Ladies and gentlemen, welcome to the conference call of CD PROJEKT S.A. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulty seeing the conference, please press star key followed by zero on your telephone for greater assistance. May I now hand you over to Adam Kiciński who will lead you through this conference. Please go ahead, sir.
Good morning. Welcome to the annual results conference of CD PROJEKT Group. Today, we'll talk about key business events and financial data for 2019. My name is Adam Kiciński, and I will run the presentation together with Piotr Nielubowicz, as always. There is also Michał Nowakowski with us, and he will join us in the discussion section, which is planned in the second part of the conference. This is, of course, a Q&A session. The presentation in PDF format is available on our webpage, cdprojekt.com, in the first white tile on the right titled CD PROJEKT Group Presentation FY 2019. In the past, Piotr and I were on the stage together during annual conferences. This time, exceptionally, the conference is organized as a conf call due to the pandemic circumstances. I would like to start the presentation with a short update of our response to COVID-19.
Let's jump to slide number three. We started an intensive preparation to be able to work from our homes in the first half of March. We multiplied the connection bandwidth in the office, laid down new cables, brought in new hardware and software, enabling us to effectively connect all team members to our internal servers so they can all work remotely. By the 16th of March, we had already moved over 1,000 people CD PROJEKT RED and GOG offices to the safety of their homes. The whole operation went smoothly. Of course, all those measures were preventive, as by mid-March, the pandemic in Poland was only just starting. The first three weeks of remote work have shown that we are able to carry on all internal work without bigger turbulences. Therefore, our plans haven't changed, and we are vigorously continuing preparation for Cyberpunk's launch in September.
Moving on to the summary of the last year, I would like to start with a couple of slides about key business events of 2019. Let's jump to slide number six. Our games debuted on new platforms. We released Witcher 3 on Nintendo Switch in October, and it was our first game ever released on a Nintendo platform. Therefore, our flagship game and key generator of the current results is now available on four platforms. Regardless of the fact that the game is already five years old, its sales are still outstanding. Please move on to the next slide, so number seven. Last year, we sold almost twice as many copies of Witcher 3 as in 2018. This is more solid proof that focus on quality is critical to our business and it's worth investing time and money in games that can sell for many years.
On the next slide, number eight, you can see the increase of the digital distribution in sales of Witcher 3 over the last five years. Today, digital distribution is the dominant revenue generator for us. Additionally, our royalties on Witcher 3 products on Steam, which is currently our biggest seller, have increased to 80% earlier this year. Moving on to the next slide, which is number nine. GWENT, our online free-to-play game, debuted on Apple mobile devices in the end of October. It was a key milestone in GWENT's development as the game was designed from the beginning with mobile devices in mind. On the next slide, number 10, we can see that iOS accounted for more than half of the total revenue since its release till the end of the last year. It clearly shows that GWENT landed well on mobile devices.
Two weeks ago, we added Android version, but this is a story for the sum up of the results of Q1 this year, which is planned for May. Let's move on to slide number 11, I'm passing the presentation over to Piotr. Piotr, the floor is yours.
Thank you, Adam. Last year was a very good year for us indeed. Also, in respect of the financial results achieved. Please go to slide 12, our Profit and Loss account. Group revenues exceeded PLN 521 million. Most of this amount, PLN 304 million, came from sales of our own products, The Witcher 3, including the release on Switch, GWENT, which premiered on iOS devices, Thronebreaker, The Witcher 2, and The Witcher 1. Next line, PLN 38 million of revenues from sales of services was delivered CD PROJEKT RED and consists of revenues obtained in collaboration with external publishing partners in the framework of the Cyberpunk promotional campaign and, to a lesser degree, the promotion of The Witcher 3 release on Nintendo Switch.
