Advanced Technology to Lead the Industry

CAPCOM CO., LTD. INTEGRATED REPORT

3-1-3 Uchihirano-machi, Chuo-ku, Osaka, 540-0037, Japan PHONE: 81-6-6920-3600 FAX: 81-6-6920-5100 http://www.capcom.co.jp/

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Cover Image

The cover image shows Capcom’s development ofﬁces in Osaka. The building at lower right is R&D Building #2, boasting one of the newest development facilities

in Japan, just completed in 2016. Code Number: 9697 At upper left is the R&D Building, completed in 1996. These two buildings will serve as a base as we

The print of this catalog uses move forward with the strengthening environment-friendly vegetable oil ink. of our development structure.

Code Number: 9697 billion $Global Game100 Market to Exceed 100 Billion Dollars in 2017

Global Game Market (Billions of dollars) Over100 100.6 103.2 94.2 85.8

68.8

2014 2015 2016 2017 2018 (Year) (forecast) (forecast) (forecast)

Source: International Development Group

Game Market Expanding More Rapidly than Anticipated

The global game market continues to grow beyond previous market forecasts and is expected to exceed 100 billion dollars in 2017. The market is becoming increasingly active, as each new generation of major home video game consoles drive unit sales higher amid the launch of virtual reality (VR) games in 2016. Mobile content markets mainly in Asia and developing countries are expanding beyond the scale of the game console market. Going forward, the game market is expected to continue growing, expanding to nearly 200 countries worldwide through various devices used for gaming.

1 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 2 Asian Online Market (Billions of dollars) Massive Online Growth Potential Over 30 The Asian region is a massive market valued at 30 billion dollars, 39.1 39.7 and boasts a 54% global share of the online game market 37.1 utilizing smartphones and PCs. In the past, a market could not be 33.5 established in the Asian region as it was plagued by issues such as pirated games. The ability to authenticate online game purchases and the spread of smartphones coupled with a great number of 20.7 Mobile potential users, including the world’s largest population of 1.3 Contents billion people in China, caused the region to grow rapidly into a major market. billion Driven by PC online games for core users and mobile games for casual users, this market is forecast to continue growing PC Online significantly. 2014 2015 2016 2017 2018 (Year) Massive Asian Online Market Exceeds 30 Billion Dollars (forecast) (forecast) (forecast) $30 Source: International Development Group

3 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 4 Capcom Developers (People) Capcom’s Global Development Studios Over2,000 2,500

1,902 2,052 1,808 Toronto 1,623 South Korea 1,455 Vancouver Japan Taiwan , people 2012 2013 2014 2015 2016 2022 Capcom Developers Exceed 2,000 in 2016. (Projected) 2000 (Years ended March 31) On Track to Become One of the Largest Studios in Japan

Human Resource Capabilities Creating Content Popular Throughout the World

Personnel costs comprise approximately 80% of game software development costs, thus investment in people is indispensable to maintain a competitive edge. To increase quality and accumulate expertise, Capcom is engaged in strengthening internal development and plans to expand its development structure to 2,500 employees, one of the largest in Japan, in fiscal 2021. To this end, Capcom is hiring a wide range of people without regard for nationality or gender to secure human resources necessary for developing content popular throughout the world. Furthermore, in 2016 Capcom commenced operations at its new R&D facility incorporating world-class development equipment and technologies.

5 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 6 External Director Ratio (%) Four Features of Capcom Corporate Governance

Transitioned to a company with an audit and 50.0 1. supervisory committee to strengthen governance.

42.9 2. Proactive appointment of external directors.

30.0 30.0 Full disclosure of 73 Corporate Governance Code items. 27. 3 27. 3 3.

Mechanism for reflecting investor and analyst 4. opinions in management.

2012 2013 2014 2015 2016 2017 Please refer to “Governance Reforms for Further Growth” on page 67. 5No Growth Without0. Governance050 Reforms:% (Years ended March 31) Half of Board of Directors Are External Directors

Reforms Aimed at Transparent Decision- Making and Heightened Reliability

Capcom believes strong governance is indispensable for enhancing corporate value. Thus, we invite experts with the highest level of acumen in their respective areas of specialization to serve as external directors who provide Capcom with opinions, advice and checks that increase Board of Director transparency and reliability. They also enhance dialogues with analysts and investors in an attempt to strengthen management monitoring functions. Currently, external directors comprise 50% of the Board of Directors. Also, in June 2016, Capcom made significant changes to its corporate governance organizational design to increase corporate value and control risks in accordance with the promotion of growth strategies, establishing a structure to strengthen a wide range of monitoring functions in overall management.

7 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 8 Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Editorial Policy 1 Introduction 9 Corporate Philosophy and Contents Capcom’s Integrated Report conveys annual performance and initiatives aimed at improving corporate value over the medium- to long-term Capcom’s Value 11 To Our Stakeholders (From the CEO & COO) to shareholders, investors and all other Creation Activities 13 Capcom’s Business Model stakeholders. This report is issued with the intent of creating opportunities for further dialogue. 15 Capcom History This report was created according to the 17 Financial and Non-Financial Highlights “International Integrated Reporting Framework” announced by the International Integrated 17 Financial Highlights Reporting Council (IIRC). 19 Non-Financial Highlights Furthermore, we aim to express ideas in a simple and easily understood manner and visually represent important items to aid Message from 21 The CEO’s Discussion of Initiatives for understanding. Management Enhancing Corporate Value In addition to a printed version, this report 31 Financial Strategy According to the CFO is also available online. 33 Game Industry Characteristics and Capcom Business Characteristics Period and Scope

This report reviews the fiscal year ended March

29.8% Corporate Philosophy 35 The COO’s Discussion of Growth Strategies 25.6% 25.9% 18.3% 31, 2016 (April 1, 2015–March 31, 2016). Growth Strategy 14.0 10.9 billion yen 11.3% billion yen 9.7 billion yen 9.0 5.2 billion yen billion yen 2013 2014 2015 2016 2017 37 Growth Strategy 1 Consumer Business Expansion （Plan） When necessary, it also includes references to fiscal periods before and after this timeframe. 39 Growth Strategy 2 Overhaul the Online Business Title Region Alliances Mobile contents Monster Hunter Hunting Quest China Qihoo 360 Technology Co., Ltd. (Simplified Chinese version) Unless otherwise indicated, the scope of China 3 Street Fighter South Korea Titles Battle Combination Taiwan Teeplay Interactive Ltd. South Korea Hong Kong China Street Fighter IV Arena South Korea Nexon Korea Corporation Hong Kong Taiwan PC online games Capcom Branch 41 Conversation: An Analyst’s Perspective CAPCOM TAIWAN CO., LTD. 1 Monster Hunter Online China Tencent Holdings Ltd. data presented in this report is on a consolidated Title “Capcom: Creator of Cayenne Entertainment Technology Co., Ltd. Onimusha Soul China (Taiwan) PC browser games (Simplified Chinese version) BLUE PANDA Network Technology Co., Ltd. Reinforce business (China) alliances with powerful Monster Hunter local companies Mezeporuta Kaitakuki China Tencent Holdings Ltd. 2 (Simplified Chinese version) Entertainment Culture that on Capcom’s Strategy for Growth Titles basis. Business Activity 43 Business Segments Highlights Subject Index Achievements 45 Digital Contents External Environment Stimulates Your Senses” 49 Arcade Operations PP1–4, P33, PP45–52 Our principle is to be a creator of entertainment culture. Through development of highly 51 Amusement Equipments Senior Management Perspectives creative software contents that excite people and stimulate their senses, we have 53 Other Businesses PP11–12, PP21–30, PP31–32, PP35–36, PP41–42 been aiming to offer an entirely new level of game entertainment. Since Capcom’s Growth Strategy establishment in 1983, we have developed numerous products with world-class 55 Environmental PP24–25, PP35–42 development capabilities as our strength. ESG Information Performance and Financial Condition Game content, an artistic media product that fascinates people, consisting of 56 Social PP17–20, P26, PP31–32, PP43–54, PP77–87 highly creative, multi-faceted elements such as characters, storyline, worldview and 61 Corporate Governance Business Details music, makes use of a variety of media that permeates our daily lives. Going forward, 61 Directors PP13–16, P34, PP43–54 Capcom aims to become a unique company recognized around the world for content 63 Principal Discussions at Board of brimming with originality. Directors Meetings Held in Fiscal 2015 Relationship with Stakeholders 65 Dialogue Between an External Director and PP13–14, P27, PP56–60 Institutional Investors Governance Merits 67 Governance Reforms for Further Growth P9, PP67–70 69 Transition into a Company with an Audit and External Assessments Supervisory Committee PP41–42, PP58–60, PP65–66, P74 71 Corporate Governance Structure and Initiatives World-Class Development Capabilities 75 Internal Management Structure and Initiatives Separate volume: The Latest Development Report 2016 Financial and 77 11-Year Summary of Consolidated Financial Indicators Corporate Data 79 Financial Review Market Data 83 Consolidated balance sheets Game market 85 Consolidated statements of income / Diagram 11, 12, 21, 23, 25 Consolidated statements of comprehensive income Arcade facilities market 86 Consolidated statements of changes in net assets Diagram 27, 28, 29 87 Consolidated statements of cash flows Amusement equipments market 88 Independent Auditor’s Report Diagram 30, 31 89 Stock Data 90 Corporate Data

Separate Volume The Latest Development Report 2016 SECOND TO NONE

9 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 10 To Our Stakeholders (From the CEO & COO) Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Promoting Growth Strategies and Governance Reforms Aimed at Enhancing Corporate Value

Creating Entertaining Games that Continue to Excite People Around the World –––– This is the cornerstone of Capcom’s business activities and the source of our corporate value. Through our business activities, we bring the Company economic benefits while providing society with new value. We believe the value of a corporation stems from shared value creation. As the game market expands globally, in addition to pursuing short-term profit, Capcom is promoting growth strategies from a medium- to long-term perspective in order to continue enhancing corporate value into the future. Going forward, we will transform our fundamental revenue model from a one-time sale “transactional model” to an ongoing “recurring revenue model,” while at the same time thoroughly executing our Single Content Multiple Usage strategy and constructing a portfolio to achieve stable earnings. We will also engage in governance reforms to control risks that increase proportionally with the acceleration of our growth strategies, thoroughly implement management visualization and systemization and create a structure enabling rational management decisions based on an institutional design with external directors at its core. Furthermore, we will make an effort to strengthen non-financial capital not reflected in quantitative data. In addition to enhancing Capcom’s highly original content, the source of our competitive edge, and the development structure that creates it, we will build positive relationships with business partners, regional communities, employees and a variety of stakeholders among other important “capital” comprising Capcom corporate value. Through these various initiatives, we believe we can contribute to shareholder and investor profits by becoming a company of sustainable growth.

Corporate Value Enhancement

Increase Financial Capital Increase Non-Financial Capital • Achieve medium-term business goals • Enhance development structure • Increase ROE • Increase stock of IPs • Increase net cash • Build relationships with stakeholders

Promote Growth Strategy Promote Governance Reforms Kenzo Tsujimoto Haruhiro Tsujimoto Chairman and President and Chief Executive Ofﬁcer (CEO) Chief Operating Ofﬁcer (COO)

11 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 12 Capcom’s Business Model Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Contributing to the Creation of a Rich Culture and Society through Game Development and Multiple Usage

The use of advanced development capabilities to create original contents for branding is the source of Capcom’s long-term earnings. Capcom pursues high added value through business activities making use of abundant capital (inputs) within and outside the Company, regularly developing and releasing products (outputs) for multiple game platforms and media. The value (outcome) generated from these activities is provided to society and reinvested for the future. Through these activities, we make an effort to respond to social issues while expanding corporate value.

Social Issues INPUT Business Activities OUTPUT/OUTCOME Impact on Society

Use games to invigorate Generational and Human Capital New Title Production Flow Company-wide communications going interregional World’s top game Planning Development Quality Assurance Sales and Promotion Increase intellectual beyond location and communication gaps development human property (technology & generation resources new series) New technological Expand global fan segment development structure Stable (VR, etc.) structure for series Contribute to VR and New industries development simulation technology created from new Projects are started after Necessary tasks are allocated, Checks are conducted from Online promotions and user 60-Month Title advances and technologies Intellectual Capital a two-step approval process. including the creation of the user’s perspective by events conducted to ensure Once concepts and plans are a proprietary development a team comprising several the game world is always top Development Plan industry creation Product brand power refined, the project is engine and arrangement of hundred people. This involves of mind. approved for trial by planners, designers, not only a bug check, but also 52-Week Map Cumulative total of 71 management before full programmers and sound verification of game quality development. creators. Efforts are made to and ease of game play. million-seller titles improve quality and ensure Digital Contents Overconcentration development efficiency. Expand new titles in large cities Export Japan game Production Capital Increase catalog sales Declining regional Growth Strategy culture globally 1 Increase digital populations Cutting-edge Popular Capcom content Consumer Business download ratio development environment Expansion Expand Mobile and PC Games Utilization of assets Please refer to pages 37–38 previously purchased Increase collaborations Game with companies in Asia Utilize characters to Contents industry from other companies multi-platform Growth Strategy 2 stimulate interest in promotion [Canada] Net sales as of March 31, 2016 CAPCOM GAME STUDIO development Overhaul the regional communities VANCOUVER, INC. New users increase as Home video Digital download PC Online Mobile BEELINE INTERACTIVE Online Business online content grows games contents Contents billion CANADA, INC. Please refer to pages 39–40 yen [Japan] 52.5 K2 CO., LTD. Utilize arcades Senior citizen Single Content as a place where social isolation Multimedia Social Capital development Multiple Usage seniors can meet Core fans of content Create a variety of content derived from a single hit title Overseas affiliate Multimedia deployment Movies Arcade game Publishing Arcade Operations Events Character accelerates as users increase Net sales as of March 31, 2016 publishers Hollywood movies, machines Strategy books, Shopping centers, Concerts, merchandising Shortage of human animated movies, Video games, illustrated compilations, large-scale facilities theatrical productions Figures, T-shirts, Domestic cooperating Increase the number of resources involved CG movies pachinko and pachislo comics Food, etc. companies billion young people who want to with intellectual yen become game creators property Single Content Multiple Usage 24.4

13 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 14 Capcom History Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

From Capcom of Japan 77,021 to Capcom of the World million yen

Capcom Sales Note: 1983–1988: Fiscal years ended December 31 1989–2016: Fiscal years ended March 31

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Genesis Big Hits Drive Business Expansion Going Global Multimedia

In 1983, Capcom Co., Ltd., was established in Osaka. The Nintendo In the 1990s, the arrival of Super NES prompted Capcom to formally In 2000, Capcom listed its shares on the First Section of the Tokyo Stock With the adoption of smartphones and tablets, the market for game Entertainment System (NES) came out that same year, but it was enter home video game development. Numerous hit titles were created Exchange. In the 2000s, Capcom created one hit title after another that apps not requiring consoles is growing rapidly. Capcom established difficult to create high-quality arcade-level content for, so Capcom that drew on Capcom’s arcade game development expertise. The Single gained popularity overseas. The Hollywood movie version of Resident Evil Beeline, a development company for smartphone game apps, which focused business development on the creation of arcade games using Content Multiple Usage strategy was launched in 1994 with the release earned 102 million dollars globally, part of a five title hit series that created hits including Smurfs’ Village. In recent years, Capcom has the proprietary high-spec circuit board “CP System.” of a Hollywood movie and TV animation series based on Street Fighter. continues to spread the Capcom brand throughout the world. focused efforts on PC online games and digital download contents.

1983 1992 2001 2010 Released our first originally Released Street Fighter II Released Onimusha for Distribution of app developed coin-op Little League. for Super NES. PlayStation 2. The first game for Smurfs’ Village for iOS began. PlayStation 2 that becomes It became the top download in a million-seller in Japan. approximately 100 countries around the world. 1984 1993 Released Devil May Cry for PlayStation 2. Released our first arcade Released Breath of Fire video game Vulgus. for Super NES. 2013 2005 Released Monster Hunter 4 for Released Sengoku BASARA for Nintendo 3DS. Return of the 1985 1996 PlayStation 2. “Monster Hunter Craze” selling Released our first home video Released Resident Evil for more than four million units. game 1942 for Nintendo PlayStation, a long selling title Released Dead Rising 3 the first Entertainment System (NES). which had record breaking sales, 2006 title in this series for Xbox One. and established the genre of More than one million units sold. survival horror. Released Dead Rising for Xbox 360. Became a million-seller, 1987 unprecedented for Released Mega Man for NES. a new title created for new game console.

Game Industry History 1983 1990 1994 2000 2005 2010 2012 2013 2013 The Nintendo Entertainment System (NES) was Next-generation Super NES PlayStation was launched. PlayStation 2 was launched. Microsoft Corporation Smartphone Wii U was PlayStation 4 was Xbox One was launched to massive success. was launched. 3D game popularity skyrockets. launched the Xbox 360. adoption increases, launched. launched. launched. game apps not requiring a game console became popular.

“Nintendo Entertainment System”, “Super NES”, Wii U logo and Wii U are registered trademarks of Nintendo Co., Ltd. , and “PlayStation” are registered trademarks of Sony Computer Entertainment Inc. 15 CAPCOM INTEGRATED REPORT 2016 is a registered trademark of Sony Computer Entertainment Inc. “SONY” is a registered trademark of Sony Corporation. © Sony Computer Entertainment Inc. CAPCOM INTEGRATED REPORT 2016 16 Financial and Non-Financial Highlights Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Financial Highlight

Please refer to “11-Year Summary of Consolidated Financial Indicators” on pages 77–78.

Operating Income/Operating Margins Net Income Attributable to Owners of the Parent (Millions of yen) Dividend per Share/Dividend Payout Ratio

Operating Income (Millions of yen) Operating Margins (%) Dividend per Share (Yen) Dividend Payout Ratio (%)

12,029million yen 15.6 % 7,745 million yen 40.0yen 29.0 % 13.7% UP 0.9point DOWN 17.1% UP ±0 5.0point DOWN

16.5 14,618 15.8 15.9 8,063 98.0 77.5 14,295 15.0 15.6 7,807 7,750 7,745 65.5 13,121 14.6 16.0 27.9 22.6 26.7 30.5 34.5 34.0 29.0 12,318 12,029 12.9 6,941 6,723 6,616 10,299 10,5822 5,852 9,602 10,151 10.8 10.1 40.00 40.00 40.00 40.00 40.00 40.00 9.4 8.4 35.00 35.00 30.00 30.00 6,580 3,444 5,587 2,973 20.00 2,167

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160 2012201120102009200820072006 2013 2014 2015 20160 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (Years ended Marcha 31) (Years ended Marcha 31) (Years endede March 31) (Years ended March 31)

In line with structural reforms conducted in the fiscal year ended Marchc 2004, operating income increased steadily until the fiscal year ended March 2009.0 In Performance was sluggish in the fiscal years ended in March 2010,2 2013 Capcom has its fundamental dividend policyo of providing a continued and the fiscal year ended March 2010, the postponed release of major titlesl and the failure of some titles to meet sales targets overseas resulted in a temporarypo and 2014, as (1) a complete overhaul to the Amusement Equipments’u stable dividend to the shareholders. In accordancecc with its policy, an annual decline in income. In the fiscal year ended March 2011, we promotedo profit structure reforms aimed at more efficient development investment.t We underperforming profit structure, (2) development structure revisionse in dividend of 20 yen per share was paid fromr the fiscal year ended March promoted streamlined development by transitioning to in-house productiond and strengthened our digital download strategy in response to rapid changesg in line with enhanced digital downloads in the Consumer businessi and 1998 to that ended March 2006. Cash ddividend per share for the fiscal the market beginning in the fiscal year ended March 2013. As a result,t operating income and operating margins underperformed until the fiscal year endede (3) strengthened Mobile Contents business management capabilitiesa in year ended March 2007 to 2008 was raiseda to 30 yen thanks to its stable March 2014 while these reforms were implemented. However, in the fiscal year ended March 2015, the operating margin improved substantially to 16.5%6 line with development organization integration resulted in the recognitionr revenue base brought by its structural reform.ef Moreover, we continued to due to the effect of improvements in the cost of sales ratio resultingg from these reforms. In the fiscal year ended March 2016, although the cost to sales of special losses on restructuring and business restructuring expenses. incrementally increase dividend payments in line with earnings based on ratio temporarily worsened in the Amusement Equipments business, Consumer business growth caused operating income to increase, resulting in operating From the fiscal year ended March 2015, income increased two years in a our policy of providing stable dividends aiming for a payout ratio of 30%; margins of 15.6%. row due to the benefits realized from development organization reforms. from the fiscal year ended March 2009, the annual dividend was increased to 35 yen and again up to 40 yen since the fiscal year ended March 2011.

Net Sales (Millions of yen) Capital Investments Costs (Millions of yen) R&D Investment Costs/Internal R&D Ratio Return on Equity (ROE) (%)

R&D Investment Costs (Millions of yen) Internal R&D Ratio (%) million 77,021million yen 5,937million yen 27,255 yen 69.9% 10.6 % 19.8% UP 6.7% UP 7.7% UP 0.1point DOWN 0.8point UP

102,200 5,937 64.1 70.0 69.9 19.3 97,716 94,075 5,564 54.8 55.2 91,878 47.7 47.9 15.8 83,097 82,065 14.3 74,542 77,021 13.8 13.8 70,253 30,648 30,9788 66,837 64,2777 3,804 11.5 26,086 26,691 27,255 10.6 3,166 3,077 25,301 9.8 19,744 19,126 2,240 2,252 18,458 2,061 5.4 1,600 1,636 1,725 12,288 13,068 3.8 4.9

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2012201120102009200820072006 2013 2014 2015 2016 (Years ended Marcha 31) (Years endedd March 31) (Yearse ended March 31) (Years endedd March 31)

For the four fiscal years beginning in the fiscal year ended March 2005,0 Capcom’s capital investment is mainly used to (1) purchase developmento At Capcom, we believe the generation of creative and originalg content Although net assets increased between the fiscal years ended MMarch net sales increased on the stability of popular titles in the Consumerm equipment, (2) expand business offices in Japan and overseas and (3(3) open is the source of corporate growth, thus 80% or more off our annual 2007 and March 2009, stable net income resulted in ROE of aroundr business. In the fiscal years ended March 2010 and March 2012, net new amusement arcades. From the fiscal year ended March 20077 to the development investments are allocated to the Digital ContentsC 14%. In the fiscal years ended in March 2010, 2013 and 2014,4, this sales declined due to the postponed release of titles. However, theh fiscal year ended March 2009 and again in the fiscal year endedd March business. Recently in the Consumer segment, developmentm costs figure declined due to decreases in net income from the recognitionn promotion of structural reforms in the Consumer business resultede in 2013, capital investment was high due to development environmentn have been trending higher in line with increasingly high-performance- of special losses on restructuring and business restructuring expenses.p Capcom achieving net sales of 100 billion yen in the fiscal year endedn improvements in line with the transition to next generation game coconsoles hardware, but we have been able to control these increases by From the fiscal year ended March 2015, ROE once again improved on March 2014 for the first time. Although net sales decreased significantlya in the Consumer area. In the fiscal years ended March 2015 and March promoting development efficiency through increased employee the elimination of special losses and improved profitability, as we in the fiscal year ended March 2015 due to a decline in pachisloo 2016, capital investments increased substantially in line with an increase utilization rates. Although costs have increased significantly since the remain on track to meet our March 2017 goal of a three-year average machine releases, net sales increased in the fiscal year ended March in development employees required to expand our title lineup and the fiscal year ended March 2008, we expect them to remain around 30 of 8–10%. 2016 on the release of major titles in the Consumer business. construction of two new development buildings. billion yen going forward.

17 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 18 Financial and Non-Financial Highlights Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Non-Financial Highlights

Human Capital Production Capital Intellectual Capital Social Capital

Content Developers (People) Software Shipments by Hardware Manufacturer (Thousands of units) Cumulative Million-Seller Titles (Titles) Number of Company Visit Supported and On-Site Classes Conducted (Times) Sony Nintendo Microsoft

million million million 2,052people 3.8 units 4.2 units 0.65 units 71titles 55times million million million 150people UP 1.1units UP 0.3 units UP 0.55 units DOWN 6titles UP 4times UP

2,052 4,200 71 63 1,902 65 1,808 4,300 62 55 51 1,623 1,640 3,200 54 57 1,455 585 3,700 50 43 1,3399 2,800 1,700 3,100 2,950 44 45 39 42 35 1,047 1,132 36 39 3,250 5,470 3,150 3,950 650 29 809 1,200 25 705 728 2,600 2,000 Microsoft 4,200 5,050 18 12,700 4,200 Nintendo 9,530 8,000 9,250 8,300 7,800 3,900 6,800 5,700 4,400 2,700 3,800 Sony 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2012201120102009200820072006 2013 2014 2015 20166 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160 2008 2009 2010 2011 2012 2013 2014 2015 2016 (Years endedd March 31) (Years ended March 31) (Years ended Marcha 31) (Years ended March 31)

Developers engaged in the creation of content—the source off our In the Digital Contents business, Capcom has established a basic Capcom boasts world-leading development capabilities, as evidencedn Video games are a comparatively new cultural phenomenono about competitive advantage—account for 70% of all Capcom employees.p “multiplatform strategy” aimed at providing content for all game by our numerous intellectual properties. Our content is popular around which there is little academic research. Rather thann examining To promote our core Single Content Multiple Usage strategy,, we platforms (hardware), ensuring steady sales of software for all typess the world, and up to now, a total of over 70 titles have sold over one educational aspects, there is a strong focus on the detrimentalm effects of strive to retain talented developers through aggressive hiringg and of hardware. Since the fiscal year ended March 2005, hardware hass million units. In order to increase our brand value and profitability, we violent content. At the same time, game developer is a popular career training efforts, resulting in a nearly three-fold increase in developersve become increasingly diverse amid the accelerating spread of each leverage this in-house produced capital across a wide range of media, choice. Given these conditions, Capcom proactively conducts on-site in the past 10 years. Above all, switching to a structure focused on type of hardware in various regions. By providing titles based on hardware including PC Online and Mobile, pachislo machines, movies and toys classes and company visits for elementary and middle school students to internal production in the fiscal year ended March 2012 to strengthen prevalence and attributes, we maximize sales opportunities. in promoting our Single Content Multiple Usage strategy. teach them about working at a video game company and the healthy and streamline development has enabled us to add approximately relationship with video games. As of the fiscal year ended March 2016, 100 new developers each year. 9,095 children and students have participated in a total of 91 activities.

TOPICS TOPICS TOPICS TOPICS Construction of R&D Building #2 Completed Game Industry Group Participation in the in January 2016 Formulation of Voluntary Regulations and With a simple and functional design, R&D Building #2 contains the Awareness Activities latest equipment, including one of the largest motion capture In line with the recent rapid growth in games for smartphones, studios in Japan, and incorporates a seismic-absorbing structure there are increasing needs to further strengthen the establishment designed to guard against earthquakes and other natural disasters. of the game usage environment. Thus, as a member of the In addition, we continue to hire approximately 100 developers each Computer Entertainment Supplier's Association (CESA), Capcom year to expand our title lineup and promote growth strategies. participated in the formulation of guidelines for the management In conjunction with our existing R&D building, this new building of methods providing random items in networked games. We consolidates the development department and heightens proactively participate in promoting the understanding of voluntary development mobility and leadership, promoting enhanced regulations and engage in awareness activities to ensure games are development structure efficiency. played with safety and peace of mind.

Making the Workplace Comfortable Mega Hit Monster Hunter X (Cross) Sells for Women 3.3 Million Units Capcom is engaged in improving the employment environment for The Monster Hunter series features hunting action games in which women, promoting projects in which both women and men players face off against giant monsters in magnificent natural participate and the proactive hiring of non-Japanese employees. In settings, and is one of the most popular IPs in Japan. Monster particular, with respect to improving the employment environment Hunter X (Cross), released in the fiscal year under review, maintained for women, we have introduced systems that promote the the series’ world and game characteristics while offering a diverse utilization of paid leave before and after childbirth, childcare leave and free playing style that proved popular, resulting in sales of 3.3 and shortened working hours. In fiscal 2016, we promoted the million units. Once again, the series ongoing evolution continues to establishment of childcare facilities within the company. Although appeal to new users, increasing brand value over the long-term. the Japanese game industry is characterized as a “man’s world,” approximately 20% of our development staff are women, and women account for 10.3% of employees in management positions.

