The CD PROJECT Results Conference. So we're here to talk about major events and our results for the first half of twenty nineteen. My name is Adam Kichinski, and I will be presenting together with Piotr Nelubovich as always. Let's start with major events. Definitely, E3 was one of these major events.
And just like we said several months ago, half year ago during our annual conference, we wanted E3 to be this E3 to be really one of the most important events in our history. And this is what happened. Actually, during the Microsoft conference, we showed both boxes, the basic and collector's box. And we started preorders. We announced our launch date and we announced that Keanu Reeves was going to be starting in this game.
As I said, during the E3, we started some previews, nearly one hour of gameplay that we have shown. We showed all the play styles and the game was immensely popular. All in all, we received 85 awards. And the trailer that we've shown you in the beginning of this presentation had 30,000,000 views. And during the E3 event and after that, 6,500 articles and mentions were published.
So actually Cyberpunk was the most popular game during this particular event, the biggest event for the industry. We have also compared views and numbers for the most popular or major trailers, and we have added three Cyberpunk videos from last year and from this year. And as you see, the number of views, much higher than when it comes to The Witcher three. So now let's talk about our financials. Good morning, everyone.
The first piece of news that I want to share with you is that the total sales of The Witcher trilogy by the end of the first quarter exceeded 40,000,000 copies. And this year, The Witcher three, that's actually more than half of this number, this is the driver behind our revenues and our margins. So revenue from sales from all the three parts of The Witcher mostly. The Witcher three, that's the major part of our revenue. Our revenue year on year has been more or less on the same level, but the sales of The Witcher alone compared to the analogous period of last year was even higher.
So it's a phenomenal result. Indeed, from the release, from the launch, well, it's been one more year. So on average, the price is lower, but the level of revenue still at the same level. And this is thanks to the Thronebreaker that we released in Q4 last year as well as WET. The second driver behind our revenue is the sales of services.
We generated that working with our partners. We are working on a promo campaign for Cyberpunk. And these are one off revenues. I'm not saying they're not going to recur, but maybe this actually, this level might be a little bit unusual. And of course, we reconcile that.
When it comes to the cost of products, goods and materials sold, we started amortizing our investment in Thronebreaker and Gwent from last year and some of the costs coming from the sales of services. Therefore, our gross net is nearly million, so nearly 20% better compared to last year. Our costs of sales grew. We worked on Cyberpunk, so we had to incur those costs. But actually, our major increase is coming from G and A costs.
We have made an adjustment to our estimate related to our incentive program. So this adjustment actually increased our G and A costs in Q2, more than million. As you know, since 2016 in our group, we have an incentive program that was approved by the general meeting. And those who are part of this incentive program have a chance of becoming shareholders, but only if we hit the target behind the incentive program. The program had a six year perspective.
And the first goal in the years 2016 and 2019 was to get to 6.51 PLN profit per earnings per share. So when we look at the first half of twenty nineteen, we've already gotten to 6.39. So there's only 0.12 GAAP. It's around 11,500,000.0 of net profit. So the board of the company estimated that it's probable to reach this goal
and
the program is going to the program was recalculated and right now it's been recalculated to a four year perspective. Each time we are inviting someone to the incentive, we are allocating we are doing all the calculations and allocating their portion. So costs related to that is recalculated again, And we are settling everything in the period of six for the period of six years. We right now have recalculated that and decided to look at the costs in a four year perspective. So starting from the 01/01/2016 till the running quarter, we have been recalculating that and the surplus was allocated to the first quarter.
In the future, we will not have those one off adjustments anymore and we will be looking at costs in a new four year perspective that we have adopted. Of course, costs related to the incentive program are noncash costs. They come from actuarial valuations and those costs are not burdening our cash flow and our group results. Coming back to our results financial results, CD Projekt RED, our net result is over million, so similar to what we achieved last year even though we had those costs related to re estimating our incentive program. So the second segment, GOG dot com, total value of revenue from sales, 81 over 81,000,000, 20 6 percent higher than last year.
