Good day, and welcome to the CD Projekt Group Financial Results for FY 2020 Conference Call. Today's conference is being recorded. At this time, I will turn the conference over to Mr. Adam Kuchinski. Please go ahead, sir.
2. Thank you very much. Good evening, everyone. Welcome to the teleconference dedicated to the Tsepere Group Annual Results for 2020. My name is Adam Kichinski, and I will run this call together with Piotr Nielugovic and Tnicha Novakovsky.
The presentation is available on our web page, todeploy.com. So let's get started. 2018. Please jump to Slide 3. Beyond any doubt, a long awaited launch of Cyberpunk 2077 was for us the most important event that took place in 2020 and come to think in our history.
It's a tough task to summarize the project with just a handful of slides, given that we all poured years of work and our hearts into it. Stabber Park launched on December 10 on PC, Xbox 1 and 2 Efficient 4 and Stadia. The game is also playable on the next gen consoles, thanks to backward compatibility. Let's move on to Slide 4. Cyberpunk 2,077 turned out to be a huge project in every possible way, the most ambitious one that we ever worked from and also the most challenging taking into account its scope and complexity.
With regards to its scale, over 500 developers from Zebra Credit, representing 37 nationalities worked on the game during the most intense period. In total, there were over 5 1,000 people involved in the project, including the studios' employees, business partners, actors, translators and musicians. Working in such a diverse environment with a great pleasure. It was challenged as well taking into account that the most of us spend the last 9 months before they release working from home because of COVID. Using this opportunity, I would like to thank all the people involved in Cyberpunk, especially my wonderful colleagues from Sothecary Club for the great dedication and passion they put into the project.
Let's go to the next slide, so number 5. We strongly believe that to reach audiences around the world and to win them over, we should give players the opportunity to experience to gain in their mother tongues. That's why we are proud that we've managed to make Cyberpunk available in 18 language versions, including 11 full voiceovers recorded by 2,000 actors. Please move on to Slide 6. 2017.
The launch of Cyberpunk 2,077 was fueled by a huge global marketing campaign that included various channels such as v Aldo Duedo, printed media and online, depending on the region. Cyberpunk related advertising and other promotional content was released in 34 language versions in 55 countries. We achieved great results. Our global marketing campaign generated over €3,000,000,000 app impressions between November December last year. 2019.
On the next slide, so number 7, you can see that the scope of the project was naturally reflected in the size of its overall budget of PLN1.2 billion. 55% of that was spent on direct development costs Love the Studios overhead expenses allocated to the project. The rest is a total marketing and communication budget covered by both Feddeployed and our physical distribution partners. Let's move on to the next slide, so number 8. The hard work that our talented and publishers being put into the development of Cyberpunk as well as into the marketing campaign and the game's launch resulted in our sales figures in the release window.
As you can see, by the end of 2020, the total estimated number of copies sold to gamers reached $13,700,000 Please go to Slides 9, 10 and 11. Digital distribution accounted for 73% of total Cyberpunk sales in 2020, which clearly reflects the current shift towards digital, also reinforced by the year's by the last year's lockdowns. Platform wise, 56 went to PC owners and Stadia users with PCs accounting for the vast majority of that part. 20% of total Cyberpunk sales went to PlayStation users with Xbox consoles accounting for 17%. 2019.
The above breakdown was to some extent influenced by the suspension of Cyberpunk availability on PlayStation Store that happened 8 days after the launch. Finally, let me say a few words about the geographical breakdown of Cyberpunk sales. We are satisfied with our presence in North America and Europe, which are our key markets. We are also happy with 12% share for Asia. Let's move on.
Having summarized the project and its results, I must say that from the creative point of view, we can be proud of the core strengths of Cyberpunk, a beautiful and engaging city, a gripping and exciting story and multilayered characters. From a business standpoint, with the Cyberpunk launch, we managed to introduce a new IP to the market and to the minds of gamers around the globe. Now with The Witcher franchise, we've got 2 strong pillars on which to build the future of the project. But of course, as we all know, not everything went as planned. It has been a huge lesson for us that shall we never forget that we shall never forget.
2017. However, now is the time to look ahead and move forward. Let's go to Slide 13. Recently, we published the CedeProjek Group strategy update. A fundamental aspect of that is the transformation that we've called Red to Pondo.
This involves shifting to an agile work model, empowering the CTO and devoting more attention to the well-being and comfort of our team. We are also consciously changing the way we communicate and manage our projects. On the production capability side, a big milestone will be the start of parallel AAA content development in 2022.
Please move on to
the next slide, so number 14. One of our priorities for CEA is continuing to improve Cyberpunk 2,077. We strongly believe that the game will prove to be successful in the long run. We are fully we are now focused on the gains conformance and stability on all platforms along with fixing bugs. So far, we've released several processes that address some of the issues Guillaume has pointed out and will continue doing sold for Ethronc as tax.
As we announced in the strategy update with regard to Cyberpunk 2,077, our plans remain unchanged. This year, we are going to release 3 DLCs, providing small bonus content for games. Additionally, in the 2nd part of the year, we are planning to release a dedicated next gen edition of Cyberpunk 2,077. Owners of PlayStation 4 and Xbox 1 copies, the game are going to receive a free next gen update. A lot has been said about the Cyberpunk franchise.