19 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 20 The CEO’s Discussion of Initiatives for Enhancing Corporate Value Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Promoting Management Systems Focused on Growth Strategies and the Future to Enhance Long-Term Corporate Value

Management Position Pursuing Challenges as a Manager for the 33 Years Since Capcom’s Founding

“Adversity makes for a proud life.” This is what I wrote earnings to fluctuate significantly for these nine years. in my night high school graduation album. My father *Including the fiscal year before public listing. died when I was in my second year of middle school. During the second stage (Fiscal Years 1998–2006), Being forced to start from zero gave me discipline. we addressed the aforementioned issues of Having nothing to lose enabled me to view life positively. “dependence on a specific major hit” and “overseas At that time, I may not have been academically equal to inventory management.” We created series out of students attending full-time college prep schools, but multiple hit titles, including Resident Evil, Devil May Cry I wondered: how do I compete with them in the real and Monster Hunter, and established a structure world? I constantly thought about this. To rise above enabling the release of a major title every year. In poverty requires two to three lifetime’s worth of effort. addition, we carefully studied overseas business customs I wrote that sentence precisely because it was adversity that differed from Japan, introduced a direct sales system that gave me the confidence to succeed, and it is without and created a mechanism for maintaining inventory a doubt the source of my management philosophy. numbers at 10% or less of sales volumes. Later, after establishing a gaming machine As shown in Diagram 1 on the next page, this rental company, I founded Capcom in 1983, where resulted in revenue item increases as well as operating shareholders have entrusted me with management for income relative to standard deviation improvements, 33 years. enabling the creation of a foundation for stable earnings. Before I report the latest earnings to shareholders, At the same time, due to game market globalization, I want to talk about how I have met expectations as a we had reached the limit of title strategies led by the manager, particularly during the 26 years Capcom has Development department. Thus, we separated the been a publicly traded company. A manager’s track organization and planning functions from the production record is seen in the enhancement of corporate value, function and established a two-step approval process Kenzo Tsujimoto thus I will explain earnings results, which are a large for prototypes and main development, implementing Chairman and component of this. structural reforms enabling the transition to Chief Executive Ofﬁcer (CEO) We can divide the past 26 years into three major management-led development. stages. Please refer to “Tangible Results of Ongoing Structural Reforms” During the first stage (Fiscal Years 1989–1997),* on page 12 of the 2007 Annual Report. despite scoring a major hit with Street Fighter II, which During the third stage (Fiscal Years 2007–2015), introduced Capcom’s development capabilities to the we engaged in governance reforms to strengthen our world and achieved record profits, the lack of follow-up management structure and digital strategies. First, we hit titles, inventory disposal and other issues caused clearly separated business execution functions in line

21 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 22 The CEO’s Discussion of Initiatives for Enhancing Corporate Value Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

with strategy as well as management strategy decision- management, so promoting management systems to society involved the alleviation of stress and other the game industry. making functions, putting myself as the Chairman and strengthen governance in a variety of ways, including psychological benefits, but the application and diffusion As one of the founding members and promoters CEO in charge of management strategy and the President the separation of supervision and execution, is an of these simulation technologies will resolve new social of the game industry, I will build the foundation for as COO in charge of business execution. The business attempt to ensure the Company functions properly into issues, creating a whole new future of enjoyment for bringing new gaming possibilities to life. of the president is to engage in both medium- to long- the future. The COO will discuss our digital strategy. term growth and short-term performance. However, in Please refer to “COO Discussion on Growth Strategy” on page 35. my experience, when engaged in management, there is As a result, with the structural reforms and Management Issues a tendency to spend 70% of one’s time on performance. synergies achieved in the second stage, compared to Thus, it is not always possible to ensure medium- to the previous stage, all revenue items substantially long-term growth. I will not always be involved in increased. [Diagram 1] Our Current Theme: Controlling Risks for Sustainable Growth Market Growth Forecast The fourth stage (beginning in April 2016) will be the consoles have been equipped with full-fledged online culmination of my experience as a manager. The main functionality, enabling the continuous sales of past hit The Game Industry has High Growth Potential and theme will be controlling risks to further enhance titles and additional content providing earnings corporate value as a sound growth strategy. [Diagram 2] stability each year. Currently, the ratio of download Social Value As a manager, I classify corporate risks into two sales is 26%, and by improving this to 50% over the main categories: earnings volatility risks and management medium-term, we can further enhance stability. Until The game industry’s rise began in 1983, driven by the equipped with DVD and Blu-ray players, mobile phones decision risks. I will discuss management decision risks now, Single Content Multiple Usage has not been momentum created with the release of the Nintendo enabling game play and other past transitions tell the in a moment, but first I would like to discuss the control deployed on a scale that mitigated Consumer volatility. Entertainment System (NES) in Japan. Although there story of the spread of games. Recently, wearables and of earnings volatility risks. However, at present Mobile and PC Online account is no global data published before the year 2000, my virtual reality (VR) devices have heightened expectations To mitigate earnings volatility risks over the medium- for 75% of the market as game consoles, and since sense is that when viewed from a long-term perspective, of new gaming experiences. High affinity with to long-term, measures enabling sustainable growth both are recurring revenue businesses, we will further the industry has basically been on a growth trajectory cutting-edge IT technologies such as AI is an extremely must include (1) transforming the foundation of our improve expense to revenue ratio stability through the for about 30 years. This is perhaps supported by the strong advantage for games. Consumer business model from a traditional one-time thorough multiuse of popular content (IP). fact that sales units increase after each home video The second reason, which I myself can confirm, sale “transactional model” to a continuous “recurring At the core of these two measures lies Capcom’s game console cycle. Furthermore, since 2007, the spread is that simulation technologies are the essence of games. revenue model” and (2) creating a business portfolio biggest strength: the possession of numerous popular IPs. of computers accompanied with smartphone and Utilizing game console performance representing with diversified earnings risks based on the thorough In the game industry—what I call the “hit internet environment improvements have enabled the world’s most advanced computers, games are development of Capcom’s basic strategy, Single Content business”—we will build a management foundation general gaming devices to gain traction in the market, programmed to imagine all potential player movements. Multiple Usage. enabling sustainable growth and formulate strategies which has been a factor driving rapid market expansion Thus, taking the long-term view, game simulation As mentioned above, earnings in Capcom’s core to enhance corporate value. in developed as well as developing countries. technology created and refined on the most advanced Consumer business fluctuate depending on whether Looking 10–20 years ahead, I expect there will computers can be used for medical, education or or not we create hit titles. Although we are able to still be strong growth potential in the game market. training applications and even for economic and achieve limited results (control earnings volatility) through One reason is because games are not bound to any financial forecasting. the distributed release of multiple hit titles, this is not one device. Dedicated game consoles, game consoles Until now, the value games have provided to the stable growth to which I refer. Since 2013, game

Diagram 1 Diagram 2 Normal Distribution of Operating Income in Each Stage Past and Future Management Stages

*1 Stage 1 (1990–1998 (ended March 31)) Stage 2 (1999–2007 (ended March 31)) Stage 3 (2008–2016 (ended March 31)) Past stages Future stage Cumulative net sales 460.7 billion yen Cumulative net sales 527.1 billion yen Cumulative net sales 759.1 billion yen Cumulative operating income Cumulative operating income Cumulative operating income Stage 1 (Fiscal Years 1989–1997) Stage 4 (from FY ending March 2017) 48.5 billion yen 61.5 billion yen 103 billion yen Control risk to further enhance corporate value Operating margin 10.5% Operating margin 11.7% Operating margin 13.6% Global hit title creation Manifestation of issues related to expansion Earnings volatility risks Measure 1 Transform business model from Stage 2 (Fiscal Years 1998–2006) transactional to recurring Structure enabling release of major title every year Measure 2 Create stable business portfolio *2 *2 *2 Thorough sales and inventory management 41% 24% Management decision risks Please refer to page 28 119% Measure 1 Management visualization centered Stage 3 (Fiscal Years 2007–2015) on numbers Governance reforms to strengthen management structure Measure 2 Institutional design with external directors (18) (8) 2 12 22 (billion yen) (5) 0 5 10 15 (billion yen) (1.3) 3.7 8.7 13.7 18.7 23.7 Digital strategy promotion at its core Average value 5.7 billion yen Average value 6.8 billion yen Average value 11.4 billion yen (billion yen) *1 Ordinary income is substituted as the ﬁscal year ended March 31, 1990 was before public listing. *2 Relative standard deviation of operating income at each stage period.

23 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 24 The CEO’s Discussion of Initiatives for Enhancing Corporate Value Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Medium-Term Business Goal Progress Analysis Performance Third Straight Year of Operating Income Gains Mark Medium-Term Business Goals Cumulative targets for the 5 years starting FY ending March 2014

Cumulative Operating margins in the Beginning of Sustainable Growth operating income FY ending March 2018 (2014–2018 (ending March 31)) 70 billion yen 20 % 1. Current Market Trends core Consumer Online business systems over the past Although it is a short-term trend, the game market in three years has significantly improved profitability and 2015 was worth 85.8 billion dollars (up 24.7% from the is also proving effective in terms of mitigating earnings Medium-Term Business Goal Progress Analysis 1: Medium-Term Business Goal Progress Analysis 2: previous fiscal year). This substantial growth was due volatility over the medium-term. Cumulative Operating Income Operating Margins to rapid expansion of the mobile market, mainly in Please refer to page 21 of the Integrated Report 2015. In terms of our cumulative target for operating income, subtracting As indicated in the diagram, operating margins have improved to developing countries. We expect continued growth in Regarding the four issues raised at the beginning the four fiscal years up to March 31, 2017, we are aiming for operating 16%. As for the other four percentage points, we will achieve steady 2016 and forecast 94.2 billion dollars (up 9.8% from of the fiscal year, to begin with, two core titles sold 4.7 income of 23.5 billion yen in the fiscal year ending March 31, 2018. improvements on a point-by-point basis in Capcom businesses, the previous fiscal year). As in 2015, the mobile market million units, exceeding initial projections of 4.5 million To achieve this ambitious target, we must achieve growth at Capcom and along with Asia business results, we are aiming for margins will continue to expand, driven mainly by casual users. units. Compared to initial projections of nine billion yen and expand the Asian business, including collaborations with of 20%. Even if, for example, Asian licensing were excluded, I think However, although the core user segment comprising for digital download sales, results were 10.9 billion Tencent Holdings. we can still achieve this in an additional one to two years. the PC online and consumer markets is diverging, we yen. Moreover, downloads of Monster Hunter Explore Accordingly, with respect to Capcom titles next fiscal year (ending Now, I will cover business segments, which are displayed on expect it to plateau at 2014 levels. exceeded three million. However, some pachislo machines March 31, 2018), we have plans to release a larger lineup than we the diagram showing a five year period. in the Amusement Equipments business struggled, did this fiscal year (ending March 31, 2017), while at the same time First, with respect to Arcade Operations and Other Businesses, 2. Performance in the Fiscal Year Ended falling short of the three billion yen operating income increasing the download sales ratio to acquire additional profit. we expect it will be difficult to achieve medium-term business goals. March 31, 2016 forecast at 2.8 billion yen. Our full-fledged efforts in the Asian business began last fiscal In addition to market sluggishness caused by the consumption tax Given these conditions, in the year ended March 31, 2016, year, with Monster Hunter Online (MHO) currently in the market. hike and other reasons, we did not factor in the construction of Achieve the combined total sales projection of 4.5 million operating income grew for the third straight year, with net 1 Monthly sales numbers are on track as we are just seeing the our new development building when the medium-term management units for Monster Hunter X (Cross) and Street Fighter V sales of 77.021 billion yen (up 19.8% from the previous Achieve projections for the next fiscal year in digital beginning of contributions to Capcom earnings. In addition to plan goals were being formulated. In the Amusement Equipments 2 download sales (sales of 9 billion yen) ensuring MHO is a thorough success, we will also release other business, profit margins have been on the decline since rules affecting fiscal year), operating income of 12.029 billion yen (up 13.7% from the previous fiscal year) and net income 3 Make Monster Hunter Explore a hit titles and develop areas in Asia other than China. Please refer to pachislo model certification methods were changed in September Achieve next fiscal year projections (operating income of “Growth Strategy 2: Overhaul the Online Business” on page 39. 2014. That being said, next fiscal year thorough cost management attributable to owners of the parent of 7.745 billion 4 3 billion yen) with sales of pachislo machines compliant with [Diagram 3,4,5] revised pachislo model certification methods Now, I will provide an explanation of each business segment. should enable us to improve margins. yen (up 17.1% from the previous fiscal year). As the segment numbers back calculated from the fiscal year ending At the same time, we are generally on track to achieve Reasons for the increases in sales and profit include March 31, 2018 indicate, we are within range of being able to Digital Contents business targets. This is due to (1) outsourced title (1) sales of the extremely popular Monster Hunter X 3. Forecast for the Fiscal Year Ending March achieve targets in the Digital Contents and Amusement Equipments profitability improvements, (2) streamlining internal title production (Cross), the latest title in this series, which surpassed 31, 2017 businesses. On the other hand, Arcade Operations and Other and (3) increases in the DLC sales ratio in the Consumer business, three million units, (2) strong sales of Resident Evil 0 Next fiscal year (ending March 31, 2017), we expect Businesses present more of a challenge. If numbers for the fiscal which supplements the struggling Mobile and PC Online businesses. HD Remaster and HD versions of other past hits and (3) operating income to increase for the fourth year in a year ending March 31, 2018, were replaced with numbers from To achieve consolidated operating margins of 20%, we need the growth of catalog sales via download. With regard row, with net sales of 85 billion (up 10.4% from the this fiscal year’s plans, these two segments would fall short of targets to make up for businesses falling short of targets. We will cover these to the three consecutive years of operating income previous fiscal year), operating income of 13.6 billion by 6.6 billion yen. with Digital Contents business earnings. Profit margins in the Mobile growth, the decision to implement reforms changing yen (up 13.1% from the previous fiscal year) and net Thus, we will achieve a minimum of 10% growth in Capcom and PC Online business are currently near zero, but these are businesses, and the remainder, including the shortfalls, will be businesses with the potential to achieve 30% margins. Furthermore, supplemented by Asian business growth, which was not included if we expand the high-margin Asian licensing business, we will be in projections at the beginning of the fiscal year. able to achieve Digital Contents business operating margins of 30%.

Diagram 3 Diagram 4 Diagram 5 Operating Income by Business Segment (Billions of yen) Operating Margin by Business Segment (%) Net Sales (Millions of yen) Operating Income (Millions of yen) Net Income Attributable to Owners of the Parent (Millions of yen) 3/‘17- 3/‘14 3/‘15 3/‘16 3/‘17 3/‘18 3/‘18 3/‘14 3/‘15 3/‘16 3/‘17 3/‘18 3/’18 million million million Cumulative Actual Actual Actual Plan Target Actual Actual Actual Plan Remaining Difference Target 77,021yen 12,029 yen 7,745 yen Digital Contents 4.5 10.2 12.2 14.3 15.8 57.0 Digital Contents 6.8 22.5 23.1 24.2 22.0 102,200 13,600 Arcade Operations 1.6 0.9 0.7 0.8 4.5 (3.7) 8.5 94,075 12,029 9,000 Arcade Operations 15.2 10.2 7.7 8.9 15.0 85,000 Amusement 77,021 10,151 10,299 10,582 7,745 7.1 2.7 2.8 3.0 4.4 20.0 Equipments 64,277 6,616 Amusement Equipments 30.8 36.3 21.1 20.0 27.0 Other Businesses 1.0 0.7 0.5 0.2 3.1 (2.9) 5.5 Adjustment (3.9) (4.0) (4.2) (4.7) (4.2) (21.0) Other Businesses 38.6 30.8 25.0 10.0 45.0 2,973 3,444 Operating Income 10.3 10.6 12.0 13.6 23.5 70.0 Totals Operating Income Totals 10.1 16.5 15.6 16.0 20.0 Note: Figures for 18/3 are the remainders after actual results from 14/3 through 16/3 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 and the forecasted results for 17/3 have been deducted from the cumulative targets. (Plan) (Plan) (Plan) (Years ending March 31) (Years ending March 31) (Years ending March 31)

25 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 26 The CEO’s Discussion of Initiatives for Enhancing Corporate Value Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

income attributable to owners of the parent of nine Amusement Equipments business, we will expand our development program that enables employees in all Managers typically tell their employees to do this, but billion yen (up 16.2% from the previous fiscal year). title lineup with the release of four pachislo machines positions to acquire professional skills and augment I think that if employees are being urged to, they must There are two main reasons for this forecast. First, in targeted to sell 55,000 units (up 13,000 units from the their practical experience in game production. In be provided with a proper safety net. Without a safety the Digital Contents business, three major titles will previous fiscal year). We are projecting net sales of 15 addition, we constructed a new R&D building that net in place, no one will jump onto the flying trapeze, be released mainly targeting the Consumer sub-segment. billion yen (up 12.4% from the previous year). contains the world’s most advanced development even if they are pushed. The manager’s role is to push Along with Mobile and PC Online recovery, we are I believe results are the only way to earn the trust equipment and technologies, creating a development employees to take on one new challenge after another, projecting net sales of 59 billion yen (up 12.2% from of investors and enable Capcom to grow sustainably environment that maximizes developer motivation. identify obstacles and come up with solutions. This the previous year) and operating income of 14.3 billion and enhance corporate value. I will make every effort Regarding remuneration, in addition to regular bonuses, enables employees to take on challenges without fear yen (up 17.5% from the previous year). Second, in the to achieve fiscal year objectives. Capcom has introduced a system offering incentives of failure, leading to a virtuous cycle that creates and assignment allowances for each title in an attempt business opportunities. The management visualization to further increase motivation. initiatives in which I am engaged (see the next section) CSR (Corporate Social Responsibility) In my view, the most critical aspect of human play a role in providing employees with a space in resource development is providing an environment which they are free to grow and be active. that enables employees to take on new challenges. Addressing Social Issues as a Game Company Aiming to

Create Shared Value Corporate Governance

1. Basic Approach to CSR (2)(3)(4), the common issue is attracting and approaching I believe that, in addition to traditional corporate social young people, to which we have proactively made Emphasizing Objectivity to Create Systems Ensuring responsibility (CSR) that prevents and mitigates the proposals to museums, police departments and election negative impacts of business activities on society, committees and produced quantifiable results. At the Capcom’s Long-Term Survival promoting the creation of shared value (CSV) to resolve same time, these four activities deliver value to Capcom social issues through business activities will result in in the form of (1) improved existing user (fan) satisfaction Capcom is promoting growth strategies aimed at enabling us to confirm complex combinations of data. enhanced corporate value. through event participation and (2) enhanced favorable continuously improving corporate value, and in particular, Furthermore, these materials are used by external directors How do games, which are not a daily necessity, impression of games among middle-aged and seniors. economic value. for supervisory purposes and provided to investors as provide society with value? The clue to answering this With respect to (2) in particular, this segment cannot At the same time, the more we accelerate our part of our IR activities. This is part of the mechanism question dates back 50 years. At that time, I was running be considered current users, thus the contribution of execution of growth strategies, the higher the risks I call “management visualization.” Management decisions a candy store. One day, as I was looking at children popular Capcom contents to local communities become. Governance is useful for avoiding and based on visualizing operations enable us to evaluate lined up at the cotton candy machine in front of the enables the cultivation of new game users through minimizing these risks. the Company with two sets of eyes using a system store, I realized that what the kids were so fascinated smartphones and other familiar means. As risks can be broadly categorized into earnings attempting to achieve management transparency. with was not the cotton candy but the playful way it Furthermore, in the realm of educational support volatility risks and management decision risks, I will Even when I talk with developers, numbers are was made. I became convinced that, as the economy activities, Capcom is unique in carrying out career now explain how governance can be used to control the common language. Using only qualitative words grew, stress would accumulate along with material education as well as game literacy education, which raises management decision risks. and sentences leaves significant room for arbitrariness wealth. Adults also need an outlet for play (games). awareness regarding the proper way to interact with on the part of the person in charge. In comparison, Later, driven by the popularity of Space Invaders, video games. These efforts are aimed at supporting the Measure 1: Management Visualization numbers enable comparisons from a variety of angles, games would go on to become a nine trillion yen healthy development of young people and easing the Centered on Numbers facilitating decisions based on real conditions. industry. In recent years, games have become eSports, concerns society has about the influence of video games. In line with changes in company scale and business “Business going well should be left alone. The enjoyed just like traditional sports, enabling the creation characteristics, I think it is important that management manager’s job is to make changes to ensure businesses of social value as one means by which people around 3. Commitment to Employees also be able to flexibly change its management style. facing problems are able to move forward according the world have come to relieve stress. As can be seen from the fact that labor costs account For example, when a company is small, management to plans. Top management exists to make decisions, not for approximately 80% of development costs, the game is like the pilot of a propeller aircraft engaging in visual constantly hang around the workplace.” The risk control 2. Commitment to Regional Communities industry is a labor-intensive industry and an extraordinarily flight. They are always present and make decisions based efforts I am engaged in at present, involve teaching next- The promotion of our Single Content Multiple Usage intellectually-intensive industry, thus human resources on confirming conditions with their own eyes. On the generation members to effectively utilize the management strategy provides society with a wide range of benefits. are an especially important management resource. other hand, when a company is large, management is experience I have accumulated as founder of the Company. Specifically, these include the use of popular Capcom I am aware that diversity is critical for creating more like the pilot of a jumbo jet. In this case, it is too The systemization of management will enable Capcom IPs as local creation activities to support (1) economic content popular throughout the world. For this reason, risky to make decisions based solely on visual flight. to continue functioning steadily into the future. development, (2) cultural development, (3) awareness Capcom promotes the retention and development of Accordingly, the pilot switches to instrument flight to for improved public safety and (4) awareness of global human resources, including support for employees control the aircraft. Similarly, corporate managers Measure 2: Institutional Design Focused on elections. For example, (1) involves working with local raising children by offering childcare leave and shortened must rely on numbers to make decisions. External Directors municipalities to support the revitalization of towns. working hours, as well as the promotion of female For this reason, I require that materials (documents) For the past 17 years, Capcom has executed a variety Holding events that make use of popular IPs or offering employees to management positions. used for decision-making are, in principle, quantitatively of governance reforms. Please refer to page 67 real-life experiences of game worlds appeals to young Furthermore, as the development of human focused. Specifically, these materials compare and Since introducing the external director system in the people and families which has a major economic resources is directly linked to strengthening our contrast net sales, year-on-year performance and earnings fiscal year ended March 31, 2002, external directors have impact in supporting local tourism. Further, regarding development capabilities, Capcom implements a forecasts, which make it easier to identify problems by increased to account for 50% of the Board of Directors as

27 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 28 The CEO’s Discussion of Initiatives for Enhancing Corporate Value Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

of June 2016.[Diagram 6] The reason for this is based in part strengthens the Board of Directors supervisory function The reason I think stable dividends are important 2. Dividends for This Fiscal Year and the Next on investor concerns that “as a founder-owned Company, and is intended to enable the flexible diffusion of is, for example, because a sudden decrease or cessation In the fiscal year ended March 31, 2016, major titles and Capcom can quickly make management decisions and management and deepen understanding among overseas of dividends can be the difference between life and catalog sales in the Consumer business contributed to respond to changes in the business environment, but institutional investors through quick decision-making. death for pensioners who depend on dividends to cover growth in sales and profit. Accordingly, in line with isn’t there a risk of arbitrary decisions and execution?” Please refer to “Governance Reforms for Further Growth” on part of their lifestyle expenses. Regular and stable our basic policy, we maintained the full-year dividend External director appointment criteria has not page 67. revenue enables the reliable establishment of future at 40 yen per share, a payout ratio of 29.0%, in the changed since the system was introduced, but in short, The biggest reason for this change to institutional lifestyle plans. This belief is based on my background, fiscal year ended March 31, 2016. we appoint directors who are specialists and command design is “monitoring validity.” A conventional company on having lost my father when I was young, and even In the fiscal year ending March 31, 2017, we plan the highest level of ‘insight’ into their respective areas, with a board of corporate auditors emphasizes though I opened a retail business, I struggled and felt on paying a full-year dividend of 40 yen per share, a and are able to objectively make decisions regarding “monitoring legality” to avoid legal risks. However, gratitude for the stable revenue I earned each day. payout ratio of 25.0%. As this dividend payout ratio Capcom’s management and business activities. I have always believed the utilization of governance to Capcom shareholders represent all types of people, is under 30%, it will be necessary to consider an With the avoidance of business investment risk increase economic value requires a business execution and I assume some of them may be facing these kinds increase in the dividend in the event next fiscal year’s as a priority issue, Capcom appoints individuals from validity monitoring function. In recognition of the of issues, which is why we have never once failed to consolidated performance forecasts are achieved. Japan’s leadership class (in terms of business crisis importance of this function, Capcom established the provide dividends during the 26 years since we went Going forward, we will continue to strengthen management, law and government) who are able to Audit Committee in the fiscal year ended March 31, 2012. public in 1990.[Diagram 8] shareholder return by securing investment capital, provide sound opinions without making allowances Changing to a company with an audit and In terms of our shareholder return policy, (1) Capcom buying back shares and gradually raising the dividend for industry conditions, who are not intimidated by supervisory committee enables external directors to will enhance its corporate value through investment in line with earnings. the company founder and who are able to determine confirm the validity of quantitative data in Board of and growth; (2) the Company will continue to provide As a senior manager with 50 years of experience validity from the general public’s point of view. Director meeting materials as well as information gathered shareholders with stable dividends in line with earnings in this industry, my goal is to increase market capitalization Furthermore, in June 2016 Capcom transitioned from the directly subordinate Internal Auditing Division. (aiming for a payout ratio around 30%) and (3) we and achieve corporate growth exceeding that of the from a company with a board of corporate auditors to As a result, this facilitates more rational decisions will raise earnings per share through share buybacks. past 33 years to continue meeting the expectations of a company with an audit and supervisory committee. that make growth strategies more robust and contribute I believe that the manager’s corporate social all Capcom shareholders. [Diagram 7] To maintain stable corporate management, to the enhancement of both economic value and responsibility is to build relationships of co-existence and we must further strengthen our management base corporate value. For additional details, please refer to co-prosperity with stakeholders by offering employment, July 2016 and ability to thoroughly manage risks. This transition the Governance section in this report. achieving corporate growth, earning profits, paying taxes and providing dividends. Accordingly, over the past 10 years Capcom dividends have doubled. We Shareholder Return place importance on the effective use of shareholders’ equity, and have established a target to increase ROE Kenzo Tsujimoto from an average of 6.7% during the past three years Chairman and The Conviction to Maintain Dividends for 26 Years Since to 8–10%. Please refer to page 32 Chief Executive Ofﬁcer (CEO) Going Public

1. Basic Policy Regarding Dividends provide stable and continuous dividends that take into I believe one of our management priorities is to share account our financial condition and future business profits with all our shareholders. Our basic policy is to strategies.

Diagram 6 Diagram 7 Diagram 8 Ratio of External Directors (%) Transition into a company with an audit and supervisory committee Dividends Per Share Since Public Listing (yen)

Formerly Board of Board of Directors Corporate Auditors 50.0% Audit 53

40 40 40 40 40 40 40 40 40 50.0 35 35 42.9 30 30 30 30 From June 18, 2016 30.0 30.0 Board of 27.3 Directors 20 20 20 20 20 20 20 20 20 20 Audit and Supervisory 15 Audit and Committee Supervision

2013 2014 2015 2016 2017 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 External Directors (Plan) (Years ending March 31) (Years ending March 31)

29 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 30 Financial Strategy According to the CFO Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

to enhancing development investment in line with Increasing Capital Efficiency lineup expansion, thus we expect a recovery from next Building a Stable [Diagram 9] Capcom established the following ROE targets as an fiscal year and an increase in net cash. index of capital efficiency. Financial Foundation Moving average for three fiscal years ended Fund Procurement 6.7% March 2015 Moving average for three fiscal years ending 8–10% Consumer game software development expenses have March 2017 to Conduct Efficient been on the rise following the arrival of high performance We are on track at present, having averaged 10.2% and multifunctional current game consoles. In addition in the past two fiscal years. To achieve our objectives, to requiring a development period of two or more years Development we are placing priority on net margin improvement. for a major title and add-on contents, the investment Based on our growth strategy, we aim to further improve payback period is lengthening. We must keep a certain title lineup expansion in each business. Regarding TAT amount of cash on hand to cover ongoing investments, Investments and financial leverage, we are cognizant that these are including post-release upgrades to online games and issues we need to address going forward. To this end, network infrastructure maintenance. we will raise funds mainly through debt financing within To address these funding procurement issues, we the commitment line. determine the level of cash and cash equivalents that needs to be maintained in consideration of reserves ROE components 3/‘13 3/‘14 3/‘15 3/‘16 Newly Appointed CFO from the investment plan and risk management. This Net margin (%) 3.2 3.4 10.3 10.1 amount will then be supplemented with cash on hand I was appointed Chief Financial Officer (CFO) by consensus at TAT (%) 90.1 105.8 63.8 68.1 (28,429 million yen) as well as an unused 26.7 billion the Board of Directors meeting held in June 2016. Financial leverage (times) 1.66 1.51 1.41 1.50 yen commitment line of credit (total contract value: 26.7 Up to now, I have been engaged in two initiatives: billion yen) to maintain an appropriate range. [Diagram 10] improving net cash and increasing capital efficiency. These Securing Net Cash and Risk Management initiatives are aimed at creating a lean financial foundation Investment Strategy and securing funding to invest in growth. Currently, Capcom is For Capcom to efficiently generate net cash, we executing growth strategies aimed at increasing corporate value formulated two new financial strategies focused on To achieve stable medium- to long-term growth, we over the medium- to long-term while increasing investment generating cash flows through process management. recognize that it is critical to secure a sufficient amount in R&D to enhance the development environment in the core The first is to thoroughly manage return on investment. of investment for the Digital Contents business, the Digital Contents business and promote enhancements to our Accordingly, we manage a database able to compare source for our original IP. Specifically, in addition to an title lineup. I will more closely scrutinize the selection and the ROI status of each title while ascertaining and enhanced title lineup and new technologies including concentration of invested capital and thoroughly review cost analyzing the investment profitability of each project. VR, we must invest in hiring more developers and of sales, selling, general and administrative expenses and The second strategy is to maximize working capital preparing our development environment. Accordingly, other costs to improve our earnings structure and support the efficiency. To this end, we are creating a framework to we will allocate about 80% of management resources achievement of growth strategies from a funding perspective. manage our investment turnover period and turnover (R&D investment and capital expenditure totaling 34.5 ratio in a more visible manner. Moreover, net cash in billion yen in the fiscal year ending March 31, 2017), the fiscal year under review was 15.8 billion yen, which amounting to an investment of 27.5 billion yen in the decreased for the second year in a row. This was due Digital Contents business.

Diagram 9 Diagram 10 Net Cash on a Historical Basis (Billions of yen) Liquidity in Hand (Millions of yen)

15.8billion yen 55,129million yen

61,511 Kenkichi Nomura 27.6 52,618 54,698 55,129 48,022 Director, Executive Corporate Ofﬁcer 22.6 21.2 26,500 42,287 16,500 26,700 26,700 and Chief Financial Ofﬁcer (CFO) 26,500 14.3 15.8 20,000 13.0 12.2 11.3 9.2 7.3 35,011 31,522 28,429 22,287 26,118 27,998

2007 200920082010 201220112013 2014 2015 2016 2011 2012 2013 2014 2015 2016 Cash and cash equivalents at end of year (Years ended March 31) Unused Commitment Line of Credit (Years ended March 31)

31 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 32 Game Industry Characteristics and Capcom Business Characteristics Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Game Industry Characteristics Capcom Business Characteristics

Diagram 11 Diagram 13 Digital Contents Business (Proportion of Net Sales: 68%) Characteristics of Each Market Digital Contents Business Portfolio Consumer Market Characteristics (Package + Digital Download Contents) Consumer Business (Proportion of Net Sales: 55%) Package + Digital Download Contents Current Predictions Package and digital download contents are a 21.7 billion dollar market, forecast to remain nearly flat with growth to 22.1 billion dollars in 2018. The customer Capcom’s core business is to create a multitude of original content for Trending toward segment is composed mainly of core users who are highly loyal to game titles. Cultivating core user segments home video game consoles. The regular release of sequers of popular generation of stable They have a relatively high willingness to purchase sequels and a low sensitivity in the Asian region IPs and an increased download sales ratio have, in recent years, led to earnings over the long-term to price and economic conditions. This market is the lowest among the three in PC Online PC Online a greater volume of sales and operating margins over 20%. terms of margin, yet occupies a high position in the Japanese industry overall. Hereafter, we expect the digital sales ratio to increase, shrinking the gap between

Market Stability the other two markets’ margins. Please refer to page 46 Mobile Contents Business (Proportion of Net Sales: 4%)

Stability This business distributes games featuring popular Capcom content Mobile Market Characteristics on smartphones, cultivating new markets such as the casual user Consumer Sales volume expansion This is a 39 billion dollar market, forecast to grow to 53.3 billion dollars in 2018. Operating margins over 20% segment to create new earnings opportunities. However, in sufficient Consumer The customer segment is primarily composed of casual users, many of whom play know-how in ongoing game operations, which differs from Consumer, games just to pass the time, thus they demonstrate the lowest loyalty toward game has resulted in sales underperforming market growth. Many core users, titles. They have a limited willingness to purchase games and have the highest strong loyalty sensitivity to price and economic conditions. Although this is the most profitable among the three markets, only a limited number of titles are able to generate stable PC Online Business (Proportion of Net Sales: 9%) earnings over the long term. Going forward, we expect smartphones will continue Mobile Low earnings due to This business distributes games featuring popular Capcom content to to grow rapidly as the most pervasive game device. Please refer to page 47 insufficient expertise in PC online users, cultivating core users in the Asian region to create new ongoing game operations Rapid growth, Mobile earnings opportunities. In particular, there is great business growth but intense competition PC Online Market Characteristics potential in entering China, the world’s largest market.

