The CD Projekt results conference. We're here to talk about major events and our results for the first half of 2019. My name is Adam Kiciński, and I will be presenting together with Piotr Nielubowicz, as always. Let's start with major events. Definitely E3 was one of these major events, and just like we said several month ago, half year ago, during our annual conference, we wanted 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 the collector's box. We started pre-orders, we announced our launch date, and we announced that Keanu Reeves was going to be starring 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 a trailer that we've shown you in the beginning of this presentation had 30 million views. During the E3 event, and after that, 6,500 articles and mentions were published. 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. As you see, the number of views much higher than when it comes to The Witcher 3. Now let's talk about our financials. Piotr.
Good morning. 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 million copies. This year, The Witcher 3, that's actually more than half of this number. This is the driver behind our revenues and our margins, revenue from sales from all the three parts of The Witcher, mostly. Now, The Witcher 3, 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. 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 Gwent. 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 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.
Our gross net is nearly PLN 126 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&A costs. We have made an adjustment to our estimate related to our incentive program. This adjustment actually increased our G&A costs in Q2, more than PLN 15 million. As you know, since 2016 in our group, we have an incentive program that was approved by the general meeting. 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. The first goal in the years 2016 and 2019 was to get to PLN 6.51 earnings per share.
When we look at the first half of 2019, we've already gotten to 6.39, so there's only 0.12 PLN gap. It's around PLN 11.5 million of net profit. The board of the company estimated that it's probable to reach this goal, and 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 doing all the calculations and allocating their portion. Costs related to that is recalculated again, and we are settling everything for the period of six years. We, right now, have recalculated that and decided to look at the costs in a four-year perspective. Starting from the 1st of January 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. 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 non-cash costs. They come from actuarial valuations. Those costs are not burdening our cash flow and our group results. Coming back to our financial results. CD Projekt RED, our net result is over PLN 51 million, similar to what we achieved last year, even though we had those costs related to re-estimating our incentive program. The second segment, GOG.com, total value of revenue from sales, over PLN 81 million, 26% higher than last year. There were several quarters. GOG has 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 I and II. 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. Totally, goods and materials sold, the dynamic was actually lower than the dynamic behind our revenue growth. The margin was actually even better than last year. When it comes to operating costs, a small increase in operating costs, 12%, because selling costs have grown. These are, of course, variable costs, transaction-related costs. The higher the sales, the higher these costs, and that's obvious.
The more transactions, the higher the cost. GOG, over PLN 600,000 profits for the first half. As you can see, it's better than last year. The group generated over PLN 214 million revenue from sales, nearly 30% better than last year. When it comes to our net result, nearly PLN 52 million, even though it's been yet another year since we released The Witcher, similar to last year. We had more costs related to promoting Cyberpunk, related to re-estimating our incentive program that burdened the results, so to speak. Anyway, we believe that this result is really something impressive.
The balance sheet of the group. The basic change that is visible quarter-over-quarter is changed expenses on development activities. The change was almost PLN 50 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. There are other projects as well, such as preparation of The Witcher 3 for its launch and for Nintendo Switch. The other factor that had impact on reduction in this item is the started depreciation of Gwent and the Thronebreaker. 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. Now receivables. Trade receivables are more than PLN 60 million.
75% of it is related to reports received by CD Projekt for the sales period before the 30th of June. The data was sent after the period to us. 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 end of June. Vast majority of receivables is related to pre-orders that were launched in this quarter. I'll talk about this later on. Remaining receivables increased by PLN 17 million, related to transactions that we informed about when commenting on the results of Q1. Namely, we started the production of the first elements for collector's box of Cyberpunk, and we had to start financing some prepayments. The prepayments are presented in the balance sheet as other receivables.
Cash and deposits reduced by almost PLN 130 million due to factors that I'm going to talk about on the next slide. Equity reduced by PLN 30 million due to two factors. We paid out the dividend of PLN 101 million, and we kept generating the results of the current period, which had a positive impact on the level of equity. 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. It seemed to us only natural because we decided the prepayment was something we had to settle, and we had a duty to pay it.