Now moving on to Slide 1616. Less focus on the other pillar of our core business, the Witcher franchise. During the last year, the Witcher franchise trilogy continued to enjoy strong sales exceeding €50,000,000 sold in its lifeline, including 30,000,000 copies of The Witcher 3 Wild Hunt. As you can see on Slide 17, 2020 was the 3rd best year in terms of revenues for The Witcher 3. We are convinced that alongside with the newly introduced Cyberpunk IP, The Witcher franchise again proved to be a strong pillar for the future development of Tenetray Group.
On the next slide, 2018, you can see our plans within the Witcher franchise for this year. This summer, we are launching The Witcher Monster Slayer, our mobile free to play location based RPG that uses AR technology. As for the 2nd part of the year, we plan the next gen addition of the Witcher 3. It will be released as a standalone purchase for Xbox Series X, PlayStation 5 and PC, as well as free updates for everyone who already owns the game on PC, Xbox 1 and PlayStation 4. Now it's time for a financial recap of 2020.
Georgios, the floor is yours.
Thank you, Adam. Let me now introduce you to the details of our financial results of 2020. First, the profit and loss account. Our consolidated group revenues exceeded PLN 2,138,000,000. Obviously, TelepareCraft segment was a big part of that with nearly EUR 1,900,000,000 logic sales.
Cyberpunk sales were responsible for approximately 3 quarters of that amount. The presented sales are decreased by the amount of provisions that we set and which I will present in a moment. Cyberpunk was the cornerstone of our sites. But as Adam already presented, it's worth to mention that 2020 was also the best year for the Witcher franchise in the last 4 years. Last year, GOG also had a great performance with over $340,000,000 PLN total sales.
Please have a look at the graph on the next page. A big part of GOG sales was achieved in Q4 last year and is attributable to the release of Cyberpunk on top of the growth of the base GOG business. Next page, our profit and loss statement again. Our sales were obviously accompanied by respective cost of products, goods and materials sold. In the case of Teleparec Red segment, this comes mostly from depreciation of our expenditures on development projects, mainly Cyberpunk, but also Witcher 3 d Nintendo Switch Edition, GWENT and StormBreaker, presented in cost of products and services sold.
Depreciation of Cyberpunk is an important subject for 2020 and for future years, and I will come back to this in a minute. For GOG segment, the cost of goods and materials sold represents royalties paid by GOG to its suppliers, including to the aircraft. Our total consolidated gross profit from sales reached nearly PLN 1,650,000,000. At the same time, selling costs of this special year increased to $408,000,000 PLM. Nearly half of this amount comes from our marketing activity, especially dedicated to Cyberpunk, but also ongoing marketing support of GWENT.
Selling costs also include part of our bonus system dependence on financial results and maintenance costs of previously released products, especially GWENT for the whole year and Cyberpunk after the release on the 10th December. General and administrative expense 2016, taking into consideration how intense the last year was, stayed at a stable level. Among expenses for the period, we also have the income tax. 6. The amount presented in the profit and loss account includes 3 different elements, which are mutually compensating to a certain extent: taxes paid locally, withholding taxes and deferred taxes.
As far as local taxes are concerned, a significant part of our taxable revenue qualifies to an IT box tax regime with 5% income tax rate. We were also entitled to use an R and D tax relief on other taxable revenues. And on top of that, as far as the deferred tax is concerned, significant difference on qualification of revenues and costs into taxable profits and book profits exist in our case. To give you an example, we released Cyberpunk in December and most costs related to it are part of the tax year 2020. At the same time, due to the release window at the end of the year and delayed reporting from our distributors, which didn't come until the end of 2020, €1,000,000,000 up to the prior excess could be invoiced and settled in 2021 and are part of our 2021 taxable incomes.
All in all, the consolidated net profit of Sutterby Group reached PLN 1,154,000,000 PLN. To visualize this in a longer perspective, let's move to the next page. In financial terms, 2020 was the best year in our history. However, taking into account the sentiment around the release and suspension of 1 of the major digital storefronts, we are aware that the situation after the launch of Cyberpunk is not directly comparable to what we had after the premiere of The Witcher 3. Moreover, big part of the team is now focused on improving Cyberpunk and this influences both the costs of 2021 and the timing of our next releases.
A lot of efforts is also put into the next gen additions of both The Witcher 3 and Cyberpunk as we believe the next gen compatible versions will be crucial for longevity of both games. Let's move to the next page, the promised depreciation model for Cyberpunk. Looking at the last 6 years of sales of The Witcher 3, deducting expansions as saw separate developments with separate depreciation schemes. We saw relatively stable sales for the years after the release. Taking into account different and differently placed in time turn of events trend for Cyberpunk, we assumed initial depreciation for December 2020 to amount to 40% of the total direct development budget.
After that, for the next 5 years, we plan to depreciate it evenly at 12% per year, which is 3% per quarter. It's obvious to say that future sales will not be equal quarter to quarter. Sales will be influenced by new events, next gen addition, add runners and ima series and other activities. But still, when estimating the future, we believe it's fair to plan this part this way. We thoroughly discussed it and came to a conclusion that today we have no means to better foresee the future.
Time will show if the initial 40% and flat depreciation of 12% per annum was a good assumption. Let's move to the next page, our balance sheet. Asset Sat, an important line among the fixed assets, expenditures and development projects. Counting all the expenditures of last year and depreciation of 40% of Cyberpunk budget into P and L, the total amount has increased by 5% over the last year. Please have a look on the next page on the changes we have here.
