Good afternoon, hello, and welcome to the CD Projekt Half Year 2024 conference call. My name is George. I'll be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, you will be in the listen-only mode. However, you'll have the opportunity to ask questions towards the end of the presentation. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I'd like to turn the call over to your host today, Mr. Michał Nowakowski, to begin today's conference. Please go ahead, sir.
All right. Thank you, George. Sorry for jumping the gun a little bit. Good afternoon, everybody. My name is Michał Nowakowski, and I'll be your host during today's conference, where we will sum up the first half of 2024. I will be co-presenting with Piotr Nielubowicz, and after the presentation, we invite you to participate in a Q&A session. With all hands on deck focused on development, the first half of 2024 can be seen as a quiet period in terms of big announcements. However, during that time, we organized plenty of activities to support sales of games from our back catalog. We offered players free trial versions, seasonal sales, and even mod kits. All these initiatives had a positive impact, not only on sales, but also on the longevity and community engagement around our games. That's not all.
As our franchise flywheel spins continuously, offering players new opportunities to interact with our brands, such as tabletop games, apparel, and even pop-up anime stores, like the one we recently opened up in Japan. And now, as always, let me sum up the current project engagement of our development teams. As you can see on the chart, the situation in our ongoing projects this year is pretty stable, and they have been progressing at a consistent pace. As a result, the differences between the end of April and the end of July are marginal. The sizes of each team have changed only slightly since the last status update we shared three months ago. The Polaris team is maintaining the right scale to enter the production phase very soon. All our work on both announced and unannounced projects is steadily progressing.
That's all from me, and now let's dive into the financials, which obviously means Piotr Nielubowicz.
Thank you, Michał, and good evening, everyone. As usual, let's start with our consolidated profit and loss account on the next slide. Our group sales revenue for the first half of 2024 reached 425 million PLN, nearly one-third more than in the comparative period. The growth was primarily driven by Cyberpunk, which was supported and reinvigorated by Phantom Liberty. We achieved this despite the very strong Polish złoty this year, and both CD Projekt RED and GOG.com enjoyed year-over-year increases in sales. Our cost of sales increased as well, mainly driven by the amortization of Phantom Liberty and Cyberpunk. Moving on to operating costs, our selling expenses decreased by PLN 24 million , down to PLN 61 million . This was mainly due to a decrease in maintenance costs for our released products and lower publishing expenses, as Phantom Liberty launch is already behind us.
As regards administrative expenses, the increase in this category comes directly from expenses on early phase works on new projects, presented as research work costs, and was driven mainly by Orion, Canis Majoris, and Hadar. Out of these three, we believe that although we need more time to start the pre-production stage, Orion is not far from completing all the required formal preparations and documentation to start being capitalized. Moving farther to other operating income and expenses, the positive balance of PLN 25 million during the comparative period was supported by the partial reversal and partial write-off of our development expenditures related to Project Sirius. This year, no such one-off transactions supported our results. The surplus for financial operations reported for 2024 H1 at PLN 35 million came from the usual drivers, such as interest from deposits and bonds.
Moving farther to our income tax, last year, we recorded a relatively high amount of withholding tax that was not possible to be deducted from our local tax settlements, which increased the overall value of current income tax reported for that period. This year, the influence of non-recoupable withholding tax was much lower, hence the decrease in the current income tax line. At the same time, during the first half of this year, we recognized an increase in the value of R&D tax relief available to the company, which led to an increase in the deferred tax assets calculation. All in all, our total income tax included in the P&L statement for the first half of this year amounted to PLN 5 million.
Finally, our net profit for the first half of this year amounted to a nice, round PLN 170 million, 88% more than what we've achieved in the comparative period. The overall net profitability of the group reached 40%, while for CD Projekt RED alone, this factor was close to 50%. As far as financial efficiency is concerned, what I would also like to draw your attention to is that from the PLN 100 million of additional revenue compared to last year, we generated PLN 80 million in additional net profit. Now, we can move on to the next slide, number six, our consolidated balance sheet. On the asset side, first, the usual expenditures on development projects. The balance here increased by PLN 59 million during the first half of 2024.