There were several quarters. GOG has a great campaign a great promo campaign behind it. The revenues that we achieved during this campaign were much higher plus some new titles were introduced like the Blizzard Classics that we released, Diablo, Hellfire, Warcraft one and two. And the increased revenue also resulted from higher sales for GWENT. When it comes to cost of products, goods and materials sold, they are higher because we have started amortizing costs incurred on GWENT and the Thronebreaker.
We didn't have that in the analogous period of last year. That's why it's higher. But totally, goods and materials sold, the dynamic was actually lower than the dynamic behind our revenue growth. So the margin was actually even better than last year. When it comes to costs, operating costs, a small increase in operating costs, 12% because selling costs have grown.
These are, of course, variable costs, transaction related costs. So the higher the sales, the higher these costs and that's obvious. The more transactions, the higher the cost. GOG over 600,000 profit for the first half and as you can see is better than last year. The group generated over million revenue from sales, nearly 30% better than last year.
When it comes to our net result, nearly million even though it's been yet another year since we released The Witcher similar to last year. And we had more costs related to promoting Cyberpunk, related to re estimating our incentive program that burdened the results, so to speak. So anyway, we believe that this result is really something impressive.
Now the balance sheet of the group, the basic change that is visible quarter on quarter is changed expenses on development activities and the change was almost million in the first half year. It's a result of two factors. First of all, we continuously launch or work on new titles. Cyberpunk is the biggest of them. But there are other projects as well such as preparation of The Witcher three for its launch and for Nintendo Switch.
And the other factor that had impact on reduction in this item is the started depreciation of GWENT and the Thronebreaker. And now fixed asset increase is related to the application of IFRS 16 related to leasing and our acquisition of fixed assets necessary for our day to day activity. And now receivables, trade receivables, more than 60,000,000 lots. 75% of it is related to reports received by CD Projects for the sales period before the June 30. And it was the data was sent after the period to us.
So the reported value of sales and the relating value of receivables couldn't be settled before the balance sheet date and was presented at the June. And vast majority of receivables is related to preorders that were launched in this quarter. I'll talk about this later on. Remaining receivables increased by million related to transactions that we informed about when commenting on the results of Q1. Well, namely, we started the production of the first elements for collectors box of Cyberpunk and we had to start financing some prepayments.
And the prepayments are presented in the balance sheet as other receivables. Cash and deposits reduced by almost million due to factors that I'm going to talk about on the next slide. Equity reduced by PLN 30,000,000 due to two factors. We paid out the dividend of PLN 101,000,000 and we kept generating the results of the current period, which had a positive impact on the level of equities. Accruals and deferrals, well, we decided to change the way of presenting them in the current period Before, all prepayments for future royalties and sales were presented in the item other obligations.
And it seemed to us only natural because we decided prepayment was something we had to settle and we had a duty to pay it and we presented as a liability. But we started wondering where a rational investor would look for information about the realized profits because the prepayments were related to preorder sales or contracted sales, the size of royalties. So an investor who is looking for information about revenues in the accounting sense, where would such investor look for it in the balance sheet? And we thought that investors won't look for it in the liabilities, but in accruals and deferrals. So the total value of PLN84 million presented in accruals and deferrals, it comprises four factors, four items.
First of all, royalties or revenues from sales of preorders, Cyberpunk preorders launched in June. And the royalties for future sales related to preorder sales are usually settled for digital sales of PC games. And Steam is here the main partner. And the group presented Edge in Steam royalties, Steam royalties. And the second item is our own store, gog.com.
It's part of our consolidated results. So as regards GAG, its pre order results have impact on the level of accruals and deferrals 100%. So all sales to customers are presented at the level of revenues from sales and not royalties, because they are allocated to GOG and see the project red proportionally. The second item included here are minimum guarantees when we sign contracts all over the world. All over the world, we contract minimum sales and corresponding value of royalties and whatever is due in a given period under these contracts is presented in accruals and deferrals.