The next big source of group revenues came from GOG.com segment and PLN 154 million covers digital sales presented in the revenues from sales of goods and materials. As usual, GOG platform and GOG GALAXY sales beat the results of the previous year. This line also includes PLN 35 million revenues CD PROJEKT RED, which mainly consists of sales of physical elements of Cyberpunk Collector's Edition and physical elements of The Witcher 3 on Switch to our distributors. Also our first PLN 6 million of revenues generated by CD PROJEKT RED store, which started operation in the middle of 2019. All in all, our 2019 sales grew 44% compared to the level achieved in 2018. Where sales grow, cost of products, goods, and materials sold usually increase as well.
The increase of cost of products and services sold comes from full year depreciation of expenditures on development projects related to GWENT and Thronebreaker. Those products were released at the end of 2018, and therefore, the proportional depreciation in 2018 was lower. Moreover, in the last quarter of 2019, we released and started depreciating the expenses related to Witcher 3 Switch edition. Cost of goods and materials sold also went up. However, the increase was slightly lower than the growth of revenues for this category. Great sales allowed us to achieve PLN 360 million of gross profits on sales, 40% more than a year before. At the same time, all operating costs grew by 25% and reached nearly PLN 180 million. The growth comes mainly from three cost groups.
First, promotional and advertising expenditures, especially related to Cyberpunk, GWENT, and The Witcher 3. Secondly, remuneration of team members, both fixed and dependent upon groups results, and early recognition of costs related to our motivation program due to revision of the expected moment of attainment of the goals of the program. Since the operation costs increased less than our gross profit on sales, we enjoyed 60% growth of EBIT and same 60% growth of the net profit of the group. Our net profit for 2019 reached PLN 175 million. Big part of our result was delivered during the fourth quarter of last year. Please go to the next slide number 13. This chart presents CD PROJEKT Group quarterly revenues for 2018 and 2019. The Q4 release of Witcher 3 on Switch and GWENT on iOS significantly added to the sales of the best season of the year.
On top of that, the popularity of The Witcher series from Netflix certainly added to the recognition of The Witcher universe at the very end of the fourth quarter. As you all know, the revenues we book into our P&L are offset by costs and expenses, and the remaining revenue that is not expensed becomes our profit. Please flip to the slide number 14 that presents how the quarterly revenues were allocated between costs and expenses and net profits. During last quarter of 2019, our net profit was bigger than all the costs and expenses together. Which means that the net profitability we reported for this quarter reached 51% of the revenue. I'm really proud to say that in respect of sales, the fourth quarter of 2019 was the best fourth quarter we ever had in the history of CD PROJEKT Group.
Better still, it was the best fourth quarter ever, not only in terms of sales, but also in terms of our net results. Let's go to the slide number 15, our balance sheet. Assets. Our fixed assets grew, especially in line with the development of Cyberpunk, Witcher 3 on Switch, and other projects we work on, which is visible in the expenditures and development projects. I will come back to this in a moment in more detail. All other fixed assets grew by nearly PLN 140 million and the growth comes mostly from, first, investment into our campus. At the end of October, we acquired the building complex in which we have successfully been growing for the last two decades. We want to create a unique complex, tailor-made to game development needs that will secure our future growth and working space for upcoming projects.
Secondly, recognition of rights under our different lease agreements in line with the application of IFRS 16 with a total value of PLN 20 million, which is offset by the corresponding other financial liabilities on the liabilities side. Last, all tangible and intangible assets we purchased or replaced last year. Inventories at the end of 2018, 2019, sorry, reached nearly PLN 30 million and grew due to preparations for Cyberpunk premiere. It also includes the newly created inventory of CD PROJEKT RED store, which started its operation in 2019 and is servicing both European and North American markets. Receivables went up at the end of last year to the considerable amount of PLN 210 million, which is PLN 152 million more than at the end of 2018.
The reason for this high value comes from great sales at the end of the year and VAT-related receivables, mostly linked with our purchase of the immoveable property. The good news is the 2019 receivables have been flowing to us in 2020 with no turbulences. Another significant line, cash and bank deposits. I will come back to this in a moment. Our equity grew and there were two major opposite forces shaping it, dividends paid out to shareholders and the net profit of 2019. Long-term liabilities. This is mostly the other side of the IFRS 16 and the leasing agreements I mentioned a minute ago. Our liabilities at the end of 2019 grew slightly, reaching PLN 73 million, which comes mostly from trade liabilities of both GOG and RED segment.
