Good afternoon. My name is Michał Nowakowski, and today marks my first time as Joint CEO hosting the CD PROJEKT Group's annual earnings call. I will be co-presenting with Piotr Nielubowicz. Following our presentation, we invite you to participate in a Q&A session where we will be joined by Adam Kiciński. Without a doubt, the highlight of last year was the release of Cyberpunk 2077: Phantom Liberty. The launch of the expansion, along with significant changes brought to the base game by Update 2.0, resulted in a relaunch effect generating interest comparable to other major titles debuting in 2023. The expansion was enthusiastically received by gamers as well as critics, with rave reviews and multiple industry awards, including two Golden Joysticks for Best Expansion and Best Trailer. In terms of sales performance, we've already had the pleasure to announce that Phantom Liberty sales had topped 5 million copies in 2023.
Achieving such a major milestone in such a short window proves the game's quality and the strength of the Cyberpunk franchise. Towards the end of the year, we also released Cyberpunk 2077: Ultimate Edition. The bundle includes the base game, the Phantom Liberty expansion, and all updates and free DLCs released to date. It offers a way for players to experience the best Night City has to offer. Cyberpunk 2077: Ultimate Edition is available digitally and physically for current-generation consoles and PCs. Now let me give you a peek at the bigger picture. By 2023, Cyberpunk 2077 sales had already surpassed PLN 2.2 billion in revenues. The game continued to attract gamers' interest held by regular updates and Franchise Flywheel activities, including Cyberpunk: Edgerunners, the Netflix anime series. Last year, owing to the successful release of Phantom Liberty, Cyberpunk 2077 further raised the revenue bar to PLN 3 billion.
We are confident in the strength of our product. Supported by the Franchise Flywheel, we expect it to generate solid revenue flows for years to come, solidifying its status as a long-seller. And while we're on the topic of a Franchise Flywheel, I'd like to remind you that last year we initiated collaboration with Anonymous Content, a global media production company. Together we will work on a live-action project set in the immersive world of Cyberpunk. Having summarized the main events of 2023, let us now turn to the future. It's time to give you an update on where we stand with each of our upcoming projects. Let's begin with the Witcher franchise. Polaris will kickstart a new trilogy expanding the universe presented in past Witcher games. At the moment, this is our most developed project.
Although we're still in the pre-production stage, our plan is to begin production in the second half of the year. Next, we have Sirius, the game developed by The Molasses Flood in Boston, with support from our developers. Last year we defined a new framework for this project, which is why Sirius is currently in the early pre-production phase. The last project from the Witcher franchise, codenamed Canis Majoris, is a remake of the first Witcher game. It has been developed by Fool's Theory under the supervision of CD PROJEKT RED. Work on this iconic game is now at the conceptual stage. It's worth noting that the title will be built from the ground up using Unreal Engine 5, and that it will use the toolset we have been developing for Polaris. Moving on to the Cyberpunk franchise.
As you may already know, Orion is the codename for the sequel to Cyberpunk 2077. In the fourth quarter of 2023, we opened a hub in Boston and kicked off work on the game. It is currently at a conceptual phase supervised by seasoned studio veterans previously involved in the development of Cyberpunk 2077 and Phantom Liberty expansion. Notably, this February we announced that the Boston hub would be hiring accomplished game industry professionals with experience in developing top-of-the-line AAA projects. And last but not least, let's shed more light on our third IP, Hadar. At the moment of publication of our strategy update in late 2022, we had a small strike team laying the foundation for this new IP. This work is steadily progressing, and the team is getting bigger. We are currently exploring key pillars of the game, and the IP is in the conceptual phase.
We're really excited about what's coming up. Since I've just updated you on our projects, let me now briefly walk you through the current engagement of our dev teams. Compared to our previous update provided in November, the team responsible for maintenance of Cyberpunk 2077 and Phantom Liberty has shrunk, with developers being reassigned to other projects following the release of Phantom Liberty and Update 2.0. The Polaris team, on the other hand, has grown to over 400 developers, reaching its target size for entering the production phase. This is scheduled for the second half of the year. As for the Sirius team, it has not changed in size compared to the last update. We are also introducing new categories for Orion and Hadar as these projects are growing, along with the number of developers involved.
