Konami H1 2018 Financial Results – Gaming for Growth

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From a 'gamers' perspective, Konami (TYO:9766) are a rotten apple. A host of controversies and bad practices effectively left the company dead in the collective consciousness of the core gaming audience. Titles like Silent Hill were cancelled. Core franchises like Silent Hill, Castlevania and Metal Gear Solid were turned into Pachinko machines. In all, it was a bad few years as the company seemingly retreated from the core market.

Even financially the company saw a retreat in revenue. In the year ending March 31, 2016 Konami generated ¥250 billion. The following year saw a year on year drop of ¥20bn, to ¥230bn. The bulk of this came from digital entertainment (video games) which fell from ¥115 to ¥105bn. Fortunately, this appears to be turning around according to the earnings release revealed yesterday.

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The first half of 2018 has seen a YoY growth of 13.8%, rising from ¥101.4bn to ¥115.4bn. This has been fuelled by Digital Entertainment (Video Games) growth of ¥12.9bn and Amusement (pachinko/pachislot) growth of ¥4.6bn. Slight losses have been made in Health & Fitness (Fitness clubs) of ¥2bn and Gaming & Systems (slot machines) of ¥1.1bn.

What is more impressive is the fact that profits have grown on a considerably larger scale. Where revenue has grown 13.8%, profits have actually grown 46.4%. The company has attributed these strong results to a number of factors.

In Digital Entertainment, continued strong performance from titles like "JIKKYOU PAWAFURU PUROYAKYU” and “Professional Baseball Spirits A” in their home nation of Japan. In addition to this are global sales of the Yu-Gi-Oh trading card game which has linked into new rules featured within the related TV series. In the home console market Konami also launched Pro Evolution Soccer 2018

From Amusements, the company has seen the strong launch of the Castlevania Lords of Shadow pachislot machine. Furthermore, a horse-racing pachislot machine called GI Derby Club is "showing sustained top-class performance among the new regulation No. 5.5 machines, winning high acclaim with strong repeat orders".

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What can certainly be touted with Konami is their diversity. Health & Fitness, although having fallen in the previous half year, remains their second largest sector. Konami have indicated that they believe Health and Fitness to be a core sector. Primarily as a result of "a growing health consciousness throughout society" and Konami will look to capitalise on this through tiered pricing plans that cater to an individual’s needs as well as the development of new products to increase the market share they have in equipment.

Furthermore, the company looks to continue a renewed push in Digital Entertainment. This will be through the release of Metal Gear Survive, a spin-off from the highly popular Metal Gear Solid franchise. The company also intends to develop a PC version of Yu-Gi-Oh Duel Links, the incredibly popular mobile title which has been downloaded over 55 million times.

In addition to this, Konami will use their partnerships with official bodies to host eSports tournaments that are officially recognised by bodies like Union of European Football Associations (UEFA) and Nippon Professional Baseball (NPB). This could provide an even further boon for the Digital Entertainment sector, further increasing revenue as more people pick up their titles.

Forward looking guidance from Konami indicates revenue of ¥245bn with profits of ¥40bn. This will bring the company closer to 2016's revenues of ¥249.9bn. Should the company reach forecasted profits of ¥40bn, it will be the fourth consecutive year of profit growth.

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