hunter Online"?

We expect to commence β-testing in 2013 in association with Tencent Holdings Limited. However, just as for ordinary PC online games, we anticipate that the contribution to revenues will be insignificant in the first year of this new development.

Can you explain how the newly developed "Panta Rhei" engine differs from the "MT Framework"?

"Panta Rhei" is the most recently developed engine for new generation consoles like the PlayStation 4, whereas "MT Framework" is an engine developed for existing consoles like the PlayStation 3, Xbox 360 and for mobile consoles including iOS. We shall continue to conduct independent research on the basis of the technology and knowhow gained from developing the "MT Framework".

Could you give us some idea of the consequences you anticipate that the process of bringing development in-house may have in terms of issues like increasing development costs or causing management difficulties and the countermeasures you are considering to deal with such issues?

Bringing development in-house will not increase development costs. We believe that, by being able to achieve clarity in scheduling and in budgetary control, and by aggressive hiring of new graduates and the effective deployment of the existing human resources within the company, we will be able to maintain roughly the same level of cost performance. Furthermore, we aim to enhance the cost efficiency, not just in development, but for the company as a whole, by making progress with a comprehensive process of operational improvement and restructuring by reinforcing our overseas sales and marketing structure to complement this improvement in the efficiency of the development structure.

What are your plans for the new "Gaist Crusher" title?

Please accept that we are unable to disclose plans for individual titles. This title is not marketed solely as a home-use game, but has been developed as a comprehensive new project incorporating aspects such as anime and character goods and so we aim to create a new brand around it.

Please indicate us about the current state of development for titles for next generation consoles and whether the development costs will be higher than those for existing ones.

As far as titles for next generation consoles are concerned, we shall be introducing the most suitable and appropriate titles for them on the basis of careful consideration of factors like hardware penetration rates and market conditions. Moreover we think that, by exploiting the potential of our own in-house developed engine and improving the efficiency of our development structure, we shall not have to significantly increase our development costs from the currently prevailing level for existing consoles.

Why is the growth rate in your plan for mobile contents sales in the fiscal year ending March 2014 slower than in the preceding fiscal year?

The main reasons are the fact that the market has stalled somewhat as a result of the diversification of devices and waning popularity for certain genres of games, and a slowdown in the pace of hit products being launched in the fiscal year ended March 2013. That said, we are concentrating our efforts on business areas with sustained growth through the introduction of newly created social games and the promotion of diversification in platform games in the current fiscal year ending March 2014.

What are the exchange rate sensitivities included in your operating income and ordinary income forecasts?

For operating income, we anticipate that a 1 yen movement against the dollar and the euro will have an impact of 70 million yen in total. Please appreciate that we are unable to disclose exchange rate sensitivities for ordinary income.

Please tell us about the major titles in your package line up for the fiscal year ending March 2014.

We plan to introduce three major titles for which we expect to sell more than 1 million units: "Monster Hunter 4", "Resident Evil Revelations Unveiled Edition" and "Lost Planet 3". We also plan to launch some new titles like "Gaist Crusher", as well as sequels to popular domestic games series like "Phoenix Wright 5" and "Sengoku BASARA4".

Can you tell us about the sort of growth potential you envisage for operating earnings in your Revised Mid-Term Goals?

We are forecasting operating income of 12 billion yen for the fiscal year ending March 2014. But we estimate, on the basis of projected growth for the next five years resulting from our projections for the balance between the lifetimes of existing consoles and the dissemination of next generation consoles in the package software market and growth in sales of online content, that operating income may well achieve the 20 billion yen mark in the fiscal year ending 2018. We are striving to establish a new structure for the whole company so that we can ensure that we achieve our Revised Mid-Term Goals.

Forecast Revisions

April 18, 2013

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3rd Quarter in FY2012 Presentation of Financial Results

February 4, 2013

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Question and Answer Summary
In the Digital Contents business, why is operating income expected to be about 400 million yen in the fourth quarter?

There are two major causes. First is a decline in earnings in the Home Hideo Games business resulting from the postponement of the launch of "Monster Hunter 4", which was originally scheduled for the fourth quarter. Second is a decline in profitability resulting from the revision of the "DmC Devil May Cry" sales plan to 1.2 million units.

What is your sales volume plan for "Monster Hunter 4", which is to be introduced in the next fiscal year?

We cannot provide you with a specific number at this time. However, we are determined to maximize sales volume based on market conditions, the quality of this title, the number of game consoles in use, and many other factors.