This is a 25.1 billion dollar market, forecast to grow to 27.8 billion dollars in 2018. Market Profitability Profitability The customer segment is primarily composed of core users who demonstrate Please refer to page 45 Source: Created by Capcom based on data from the International Development Group the highest loyalty toward game titles. They have a fairly strong willingness to Note: Calculations based on earnings in the ﬁscal year ended March 2016 engage in ongoing purchases, and are unique for having the lowest sensitivity to Diagram 14 price and economic conditions. In terms of profitability, PC Online is comparatively Net Sales by Business Segments (Millions of yen) high among the three markets, typically generating stable earnings over the long term. Going forward, we do not anticipate any major changes and expect the Other Businesses Digital Contents Arcade Operations Business (Proportion of Net Sales: 12%) market to remain stable. Please refer to page 48 2,043 business 52,577 By opening facilities in large commercial complexes in Japan, this Amusement business has secured a stable stream of customers and maintains Diagram 12 Equipments business operating margins of around 10%. At the same time, sales in this Five Competitive Factors in Each Business (Five Forces Analysis) 13,343 77,021 business are low due to our strategy of carefully limiting the number of facilities and the impact of the consumption tax increase. In recent Arcade Operations Consumer (Package + years, we have focused efforts on services for new customers including Mobile Contents PC Online business Digital Download Contents) 9,056 young children and seniors. Please refer to page 49 High capital and Ongoing capital investment Extremely Few capital or differentiated Threat of New Entrants Normal differentiated and cutting-edge High technology requirements Low technology requirements technologies required Diagram 15 Amusement Equipments Business (Proportion of Net Sales: 17%) Total Business Portfolio The Pachinko and Pachislo and Arcade Games Sales sub-segments maintain From standpoint of mobility, Threat of Substitute Users somewhat Users somewhat Normal Low low user outﬂow to other Normal operating margins around 20–30% due to the release of machines featuring Services and Products compartmentalized compartmentalized Other Businesses two markets Arcade popular Capcom content and the culmination of development expertise. Operations However, legal changes and other external factors impacting the gaming Business machine business may pose a significant risk of postponed sales, so this Many transactions with business experiences substantial earnings volatility. Please refer to page 51 Buyer Power High major overseas retailers Low Direct sales to usersLow Direct sales to users with strong purchase power Stability Digital Contents Business

Content is flexibly Content is flexibly Content is flexibly Supplier Power Other Businesses (Proportion of Net Sales: 3%) compatible with compatible with compatible with (Hardware Manufacturers) Low Low Low all platforms all platforms all platforms Our character licensing business involves the use of popular Capcom Amusement Equipments characters for publishing and films in Japan and overseas, providing high Appropriate environment Business profitability and stable margins around 30%. At the same time, licensed at present, expected to Many new entrants, Appropriate environment Degree of Rivalry products bring in a low return, so the amount of sales in this business is Normal soften somewhat in the High tough environment Normal at present future small at this moment. Please refer to page 53 Profitability Note: Calculations based on earnings in the fiscal year ended March 2016

33 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 34 The COO’s Discussion of Growth Strategies Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Aiming for Medium- to Long-Term Growth through Opportunities in the Changing Business Environment

New Sales Strategy Based on Digital Distribution Games connected to the internet played with multiple games throughout the world without the significant people are already commonplace, and in recent years, labor and costs involved in overseas sales networks is even more online innovations are taking place in the paving the way for an environment in which we are game industry. able to compete with major overseas game companies The biggest transformation is the “distribution on an equal footing. revolution” spawned by the digital distribution of games. Furthermore, support for multiple languages is For the past several years, this trend has accelerated another critical point. At present, games can be purchased substantially, as can clearly be seen in Capcom’s operating online almost anywhere. There are many developing results. As the ratio of digital download contents sales markets that can suddenly transform into promising increases, inventory return ratios improve and operating opportunities. In anticipation of such developments, margins expand. Also, in line with the growth of digital new games released in the fiscal year ended March distribution, performance has improved in Asia, where 31, 2016, were available in 14 different languages. package sales had been virtually impossible until now Please refer to page 3 of The Latest Development Report. due to the flood of pirated games. In light of these new trends, Capcom will strengthen In terms of game sales strategies going forward, digital download contents in the Consumer business the key to success will be the degree to which we are and implement measures to set the Online business able to utilize digital distribution. The ability to distribute on a growth trajectory.

Investing 80% of Management Resources in the Digital Contents Business The Digital Contents business is our core business, Digital Contents business to grow, in addition to further accounts for 68% of net sales and generates original expansion of the Consumer business, we must overhaul content, which is the source of our corporate value. the struggling Online business and establish a growth We are allocating approximately 80% of management trajectory. On the following pages, I will explain our resources in this business, which I believe is the key to strategies for achieving these goals. achieving our medium-term business goals. For the Growth Strategy 1 Other Businesses Consumer Business Expansion Amusement Growth Equipments Businesses • Stable provision of core brands • Strengthen digital downloads (full-game/add-on) Haruhiro Tsujimoto Digital • Pursue new technologies and businesses Pages 37–38 Ratio of Sales Contents President and Arcade Growth Strategy Operations by Business 2 Chief Operating Ofﬁcer (COO) 68% Overhaul the Online Business Consumer Business • Strengthen development structure via the newly Online Business established Mobile Business Division • Promote business alliances in Asian region Pages 39–40

35 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 36 The COO’s Discussion of Growth Strategies Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Growth Strategy 1 Monster Hunter series

Consumer Business Expansion Diagram 16

Catalog Sales Volume and Catalog sales Ratio Increases 6 5.7 million million units million units units 7 Establishing a High Earnings Structure and Stable Portfolio Catalog titles of 4 3.9 3.9 Catalog sales ratio major IPs creates One important strategy for Capcom to achieve ongoing and stable growth in the Consumer business—referred to as the hit business—is million million million units a solid earnings base transforming the foundation of our Consumer business model from a traditional one-time sale “transactional model” to a continuous units units 46.2% “recurring revenue model.”[Diagram 16] Going forward, the consumer market will continue to maintain a scale of 22 billion dollars as the 46.7% Street Fighter series number of game makers’ declines due to high barriers to entry. Companies that possess an abundance of popular IPs and strong Resident Evil series technological capabilities will easily win the market and enjoy profits in this environment. For Capcom, the Consumer business is the 32.6% source of our corporate value. We will implement the following three measures, each positioned as one of the most important strategies 22.9% 23.4% for growth over the medium- to long-term. The penetration of digital download sales is driving the 18.4% sales ratio of our recurring revenue model higher each year and generating continuous profits, unlike the 2011 2012 2013 2014 2015 2016 transactional model.

Measure 1 Stable Provision of Core Brands Diagram 17 Capcom’s biggest strength is the in-house creation of powerful that appropriately allocates employees to teams when needed from 60-Month Sales Plan and 52-Week Human Resources Plan brands and ownership of numerous popular IPs. At the same time, 2,000 developers via a 52-week map. These two maps enable the unit sales of major titles has fluctuated depending on the fiscal year, stable release of multiple major titles each fiscal year and control 60-month map 52-week map thus high earnings volatility was an issue. earnings volatility.[Diagram 17] Furthermore, we think the creation of Objective Stabilize annual earnings Objective Effective utilization of R&D resources For this reason, we shortened the sales cycle for titles in each new brands that will become our future primary sources of earnings series from three to four years to two and a half years and increased is indispensable for medium- to long-term growth. Thus, we are Title 1st year 2nd year 3rd year 4th year 5th year Developers 1 2 3 4 5 6 7 8 9 10 11 12 (Month) the number of titles released in a single fiscal year. Employing a allocating approximately 20% of development investments toward A 1 Project A Project B Project C Major titles medium-term strategic (60-month) map, we are forming a title new IP development. released B 2 portfolio enabling sustainable growth and establishing a structure every 2.5 years C 3 4 Measure 2 Strengthen Digital Downloads (Full-Game/Add-On) D … … E 2,000 The merits of digital downloads include (1) avoiding inventory risk and sales each fiscal year will further the transition to a recurring revenue reducing package production costs through full-game downloads, (2) business model.[Diagram 18] At present, we are focused on points (1) To achieve stable earnings growth, it is important to steadily provide numerous popular titles and shorten development periods. additional earnings opportunities through full-game downloads of and (2), but going forward, we will strengthen point (3) to increase catalog titles whose package sales are difficult for retailers and (3) the digital download ratio, which is currently 26%, to 50% over the anchor users through ongoing add-on contents and stable acquisition medium-term. This will bolster additional recurring revenue by Diagram 18 of additional revenue over the long term. anchoring users for more than one year after launch, and as these Digital Download Sales Volume and Ratio Increases These represent one measure to counter concerns over intense games will have a large number of active users, it will also lead to Digital download sales of mainly full games (new and past sales volatility due to dependence on hit titles in the Consumer business the acquisition of new users, effectively controlling sales volatility titles) are growing on track and expected to comprise and skyrocketing development costs. In addition to the stable each fiscal year. Digital download approximately 30% of the digital download sales ratio in sales ratio provision of core brands, the accumulation of steady digital download 25.6% 25.9% the fiscal year ending March 2017. Going forward, we will strengthen additional digital download content and raise the digital download ratio to 50% overall. Measure 3 Pursue New Technologies and Businesses 18.3% 29.8% Full game digital downloads 10.9 Download new full games In the game industry, once neglected, it is difficult to pursue research new experiences with VR, our games will be even more appealing. billion yen Digital download 11.3% sales on cutting-edge technologies. Constant technological research in new This fiscal year, we are proactively approaching this development with 9.7 9.0 billion yen billion yen Catalog digital download titles areas and continued exploration of gaming possibilities are the RESIDENT EVIL 7 biohazard, which offers full Playstation VR support. 5.2 stepping stones for establishing a groundbreaking position in the We are also focusing efforts on eSports as a new genre. With the billion yen Download catalog title full games next-generation. Street Fighter series in particular, we had held events mainly in North 2013 2014 2015 2016 2017 14.0 （Plan） In 2016, new devices including PlayStation VR and Oculus Rift America, which were well attended. However, going forward we billion yen Additional digital downloads appeared on the market and brought with them huge expectations in plan to develop activities in other regions. With these new business Download additional stories, stages, items, etc. what has been called “VR year one.” Capcom’s specialty in the action challenges, we will attempt to maximize earnings through the active and horror genres is extremely compatible with VR and by offering use of content and enhanced brand value.

37 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 38 The COO’s Discussion of Growth Strategies Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Growth Strategy 2

Overhaul the Online Business Diagram 19 New Mobile Game Strategy After Development Resources Concentrated Capcom Brand

Supporting Capcom’s Sustainable Growth Differently than Before Development Resources Split the Consumer Business Capcom Brand Beeline Brand Capcom has yet to make full use of its competitive advantage in the rapidly expanding online market (PC Online and Mobile Contents), IP namely, its rich library of popular IPs. In particular, the Mobile Contents business struggled in the fiscal year ended March 31, 2016 with net sales of only 3.3 billion yen. However, as success in the high-growth potential Online business is indispensable for corporate growth Develop apps using proprietary IP over the medium- to long-term, we are focused on this area as one of the most important issues for Capcom. Online games are a management business, providing a stable source of profit supporting Capcom’s sustainable growth in a way different from that of the Develop apps using Develop apps using IP from Consumer business. Furthermore, these businesses enable the creation of synergies with content (IP) created in the Consumer business, proprietary IP other companies playing a significant part in enhancing brand value. To alleviate investor concerns, we will implement the following two measures.

Market

Global expansion focused in Asia Mainly in Japan Global Measure 1 Strengthen Development Structure via the Newly Established Mobile Business Division

The conditions necessary for success in the Mobile business include integrated to establish the Mobile Business Division in order to focus on Target (1) ownership of popular content that can be differentiated amidst global development of Capcom IP. Next fiscal year, we will combine our numerous competing titles and (2) management expertise in library of popular content with our management expertise to release Capcom fans Casual female users Broad segment including all genders or ages analyzing user trends and the incorporation of those trends into new titles in the Sengoku BASARA, Mega Man and Monster Hunter ⓒ 2011 Peanuts Worldwide LLC development. series and promote a structure for the ongoing release of titles. In By integrating the Capcom and Beeline Brand organizations, which until now Strengthen the licensing business Until now, we developed the Capcom brand, which utilized addition, we will attempt to expand profits in Asia via licensing hit had promoted independent strategies, development and management in the Asian region with planned expertise has been concentrated in the Mobile Business Division. Quick distribution of four titles using popular Capcom content in Japan, and the Beeline brand, which titles from Japan and overseas in the Asian region, while at the same decision-making enables global expansion of titles utilizing proprietary content. licensed content from other companies for global use in games time moving forward with M&A, targeting development companies as popular brands including Monster Hunter, Sengoku BASARA and Mega Man targeting women and families. Under the Capcom brand, although part of management line integration.[Diagram 19] we unified our domestic development structure and achieved a hit Through these measures, we first aim to acquire a 5% share in Diagram 20 with Monster Hunter Explore, other existing titles struggled, adversely the domestic market over the medium term, then will attempt to Alliances and Titles in the Asian Region affecting sales for the past few years. Under the Beeline brand, we maximize profit opportunities overseas by leveraging market analysis Title Region Alliances have been unable to generate ongoing hit titles since 2010 and sales capabilities and management expertise cultivated in foreign markets Mobile contents Monster Hunter have continued to decline. In April 2016, both structures were under the Beeline brand. Hunting Quest China Qihoo 360 Technology Co., Ltd. (Simpliﬁed Chinese version)

China 3 Street Fighter South Korea Measure 2 Promote Business Alliances in the Asian Region Titles Battle Combination Taiwan Teeplay Interactive Ltd. South Korea Hong Kong China We believe the licensing of existing Online content in Asia has the The reason we are promoting business alliances in addition to Street Fighter IV Arena South Korea Nexon Korea Corporation potential to significantly accelerate Capcom growth.[Diagram 20] There are internal development is to avoid country risk in Asia and gain Hong Kong Taiwan PC online games Capcom Branch two ways to proceed in Asia: (1) engage in Capcom development and management expertise. Thus, we have determined that at this time, CAPCOM TAIWAN management through subsidiaries in the Asian region and (2) engage alliances with leading companies in countries other than Taiwan are an CO., LTD. Monster Hunter Online China Tencent Holdings Ltd. in development and management through business alliances with effective means of maximizing earnings. Developing hit content from 1 Title major Asian management companies. At present, we are focusing the Consumer business under our Single Content Multiple Usage Cayenne Entertainment Technology Co., Ltd. Onimusha Soul China (Taiwan) PC browser games (Simpliﬁed Chinese version) BLUE PANDA Network Technology Co., Ltd. efforts on the latter. strategy, making use of this content in the domestic PC Online business (China) Reinforce business In terms of an example of full-fledged development in Asia, we and licensing the content in Asia is a business model enabling Capcom alliances with powerful Monster Hunter can point to Monster Hunter Online (MHO), launched in collaboration to earn double or triple profits from the same content. In addition, we local companies Mezeporuta Kaitakuki China Tencent Holdings Ltd. 2 (Simpliﬁed Chinese version) with Tencent Holdings in China in December 2015. The game was can also apply Online business management expertise to the Consumer Titles well-received by users after distribution, giving us a solid footing in business; thus promoting these strategies will enhance synergies with terms of content development in China. the Digital Contents business. In the PC Online business, we are engaged in negotiations in China, the world’s largest online game market, as well as in South Korea and Thailand. Similarly, in terms of Mobile Content, we are enhancing development making use of leading titles in the Asian market where the adoption of smartphones continues at a brisk pace.

39 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 40 Conversation: An Analyst’s Perspective on Capcom’s Strategy for Growth Capcom’s Value Message from Growth Strategy Business Activity ESG Information FinFi ancn ial and Creation Activities Management Achievements Corporate Data

Focusing on Growth: Adapting to the Conversation Operational Model and Maximizing Utilization of Proprietary Content Profile: Jay Defibaugh Graduated from Penn State University in 1989: Haruhiro Tsujimoto Jay Defibaugh began covering the game industry President and Chief OperatingOfficer (COO), Senior Analyst, Research Division as an analyst in 1999. Joined CLSA Securities in 2013. Capcom Co., Ltd. CLSA Securities Japan Co., Ltd.

Analyst Jay Deﬁbaugh and President and COO management and marketing capabilities will become more you are skilled at creating IP, I get the impression you collaborating with other companies on licensing for Haruhiro Tsujimoto discuss how Capcom will critical. Does Capcom possess this operational expertise? are not as skilled in terms of marketing aimed at Mobile achieve higher management efficiency? promote its growth strategy amid a major revolution Tsujimoto: Although there is still room for leveraging IP. The ideal scenario is one in which you Tsujimoto: Going forward, regardless of the platform, in the Consumer game market driven by the improvement in this area, we will utilize our experience make the most of your IP to maximize profits. What there is the potential to transition any category of expansion of digital distribution. in the Online and Mobile businesses to create a new are your thoughts? game into the long-term operational model. Thus, the internal structure geared toward service-oriented Tsujimoto: Despite our basic accumulation of data analysis, marketing and other management. We will pursue a policy whereby we Move toward strategy of Single Content Mobile management expertise will be effective not Jay: The digital distribution of games has solved a gradually increase the digital download ratio while maximizing Multiple Usage, it’s true at only in the Mobile business, but also in the Consumer number of distribution issues overall, and Capcom has researching competitor products and user behaviors. present there are some IPs we business. If we license out titles, it will be difficult to been able to steadily grow its sales in the US, Europe Jay: Investors consider Capcom to be a “company able usage of IP certainly have not made the accumulate in-house expertise. This is why we must and Asia as well. However, as some of your overseas to create powerful content,” but my sense is that you most of. Titles that had large continue to invest in comprehensive internal strengths competitors have already grown their ratio of digital haven’t put out much successful new content recently fanbases in the past are —even in the Mobile business—to achieve success. distribution to nearly 40%, I feel that Capcom’s ratio despite the ongoing release of new high-performance powerful assets, thus we are beginning to move toward is still quite low. How do you plan on improving this game consoles. Going forward, will you be able to maximizing usage through region-based testing of going forward? continuously release quality IP? Also, some overseas individual IP and the release of promising IP remakes After the Conversation Tsujimoto: At present, the merits of digital distribution competitors have shortened the time required to and reimagined titles. I sensed the COO’s confidence in terms of Capcom translate only to sales: develop sequels using a two-team system. What kinds Jay: The subject of IP usage also applies to Mobile IPs. I have no doubt about his basic strategy of however, if we utilize the of initiatives is Capcom engaged in? games. Capcom has yet to realize major success in creating excellent content and maximizing the usage Service managed always-online connectivity Tsujimoto: The creation of new IP is the cornerstone this ever-expanding market. of these assets. Compared to competitors, Capcom of consoles, we can offer of our business, so we must perpetually engage in it. Tsujimoto: Mobile platform strategy is one of the has allocated a modest amount of resources to the over the long-term Mobile business. Given their business structure this new and improved ways to If we are unable to continue generating content issues we must address in the Mobile business. is understandable, but the fact is, when looking at enjoy games as a service qualitatively equal to global AAA titles, Capcom has Considering future smartphone performance the game industry overall, the mobile market is managed over the long-term, which will stimulate new no future as a company specializing in games. In terms enhancements, I think there is a significant opportunity expanding rapidly. In certain situations, being needs. To this end, we plan to coordinate with first party of shortening the time required for development, we for us to leverage our strengths. Recently, we switched flexible with regard to development and borrowing developers, who maintain the user data. are engaged in streamlining from a technical standpoint, over to a development structure mainly focused on some of the strengths of other companies would be Jay: In terms of improved profitability from digital sales, including the development of our RE ENGINE and Capcom IP and integrated our Mobile structure in order entirely acceptable from the investors’ point of view. you are able to create sales opportunities in Southeast innovations in 3D scanning systems, which will enable to create hit titles. I feel this would present Capcom with significant Asia and other regions where until now package sales us to develop major IP on a two and a half year cycle. Jay: Alternatively, wouldn’t focusing on the Consumer opportunities. (Jay) had been impossible. At the same time, post-sales Jay: A lot of Capcom IP is lying dormant, and although business, with its strengths in in-house resources, while

41 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 42 Business Segments Highlights Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data Business Activity Achievements

Business Overview Operating Results for This Fiscal Year Main Products for This Fiscal Year (Output) Digital Contents Consumer (Package + Digital Download Contents) PC Online Monster Hunter X (Cross) surpassed initial Online game Monster Hunter Frontier G This business develops and sells package games projections to sell 3.3 million units contributed to stability and digital download content for the Consumer Resident Evil Revelations 2 was released last year Sales of the new online game Dragon’s sub-segment. It also develops and manages and maintained brisk sales at 850,000 units Dogma Online were firm Mobile Contents and PC Online Games. Street Fighter V sold 1.4 million units mainly In China, Monster Hunter Online services Consumer games produce creative original overseas, falling short of sales projections were official launched content with a focus on action and adventure. Many of these million-seller titles are used for smartphone, tablet device and PC online games Mobile Contents Net sales/Operating margins distributed worldwide in an attempt to Monster Hunter X (Cross) Street Fighter V New app Monster Hunter Explore achieved 22.5 23.1 Net sales maximize earnings. The addition of new hunting techniques, The first title in this series to introduce more than 3 million downloads 6.8 hunting styles and other elements to the cross-platform gameplay enabling players on Existing titles under the Capcom and Beeline world and gameplay of the original series PlayStation 4 and PCs to battle one another. brands continued to struggle amid a fiercely 65,824 52,577 52,577 have proven popular, causing this spinoff Capcom plans to continuously update game competitive environment 45,351 million yen title to surpass initial sales projections of 2.5 content from the next fiscal year forward. Operating margins million units to sell 3.3 million units.

2014 2015 2016 (Years ended March 31) 23.1%

We focused efforts on cultivating new Net sales/Operating margins Arcade Operations customer segments, including free game Capcom Café experience tours for middle-aged and elderly 15.2 Net sales 10.2 In November 2015, we opened a themed We operate “Plaza Capcom” amusement persons, and the establishment of a timed 7.7 restaurant enabling patrons to vicariously facilities in Japan. These arcades are rate structured play area for kids predominantly in large commercial complexes 10,620 experience the world of Capcom games Four arcades were opened, three 9,241 9,056 9,056 inside Aeon LakeTown kaze (Koshigaya, and host various events designed to attract unprofitable arcades were closed million yen Saitama Prefecture). The restaurant offers families and female customers. We have Sales at existing arcades slumped at 96% of food and beverages based on Capcom diligently followed a scrap-and-build policy to Operating margins those in the previous year intellectual properties such as Monster maximize our efficiency in arcade operations. 2014 2015 2016 Hunter and Resident Evil as well as the sale of limited-edition merchandise. (Years ended March 31) 7.7%

The pachislo machine Resident Evil 6 sold Net sales/Operating margins Amusement Equipments 37,000 units Pachislo Machine Resident Evil 6 36.3 In the Arcade Games Sales sub-segment, new 30.8 Net sales Here, we are engaged in two businesses based on 21.1 This new pachislo machine is part of the arcade game machine Luigi Mansion Arcade the contents used for our home video games. The Resident Evil series, extremely popular in the and new music game crossbeats REV struggled home video game and pachislo machine Pachinko & Pachislo (PS) business is involved in the 23,160 13,343 markets. It incorporates Movision, a movable development, manufacture and sales of frames 13,343 million yen liquid crystal screen made popular by the and LCD devices for gaming machines as well as 7,540 Resident Evil 5 machine, while faithfully software. The Arcade Games Sales business Operating margins recreating the world of Resident Evil 6, both develops, produces and sells arcade games for of which garnered fan support and lead to 2014 2015 2016 amusement facilities, creating synergy between sales of 37,000 units, surpassing projections. (Years ended March 31) businesses. 21.1%

Maximized earnings and strengthened brand Net sales/Operating margins Other Businesses power of proprietary content through Monster Hunter Festa’16 38.6 execution of lateral development of 30.8 Net sales In conjunction with the sales launch of core Based on our Single Content Multiple Usage integrated sales of games based on the 25.0 strategy of developing game content for various title Monster Hunter X (Cross), Monster Single Content Multiple Usage strategy Hunter Festa’16 was held in five locations media, we pursue a variety of copyright-related Held events contributing to maximizing sales 2,594 2,043 across Japan in January 2016. 50,000 people 2,144 2,043 business opportunities including publishing of major titles Monster Hunter X (Cross) and million yen came out for this event, which included the (walkthrough and strategy guides as well as game Resident Evil-related titles “Karioh Ketteisen” to determine Japan’s top settings collections) and licensing (music CDs and Operating margins hunters and stage events featuring game licensed merchandise). Furthermore, we are developers. concentrating on developing game content into 2014 2015 2016 (Years ended March 31) movie and TV animation programs. 25.0%

43 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 44 Business Activity Achievements Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Consumer (Package + Digital Download Contents) Business Diagram 21 Consumer (Package and Digital Download Contents) Market (Billions of dollars) Market Trends and Operating Results for This Fiscal Year First Market Expansion in Four Years, Higher Sales of Flagship billion Titles and Digital Downloads Drive 19.6% Net Sales Growth 22.0 dollars In 2015, the consumer (package + digital 800,000 units and catalog title Resident 21.6 21.7 22.0 22.3 22.1 download contents) market was worth Evil Revelations 2 sold 850,000 units, 21.7 billion dollars (up 0.5% from the pushing earnings higher. At the same 11.4 10.7 10.2 previous year), halting three straight years time, although Street Fighter V, which 12.9 12.4 of negative growth. This was due to (1) enjoys solid popularity mainly overseas, continued steady switchover to current performed well, unit sales fell short of game consoles, (2) the progressive supply projections. In digital downloads, sales 10.6 11.6 11.9 8.7 9.3 of major titles for current game consoles of catalog titles with wide profit and (3) growth in the digital download margins accelerated in the U.S. and 2014 2015 2016 2017 2018 sales market. The consumer market is Europe, resulting in solid sales growth (Estimate) (Estimate) (Estimate) primarily comprised of North America, to 6.1 million units amounting to 10.9 Package Digital download contents (Years) Europe and Japan. The U.S. and European billion yen, an increase of 21.1% Source: International Development Group markets, which account for approximately compared to digital download sales in Diagram 22 85% of this market, were particularly the previous year. Capcom Consumer (Package and Digital Download robust. In terms of overall trends, while As a result, package and full-game Contents) Sales (Billions of yen) package sales contracted slightly, the download sales totaled 15 million units highly profitable digital download market (up 15.4% from the previous year). Package Digital Contents grew steadily to account for 43% of the sales were 31.2 billion yen (up 19.1% from billion consumer market. [Diagram21] the previous year), and digital download 42.1 yen This business develops and sells package games and digital download contents for the Consumer sub-segment. It Capcom’s latest title in its flagship sales were 10.9 billion yen (up 21.1% from 53.0 also develops and manages Mobile Contents and PC Online Games. Consumer games involve creative original series, Monster Hunter X (Cross), was the previous year). Together, they resulted 46.9 45.9 47.0 content focused on action and adventure. Many of these million-seller titles are used for smartphone, tablet device extremely popular, surpassing initial in Consumer sales of 42.1 billion yen (up 42.1 and PC online games distributed worldwide in an attempt to maximize earnings. projections of 2.5 million units to sell 19.6% from the previous year), with 35.2 3.3 million units, which contributed operating margins improving to the upper 43.3 33.0 44.1 40.7 31.2 substantially to earnings. Also, Resident 20% range. [Diagram22] 26.2 Net Sales/Operating Margin Assets/ROA SWOT Analysis S: Strengths W: Weaknesses O: Opportunities T: Threats Evil 0 HD Remaster enjoyed solid sales of Net sales Operating Assets ROA (%) 2.8 10.9 14.0 (Millions of yen) Margin (%) (Millions of yen) World-class development and Dependence on specific genres 5.2 9.7 9.0 technological capabilities Shortage of development staff Outlook for the Next Fiscal Year 2012 2013 2014 2015 2016 2017 52,577 23.1 57,275 21.2 Own many original popular titles Insufficient smartphone app (intellectual capital) game hit titles and management (Plan) 22.5 23.1 20.4 21.2 PC online game management expertise Projecting a 11.6% Increase in Net Sales from the Successive Package Digital download contents expertise Global Launch of Core Titles (Years ended March 31) 6.8 12.6 SW The consumer market is forecast to grow development plan and 52-week map. 65,824 57,275 Decreased competition in Consumer game presence 50,053 Consumer business and DLC O T diminished by diversity of globally to 22 billion dollars (up 1.4% from Please refer to “Growth Strategy 1: Consumer 52,577 market growth entertainment 45,351 Business Expansion” on page 37. 35,708 Expansion of peripheral businesses in Falling average sales price of the previous year) due to an expanded title Consumer sub-segment (VR and Consumer games lineup for the PlayStation 4 and Xbox One Efforts within (1) include expanding eSports, etc.) Low barriers for entry into mobile Mobile contents market expansion contents, large number of and further growth in digital downloads. unit sales by strategically releasing full-game competitor firms Furthermore, the market is thought to be and add-on contents. Also, we will utilize 2014 2015 2016 2014 2015 2016 (Years ended March 31) (Years ended March 31) entering a harvest period due to anticipation one of our existing intellectual properties to of new trends including the launch of proactively release HD remastered versions