In addition, a completely new group of developers has appeared on the chart under the Shared Services label. These are central teams, which become involved in various projects at different stages of production. They are not fully embedded in any particular project. Instead, they provide additional capabilities which can be shared among RED teams. They can handle tasks such as localization, UX, and QA, as well as the development of essential tools and technologies. Currently, half of this group serves the needs of Polaris, but this will fluctuate over time as other projects grow in size. With regards to our recruitment plans for 2024, we plan to maintain the current employment structure. Recruitment will mainly focus on our Boston hub, which is still at an early stage, and we are building its structures.
Finally, I'd like to take this opportunity and thank everyone who has been there with us for good and bad: our dedicated team, amazing fans, and supportive shareholders. Your support means the world to us. Now, let's move on to the financials. I'll hand it over to Piotr. The floor is yours. Thank you.
Thank you, Michał. Let's start with our consolidated profit and loss account on slide 9. In 2023, our consolidated sales revenue driven by Cyberpunk 2077 and Phantom Liberty reached PLN 1,230,000,000. That's nearly 30% above the revenues of the strong comparative period which was marked by the release of Cyberpunk: Edgerunners anime and the Edgerunners update. This means that 2023 was our second consecutive year of sales growth after the release of Cyberpunk and also our second best year ever. The launch of the expansion in 2023 made a big impact not only on CD PROJEKT RED but also on GOG.com, which enjoyed a 25% sales revenue increase versus the preceding year. Our cost of sales increased as well, primarily driven by the initial amortization of Phantom Liberty and accelerated amortization of the base edition of Cyberpunk.
During the second half of 2023, we amortized a significant 40% of Phantom Liberty development budget and 40% of remaining Cyberpunk 2077 undepreciated expenditures as of the end of June 2023. Hence, the more than double increase in costs of products and services sold in 2023. Moving on to operating costs. Our selling expenses increased by PLN 54,000,000 to nearly PLN 244,000,000. This was mainly driven by a PLN 116,000,000 total budget dedicated to Cyberpunk and Phantom Liberty marketing and promotion in 2023. As regards administrative expenses, apart from salaries and general costs growth, the increase in this category was driven mainly by costs related to the introduction of our new incentive programs, as well as expenses on early-phase works on new products, so-called research phase, growing especially towards the end of the year when, after the release, the Phantom Liberty team started relocating to new projects.
Moving further to our operating income and expenses, the positive balance of nearly PLN 30,000,000 was supported by the partial reversal and partial write-off of our development expenditures related to Project Sirius. As discussed during our Q1 call, all in all, Sirius impairment adjustments improved our EBIT for this year by nearly PLN 19,000,000. This year's results were further supported by financial operations. The reported surplus here, at PLN 69,000,000, came from usual drivers such as interest from deposits and T-bonds, but also from bookings related to the merger of CD PROJEKT with Spokko. As discussed during our call dedicated to Q3 results, we included Spokko's current-year costs and revenues in CD PROJEKT's 2023 profit and loss statement. This decreased our 2023 results by approximately PLN 3,000,000. Spokko retained earnings decreased our equity in the retained earnings positions, as if Spokko had been part of CD PROJEKT in the past.
We also included Spokko's assets and liabilities among CD PROJEKT's assets and liabilities. Naturally, all transactions between Spokko and CD PROJEKT were eliminated bookwise. And therefore, as we recorded Spokko's assets and liabilities as well as current and historic negative results in our books, we also reversed the historic write-down of Spokko shares in the amount of PLN 27,000,000, which is part of the discussed financial income line item. Moving further to our income tax. Although the absolute tax amount in 2023 was higher than in 2022, it was actually proportionally lower when compared to the gross results before taxation. The effective tax rate in 2023 was slightly below 11%, mainly thanks to the application of the IP Box tax regime. All in all, our net profit for 2023 amounted to PLN 481,000,000, 39% more than what we achieved in the very solid comparative period.
Net profitability of the CD PROJEKT RED segment exceeded 45%, while for GOG this factor was close to 4.5%. I always like to take a long-term perspective of our results. Please take a moment to look at the chart on the next page, which illustrates CD PROJEKT Group's consolidated revenues for the last five years. All the efforts to improve and update Cyberpunk to enrich the universe with new merchandise and Edgerunners anime and the release of Phantom Liberty and the Ultimate Edition all paid off, resulting in sustained revenue growth in the recent years. Moving on to the chart on the next page, number 11, which presents something I'm also very proud of. In recent years, solid revenues allowed us to achieve steady profits, which we have been reinvesting to finance the development of new games and projects.