We started 2020 with PLN 48,000,000 on expenditures of finished development projects and PLN 337,000,000 on projects in progress. Over the last year, we booked an additional SEK 280,000,000 for our developments. Obviously, a big part of that amount is attributable to Cyberpunk. During 2020, we finished projects with a value of JPY 589,000,000 and reclassified them from work in progress to finish projects. Cyberpunk was responsible for 96% of this amount.
The total depreciation of expenditures on development projects in 2020 amounted to PLN259,000,000, mostly Cyberpunk, but also Witcher 3 on Switch, GWENT and Thronebreaker, depreciation or candelim. The closing balance reached nearly PLN 378,000,000 PLN for finished projects and PLN 29,000,000 for developments in progress. One remark regarding the value of development in progress. Obviously, over the last year, most of the team worked on Cyberpunk and in this process made sure that the game will also Taport's future projects we planned to add to the universe. Such costs are part of the Cyberpunk finished budget and will allow other projects to benefit from them.
The total value of projects in progress includes our multiplayer development and other projects unannounced yet. As you know, the initial phase of each product is always less costly than the final one when many external costs like localization or heavy QA add to the budget. Moreover, this amount includes neither Cyberpunk genre's anime productions and in cooperation with Studio Trigger NORUP, The Witcher Monster Slayer, planned for this year and developed by Studio Spokko, which is not included in the consolidated results yet. 2019. Let's go to the next page, our assets again.
The biggest change is visible in the receivables line. As the release happened at the end of the year, a big part of our sales was reported to us in 2021 and had to be presented as open receivables as of the end of 2020. This increase taking into account parallel growth of our liabilities will fuel our cash flows in 2021. Regardless of that, our financial assets, including cash, bank deposits and acquired T Bands, marked in the table with a star, increased by PLN392,000,000 PLN, meaning over 80% and reached a level of nearly PLN 875,000,000 PLN at the end 2020. All in all, our consolidated total assets position doubled over the last year and reached nearly PLN 2,900,000,000.
Let's go to the next page, our equity and liabilities. 1st, equity. Again, it nearly doubled and the main driver for this was our result for 2020. Going further, another important factor, the provisions, both long term and short term. First of all, provisions that decreased our Q4 sales revenues of Cyberpunk.
There are 2 kinds of them. Long term sales provisions in the amount of over PLN 100 and PLY 5,000,000 relate to the expected licensing settlements with selected distributors that contractually are to be done after the full 4th quarters from Rybins. 1 other short term sales provisions over PLN 40,000,000, which relate to the adjustments of orders or licensing reports concerning Q4 sales, either already performed or agreed upon with distributors for the Q1 of 2020 in the Q1 of 2021. In 2020, we also announced the Help Me Refund program that is being paid out in 2021. To cover these costs, we set a provision in the total amount of nearly PLN 8,500,000,000 On top of that, as every quarter, we set provisions for compensations mostly dependent on the group's financial result.
All in all, TRY256 million. The growth of this position reflects the growth of our net result in 2020 versus the previous year. We also experienced some increase in short liabilities and decreasing deferred revenues, a consequence of such a big event as the premier cyber plan. We can now move to the next page, graphical presentation of our main cash flow drivers. We started 2020 with SEK482,000,000 of cash and bank deposits.
During summer, we spent EUR 214,000,000 on our share buyback program and shortly after, the EUR 126,000,000 influence related to the realization of our previous incentive program. Our net profit for the period amounted to PLN 1,154,000,000 and this resulted in 3 major cash SEK4 1,000,000, and this resulted in 3 major cash adjustments. First, it included depreciation and especially depreciation of our expenditures and development projects in the amount of PLN 254,000,000, which was a nonmonetary cost. Secondly, it included revenues for preorders and advances from distributors booked before the 1st January 2020, hence correction for the change of deferred revenues in the amount of over $130,000,000 And thirdly, due to the December release of Cyberpunk, not all of the revenues and costs included in our profit and loss calculation for 2020 were either paid to us or by us before the end of 2020. Hence, the correction representing the big increase of the total balance of trade receivables less trade liabilities and provisions in the amount of PLY574 1,000,000.
This is the amount that will add to our cash flows of the future periods. Throughout the whole last year, we also kept working on our development projects. Two zero three million PLN was expensed in cash on debt. All in all, at the end of the year, we had nearly 875,000,000 PLN in cash, deposits and T bonds we acquired in during the pandemic time to diversify our financial assets. Taking into consideration the previously mentioned open balance of our short term receivables, it goes without saying that our cash position further increased in Q1 along with Q4 royalty statements.
And this leads us naturally to the next page, our dividend proposal. Keeping in mind our current cash position, planned expenditures and investments. Today, the Board of Cielo project recommended to the general meeting payout a dividend in the amount of nearly 504,000,000 PLN. We believe this is the most straightforward, instant and demographic way of sharing the success with all the shareholders on the same terms. That's all from my side.
Now we can move to the Q and A section. Ryan, please open the line for questions. Thank you.
To lower signal a chance to reach our equipment. We will now take our first question from Nick Dempsey from Barclays. Please go ahead.
Yes. Good evening. Can you hear me okay?
Yes, we can.
So I've got three questions. First of all, I wonder if you can help us out on the revenue per unit the CD project achieved from Cyberpunk unit sales. So I think you said in the past that digital revenue per unit for you would likely be roughly double the physical revenue per unit. Was that the case in the end? And then when I think about digital revenue per unit, for Ubisoft and others, we use something like EUR 35 something in that sort of bracket.