The new developments, mainly Polaris and Sirius, were responsible for a PLN 112 million increase, parallel to the decrease coming from depreciation, driven mainly by the already released Cyberpunk and Phantom Liberty. In preparation for future growth of the company, we continue investing into our local infrastructure, as visible in the PLN 34 million increase in the property, plant and equipment position. This growth was mainly driven by the ongoing construction of a new building on our Warsaw campus, where the new Polaris Trilogy dev team is planned to be located. At the same time, among current assets, our trade receivables decreased by PLN 110 million, thanks to this year's collection of the high post Q4 receivables, and as usual, the total value of cash, deposits, and 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 1.365 billion as of the end of June 2024. I will have a separate slide to give some more insight on our main cash flow drivers this year. Moving forward to the second part of the balance sheet, slide seven. The most noticeable change here is the increase in our equity, driven on the positive side by the strong financial performance in the first half of this year, and on the other side, by the 2023 dividend paid out at the end of June this year. Among liabilities, a visible change comes in the provisions line.
Compared to the level at the end of last year, our provisions decreased by PLN 26 million, which resulted mainly from this year's settlements of results-dependent bonuses for 2023, when Phantom Liberty was released. Now, please move on to the next slide, number eight, to the progress expenditures on research works, development, and cost of product maintenance, presented here quarterly since 2023. After the premiere of Phantom Liberty at the end of the third quarter of 2023, we visibly regrouped our dev teams. During the fourth quarter, following the release, extra effort was dedicated to servicing the fresh expansion and the Cyberpunk Ultimate Edition released at that time. And starting this year, we've been continuously growing our engagement in both research and development of future projects. And finally, our simplified cash flow on slide nine.
The PLN 170 million book net profit, which included PLN 46 million costs attributed to the research works that I have permitted myself to extract on the next bar, was supported by PLN 60 million in depreciation and amortization for the period. Collection of receivables, despite a decrease in liabilities and provisions, allowed us to generate PLN 61 million during the first six months of the year. At the same time, PLN 37 million was expensed for the acquisition of tangible and intangible assets, as discussed on the balance sheet side, slide. Summing up all the above, thanks to the longevity and continued strong performance of our games, we came up with an estimation of over PLN 300 million generated by the ongoing business.
At the same time, we continued work on new projects and technologies, both in the already mentioned research phase and development phase, PLN 46 million and PLN 107 million, respectively. And last but not least, at the end of June, we shared with our shareholders a nearly PLN 100 million dividend. All in all, our financial reserves, kept in cash, bank deposits, and bonds, increased by PLN 56 million over the reporting period, reaching PLN 1.37 billion. Summing up the whole financial part, even though this year we had no new releases, H1 results show that our existing catalog is healthy and strong, allowing us to not only finance work on multiple new projects, but also, yet another year in a row, pay out a dividend to our shareholders. 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, as a reminder, if you wish to ask any audio questions, please press star one on your telephone keypad. That's star one. And also, just make sure your mute function is not activated in order to let your signal reach our equipment. Our first question today will be coming from Nick Dempsey, calling from Barclays. Please go ahead. Your line is open.
Yeah, good afternoon, guys. I've got two questions. First of all, in Q2, you had PLN 57 million of cash spend on development projects. Is that a sensible way to think about Q3 and Q4 levels, or should it logically continue to increase as your two main areas of focus, in terms of development build? And the second question: Have you had any discussions since we last heard from you with third parties regarding the licensing of your IP for the creation of mobile games? Thank you.
Hello. So I'll take the first question. In terms of our expenses on development, yes, we are slowly progressing and increasing, as it was visible on the slide with servicing, research, and development works. Moreover, as I mentioned, with Orion, we are close to moving from the research phase to the development phase in IFRS terms. So this part of expenditures that was so far booked in our P&L will soon become treated as development expenses and presented as capitalized in our balance sheet.