Some of this surplus was also shared with our shareholders in the form of buyback or dividend. Actually, we shared PLN 1,000,000,000 with investors over the last five years. Also today, the company's management board decided to recommend to the general meeting the payment of a 2023 dividend to shareholders. The proposed amount is PLN 100,000,000. Let's now move on to the next slide, number 13, our consolidated balance sheet. On the assets side, first, expenditures on development projects, the core of our business. The balance here increased by PLN 52,000,000 in 2023. This was mainly due to our works on Phantom Liberty, Polaris, and Sirius. The new developments were responsible for a PLN 265,000,000 increase, parallel to the decrease coming from depreciation of PLN 232,000,000, driven mainly by Cyberpunk and Phantom Liberty.
At the same time, among current assets, our trade receivables grew by PLN 28,000,000 thanks to higher sales this Q4 versus the Q4 of 2022. And last but not least, overall, the most significant increase on the balance sheet is the total value of cash, deposits, and treasury bonds, which are included in the three asset items marked with an asterisk. The total is summed up under the table and amounts to PLN 1,309,000,000 as of the end of December 2023. I will have a cash flow dedicated slide to give some more insight on our main cash flow drivers last year. Moving forward to the second part of the balance sheet, slide 14. Despite paying the dividend, our equity increase driven mainly by the profits of the current reporting period up to PLN 2,400,000. At the same time, our total liabilities decreased by PLN 35,000,000.
The decrease was distributed quite evenly between the three subcategories presented in the table. Now, please move on to the next slide, number 15, CD PROJEKT RED's expenditures on research, development, and service of released games, presented here annually since 2021. Over time, we've limited our involvement in servicing our games, shown in yellow, and shifted towards the development of new games, painted blue. At the end of 2023, we also accelerated research works on new projects, among others Orion, Canis Majoris, and Hadar, included in the green slides. We expect this category to grow further in 2024. And finally, our simplified cash flow on slide 16. Cash-wise, the PLN 481,000,000 in net book profit was supported by PLN 245,000,000 in depreciation and amortization for the period. At the same time, cash-wise, we invested nearly PLN 273,000,000 in the development of new games and technologies.
During the reporting period, we also invested PLN 58 million into tangible and intangible assets, mainly into servers, network infrastructure, and developer workstations, but also in construction works on the CD PROJEKT campus in Warsaw, aimed at its further adaptation to our specific game development needs. Another PLN 58 million comes from the change in receivables, liabilities, and provisions. As it was visible in the balance sheet slide, we experienced a rare situation of growing receivables and decreasing liabilities. This should support our 2024 cash flows, but as far as 2023 is concerned, this change was accountable for nearly PLN 58 million cash decrease. During 2023, we also paid out a dividend of almost PLN 100 million. After all, our financial reserves, kept in cash, bank deposits, and T-bonds, increased by PLN 218 million over the reporting period, reaching PLN 1.3 billion. That's all from me for now.
We can now move on to the Q&A session. Thank you.
Thank you very much, sir. Ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad. Please make sure your mute function is not activated in order to let your signal reach your equipment. That's star one if you wish to ask a question. Our first question today is coming from Nick Dempsey calling from Barclays. Please go ahead, sir. Your line is open.
Yeah. Good evening, guys. I've got two questions, please. The first one, have you considered licensing either of your big IPs to third parties to make mobile games? Mobile hasn't really been a big feature of your development internally. So is that something that we could perhaps expect a one-off licensing fee at some point for that kind of project? And the second question is when we're thinking about expenditure on development projects in 2024, can we assume that the Boston project that you've referred to here is going to lead to a notable step up in the line there or just a small step up?
Hello. Hi, Nick. So I'm going to take the first one for sure, the licensing of the IPs to make mobile games. So the answer is pretty simple here. The answer is yes, we are considering such a move. And in fact, we were pursuing through conversations opportunities like that. We have nothing to announce just yet, but when the time comes, we would. And as of a one-off or other business model related to any such potential partnership, we would not comment on the specifics here, to be honest. Plus, there is nothing in place that we are talking about. But there is no pre-designed, maybe I'll frame it like that, there's no pre-designed business model we're looking at in this case, whether one-off or some shared profits, that's another story. But when the time comes, we'll definitely share information.
