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FY2022

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    Question and Answer Summary

    Tell me about your strategy to grow sales in emerging markets.
    In recent years, we have seen growth in regions such as South America due primarily to increasing the number of languages our games support. We believe that countries such as India will be a focal point for growth in the future. While sales volume in such areas is currently limited, we are carrying out research into this via our Singapore office. Further, while there appears to be room to develop within African regions, we are still carrying out an assessment of business risks.
    What percentage of annual software sales units come from emerging regions?
    Sales volumes in emerging regions are still in the early stages of growth. We will continue to pursue our digital sales strategy on PC while anticipating the economic growth of such areas in the future.
    What are your expectations for Monster Hunter Now?
    We anticipate that this title will contribute to increasing global brand awareness of Monster Hunter in addition to title revenue. We believe greater brand awareness will help drive growth for catalog titles in the series, including Monster Hunter: World.
    What is your outlook regarding activities to grow new title sales, and the ratio of new title sales to total sales volume?
    Our pipeline consists of a combination of new releases for existing IP as well as all-new IP. Existing series support stable growth as we work to exceed both the level of development and sales results for past titles in a given series with each new release. Compared to existing IP, profitability tends to be lower for all-new IP; however, we view such titles as an investment for the future while leveraging the technological knowhow that we have cultivated in our game development process. While we cannot comment on future ratios for new title sales, it will likely be determined based on factors including the market environment.
    How will the Media Business contribute to future stable growth?
    Greater penetration of online streaming and distribution has increased the opportunities for movies and television shows to grow into hits. By producing our own movies at Capcom Pictures, we aim to expand sales of our game content by increasing awareness of our brands among people who have not yet played games.
    What measures are you taking for medium- to long-term growth?
    We continue to aim for global expansion of sales for new and catalog titles by utilizing pricing strategies. We have been able to penetrate 230 countries and regions worldwide by gradually lowering the price of games from the time of launch. Going forward, we look to further expand sales by raising awareness of Capcom’s content among people who have not yet taken an interest in games by focusing on the Media business.
    Tell me about how you utilize AI.
    When considering the volume of assets in game development recently, we feel there is potential for utilizing AI. At this time our R&D divisions are still evaluating the matter, as introducing AI into development workflows will require making various adjustments.
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    Question and Answer Summary

    How would you evaluate your performance during the holiday season?
    We saw growth in sales, primarily from catalog titles, and year-over-year comparisons were also favorable.
    What impact will foreign exchange rates have?
    We’ve run simulations with a number of different rates; however, we do not believe the current levels will have a significant impact on our full-year earnings.
    What can you tell us about next year’s earnings guidance?
    We currently haven’t made any announcements regarding specific targets but intend to structure guidance with the assumption of continuing to aim for 10% operating income growth annually.
    You released Monster Hunter Rise for a number of additional platforms in January 2023. How have these new versions performed?
    They have performed better than our expectations.
    What are the details of the valuation loss recorded in the third quarter?
    There was a valuation loss of 3.5 billion yen during the three-month period of the third quarter, which cumulatively amounted to just under 4 billion yen for the nine months ended December 31, 2022.
    What were the aims of your promotions, such as TV commercials etc., over the New Year’s holidays?
    We carried out these promotions to raise awareness of our IP in conjunction with holiday sales. We intend to utilize what we have learned from this in our future marketing.
    What is your outlook or confidence level for next fiscal year’s earnings?
    Thanks to digital sales, selling titles from our catalog has become important now, meaning our earnings guidance no longer depends on only new title releases or the relative strength of an IP. We are moving toward achieving our targets a step at a time by steadily growing sales of catalog titles.
    Tell me your outlook for Resident Evil 4.
    Preorders are trending well compared with those of past titles in the series while feedback from fans has been positive, which are encouraging signs.
    Tell me your expectations for Street Fighter 6.
    We are investing the knowhow cultivated on Street Fighter V, the previous title in the series, into Street Fighter 6. Further, we are carrying out various initiatives to grow this title into the biggest in the series, having worked to expand our user base while promoting esports.
    Will your cost structure change in the future following the release Pragmata, Exoprimal, and other new IP?
    While not yet confirmed, it is possible we will invest in promotions given that these are all-new IP.
    Do you limit development costs with new IP compared to existing major IP?
    Controlling R&D costs is not directly connected to the high hurdles of creating a hit new IP. Rather than considering a single title, this must be evaluated from a long-term perspective, which includes thinking about how to bridge the first title to the next, and how far we can grow sales over a five-year period.
    What are your thoughts on the sales of your titles for PC?
    Due to digital pricing strategies, growth of PC sales in developing and emerging markets has been striking. However, the overall sales volume in these places does not reach that of developed markets. Going forward, it will be important to see how we can increase sales volume in countries and regions such as these.
    Has there been any changes in your approach to selling catalog titles during the current fiscal year?
    There have been no changes to our sales strategy. We aim to grow sales by setting prices appropriately based on sales data broken down by country, region, and price.
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    Question and Answer Summary