What is your view of the Wii U, including with regard to "Monster Hunter 3 (Tri) G HD Ver."?

Sales of "Monster Hunter 3 (Tri) G HD Ver". are strong as planned. We have nothing to say regarding trends involving hardware.

What is your outlook for operating income in the next fiscal year?

We are working on our plan for the next fiscal year and cannot make any statement about the plan at this time.

In the Digital Contents business, was the Home Video Games business profitable in the nine months results on a stand-alone basis?

This business was profitable and contributed to earnings.

What is the breakdown for sales in Japan and overseas in the Mobile Contents business in this nine months and the previous nine months?

In approximate figures, sales were 40% overseas and 60% Japan in this fiscal year and 60% overseas and 40% Japan in the previous fiscal year.

What is your current view of the social game market?

We believe that the social game market in Japan is stagnant right now. Although there are a few popular titles, it appears that card battle and other current games have little more room to grow. At Capcom as well, social game sales were down from the previous quarter, although Mobile Contents business earnings surpassed our plan. Overseas, all social game companies are apparently having difficulty capturing game users in segments other than entry users. The social game market requires quick actions due to the fast pace of change. Capcom will continue to closely monitor these changes and adapt in growth of the market.

Please provide information about repeat sales of the "Resident Evil 5" pachislo machine and Capcom's production capacity in the P&S business.

Sales of the "Resident Evil 5" machine were about 35,000 units as of the end of December 2012. We are continuing sales activities for this machine but we cannot provide any specific numbers at this time. We began working on improving manufacturing for these machines in 2012 and have raised monthly output by about 70%.

In the P&S business, will you launch a machine in the next fiscal year that can generate sales on a par with "Resident Evil 5"?

We appreciate the strong response that "Resident Evil 5" generated among users. We believe that the success of this machine was due to the quality of this title and market conditions that were favorable for a number of reasons. But we will not let this accomplishment make us over-confident. In the next fiscal year, we will work in raising sales volume for each model and establishing a framework capable of introducing a number of new models.

Why was "Resident Evil 6" below the target?

We are currently analyzing the causes, which involve our internal development operations and sales operations. We have not yet reached a clear conclusion. We believe that global sales of 5 million units are proof that this is a popular title. However, we believe that the new challenges we tackled at the development stage were unable to sufficiently appeal to users. In addition, we believe there was inadequate organizational collaboration across our entire company with regard to marketing, promotions, the creation of plans and other activities. We will have to examine these results from several perspectives. We will reexamine our internal operating frameworks in order to identify areas that need to be improved concerning development as well as sales and administrative operations.

When you reexamine your development and sales operations, is there a possibility of losses resulting from the suspension of development activities or a valuation loss?

We foresee no such losses at this time.

The fourth quarter accounts for a comparatively high share of your planned sales in the Mobile Contents business. How confident are you about reaching your sales target?

Based on sales in this nine months relative to our fiscal year plan, we are aware that our fourth quarter sales plan is ambitious. However, we have no intention of revising our plan at this time. We will do everything possible to reach our target, including the introduction of new titles in Japan and overseas.

In the Mobile Contents business, why were third quarter sales lower than second quarter sales?

The reason is somewhat slower growth in sales of some titles that had been driving sales growth in this business.

Please provide information about the increase in work-in-process for game software based on specific titles.

The increase is primarily the result of measures to strengthen the lineup of titles under development in the Home Video Games business. We are unable to provide information about specific titles.

2nd Quarter in FY2012 Presentation of Financial Results

November 1, 2012

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Question and Answer Summary
Why is game software work-in-progress higher even after you finished development major new titles?

We released "Dragon's Dogma" and "Resident Evil 6" in the first half of this fiscal year, but work-in-progress continues to increase because we are using development resources for the expansion of our lineup of game titles in the next fiscal year and afterward.

Overseas user reviews have not been very positive about "Resident Evil 6". What is your strategy for strengthening the brands outside Japan?

"Resident Evil 6" continues to generate repeat sales in Japan and overseas. Furthermore, initial shipments set a new record for a Capcom title. So this game has been successful to some degree. We therefore believe it is too early to reach a conclusion about how users view this game. We always listen carefully to the feedback from users and use this information when developing games.

What is your outlook for online content sales in the next fiscal year and what will be the drivers of growth?

We are unable to make a statement at this time about the outlook for the next fiscal year. We believe that we can sustain the rate of growth in the current fiscal year in the Mobile Contents business while focusing on global social games using the Beeline and Capcom brands.

Beeline does not appear to have any hit titles since "Smurfs' Village". What is your view of the current situation?