Why would it be different for CD Projekt when we're modeling that digital one for you? 2nd question, can you give us any indication of the unit sales of Cyberpunk that you've seen in Q1? And third question, just looking at the costs for 2021, I think you've been clear on lower depreciation. Selling costs should likely be lower. Can you give us any other color on how we should model cost in 2021?
Thank you.
Okay. So starting with the first one. Since the time of release of The Witcher 3, number of things have changed. First of all, the easy parts, the digital distribution. Historically, from all of the digital storefronts, the royalty was 70%.
Recently or quite some time ago. STIM has already changed their policies. And for revenues exceeding $15,000,000 the royalty can be increased up to 80%. So as TIM is the major digital distribution platform. Obviously, this increases the average revenue we get from a copy of digitally sold game.
From all of the other digital distributors, the standard 70% is still in force. Secondly, the proportion between the physical and digital sales on Witcher 3 and Cyberpunk changed, I could say the opposite way. Right now, we sold much more digital channels and at the same time, physical channels made minority of the sales. While in the case of Witcher 3, that was totally the opposite. And you have to view in mind that we, publishing a game cooperate with physical distributors who execute the marketing campaign locally on each and every market.
And the cost of local marketing campaign is usually deducted from our royalty reports as part of the deductible costs in the royalty calculation on the distributor side. Therefore, the smaller part of The market dedicated to physical sales was supposed to cover the whole of the marketing of Cyberpunk, which was even bigger than the case of Witcher 3. This naturally influenced to the average income per copy on a physical sale that we achieved last year. Obviously, most of the marketing costs were stand last year, and this will not be the case for the quarters to come. However, last year, it visibly influenced the average revenue per copy we achieved on each physical copy of the game sold.
We did not reveal precise dates. And honestly speaking, I didn't make myself of an average global physical sale price from the supply perspective as it's pretty much very as it pretty much varies from territory to territory. So I'm not able to share this. The second question referred to unit sales in the 1st quarter? It's a very good question, but I would love to invite you to our Q1 conference that will take place in approximately 1 month, and we'll be able to share more details on that, probably not precisely in Uniswap, but in general more details.
But in general, I would say that the sentiment about Cyberpunk and the situation with the Sony Digital Storefront, the fact that we were cut off from a large portion of the market, which may have also indirectly affected gamers' decisions to purchase the game on other platforms definitely influenced the sales. We are still looking forward to receiving most of the royalty reports from our partners and full knowledge will be gained at the beginning of May? And the third question was cost for 20 1, lower depreciation, selling costs lower. Yes, that's kind of obvious to the depreciation was precisely given in on one of the slides of my presentation. The selling costs will also be lower.
As I also mentioned, the part of the team that works on improving Cyberpunk, their remunerations or all the costs related to the work will not be capitalized since this project is already released. And such costs will go directly into our P and L that will also influence our selling costs in 2021 and especially at the beginning of it. But at the same time, the marketing expenses who are mostly financed last year. We were not giving any more precise guidance, so I'm afraid I cannot to answer this more precise, give me any numbers, but I hope that Q1 will be a good direction to show the current status quo for 2021.
Thank you. It's Kai.
We will now take our next question from Omar Sheikh from Morgan Stanley. Please go ahead. 2019.
Okay. So
We will now take our next question from Robert Berg from Berenberg. Please go ahead.
Yes. Hi, guys. A couple of
questions from me. The first is perhaps a bit of a leading But your depreciation schedule is very useful. At least for this year, it assumes about a quarter, So for quarter of the cost versus 2020, 12% versus 40%. What would be the reason that we shouldn't then assume that you would be forecasting quarter of the revenues in 2021 for Cyberpunk versus 2020? Is there anything that comes on top of that, maybe the next gen version of the game or other things?
So that would be useful to get a sense there. And the second question, obviously, you have the next gen version coming up. In terms of lead time on testing, gamer perception, could you give us some insight on what you've learned from the release of the old gen version and what has changed for the release of the next gen? Thanks.
Yes. Hello. So the depreciation schedule is, as you see, Quite, I would say, symbolic. It's really hard to predict future sales. But definitely things we believe this year would influence the series of Cyberpunk is further improving the game.
The patches will release that should also lead us to coming back to the Sony Storefront, and that's something we are looking very much forward to. Secondly, we also announced 3 DLCs for gamers and that's something we have in our pipeline for this year. And 3rd week event for this this year is the Cyberpunk Next Gen Edition for the second half of this year. That's I believe should also have a significant influence on sales and the general atmosphere about Cyberpunk, if I can name it this way?
Hi, this is Regarding the second question, so I think it was about the next gen and the time for testing whether everything has changed in regards to December launch of Cyberpunk? Well, we are as we've been Stressing a lot. Up till now, we're going through a lot of changes inside the company. And of course, We believe we've taken a lot of lessons from everything that's happened So far, so well, yes, of course, I mean, time for testing for Sipee Next Gen shall be sufficient. And that's one of the priorities we have in terms of that release.
And I can add
one more.
I think Adam on the sand. Partially, we are implementing those new, more agile methods to this process. So of course, this is just the beginning, but we try to work on constantly running game and we try to judge the effect by screen. So it's a first step to change our methods and in addition, this is the first project where we are changing.
And will there be any kind of math testing
or like the prior release? Or are you still kind of just everyone plays it for
the first time on release?