Finally, my most favorite line among liabilities, deferred revenues, PLN 145 million out of the PLN 161 million comes from advances on royalties for Cyberpunk PC digital pre-orders and initial advances on minimal guarantees from our physical distributors. This line grew quarter- by- quarter in 2019. It's worth mentioning that it also grew during the fourth quarter as the incoming amounts related to Cyberpunk were higher than the total value of advances related to Witcher 3 on Switch, which was released in Q4 and all the pre-orders were booked into sales. Provisions. It includes different provisions, but the most significant position is related to reserves for annual bonuses dependent on our profit of the year. This year, the result outperformed last year, therefore the provisions for 2019 profit-related bonuses are higher than a year ago. Good. Let's go to the next slide, number 16.
Promised changes in our expenditures on development projects. We started 2019 having nearly PLN 243 million invested into our development. Out of this, PLN 178 million was related to work in progress and PLN 65 million to finished projects, GWENT and Thronebreaker. During 2019, this position in our balance sheet increased by PLN 173 million, mostly due to development of Cyberpunk, Witcher 3 on Switch, and other projects we have worked on. In October 2019, we accomplished the Witcher projects, and PLN 30 million was moved from work in progress to finished goods. Finally, during 2019, we depreciated nearly PLN 30 million of expenditures on finished development projects, GWENT, T hronebreaker, and Witcher 3 for Switch starting from October. The total amount of expenditures on development projects at the end of 2019 reached nearly PLN 386 million. Let's go to the next slide, number 17.
Our cash and bank deposits balance decreased over 2019 due to three major reasons. First, we paid PLN 101 million dividends. Secondly, we invested over PLN 121 million into fixed assets. The biggest investment was made into our campus, and we spent PLN 165 million on development projects. From all our remaining activity, we generated PLN 210 million of positive cash flows. That is by PLN 35 million more than our net profit for the period. What is more good news, at the end of 2019, we still had PLN 220 million of open receivables, which as I said a minute ago, reinforce our accounts in 2020. Please turn to slide number 18. The results and achievements of last year allowed us to attain the goals of our incentive program, which I would like to present starting from slide 19.
The first goal, responsible for 20% of entitlement, was for our stock price to grow as much as the WIG index + 100% points. Since the end of 2015 till the end of 2019, the WIG index grew 25%, and CD PROJEKT shares grew substantially more, nicely exceeding the target. On the next slide, number 20, please find our profit target for the years 2016 to 2019, responsible for 80% of entitlement. The profit target was PLN 618 million. Altogether, during the last four years, we earned PLN 735 million, which is PLN 117 million above the target. Therefore, both goals of the incentive program on the group level were attained. Formal confirmation will come after our Annual Stockholder Meeting.
As the old motivation program will soon be over, as we have big challenges and opportunities in front of us, we, the board of the company, would like to propose to the stockholders meeting of CD PROJEKT to set another long-term incentive program for key CD PROJEKT Group team members. Basing on our successful past results, we believe the next program should be shaped on the same logic as our two previous programs. The current program included three base goals that grew over time. Please refer to the page number 21. Obviously, the goals of the new incentive program should be updated. To put them into perspective, we presented them on slide number 22 together with the goals of the current program. During the timeframe of our first incentive program until the release of Witcher 3, CD PROJEKT Group earned between PLN 5 million and PLN 28 million a year.
After the release of Witcher 3, during the timeframe of the most recent incentive program, our net profits varied between PLN 100 million and PLN 250 million a year. We would like the new program to move us again to a new level, where our average net profit could be measured in billions of PLN. Same as last time, we would also like to set premium goals. Please have a look on the slide 23. PLN 10 billion is the ultimate goal for the six-year period between 2020 and 2025. At the same time, we do not want to be driven solely by the need to achieve particular financial results. As always, the main target for us is to stay focused on quality, to be fair to gamers, and develop the greatest games we can imagine.