Thank you, Mr. Dempsey. Our next question is coming from Alec.
There was one more question regarding the Boston project.
Oh, very sorry, sir. Please go ahead, sir.
Yeah. I assume the question was related to the new team that we started in Boston that is working on Project Orion. So comparing this for 2024 to 2023, yes, we will see an increase of people, an increase of investments going there, as in 2023, the team was not existent. Still, the project is planned to be in the research phase, as it was mentioned by Michał during the first part of the call.
Thank you much, sir. Our next question is coming from Alexey Philippov calling from J.P. Morgan. Please go ahead.
Yes. Hello. Thank you very much. Congratulations with a very strong set of results. I have a few questions. The first one is on your incentive program. So basically, your new KPIs for the next stage of the incentive program, I think they imply that you plan to release one game in 2026 and another game in 2027. Maybe you can comment whether it's a fair assessment of your plans. That's my first question. Another question would be on the remake of the original Witcher: how many developers are working on that project now? And maybe you could talk about the amount of work needed to be done for that project, given it is a remake and not a standard game. And my final question would be on that media project that you talked through. Maybe you can share some additional color, what is happening there?
What type of monetization brings this partnership with Anonymous Content? Is it just one-off payment, some licensing agreement, some sales? So how it can be monetized if this project goes through? Thank you very much.
Hi, Alexey. Adam Kiciński. I'll take the first one and the second. So in terms of the incentive program, we can't comment on this. I mean, of course, we have our plans, and those goals are based on those plans, but we cannot just confirm any releases. Time will come, and then we'll start talking about dates. But as our strategy states, we show where we are heading with franchises and developments, but we cannot, unfortunately, talk anything about specific release dates. And the second one, the team on the remake, it's mostly done externally by The Molasses Flood. So it's on them. Sorry. Fool's Theory. Yes. Sorry, sorry. I confused the name. Fool's Theory, of course. Fool's Theory and Canis Majoris, which is remake of Witcher 1. And Fool's Theory is independent, and they built their team to work on this. We are in early phases, conceptual, pre-production phases.
I mean, it's not development yet. So we are preparing designs with them. And so it's an early phase, and that's all we can share with you as for now. And the third, Michał will take the third. Okay. Thank you.
Thanks, Adam. Yeah, I'll respond to the media project question with the Anonymous Content. So there is not a lot of additional color, as you put it, I can give here, but I can definitely mention there's been steady progress, actually, in that project. The announcements in projects like that, they usually come when we reach certain points that actually are useful to the moment of making such announcements, meaning they actually have some supportive meaning for the so-called package that we're preparing here and that we later on will be looking to position with a partner that's going to be responsible for basically displaying the project to the outside world, distributing it. So we're not at this stage, obviously. And when it comes to the question of monetization, it really is something we definitely wouldn't comment on. So no additional color in this one.
But the progress is actually pretty steady here. We're happy with where we are.
Yeah, that's very clear. Thank you very much. Maybe if I can squeeze one last question. You mentioned that the most developed game is Witcher 4. Can you say what is the second most developed game in your pipeline?
Well, yes, I can mention. I mean, just looking at the headcount, the second one is Project Sirius developed by The Molasses Flood in Boston. So that's definitely the.
Very helpful. Thank you very much.
Second most. Thank you.
Thank you very much, Sir Alexey Philippov. Ladies and gentlemen, as a reminder, if you have any questions or follow-up questions, please press star one at this time. We'll now move to Sebastian Patulea calling from Jefferies. Please go ahead.
Good evening, everyone. Thank you for taking my questions. I've got 3, please. Firstly, if I may follow up on a previous question, please. You're expecting Witcher 4 to enter the production phase in the second half of the year. On average, it takes the industry 2-3 years to go from production phase to launch. Would you say that's what we should expect in this case as well, or should we expect more, given you're working with a new engine that probably takes time to learn? It's also a large title and so on. Secondly, please, can you please discuss some of the risks that you're planning to take or some of the innovative elements of Project Polaris? Even if you'd be painting it with a broad brush, that would be really helpful. My last question, please, it's regarding cloud streaming.