We have no, so there'll be no external we are not releasing the game to gamers before it's released. So the game will be released again as on release date, but we have more external professional contractors responsible for testing. So there are forces in place to run as much as needed.
All right. Thank you very much.
2019. We will now take our next question from Ken Rumph from Jefferies. Please go ahead.
Hello, sorry, I'm muting. Thank you for taking the question. Two questions. Firstly, I just wanted to try and understand a little bit about the point about tax. I'm not So quite why you wouldn't have a deferred tax item to cover tax you're expected to pay next year.
Are we meant to assume that the percentage rate will kind of move up to above the normal 5% or 10% rate next year because of this delayed effect? Anyway, perhaps you can explain a little bit more about that. And secondly, I appreciate that you're not giving forecast for the year. But whatever the level of sales this year was, what would you expect the quarterly pattern of that to be? Do you what do you believe are the sort of significant events?
Is it restoration to the PlayStation Store? Is it the arrival of more DLCs? Or is it particularly a kind of relaunch of the game alongside the next gen version? And particularly on kind of the perception of the game, what's your strategy to get reviewers to kind of look again at the game and perhaps revise the scores that they've given to it? At what point do you try and kind of get people to look afresh at the game in its patch form?
Thank you.
I'll take the first question. It was probably the most complicated tax calculation we ever did in our history. And the result presented in the P and L comes, First of all, from the fact that we are allowed to use the 5% IP box regime, which naturally significantly decreases taxes down to 5% taxable rate. And secondly, we also generated significant R and D tax rate. So, cumulating the 2 allowed us to lower the tax for 2020.
And as long as we will be able to use them in the future, So the 5% IT Box regime is natural to be applied on future sales of our intellectual qualificable properties. As long as the law doesn't change, we will be able to benefit. But as far as the R and D relief is concerned, it has a certain value. So once we consume the whole R and D generated relief, obviously the taxes will naturally increase in future. When depends on the future profits, depends when this R and D relief that has a fixed value will be consumed by future taxable profits.
And as far as the first tax calculation, it is supposed to absorb the differences between the book profits and taxable profits. But in our case, cumulated with the effects of IP box regime on some of the IP Box Qualificable Revenues. R and D really and all other business which we generated led to this situation and deducted by the withholding tax that was also deducted by our distribution partners on royalty payments to us led to this relatively low tax value in the P and L of 2020. However, in the longer term, it should naturally increase. I'm not sure if I was precise enough to answer all your questions, but I believe that's all I can tell you at the moment.
Okay.
It sounds like you're saying increased 2% or 5%, not necessarily above it related to the gradual use of the R and D tax release, yes? As subject to change
in the
law or something. Once we Consume the whole R and D relief, part of our incomes will be taxed 5% and part will be taxed 19%. So the average in the longer term should be in between the two volumes.
Understood. That's great.
Right. Like right now, 6
Below. Thank you.
So This is Mihael Novakovsky again. I'm going to take the second and last Question. So for the question about the significant events that might influence the sales of the game, I think from what I heard you say, you Pretty much identified most of them. Yes, I mean, the PS Store come back could be such an event for sure or the DLCs release could be such an event for sure. The next gen addition, we believe, could be such an event for sure.
And We believe that every drop of patches and fixes is to some extent such an event as well. And in the future, there will be, of course, the expansions and so on will be such events as well. Your question was about the Cyberpunk only or was it about Witcher as well? That's the part I wasn't Sure.
It was about Cyberpunk really. And it was
a safe point
about is there a kind of concerted effort to get people to look again, we review the game, kind of relaunch it at a particular point, as well as the kind of steady decline.
So this I took of the yes, this I took of That's a fair question. All right. So the strategy here is actually pretty simple. I mean, this has to continue to keep working on the game and its content to keep improving the players' experience and so on. This is the only strategy really, I mean, to make sure that people have more good quality content to play with.
And this is something we're very keen on delivering in the months and actually years to come. So that's pretty much it.
Okay. Thank you. We will now take our next question from Matti LeTunen from Bernstein. Please go ahead.
Hello, good evening. The first question on the number of developers. The pace of developer additions since they have slowed down in 2020 from what it was in 2019 was absolutely in relative terms. Could you give us
a bit more color on
the reasons behind that? Is it just a slower pace of hiring? Or did churn affect that in 2020? If you Couldn't mention anything about how that's trending in the year this year so far. That would also be helpful.
The second question on the share of PC units sold through GOG dotcom. From the numbers for GOG, it seems like that might be quite a bit lower than it was for Witcher 3. Is there anything you'd be able to say on that? And then finally, on the In the report, you gave quite a lot of detail on the publishing team that you have about the net revenue per unit. Do you see the publishing team expanding in the future, for example, to take a larger role in global distribution and marketing?
Thank you.
Hello, Matti. I'll take the first one, Adam, on this end. So last year, the churn was fairly low as always before the release. So it was, as far as I remember, below 10%. Yes, we don't know yet.
I mean, we will see by the end of the year. But a year after the year of release that's a natural window for transfer. Of course, we hire people not for projects. We hire people to work with us longer, the longer the better. But when people are thinking about changing the studio after finishing the project, that's but the natural moment for this.
But we'll see, after Witcher 3, It was close to 20% a year after we released Witcher 3, but we don't know yet how it will be this year. And So far, so good, but we are still ahead of bonuses. So we'll see after, but there are many initiatives ongoing to minimize regretted losses. Obviously, That's one of the major HR tasks for this year. And of course, we are speeding with speeding up with hiring Because last year, we were kind of free trial, and that's the year of before launch, it's time will be focused on finishing the game.