Nintendo’s new console in March 2017, of previous titles for download sales in an RESIDENT EVIL 7 biohazard as well as PlayStation VR, Oculus Rift and attempt to create sales opportunities and other VR gear. [Diagram21] increase the digital download sales ratio. For Capcom, one of the major keys to In terms of (2), we will promote compatibility achieving medium-term business goals and with multiple platforms and release a new Consumer business growth are initiatives title within an existing popular series every to (1) strengthen digital download content 2.5 years based on our 60-month map Monster Hunter X (Cross) Resident Evil 0 HD Remaster Street Fighter V and (2) enhance title lineups through the title portfolio. full-scale execution of 60- month title Next fiscal year, in addition to new Dead Rising 4

45 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 46 Business Activity Achievements Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

titles in global core series such as RESIDENT 10.0% compared to the previous year to Diagram 23 to increase to 45.7 billion dollars (up and management know-how. We will Diagram 25 EVIL 7 biohazard and Dead Rising 4, we 16.5 million units, forecasting net sales Mobile Contents Market (Billions of dollars) 17.2% from the previous year) and expand titles in Japan and overseas utilizing PC Online Market (Billions of dollars) will attempt to increase sales by aggressively of 47 billion yen (up 11.6% from the grow to 53.3 billion dollars (up 36.7% proprietary content based on quick decision- launching major titles including a Monster previous year) and a high level of billion from 2015) in 2018. [Diagram23] making facilitated by organizational billion Hunter-related title. We will also strengthen operating income about the same as the 45.7dollars In 2016, Capcom unified its unification. 26.5 dollars digital download sales to increase unit sales fiscal year under review. Group-wide mobile development structure Next fiscal year, this new organization 53.3 27.6 27.8 50.7 26.5 and established the new Mobile Business will distribute titles using popular brands 24.7 25.1 45.7 8.2 6.1 6.0 7.9 Division. We combined the organizations including Monster Hunter, Sengoku 6.0 5.3 5.8 39.0 7.3 5.2 6.1 4.9 of the Capcom and Beeline brands, which BASARA and Mega Man, thus we expect 6.6 6.3 6.7 7.0 Mobile Contents Business 4.4 up to now had promoted independent net sales of 4 billion yen (up 21.2% from 6.6 5.7 22.5 27.7 28.5 strategies and concentrated development the previous year). 5.4 26.1 22.9 10.6 11.0 11.4 11.2 Market Trends and Operating Results for This Fiscal Year 3.5 9.1 11.6 9.7 11.1 Despite 73% Growth and Continued Market Expansion, 1.9 4.8 7.2 2.8 2.8 3.1 3.3 3.5 Sales and Profit Declined Due to Challenges Surrounding 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 (Estimate) (Estimate) (Estimate) PC Online Business (Estimate) (Estimate) (Estimate) the Creation of a Hit Title North America Europe Asia Other (Years) North America Europe Asia Other (Years) Source: International Development Group Source: International Development Group In 2015, the mobile contents market was For game companies with many popular Market Trends and Operating Results for This Fiscal Year worth 39 billion dollars (up 73.3% from software titles and mobile development Diagram 24 Diagram 26 the previous year), expanding in scale to companies with operational expertise, the Although the Market Was Flat, the Launch of New Titles in Japan Capcom Mobile Contents Sales (Billions of yen) Capcom PC Online Sales (Billions of yen) surpass the consumer market. The main opportunity to improve earnings is growing. and Overseas Resulted in an 18.3% Increase in Net Sales reasons for this were (1) the ongoing In Japan in particular, numerous distributions Despite sluggish sales of package games of Dragon’s Dogma Online were on track. adoption of smartphones throughout the of a wide range of games that offer a style billion for PC in the U.S. and Europe and games Also, in December 2015, we launched billion yen yen world and (2) the increase of popular of play matching the national identity, 3.3 played through SNS, the Chinese and Monster Hunter Online in collaboration 7.1 native app games particularly in Japan such as those that take advantage of idle 11.0 Asian markets, which account for nearly with China’s Tencent Holdings Ltd., which 8.0 7.1 and Asia that continue to attract game moments and games that use popular half the overall market, continued to grow contributed royalty revenue. 6.7 6.6 6.3 users. By region, the Asian market content, are driving rapid market to 25.1 billion dollars (up 1.6% from the As a result, net sales were 7.1 billion 6.0 [Diagram23] including Japan was worth 22.9 billion expansion. 6.3 6.5 previous year), about the same scale as yen (up 18.3% from the previous year). dollars (up 97.4% from the previous In September 2015, Capcom the market in the previous year. [Diagram25] In terms of profit, the recognition of 4.1 4.0 year), while developing country, Eastern launched Monster Hunter Explorer, which 3.3 For Capcom, in addition to stable amortization expenses related to the launch European and other regional markets has exceeded 3 million downloads and is earnings contributions from firm favorite of new title services caused profitability to grew rapidly to 4.8 billion dollars (up generally selling as projected. However, Monster Hunter Frontier G (MHFG), sales decline. [Diagram26] 152.6% from the previous year). regarding other existing titles, both 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 The freemium (virtual item purchases/ Capcom and Beeline brand performance (Plan) (Plan) Outlook for the Next Fiscal Year in-game purchases),a earnings model has been lackluster and continue to (Years ended March 31) (Years ended March 31) where users download a game for free, struggle amid an intensely competitive Projecting a 12.7% Increase in Net Sales Due to the Promotion of then purchase access to additional items environment. Licensing Businesses in the Growing Asia Market and other game content as needed, has As a result, net sales declined to 3.3 In 2016, we expect the market to continue expanded earnings in Japan. Furthermore, predominated in the market since about billion yen (down 19.5% from the previous growing to 26.5 billion dollars (up 5.6% we intend to improve our position in the 2010. With freemium games, the key to year). In terms of profit, although from the previous year). While the U.S. and Chinese market through an ongoing manageability is using content power contributions from new titles secured Europe are expected to remain stable, the proactive cooperative relationship with (brand/game function) to offer the earnings, profitability was declined Asian market, focused on China is expected China’s Tencent Holdings on Monster Monster Hunter Frontier G appropriate services and premium games. compared to the previous year. [Diagram24] to continue growing driven by core MMO Hunter Online. At the same time, with online games. We expect this market to respect to other titles, we will proceed Outlook for the Next Fiscal Year continue expanding, from 10.6 billion with negotiations with local companies to Monster Hunter Explorer dollars in 2015, to 11.2 billion dollars (up develop similar licensing businesses in the Projecting 21.2% Increase in Net Sales through Efforts Focused on 5.7% from 2015) in 2018. [Diagram25] Asian region. Creating Hit Titles in Japan and Overseas Under a New Organization In addition to ongoing major updates As a result of these measures, we Dragon’s Dogma Online In 2016, the annual shipment of demand for smartphones as game to MHFG, Capcom will grow Dragon’s expect net sales of 8 billion yen (up 12.7% smartphones is expected to maintain a devices is expected to further increase in Dogma Online into a new flagship title in from the previous year) as well as an single-digit growth rate at approximately Japan and Asia amid ongoing expanded an attempt to establish dual pillars for increase in operating income. 1.48 billion units (up 3.1% from the adoption in India, the Middle East and previous year) compared to approximately Africa, which we think will lead to the 1.43 billion units (up 10.1% from the expansion of global game contents. As a previous year) in 2015. However, the result, we expect the 2016 mobile market Monster Hunter Online © 1998 – 2016 TENCENT INC. ALL RIGHTS RESERVED.

47 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 48 Business Activity Achievements Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Market Trends and Operating Results for This Fiscal Year Diagram 27 Arcade Operations Market (Billions of yen) Sales and Profit Declined Due to 7.5% Drop in Market Coupled with Downward Trend at Existing Stores billion During the previous fiscal year (ended March by means of community-based store 422.2 yen 31, 2015), the size of the domestic arcade strategies. For example, for the middle-aged facilities market shrank to 422.2 billion yen and seniors capcom conducted service days [Diagram27] 495.8 487.5 (down 7.5% from the previous year). and free game experience tours ; for woman 470.0 456.4 422.2 This was due to the decline in personal and families capcom set up additional Asobi consumption following the consumption Oukoku peekaboo sites and kids’Corners tax increase implemented in April 2014, that targeted children. Nonetheless, segment the spread of smartphones and the impact results were soft, partly because of the lack of of scrambling to win shares of consumer a high-performance product as well as sluggish free time amid a variety of leisure activities. demand due to the dispersion of entertainment 2011 2012 2013 2014 2015 Companies across the board closed toward smartphone games. During the period (Years ended March 31) unprofitable arcades and attempted to under review, Capcom developed arcade Source: JAMMA “Survey on the Amusement Industry” streamline management, resulting in the total operations through its scrap and build strategy, number of arcades decreasing to 15,612 and opened four arcades including the Diagram 28 (down 2.8% from the previous year), [Diagram28] “Amuse Factory Tokoname” (Aichi Prefecture) Number of Amusement Arcades and annual sales per facility declined to and the innovative “Capcom Café” (Saitama (by number of machines) (Facilities) 27.04 million yen (down 4.8% from the Prefecture), while closing three arcades, previous year), reducing the overall scale of bringing the total number of arcades to 34. this market. This fiscal year (ended March As a result, net sales were 9.056 billion facilities Arcade Operations 31, 2016), market contraction slowed due to yen (down 2.0% from the previous fiscal 15,612 the resurgence of prizes and recovery from year), and operating income was 699 million the impact of the consumption tax hike. yen (down 25.6% from the previous fiscal 18,638 18,114 We operate “Plaza Capcom” amusement facilities in Japan. These arcades are predominantly in large commercial 16,991 With the slow pace of market recovery, year), with both sales and profit declining 16,069 15,612 complexes and host various events designed to attract families and female customers. We have diligently followed 6,5516 551 6,6946,694 [Diagram29] 6,4596,459 a scrap-and-build policy to maximize our efficiency in arcade operations. Capcom strived to expand its customer base year on year. 6,5356,535 5,6985,698 2,893 2,622 2,156 2,084 1,990 Outlook for the Next Fiscal Year 9,194 8,798 8,376 7,450 7,923 Net Sales/Operating Margin Assets/ROA SWOT Analysis S: Strengths W: Weaknesses O: Opportunities T: Threats Amid Signs of Recovery in the Market Environment, Capcom Net sales Operating Assets ROA (%) (Millions of yen) Margin (%) (Millions of yen) Expects Operating Income to Increase 14.4% through the Creation 2011 2012 2013 2014 2015 Specialize in opening arcades in large Low sales growth rate due to (Years ended March 31) shopping centers to secure a stable small number of carefully selected of New Earnings Opportunities customer base facilities Over 101 machines 51–100 machines 9,056 7.7 6,574 10.6 Below 50 machines Sales floor planning and management Little synergy with proprietary In terms of market outlook, we expect conditions customers, Capcom characters will be used 15.2 24.3 capabilities supporting customers contents Source: JAMMA “Survey on the Amusement Industry” 10.2 Thorough scrap-and-build strategy to remain the same as in the previous year. In to create themed “Capcom Café” restaurants 7.7 14.9 10.6 focused on investment efficiency to ensure sustainable earnings SW addition to the ongoing resurgence in prize and “Chara Cap” stores specializing in Diagram 29 games, we expect the introduction of popular character merchandise will be opened among 10,620 6,657 Expand ability to draw Potential customer segment Comparison of Arcade Operations 6,315 6,574 customers by introducing O T shrinking due to falling birth rate 9,241 9,056 arcade cabinets to increase customer traffic. other efforts focused on expanding customers Performance (Year ended March 31, 2016) popular machines Increased consumption tax Increase customers with appeals Entertainment diversification due Furthermore, revisions to the Entertainment and creating new earnings opportunities. In Net Operating targeting seniors and children Operating to rapid growth of games for and Amusement Trades Act (Entertainment terms of the opening and closing of facilities, sales income margin Multifaceted roll-out of merchandise smartphones Billions Billions (%) sales, restaurants and other businesses and Amusement Trades Rationalizing Act) in in an attempt to further strengthen efficient ( of yen ) ( of yen ) using Capcom contents Capcom 9.0 0.7 7.7 2014 2015 2016 2014 2015 2016 June 2016 relaxed restrictions on the amount arcade management operations, we will (Years ended March 31) (Years ended March 31) of time young people can spend in arcades open new facilities in locations with high Adores 12.8 0.6 5.1 when accompanied by a guardian, which is concentrations of customers to secure new Aeon Fantasy 58.8 2.7 4.7 expected to give the market a boost. revenue streams. Next fiscal year, we plan Sega Sammy 38.0 1.8 4.7 Next fiscal year (ending March 31, 2017), to open three facilities with no closures, Bandai Namco 58.6 Undisclosed − Capcom will promote streamlining of arcade resulting in a total of 37 facilities. Source: Financial reports and earnings materials of each management through its ongoing scrap and As a result of these measures, company (Aeon Fantasy fiscal year ended February 2016) build policy to ensure earnings at the same expecting year on year sales of existing Note: Segments include businesses other than arcade level as the previous fiscal year through the stores to be 100%, we forecast net sales of facilities operations and exclude corporate. creation of new earnings opportunities. 9 billion yen (down 0.6% from the previous Plaza Capcom Kyoto Amuse Factory Tokoname Capcom Café KyaraCap Okazaki Asobi Oukoku Peekaboo Ongoing senior events will be held with the year) and operating income of 800 million aim of attracting middle-aged and senior yen(up 14.4% from the previous year).

49 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 50 Business Activity Achievements Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Market Trends and Operating Results for This Fiscal Year Diagram 30 Gaming Machines Market (Billions of yen) Amid Continued Severe Market Conditions, Net Sales Increased 77.0% on Launch of Popular Pachislo Machines billion In the previous fiscal year (ended March impact of pachinko machine gambling 1,069.3 yen 31, 2015), the gaming machine market restrictions and pachislo machine third 1,201.7 1,202.9 shrank to 1,069.3 billion yen (down 5% stage rule changes.*2 In the arcade game 1,173.6 1,125.5 1,069.3 from the previous year). This was due to machine market, despite continued a temporary decline in the number of new sluggishness in coin-operated games, 826.7826.7 772.9772 9 651.2651.2 machines launched resulting from changes popular music games and kids’ card 886.9886.9 643.7643.7 to rules concerning pachislo machine model games helped maintain the same level as certification*1 by the Security Electronics in the previous year. 430.0 474.3 425.6 and Communications Technology This fiscal year (ended March 31, 286.7 375.0 Association that went into effect in 2016), In the Pachinko and Pachislo 2011 2012 2013 2014 2015 September 2014 in the pachislo market, sub-segment, the popularity of the (Years ended March 31) as well as the fifth straight year of Resident Evil 6 brand resulted in sales of Pachinko Pachislo [Diagram30] Source: Manufacturer sales base complied by Capcom using Pachinko declines in the Pachinko market. 37,000 units, driving sales beyond initial Maker Trends (2013, 2014, 2015); Yano Research Institute Ltd. In the arcade game market, although projections to support earnings. In the sales of claw crane and prize games were Arcade Games Sales sub-segment, sales Diagram 31 firm, arcade game and coin-operated of Luigi Mansion Arcade were weak Arcade Game Market (Billions of yen) game sales declined significantly, resulting reflecting the sluggish market, while the third consecutive year of negative crossbeats REV. for arcades also struggled. growth at 151.1 billion yen (down 7.5% As a result, net sales were 13.343 billion Amusement Equipments from the previous year). [Diagram31] This year billion yen (up 77.0% from the previous 151.1 yen (ended March 31, 2016), the gaming year) and operating income was 2.812 173.8 machine market remained weak on the billion yen (up 2.8% from the previous year). 161.6 167.5 163.5 We are engaged in two businesses that utilize the contents used for our home video games. The Pachinko & 151.1 Pachislo (PS) business is involved in the development, manufacture and sales of frames and LCD devices for gaming machines as well as software. The Arcade Games Sales business develops, produces and sells arcade games for Outlook for the Next Fiscal Year amusement facilities, creating synergy between businesses. Projecting Increases in Net Sales of 12.4% and Operating Income of 6.7% on Provision of New Machines Making Use of Net Sales/Operating Margin Assets/ROA SWOT Analysis S: Strengths W: Weaknesses O: Opportunities T: Threats Popular Brands Net sales Operating Assets ROA (%) High quality development capabilities (Millions of yen) Margin (%) (Millions of yen) cultivated through home video games Small title lineup In terms of the market outlook, despite clever video elements and playing styles 2011 2012 2013 2014 2015 (Years ended March 31) Multiple usage of rich in-house Shortage development staff the passage of rule changes affecting making use of popular consumer content. 13,343 21.1 12,314 22.8 contents Source: JAMMA “Survey on the Amusement Industry” Ability to observe real-time market 36.3 35.5 pachislo machines, top-selling product Next fiscal year, we are projecting sales of 30.8 trends through 31.2 company-owned arcades sales lots are on the decline, thus we 55,000 units comprising four machines 21.1 22.8 SW anticipate demand will weaken. With including Super Street Fighter IV and Devil respect to Pachinko machines, cabinet May Cry X (Cross). In the Arcade Games 23,160 20,083 Market recovery via Declining operator and hall introduction of popular O T investment appetite profitability will decline in line with Sales sub-segment, we expect performance machines Long-term market stagnation 12,314 13,343 Long-term profit opportunity with Market fluctuations resulting gambling restrictions, thus investment in to remain at the same level as in the 8,760 pay-as-you-go model from changes to The Entertainment hall gaming machines will be increasingly previous year based on the resurgence of 7,540 Demand generated by installing new Establishments Control Law and cabinets compliant with rule changes certification rules selective. Accordingly, companies will prizes and sales of popular arcade games. 2014 2015 2016 2014 2015 2016 steer towards cabinet development Accordingly, we plan to release new (Years ended March 31) (Years ended March 31) focused on efficiency and control machines making use of popular content development costs. belonging to other companies, including In the PS sub-segment, Capcom aims Mario Party Fushigi no Challenge World. *1 Model certification: A public test to verify whether or to increase unit sales by (1) stably providing As a result of these measures, we not gaming machines are in accordance with regulations proprietary cabinets, (2) securing a strong expect sales and profits to rise in the next conducted by the Security Communications Association on behalf of public safety commissions in each of sales network and improving development fiscal year. We forecast sales of 15 billion Japan’s administrative divisions. quality through an alliance with major sales yen (up 12.4% from the previous year) *2 Changes to certification methods: Three self-imposed restraints implemented in stages. Up to November 2014 company Fields Corp., and (3) releasing and operating income of 3 billion yen (up (1) guarantee a minimum (55%) ball dispensing ratio, proprietary pachislo machines not 6.7% from the previous year). (2) implement limits on penalty functions, and from December 2015 (3) implement functional limitations in Resident Evil 6 Super Street Fighter IV Devil May Cry X (Cross) Mario Party Fushigi no Challenge World dependent on gambling with a variety of sub-substrates. Licensed by Nintendo © 2012 Nintendo © CAPCOM CO., LTD. 2016 ALL RIGHTS RESERVED.

51 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 52 Business Activity Achievements Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Operating Results for This Fiscal Year Diagram 32 Revenue Ranking of Net Sales Declined 4.7% Remaining the Same as the Previous Japanese Game Contents that Have Been Adapted Fiscal Year, While Operating Income Decreased 22.7% into Hollywood Movies Capcom’s strength is its ability to utilize its This fiscal year, in conjunction with Original Box-office Title writer revenue rich library of content across multiple the release of Monster Hunter X (Cross), company (worldwide) RESIDENT EVIL: $296,221,663 mediums, reaping the benefits of the we held “Monster Hunter Festa ’16” in AFTERLIFE Capcom highly synergetic effects of consumer and January 2016 in five cities across Japan. RESIDENT EVIL: $240,159,255 RETRIBUTION Capcom online games. In particular, the brand We also made efforts to appeal to RESIDENT EVIL: $147,717,833 value of our movie-related business has existing users and acquire new fans EXTINCTION Capcom RESIDENT EVIL: $129,394,835 risen through extensive media exposure. through experience-based events APOCALYPSE Capcom This leads to greater sales of video game including “Resident Evil The Escape 2” RESIDENT EVIL Capcom $102,441,078 software and the long-term maintenance and “Monster Hunter The Real 2” STREET FIGHTER Capcom $99,423,521 SILENT HILL Konami $97,607,453 of content value, completing a virtuous conducted in collaboration with Universal FINAL FANTASY: Square $85,131,830 sales cycle. These projects were Studios Japan at “Universal Cool Japan THE SPIRITS WITHIN SUPER MARIO BROS. Nintendo $20,915,465 implemented across all business 2016” held in February 2016. We also HOUSE OF THE DEAD Sega $13,818,181 segments, with each division involved in continue appealing to non-game users As of June 30, 2016 (Capcom ﬁgures) the launch of arcade games, mobile through the Sengoku BASARA series TV contents, walkthrough and strategy animation and theatrical productions. Diagram 33 List of Our Main Content guides and character merchandise, as As a result, net sales were 2.043 that Has Been Adapted into well as movies, TV animation, theatrical billion yen (down 4.7% from the previous Movies and Theatrical productions and other events in a variety year) and operating income was 511 Productions of areas in connection with the release of million yen (down 22.7%), reflecting the Movie Other Businesses our game software. [Diagram32,33] recognition of amortization expenses in Street Fighter II Aug. 1994 Animated movie Street Fighter Dec. 1994 Hollywood movie Please refer to “Capcom’s Business Model” on line with our new R&D facility, which was Resident Evil Mar. 2002 Hollywood movie pages 13–14. responsible for declines in sales and profit. Resident Evil: Hollywood movie Based on a Single Content Multiple Usage strategy of developing game content for various media, we will pursue a Apocalypse Sep. 2004 variety of copyright-related business opportunities including publishing (walkthrough and strategy guides as well Resident Evil: Hollywood movie Extinction Nov. 2007 as game settings collections) and licensing (music CDs and licensed merchandise). Furthermore, we are Outlook for the Next Fiscal Year Resident Evil: Oct. 2008 CG movie concentrating on developing game content into movie and TV animation programs. Degeneration Resident Evil: Hollywood movie Further Enhancement of Single Content Multiple Usage Afterlife 3D Sep. 2010 Developments Sengoku BASARA Jun. 2011 Animated movie Net Sales/Operating Margin Assets/ROA SWOT Analysis S: Strengths W: Weaknesses O: Opportunities T: Threats –The Last Party– Net sales Operating Assets ROA (%) Until now, Capcom has aggressively in Japan in December 2016, then globally Ace Attorney Feb. 2012 Movie (Millions of yen) Margin (%) (Millions of yen) Synergetic effect from multifaceted Low return of sales from licensed promoted the horizontal deployment of in January 2017. We will endeavor to Resident Evil: Sep. 2012 Hollywood movie use of rich contents products Retribution intellectual properties (contents) based expand licensing earnings and improve Resident Evil: 2,043 25.0 4,926 10.4 Brand value increased through high Dec. 2016 Hollywood movie media exposure on the Single Content Multiple Usage brand value through movies and other The Final Chapter 38.6 23.1 High profitability TV animation 30.8 strategy. In Japan, TV animation media for a variety of other series. Street Fighter II V Apr. 1995 TV animation 25.0 10.1 10.4 “Gyakuten Saiban: Sono “Shinjitsu”, As a result of these measures, the Mega Man TV animation SW Battle Network Mar. 2002 Igiari!” will be broadcast in conjunction next fiscal year earnings forecast calls for Sengoku BASARA Apr. 2009 TV animation 2,594 6,534 Expansion into film, animation, Direct competition with other comics, stage productions, O T company’s contents as a result of with the release of Ace Attorney 6. In net sales of 2 billion yen (down 2.1% Gyakuten Saiban: 2,144 2,043 4,926 orchestral performances and globalization Sono “Shinjitsu”, Apr. 2016 TV animation 4,331 other development media line with the October 2016 release of from the previous year)and operating Igiari! Contents business demand area Monster Hunter TV animation expansion Consumer game Monster Hunter Stories, income of 200 million yen (down 60.9% Stories RIDE ON Oct. 2016 the first Monster Hunter TV animation will from the previous year). The reason for Theatrical production be broadcast. In conjunction with the the decline in profitability is the Phoenix Wright: Takarazuka Revue 2014 2015 2016 2014 2015 2016 Ace Attorney Feb. 2009 (Years ended March 31) (Years ended March 31) overseas release of RESIDENT EVIL 7 recognition of amortization expenses in –The Truth Comes Company Back to Life biohazard, the Hollywood movie “Resident line with our new R&D building. Sengoku BASARA Jul. 2009 Theatrical production Evil: The Final Chapter” will be released Phoenix Wright: Takarazuka Revue Ace Attorney 2 Aug. 2009 Company Prosecutor Miles Takarazuka Revue Edgeworth: Jan. 2013 Company Ace Attorney 3 Takarazuka Revue Sengoku BASARA Jun. 2013 Company Sengoku BASARA Theatrical production vs Devil May Cry Aug. 2015 BIOHAZARD Theatrical production THE STAGE Oct. 2015 Resident Evil The Escape 2 Monster Hunter The Real 2 Gyakuten Saiban: Sono Monster Hunter Stories RIDE ON TV drama “Shinjitsu”, Igiari! © CAPCOM/MHST Committee Sengoku BASARA © CAPCOM/Yomiuri TV, A-1 Pictures –MOONLIGHT PARTY– Jul. 2012 TV drama

53 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 54 Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Key Internal Regulations Achievements Future challenges

Follow relevant laws and ordinances concerning the The construction of new Increasing energy conservation at existing Environmental environment when engaging in all corporate activities, environmentally-friendly buildings buildings through renovation Please refer to including the development, manufacturing, sale, The reduction of resources used and exhaust Increasing energy conservation of page 55 distribution, and disposal of products and services. gas via distribution network sharing with operations as amusement facilities other companies in the industry The reduction of paper resources used through the digitization of instruction manuals Respect the human rights of each and every employee and The active employment of non-Japanese Increasing the percentage of women in Social do not engage in discrimination or any behavior linked to citizens management positions discrimination. Please refer to Increased number of women in management Creating an even easier environment to pages 56–60 Value the individuality of each person from the standpoint positions work in such as with the establishment of of respect for people and aim for the creation of a The implementation of staff training daycare centers company which is fair, cheerful, and easy to work in. Education for employees concerning The operation of amusement facilities Understand and comply with the content and goals of compliance aimed at all ages labor laws and other relevant laws and ordinances together The holding of Health and Safety Committee Increasing the number of opportunities for with striving to maintain a safe and hygienic work meetings persons in charge of development to environment. Increased dialogue with shareholders converse with the market In accordance with relevant laws and ordinances, disclose Compliance with the CERO ratings system accurately and in a timely manner management and corporate information such as the state of Capcom’s financial The endorsement of the “Administrative affairs and business activities to shareholders and investors. Guidelines for Random Item Provision Systems in Smartphone Games” Always strive to improve customer satisfaction, observe laws and ordinances concerning safety, and give sufficient Regional revitalization activities making use of consideration to the safety and quality of the products Capcom content Capcom provides. Support for senior citizen community Environmental Social Governance formation such as video game arcade tours As a good corporate citizen of the regional community, proactively conduct social contribution activities, cultural support activities, and activities which support sports and health. Always pay attention to information such as the Transitioning towards a company with an The effective operation of the audit and Governance establishment and revision of laws and ordinances, consider audit and supervisory committee supervisory committee company system the content of the same and their influence on corporate Raising the ratio of external directors Analysis and evaluation of the overall Please refer to conduct, and take measures to ensure rapid and accurate pages 61–76 The establishment of a nominating effectiveness of the board of directors response, including with regards to changes to internal committee (voluntary) meetings ESG regulations. The establishment of a meeting for the purpose of information exchange between independent external directors The setting of director remuneration with regards to medium- to long-term growth. Information The formulation of corporate governance guidelines

Environmental Social

New Building Innovations Innovations in Product Distribution Responsibilities to Customers parental control function that enables parents to limit the online purchase and use of certain games according to their ratings. 10% Reduction in CO2 Emissions Throughout Sharing Distribution Networks with Other Further, in regards to problems concerning paying for items in Our New Buildings Companies in the Industry For the Healthy Development of Young People social games, an issue which has gained attention in recent years, The new R&D Building #2 and Capcom Technical Center utilize Sharing distribution networks with other companies in the same Capcom endorsed the “Administrative Guidelines for Random Item Compliance with the CERO Rating System and the energy-conserving equipment indicated below. As a result, we industry when shipping products enables the efficient supply of Provision Systems in Smartphone Games” released by the Computer Endorsement of Guidelines expect to reduce CO2 emissions by approximately 10%*overall. products. As a result, we are able to realize reductions in packing Entertainment Suppliers’ Association (CESA) in 2016. As such, in materials, fuel and emissions. The NPO Computer Entertainment Rating Organization (CERO) was regards to paid random item provision systems (paid gacha) widely Energy-Conserving Effects of R&D Building #2 created to provide age-appropriate ratings for video games. Capcom used in the field of games provided over the internet via smartphone, Paperless Instruction Manuals and Technical Center Equipment* complies with the CERO rating system and rules. Capcom has made the decision to provide environments which can Older game consoles included a printed instruction manual inside The video game industry voluntarily restricts game content and be easily understood by users, such as generally displaying all items 1. Exterior thermal insulation 5% reduction the package, but with current game consoles, manuals are now sales methods to limit access to sexual and violent content for the which can be acquired and their rates of appearance. included as data within the software as a way to save paper. healthy development of young people. Age ratings on game * From the results of “The 4th CERO Age-Based Ratings System Field Survey.” 2. LED lighting This enables us to eliminate approximately 15 million game units’ % reduction packaging provides purchasers with information pertaining to the age 40 worth of paper manuals shipped annually. appropriateness of game content, classified into one of five categories 3. Motion/daylight sensors in Japan: All ages (category A), 12 years or older (category B), 15 (Only motion sensors installed in R&D Building #2) % reduction 20 years or older (category C), 17 years or older (category D) and restricted to 18 years or older (category Z). CERO members voluntarily 4. Air conditioning/heating monitors 30% reduction prohibit sales of category Z games to users under 18 years old, with 5. Displacement air conditioning system 99.6% of retailers separating game displays by ratings category and (Motion capture studio) 40％ reduction checking purchaser identification to confirm age.* * Assumes energy consumption of 100% without introduction of this equipment. In addition, the latest home video game consoles include a