"Smurfs' Village" became popular among a large number of light smartphone users in part because the start of distribution coincided with the emergence of the social game market. We are currently seeing rapid growth in user segments for social games and the number of titles. We believe that we are now at the stage of continuing to take on various challenges for creating new hit games that can target the increasingly diverse preferences of social game users.

What are your plans for Asia?

In the current fiscal year, we set up game development bases in Taiwan and South Korea and we established Beeline Interactive Thailand Co., Ltd.. In addition, we plan to start distribution of mobile content in Indonesia in this fiscal year. These development bases will start operations in the second half of the fiscal year and our goal is to have them begin contributing to earnings in the next fiscal year.

Please explain your revision of the sales plan for "Resident Evil 6" and your confidence about reaching the target.

Our revision of the sales volume is based on a comprehensive decision that reflects a variety of factors and risks at this time. We believe that prospects are good for reaching our goal of 6 million units. We are confident because of the approaching overseas Christmas and New Year selling season, past sales of titles in this series, and for other reasons.

Regarding the allocation of your development resources, how many developers do you have now and what are your plans for the future?

As of September 30, 2012, we had about 1,500 game developers. Regarding our priorities, we will continue to allocate people to content development in the Home Video Game sector while recruiting and training more people to create games in our Mobile Contents and PC Online Game sectors.
Our goal is to increase the number of developers by 1,000 over the next 10 years. We want to further improve the quality of our games by maintaining an internal game development team.

If you increase the number of game developers to 2,500, about how much will you invest in development activities?

The purpose of increasing our game developer team is to create a larger percentage of our games internally. Therefore, we believe that there will be no significant change in total development expenditures mainly because we will be shifting outsourced operations to our own workforce.

Why has "Browser Sengoku BASARA" not been performing well?

We believe that one reason is the difference between the user segments that we initially targeted with this game and the segments that are actually playing this game.

Please provide information about downloadable content (DLC) sales for "Dragon's Dogma" and other major titles. Also, how do you record development expenses for DLC?

We are unable to disclose DLC sales figures. For "Dragon's Dogma" the number of paid downloads is a very high percentage of the number of units of this game that we sold. We record DLC development expenses when the distribution of this content starts.

The iOS market in Japan is growing fast. What is Beeline doing in Asia in this market sector and other categories?

Beeline Interactive Japan Co., Ltd. sells iOS content in Japan and we plan to start distributing more titles in Japan, including "Chibimaruko-chan to Okashi no Kuni". In Asia, we will strengthen our social game operations in Southeast Asia with the newly established "Beeline Interactive Thailand Co., Ltd." playing a central role.

Please provide an overview of your current PC online game operations in South Korea.

We are not selling any PC online game titles in Korea right now, but we plan to start operations after determining a strategy for each title. Operations of the development section of our Korean subsidiary have started. The next step is developing titles and conducting operations that match the needs of consumers in Korea.

What is the difference between Beeline's new game "Smurf Life" and "Smurfs' Village"? Also, what is your rough expectation for revenue per customer (ARPPU)?

Unlike "Smurfs' Village", "Smurf Life" is a game that incorporates a story. Furthermore, players themselves can create Smurfs. Elements like these give the game a sense of adventure. We do not envision a particularly high ARPPU for "Smurfs' Village" and are placing priority on increasing the number of users. Our policy for "Smurf Life" is the same.

What is your view of the performance of the P&S business and what are your plans for this business?

We have accumulated considerable expertise by creating and selling five machines of our own. We believe this know-how is responsible for the success of the "Resident Evil 5" machine. We plan to establish a framework capable of creating several new Capcom machines every year as we continue to focus on capturing orders from other companies.

Please explain your basic stance regarding the profitability of the P&S business.

Just as in the Home Video Games business, the P&S business has high marginal earnings once sales surpass the cost of development. As a result, earnings increase in proportion to growth in sales volume.

In the Arcade Operations business, what is your policy for opening new arcades?

There is no change in our policy of opening arcades in large shopping centers.

In the Arcade Operations business, what customer segments are you targeting and what actions are you taking?

To attract more customer segments, we are going beyond the traditional family user segment by making arcades more appealing to seniors. We hold lectures to explain how to play our arcade games, hold senior tours to give people hands-on experience and hold other events on a regular basis.

According to Capcom's annual report, "Little synergy with Capcom's proprietary contents" is one weakness of the Arcade Operations business. Please explain this point.