If we do that, I'm convinced the profits will come as a natural consequence of our work and dedication.
Thank you. That's all from my side. We can now start the Q&A session.
Ladies and gentlemen, if you would like to ask a question, please press zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial zero and two to cancel your question. If you are using speaker equipment today, please lift the handset before making a selection. One moment, please, for the first question. The first question is from [Robert Burke], Berenberg. Your line is now open.
Hi. Yes. Thank you very much. Three questions from me. The first, it sounds like fortunately everything is going well with regards to working from home and development, and everything in your control seems good. What about any elements of the release of Cyberpunk 2077 that's out of your control? We hear about certain rating agencies that have kind of slowed down or shut down. Is there any elements that you're concerned about, certain aspects of development that are out of your control? I have a couple of questions on your incentive program. Looking at those slides, you can see a slightly bigger increase in your targets in 2025 versus 2024. Is that implying anything about the release cadence of certain games? On tax, a slight update would be nice. What tax rate are you using in your base case assumptions? Thanks.
All right. I can start with the first question. This is Michał Nowakowski, and the rest is probably going to be addressed by Piotr, I would imagine. The first one, you were asking about the rating agencies. Is that what I got?
Yes.
We read about Japan closing for a month, and I'm not sure if any others are.
Right.
-similar
That may be the case, we have obtained vast majority of ratings already for the game. The game has been submitted for the ratings, I think. I don't want to lie to you with exact dates. I don't remember the exact date, but it was earlier in March. By now we have obtained vast majority of ratings, so there's no risk of us not obtaining rating for the game, in any of the major markets or in any of the not major markets for that matter. We don't really see any major physical related or any risks related to the launch that may impede us or stop us in any way from launching in September. There are some difficulties with the localization process, which specifically with recording some of the actors. Most of the studios are right now closed down, at least for the time being.
We have managed to record vast majority of the voiceovers, but there is always some last pickup sessions. We're not very worried about that because that's something we can record even late and add in a form of digital patch. By the moment the customers would actually buy the game in September, they would just download a file, which would add the missing pieces of recordings. That process has been hampered a little bit here and now. It's not something we identified as a major risk. This is literally the only thing that is on our radar. Everything else, we either already are past that hurdle, so we're not really impacted by it, or things are progressing smoothly or business as usual, I would say.
Great. Thanks.
All right. I'll pass the remaining two questions to Piotr.
Yes. The targets of the motivation program are not directly linked to our financial plans, obviously. They are somehow related to the products roadmaps that we are planning to bring to the market, develop and bring to the market. It's rather a general idea with, we believe, ambitious goals for the future that we would like to meet by releasing the games. I cannot directly answer the question about the effective tax. We will always be doing our best to pay the required taxes based on the future regulations. The standard income tax rate in Poland is 19%, and this year, we were able to lower it down to 7% of the effective tax rate, thanks to certain tax preferences that we could apply for, which is IP box regime and the relief for research and development work.
The future targets are not directly linked on couple of tax percentage points lower or bigger, better or lower results due to that.
Okay. Thank you very much.
The next question is from Matthew Walker, Credit Suisse. Your line is now open.
Thanks very much, and good morning. The first question is on the marketing strategy for Cyberpunk. Obviously with the conferences shut down, can you explain a little bit more about how you're going to reach people and market the game? Secondly, with physical stores obviously also being shut down, we don't know how long that's going to last. Hopefully not that long. Can you give us any insights as to any hitches potentially with physical stores? I think you said previously that you expected the release to be maybe 50% physical, at least for the first few weeks. Will you revise that view based on what's happening with the physical stores? Lastly, can you say anything at all about the mobile game that Spokko is working on and any timelines? Thanks a lot.
All right. Hello. Again, it's Michał Nowakowski. I'm going to take the first, well, two, three, actually. Second and third is kind of connected to split and physical stores. Spokko, I think I'll pass to probably Adam, I would imagine, or Piotr. First of all, the marketing strategy and the missing E3s, the games comes in all the shows. We've been planning for that since as early as I think second half of Feb. This has not been too much of a surprise to us, to be perfectly honest. We've been working on a digital strategy to unveil new facts about a game, to present new beats to the players without these events.