    What is the ratio of PC sales to total unit sales in your Consumer sub-segment at the end of Q2 in the fiscal year ending March 31, 2023?
    Approximately 50%, with primarily catalog title sales growing.
    What impact from fluctuations in foreign exchange rates is reflected in your increased earnings guidance for the full fiscal year?
    We expect positive impact of about 5 billion yen in operating income for the second half of the fiscal year.
    How would you evaluate Monster Hunter Rise: Sunbreak at this point?
    We feel it is performing well, having exceeded our internal sales plan.
    Please give specific examples of what you are doing to grow awareness of your IP globally.
    While we cannot disclose the details of specific measures we are taking, one example is how we are working to raise awareness of our IP by expanding into adjacent businesses such as movies and other media.
    How do you plan to accomplish your vision of 100 million units in annual sales volume?
    Similar to our operating income objective, one benchmark we are looking at is 10% growth in annual unit sales.
    How do you view the impact of foreign exchange rates in regard to continuing to grow 10% annually?
    There is no change to our growth strategy; we will continue to aim for increased operating income through growth of catalog sales. We believe that continued growth is possible, absorbing the impact of exchange rate fluctuations by releasing high-quality new titles on a regular basis and utilizing pricing strategies to continue sales over the long term.
    Why has your unit sales plan for new titles remained unchanged despite moving the release of certain new titles to the next fiscal year?
    Because we have revised our sales plans for Monster Hunter Rise: Sunbreak and Resident Evil 4.
    How is development progressing for Pragmata and Exoprimal?
    Creating all-new IPs is not a simple process. We are continuing development while analyzing progress on an ongoing basis.
    Why has the unit sales price in the Consumer sub-segment decreased in your revised earnings guidance?
    We expect this figure to decrease due to a revision of the mix between new and catalog sales and sales growth for low-priced catalog titles.
    What are your expectations for Pragmata and Exoprimal?
    While we have not currently announced any specific targets at this time, we hope to grow these all-new titles into new revenue sources in the future.
    What is your current stance on smart pachislo support?
    We are currently moving forward with development while monitoring the impact smart pachislo machines will have on the market.
    Has the increase in the number of PC game users changed your development organization?
    There have been no particular changes as we have been carrying out multiplatform development utilizing our RE ENGINE for some time.
    I would like to hear your thoughts on the growth drivers for catalog sales. Were tailwinds from COVID-19 a factor?
    We believe the main driver has been our focus on expanding our sales territories and user base globally, rather than COVID-19 tailwinds.
    Why have catalog sales at the end of Q2 performed well compared to plans?
    This is mainly due to contributions from limited time discount promotions.
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    Question and Answer Summary