55 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 56 Social Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

(Left) Kofu BASARA Shingen-kun (Right) Commercials for Kochi Capcom Group Code of Conduct Handbook prefectural governor’s election An on-site class

Responsibilities to the workplace. Excluding those still on leave, 94.4% returned (in Action criteria and compliance are the lynchpin of corporate special exhibition of arms and armor connected to famous military As a result of these efforts, Capcom has welcomed 2,437 fiscal 2014, 17 employees returned, a return rate of 94.4%). As a governance and the foundation upon which we fulfill CSR. Capcom commanders appearing in Sengoku BASARA at the Saitama children as part of 313 different field trips into its offices (as of the to Business Partners result, in the Japanese game industry, known for being a will continue to instill this understanding in all its officers and employees. Prefectural Museum of History and Folklore. In addition, end of March 2016). Capcom has also held 91 on-site classes for male-dominated industry, nearly 16% of Capcom’s developers are Capcom collaborated in activities to spread awareness of the some 9,095 students at schools such as Nara Prefectural Seisho women, and we have 24 female managers (representing 10.3% of Occupational Health and Safety Kochi prefectural governor's election announced in November Junior High School (as of the end of March 2016). Basic Policies Regarding Business Transactions managers overall). Further, Capcom has drawn up a “General by offering Chosokabe Motochika, who appears in Sengoku Employer Action Plan” based on the “Act for the Promotion of Monthly Health and Safety Committee Meetings BASARA, as a character for education on the election. Promotion of Fair Business Transactions Based Women's Success” which aims for 1) women comprising no less than in Order to a Comfortable Work Environment on Each Regulation 20% of regular employees and 2) women in no less than 15% of Educational Assistance as a Game Company Capcom has established its own “Regulations Concerning the management positions within a five year period by the end of fiscal Monthly Health and Safety Committee meetings include the Management of Purchasing Transactions” and “Regulations 2021. To further increase the proactive involvement of women, we attendance of an employee representative, an observer and a Company Visits for Children and On-site Classes Concerning the Management of Outsourced Transactions” in order are hastening the establishment of a daycare facility in fiscal 2016. In company representative. at Schools to carry out free competition and fair business transactions. In line recognition of Capcom’s efforts toward improving the workplace At these meetings, the results of hours worked are analyzed Video games are a comparatively new cultural phenomenon about with this, Capcom fairly evaluates conditions such as capability and environment for women, since 2012 we have earned the “Kurumin” in terms of overtime and workload appropriateness, causal factors which there is little academic research. Rather than examining the cost to select suppliers and development outsourcers. In addition, mark, the symbol of a “company supporting childcare,” from the and improvement policies are discussed and occupational injuries educational aspects, discussions tend to focus on the detrimental as regards business transactions with specified involved parties such Ministry of Health, Labor and Welfare. and workplace environment conditions are reported to the effects of violent content. For example, some local municipalities have as subsidiaries, Capcom compares such business transactions with In terms of the proactive employment of non-Japanese citizens, committee to promote the creation of a comfortable working designated certain games to be harmful to the healthy development of standard conditions and does not engage in transactions which Capcom is making efforts to strengthen overseas expansion environment. Attention is also focused on prevalent illnesses and young people. At the same time, the idea of a future career as a video would be disadvantageous to Capcom or which would unfairly capabilities including creating an English hiring website. We currently ailments common among game creators, with public health and game creator is very popular among children, and some schools have profit the specified involved party. employ 91 foreigners (representing 4.0% of our employees). Going industrial doctors regularly invited to perform physical exams and even begun to incorporate handheld video game consoles into the forward, we will create a system for improving motivation in an reexaminations to ascertain employee health conditions. classroom in recent years. attempt to increase the ratio of foreign employees, including the These activities have resulted in a steady increase in the As part of its social responsibility (CSR) efforts as a video Responsibilities to Employees support for career advancement and the promotion of non-Japanese number of employees submitting medical certificates for physical game software producer and based around a desire to promote citizens to management positions. examinations and reexaminations each year. understanding in society of video games, Capcom accepts student visits to its offices, with a focus on elementary and junior high Promotion of Diversity Providing Career Paths for Employees and Improving school students, and also actively conducts on-site classes at the Work Environment Responsibilities schools. At these events, Capcom conducts a program with two Initiatives Aimed at Improving the Work sessions: one is a career education support session which Environment for Women, Promoting Gender Company-wide Training and Level-based Training to the General Public introduces the work done in a game software company and the Equality and Proactively Hiring Foreigners To provide career paths and improve the work environment, difficulty and rewards of that work, and the other is a game Capcom is currently engaged in initiatives aimed at improving the Capcom provides the following training. literacy education support session which helps students use their work environment for women, promoting gender equality and Contributions to Regional Revitalization own judgement to establish a healthy relationship with games. Major Training Programs proactively hiring foreigners. These programs have in turn been well-received in educational Training for new hires Support Activities Using Popular Games to In terms of improving the work environment for women, we Early Career Mentor training environments. Capcom has also incorporated opinions from introduced systems enabling women to take a leave of absence Level-based Follow-up training Attract Customers and Raise Awareness educators to improve its educational efforts. In fiscal 2011, Capcom training before and after giving birth, childcare leave and shortened Mid-level Training for management candidates Utilizing the power of our content to capture the attention of launched its second educational program, focused on the educational working hours, and promote their use throughout the company. Management-level Management by Objectives (MBO) people, Capcom is engaged in the following four regional theme of career education support. In fiscal 2013, Capcom started Mental healthcare In fiscal 2015, 24 employees utilized the childcare leave system. Company-wide Compulsory Compliance training revitalization activities: 1) Economic promotion which supports the a new class program on work and mathematics targeted towards The utilization rate among women was 100% (in fiscal 2014, training Personal information training promotion of tourism industries; 2) cultural promotion which elementary and junior high school students to help prevent children 21 employees utilized this system, of which five were men and Optional English instruction supports education concerning local history and culture; 3) the from losing interest in math, a challenge in recent years. the utilization rate among women was 100%). The return rate after improvement of public order through coordination with the police; and 4) raising awareness about voting in elections in childcare leave was also high. In fiscal 2015, 17 employees returned Corporate Governance and CSR Capcom School Visit Feedback coordination with the Committee for Election Administration. Ratio of Female Employees and “Kurumin” mark Action Criteria and Compliance-related In 2015, Capcom supported historical and cultural We received a wide range of comments after our Capcom Number of Female Managers school visits and student company visits. Employee Education education. Capcom concluded the Comprehensive Agreement to Number of Female Managers (People) Ratio of Female Employees (%) The Capcom Code of Conduct calls for “free competition and fair Promote Vitalization of Local Economy with the city of Kofu in ”I realized that I was playing games too much. In the future, I want to decide how long I will play.” (Elementary school student) trade,” “respect for human rights and individuality and the Yamanashi Prefecture and implemented a variety of plans whose People % ”Hearing my studies now will help me in the future makes me 24 19 prohibition of discrimination” and “environmental conservation and goal is to support the promotion of industry in the city as part of want to keep trying hard.” (Junior high school student) 21 21 21 protection.” To ensure a concrete understanding of these concepts, regional revitalization efforts until 2019, including providing the 20 20 19 ”Some parts were hard for a fourth grader, but everyone seemed we created the Capcom Group Code of Conduct Handbook, which city with characters for premium gift certificates and the design really interested, such as students talking about it between each 24 for a character called “Kofu BASARA Shingen-kun” who will be other after.” (Elementary school teacher) 20 19 20 is distributed to all employees and contains illustrated case studies presented in an easily understandable Q&A format. the honorary head of a group for promoting Kofu tourism PR. (For ”As there are limited ways to get information on the game 11 10 We also make use of the company intranet to provide details concerning the Comprehensive Agreement to Promote industry, from the perspective of career education I felt it was useful even for high school students.” (Junior high school teacher e-learning sessions on legal compliance and disseminate Vitalization of Local Economy, please see the separate booklet, at an integrated junior and senior high school) 2010 2011 2012 2013 2014 2015 （Fiscal year） personal information protection rules to all employees. The Latest Development Report.) Capcom also jointly sponsored a

57 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 58 Social Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

A discussion with shareholders Our earnings presentation

As a result of these efforts, Capcom has welcomed 2,437 2. Disclosure Criteria management policies, strategies and future outlook with them. Financial Results and individual investor briefing sessions, allowing children as part of 313 different field trips into its offices (as of the Capcom provides timely disclosure in accordance with the Securities Furthermore, their opinions are gathered and provided to us to make proactive use of market opinions as one criterion in end of March 2016). Capcom has also held 91 on-site classes for and Exchange Law and other regulations including the “Rules on management, and are utilized for corporate management going management decisions. Specific examples of how this information some 9,095 students at schools such as Nara Prefectural Seisho Timely Disclosure of Corporate Information” by Issuer of Listed Security forward. As a company based in Osaka, proactive IR meetings with is used include (1) medium-term business goal revisions, (2) Junior High School (as of the end of March 2016). (hereinafter Timely Disclosure Rules) stipulated by the Financial these parties enables us to minimize asymmetric information as we enhanced business strategies, (3) information disclosure content Instruments and Exchange Act and the Tokyo Stock Exchange. strive to achieve appropriate corporate value. This fiscal year, and timing reviews and (4) group meetings with management. Community Building Support for Senior Citizens It is our policy to disclose as much information as possible, meetings with investors in Japan and overseas and conference calls including the disclosure of information not required by the amounted to 370 points of contact with investors. Perception Gap Study Investor Feedback (Excerpts) Regular Video Game Arcade Tours Timely Disclosure Rules and other regulations, to accommodate In addition, we conducted various initiatives in accordance with Today, amusement facilities, otherwise known as video game our investors’ needs. We also disclose information through our our adoption of our Corporate Governance Code. Specifically, our Even though you had popular IPs, no results were seen in mobile. I have the impression that not many measures are being taken arcades, are becoming increasingly popular among retired senior corporate website in an attempt to provide quick and fair General Affairs Section collaborated with the Investor Relations towards further reinforcement, including outsourcing. citizens as spaces for communication with other people. Since disclosure. Shareholders are informed of operating results and Section on takeover defense measures, engaged in numerous In terms of shortening the development period for popular series Video games are a comparatively new cultural phenomenon about 2012, Capcom has held video game arcade tours on long public business conditions through shareholder letters. discussions with shareholders in Japan and overseas concerning the titles, other than Monster Hunter the lineup was not mentioned, which there is little academic research. Rather than examining the holidays and Respect-for-the-Aged Day for senior citizens where validity of their content, and made changes where necessary while so I am uneasy about its progress. educational aspects, discussions tend to focus on the detrimental they can try out coin-operated games and crane games so that 3. Quiet Period promoting understanding of the necessity of these measures. Leaving treasury stock on the balance sheet long term is a effects of violent content. For example, some local municipalities have more people can make use of such facilities. To prevent the unauthorized disclosure of quarterly earnings Furthermore, we set up small meetings between external directors problem. I understand keeping it for M&As, etc., but in principle, it should be retired. designated certain games to be harmful to the healthy development of In addition, as part of efforts to create arcades where senior information prior to official announcements, Capcom has and investors to facilitate frank discussions pertaining to governance. I would like to know the state of the development system, so I young people. At the same time, the idea of a future career as a video citizens can comfortably enjoy themselves, since 2012 Capcom established a quiet period starting approximately one month prior We also arranged opportunities for senior management to exchange would like a meeting to be held with developers. game creator is very popular among children, and some schools have has encouraged arcade staff to get the Service Assistant to the scheduled earnings announcement. During this period, we opinions directly with investors, who were provided with a chance to How about releasing catalog sales ratios as material for even begun to incorporate handheld video game consoles into the certification. Currently, 27 staff have received this certification. refuse all inquiries relating to our business performance. However, experience the latest virtual reality (VR) technologies. At our earnings evaluating strategies for anchoring long-term users. classroom in recent years. if significant changes to our earnings outlook are anticipated presentation, we showed videos of developer interviews related to As part of its social responsibility (CSR) efforts as a video during the quiet period, we will disclose this information titles of interest to investors, as well as a variety of other new game software producer and based around a desire to promote Responsibilities pursuant to the Timely Disclosure Rules and other regulations. initiatives aimed at reflecting stock market opinions and demands. IR Activities on Our Website understanding in society of video games, Capcom accepts student In addition, Capcom conducts a perception gap study every Utilizing a Website That Anyone Can Access visits to its offices, with a focus on elementary and junior high to Shareholders and Investors Third-Party Assessment of IR Activities year targeting investors and analysts in Japan and overseas. Being school students, and also actively conducts on-site classes at aware of investor perception gaps with regard to management Since 2001, Capcom has made proactive use of its corporate schools. At these events, Capcom conducts a program with two High Praise for Proactive IR Initiatives objectives, business strategy and shareholder’s return enables us to website as a tool for disseminating information pertaining to IR sessions: one is a career education support session which Initiatives for the General Shareholders’ Meeting In recognition of our ongoing pursuit of timely and appropriate fine-tune corporate management and IR activities. Questionnaires activities. The main reasons for this are to ensure fairness for a introduces the work done in a game software company and the information disclosure, our IR activities and various IR tools have are also given to attendees at our semiannual Presentation of wide range of stakeholders, including investors, analysts, the difficulty and rewards of that work, and the other is a game Making Shareholders’ Meetings Lively and received a number of awards from third-party organizations. In mass media and job-seekers, and because it easily ensures literacy education support session which helps students use their Facilitating the Exercise of Voting Rights addition to receiving the Special Prize at the Nikkei Annual Report Fiscal 2015 IR Measures information is available for inspection immediately in about own judgement to establish a healthy relationship with games. To ensure our General Shareholders’ Meetings are lively, we hold Awards 2015 in the fiscal year ended March 2016, our IR website By category Frequency 200 countries worldwide. Capcom’s corporate website is also These programs have in turn been well-received in educational our meeting about 10 days before the period when most Japanese was selected by Daiwa Investor Relations for the Internet IR Grand Visited by requests 186 positioned as our most cost-effective tool. environments. Capcom has also incorporated opinions from companies typically hold their meetings in an attempt to encourage Prize and we ranked second overall in the Fiscal 2015 Listed Visited domestic investors 99 educators to improve its educational efforts. In fiscal 2011, Capcom the attendance of as many shareholders as possible. Company Website Quality Ranking. IR Team Visited overseas investors 85 launched its second educational program, focused on the educational In addition, voting rights can be exercised via computer, With an awareness of the importance of accountability, we theme of career education support. In fiscal 2013, Capcom started smartphone, mobile phone and Internet. Participating in the digital will continue our efforts to earn the trust of investors and provide Total 370 Full-Time Staff Engaged in a Wide Variety a new class program on work and mathematics targeted towards exercise of voting rights platform, institutional investors are ensured timely disclosure. of Activities elementary and junior high school students to help prevent children a sufficient amount of time to consider proposals starting on the Capcom IR activities are conducted by five full-time staff members Fiscal 2015 Third Party Evaluations IR Events from losing interest in math, a challenge in recent years. day the convocation notices are distributed. We also post in addition to the chairman, the president and the IR director on convocation notices in English on our corporate website to promote 18th Nikkei Annual Report Awards Special Prize Event Details behalf of shareholders and investors in Japan and overseas. For Integrated League of American Communications Professionals CEO small meeting Speaker: Kenzo Tsujimoto, Chairman and CEO the exercise of voting rights by shareholders in Japan and overseas. Reports (LACP) 2014 Vision Awards Annual Report Competition, earnings information and other IR-related inquiries, please use the Bronze Award, Technology/Software category COO small meeting Speaker: Haruhiro Tsujimoto, President and COO contact information below. Daiwa Investor Relations Co., Ltd. 2015 Internet IR Grand Prize External director small Speaker: Takayuki Morinaga, External Director Basic Policies Regarding IR Activities meetings Morningstar Inc./Gómez Consulting Ranked 4th overall in Supplementary Public Relations Gomez IR Website Ranking 2015 & Investor Relations Section 1. Disclosure Policies IR Website explanatory earnings Conference call before/after earnings Nikko Investor Relations Co., Ltd. administrative officer announcement to explain the results PHONE: +81-6-6920-3623 Capcom believes that the timely and appropriate disclosure of Ranked 2nd overall in the Fiscal 2015 Listed Company conference call E-mail: [email protected] information is the duty of every listed company, and that Website Quality Ranking Business Hours: Latest technology Conducted experience-based demonstration of 9:00–12:00, accountability to our shareholders and investors is indispensable experience-based event latest VR technologies, promoted understanding 13:00–17:30 (JST) of Capcom development technologies (excluding weekends and from the perspective of corporate governance. Making Use of Shareholder and Investor Opinions Showed developer Used developer videos to explain development public holidays) To this end, Capcom is promoting highly transparent interviews during status of latest titles of high interest to the earnings presentation market management via the implementation of a basic policy for IR activities Reflecting Results of Dialogues with Investors and Analysts in Management Conducted assessment survey targeting investors which involves (1) the establishment of a responsible investor relations Conducted perception and analysts in Japan and overseas regarding framework, (2) the thorough disclosure of information, and (3) Through meetings with investors and analysts, Capcom’s IR gap study Capcom’s management targets, strategies and IR activities, provided feedback to management the creation of a system for the timely disclosure of information. Department attempts to promote an understanding of

59 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 60 Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Governance Creation Activities Management Achievements Corporate Data

Masao Sato Takayuki Hiroshi Yasuda Makoto Matsuo Yoshihiko Iwasaki Toru Muranaka Morinaga

Tamio Oda Yoichi Egawa Kenzo Tsujimoto Haruhiro Tsujimoto Kenkichi Nomura Kazushi Hirao

61 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 62 Corporate Governance Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data Principal Discussions at Board of Directors Meetings Held in Fiscal 2015

At Capcom Board of Directors Meetings, three external directors take the lead in offering aggressive lost, resulting in the issue of how to distribute authority. Finally, opinions and advice to ensure management transparency and corporate health. (As of March 31, 2016) with respect to agenda criteria at Board of Director meetings, Board of In addition, they focus on promoting growth strategies utilizing corporate governance, vigorously after considering Capcom’s present situation, I’d like you to consider discuss the ideal state of the Company’s organizational design related to corporate governance and their what agenda items would be narrowed down and delegated to the Directors accountability to shareholders and investors. The heated discussion with external directors produced president, etc., to enable the Board of Directors to make the most of numerous suggestions, two of which are presented in this section. its traditional function.

63 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 64 Corporate Governance Capa comc ’’ss VaValValuee MMesMessagsas geef froromromom GGror wthw h StStratattegegyegyy BusBBuususiinenenesss Acctiviviittyy ESG Information FinF nanca ciala annd CreCr atit onon ActActiviviv tieieies MaManannageaggegemenmemenent AchA ievieevvemmmeentsn s CorCoCoro porpo ateattee DaD tat Dialogue Between an External Director and Institutional Investors

Held July 2016: Theme control) concerning the legality and validity of executive division rash actions are taken, there are at present six external directors strategies, and decisions related to the pros and cons of executing comprising a governance structure able to provide sufficient Small The Role Demanded of External Directors takeover defense measures. protection. It’s not at all the case that just because this is an Meeting In your role as external director, in addition to that kind of owner-run company no one can say anything. We routinely say Q risk management, aren’t you also asked to correct the whatever is on our mind and fully express our opinions. Also, Under the New Governance Structure Company’s trajectory to avoid missed opportunities? Looking at debates during Board of Director meetings frequently become the profiles of all the current external directors, I get the impression heated, but this is not a problem. If anything, without constructive that there is a lack of people able to provide advice on the direction and passionate discussions, we would probably be unable to of growth strategy. For example, other companies in this industry generate truly effective measures and polices. risk management function by making directors of auditors who are raking in huge profits in the mobile games area. Has Capcom How have you responded to recent requests for Board of Takayuki Morinaga, External Director and Chairman of the Audit and Supervisory Committee traditionally had no voting power. As the Chairman of the Audit and failed to achieve success in this area because there are few external Q Director evaluations? Supervisory Committee, I feel it is important to have skills enabling directors with ample management experience? In light of our transition to a new governance structure, our At the Shareholders’ meeting in June 2016, the transition to a me to accurately judge the appropriateness of strategies in response Beyond aiming to enhance corporate value, I am cognizant A policy is to continue exploring the ideal state of the Board of company with an audit and supervisory committee was approved to a given situation. A that course adjustments are also one of our critical roles. Directors. We plan to begin examining this issue during the and adopted. With consideration also for the evaluation of foreign Risks pertaining to growth strategies involve investment risks as current fiscal year, so right now I would ask you to please wait a shareholders, the transition was decided to function as a well as risks in not investing. The decision not to invest has the bit longer until we have come to a conclusion with respect to the Q&A Summary mechanism for supporting growth strategies going forward. In potential for a missed opportunity. In order for Capcom to break evaluation criteria. addition, by directly linking the Internal Audit Division to the Audit In terms of game company growth strategies, how well the the 100 billion yen net sales barrier, , there are three issues I think I want you to discuss your thoughts regarding how to indicate and Supervisory Committee, we will further strengthen audit and Q development structure and environment is established is an need to be addressed: the aforementioned improvements to the Q objectives to investors going forward. supervisory functions. This is an attempt to improve management’s extremely important point, so what do you think your role should development structure, aggressive and bold challenges in new We will not only simply respond to market changes, but also be as an external director? areas such as mobile games and expanding into new, high-potential A want to pursue business that I hope enables us to create R&D department is Capcom’s lifeline, which I am fully aware overseas markets, such as Asian. To achieve sustainable growth, markets ourselves. There is no first-mover advantage in following A is an important asset. Thus, skill enhancement and other we must not only manage risks, but also flexibly execute course changes. Rather than focusing on how to pursue, it is important human resources development training is essential for improving adjustments. I will leverage my management experience up to now to focus on how we can create markets on our own. To this end, our developers’ capabilities. At the same time, we cannot ignore to fulfil this major role. we external directors will proactively propose structures and the efficacy of alliances and collaborations with other companies. At an owner-run company like Capcom, to what degree are directions for the Company. I think it is desirable for management to skillfully utilize external Q Audit and Supervisory Committee member opinions reflected resources in areas outside the Company’s core competence or when in Board of Director resolutions? At various companies around the Participants

it would take too much time for one company to achieve an world, family feuds are becoming a problem. This isn’t an issue Capcom Co., Ltd. : Takayuki Morinaga (External Director, Chairman of the Audit and objective alone. These are the kinds of proposals I want to make. at Capcom? Supervisory Committee)/Tamio Oda (Director, Audit and Supervisory Committee)/ In terms of your supervisory function as an external director, Chairman Tsujimoto possesses a unique and excellent Kenkichi Nomura (Director, Executive Corporate Officer and Chief Financial Officer) Investors in Attendance : Akitsugu Era (BlackRock Japan Co., Ltd.)/Iichiro Yamaguchi (Daiwa Q what do you attach the most importance to? A management intuition, a skill most ordinary managers are Asset Management Co. Ltd.)/Daisuke Oshidari (JPMorgan Asset Management (Japan) Ltd.)/ The most important evaluation criterion is whether an action unable to replicate. Thus, I want to respect the distinctiveness that Kenji Kido (Mizuho Trust & Banking Co., Ltd.)/Tomoaki Ito (Nikko Asset Management Co., Ltd.)/ Capcom Co., Ltd. External Director, Mitsuyasu Iwao (Nissay Asset Management Corporation)/Naoki Iwata(Nomura Asset Management Takayuki Morinaga Chairman of the Audit and Supervisory Committee A leads to shareholder profits. For example, evaluations (risk is the positive aspect of an owner-run company. Even in the event Co.,Ltd.)/Akio Otani (Tokio Marine Asset Management Co., Ltd.)

65 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 66 Corporate Governance Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data Governance Reforms for Further Growth

Course of Governance Reforms Four Features of Capcom Corporate Governance

One of the purposes of Capcom's governance reforms is the creation auditors was initiated as a unique organization in Capcom for the Transition into a company with an audit and of systems for management - that is, making management more management of risk in the administration of business matters and 1 supervisory committee to strengthen governance 2 Proactive appointment of external directors transparent and visible. preceded the concept of the "propriety audit" in today's company Generally, the strengths of an owner-run company are with an audit and supervisory committee. Since 2014, Capcom has Capcom established an Audit and Supervisory Committee and Capcom has reached our highest ever rate of external directors momentum via fast decision making, and managerial flexibility that released portions of Board of Directors meeting discussions and grants voting rights at Board of Directors' meetings to directors at 50% through proactively appointing external directors since makes it possible to not dwell on the past and implement structural held meetings between external directors and institutional investors. who are also Audit and Supervisory Committee members. In June 2001. The advice, opinions, and scrutiny provided by external reforms. Conversely, concerns over the founder's complacency Amidst a string of corporate scandals both in Japan and overseas, addition, Capcom aims to further strengthen supervisory functions directors increases the transparency and credibility of Board of and the difficulty of passing on management to the next the purpose of the meetings was to have institutional investors across the entirety of management and further enhance Directors' meetings and vitalizes the same while also strengthening generation can be presented as weaknesses of this system. determine whether management monitoring by external directors corporate governance via the implementation of propriety audits the function of the meetings to supervise management. In order to eliminate these concerns, Capcom believes the was functioning effectively. And in 2016, Capcom significantly together with conventional legal audits. creation of management systems which are easily visible from changed its organizational design, transitioning from being a outside the company as well such as with external directors and company with a corporate auditor system to a company with an Formerly Board of Board of Directors Corporate Auditors stock markets. In addition, formal systems alone are meaningless; audit and supervisory committee. A more detailed description is

the systems must also be effective. To this end, Capcom has provided on the following page, however Capcom has broadly Audit implemented the governance reforms listed in the table below. strengthened supervisory functions across the entirety of its Specifically, in 2001 Capcom was one of the first Japanese management, including 1) giving voting rights at Board of Directors companies to bring on board external directors. This was because meetings to directors who are Audit and Supervisory Committee Percentage of Capcom sought differing opinions, such as dispassionate judgement members; 2) implementing propriety audits in addition to legal External Directors From June 18, 2016 Board of of our management and business activities by experts with high level audits; and 3) making it possible for the Audit and Supervisory Directors knowledge in a variety of fields. In that same time period, Capcom Committee to engage in systematic monitoring using internal Audit and Audit and % Supervison Supervisory Committee 50 strengthened its investor relations activities, the main point of which control systems. was to engage in highly transparent management by promoting Capcom believes that corporate governance is essential to dialogue with stock markets and releasing relevant information. corporate growth and as such will continue to strengthen its

In addition, in 2011 Capcom established its own Audit Committee. governance system both in terms of organization and operation. External Directors From another perspective, legal auditing provided by corporate

Full disclosure of 73 Corporate Governance Mechanism for reﬂecting investor and analyst 3 Code items 4 opinions in management Main Governance Reform Initiatives Capcom has disclosed all 73 of its Corporate Governance Code Capcom’s IR Department engages in discussions with analysts Month/year Measure Purpose items in order to revalidate the current state of the company’s and investors over 350 times per year. In addition to promoting Jul. 1999 Introduced Corporate Officer System Clearly separated execution of management and supervision governance system and its ideal state, together with achieving understanding of management policies and business strategies, Jun. 2001 Brought on board first two external directors Strengthened management monitoring functions accountability for each item. Capcom attaches particular importance the IR Department applies these activities to corporate Jun. 2001 Increased number of external auditors by one, appointing three Strengthened auditing functions to 26 items which are comprised of 10 items which contribute management, summarizing market opinions and providing Jun. 2001 Strengthened investor relation activities Secured transparency to our growth strategy, 3 items which contribute to our feedback to management personnel. Capcom is also further Feb. 2002 Established Remuneration Committee Secured fairness and propriety of director remuneration decisions management system, and 13 items which serve as the base for enhancing events and tools for investors, strengthening achieving these, and provides greater detail concerning the same. shareholder and investor relation activities. Apr. 2003 Established Compliance Committee Prevented violations of laws and ordinances

Jun. 2003 Increased number of external directors by one, appointing three Strengthened management monitoring functions Ensure diversity within the Company, Items which including promoting the activity of women. Strengthening risk management through auditing the state of contribute to Apr. 2011 Established Audit Committee Thorough disclosure of information. PR and IR business administration growth strategy Duties, etc. of the Board of Directors, etc. Department (SR/IR) Jan. 2014 Strengthened shareholder relations activities Promoted understanding of agenda items Items which So-called cross-shareholdings. Over 350 discussion Jun. 2014 Shortened director terms from two years to one year Clarified director management responsibilities contribute to Selection and dismissal of key members Shareholders per year Management of management staff. management Investors IR events personnel Sep. 2014 Released major Board of Directors' meeting discussions in the annual report Provided example of effectiveness of management monitoring functions Quality and standard of determining system independence of independent external directors. IR tools Held small group meeting between external directors and Perception gap studies Jun. 2015 Provided example of effectiveness of management monitoring functions Basic policy for capital policy. institutional investors Items which Establishing an environment to support the serve as a base Transitioned into a company with an audit and supervisory committee risk-taking of the Board of Directors. Jun. 2016 Strengthened supervisory function of Board of Directors meetings for the above with a 50% ratio of external directors Role and duties of independent external directors, etc. Secured objectivity and propriety of decision process for Jun. 2016 Established Nominating Committee Please refer to the Corporate Governance page on Capcom’s investor relations site: selecting director candidates http://www.capcom.co.jp/ir/english/president/governance.html

67 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 68 Corporate Governance Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data Transition into a Company with an Audit and Supervisory Committee

Structure and Merits of a Company with an Audit and Supervisory Committee Message from the Chairman of the Audit and Supervisory Committee

Company with a Corporate Auditor System Company with an Audit and Supervisory Committee (from June 18, 2016) Serving in the role corporate value. Because of this, , we have established an Internal Audit Department under the direct control of the Audit and Supervisory Shareholders’ Meeting Shareholders’ Meeting of risk control for Committee in order to make it possible to gather information and

This transition offers the four merits listed in the table above to Capcom. a group. (Fiscal years ending March 31)

69 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 70 Corporate Governance Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data Corporate Governance Structure and Initiatives