One has to remember that while, of course, E3 and all that is super important, the conferences were presented to the vast majority of consumers via digital format, so people were watching that on streams, Twitch, Mixer, whatnot, re-watching on YouTube and so on. Vast majority of that content was consumed in a digital form anyway when it comes to mass consumers. That won't change. We are working, however, on smart ways to present it to as large volume of people as we can. I'm not really able to go into details here on this call because that's part of the mix we're working on. We have plans for beats from June through September without any physical events happening, and we're able to execute the whole marketing mix without that. When it comes to the final marketing mix, there are various scenarios we're considering.
There is also a scenario we consider as purely digital marketing. Of course, we're not at this very moment in time excluding other forms of marketing, such as physical in-store presence or out-of-home, but of course, that will depend on how the situation in particular markets is going to evolve. The situation is so specific that a lot of these assets available for placing marketing in special places is pretty much frozen right now, and we'll be able to react very, very fast. We are ready in terms of actual our assets to be everywhere we want to be. We're prepared to be both physical and digital should need be. We're keeping the flexibility for as long as we can.
We're constantly updating each other on the major markets, also on the smaller markets, we'll react accordingly depending on what is the situation once we get closer to September. It comes to the retail stores. Vast majority of the market, the physical retail is closed. The effect of that actually does vary depending on the market. There's markets where despite the closure of the physical stores, the sales have spiked. That happened actually in some of the most hard-hit stores to the point that in those markets, the consoles are completely sold out. The physical sales, the box sales have actually risen to some point. It is not true for all the markets. Of course, that we recognize this is a dynamic situation. It's just because that happened in March doesn't mean that has to be the same situation in April.
All said and done, you have to remember we're launching in September, so that is still five months away from now. We assume that things will change significantly, and we hope for the better. We imagine that stores may be open. There's another question of what retail channels will gain advantage in a given market or lose advantage in a given market. What we're seeing is that in the territories where this is happening, so some retail losing importance and some gaining importance, the overall number seems to remain more or less the same. Of course, the retailers which you'd expect would naturally benefit from delivering packages straight to people's homes are taking advantage of that situation. Not in a bad way, taking advantage sounds wrong. They just benefit from that naturally because this was the natural source of business anyway.
Coming back to your last question from the pool I'm taking, which is the split. We built a couple of scenarios, of course, depending on various scenarios of what might be in September, but we're not really officially changing that split. That change may split slightly in favor of digital for sure, which by the way, would mean bigger revenues from a sold unit for us, of course. This does not necessarily have to be the case. A lot will depend on how retail is going to cope with the situation in the coming months, what is going to be the outcome of that come September, that's pretty much it. For now, we're not really making major shifts in our planning. It's too early, and we're still going to be analyzing that situation.
The situation does not look grim or bad for sure. On the Spokko title?
Yes. Adam Kiciński on this end. We can't say too much, to be honest. The prototype is playable. We are testing it. One of our lessons from GWENT were that, releasing online game can wait till the moment that we are sure that we have absolutely amazing fun play, cool game. We are now focused on internal testing, and we are now focused on making the game better and better. It's too early to say when we'll be ready to release it. The fact that we want to release very polished product, is even more important bearing in mind that the game is purely mobile. For now, we can't share any further details about Spokko project.
Okay. Thanks, guys. Thank you.
Thank you.
The next question is from Nick Dempsey, Barclays. Your line is now open.
Yeah. Hi, guys. I've got two questions. One, just a follow-up to Matthew's question about the digital-physical split. I guess we all have a go in our model at trying to see the difference between a digital unit and a physical unit. Is there anything you can say now to help us understand, if that mix went to 60/40 rather than 50/50, the kind of benefit per unit you get in your revenues for digital versus physical? Second question, just in terms of competition around your launch date, and we've seen a few games being delayed already. I guess we can all imagine that a few more may be delayed because it must be difficult to market games at this moment.