With regard to the use of our characters under our "Single Content Multiple Usage" strategy, we believe there is room for improvement in the Arcade Operations business in relation to the synergies in our other businesses.

What is your strategy for "Monster Hunter 4"?

Naturally, we want sales volume to be higher than for the previous title in this series. In addition, we want to enlarge the worldview of "Monster Hunter" by using initiatives other than games in order to build even stronger relationships with current user segments.

How did each business segment perform in the first half in relation to your plan?

All business segments except Arcade Operations exceeded our plan for the first half. In the Digital Contents business as well, performance surpassed our plan in all categories: Home Video Games, Mobile Contents and PC Online Games.

Why did you increase your fiscal-year plan for the Mobile Contents business?

We raised our fiscal year sales plan by 2 billion yen for two reasons. First is the growth in sales of "Minna to Monhan Card Master" and other social games in Japan. Second is the steady growth in sales of Beeline titles.

1st Quarter in FY2012 Presentation of Financial Results

July 30, 2012

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Question and Answer Summary
How far do your consolidated financial results for the first quarter of the fiscal year ending March 2013 progress to your company plans?

Overall, our results for this three months showed a favorable performance. While net sales of packaged software in our Digital Content business and our Arcade Operations business were slightly below our forecasts, net sales of online content (DLC, mobile content, PC, etc.) were higher than projected. Operating income was also higher than forecasted and is progressing on target.

How do you assess the performance of "Dragon's Dogma"?

"Dragon's Dogma" was a bigger-than-expected hit domestically, while overseas, it was slightly below our initial forecasts. However, in both domestic and international markets, unit sales increased with a steady expansion of repeat sales. Under current market conditions, we consider the sale of one million units for brand new titles to be a relative success. Given this, we are in a position to favorably consider subsequent titles.

With what degree of certainty will you reach your target of shipping 7 million units of "Resident Evil 6"?

We actively showcased "Resident Evil 6" at E3 and other game shows to overall positive reviews, and we believe we are in a position to positively achieve our 7 million target.

How many cumulative units of "Monster Hunter 3 (Tri) G" have been shipped?

In Japan and Asia, we shipped 1.63 million units cumulatively.

When do you plan to release "Monster Hunter 4"?

We are currently planning for a "Spring 2013" release. Details will be announced at the appropriate timing.

How are each of Beeline's social game titles performing?

"Smurfs' Village" continues to be solid worldwide. Downloads of "Shrek's Fairytale Kingdom", which began distribution in June, have increased steadily but its App Store ranking has fallen since its initial release. We consider this as a gap between user preferences and the game's characteristics, which we plan to remedy in future updates.  While sales and profit for the Beeline brand were about the same as the preceding fourth quarter, we anticipate growth in the second quarter and beyond with an increase in titles.

What is the situation regarding your PC browser game?

"Browser Sengoku BASARA" was just released in June and its contribution to first quarter financial results was very small, but we believe it is a title to watch.

How will government regulations in and the trend toward voluntary industry restraint of "complete gacha" features in the domestic social game market affect Capcom's social game operations?

Currently, none of Capcom's social games contains "complete gacha" and hence, we do not foresee any impact on our financial results or future business operations.

With the introduction of several major packaged software titles this term, are you not concerned there will be a significant drop for the next fiscal year? What major titles will be in your lineup for the year ending March 2014?

While we are unable to disclose specific titles in our future lineup at this time, with improved development efficiencies, we are working to provide a full lineup of home video games.

Given the economic crisis in Europe and other problems, how are your overseas markets?

We consider that macroeconomic trends have only a negligible effect on consumer purchasing behavior. However, distribution problems in Europe may negatively affect unit sales of packaged software.

What is the growth potential of Capcom's proprietary game machines in the Pachinko and Pachislo (P&S) business division?

Utilizing our accumulated know-how and with ongoing quality improvements, our proprietary game machines business is growing steadily and we have high expectations for upcoming machines to be released this fiscal year. In addition, with strong repeat sales of "Monster Hunter" in our subcontracted business, we are performing well above forecasts. By continuing to develop both areas, we will focus on making P&S a pillar of the company's operations.

In the Mobile Content business, what are the factors behind its growth compared to the same term in the previous fiscal year?

Social games primarily in the domestic market, most notably "Minna to Monhan Card Master", "Resident Evil: Outbreak Survive", and "Monhan Tankenki Maboroshi no Shima", contributed to a significant increase in profits.

What is your second quarter forecast for the Mobile Content business?

With an enhanced title lineup from both Capcom and Beeline, we anticipate an increase in sales and profits.


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