Shareholders and investors have made the practical and effective functioning of internal control into a key issue amidst an They also objectively and fairly check the legality and propriety and this audit corporation or the engagement partners at this firm epidemic of corporate misconduct in Japan and overseas. In this section, Capcom will explain the corporate governance of execution of operations by directors by exchanging opinions who perform audits at Capcom. structure and systems that it has initiated so far based on the key concepts of “effectiveness and visibility” in terms of the and information with the Accounting Auditors and attending results of third party assessment. (Assessment areas are highlighted in yellow.) important meetings. Internal Auditing Division Audit (As of June 18, 2016) NEW Ensuring and Verifying Legal Compliance and Operating Efﬁciencies The Nominating Committee Shareholders’ Meeting We have established an internal auditing division as an internal audit

71 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 72 Corporate Governance Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

External Directors Third-Party Assessment

Using External Perspectives to Ensure Effective Directors meetings in an effort to strengthen the management Promoting More “Visible” Governance Capcom’s total score was 8.75 points, placing us in the top Governance audit function. An analysis of an assessment performed by a third-party organization 1.1% of Japan’s listed companies. Our score also exceeded the External directors ensure the effectiveness of the corporate Also, the Secretariat staff helps with the work of the external into the validity and effectiveness of Capcom’s corporate governance average for all listed companies and for the industry, at 5.45 points governance function by playing key roles in the Compliance, directors not Members of the Audit and Supervisory Committee shows that the company ranked 35th among 3,460 listed companies and 7.77 points, respectively. We continued to receive the full 10 Nominating and Remuneration Committees. They also focus efforts and with regards to external directors who are Members of the Audit in Japan in the “NEEDS-Cges” assessment developed by Nikkei points for “shareholder and capital composition” and “information on compliance and the prevention of corrupt or illegal activities, and Supervisory Committee, the full-time staff of the Internal Audit Digital Media, Inc. disclosure” important for corporate governance. and openly exchange opinions and provide counsel at Board of Task Force helps with their work. “NEEDS-Cges” has an established reputation as a system The main reasons for each of these perfect scores are given that quantitatively assesses corporate governance using scores on in the chart provided below, but in particular, areas highlighted in Board of Directors and External Auditors Rate of Attendance (Year ended March 2016) a scale of 1 to 10 for eight categories, including “capital efficiency,” yellow indicate measures that received particular notice. Independent Board of Directors/Board of Corporate Auditors Name Reasons for selection “information disclosure,” and “shareholder and capital composition,” Going forward, we continue making improvements based on director Rate of Attendance (Year ended March 2016) among others, assigned based on some 130 indicators calculated consideration of external data to earn an even stronger assessment, Appointed with overall consideration for character, Hiroshi Yasuda Board of Directors Attended 14 of 14 meetings (100%) business acumen and successive appointments to important posts from data of publicly released company documents, such as and further promote the external visibility of our governance by A legal professional able to provide precise guidance and financial reports. posting this and other data on our corporate website. External Makoto Matsuo Board of Directors Attended 13 of 14 meetings (92.9%) advice and ensure the effectiveness of corporate governance Directors Appointed with overall consideration for management experience Third-Party Assessment Results of Capcom’s Corporate Governance Takayuki Morinaga at other companies, professional career, track record, and personal Board of Directors Attended 14 of 14 meetings (100%) connections in the business world Details of Capcom’s Comparison of the Industry Average Details of Highest Rated Categories It was determined that his professional experience Board of Directors Attended 14 of 14 meetings (100%) Corporate Governance and the Average for All Listed Yoshihiko Iwasaki Highest Rated Categories Score Areas that Received Particular Notice in tax administration would be of benefit to the company Board of Corporate Auditors Attended 13 of 13 meetings (100%) Assessment Companies External Capital efficiency Tobin’s Q-related values Appointed to leverage the wealth of experience and knowledge Total Score 8.75 Equity market’s assessment 9 Auditors Board of Directors Attended 14 of 14 meetings (100%) 10 PBR-related values Akihiko Matsuzaki accumulated during many years in law enforcement administration Board of Corporate Auditors Attended 13 of 13 meetings (100%) Rank 35 8 Ratio of institutional investor shareholdings to help the company further enhance its corporate governance Information Equity market’s Shareholder and disclosure assessment 10 Ratio of foreign investor shareholdings Categories Score 6 capital composition Cross-shareholding ratio 4 Capital efficiency 6 Board of Director members Equity market’s assessment 9 2 Board of Directors Managing Corporate Officers Shareholder Stability 9 External director ratio Stability 7 returns (organization) Officer Remuneration Adoption of the Corporate Officer System Shareholder and 10 capital composition Amount of director treasury stock holdings Board of Directors (actions) 9 Amount of president’s treasury stock holding Board of Directors Board of Shareholder The Remuneration Committee Makes 2 The remuneration of the directors who serve as 9 Directors (actions) and capital Shareholder returns 9 Shareholder return ratio (organization) composition Recommendations to Ensure Fairness members of the Audit and Supervisory Committee Changes in accounting policy Board of Directors (actions) 9 Board of Directors (organization) Information disclosure 10 Date of general shareholders’ meeting and Transparency The remuneration of the directors who serve as members of the Audit and Shareholder returns 9 Capcom Video Game Industry Average Corporate website Supervisory Committee is not linked to performance from the perspective of 10 To ensure fairness and transparency, the compensation of Directors Information disclosure Average for All Listed Companies Source: NEEDS-Cges from Nikkei Digital Media Inc. securing their independence and thus determined through discussions, taking is consulted on with the voluntary Remuneration Committee which the difference of full-time or part-time service into account, by the directors has an external director as chairman and is decided upon by the Board who serve as members of the Audit and Supervisory Committee. of Directors based on this committee’s recommendations. The current Shareholders’ Meeting Resolutions remuneration system is composed of set monthly remuneration and Officer Remuneration (Year ended March 31, 2016) performance-based bonuses paid in cash but the percentage of set Total remuneration, etc. by type of director for delivery The following presents the number of votes in favor, opposed or abstained for the matters to be resolved at the year ended March 31, 2015, remuneration is high. Because of this, we are looking into introducing companies, total amount by type of remuneration, etc., general shareholders’ meeting, and the results of voting. a new remuneration system to increase the directors’ incentive to and number of directors the remuneration was paid to increase corporate value over the medium- to long-term. And also, as Total Total of remuneration, etc. by type Number Remune- (million yen) of Approval Votes Abstained Approval Voting Approval Votes Abstained Approval Voting part of an overall environment to support risk-taking, the remuneration Type of director Resolutions Resolutions ration Basic rem- Stock directors Votes Opposed Votes Rate (%) Results Votes Opposed Votes Rate (%) Results linked to performance will be set to an appropriate percentage. (million yen) uneration options Bonus Severance paid First proposal: Fourth proposal: Director Proposed Appropriation of 453,673 3,570 0 98.60 Approved Appointment of Five Directors (excluding 324 265 – 50 9 7 Retained Earnings who are Members of the audit Policy Regarding Deciding the Calculation Method external directors) and supervisory committee and Amount of Directors’ Remuneration Second proposal: Kazushi Hirao 444,350 12,889 0 96.58 Approved Auditor 454,862 2,380 0 98.86 (excluding 28 28 – – 0 2 Partial Amendments to 453,725 3,517 0 98.61 Approved Yoshihiko Iwasaki 1 Regarding Remuneration of Directors external auditors) the Articles of Incorporation Tamio Oda 446,190 11,049 0 96.98 (excluding directors who are members of the Audit and Makoto Matsuo 427,051 30,191 0 92.82 External director 56 56 – – – 5 Third proposal: Takayuki Morinaga 454,919 2,323 0 98.87 Supervisory Committee) Notes 1: The above includes three directors who left office due to their tenure ending at the Election of Seven Directors Fifth proposal: (excluding Directors who Election of One Director who is To ensure fairness and transparency of Directors’ remuneration, the Board of conclusion of the 36th Regular General Meeting of Shareholders held on June 12, 2015. 457,069 174 0 99.34 Approved 2: The above includes one auditor who died in office on March 2, 2016. are members of the audit a substitute member of the audit Directors consults the Remuneration Committee, which has an external director and supervisory and supervisory committee as chairman. The Remuneration Committee considers each board member’s position, committee) Total amount of consolidated remuneration, Sixth Proposal: duties, tenure, full/part-time service, etc. as well as Capcom’s earnings and individual Kenzo Tsujimoto 450,336 6,905 0 97.88 Determination of the Amount of Remuneration for Directors etc. by director of delivery company Haruhiro Tsujimoto 446,497 10,744 0 97.04 Approved 456,489 242 511 99.21 Approved job performance, and recommends an appropriation amount. The Board of Directors (excluding Directors who are makes a decision based on this. Total of Total of consolidated remuneration, Yoichi Egawa 448,133 9,108 0 97.40 members of the audit and consolidated etc. by type (million yen) supervisory committee) a. Monthly remuneration is fixed. Type of Type of Kenkichi Nomura 448,116 9,125 0 97.39 Name remuneration, director company b. The amount of bonus is determined within the reasonable range based on etc. Basic rem- Stock Seventh proposal: uneration options Bonus Severance Hiroshi Yasuda 445,388 11,854 0 96.80 the monthly remuneration and the Company’s performance. (million yen) Determination of Amount of Masao Sato 455,128 2,115 0 98.92 Remuneration for Directors 456,467 264 511 99.21 Approved c. Other than the remunerations listed above, appropriate remuneration based Kenzo Delivery who are members of the audit 100 Director 80 – 20 – Toru Muranaka 438,455 18,788 0 95.29 on individual achievement may be paid within a determined range. Tsujimoto company and supervisory committee Note: The listing of total of consolidated remuneration, etc. is restricted to persons with 100 Please refer to the “Shareholders Meeting Resolutions” section of our IR web page for information about the conditions for each proposal to be passed million yen or more. http://www.capcom.co.jp/ir/english/stock/meeting.html 73 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 74 Corporate Governance Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data Internal Control System and Initiatives

75 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 76 11-Year Summary of Consolidated Financial Indicators Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Financial Index CAPCOM CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES. YEARS ENDED MARCH 31 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016 For the Year: Millions of yen Millions of yen Thousands of U.S. dollars Net sales ...... ¥ 70,253 ¥ 74,542 ¥ 83,097 ¥ 91,878 ¥ 66,837 ¥ 97,716 ¥ 82,065 ¥ 94,075 ¥ 102,200 ¥ 64,277 ¥ 77,021 $ 687,695 Operating income ...... 6,580 9,602 13,121 14,618 5,587 14,295 12,318 10,151 10,299 10,582 12,029 107,408 Net income (loss) before income taxes ...... 6,912 9,986 11,962 12,448 1,124 10,807 11,425 3,719 5,315 10,701 11,150 Net income attributable to owners of the parent ... 6,941 5,852 7,807 8,063 2,167 7,750 6,723 2,973 3,444 6,616 7,745 69,156 Depreciation & amortization ...... 1,936 2,774 3,393 4,143 3,368 3,315 3,123 3,406 4,638 3,535 5,712 51,003 Capital expenditures ...... 1,600 4,495 4,503 2,906 2,205 2,758 4,153 8,724 8,064 10,177 73,879 R&D expenses ...... 1,864 1,828 2,972 2,329 2,125 2,924 2,236 1,982 2,002 823 1,073 9,588

At Year-End: Millions of yen Millions of yen Thousands of U.S. dollars Total assets ...... ¥ 98,457 ¥ 91,478 ¥ 93,606 ¥ 106,210 ¥ 86,621 ¥ 90,408 ¥ 98,247 ¥ 104,365 ¥ 96,611 ¥ 100,773 ¥ 113,057 $ 1,009,441 Net assets ...... 39,464 45,144 53,660 59,349 53,956 58,007 59,352 62,828 63,875 71,331 75,168 671,150 Net cash ...... (678) 9,200 13,061 7,378 12,299 27,655 11,348 14,327 22,670 21,212 15,821 141,259 Developer numbers ...... 705 728 809 1,047 1,132 1,339 1,455 1,623 1,808 1,902

Cash Flows: Millions of yen Millions of yen Thousands of U.S. dollars Cash flows from operating activities ...... ¥ 13,921 ¥ 16,063 ¥ 7,452 ¥ (551) ¥ 14,320 ¥ 22,392 ¥ (7,672) ¥ 6,647 ¥ 13,201 ¥ 4,286 ¥ 4,347 $ 38,812 Cash flows from investing activities ...... (1,779) (6,715) (3,374) (2,715) (1,618) (2,046) (4,794) (1,375) (6,155) (5,496) (1,639) (14,641) Cash flows from financing activities ...... (18,259) (15,206) (2,448) (342) (10,747) (12,919) 587 1,162 (15,099) 1,278 (1,115) (9,956) Net increase (decrease) in cash and cash equivalents... (4,885) (5,654) (2,256) (4,454) 1,203 5,196 (12,724) 9,235 (5,404) 1,879 431 3,852 Cash and cash equivalents at end of year ...... 40,652 35,020 32,763 28,611 29,815 35,011 22,287 31,522 26,118 27,998 28,429 253,836

Per Share Data: yen yen U.S. dollars Net income (loss) per share ...... ¥ 125.19 ¥ 107.52 ¥ 132.90 ¥ 130.98 ¥ 35.71 ¥ 131.18 ¥ 116.10 ¥ 51.64 ¥ 61.11 ¥ 117.67 ¥ 137.75 $ 1.23 Dividend per share ...... 20.00 30.00 30.00 35.00 35.00 40.00 40.00 40.00 40.00 40.00 40.00 0.36 Net assets per share ...... 716.91 799.35 881.13 961.38 913.18 981.76 1,030.70 1,091.08 1,135.91 1,268.56 1,336.86 11.94

Financial Index: % % Operating margin...... 9.4 12.9 15.8 15.9 8.4 14.6 15.0 10.8 10.1 16.5 15.6 ROE ...... 19.3 13.8 15.8 14.3 3.8 13.8 11.5 4.9 5.4 9.8 10.6 ROA...... 6.8 6.2 8.4 8.1 2.3 8.8 7.1 2.9 3.4 6.7 7.2 Net worth ratio ...... 40.1 49.3 57.3 55.9 62.3 64.2 60.4 60.2 66.1 70.8 66.5 Interest coverage ratio (times) ...... 82.6 237.3 103.7 – 86.9 155.8 – 62.4 136.8 50.2 36.5 Debt-equity ratio...... 149.4 102.8 74.4 79.0 60.5 55.9 65.5 66.1 51.2 41.3 50.4

Stock Information: Price earnings ratio (times) ...... 9.7 15.7 25.6 13.3 49.5 12.1 16.3 28.6 32.0 20.3 19.9 Number of outstanding shares (thousands shares)... 58,435 62,269 66,719 67,394 67,723 67,723 67,723 67,723 67,723 67,723 67,723 Foreign investors (%) ...... 23.35 32.60 27.72 33.73 24.22 22.17 27.05 32.37 37.29 36.87 39.35

Digital Contents Business: Billions of yen Billions of yen Consumer business net sales ...... ¥ 42.7 ¥ 43.8 ¥ 51.6 ¥ 60.0 ¥ 38.7 ¥ 63.6 ¥ 46.9 ¥ 45.9 ¥ 53.0 ¥ 35.2 ¥ 42.1 Online business net sales ...... 1.5 2.7 4.1 6.6 8.5 10.5 12.9 17.7 12.8 10.1 10.4

Consumer Game Sales (Package Software and Full-game Digital Content) Thousands Thousands Total number of units ...... 13,400 12,200 15,750 18,100 13,900 21,700 17,000 16,700 17,500 13,000 15,000

Lost Planet Monster Hunter Resident Evil: Monster Monster Resident Evil 4 Monster Hunter Monster ...... Extreme Devil May Cry 4 Resident Evil 5 Freedom Unite Operation Resident Evil 6 Hunter 4 Hunter X Sales of major titles (PS2) 1,810 1,370 2,320 4,400 1,350 Freedom 3 4,600 1,700 5,000 Hunter 4 4,100 3,400 3,300 Condition (Best Price included) Raccoon City Ultimate (Cross) Onimusha DAWN Resident Evil 4 Monster Hunter Monster Hunter Dragon's Resident Evil Dead Rising Street Fighter IV Dead Rising 2 Dead Rising 3 Street Fighter V of DREAMS 640 1,220 Wii edition 1,300 2,500 Tri 1,150 2,300 3 (Tri) G 1,600 Dogma 1,300 1,200 Revelations 2 1,100 1,400 Resident Evil: Monster Hunter MARVEL VS. Monster Hunter Monster Hunter Street Fighter DmC Resident Evil Resident Evil Resident Evil The Umbrella Freedom Unite Resident Evil 5 CAPCOM 3 Fate Freedom 610 Freedom 2 1,220 1,060 2,200 950 2,000 X Tekken 1,400 Devil May Cry 1,200 Revelations 1,200 (HD Remastered) 900 Revelations 2 850 Chronicles (Best Price included) of Two Worlds

77 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 78 Financial Review Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data CAPCOM CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES. YEARS ENDED MARCH 31

Selling, general and administrative Research and development expenses/ 1. Operating Results Selling, general and administrative expenses were 17,816 million Cost of sales/Cost of sales ratio expenses/SG&A expenses ratio R&D expenses ratio to net sales yen (up 15.7% from the previous fiscal year) and SG&A as a Capcom announced that in the fiscal year ended March 31, 2016 percentage of sales was 23.1%, down 0.9 percentage points 70.7 65.8 61.2 24.6 23.3 24.0 23.1 2.7 60.5 59.7 2.1 2.0 net sales increased to 77,021 million yen (up 19.8% from the compared to the previous fiscal year. As increased sales caused the fixed 19.3 1.3 1.4 previous year), operating income increased to 12,029 million yen overheard rate to decline, the SG&A expenses ratio on a consolidated 72,251 61,911 21,942 (up 13.7 % from the previous year), and ordinary income increased basis fell adequately within Capcom’s assumed 25% range. 20,150 19,749 2,236 17,816 1,982 2,002 to 11,348 million yen (up 4.6 % from the previous year). Net income As a result, operating income was 12,029 million yen (up 49,609 47,175 15,403 38,379 attributable to owners of the parent for the year increased to 7,745 13.7% from the previous fiscal year). Despite this increase, lower 1,073 million yen (up 17.1% from the previous year). profitability in the Amusement Equipments business dampened 823 overall earnings, resulting in an operating margin of 15.6% 2. Sales and Profits (down 0.9 percentage points from the previous fiscal year). 2012 20132014 2015 2016 2012 20132014 2015 2016 2012 2013 2014 2015 2016

Cost of sales (Millions of yen) Selling, general and administrative expenses (Millions of yen) Research and development expenses (Millions of yen) (1) Net sales (3) Net income attributable to owners of the parent Cost of sales ratio (%) SG&A expenses ratio (%) R&D expenses ratio to net sales (%) In this fiscal year, net sales were 77,021 million yen (up 19.8% from This fiscal year, regarding non-operating expenses, price adjustments the previous fiscal year). This increase was driven by our core business, in line with an Advanced Pricing Agreement (an APA is a contract mainly overseas. Moreover, sales of catalog titles grew, while digital the lack of a high-performance product as well as sluggish demand Digital Contents, in which Monster Hunter X (Cross) performed between Capcom and tax authorities in Japan and overseas specifying downloads also became a stable source of revenue from a solid due to the dispersion of entertainment, resulting from the favorably, selling 3.3 million units to exceed initial projections of 2.5 the pricing method Capcom will apply to its related-company performance thanks to the synergistic effects from package sales. overlapping of arcade game players with smartphone users. million units. Digital download sales of Resident Evil Revelations 2 and transactions) resulted in the recognition of an exchange loss related to Meanwhile with regard to online games, Dragon’s Dogma During the period under review, the Company developed its other previously developed catalog titles also strongly contributed transactions with overseas subsidiaries amounting to 752 million yen. Online (for PlayStation 4, PlayStation 3 and PC), an online open- arcade operations through its scrap and build strategy, and opened four to results. In addition, the launch of Dragon’s Dogma Online, a new However, operating income growth offset this loss, resulting in ordinary world action game where players can freely experience a host of arcades including the Amuse Factory Tokoname (Aichi Prefecture) and service in the PC Online business was solidly on track. Furthermore, income of 11,348 million yen (up 4.6% from the previous fiscal year). adventures, performed favorably. At the same time, mobile contents the innovative Capcom Café (Saitama Prefecture), while closing three in the Amusement Equipments business, Capcom pachislo frame Special losses amounting to 197 million yen were also recognized, sales improved as downloads of Monster Hunter Explore (for Android arcades, bringing the total number of arcades to 34. Resident Evil 6 sold 37,000 units, surpassing unit sales in the previous resulting in net income attributable to owners of the parent of 7,745 and iOS) surpassed 3 million, indicating signs of a breakthrough The resulting net sales were 9,056 million yen (down 2.0% fiscal year. The increase in net sales was driven primarily by the Digital million yen (up 17.1% from the previous fiscal year) and the net margin in the current situation of the mobile contents segment. from the previous fiscal year), and operating income was 699 Contents and Amusement Equipments businesses. was 10.1% (down 0.2 percentage points from the previous fiscal year). The resulting net sales were 52,577 million yen (up 15.9 % million yen (down 25.6% from the previous fiscal year). from the previous fiscal year), and operating income was 12,167 (2) Operating income 3. Status of Each Operational Department million yen (up 19.2% from the previous fiscal year). (3) Amusement Equipments business Cost of sales increased to 47,175 million yen (up 22.9% from the In the Pachinko & Pachislo sub-segment, Resident Evil 6 demonstrated previous fiscal year) and the cost of sales ratio was 61.2%, up 1.5 (1) Digital Contents business (2) Arcade Operations business its strengths as a major brand by strongly increasing unit sales, percentage points from the previous fiscal year. This was mainly due to In the Digital Contents business, the latest title in the flagship In the Arcade Operations business, with the slow pace of market backing the improvement in revenue as it contributed to the increase (1) increased general costs associated with Capcom pachislo machines series, Monster Hunter X (Cross) (for the Nintendo 3DS system), was recovery, the Company strived to expand its customer base by means of in sales. However, sales of Asura’s Wrath remained weak. in the Amusement Equipments business and (2) increased development a major hit, with sales of more than 3 million units, surpassing the community-based store strategies. For example, measures were taken to Meanwhile, in the Arcade Games Sales sub-segment, sales costs associated with the expansion of new titles in the Digital Contents initially-planned 2.5 million units, which contributed significantly to attract customers including women and families by holding various events of Luigi Mansion Arcade were weak reflecting the sluggish business. With regard to (1), this was mainly due to the rebound effect both sales and profits. Additionally, Resident Evil 0 (HD Remastered) and conducting service days for the middle-aged and seniors by offering market, while crossbeats REV. for arcades also struggled. of attempting to lower costs by reusing certain components used in (for PlayStation 4, PlayStation 3, Xbox One, Xbox 360 and PC) “free game experience tours” and setting up additional “Asobi Oukoku The resulting net sales were 13,343 million yen (up 77.0% Sengoku BASARA 3 machines sold in the previous fiscal year. This fiscal steadily increased unit sales, while Street Fighter V (for PlayStation 4 Peekaboo” sites and “Kids’ Corner” sections targeting younger children. from the previous fiscal year), and operating income was 2,812 year, the cost ratio is expected to return to normal levels. and PC) remained a perennial favorite and maintained steady sales Nonetheless, the segment results were soft, partly because of million yen (up 2.8% from the previous fiscal year).

Net Sales (Millions of yen) Operating Income (Millions of yen)

2015 64,277 2015 10,582 Increase in net gross profit 3,861 Digital Contents 7,226 Increase in advertising expenses 574 Arcade Operations (185) Increase in promotion expenses 462 Selling, general and administrative expenses Increase in salaries and bonuses 173 UP 2,413 Amusement Equipments 5,803 Increase in provision for accrued bonuses 179 Increase in research and development expenses Other Businesses (101) 250 Increase in other selling, general and administrative expenses from the previous fiscal year 775 2016 77,021 from the previous fiscal year UP 12,744 2016 12,029 UP 1,447

79 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 80 Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

(4) Other Businesses (2) Liabilities 5. Analysis of Cash Flow (3) Cash flows from financing activities The net sales from Other Businesses, mainly consisting of the Total liabilities as of the end of the fiscal year ended March 31, Net cash used in financing activities was 1,115 million yen (1,278 publication of game guidebooks and sale of character merchandise, 2016 increased by 8,446 million yen from the end of the previous Cash and cash equivalents as of the end of the fiscal year ended million yen gained in the previous fiscal year). were 2,043 million yen (down 4.7% from the previous fiscal year), fiscal year to 37,888 million yen. March 31, 2016 increased by 431 million yen from the end of the The Primary increases used were as follows: 2,228 million and operating income was 511 million yen (down 22.7% from Primary increases were 5,646 million yen in accrued income previous fiscal year to 28,429 million yen. Cash flow positions of yen in dividends paid by parent company (2,251 million yen in the the previous fiscal year). taxes and 3,571 million yen in long-term borrowings. Primary each activity and their factors are described below. previous fiscal year), 883 million yen in repayment for long-term decrease was 1,955 million yen in short-term borrowings. borrowings (3,169 million yen in the previous fiscal year) and 496 4. Analysis of Assets, Liabilities and Net Assets (1) Cash flows from operating activities million yen in repayment for lease obligations (406 million yen in (3) Net assets Net cash gained from operating activities was 4,347 million yen the previous fiscal year). The Primary decrease was 2,500 million (1) Assets Net assets as of the end of the fiscal year ended March 31, 2016 (4,286 million yen in the previous fiscal year). yen provided from long-term borrowings (8,162 million yen in the Total assets as of the end of the fiscal year ended March 31, 2016 increased by 3,837 million yen from the previous fiscal year to The primary items increasing cash flows were 11,150 million previous fiscal year). increased by 12,284 million yen from the end of the previous fiscal 75,168 million yen. yen in net income before income taxes (10,701 million yen in the Cash Flows from Financing Activities (Millions of yen) year to 113,057 million yen. The Primary increase was 7,745 million yen in net income previous fiscal year) and 5,712 million yen increase in depreciation Primary increases were as follows: 7,991 million yen in work- attributable to owners of the parent. The Primary decreases were and amortization (3,535 million yen in the previous fiscal year). Proceeds from in-progress for game software, 5,161 million yen in buildings and 1,494 million yen in cumulative translation adjustments which The primary items decreasing cash flows were 8,778 million yen long-term 2,500 borrowings structures. related to foreign exchange translation of the net assets of foreign increase in work-in-progress for game software (6,443 million yen Repayments of consolidated subsidiaries and 2,249 million yen in cash dividends. in the previous fiscal year) and 2,208 million yen increase in long-term borrowings (883) accounts receivable, trade (decrease of 10,382 million yen in the (2,228) Dividends paid by previous fiscal year). parent company (504) Others Cash Flows from Operating Activities (Millions of yen) Assets (Millions of yen) (1,115) Net income before 11,150 income taxes 2015 100,773 Depreciation and amortization 5,712 (3,775) Cash on hand and in banks Trends of Cash Flow Indicators Notes and accounts Increase in accounts receivable, trade (2,208) receivable, trade 1,874 Year ended Year ended Year ended Current Increase in March 2014 March 2015 March 2016 Work-in-progress 7,991 assets work-in-progress (8,778) for game software 10,258 UP for game software Deferred tax assets Shareholders’ equity ratio to total assets (%) 66.1 70.8 66.5 1,340 1,718 Increase in other current liabilities Other current assets 2,828 Shareholders’ equity ratio to total assets based on fair market value (%) 114.0 133.3 136.5 (2,545) Others Tangible fixed assets 3,497 (%) Fixed Debt amortization ratio to cash flows 53.4 256.5 290.1 Intangible fixed assets (2,533) assets (702) Others total Interest coverage ratio (times) 136.8 50.2 36.5 2,027 UP Investments and other assets 1,062 from the previous fiscal year +4,347 Shareholders’ equity ratio to total assets: Shareholders’ equity / Total assets 2016 113,057 UP 12,284 Shareholders’ equity ratio to total assets based on fair market value: Total of the capital stock at market price / Total assets Debt amortization ratio to cash flows: Interest-bearing debt / Cash flows (2) Cash flows from investing activities from operating activities Liabilities, Net Assets (Millions of yen) Net cash used in investing activities was 1,639 million yen (5,496 Interest coverage ratio: Cash flows from operating activities / Interest million yen in the previous fiscal year). The Primary item increasing payments cash flows was 5,813 million yen in payment for acquisition of 2015 100,773 Note 1: Percentage figures are calculated on a consolidated basis. tangible fixed assets (5,465 million yen in the previous fiscal year). 964 Notes and accounts payable, trade Note 2: Total market value of shares is calculated based on the number of shares as of the Electronically recorded The Primary item decreasing cash flows was 4,205 million yen in end of the fiscal year excluding treasury stock. monetary obligations (1,955) withdrawal of time deposit (no withdrawal in the previous fiscal year). Note 3: Cash flows used are for cash flows from operating activities. Note 4: The interest-bearing debt refers to the debts posted in the consolidated balance Accrued income taxes Liabilities 5,646 sheets for which we are paying interest. 8,446 UP Cash Flows from Investing Activities (Millions of yen) Long-term borrowings 3,571 Note 5: As the cash flows from operating activities fell into the red in the fiscal year ended March 2012, we have omitted the debt amortization ratio to cash flows from Other long-term liabilities (452) operating activities and interest coverage ratio. Payments into time deposits Other liabilities 672 4,205 Retained earnings Proceeds from sales of 5,496 tangible fixed assets (5,813) Valuation difference on available-for-sale securities (168) Net assets (290) Payment for acquisition of intangible fixed assets Cumulative translation adjustments (1,494) 3,837 UP Other net assets Others 3 from the previous fiscal year 259 2016 113,057 UP 12,284 (1,639)

81 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 82 Consolidated Financial Statement Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Consolidated balance sheets CAPCOM CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES. MARCH 31, 2016 AND 2015 CAPCOM CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES. MARCH 31, 2016 AND 2015 Previous fiscal year Current fiscal year Current fiscal year Previous fiscal year Current fiscal year Current fiscal year (As of March 31, 2015) (As of March 31, 2016) (As of March 31, 2016) (As of March 31, 2015) (As of March 31, 2016) (As of March 31, 2016) Millions of yen Millions of yen Thousands of U.S. dollars Millions of yen Millions of yen Thousands of U.S. dollars (Assets) (Liabilities)

Current assets: Current liabilities:

Cash on hand and in banks ...... ¥ 32,204 ¥ 28,429 $ 253,836 Notes and accounts payable, trade ...... ¥ 3,089 ¥ 4,053 $ 36,189