Is there a risk that we're going to have quite a pileup of new launches towards the back end of the year, and that might make it more tricky for you to do the numbers of units from a competitive point of view that you might have hoped?
This is Michał Nowakowski, with the second one, so with the pile up the titles towards September. There is some shifts of releases, of course, happening right now. Frankly speaking, I'm aware of one major one, which is The Last of Us, which is the only one, a really big one I'm aware of. They haven't actually proposed a new date just yet. Come back to the origins of your question. We're not really worried. You're never launching in a time which is exclusive to you. There's no such thing. September has anyway been a very competitive period of time, and we've always been looking at that, being aware of that. If it becomes a tad bit more competitive, that's fine. We believe we're gonna be launching with a title that's gonna be a must-have title.
People are gonna choose it because they really have been waiting hard for that, and this is gonna be the moment they can enjoy that. We don't know how many titles will pop out in the window. Nobody knows that for sure. Probably even the owners of the brands are not 100% sure of that just yet because they haven't made up their minds just yet. We're definitely not planning to move our date, I don't know, because somebody else is gonna land in the window. That's as good as answer I can give you right now. We're definitely not planning to move because of somebody else coming into that September window.
Okay. Coming back to the first question, what could be the impact of changing proportions between physical and digital sales? Historically, for the initial period of Witcher 3 market sales, on each digital copy, we were earning twice as much as we did on the physical copy sold. This data is proper for the specific case of the Witcher 3. Our physical royalties are paid based on the revenue made by the physical distributor, plus all the costs related to the premiere and distribution of the game. Some of the costs are fixed costs, like the marketing campaign. The final royalty per copy depends on what is the proportion between the variable revenues and the fixed costs of releasing the game. The more you sell, much more than proportionally, the bigger the royalty will be.
I cannot give you a clear answer, especially in this new situation, as it's really a new opening to estimate what exactly sales will be in digital and physical. The situation we know from the past may not be naturally applicable to the future sales.
Thanks, guys.
The next question is from [Ann Mkhitaryan, B2B Capital]. Your line is now open.
Good afternoon. Congratulations with good results. I would like to ask some questions. Firstly, how would you assess pre-orders for Cyberpunk 2077? Can you share any update? Secondly, could you share any update on your plans related to new games, particularly, do you have more clarity about Cyberpunk multiplayer and how it will be monetized? The last question is about your expenditures on development of new games and technologies. They reached PLN 175 million in 2019. Which trend would you expect in 2020 and further? Thank you.
All right. On the pre-orders, this is Michał Nowakowski. We're not really disclosing the numbers or any details of the pre-orders. I can only state what was stated before, which is we're happy with the way they're progressing. That has not changed. We cannot go into any details really. This has always been the plan not to share specifics around that.
Adam Kiciński on this end, and regarding our next project, we are going to talk a bit more about the future after releasing Cyberpunk. For now, we are not going to reveal any details about the future projects, any more details, because we said that there will be a series of events after releasing Cyberpunk, but nothing new to be said today as we want to focus all gamers and all our clients solely on Cyberpunk release, not to distract their focus. Piotr, maybe the third question is for you.
Yes. We're not giving any guidance on future results. The general situation with our development for the future is that definitely we will not be decreasing the team, the whole team, and probably even increase. We'll keep on working as we still keep hiring and growing. Salaries, which are a big part of the R&D expenses on our side, will not decrease. At the end of 2019, and same will apply to the first month or at least first two quarters of 2020, we will also have some extra expenses for localization, for testing and some other expenses related to the final stage of production of Cyberpunk. Obviously, once we release the game, this part will be gone for some time until we finish another project. This should decrease the quarterly or annually spend on our development projects.
Thank you.
So far, we have no telephone questions at the moment.
Okay, we should proceed to the questions we got in a written form. How many developers are now working on Cyberpunk 2077, and how many on multiplayer version of the game? There are 600 people working all together on Cyberpunk related projects, or a bit less than 600. The team is focused, of course, on single player release. Some people from multiplayer are engaged in single player and the other way around because those projects are directly connected. The team in Wrocław, which is 40, is dedicated to multiplayer. That's what I can say, that the vast majority is working on single player release.