I'll take the second question. In terms of the licensing IPs for mobile games, we don't have any announcement to share here and now. Should there be anything we can share with a wider group of people, we'll be doing that in due time. Thank you.
Thank you.
Thank you for your question, Mr. Dempsey. Ladies and gentlemen, as a reminder, if you have any questions, please press star one at this time. We do not appear to have any further audio questions. We're going to take questions that have been submitted through webcast at this time. Thank you.
So I'll read the first question from Krzysztof Tkocz, BDM: Can you tell us more about your work at Unreal Engine? Does working on a game with such a large open world as Witcher 4 pose a challenge for this technology?
I can try and answer this question. So nothing is easy in life, nothing worth doing, obviously. But at the same time, we feel quite confident with our choice, and of Unreal technology, and our collaboration with Epic, on working on making this technology viable for, you know, for the open world game. We're working on a lot of, you know, tailored tools for ourselves as well. So, you know, in due time, when we're gonna be showcasing what we're working on, you will have a chance to, you know, judge yourself. But we're confident with our choice. And I can maybe read the next question.
Would you rather follow the Rockstar path of sharing news independently on your own, or are you more inclined to use big gatherings, global events, and so on? I can maybe try this one as well. I think the way we look at it is maybe a mix of both, to be perfectly honest, as we did in the past. I mean, sometimes we do things on our own, like streams, sharing news with the fans, but we are not staying away from, you know, global events like, you know, game festivals or, you know, first-party online or physical events. So, yeah, I think it's a mix of both for us, in our case.
Another question comes from Krzysztof Tkocz, BDM. After redefining the framework of the Sirius project, do we still have to take into account that it's potentially experimental project, and that you may abandon the project at some stage if it does not meet your expectations? Work on Sirius is definitely progressing. The game is being developed by The Molasses Flood, an autonomous studio, and it's a different type of game compared to our triple-A single-player RPGs. So in this sense, it may be treated as experimental, but at the same time, we closely monitor results of development work on an ongoing basis, and thus, we are satisfied with them.
Okay, and the next two questions actually are from Piotr Poniatowski from mBank. The first one is, how has Gamescom from your point of view? Any fruitful meetings? And the second one is, could you give us some update on the live-action project? So as for Gamescom, I thought it was a very good Gamescom. We had lots of updates, lots of catch-ups, and, you know, new kinds of opportunities, meetings. You have to understand, though, that, you know, from a meeting to things happening, it can take years. So but in general, we were very, very happy with, you know, how Gamescom came together for us, from any possible angle, to be honest.
As for the live action, we don't have any new update beyond what we already so far, but we're happy with the pace at which things are progressing, you know, on that front. So again, when the time is right, we're gonna be sharing some more news for sure.
Next question comes from Maria Mickiewicz from WOOD: When should we expect your development team to start growing more visible? So in general terms, the biggest part of the team works on Polaris right now, and in this respect, we feel the team is kind of complete. Probably it will grow a bit, but we believe we have the force, we have all or absolutely most of the people that are required for the project. So in this part of our activity, we do not expect any significant increases. At the same time, Sirius and Orion, probably with the Orion first and foremost, we expect future growth also next year.
Orion, that was presented on one of the slides, right now is around 60 people, and we believe that over the course of next year, it should probably double the headcount. Sirius will also grow, but probably not that dynamically. On the other projects, we also keep growing. However, as some of them are made together with external partners, the headcount on our side is limited.
Okay, and the next one is coming from Krzysztof Tkocz from BDM. And the question is, when creating the framework for the new Polaris saga, did you rely on any surveys about what players expect, or are the assumptions of this project based entirely on your own intuition? So, we never actually, in our development history, relied on any surveys, to be honest. It's a mix of, you know, knowing your niche, being the expert in it, and relying on your guts. We do obviously have, you know, research and some trials, you know, when it comes to user experience or interface.