    How do you evaluate your first quarter earnings performance compared to your full-year plan for the fiscal year ending March 31, 2023?
    In terms of consolidated earnings, we have made solid progress towards our full-year plan, and unit sales for both Monster Hunter Rise: Sunbreak (a new title released at the end of June) and catalog titles are growing well.
    Is it possible you will raise the retail price of your games in the future?
    We have no specific plans to do so at this time. We are engaged in strategic pricing, including carrying out discount sales, with an emphasis placed on how far we can maximize sales volume for a given title in the five to ten years following its release.
    What impact did discount sales have in the first quarter?
    During the first quarter, the summer sale we carried out during June mainly contributed to unit sales volume growth. We will continue to carry out pricing strategies in the future, while considering the synergetic effects of promotional communications for our brands.
    Deferred revenue in the first quarter had a negative impact of 3.8 billion yen on net sales. Please break down this figure for me.
    This is primarily composed of deferred revenue accompanying the release of Monster Hunter Rise: Sunbreak. There are also portions from Resident Evil Village that are being held back until the release of the free downloadable content Resident Evil Re:Verse.
    Deferred revenue has accumulated to 13 billion yen on the balance sheet as of the end of the first quarter. When will this be recognized as revenue?
    The majority of deferred revenue listed on the balance sheet is related to upcoming releases of free title updates and downloadable content. It will be recognized as revenue when that content is released. The deferred revenue currently recorded on the balance sheet is scheduled to be recognized as revenue going forward up through the first half of the fiscal year ending March 31, 2024.
    What were the unit sales for the set containing Monster Hunter Rise: Sunbreak and Monster Hunter Rise during the first quarter?
    Over 300 thousand units in the first quarter.
    What has been the attach rate for Monster Hunter Rise: Sunbreak by platform?
    While we do not disclose specific figures for this, the attach rate for the PC version is comparatively higher.
    What are your business plans for downloadable content in the future?
    In general, we intend to offer either free or premium downloadable content based on the needs of players.
    What impact on revenue will the release of Resident Evil Re:Verse have?
    Because Resident Evil Re:Verse is free downloadable content, the title on its own will not affect revenue; however, we anticipate an impact on revenue upon the title’s release due to a reversal of deferred revenue.
    The operating profit margin for the Digital Contents business was high in the first quarter. Have you made any changes to profit margins in your full-year plan?
    The operating profit margin was high in the first quarter because our new title Monster Hunter Rise: Sunbreak—which is primarily sold digitally—showed favorable sales while unit sales for catalog titles also grew. While it is possible that full-year profit margins may outperform our guidance depending on how the unit sales of catalog titles progress through the fiscal year, we have made no changes to our outlook at this time.
    Is it fair to assume that profitability in your plan for the fiscal year ending March 31, 2023, is weighted toward the second half of the year?
    Our plan is weighted toward the second half of the fiscal year due to factors such as the reversal of deferred revenue stemming from the scheduled third-quarter release of Resident Evil Re:Verse and the release of Resident Evil 4 in the fourth quarter.
    What are your thoughts on cash management going forward?
    We used approximately 13 billion yen in repurchasing the company’s shares through a tender offer during the first quarter. Our business model is undergoing a transition, and in these times it will be necessary to make a number of investments, with a focus in the field of network technologies. In considering the potential case where we acquire a company that possesses specific technologies and has high scarcity value, it may be necessary for us to hold 200 billion yen in cash on hand. However, going forward we will also review our current policy of a 30% dividend payout ratio while keeping in mind the demand for cash.
    To what degree have labor costs increased due to your strategic investment in personnel? Also, what benefits have you seen?
    In terms of costs incurred in the first quarter, there has been an increase of approximately 1 billion yen. We anticipate an increase near to 4.5 billion yen for the full fiscal year. We feel that we have been able to bring on even more talented people by executing this strategic investment in personnel.
    What is Capcom’s thinking on crossplay support?
    We are working towards this as part of our multi-platform strategy, as we believe that an increase of players on the PC platform going forward in the game market will mean servicing an even more diverse user base.
    What is the ratio of units sold on the PC?
    The ratio of units sold on the PC during the first quarter was approximately 50%. For the full year we expect this to slightly decrease due to the release of a major new title in the fourth quarter.

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