Sorry. This is Michał Nowakowski. The next question is, do you feel comfortable with September release of Cyberpunk? What else is there to do to finish the game? How many people are there in QA testing the game? Do we feel comfortable with the September release of Cyberpunk? Yes, we do. What else is there to do to finish the game? Lots of small things adding up to a larger thing. To simplify, we need to send the game certification to the first parties, and then it's pretty much work till the launch of the game on the day zero patch, fixing and polishing, and that's pretty much it. The game is in a complete form.
It's done, and it's all bug fixing, polishing, and like I said, it's a lot of smaller and bigger activities adding together to that s tage where we sent the certification, it goes into manufacturing. Some components of the game are actually already being manufactured or have been manufactured in physical form. In terms of QA testing game, it's about 130, 150 people working on it right now.
Another question, do you plan buyback of your stocks to offset supply of stocks after current incentive program is over? Any such decision on our side would need to be reported. Far, there was no report on that. Far, there is no decision at all in this respect.
Another one. Do you think that your effective tax rate from 2019 will be sustainable in the next quarters? Can you comment on how the rate is calculated? Our effective tax rate for 2019, as I already mentioned, includes both the IP Box regime and R&D relief.
In order to be able to qualify for the tax preferences, we need to have products that meet the criteria of the tax preferences. In case of The Witcher, we could apply it nearly entirely. In case of some other projects, it's not that easy. The effective tax rate in the future may vary depending on the situation, depending on the release, and depending on the composition of our revenues and profits, on what we make the profits. All the physical sales, like gadgets and other physical products, do not qualify to this. Our own game, in vast majority do. The final proportion will depend on the product mix and the revenues mix we'll generate in the future.
The next question is, it is difficult to provide physical copies of games these days. Considering this, do you consider postponing the premiere, the launch of Cyberpunk? First of all, I'm not sure what is meant by provide physical copies of games these days. I'll try to answer from a couple of angles. First, the manufacturing, it's not impeded in any way. The manufacturing of physical copies, even right now, all over the world, in all the facilities, is pretty much happening normally without any difficulties. If you mean by provide, providing to the physical stores, that is not impeded at all either. All the physical stores that continue to sell and that are able to sell, the transport is happening normally, so there's no issues whatsoever as well.
The last thing, if you mean to providing to the end customer, something I addressed in a previous question, somebody asked about that. As I mentioned, even right now, in quite a few really hardest hit countries, I don't want to say specifically, there has been an increase of physical copy sales, not only of digital but physical. It seems a lot of retailers have adjusted very well actually to that situation. This is not something that we've been expecting, to be perfectly honest with you. Again, time will tell how the situation will evolve, should they continue to be closed. For now, in the vast majority of the market, there doesn't seem to be as much of an impact as we actually thought there may be on the physical side of things. Again, just to remind, we're launching in September. We're not launching in May.
We're not launching right now. We're not launching in June. We do assume that things will change, hopefully for the better, by September time. Again, like I said, currently there's no damage in the supply chain, starting from manufacturing to shipping to the end consumers of the physical boxes. I would be far from judging right now what is going to be the impact of the current situation on the September situation, because the September situation could be very different. We're hoping it's actually going to be better.
The next question is, current testing Cyberpunk is internal or external? The answer is that both. We have both internal and external testers. Internal testers work from their homes through VPN. The situation is very similar to what we had with The Witcher 3, although the number of testers is almost doubled compared to The Witcher 3. The next question. Where does the difference between best case and optimistic scenario, which is PLN 8.3 billion and PLN 10 billion net come from? Does it depend on the release date of the next big title? No. Basically, the difference between the base case and the premium scenario is that the premium is based on the same targets. However, the assumption is made that the targets are made within one year less.