So hirings were extremely limited. But this year, we I mean, we've already started to hire again and to grow the team.
So I will take the second question about the share of GOG sales within our total sales. Honestly speaking, I do not remember the GOG share on release of Witcher 3. So it's really hard to compare. But my intuition says that Geog was even stronger this time. However, that's only based on my intuition as I do not remember hard facts on that.
And as far as Cyberpunk, the hard facts are that GOG accounted for 9.6% of total PC sales. So within PC market share, GOG was at nearly 10% of the total volume that we that gamers purchased in 2020?
Hi. In terms of the third question, whether we are planning to take more dominant role in the global marketing and distribution? Well, our role in global marketing was actually Pretty crucial in terms of Cyberpunk already. I mean, we've been controlling truly controlling from HQ and through our local teams all over the world, the whole campaign. So honestly speaking, I well, Instead of building maybe more local teams, there is not much more we could do more centrally to be realized in terms of marketing, even media purchases were much more centralized than they were ever before.
So I think we're pretty much there In terms of that, maybe minor tweaks here that will be happening. Never say never to that, of course. In terms of distribution, well, All of the digital distribution were handling direct anywhere, and this has been the case for a long time now. In terms of physical distribution, if this was your question, then we don't have plans to engage directly with the physical distribution. So In that regard, we do plan to continue to rely on external partners for servicing any future physical units.
Got it. Very helpful. Thank you for all the answers.
We will now take our next question from Matthew Walker from Credit Suisse. Please go ahead.
Hi, thanks a lot. I've got three questions actually. The first is, can you have another go at explaining the online elements that you're going to introduce and why they are different to multiplayer, but what they actually are and when? And then I noticed that you've got the bonuses and you've allocated the full 20% of net income as bonuses. So it's a question on management compensation really.
So can you confirm that roughly half of that goes to the executive board or the executive team? And why you think that's appropriate given what's happened? And can you say will you be rebasing your share scheme that you introduced a few months ago and had some pretty significant targets. Those obviously look less achievable now given what's happened to Cyberpunk. So will you be rebasing those targets downwards to try and retain management?
Or is that not something that you feel is necessary? Thanks.
Hello, Adam. So in terms of online, well, we are not revealing the details of our plan. Just said that instead of releasing big online game at once, we decided to in terms of big teams and big budgets to focus on single place. But At the same time, we keep continue working on multiplayer and to release it step by step as online elements to our single players and to learn from each element. So in a cycle, of course, ultimately, it will take more time.
But we believe it's less risky way for us, considering that we should still push more on single players to prove ourselves again. I know it's not a precise answer, but that's what I can share now. For bonuses, I can take it as well. Yes, it's close to 20%, and it was always like this. I mean, nothing has changed recently.
And close to half of it goes to management board. And while we were always compensated directly, it was linked directly to net revenues, which in our case or will I mean, will money, I mean, we earned this money and I mean, company earned this money, of course. But more net profits, more bonuses are and actually it was the case historically. So well, when we have results, we get bonuses and that's the contract we have. That's the only I can comment.
And are you going to be rebasing that share scheme and the targets for the SHAT scheme in the future?
It's too early to say. It's early to say because, well, we can't do everything at the same time. So this is a long term incentive plan. We'll consider, I mean, after some time, after releasing the result, then we have C1. We'll come back to this and we'll set and process where we are and whether any changes in this regard are needed, but we haven't started this process yet.
Right. Okay. Thank you very much. Thanks a lot.
Thank you. We will now take our next question from Chirag Vadhyay from HSBC. Please go ahead.
Hi, thanks for taking my question. Firstly, I just wanted to know if you could provide an update on the cyber attack, if there's anything that still continues to be affected from this? And secondly, just thanks for the details on the Help Me Refund campaign. Is there any further color you could provide on the total number of copies that were refunded for the game? Thank you.
So the first was about cyber attack, right? The hack which happened right? Yes. The case is closed, I mean, on our end. The only consequence was that we were restoring our systems because we lost there was no data loss In any regard, everything was back up, but we were restoring our system and it took us, depending on the department, from 2 to 3 weeks.
So that was the real cost on the one hand. We can't share any details about the attack because now enhanced of police. But what we can say is that the
attack was
the vector of attack was to the loop in the 3rd party application. So it was we were attacked to the 3rd party application. So none of our systems, our own systems were compromised. So when you can prevent this kind of treatment?
Yes. As far as the Help Me Refund action is concerned. I'm not sure if I understand the question properly. Does it refer to the total amount of payments going out that we are processing? Or how many percent of the payments we've already done and whether we've already done that.
Answering the first part of the question, We didn't reveal the precise number, but since we've already said that provisions for that SAPS in 2020 amounts to PLN 8,400,000. This also includes all of the costs of processing on the financial side of the transfers to gamers. It's relatively easy to calculate taking the average global price of the Cyberpunk game. That's it's an equivalent of approximately 30,000 requests. And as far as the execution of this action is concerned, what I can tell you is that over 95% of all of the payments have already been done.
The last single digit percent, below 5% is probably the most difficult part. Please take into consideration that we are refunding people all over the world working with different banking systems, and it's not an easy task. But as I said, absolutely, most of this was already processed, and we are working to finish it at the very end.
Thanks very much.
