CAPCOM CO., LTD. INTEGRATED REPORT INTEGRATED CAPCOM CO., LTD. 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/ ©CAPCOM CO., LTD. ALL RIGHTS RESERVED. 2016 Capcom Investor Relations Website http://www.capcom.co.jp/ir/english/ We have been focusing on IR activities by providing our shareholders and investors with timely and updated information through our website. CAPCOM INTEGRATED REPORT 2016 Smartphone Access If you have a smartphone that reads QR codes (two-dimensional bar codes), scan the image on the right for easy access to the site. Advanced Technology to Lead the Industry 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 © 1998-2016 TENCENT INC. ALL RIGHTS RESERVED. 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