Item three concerns the announced and soon planned to be launched The Witcher three for Nintendo Switch. We are also receiving the first revenues from sales after the launch and it's presented in this item. And the four element of the item are subsidies. They are usually not present included as one of subsidy in the results. And they are presented in this balance sheet item.
Moving on to cash flow. 2019, PLN '6 PLN660 million at the beginning of the year on our deposits and bank accounts. We paid out PLN101 million dividend in June. Current expenses related to our production of new products and technologies, almost PLN60 million. And we were financing prepayments related to the production of different components, for example, collector's boxes.
Total balance sheet change is PLN 22,000,000 a year. We also invested in fixed assets. And here the biggest value of a finance investment was payment for a real estate that we bought at the end of the year, settled this year. The real estate is neighboring adjacent to our current headquarters where we are going to build new city project offices. Also current period results PLN 51,000,000 and adjustments of the other items had impact on the results, so non cash adjustments and balance sheet payment adjustments.
As regards cash results, it's worth mentioning what I said earlier million costs related to changed estimates concerning the incentive program, which wasn't related to flows within the framework of the group. So PLN 16,700,000.0 was the value of the adjustments. So all in all, the first half year of the year was ended at the level of PLN $530,000,000 in terms of cash and deposits. That's it from me. And now over to you.
And now a few words about what's in for us for the next few months. First of all, the launch of The Witcher three for Switch This is a game which we are working on. The launch will be in mid October this year. We are terribly proud of what we've managed to achieve from technical point of view. The Witcher three is a very demanding game indeed in terms of graphics and processor power, but we managed to transport it to switch in such a way that it looks wonderful on this small screen, one of the most beautiful games for small screen.
And the second thing we prepared for this year is the launch of Gwent for iPhone. We are finishing the work on it. You can already play GWENT on iPhone. And finally, we would like to invite you today at twenty at eight p. M, we are going to present the gate planes from demo that we've shown you.
And this is going to be presented on Twitch channel. And now Q and A session.
It is impossible. Or maybe we were that clear in explaining everything. Always the first question has been like, when are you releasing Cyberpunk? So well, Lukasz Kukarski, please, gentlemen, can you tell me the share of your digital distribution in preorders, in presales? When it comes to preorders coming, well, influencing our balance sheet, it's well, 100% sure.
We get reports only from digital distributors. But when it comes to our total sales, it's too early, too soon to even try and estimate that and talk about that. We don't know these results, not
yet. Pavel
Bezitski, so let me ask you about the your preorder curve. Is it different than it was with The Witcher? Or the shape of the curve is more or less the same? Was this campaign stronger at first? And maybe because it was stronger at first, the curve looks different?
What do you think? Well, the curve, the shape of it looks the same, but generally, there are more preorders for Cyberpunk compared to analogous period of last year. But we are deliberate in not revealing that. In the first month, we had preorders for the Witcher like less than 10% of the total. Most of the preorders are happening towards the very end when first reviews start coming up.
So when it comes to our initial results, we're very happy comparing what's happening with this compared to what was there in the past, but it's still just very beginning, very early days. So what about your contract with Keanu Reeves? Has it already hit your results? Has it been I know that it's confidential, but what is what share does it have in your spendings? Can you tell that?
Well, we're not commenting on when we are and how much we're paying to our partners and when we're transferring those funds to them. But actually, the campaign, well, it all started in June, so we already had been working with Keanu Reeves. Well, that's what I'm going to use as my answer. So is it a fixed amount contract? Or does he have a share in your revenues?
We can disclose that. So what about your prepayments and accruals? Well, a vast majority of it comes from prepayments that we have received and a smaller part is related to subsidies. And there is yet a smaller part coming from other factors like GOG, but it's not really weighing much on this. But the details when it comes to which contract, which partners, we're not going to disclose that.