We will now take our next question from Ken Rump from Jefferies. Please go ahead.
Hello again. Two questions. One, just following up on the refund point and apologies if I missed it. I dropped off for a moment there. I see the sort of very small provision for the healthy refund process.
Are there any other cash flows or liabilities kind of outstanding from refunds specifically as opposed to the contractual agreements you have to sort of pay distributors and so on that are explained in the accounts. Basically, is there any money to flow out after the end of 2020, whether it's slowed out yet or is yet to do so, are there any significant sums? Because the Help Me Refund number in its own right is, as you say, very small. And my second question, I think you'd said 5.30 odd people working on Cyberpunk at the peak and 700 odd developers implies a couple of 100 people working on other things. I guess that includes multiplayeronline, so Cyberpunk in another form.
But is that the correct math? And what would that look like today? Thank you. And what the split of Cyberpunk versus an old Cyberpunk? Thank you.
So I'll take the first one. As you noted, the product directly is not doing any retail sales. So all of the sales we adjust to the product, right, are done via distributors. And that's why vast majority or nearly all of the provisions were made for our contract settlements and cooperation with distributors. Help Me Refund was a very exceptional thing where we direct communicated with gamers.
And it's the only thing like that we did. There is nothing more on top of Obviously, GOG is involved in retail business, and GOG has its own policies on returning games. But in general, this is nothing substantial in terms of our revenues. And obviously, the game is on sale in all of the PC digital storefronts. So if any gamer decides to return it, this is taking into calculation of monthly royalty reports by every digital storefronts and the balance of it qualifies for respective royalty calculation.
So that's what I can comment. To put it briefly, nothing extra on top we see at the moment.
I'll take the second, Adam. So first comment, the situation is down. I mean, we are in the face of Shift. But out of those involved in Cyberpunk, still vast majority is involved in Cyberpunk. Close to half of it, so the biggest cost is still working on the game itself.
So patching up date in Next Gen Edition because this is the same process. Of course, we have branches, but next generation is still in our
path in
the same process. There are teams working on the next Saba Pankaj content. And there is a fairly seamless for now team working on the next thing. And there is Gwen team as well and there is POCO team. So when we talk about total number of developers, we are talking about, Gwen, it's focused well.
And there is this multiplatform, which It's some I mean, in some parts, it's not that easy to divide from the several funds themselves because some works related to multiplayer are implemented in single player as well. So it's kind of blended on the edge. And this but the team working on multi place fairly not too big, but they'll continue working as on things they were they have been working for over 2 years. So I know it's A bit vague, but as I said, numbers are changing and we are in the time of shifting things.
Okay. Thank you. I'm going
to ask an additional question, if I quickly may. That 5 year depreciation schedule, what should we make of the fact that you choose 5 years? Or to be blunt, does that mean that Cyberpunk 2,078, so to speak, comes out in the 6th year?
No, that's an assumption. In case of GWENT, we decided for 3 years, and it obviously doesn't mean that we are going to end GWENT after 3 years. In case of Witcher 3, we have results for full 5 years. So it was also very helpful in modeling and checking the logic behind the scheme we set for Cyberpunk. But as you know, we keep selling our products longer.
So It's kind of concept that we said for 5 years and definitely depreciation of this Cyberbank has nothing to do with any potential future product that are separate assets and the need to be depreciated only depending on judgment or assessment related to this particular product. Thank you very much. Bye bye.
That concludes today's question and answer session. Mr. Kuchinski, I will pass the call back over to you for any additional or closing remarks.
Thank you very much. And now we are starting to answer the questions, which in a written form on webcast, right? So I can read them and then the first would be Piotr. And the question is from Mukesh Prashaski from Pacal. What is the split of Cyberpunk marketing between covered by that are deployed directly and covered by distributors and deducted from revenue?
So distributors covered more than a half of this budget, but still our participation measured in percent was visibly bigger than what we had for the week history. We were not disclosing precise data on that, so I cannot go any more into details, but I hope that's a pretty good guidance that I can give you right now?
All right. I can see there's another question about the returns to PlayStation Store. How far are you from restoring side by the PlayStation Store? What is still the same? What is the required that came from Pernod Krasuski from Bloomberg?
So the answer to this is we continuously work and various improvements and patches. And all of that is bringing us Each time we release something, it's bringing us closer, of course, to being back on that store. Final decision is, of course, in the
The next question is from Piotr Lapaccio, PKOP. What was the Stadia share in sales, Piotr?
Yes, I will answer it.
We were not disclosing, but obviously, most of the sales accounted to PCM Stadia come from PCs and from such important players as first line team. So the Stadia sale is obviously not to be compared with such a big portal like Steam is. And yes, that's all I can say for now. Next question comes from Mikhail Wojciechowski, Popema. Could you comment on differences between sell in and sell through levels in Q4 of 2020?
Were these differences significant? And could you explain how they impacted your revenue and price per copy in 4 quarter and Q1. So we didn't reveal any number on selling. We believe it's kind of irrelevant in this situation. It's much more important from our that how many gamers have finally purchased the game.
And as far as the difference between sell in and sell through is concerned, and the unsold copies are potentially to be returned to distributors. And for such a situation, we set the provisions in our P and L statement in 2020 to compensate the difference between the two amounts? Obviously, not entirely because the game is still selling. And when setting the provisions, we forecasted future expected sales and we looked in a bit longer perspective, but provisions are kind of compensating the revenues on potentially unsold or overshipped units to the retail?