The fourth-year target for the base case should be made in three years to reach the premium goal. Fifth five-year goal should be made in four years, and six-year goal should be made in five years. By moving the targets a year before, obviously we happen to have a gap for the sixth year. The premium PLN 10 billion ultimate goal of the program is our dream, our target for ourselves of what we would like to achieve in such a premium scenario as the ultimate goal to be reached. It does not depend on releasing or not releasing, maybe in the base case scenario, another game within the same six-year timeframe.
Another question. We can only find the pre-orders from Steam and GOG.
Can you please provide us with any comment if console sales on the platforms not included in the deferred revenue position might be similar to PCs? In general, pre-orders on consoles are lower comparing to PC. PC is more pre-ordering platform. In our balance sheet, you cannot find the console pre-orders because the console platform holders are not prepaying advances on royalties based on pre-order campaign or pre-order effectiveness. Therefore, it's not visible. In the deferred revenue line, we present only PC pre-orders advances and also advances from our physical distributor, with whom we have contracts, and based on a contract, some amounts are due to us prior to the release of the game.
Hi, it's Michał Nowakowski again. The question is, since you already have development kits from Sony and Microsoft, I am assuming it's about next- gens. Can we assume that once future consoles hit the market, Cyberpunk will be immediately available, or will you take some time to finish the port after the consoles are released? We have announced in response to Microsoft's announce of their Smart Delivery, that we will, when the version of the next-g en is going to be ready for CD, that it will be available for the players who purchase the Xbox One version. There's no official announcements coming from PlayStation. We really cannot confirm or deny anything. It's PlayStation that first needs to address these issues. Then we're happy to make a comment. We cannot jump the gun ahead of them. I hope you understand that.
In terms of Microsoft console, like I said, we have officially confirmed both the updates and the cross-gen availability, meaning that you'll be able to play the game from the get go on the next gen. When it comes to a proper, fully blown next gen version, that's going to come later. We haven't announced when, and I don't have a new comment here on that. Such patch will be available for everybody who purchases the Xbox One version here and now from the get go. Once that update is live, they will be able to download that free of charge. That's the announcement we have officially made. Again, I cannot really comment on the policies of the first parties before they officially announce them. Cannot address the PlayStation part of the question.
Adam Kiciński again, and the question is, how big impact for Netflix you see for sales of Witcher in Q1? As Q1 results are not published yet, we can't comment too much on this, but obviously we see the impact. Netflix series is extremely popular, so it works in favor of popularity of the whole franchise, so it influences games as well. As you've just seen on our presentation, sales of Witcher 3 last year almost doubled the sales of the same title in 2018. It happened mostly to our sales activities because Netflix series debuted 10 days before the end of the last year, so it helped just in a very narrow window. This year, this effect of Netflix will be probably more visible because it's about whole period of this year.
Another question, were the costs of settlement with Andrzej Sapkowski fully booked in P&L in the fourth quarter of 2019? The consequence of the contract we signed with Mr. Sapkowski were fully included in our financial statement. None of them are our costs immediately of the fourth quarter. Some will become our cost later on during the cooperation with Mr. Sapkowski. All the provisions or all the rights or all of the costs required are already put into our annual report of 2019.
Another question, can you please provide us with the information of what amount did you transfer from deferred revenues to P&L as a result of Witcher 3 Nintendo Switch version release? No, we were not revealing this information, obviously the total pre-order amount for Nintendo Switch was lower than the fourth quarter value of pre-orders for Cyberpunk.
Another question is, will the shares that will be allocated under the current incentive program be new issues or purchased from the market? We didn't make any final decision on that, but looking at the number of shares in the current market price, I would say that buyback option to fully execute the incentive program is less probable than creation of new shares for the employees. Exactly like it happened already twice in the history CD PROJEKT Group for the first and for the second instance. For the previous first edition of the incentive program. Another question about dividend. We didn't make any final judgment or decision on the dividend for 2019.
In general, we believe the time we have right now is the time we should rather focus on developing on carrying the game and on making sure we have all what can help the process, all what can help to minimize any potential risks. Paying dividends during this time is probably not in line with such a philosophy.
Thank you very much. If you have more questions, please ask them direct to our IR, and thank you for participating in our conference. Hopefully, see you next time live on stage.
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