Notes and accounts receivable, trade ...... 8,005 9,879 88,213 Electronically recorded monetary obligations ...... 988 888 7,932

Merchandise and finished goods ...... 1,225 1,704 15,221 Short-term borrowings ...... 3,452 1,497 13,367

Work in progress ...... 1,672 2,085 18,621 Lease obligations ...... 483 525 4,693

Raw materials and supplies ...... 1,020 1,954 17,452 Accrued income taxes ...... 823 6,470 57,770

Work in progress for game software ...... 16,833 24,825 221,653 Deferred tax liabilities ...... 147 40 364

Deferred tax assets ...... 2,042 3,382 30,200 Accrued bonuses ...... 1,832 2,080 18,575

Other ...... 2,712 3,673 32,797 Asset retirement obligations ...... 6 – –

Allowance for doubtful accounts ...... (56) (18) (163) Other ...... 6,421 6,799 60,712

Total current assets ...... 65,659 75,917 677,833 Total current liabilities ...... 17,246 22,355 199,604

Fixed assets: Long-term liabilities:

Tangible fixed assets, net of accumulated depreciation Long-term borrowings ...... 7,540 11,111 99,209

Buildings and structures, net ...... 6,136 11,297 100,869 Lease obligations ...... 589 601 5,366

Machinery and vehicles, net ...... 22 23 211 Deferred tax liabilities ...... 48 18 168

Tools, fixtures and furniture, net...... 1,578 1,875 16,744 Liabilities for retirement benefits for employees ...... 2,101 2,323 20,741

Equipment for amusement facilities, net ...... 1,101 1,342 11,989 Asset retirement obligations ...... 489 502 4,487

Land ...... 4,953 5,234 46,738 Other ...... 1,427 975 8,713

Leased assets, net ...... 995 1,042 9,303 Total long-term liabilities ...... 12,195 15,532 138,686

Construction in progress ...... 2,541 8 80 Total liabilities ...... 29,442 37,888 338,291

Total tangible fixed assets ...... 17,328 20,825 185,937

Intangible assets (Net assets)

Online contents in progress ...... 7,895 2,395 21,388 Shareholders’ equity:

Other ...... 2,772 5,740 51,253 Common stock ...... 33,239 33,239 296,779

Total intangible assets ...... 10,668 8,135 72,641 Capital surplus ...... 21,328 21,328 190,436

Investments and other assets Retained earnings ...... 33,801 39,297 350,870

Investments in securities ...... 621 454 4,062 Treasury stock ...... (18,140) (18,145) (162,016)

Claims in bankruptcy and reorganization...... 66 65 584 Total shareholders’ equity ...... 70,228 75,719 676,069

Lease deposits ...... 4,036 3,867 34,535 Accumulated other comprehensive income:

Deferred tax assets ...... 1,595 2,952 26,359 Net unrealized gain or loss on securities, net of tax ...... 170 2 20

Other ...... 876 916 8,184 Cumulative translation adjustments ...... 1,215 (278) (2,485)

Allowance for doubtful accounts ...... (78) (78) (696) Accumulated adjustments for retirement benefits ...... (283) (274) (2,453)

Total investments and other assets ...... 7,117 8,179 73,028 Total accumulated other comprehensive income ...... 1,102 (550) (4,918)

Total fixed assets ...... 35,113 37,140 331,608 Total net assets ...... 71,331 75,168 671,150

Total assets ...... ¥ 100,773 ¥ 113,057 $ 1,009,441 Total liabilities and net assets ...... ¥ 100,773 ¥ 113,057 $ 1,009,441

Please refer to Notes to Consolidated Financial Statements of our website at: Please refer to Notes to Consolidated Financial Statements of our website at: http://www.capcom.co.jp/ir/english/data/annual.html http://www.capcom.co.jp/ir/english/data/annual.html

83 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 84 Consolidated Financial Statement Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Consolidated statements of income CAPCOM CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES. YEARS ENDED MARCH 31 Consolidated statements of changes in net assets CAPCOM CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES. YEARS ENDED MARCH 31

Shareholders’ equity Previous fiscal year Current fiscal year Current fiscal year Millions of yen Common stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity From April 1, 2014 From April 1, 2015 From April 1, 2015 to March 31, 2015 to March 31, 2016 to March 31, 2016 Balance as of March 31, 2014 ¥ 33,239 ¥ 21,328 ¥ 29,160 ¥ (18,134) ¥ 65,593 Cumulative effect due to changes in accounting policies 273 273 Millions of yen Millions of yen Thousands of U.S. dollars Balance as of April 1, 2014 33,239 21,328 29,433 (18,134) 65,866 Net sales ...... Changes of items during the fiscal year ¥ 64,277 ¥ 77,021 $ 687,695 Cash dividends (2,249) (2,249) Cost of sales ...... 38,379 47,175 421,209 Net income attributable to owners of the parent 6,616 6,616 Repurchase of treasury stock (5) (5) Gross profit ...... 25,898 29,846 266,486 Disposal of treasury stock 0 0 0 ...... Net changes of items other than shareholders’ equity Reversal of allowance for sales returns 87 – – Total changes of items during the fiscal year – 0 4,367 (5) 4,361 ...... Balance as of March 31, 2015 ¥ 33,239 ¥ 21,328 ¥ 33,801 ¥ (18,140) ¥ 70,228 Net gross profit 25,985 29,846 266,486 Selling, general and administrative expenses ...... 15,403 17,816 159,078 Accumulated other comprehensive income Millions of yen Net unrealized gain or Cumulative translation Accumulated adjustments for Total accumulated other Total net assets Operating income ...... 10,582 12,029 107,408 loss on securities, net of tax adjustments retirement benefits comprehensive income Balance as of March 31, 2014 ¥ 99 ¥ (1,647) ¥ (169) ¥ (1,717) ¥ 63,875 Non-operating income: Cumulative effect due to changes in accounting policies 273 Balance as of April 1, 2014 99 (1,647) (169) (1,717) 64,149 ...... Interest income 98 95 855 Changes of items during the fiscal year Dividend income ...... Cash dividends (2,249) 13 13 120 Net income attributable to owners of the parent 6,616 Settlement received ...... 92 – – Repurchase of treasury stock (5) Disposal of treasury stock 0 Exchange gains, net ...... 292 – – Net changes of items other than shareholders’ equity 71 2,863 (114) 2,820 2,820 Total changes of items during the fiscal year 71 2,863 (114) 2,820 7,181 ...... Other 168 195 1,742 Balance as of March 31, 2015 ¥ 170 ¥ 1,215 ¥ (283) ¥ 1,102 ¥ 71,331 Total ...... 664 304 2,718 Shareholders’ equity Millions of yen Non-operating expenses: Common stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Interest expense ...... 85 119 1,067 Balance as of April 1, 2015 ¥ 33,239 ¥ 21,328 ¥ 33,801 ¥ (18,140) ¥ 70,228 Cumulative effect due to changes in accounting policies – Exchange losses, net ...... – 752 6,714 Balance as of April 1, 2015 33,239 21,328 33,801 (18,140) 70,228 Changes of items during the fiscal year ...... Commission fees 83 59 528 Cash dividends (2,249) (2,249) ...... Net income attributable to owners of the parent 7,745 7,745 Other 226 55 491 Repurchase of treasury stock (5) (5) Total ...... 396 985 8,802 Disposal of treasury stock – Net changes of items other than shareholders’ equity Ordinary income ...... 10,851 11,348 101,323 Total changes of items during the fiscal year – – 5,496 (5) 5,491 Balance as of March 31, 2016 ¥ 33,239 ¥ 21,328 ¥ 39,297 ¥ (18,145) ¥ 75,719 Special losses: Accumulated other comprehensive income ...... Loss on sales and/or disposal of fixed assets 100 92 826 Millions of yen Net unrealized gain Cumulative translation Accumulated adjustments for Total accumulated other Total net assets on securities, net of tax adjustments retirement benefits comprehensive income ...... Impairment loss 49 105 938 Balance as of April 1, 2015 ¥ 170 ¥ 1,215 ¥ (283) ¥ 1,102 ¥ 71,331 Total ...... Cumulative effect due to changes in accounting policies – 150 197 1,764 Balance as of April 1, 2015 170 1,215 (283) 1,102 71,331 Net income before income taxes ...... 10,701 11,150 99,559 Changes of items during the fiscal year Cash dividends (2,249) Income taxes-current ...... 1,146 6,377 56,944 Net income attributable to owners of the parent 7,745 ...... Repurchase of treasury stock (5) Income taxes -deferred 2,937 (2,972) (26,541) Disposal of treasury stock – Total ...... 4,084 3,405 30,403 Net changes of items other than shareholders’ equity (168) (1,494) 9 (1,653) (1,653) Total changes of items during the fiscal year (168) (1,494) 9 (1,653) 3,837 Net income ...... 6,616 7,745 69,156 Balance as of March 31, 2016 ¥ 2 ¥ (278) ¥ (274) ¥ (550) ¥ 75,168 ...... Net income attributable to owners of the parent ¥ 6,616 ¥ 7,745 $ 69,156 Shareholders’ equity Thousands of U.S. dollars Common stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Balance as of April 1, 2015 $ 296,779 $ 190,436 $ 301,796 $ (161,970) $ 627,041 Cumulative effect due to changes in accounting policies – Consolidated statements of comprehensive income CAPCOM CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES. YEARS ENDED MARCH 31 Balance as of April 1, 2015 296,779 190,436 301,796 (161,970) 627,041 Previous fiscal year Current fiscal year Current fiscal year Changes of items during the fiscal year Cash dividends (20,082) (20,082) From April 1, 2014 From April 1, 2015 From April 1, 2015 Net income attributable to owners of the parent 69,156 69,156 to March 31, 2015 to March 31, 2016 to March 31, 2016 Repurchase of treasury stock (45) (45) Millions of yen Millions of yen Thousands of U.S. dollars Disposal of treasury stock – Net changes of items other than shareholders’ equity ...... Net income ¥ 6,616 ¥ 7,745 $ 69,156 Total changes of items during the fiscal year – – 49,074 (45) 49,028 Other comprehensive income Balance as of March 31, 2016 $ 296,779 $ 190,436 $ 350,870 $ (162,016) $ 676,069 Net unrealized gain or loss on securities, net of tax ...... 71 (168) (1,503) Accumulated other comprehensive income Thousands of U.S. dollars Net unrealized gain or Cumulative translation Accumulated adjustments for Total accumulated other Total net assets Cumulative translation adjustments ...... 2,863 (1,494) (13,339) loss on securities, net of tax adjustments retirement benefits comprehensive income Balance as of April 1, 2015 $ 1,524 $ 10,854 $ (2,534) $ 9,843 $ 636,885 Adjustments for retirement benefits ...... (114) 9 80 Cumulative effect due to changes in accounting policies – Balance as of April 1, 2015 1,524 10,854 (2,534) 9,843 636,885 ...... Total other comprehensive income 2,820 (1,653) (14,762) Changes of items during the fiscal year Comprehensive income ...... Cash dividends (20,082) ¥ 9,436 ¥ 6,092 $ 54,393 Net income attributable to owners of the parent 69,156 Comprehensive income attributable to: Repurchase of treasury stock (45) Disposal of treasury stock – Owners of the parent...... ¥ 9,436 ¥ 6,092 $ 54,393 Net changes of items other than shareholders’ equity (1,503) (13,339) 80 (14,762) (14,762) Total changes of items during the fiscal year (1,503) (13,339) 80 (14,762) 34,265 ...... Non-controlling interests – – – Balance as of March 31, 2016 $ 20 $ (2,485) $ (2,453) $ (4,918) $ 671,150 Please refer to Notes to Consolidated Financial Statements of our website at: Please refer to Notes to Consolidated Financial Statements of our website at: http://www.capcom.co.jp/ir/english/data/annual.html http://www.capcom.co.jp/ir/english/data/annual.html

85 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 86 Consolidated Financial Statement / Independent Auditor’s Report Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data

Consolidated statements of cash flows CAPCOM CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES. YEARS ENDED MARCH 31 Previous fiscal year Current fiscal year Current fiscal year From April 1, 2014 From April 1, 2015 From April 1, 2015 to March 31, 2015 to March 31, 2016 to March 31, 2016 Millions of yen Millions of yen Thousands of U.S. dollars Cash flows from operating activities: Net income before income taxes ...... ¥ 10,701 ¥ 11,150 $ 99,559 Depreciation and amortization ...... 3,535 5,712 51,003 Impairment loss ...... 49 105 938 Amortization of goodwill...... 63 – – Decrease in allowance for doubtful accounts ...... (1) (38) (345) (Decrease) increase in accrued bonuses ...... (3) 263 2,348 Decrease in allowance for sales returns ...... (87) – – Increase in liabilities for retirement benefits for employees...... 207 264 2,362 Interest and dividend income ...... (111) (109) (976) Interest expense ...... 85 119 1,066 Exchange (gains) losses, net ...... (188) 60 537 Loss on sales and/or disposal of fixed assets ...... 100 92 826 Decrease (increase) in accounts receivable, trade ...... 10,382 (2,208) (19,714) (Increase) decrease in inventories ...... (764) (1,651) (14,749) (Increase) decrease in work in progress for game software ...... (6,443) (8,778) (78,377) Increase in online contents in progress ...... (3,347) 1,479 13,207 (Decrease) increase in notes and accounts payable, trade ...... (7,856) 935 8,357 (Increase) decrease in other current assets ...... (239) (1,260) (11,253) Decrease in other current liabilities ...... (497) 1,718 15,340 Other ...... (393) (2,545) (22,723) Subtotal ...... 5,187 5,309 47,405 Interest and dividends received ...... 118 130 1,167 Interest paid ...... (85) (120) (1,076) Income taxes paid...... (934) (972) (8,683) Net cash provided by operating activities ...... 4,286 4,347 38,812

Cash flows from investing activities: Proceeds from time deposits ...... – 4,205 37,550 Payment for acquisition of tangible fixed assets ...... (5,465) (5,813) (51,907) Proceeds from sales of tangible fixed assets ...... 206 4 42 Payment for acquisition of intangible assets ...... (195) (290) (2,598) Payment for purchase of investments in securities ...... (12) (13) (116) Payment for other investing activities ...... (141) (113) (1,009) Proceeds from other investing activities...... 111 380 3,397 Net cash used in investing activities ...... (5,496) (1,639) (14,641)

Cash flows from financing activities: Net (decrease) increase in short-term borrowings ...... (1,050) – – Proceeds from long-term borrowings ...... 8,162 2,500 22,321 Repayments of long-term borrowings ...... (3,169) (883) (7,892) Repayments of lease obligations ...... (406) (496) (4,437) Payment for repurchase of treasury stock ...... (5) (5) (45) Proceeds from sales of treasury stock ...... 0 – – Dividends paid by parent company ...... (2,251) (2,228) (19,901) Net cash provided by (used in) financing activities ...... 1,278 (1,115) (9,956)

Effect of exchange rate changes on cash and cash equivalents ...... 1,811 (1,160) (10,362) Net increase (decrease) in cash and cash equivalents ...... 1,879 431 3,852 Cash and cash equivalents at beginning of year ...... 26,118 27,998 249,983 Cash and cash equivalents at end of year ...... ¥ 27,998 ¥ 28,429 $ 253,836 Please refer to Notes to Consolidated Financial Statements of our website at: http://www.capcom.co.jp/ir/english/data/annual.html

87 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 88 Stock Data / Corporate Data Capcom’s Value Message from Growth Strategy Business Activity ESG Information Financial and Creation Activities Management Achievements Corporate Data (As of March 31, 2016)

Stock Data Shareholders’ Breakdown Number of shares held (in thousands) / (%) Corporate Profile Major Offices

Number of Shares Authorized 150,000,000 shares Individuals and Financial Institutions Name of Company CAPCOM CO., LTD. Head Office 3-1-3 Uchihirano-machi, Chuo-ku, Other Investors 10,125 / 14.95% Osaka, 540-0037, Japan Number of Shares Issued 67,723,244 shares 24,209 / 35.75% Date of Establishment May 30, 1979 Securities Companies PHONE: 81-6-6920-3600 Number of Shareholders 11,564 Date of Initiation June 11, 1983 841 / 1.24% R&D Building 3-2-8 Uchihirano-machi, Chuo-ku, By Business Segments Planning, development, Domestic Companies Osaka, 540-0037, Japan Investor manufacture, sale and Major Shareholders (Top 10) Type 5,896 / 8.71% distribution of home video PHONE: 81-6-6920-7600 games, online games, R&D Building 3-1-10 Uchihirano-machi, Chuo-ku, Number of Percentage of Foreign Investors Major Shareholders Shares Held Shareholding mobile games and arcade #2 Osaka, 540-0037, Japan (in thousands) (%) 26,651 / 39.35% games as well as PHONE: 81-6-6920-7750 Crossroad Limited 5,276 9.38 management of Tokyo Branch Shinjuku Mitsui Building 2-1-1 amusement arcades. Japan Trustee Services Bank, Ltd. (Trust Account) 2,553 4.54 5,000–9,999 10,000–49,999 Nishi Shinjuku, Shinjuku-ku, 456 / 0.67% 2,186 / 3.23% Paid-in Capital ¥ 33,239 million Tokyo, 163-0448, Japan Yoshiyuki Tsujimoto 2,325 4.14 PHONE: 81-3-3340-0710 End of Term March 31 Haruhiro Tsujimoto 2,202 3.92 1,000–4,999 50,000–99,999 Ueno Facility 3902 Hatta, Iga, Mie, 518-1155, 1,328 / 1.96% 1,433 / 2.12% Number of Employees 2,839 (Including Ryozo Tsujimoto 2,199 3.91 consolidated subsidiaries) Japan Head Office 500–999 PHONE: 81-595-20-2030 Kenzo Tsujimoto 2,009 3.57 100,000–499,999 2,114 (Capcom CO., LTD.) 544 / 0.80% By 13,063 / 19.29% The Master Trust Bank of Japan, Ltd. (Trust Account) 1,844 3.28 Number of 100–499 Shares Held 500,000–999,999 Capcom’s Subsidiaries (As of June 30, 2016) GOLDMAN,SACHS & CO.REG 1,650 2.94 1,376 / 2.03% 12,467 / 18.41% Pictet and Cie (Europe) S.A. 1,151 2.05 Less than 100 CAPTRON CO., LTD. / K2 CO., LTD. / Enterrise CO., LTD. / Capcom Mobile, Inc. / More than 1,000,000 JPMorgan Chase Bank 385174 1,062 1.89 59 / 0.09% CAPCOM U.S.A., INC. / CAPCOM ASIA CO., LTD. / CE EUROPE LTD. / 34,807 / 51.40% CAPCOM ENTERTAINMENT GERMANY GmbH / BEELINE INTERACTIVE, INC. / Note: Capcom owns 11,495 thousand shares as treasury stocks. The stocks owned by the company are excluded from the above list. BEELINE INTERACTIVE CANADA, INC. / CAPCOM ENTERTAINMENT KOREA CO., LTD. / CAPCOM ENTERTAINMENT FRANCE, SAS / CAPCOM GAME STUDIO VANCOUVER, INC. / BEELINE INTERACTIVE EUROPE LTD. / CAPCOM TAIWAN CO., LTD. R&D Building R&D Building #2 Stock Price Range (Yen) 3,200 2,800 2,400 2,000 1,600 Separate Volume 1,200 The Latest Development Report 2016

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 (CY2014) (CY2015) (CY2016) SECOND TO NONE

Trading Volume (Thousand shares) P1 Message from the Head of Consumer Games Development 24,000 Second to None: Continuously Rising to the Challenge Without Fear of Change, We Aspire to Be the World’s No.1 Game Developer 18,000 Yoichi Egawa Director and Executive Corporate Ofﬁcer 12,000

6,000 Wowing U.S. and European Fans with Developers Discuss Capcom Development P9 0 02 the Most Intense Zombie Action Game Ever! 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 Joe Nickolls Studio Director (CY2014) (CY2015) (CY2016) Capcom Game Studio Vancouver, Inc. RESIDENT EVIL 7 biohazard Delivers a Fresh Taste P3 Virtual Love in the Palm of Your Hand of Fear to the World P11 01 A Game Developed by Women, for Women 11-Year Trend of Stock Price and Trading Volume Jun Takeuchi Managing Corporate Ofﬁcer 03 (Yen) Head of Consumer Games Development Division 1 Miwa Hara Senior Manager Section 3, Department 1, Consumer Games Development Division 1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Technologies Underpinning the Development Stock Price 1,209 1,692 3,400 1,746 1,766 1,590 1,891 1,476 1,958 2,389 2,745 P5 RE ENGINE Tomofumi Ishida Diving into a World of Adventure in P6 3D Scanning Makoto Fukui P13 Online Development High 1,450 2,445 3,490 3,640 2,010 1,907 2,311 1,959 2,330 2,413 3,075 04 P7 Virtual Reality Kazuhiro Takahara Kento Kinoshita Director Low 1,000 1,102 1,660 1,475 1,297 1,145 1,473 1,250 1,396 1,541 1,944 P8 Localization Miguel E. Corti Section 2, Department 4, Consumer Games Development Division 3 Trading 93,995,100 137,965,900 191,795,000 179,636,900 181,065,800 149,613,900 227,386,800 178,008,200 150,408,300 143,234,700 162,642,100 Volume (Years Ended March 31) P15 Utilizing Popular Characters for Regional Growth

89 CAPCOM INTEGRATED REPORT 2016 CAPCOM INTEGRATED REPORT 2016 90 Corporate Proﬁle (As of March 31, 2016) History

Name of Company CAPCOM CO., LTD. Mar. 1991 Released the arcade video game Street Fighter II Date of Establishmen May 30, 1979 and it triggered the Street Fighter II boom. Date of Initiation June 11, 1983 Jun. 1992 Released Street Fighter II for Super NES, and it was a mega-hit. Business Segments Planning, development, manufacture and sale of home video games, online Jul. 1993 Opened CapcoCircus Nigata East, the largest games, mobile games and arcade arcade in Nigata. games as well as management of amusement arcades. Dec. 1994 Premiere of the Hollywood movie Street Fighter. Paid-in Capital ¥33,239 million Mar. 1996 Released Resident Evil for PlayStation, a long selling SECOND TO NONE 2016 End of Term March 31 title which had record breaking sales, and established the genre of survival horror. The Latest Development Report Number of Employees 2,839 (Including consolidated subsidiaries) 2,114 (Capcom CO., LTD.) Aug. 2001 Released Devil May Cry for PlayStation 2, and it was a mega-hit. Head Office 3-1-3 Uchihirano-machi, Chuo-ku, Osaka, 540-0037, Japan Oct. Released Phoenix Wright: Ace Attorney for Game PHONE: 81-6-6920-3600 Boy Advance, and it drew public attention FAX: 81-6-6920-5100 as a courtroom battle title. R&D Building 3-2-8 Uchihirano-machi, Chuo-ku, Mar. 2002 Premiere of the Hollywood movie Resident Evil Osaka, 540-0037, Japan which recorded sales of 102 million dollars worldwide. PHONE: 81-6-6920-7600 Sep. 2004 Premiere of the Hollywood movie Resident Evil: FAX: 81-6-6920-7698 Apocalypse and it grossed 100 million dollars R&D Building #2 3-1-10 Uchihirano-machi, Chuo-ku, worldwide. Osaka, 540-0037, Japan Jul. 2005 Released Sengoku BASARA for PlayStation 2, PHONE: 81-6-6920-7750 which enjoyed popularity especially among young Tokyo Branch Shinjuku Mitsui Building 2-1-1 Nishi gamers for its innovative worldview. Shinjuku, Shinjuku-ku, Tokyo, 163-0448, Japan Aug. 2006 Released Dead Rising for Xbox 360. More than 1 million units were sold, an extraordinary feat for PHONE: 81-3-3340-0710 FAX: 81-3-3340-0711 a new title for a new game console. Ueno Facility 3902 Hatta, Iga, Mie, 518-1155, Japan Dec. Released software Lost Planet for Xbox 360. Over 1 million units were sold following the trails of Dead Rising, PHONE: 81-595-20-2030 another exceptional accomplishment for a new title. Mar. 2007 Monster Hunter Freedom 2 becomes the first Japanese PSP software to exceed 1 million units shipped. Feb. 2009 Takarazuka Revue Company launches theatrical performance of Phoenix Wright: Ace Attorney - The Truth Comes Back to Life. Apr. Began broadcasting the TV animation program Sengoku BASARA. Jul. Initial shipments of Monster Hunter Tri, a third-party title for the Wii, surpass one million units. Oct. Sengoku BASARA character Date Masamune used for PR activities in support of the Miyagi Prefecture gubernatorial elections. Nov. 2010 Distribution of social game Smurfs' Village for Please see the Capcom iPhone began. It became the top download in 100 Integrated Report 2016. countries around the world. Sep. 2013 Released Monster Hunter 4 for Nintendo 3DS. The Monster Hunter Craze sparked again with the sales over 4 million units sales. Nov. Released Dead Rising 3 for Xbox One. Capcom’s 3-1-3 Uchihirano-machi, Chuo-ku, first title for this new game console, marked over Osaka, 540-0037, Japan 1 million units sales. PHONE: 81-6-6920-3600 Mar. 2015 Signed a regional invigoration and inclusion agreement FAX: 81-6-6920-5100 with the city of Kofu for the use of Sengoku BASARA characters in regional invigoration activities and http://www.capcom.co.jp/ the promotion of tourism in Kofu,Yamanashi Prefecture. Dec. Officially launched Monster Hunter Online in China ©CAPCOM CO., LTD. ALL RIGHTS RESERVED. in cooperation with Tencent Holdings Ltd. Message from the Head of Consumer Games Development Second to None: Continuously Rising to the Challenge Without Fear of Change, We Aspire to Be the World’s No.1 Game Developer

In July 2016, Director and Executive Corporate Officer Yoichi Egawa was placed in charge of Consumer Games coordination. For this reason, I think we must of horror and incredible VR technology will showcase Development. Egawa joined Capcom shortly after its founding, working in arcade video game development, Capcom’s core mobilize technologies and expertise in an attempt Capcom’s production capabilities to the world. business at that time. Later, he developed home video games and contributed to the establishment of the Pachinko & to optimize R&D overall. Also, to further expand In terms of eSports, in addition to the global Capcom Pachislo and Mobile Contents businesses. This game development pioneer spearheads Capcom R&D. the organization, we must develop core human Pro Tour sponsored by subsidiary Capcom U.S.A., resources able to drive and lead younger employees. INC., we will collaborate with other companies to Proactively listening to the opinions of young team members. Occasionally, heated debates about Taking an Offensive Position development teams to take on new challenges, As for the latter, brand management, we will plan create eSports event opportunities throughout production take place over meals together. Toward Changing Market Trends including the creation of one of Japan’s largest out sales launch timing and platform compatibility the year with the aim of acquiring new users. motion capture and 3D scanning studios. for each brand individually, such as for Monster Going forward, as we aim to become the world’s The Chairman issued a manifesto, which These investments further advance our Hunter or Resident Evil. Production is the role of number one game developer, we feel that while it is reemphasized that we will not compromise on development technologies and enable us to the development side, but the when and how of of course necessary to advance and expand upon the products we release to market; an insistence adapt to a game market that is transitioning from sales is the role of the business side, thus we will existing content, it is also necessary to take on on quality and the development of the world’s a transactional model to an operation-focused, link these two in an attempt to maximize value. new challenges. We cannot ignore genres such as number one games. He demands we reflect on recurring revenue model of business. Releasing To address these issues, our immediate shooting and strategy games with massive numbers whether we are maintaining a balance between games that continue to hold users’ attention while objective is to create an environment in which of players when considering Consumer, Online meeting our ship-dates and craftsmanship. As I am maintaining a sense of speed will be indispensable the entire Company can engage in the development and eSports market growth potential. We will make in charge of Consumer Games Development, my in game development going forward. To this end, of interesting games. I am able to understand both use of our strengths and keep a close watch on mission is to see these directives carried out anew. we will concentrate development resources internally the spirit of R&D and the mind of business precisely market trends while moving forward with the kind Although I have just been appointed, there is no time and respond to changing market trends. because I ascended to a management position after of game creation only possible at Capcom. to waste. First, I think there is a need to understand experiencing game development. Armed with this The new challenges have only just begun. what issues we’re facing on the frontlines of understanding, I will build a soil bed in which our next Weeding Out Issues to Build Positioned between the development workplace and senior management to better communicate development, so I am deepening communications Fertile Ground for Game Creation buds can sprout and grow. the ideas and contentions of both. with R&D staff across all ages and functions. At present, Capcom is focusing efforts on During discussions between marketing and senior After These Challenges, retaining talented employees and making management (which included development staff More Challenges Await! Yoichi Egawa capital expenditures in an attempt to strengthen as well), two issues came into view: strengthening Director and Executive Corporate Officer development capabilities. In addition to aggressive our development structure and brand management. A new wave is fast approaching the global game After joining Capcom, Egawa worked in the development of hiring activities focused on new graduates, we First, regarding the former, at present domestic market. This year, all eyes are focused on virtual arcade games for amusement facilities as a programmer constructed a second R&D building. Furthermore, development is conducted under three divisions. reality (VR). Hardware manufacturers are releasing involved in the development of CP system boards. Later, after developing home video games, he established the Pachinko & we have established an environment enabling Division 1 creates global contents including a variety of gear, which have been a hot topic of Pachislo (P&S) business in 1996 and the Mobile Contents Resident Evil. Division 2 works with online games conversation. Additionally, eSports (electronic sports), business in 1999. After serving as General Manager of Creative such as Street Fighter. Division 3 develops contents which bring the thrill of baseball or soccer matches Division 5 in 1999, Egawa was appointed Corporate Officer, for Japan, including Monster Hunter and Sengoku to competitive video games, are increasing in Head of Contents Expansion Business Division. He was BASARA. Although the divisions interact, because popularity around the world. To catch this wave, appointed Managing Corporate Officer in 2011 and Executive DEVELOPMENT Corporate Officer in 2013, his current position. each is so focused on getting the best results within Capcom will release RESIDENT EVIL 7 biohazard in At present, he is in charge of Consumer Games Development their area, it is difficult to say there is overall January 2017 (see page 3). This title’s shocking world and Amusement Equipments Business. Visiting the workplace to understand actual development conditions. Seeing things from a different STRATEGY perspective than immediate supervisors raises awareness of potential issues. 1 2 Developers RESIDENT EVIL 7 biohazard Delivers Discuss Capcom Development 01 a Fresh Taste of Fear to the World Bringing New Technologies subjects in 360 degrees with one shot. Beyond that, we world has been embraced in every country, adapted into to Match the High-Spec, steadily increased the precision of our VR technologies Hollywood movies and amusement park attractions, and Next-Generation Game Consoles (see page 7), which was a new challenge for us altogether. has become a franchise that even people who do not play At first, the development team members were understandably games are familiar with. I have strong feelings for Development was plagued by a series of difficulties. anxious, as we were simultaneously taking on some this series, having been personally involved since the first This was because, in addition to the high-resolution, non-conventional processes. However, as the completed game. However, I am exceptionally enthusiastic about this high-performance PlayStation 4 and Xbox One, we also product began to take shape, the team became energized. new title. This is because this year, which some are calling decided to make the game compatible with the new Of course, Resident Evil is a wildly popular series in “VR year one,” we will attempt to take the lead in this new PlayStation VR. With VR, we couldn’t bring the game the United States and Europe. We localized, or “cultural-ized” market with RESIDENT EVIL 7. If we fail to deliver in terms to market unless it had photorealistic graphics on par (see page 8), the game’s content for suitability with other of the game world or technology, we will be unable to create with live-action films. To create that level of quality, cultures in order to achieve player immersion the kind of innovative game players demand. In order to conventional production methods would take too long across the globe. succeed with both of these and take on the challenges and cost too much. in this new market, a balance between the wild instinct of Thus, we had to rethink the way we make games. The Ongoing Pursuit of the Global inspiration and rationality of data analysis is indispensable. In order to carry out asset-based (graphic and 3D model Pinnacle in Horror Entertainment Being satisfied with the status quo means game over. elements) development, which is globally the mainstream, Despite this difficult struggle, I am enjoying the challenge. we began developing our new RE ENGINE (see page 5). This year marks the 20th anniversary of Resident Evil, Increasing the focus on fear, we will take you deeper To produce these assets, we adopted 3D scanning (see Capcom’s flagship title and a series that has sold into the world’s ultimate survival horror game. I want Jun Takeuchi page 6), facilitating instant data creation by recording a cumulative total of 69 million units. The Resident Evil everyone to experience the upcoming RESIDENT EVIL 7. Managing Corporate Officer Head of Consumer Games Development Division 1 Ensuring unity in direction by maintaining close communications Using the RE ENGINE to carefully check the placement RESIDENT EVIL 7 incorporates psychological horror elements As a Managing Corporate Officer, focuses efforts on with development team members. A variety of technologies and details of meticulously designed dilapidated mansion walls, into the story to provide an unprecedented sense of fear were adopted for the development of this installment. furniture and other props. in a startling virtual reality world. global strategy and development management. Worked on Lost Planet 2 and Resident Evil 5. Currently heading up development of the new RESIDENT EVIL 7 biohazard.