What are the economics of the partnership that you've recently announced with Amazon Luna, please? Thank you.
All right. I'll try to take care of the first two questions. When it comes to the question about the years, I can't really respond to that question with a precision that you probably would be hoping for because doing so would basically mean leading on to the release date, which is not something that we've historically done and are not going to do it right now. I mean, revealing the release date is basically part of the marketing plan, and that's not something we're willing to do here. Now, when it comes to the risks of innovative elements, making a new game is always a creative risk, especially since we're trying to push new boundaries and explore new fields, do something we haven't actually done before. So I'd say it's embedded. This is a pretty broad paintbrush stroke, for sure.
But I cannot go into too much detail without actually talking about the game per se. But basically, I guess what I'm saying is you should not be expecting just a Witcher 3 in new clothing of sorts. I mean, it's actually, of course, we're building on the shoulders of what was done before and on the learnings of what was done before. But we will be adding new things, new elements, new gameplay elements, new mechanics that you have not seen in our previous games so far. And I'd say doing those new things is always a risk. It's not just repeating what was done before. And I'll pass with the third one to, I think, Adam Kiciński.
Thank you, Michał. It was about GOG and Amazon Luna. The collaboration between them aims to enhance game sales through Amazon's exclusive customer base, obviously, while maintaining the existing revenue share model for developers. This collaboration seeks to elevate GOG's market presence and, let's call it, draw in high LTV users while at the same time bolstering GOG's value proposition to game developers and publishers. In practice, this arrangement grants GOG access to Amazon's huge customer base and device ecosystem, including Fire TV and TVs and more. Gamers who subscribe to Amazon Luna can play their GOG games through Luna. Of course, I'm talking about a streaming service. That obviously enhances their experience. Additionally, game publishers associated with GOG are participating in the Luna program. Those who are participating in the Luna program can benefit from different forms of exposure through Amazon channels.
So it's a very collaborative and valuable proposition for all parties around. But of course, that's all we can say without revealing any business details between us and Amazon. May I please follow up? Thank you very much for that. May I please follow up? Are you allowed, please, to discuss any of the economics, anything about commissions, or how does it work? Because frankly, I don't know anything about it. No, unfortunately, not. Okay. Thank you very much. Thank you.
Thank you, Mr. Patulea. As we have no further audio questions at this time. Return to the call or to questions that were submitted over the web. Thank you. We will now be taking our web questions.
So the first question comes from Piotr Zielonka, Santander Bank Polska. Congratulations on your results. My question relates to cost outlook for 2024, especially employment level. You have above 600 game devs and around 1,200-1,300 total employment level. Do you think you could still optimize employment, especially in ex-game devs departments, still despite 10% layoffs already announced last year? Adam, you volunteered.
Yeah, I can take it. I'm not pretty sure what kind of optimizing employment the question is referring to. But I would say that we are, as for now, very well-tuned for the phases our projects are in. So for this year, we feel good. And I would expect kind of a flat year in terms of the size of the teams, of course, with some exceptions. Of course, the Boston team is growing. But generally, overall, within the group, I would expect a fairly flat year in terms of the size of the team. And that's it because I thought that was a question about cost, but not. Yeah, that's it. Thank you very much.
Okay. The second question comes from Piotr Zielonka again. Any update on AI initiatives on how they could impact employment?
We internally think that it can fit our concept of having not too gigantic teams working on games. I mean, we were sharing this I mean, we've been sharing this for quite a while that we want to keep our teams working on games, fairly not too huge. I mean, like 400, 500 team members, core team members. And letting them enhance their capabilities with AI is a great opportunity. So it fits our strategy. So that's something we can say. We are not expecting any cost-cutting in terms of cost-cutting, sorry, in terms of shrinking any teams because of the AI.
Okay. The third question comes from Piotr Poniatowski, mBank. Is just 17 developers working on Cyberpunk 2077 enough for support of the game?
Adam Kiciński again. Yes, it's enough. It's definitely enough. We are finally, since last year, very happy with the state of the game, both the base game and Phantom Liberty, Phantom Liberty from the very beginning, actually. And we think that this team is enough. It might even shrink a bit because, as for now, at least, we are not planning any further big updates. But of course, we are still looking at this game, and things one day might change. But as for now, 17 is enough.