That's the thing we do research, but not in terms of if I understood the question correct, of course, not in terms of you know, how the storyline should go or something. I mean, none of the Witchers or Cyberpunks were done this way, and we don't see that happening in the future. You know, how we are planning you know, the next trilogy is actually in line with what we've been thinking about for a long time in high level, and obviously, getting into more detail as we get closer to the launch of the first of the three. I guess that will be my answer.
Next questions come from Piotr Bogusz, Erste Group. How is the team building going for the Orion project? When can the team growth for this project be expected to accelerate? What might be the target size of the team working on the Polaris project? So the first, Orion, as I already mentioned, we plan to kind of double the team over the next year. Right now, the team works from three locations, Poland, Vancouver, and Boston. And it's a mix of people working, cooperating together, and we definitely plan to growing it. What might be the next? The second question was about the size of the Polaris, target size of the Polaris, team.
It's slightly above four hundred right now, and I believe that we should continue the development of the game with four hundred something. The team may somehow increase, but still, I believe we will stay with four hundred something people on this project. The next question comes from Daniel Paćkowski, StockWatch.pl. What about building a portfolio in the sphere of pop culture? Will the series, Cyberpunk: Edgerunners, have a continuation? Michał, I think that's for you.
Okay. Yes, we are planning, of course, to have more in the franchise flywheel of pop culture. This is very much at the heart of the other in our interest. When it comes to specifically Cyberpunk: Edgerunners having a continuation, I'd rather, you know, bring back the words I said before, which is we are definitely planning to do more in terms of animation with Cyberpunk. I hope that's enough as an answer. Expect to see more, for sure, but that's as far as I can go right now, right here. And I can maybe read the next question as well. Can you please comment on when you will be able to.
Sorry, this is coming from Alexey Philippov from JP Morgan. Can you please comment on when you will be able to update the market with the hard release dates of the next game? Or perhaps, what milestone do you need to see to be in the position to set the release date? So we will update the market on the release dates, when we will be kicking off the pre-orders. That's honestly the answer, and there's no more magic to it. And I can probably narrow it down because, for example, the console digital storefronts allow you to set to start the pre-orders no longer than a one-year pre the launch date. So that gives you sort of an idea, and when it comes to, you know, milestones and so on, we don't really comment on that specifically.
Next question comes from Maria Mickiewicz from WOOD . As for now, Polaris team seems visibly smaller than Cyberpunk team in the peak. Should it grow going forward, or stay around the current level? Is the Orion target team expected to be also smaller than Cyberpunk, more like Polaris? So basically, yes. As I mentioned before, one of the learnings from Cyberpunk development was that the team was, in our opinion, a bit too big. And we would like to work on future developments with slightly limit the teams versus the Cyberpunk one, and that's the approach we are trying to apply, both on Polaris right now, and both on planning Orion over the next years.
Okay. And, the next one is from Simon Silverston from Schonfeld. The question is, "Once a AAA game enters the production phase, how long does it usually take to be ready to launch? Is there any reason why Polaris will take a shorter or longer amount of time?" I think the answer to that question really differs from game to game in general, when I'm talking in general, because there are AAA games I'm pretty sure that are maybe made around maybe three years, and then there are games that have been, you know, in production for a very long time.
Historically, for us, you know, we've been launching our games from the moment we start till the moment we launch in about, like four or five-ish, sort of period of time. Is there any reason why Polaris will take a longer or shorter amount of time? Nothing that would really come to mind. I mean, it's got every tool possible at its disposal to, you know, to just progress the regular path. The next one is from Alexey Philippov, from JP Morgan. You mentioned that your work on the unannounced projects is progressing. Are we talking about the potentially new game that you have not been announcing? I'm sorry, or you meant other projects around existing franchises?.
I'll take this one. So unfortunately, it's too early for us to share anything with you today on the unannounced projects, but as always, we have new ideas that we are researching, testing, and assessing internally.
Okay, since we have no further questions, I would like to thank you all for participating today, and should you have any additional questions, please do not hesitate to reach out to our investor relations team. Have a nice evening, and goodbye. Thank you.