An Overwhelmingly Terrifying Experience to myself “right on!” was that why it felt scarier? Or did we leave something in this Horriﬁc Return to Form The Resident Evil series involves fending off a terrifying behind in the process of moving the game forward? Now, onslaught of zombies while attempting to escape from with the arrival of promising new trends in VR, we are once In the dimly lit interior of a dilapidated mansion strewn desperate situations and make it out alive by any means again engaged in developing a kind of terror only Capcom— with broken furniture and tinged with humidity and heat... possible. We’ve been evolving the series, which has let users who built the survival horror market—can provide. Crafting The trailer for RESIDENT EVIL 7 biohazard (hereinafter, enjoy this terrifying world, ever since the first game was a story that delivers a palpable experience of fear through RESIDENT EVIL 7) was shown at this year’s E3, released in 1996. However, we’ve heard some fans say virtual reality, we also revamped our conventional with the January 2017 release date greeted by loud “the old Resident Evil was scarier.” Of course, the stronger third-person perspective (TPS) game system with a highly cheers from the audience. Seeing that reaction, I thought the initial shock, the longer people will remember it. But immersive isolated view (first person perspective).

3 4 Technologies Underpinning the Development of RESIDENT EVIL 7 biohazard

Rendering an image using the RE Engine A character generated using the 3D scanning system

An Engine Enabling the Artist graphics required for VR compatibility at a rate of Painstakingly Crafted Reality efficiency or photorealism. On top of 3D Scanning RE ENGINE 60 frames per second. We faced numerous overwhelming realism, we’ve added characters to Fulﬁll Their Every Wish with Resident Evil-Appeal Capcom’s newest game engine, difficulties in trying to make these features and other touches typical of Resident Evil, In RESIDENT EVIL 7 developed for this title. It enables Up to now, Capcom had built MT Framework, a reality, however the team pulled together as The theme of RESIDENT EVIL 7 is “fear that sticks resulting in a game that appeals like only biohazard, Capcom utilizes photorealistic graphics that rival an innovative proprietary development engine one to make it happen. with you.” Terror waits in the humid and stifling Capcom games can. To achieve this, 3D scanning, employing its live-action film, with details used to make high-quality games. However, Creating an interesting game should not be air—I want to create a realistic sense of that in the work flow was revised to complete world-class, large-scale ranging from the textures of conventional engine specs were insufficient for hindered by development engine constraints. 3DCG, so it clings to your body and memory. casting, special-effects makeup and costume camera system to create various objects to motes of dust bringing the realistic world pursued by creators If an artist expresses a desire to do something, To pursue realism, we created one of coordination in the steps prior to character more realistic characters. floating in the air. in RESIDENT EVIL 7 biohazard (hereinafter, the engine must evolve to make it happen. the world’s largest scale 3D scanning systems, design. In doing so, we further enhanced RESIDENT EVIL 7) to life. Thus, this time we ended For this reason, all of us on the engine an important tool contributing to the meticulously accuracy and were able to better reflect up simultaneously working on the development development team work in constant close contact crafted reality of our games. Leveraging the merits the feeling of the Resident Evil world in of both the game and the new RE ENGINE. with the game development team to promote of possessing such a system in-house, we paid the 3D data, creating reality so convincing The main feature of the RE ENGINE is its improvements. This kind of flexibility can only particular attention on this title to technologies it is as if the characters actually exist. Makoto Fukui Tomofumi Ishida ability to dramatically reduce the time required be achieved through in-house production and is that faithfully reproduce human expressions. I want everyone to play this new title to Technical Artist Lead Programmer for various game development processes. connected to enhancing Capcom quality. This degree of reproduction is unlike anything experience realism in a game like never before. Section 1 Technology Section For example, the time required to test program I hope everyone will stop to admire that has come before, achieving realism that is Joined Capcom in 1995. Worked as Joined Capcom in 2003. changes has been reduced 90%, and materials the overwhelming high-quality of RESIDENT truly human. Using this system, we are able to the character lead on the Resident Evil Involved with developing the MT made separately by creators can be combined EVIL 7, the first title created using the RE ENGINE. generate data on expressions from a variety of series from 2005. Currently a technical Framework engine. After that, artist on this title working to improve responsible for successive in real time, which enables them to be used angles with just one shot, dramatically increasing the development environment, engine development to instantly create other materials. development speed. including asset pipeline development as a technology leader. This engine also supports the high-resolution However, we are not merely pursuing and creation of flows and tools.

5 6 Korean Russian Technologies Underpinning the Development of RESIDENT EVIL 7 biohazard

Chinese French

German Arabic

A sample of the various target languages.

Virtual Reality I Want to Show Capcom One of the appeals of VR is the ability to Localization Means reality for all users, especially those in the U.S. Localization Means Business With VR break through the “controller wall.” Until now, Translating Culture and Europe. The story takes place in America, Virtual reality (VR) is a technology players had to use controllers to change and players are sure to notice if any aspect of When people hear the word “localization,” that gives users the experience of Capcom’s first VR demo, KITCHEN, was shown the point of view during a game. In other words, The Resident Evil series has a multitude of fans the game is incongruent with the culture many imagine it simply involves language actually being inside a virtual world. at E3 in 2015. Seeing the terrified reactions players were only able to experience the game throughout the world. As one of our major titles and climate of the United States. If too many translation. However, localization at RESIDENT EVIL 7 biohazard is fully of show-goers who experienced the demo through the screen and controller. However, this fiscal year, RESIDENT EVIL 7 will be localized elements are out of place, the dark world Capcom means game content is tailored compatible with PlayStation VR displayed the affinity between horror and VR with VR the point of view changes by actually into 13 languages and sold in all major regions, and atmosphere of the Resident Evil series to the cultural expectations of each and is Capcom’s first VR title. and made me confident that utilizing VR in turning one’s head, allowing players to also peer including North America, Europe, Asia and Japan. may be lost. Thus, the localization check is country where the game is sold. the Resident Evil series would lead to success. in and around. What if there are some hidden This installment is sure to go down in series’ not limited to the game’s script and plot, but The global release of VR headsets in 2016 items down there? This fuses realistic history, and localization began early in extends to voice actor performances and motion has led to this year being called “VR year one,” experiences with fun. VR even enables us to the planning and development stages. We had capture movements as well. At the same time, and this is truly a time when the game market is incorporate ideas that until now were not possible. an American writer create the script based on we are careful to avoid changing the unique ideas Miguel E. Corti evolving. Thus, establishing RESIDENT EVIL 7— When this game is complete, I want everyone concepts established by the Japanese design Capcom is known for. Working closely with Group Leader Kazuhiro Takahara VR content only Capcom can create—at to put on a VR headset and try it out. I’m sure team, while creators and staff in Japan and designers in Japan, we successfully achieved Localization Group Programmer the center of this market has become one of our then you’ll understand that we mean business. overseas worked to move development forward. a high degree of realism and maintained Global R&D Section Technology Section objectives. To this end, it is critical to provide We on the localization team are responsible for the unique flavor of Capcom. Joined Capcom in 2007. Involved in Joined Capcom in 2007. Involved content with a sense of realism never seen before bridging these efforts. This back and forth is All these efforts are aimed at providing players the translation of numerous titles including in the development of Lost Planet 2. intermingled with the enjoyable game play not limited to language. We also translate around the world with a realistic horror game. Resident Evil 5. Since Lost Planet 2, engaged in enhancing localization quality After that, responsible for basic expected from Capcom—which provides us non-text elements like cultural aspects and I want everyone to experience the new world of game engine development not only in terms of translation, but also and in charge of VR technical creators with new challenges daily as we design intentions. Resident Evil. through assistance and observation during development on this latest title. proceed with development. On this title, we paid particular attention to motion capture filming and involvement in game script production.

7 8 Developers Wowing U.S. and European Fans with Discuss Capcom Development 02 the Most Intense Zombie Action Game Ever! Frank is Back in Dead Rising 4 this new game will be set in the town of Willamette, Frank combo himself in an Exo Suit?” and “how about Colorado, where the townspeople are being attacked and if we include fights between survivors that haven’t turned The Dead Rising series features action adventure games turned into zombies. As chaos ensues, it’s up to Frank into zombies yet?” and even “let’s make it so that four in which players repel zombie hordes using a variety of West to shoot, smash and splatter his way to the truth. users can enjoy online multiplayer action together.” weapons while attempting to uncover the truth behind A fan-favorite, Frank is the main character from the original Once we decided on the direction of the planning, a mysterious outbreak. Compared to other Capcom game. Dead Rising 4 is packed with new elements beyond we next started developing the programs for zombie games like Resident Evil, a survival horror game imagination, which ramps the fun up to new dizzying heights. the animation and game. We maintained the high-quality focused on fear, Dead Rising is an exhilarating, open-world graphics players demand while enabling the main character sandbox action game where players mow down zombies Using Cutting-Edge Technologies to be moved freely. Though you cannot see it onscreen, by the truck-load. In addition to the fighting and weapons to Bring a Flood of Ideas to Life we used a number of advanced AI and other programs to typical of the zombie genre, the incorporation of humor make the game interesting, all of which are working and a high degree of freedom that enables players to follow Our aim with Dead Rising 4 is to provide fans with action behind the scenes. the story or just explore and have fun has made this and survival that exceeds their expectations while The uncompromising efforts of the creators have a popular title in the U.S. and Europe. adding humor to the fun. The development team came up resulted in a distinctive new title that will amaze users The latest entry in the series, Dead Rising 4, is with one idea after another, like “let’s have faster, scarier with the sheer number of zombies appearing onscreen Joe Nickolls scheduled to be released in December 2016 for zombies that run, jump and climb to get at you,” or at once, as well as the ability to freely combine weapons Studio Director the Xbox One and Windows 10. As in the original title, “why don’t we create the ultimate combination and let and vehicles enabling an unlimited number of ways in Capcom Game Studio Vancouver, Inc. Has engaged in development of soccer and other sports games for major game companies. Currently CV is equipped with a soundstage and animation motion capture system, The development team constantly demos the game. This provides What is behind the government conspiracy to unleash hordes of zombies? Studio Director of Capcom Game Studio Vancouver providing an environment that supports creative game production. an important opportunity to check each other’s progress and exchange Frank will have to get to the truth first…or die trying. and in charge of Dead Rising 4. ideas on improvements for the game.

which to take down the undead. I think the fans are really a country and culture you are better able to naturally The kind of game creation we aim for at CV is focused going to be pleased! understand and express what that culture feels is on taking on challenges rather than fearing risks. Titles interesting or fun. However, development collaboration that simply make the grade are meaningless. To enable Capcom Game Studio Vancouver’s between Japan and Canada is indispensable for making staff to make the most of their abilities, we create spaces Strengths and the Keys to Successful the title even better. At the development stage, the game where opinions can be exchanged freely, hold classes on Global Collaboration visuals and programs are continuously shared globally in specific subjects and provide other opportunities for an attempt to refine them. We strengthen our support for learning. In this way, we strive to make CV the most Whether a game is considered fun or not is closely related promotional strategies aimed at target segments creative game studio in North America. to the culture and customs of a country or region, so I think through teleconferences and business trips between it was worthwhile to develop Dead Rising, which targets Japan and Canada. No matter which country we are in, users in the U.S. and Europe, at Capcom Game Studio we are able to use the common language of gaming to Vancouver (CV). This is because, by putting yourself within move forward in the same direction.

9 10 The clear difference from standard romance games is focused on getting development started, but as we consulted any differences between men and women. If one has skills in rather than playing up the part of the young man’s preferred with our superiors the weaknesses in our business plan planning and technology, opportunities will present themselves “type” of woman, you are simply yourself. Accumulated became clear. We revised our plan, analyzed which users to regardless of gender. If anything, getting people working player data is used to conduct a unique analysis based on target, broke down the market and competitive trends visually together in development may be easier when women are Jung’s eight types which shapes the young man so he will using numbers and graphs, and then resubmitted our around, as we tend to have a strong sense of group orientation. warm up to any and all players. This is how we make proposal. It took a few years, but in doing so we had Be that as it may, women can never fully separate life women’s dreams a reality. the opportunity to create a new genre. events from work. Personally, when I returned to work after As the project got going, the team grew more enthusiastic giving birth to my first son, I felt torn between childrearing Never Giving Up Led to Better, and things began moving forward. The numerous revisions and my job. At that time, there were still very few women More Interesting Ideas made at the proposal stage had heightened the quality of who had returned to work after giving birth. My husband the game’s planning and scenario. Furthermore, embodying (who also works in game development) encouraged me, If there are no games women can enjoy, we should just the spirit of true artisans, our creative members of the team telling me “in the future, there will be more developer-moms. make one! This project started with that simple thought, were meticulous down to the finest detail—resulting in quality You have to blaze a trail for them.” This gave me the push but the road to product launch was by no means an easy that, without exaggeration, I can say is on par with a console forward to take on both roles. At present, there are many one. While a typical smartphone game usually takes 2-3 title. I was reminded once again of the true strength of Capcom, women who returned to work after childbirth and are playing months to develop, this title took about three and a half a company with years and years of experience making games. active roles now, taking advantage of support systems that years from initial proposal to release. Our proposal won out provide leave for childcare and shortened working hours. Miwa Hara in an internal call for projects, but even so there is a lack of An Environment Where You can Speak As our user base becomes more diverse, it naturally Senior Manager successful women’s romance games, thus there was a bit follows that us developers also becoming diverse is a good Section 3, Department 1 Your Mind, Regardless of Gender Consumer Games Development Division 1 of a wait until development was green lighted. thing. The important thing is the will to create interesting Thinking about it now, the initial proposal did not go The game industry is generally described as a difficult place games. If you have that, you can play an active role in a wider Responsible for the Onimusha series as a designer. After giving birth and taking childcare leave in 2004, beyond simply emphasizing the game’s appeal. We were just for women, but in my everyday work at Capcom I barely sense range of fields. was the background section leader on E.X. Troopers and Lost Planet. Has worked as a project manager since 2015. The word “paruma” in the title comes from the Latin “palma,” or palm. This word In the “fantasy dream app,” incredible events offer players a break from the main Communication is deepened Players tap their foreheads on was chosen because players often touch the young man’s hand in the game. story. Here, the team is brainstorming about what kind of fantasies would be through conversations over text the smartphone during visitations to interesting. messaging apps. recreate touching through the glass. Developers Virtual Love in the Palm of Your Hand Discuss Capcom Development 03 A Game Developed by Women, for Women Making a Romance Game for love interest through the smartphone screen. This is scenario, we successfully created a sense of Women Like Never Before a kind of game never seen before that women of all ages togetherness by incorporating text messages and other can enjoy. smartphone features into the game. Also, visits with Toraware no Paruma, a romance game for women The player is brought to a lonely island in a distant the young man incorporate 3D modeling, and during released in August 2016, is a distinctively unique title for sea, where she meets a young man with amnesia these, the smartphone LCD screen acts as the visitation Capcom, mainly known for action games. being held captive in a room there. The player interacts room glass barrier. Here, players can enjoy some The concept is “experiencing love behind glass.” with him by providing advice, and before she knows it, unconventional touch controls, such as using their The player reaches out by communicating with their becomes smitten with him. Despite this unusual foreheads to tap the screen!

11 12 Developers Diving into a World of Adventure Discuss Capcom Development 04 in Online Development one on our quest in development to deliver this title Now, we are ready for Season Two. This adventure is managing the game’s server, updates and revamps are to the world. revolves around the Spirit Dragon, with a story that much easier than with Consumer games. Utilizing both unfolds in an expansive open world. In addition to new the content we provide and feedback from users, Our Goal was Richer Content to Create dungeons and action, we introduced a new system we check solutions and perform adjustments on a daily Long-Lasting Appeal enabling players to customize their own private rooms. basis. In this way, we make use of accumulated We also improved settings that had caused some users management know-how to hold events and implement With Dragon’s Dogma Online, we aimed to create a world stress, and even added other elements such as narration at updates aimed at further enhancing user satisfaction. of adventure with long-lasting fun. We created a new story story ends to provide a sense of anticipation for subsequent We released version 2.0 in June 2016 (the first stage of centered on five dragons, with Season One revolving around developments. Season Two), but are moving ahead without a break to the Golden Dragon. The game is offered as a freemium title simultaneously create the Season Three framework. (basic play is free) for PC, PS4 and PS3 in order to widen Looking Ahead to Season Three, The world of online games spreads ever outward. the point of entry and encourage casual participation from a New Start Once we have established a solid foundation in Japan new users. I’d like to consider bringing this game overseas, where The real challenge for online games comes after In terms of the appeal of online games from the game there are a great many online game players. release. Running the title in such a way that users want to provider’s perspective, the biggest merit is the ability continue playing is a must. We stumbled a bit immediately to immediately understand if and how users are enjoying after release, but once we analyzed the data on how users the game. If the game is interesting, players will visit every were playing the game, we began to amass management day. If it is too difficult, many will stop playing. All this can Kento Kinoshita know-how. be understood just by looking at the data. As Capcom Director Section 2, Department 4 Consumer Games Development Division 3 Analyzing an enormous user log to repeatedly consider The appeal of this title is the fun of adventuring in a world of fantasy. A new area in version 2.0 of Dragon’s Dogma Online where a battle events and updates. Creating the scenes and characters is a critical element. unfolds against a grotesque foe called “Shinshokuma.” Worked on the Monster Hunter and Dragon’s Dogma series as a planner. Made his directorial debut on the console title Dragon’s Dogma: Dark Arisen.

Bringing the World of Dragon’s Dogma Dogma Online was launched in August 2015. It has gotten development of a sequel would only have been for another to Online Multi-Player off to an excellent start, with one million downloads console game, but the reason we developed an online in the first month. version was because of extremely strong user demand Creating a new game involves working with colleagues This title is based on Dragon’s Dogma, which was to bring this world to online multi-player gaming. to forge a path where no path exists. Unimaginable released in 2012 for home video game consoles. However, we quickly hit a major wall. Dragon’s Dogma difficulties await us along the way. Fortunately, my In the original, players became the Arisen and set out Online development staff, including myself, had almost colleagues at Capcom are dependable and bustling with alongside their pawns in an expansive open-world fantasy no experience with online development. We gathered ideas and technological expertise. And thanks to adventure. The game both proved popular and heightened in-house programmers and built a server from the ground the collective strengths of these co-workers, Dragon’s anticipation for the next title in this series. Usually, up. As in the game world, we cleared missions one by

13 14 Example 3 Saitama Prefecture, July–August 2015 Support for Utilizing Popular Characters for Regional Growth Special Museum Exhibit at the Saitama Economic Development Prefectural Museum of History The ability to stimulate regional economies and cultures is the unifying force behind regional municipalities. For example, leveraging the extraordinarily high visibility of and Folklore games with historical themes. Among these, Sengoku BASARA was responsible for Sengoku BASARA, Capcom supports regional growth from four angles: economic Capcom uses Sengoku BASARA characters, which are extremely igniting a renewed interest in history, and continues to be popular among young people, development, cultural promotion, public safety and participation in elections. popular with young men and women, to increase tourist numbers Inspired by interest in the game characters, a special and sales of tie-in merchandise at events. By appealing to the youth exhibit titled Sengoku Guide—Cool Basara Style was held from teenagers to people in their 30s. In this way, game content popular among Efforts including gubernatorial election posters targeting young people, and family demographics in particular, we have realized significant at the Saitama Prefectural Museum of History and Folklore the young people expected to lead this regional growth can become a trigger for vehicle-related theft prevention posters and collaborations with museums to economic results. to teach young people about the history of Saitama from local revitalization. increase attendance are already demonstrating results. The following section July 18 to August 30, 2015. The display, which featured Utilizing these strengths, in recent years Capcom has focused CSR activities on introduces examples of Capcom initiatives aimed at regional growth. arms, armor, helmets and ink paintings, attracted nearly 14,000 people, more than twice as many as any other exhibition project in the past.

The Appeal of Sengoku BASARA Initiatives Across Japan Example 1 Wakayama Prefecture, August 2016

While this action game for home video Economic Cultural Sengoku BASARA Character Used in game consoles is based around Development Promotion Miyagi Prefecture: Mascot for gubernatorial election Wakayama Prefecture Tourism Example 4 Tsuchiura, Ibaraki Prefecture, March 2013 Participation the warlords and historical facts of Public Safety Ibaraki Prefecture: Co-sponsorship of Promotion Campaign the Warring States (Sengoku) Period, in Elections special museum exhibit The Taiga Drama Sanada Maru/Sanada Yukimura & Sengoku its fresh, unique take on this theme Collaboration with Tsuchiura City Saitama Prefecture: Co-sponsorship of Wakayama Promotional Campaign Association used a character Museum Draws 28,000 People proved popular and ignited interest in special museum exhibit from Sengoku BASARA Sanada Yukimura-den, the latest title history nationwide; in total, the series in the series, as a campaign character. Capcom co-sponsored The BASARA’s Armory: The Armor Kofu, Yamanashi Prefecture: Conclusion of and Blades of Busho Who Tore Across Sengoku special has sold 3.8 million units. comprehensive partnership agreement A stamp rally was conducted around historic Sanada-related areas and the game character exhibition held at the Tsuchiura City Museum in Ibaraki Ueda, Nagano Prefecture: Support for tourism event appeared on a pamphlet providing Wakayama Prefecture. The exhibit featured Sengoku BASARA character illustrations and panels that drew a wide range Kyoto: Mascot for vehicle-related Prefecture sightseeing and gourmet dining theft prevention awareness information, bringing a sense of excitement of age groups to the museum. During the seven-week to Wakayama Prefecture tourism measures. special exhibit, 28,000 people, equivalent to an entire Hyogo Prefecture: Mascot for vehicle-related year’s worth of visitors, attended the exhibit, the first theft prevention awareness achievement of this magnitude for the museum.

Example 2 Kofu, Yamanashi Prefecture, March 2015

Conclusion of a Comprehensive Partnership Agreement with a Regional Municipality, a Game Industry First Using costumed Sengoku BASARA characters Support for including Takeda Shingen, these activities began with a stamp rally and the distribution of premium Cultural Promotion Okazaki, Aichi Prefecture: Support merchandise gift vouchers in support of tourism for tourism promotion promotion activities leading to local revitalization. Capcom co-sponsors events at museums to increase the number of visitors and support historical and cultural enlightenment. These Osaka: Mascot for vehicle-related theft Looking ahead to 2019, when Kofu celebrates 500 prevention awareness years since its establishment, we plan to utilize local activities aim to provide young people with opportunities to learn hero Takeda Shingen to expand these measures about local history and culture through their interest in Wakayama Prefecture: Support for campaign and generate buzz that attracts people from all Sengoku BASARA characters. to attract visitors over Japan. Okayama Prefecture: Co-sponsorship of special museum exhibit See “Message from the Mayor of Kofu” on page 18 Kochi Prefecture: Mascot for gubernatorial election 15 16 Example 7 Kochi Prefecture, November 2015 Support for Promoting Gubernatorial Elections with Public Safety a Mascot Based on Local Hero Capcom supports the maintenance and improvement of local public safety Chosokabe Motochika in conjunction with police departments by holding events and creating A character based on local hero Chosokabe Motochika was posters to raise awareness featuring warlords from Sengoku BASARA used in an attempt to increase voter turnout and stimulate who are associated with each prefecture. These efforts have yielded interest among young people, who have little interest in quantitative results with respect to the reduction of crime. elections, in the Kochi Prefecture gubernatorial elections held in November 2015. A variety of media, including posters displayed throughout the prefecture, television commercials, radio and newspaper advertisements and streetcars wrapped in promotional materials were used to announce the elections, which resulted in significant buzz being Example 5 Osaka, Kyoto, Hyogo, February 2014 generated on social media, mainly Twitter and Facebook. Message Using Three Capcom Characters to from the Mayor of Kofu Prevent Vehicle-Related Theft and Example 8 Miyagi Prefecture, October 2009 Other Crime in the Keihanshin Area The Sengoku BASARA characters Sanada Yukimura, Promoting Gubernatorial Elections with from England who learned of the event online and Keiji Maeda and Kuroda Kanbei, associated with Osaka, Overwhelmingly Popular Mascot I Feel a Deﬁnite Response, with an Inﬂux of other new visitors in addition to traditional tourists. Kyoto and Hyogo Prefectures, were used as mascots in a joint-campaign aimed at preventing vehicle-related theft Date Masamune The special website received over 70,000 page views and other crime in these areas. In addition to displaying Aiming to raise the voter participation rate among young New Visitors in Addition to in March alone. All of these results were better than awareness posters, 25,000 leaflets were distributed by people and spread awareness of Miyagi Prefecture Yuichi Higuchi anticipated, which made me once again realize police departments and auto parts retailers as part of gubernatorial elections, Date Masamune, a well-known Traditional Tourists Mayor of Kofu, Yamanashi Prefecture the power of popular games. a broad promotion aimed at reducing crime in these feudal lord from the Sengoku Period and overwhelmingly From the natural wonders of Shosenkyo Gorge, to three Kinki region prefectures. popular Sengoku BASARA game character, was chosen as Kofu was established as a castle town in 1519 under as well as to provide people who will raise the next wine, jewelry and other specialty products representing the election awareness mascot. In addition to election posters the rule of Takeda Nobutora, the father of Takeda generation of children with a sense of what Kofu has Japan and historical resources dating from Master displayed throughout the prefecture, multimedia including television commercials and public transit ads were vigorously Shingen. After the Warring States Period, during which to offer. Thus, we must engage in measures aimed Shingen to the present, everyone who visits Kofu employed in a broad appeal that resulted in raising the voter the Takeda clan was very active, Ko-Edo culture at encouraging people to relocate here. will feel its rich charm. Example 6 Osaka, April 2013 participation rate 6.2 percentage points. flourished during the Edo Period and with As part of these activities, we have concluded In particular, Takeda Shingen is an important the promotion of new industries in the Meiji Period, a comprehensive partnership agreement for local tourism resource and the pride of Kofu. Even today First Use of Date Masamune in an Osaka Kofu culture blossomed. In 2019, we celebrate 500 revitalization with Capcom. he is loved by local residents as the region’s hero. Police Department Vehicle-Related Theft years since the establishment of Kofu, then two years Since last year, we have been engaged in three At last year’s event, his armor-clad figure issued Prevention Awareness Poster Support for after that, the 500th anniversary of the birth of major projects: the KOFU SAMURAI Wi-Fi & Sengoku orders and Kofu was introduced through a dialogue Date Masamune, a character appearing in Sengoku BASARA, Takeda Shingen, then in 2027, the Linear Chuo BASARA Stamp Rally (approximately 6,500 participants), with Master Shingen on our official website, among was the first mascot utilized for the Osaka Police Department Participation in Elections Shinkansen will commence operations. the KOFU & Sengoku BASARA Warring States Treasure other PR efforts I myself lead personally. Going vehicle-related theft prevention campaign. Vehicle-related I am aware that my mission is to prepare Hunt Game (approximately 2,000 participants) and forward, in addition to the partnership agreement crimes are common in Osaka, which in 2012 had the highest Capcom supports awareness of elections and increased rates a foundation for the creation of Kofu’s bright future the tourism PR website “Master Shingen Returns!” centered on the promotion of tourism currently under of youth participation in voting through the creation of awareness incidence of vehicle-related thefts in Japan and has since through further developments going forward. I believe The events attracted a large number of people, development, we will attempt to cooperate with remained at a high level. Amid these conditions, Capcom posters and events held in conjunction with election committees it is important to enhance the visibility of Kofu and from young women with a strong interest in history the activities of other cities, which I believe will contributed to police department public relations awareness making use of local hero characters that appear activities through the use of characters popular with young in Sengoku BASARA. ensure that people understand the city’s appeal, and families with small children, to foreign tourists lead to revitalization of the region. people that were displayed on posters and distributed on leaflets.

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