But most of it is coming from Cyberpunk. But also, the Nintendo Switch Witcher release has a part in that. Tomas Madak, can you tell us more about your additional revenue from services? So your marketing campaign, you talked about this one off amount. Is there more to it?
Have there been costs related to that that have been posted? Well, we wouldn't like to go into details and discussing details of how we're working with our partners. There's more than one partner. And these revenues are coming from the fact that our partners participate in this campaign. They are refunding some of our expenses and costs related to that campaign have been included in our cost of services.
And well, they are going to also influence some of the expenses and some of the costs for promoting Cyberpunk, but they're going to be actually posted in a longer period of time. Do you have do you know about the IP box? We don't have any new details about that. We're not clear about that. I don't know to what extent I can get into details right now because currently, the Ministry of Finance announced its statement encouraging producers, game studios to apply for a new tax interpretation.
We are considering it. And I think that the Association of Polish Games is also looking into this. And how do you post revenues coming from preorders on physical products? We are going to get those revenues reported when we release the game. So for now, you're not going to find this in our reports.
Distributors, the so called physical distributors, only prepare their first report during or after the release date. But our contracts with distributors include some minimum guarantees, so they obliged to pay a certain minimum amount. And we have already and then we post that in prepayments and accruals. So when it comes to preorders, one more question. Preorders that you sell through GOG, where is this posted?
Same item. My question about the IP box, there are so many question marks around that. Probably you're not going to benefit from this particular relief tax relief. Well, I'm still optimistic. It's the first year where you can do that and you and actually, we're settling this year in the beginning of the next year from the tax point of view.
So maybe yes. And the ministry has already announced that they have come up with this scheme with Polish game producers in mind. So yes, we're working on that. Can you tell us more about GULESADIA and how you're settling? Our game will be sold through this platform of $60 just like other platforms.
Albert Lokitski, long term, you started your online store in the beginning of this year. Where in your report can we find revenues? So how can you can you comment on that? And what do you think about the store's operations so far? So we have created a separate company, CD Projekt Red Store.
And this company and its results are not included in our consolidated results. So you will not see that in the report that you're asking about. So we're, of course, looking about this is lower than our consolidation thresholds. But actually, this particular company selling The Witcher, Gwent, Cyberpunk, they are paying royalties to CD Projekt. So actually, in the report, you will see revenues coming from royalties that this company is paying, but it's a small part of our sales of The Witcher around the world.
When it comes to our satisfaction with how the store is operating, we're happy. We are a little bit worried about out of stocks. But on the other hand, we're happy because the goods were offered there, were immensely popular. We were restocking the store on a regular basis, and the store is right now EU wide, but we are very soon going to open for The States as well. We are finishing our tests.
We want this online store to grow. Right now, it's more of a beta version. I mean, we don't call it like this, but we want it to be fully up and running, fully functional by the Cyberpunk release date. But anyway, so far, we are very, very happy, especially product wise. It seems that we have built a nice offer.
We're still developing it, and we think that this story is a very nice addition to our operations. But of course, its scale compared to big titles, big games will always be rather small, but still, it allows us to give our fans top quality gadgets and all sorts of items that they like so much.
One question. Could you sum up the number of projects, the number of people working on the projects and whether the numbers increase or decrease compared to the last quarter or half year? Well, in general terms, yes, these numbers do increase. We keep working on it. We want to have more and more developers on the team because we want to be ready for more games, but we need to be cautious.
It's a very difficult task. Quality is top priority. So a vast majority of our team are people who work on Cyberpunk. That's four fifty plus minus 10 or 20 people. And they are people working on three teams: Warsaw, Krakow and the Rossoff team.
All those teams are working on some elements of Cyberpunk. There is a Gwent team with less than 100 people, some 80 people or so. And this team hasn't been growing because Gwent is a service. We issue new extensions. We are finishing the mobile version for iPhones.
And there is also a Spokko team with 20 people or so, which is working on a mobile game not announced yet. Five teams, three for Cyberpunk, one for Gwent and one the title working on title that hasn't been announced yet. Since you mentioned the word beta, I'd like to ask you about the outdate for GOG two point zero. What's the stage of the project and when can we expect the first publications related to the final form? Because you've already launched the beta test.