All right. I'll take the next one, Adam, on the sand. The question is from Mario Antskevich Jerome Woods and Company. First question is, does your shift towards agile model in the game development involves hiring new people experience working in such environment. Could you please share more details on the survey?
Can you show me the question on the process? Sorry, because I lost the question on the switch. So there are 3 main forces involved. 1st, we have We are partially experienced in this area because we went through this in GWENT. What is much simpler because it's smaller.
So changing to Agile in a team of 100 is much easier than in a team of 500. But still, it was successful. It took us roughly a year. So those who were and those who were responsible are at the same time skilled in this and then they are moved to changing the whole studio to Agile and heading this process. Our new CTO Our new CTO and Head of Production, Pavel, is experienced in this as well.
So he has some internal knowledge and experience, and This is the first pillar. And one more thing, it was small part of Celltran, but there were a few Cyberpunk teams who have been working for quite some time. So first, our own experience. 2nd. We have contracted for as long as needed external professional top Polish Agile Group.
They are agile coaches, professional scum masters, and they are helping us. And the 3rd pillar is that we are consulting with big organizations who went through this successfully and we are sharing knowledge and we have some insights on how to run this kind of process in in such a fairly big organization, which is this is actually, this is the challenge. I mean, agile itself and the framework is kind of the same thing, but have it affected in such a big group? That's challenging. And definitely, it will take time.
I mean, we don't expect to be I mean, it never ends. I mean, it's about constant improvement, but we'll need a year or 2 to be there and to be in the first stage. But as I said previously, we already started. So teams working on next generation addition, some teams working on next generation addition are already working in Sprint and you know, first, it's facts or very promising. So, Michel, you can take the second one.
Yes. I'll take the second one. Iona Bykovski. And the question is, are you planning any bigger marketing campaign to accompany the release of the next So the answer is yes, we are definitely planning a bigger marketing for the launch of CP-two thousand and seventy seven for next chance. It is a launch after all.
However, the question implied whether this is a campaign of a similar scale and size of what we had at the end of the 2020? Then the answer is no. I mean, that campaign was also focusing, you have to remember, on focusing sorry, was focusing on establishing the brand and that goal has been achieved. So This will be more focusing on informing the players about the fact that the game is launching on the next gen. So it will be bigger than, I don't know, our regular actions that would accompany, for example, a promotional activity in some digital store, but will definitely not be as big as the launch at the end of 2020 in terms of costs?
Your next question, could you please confirm the percentage of 55 percent of PLN 1,200,000,000 budget for Cyberpunk being attributable to the production costs of which RMB 567,000,000 related development under rest overhead allocation? Yes. So first of all, this €567,000,000 amount, this is the direct development the budget that was required to create the game. However, in order to publish the game, we also need to spend certain amounts on overheads, all of the overheads within our company and are allocated versus projects. Among them, you can imagine overheads like legal departments supporting the release contractually and all of the legal issues, the production department, the business development department and other team members that were part of this production and the release, not directly on the development side or not directly on the marketing side.
However, it should be linked to the whole process and the premier of the game. Next Question comes from Piotr Wapaczek. What part of the team currently works on repairing Cyberpunk? Roughly, what part of development costs will not be capitalized and will go into sales costs. It's too early to talk about 2021.
We don't want to reveal it. But as it was already mentioned, a big part of The team is already working is still working on improving Cyberpunk. That's approximately 40% of the team. That's the status for now. Over the time, we believe this team will get smaller and less efforts on our side will be dedicated to improving patching update in Cyberpunk.
But as we said, we will work on it as long as necessary. So that's not something we plan to finish in 1 or 2 weeks from now. We definitely want to make Cyberpunk as perfect as possible. Next question from Vladimir Bessepaloov, VTB Capital. Are you planning to keep distributing dividends going forward of your planned investments in business development, M and A, hiring, parallel development, etcetera, leave little room for future dividends.
We would like to remark that we do not have a regular dividend policy. In the board's opinion for dynamically expanding company, which focuses on a strongly competitive market segment and whose financial requirements and earnings are both dependent on cyclical video game development projects and the popularity of such video game releases, the appropriate approach with regards to profit sharing is to evaluate the group's financial standing business plans, challenges and requirements on a case by case basis, and that's exactly what we did this
time.
Adam Kicinski, I can take the next one from and so Trodynski Santander. Keeping in mind that the intensity of M and A transactions in the gaming sector, do you still maintain the option that you rule out the possibility of CBR being acquired by another entity? I mean nothing changed in this regard. I mean we run our business independently. We have full competencies in this I mean, in running our business.
So we don't see, as for now at least, any profits from joining a bigger group. So we're not seeking anything in this regard. Of course, We think, as we said, we are more open to M and A, but on the other side. So we are more actively looking for teams that can help to execute our strategy. And that's important.
So we are not for adding to the group third party businesses and the results is rather about building the group for Execute, our own stockholders.
Next question is from Gragor Sotenius Puzbizneso. Have you created provisions for litigation? If so, how much? If not, why not? Yes.
The answer is simple. We've disclosed all of the provisions we've made, and we do not have any provisions for litigation. We are at the very early stage. We are still before the motion to dismiss. Please note that no amount of expected compensation from the other side was yields in the latter week off.
At this stage, we've consulted and analyzed this thoroughly, and it's not applicable to make and the provision for the moment.
Thank you for your participation. You may now disconnect. This concludes today's call.
Thank you very much for the day.