When can we expect more information? Publications concern what we've launched under beta. We did this in June. It's a matter of months. We're collecting feedback in our closed beta tests and the feedback translates then into tasks.
So we keep developing the platform. We are adding some functionalities. There is no point in time where we know that close the beta is over. Beta will be finished once we are ready to let everyone in when we can launch and release the platform, but it's a matter of months. You mentioned that some 100 people are working on Gwent project and you're finishing the production for iPhone.
Will you launch it in China right away? Or do you foresee some big marketing expenses related to the new target group? Gwent is a game that was approved on the Chinese market. When you issued for a new platform, you need an extra certification step, but the product is exactly the same. We're launching it all over the world, including China.
As regards marketing expenses, yes, sure. But please bear in mind that it's a very important point in time. But the game has been on the market for quite some time now. So we'll be sort of dosing the marketing expenses proportionally to other parameters that the game has been generating. There's one more thing.
Namely, in China, we cooperate with a local partner. We signed a contract with them related to minimum guarantee that was reflected in revenues. The current royalties haven't been realized yet. We the royalties concerned consoles and PCs and they are not the strongest platforms in China. So the mobile versions can change something.
But first, we have to achieve the level of revenues that we had on the Chinese market. And the last comment, iPhone in China or Android in China is much stronger than iPhone. So when it comes to China, the launch for Android will be significant from point of view of that market. A question concerning Android and Gwent. How come you didn't launch it in parallel?
Technical reasons. Android covers a whole range of different phones, so we need to run different tests. So there's no need to launch it for both Android and iOS in parallel. We decided to start with iOS. So my understanding is that you will launch it for Android immediately in the first half of twenty twenty.
We haven't quoted the date yet, but it's a matter of technical work. The design is in place. The design that we have for iPhone is also is a design for a
small
screen. What about I understand that you run some tests on monetization for iPhone? And are your KPIs improving or are they stable? We haven't checked iPhone monetization because the game is not available yet, So it's hard to test it. That's what I'm asking about.
Was it or is there any test group? No. We are testing it in house. Are there any other questions? Mike, please.
We can't see very well because of the lights. Lukasz Jakubowski, can you tell us something about preorders in Q2? How many came from the Chinese market? What about preorders in Q3? There is a noticeable share of the Chinese market.
We've already said that. We don't want to go into details here. I've already said that a while ago, we realized that the initial preorder phase
in the
case of The Witcher three was a piece of the whole thing. It's too early to talk about this. I know it's a hot topic, but we have a very small sample here. So we don't want to dig into details and we don't want you to extrapolate based on that. We are satisfied and there hasn't been any warning so far.
But looking at gamers and how they respond to Cyberpunk, it is all falling it's all showing a coherent picture. So it's too early to say how Cyberpunk will sell. We assume it will sell phenomenally because it's a phenomenal game, but I wouldn't like to make any Excel calculations. To answer your question about Q3, we are not commenting on Q3 because we don't know the results yet. We are only aware of the plans.
But the standard spread of preorders is that in the beginning, there is a big interest. So there is a peak in sales, which then stabilizes and is more constant up until the release. And then the wave of preorders starts two weeks or a week before the launch. So if the spread is the way we've seen it for other games, Q3 will surely see less preorders than at the very beginning when the marketing campaign was in full bloom. Question about GWENT.
You also announced that you signed an agreement with T Mobile and this is a cooperation on academic league. And will you be signing any other similar agreements on other markets like China Sports League? Well, it's hard to say. Poland is an exceptional market to us, eSports League. Poland is an exceptional market for us.
We are here. But to tell you the truth, I don't know whether we are planning any such steps in on other markets, me neither.
So if there's no more questions, I would like to thank you for coming. And of course, see you in six months when we're going to talk about our annual results. Thank you so much and see you.