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 pre-order sales or contracted sales, the size of royalties. An investor who's looking for information about revenues in the accounting sense, where would such investor look for it in the balance sheet? We thought that investors wouldn't look for it in the liabilities, but in accruals and deferrals. The total value of PLN 84 million presented in accruals and deferrals. It comprises four factors, four items. First of all, royalties or revenues from sales of pre-orders, Cyberpunk pre-orders launched in June this year. The royalties for future sales related to pre-order sales are usually settled for digital sales of PC games, and Steam is here the main partner, and the Group presented it in Steam royalties.
The second item is our own store, gog.com. It's part of our consolidated results. As regards GOG, its pre-order results have impact on the level of accruals and deferrals 100%. All sales to customers are presented at the level of revenues from sales and not royalties, because they are allocated to GOG and CD Projekt RED proportionally. The second item included here are minimum guarantees. When we sign contracts all over the world, we contract minimum sales and the corresponding value of royalties, and whatever is due in a given period under this contract is presented in accruals and deferrals. Item 3 concerns the announced and soon planned to be launched The Witcher 3 for Nintendo Switch. We are also receiving the first revenues from sales after the launch, and it's presented in this item. The 4 element of the item are subsidies.
They are usually not included as one of subsidy in the results, and they are presented in this balance sheet item. Moving on to cash flow. 2019, PLN 660 million at the beginning of the year on our deposits and bank accounts. We paid out PLN 101 million dividend in June. Current expenses related to our production of new products and technologies, almost PLN 60 million. We were financing prepayments related to the production of different components, for example, collectors boxes. Total balance sheet change is PLN 22 million here. We also invested in fixed assets. 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 adjacent to our current headquarters where we are going to build new CD Projekt offices.
Current period results, PLN 51 million and adjustments of the other items had impact on the results. Non-cash adjustments and balance sheet payment adjustments. As regards cash results, it's worth mentioning what I said earlier, PLN 15 million costs related to changed estimates concerning the incentive program, which wasn't related to flows within the framework of the group. PLN 16.7 million was the value of the adjustments. All in all, the first half year of the year was ended at the level of PLN 530 million in terms of cash and deposits. That's it from me, and now over to you.
Now, a few words about what's in for us for the next few months. First of all, the launch of The Witcher 3 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 3 is a very demanding game indeed, in terms of graphics and processor power. 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 a small screen. 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. Finally, we would like to invite you, today at 8:00 P.M., we are going to present the gameplays from a demo that we've shown you, and this is going to be presented on Twitch channel. Now Q&A session. Raise your hand if you want to ask a question.
It is impossible. Maybe we weren't that clear in explaining everything. Always the first question has been, when are you releasing Cyberpunk? Well, Łukasz Kucharski.
Please, gentlemen, can you tell me the share of your digital distribution in pre-orders, in pre-sales?
When it comes to pre-orders coming, well, influencing our balance sheet, it's 100% sure. We get reports only from digital distributors. 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.
Let me ask you about your pre-order 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, 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 pre-orders for Cyberpunk compared to analogous period of last year, but we're deliberate in not revealing that. In the first month, we had pre-orders for The Witcher less than 10% of the total. Most of the pre-orders are happening towards the very end, when first reviews start coming up. 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.
What about your contract with Keanu Reeves? Has it already hit your results? I know that it's confidential, but 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. 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.
Is it a fixed amount contract, or does he have a share in your revenues?
We can't disclose that.
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. The details when it comes to which contract, which partners, we're not going to disclose that. Most of it is coming from Cyberpunk, but also the Nintendo Switch Witcher release has a part in that. Tomasz Rodak . Can you tell us more about your additional revenue from services? Your marketing campaign, you talked about this one-off amount. Is there more to it? Have there been costs related to 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, these revenues are coming from the fact that our partners participate in this campaign. They are refunding some of our expenses, costs related to that campaign have been included in our costs of services. 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 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, I think that the Polish Games Association is also looking into this.
How do you post revenues coming from pre-orders on physical products? We are going to get those revenues reported when we release the game. 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. Our contracts with distributors include some minimum guarantees, so they oblige to pay a certain minimum amount. We post that in prepayments and accruals. When it comes to pre-orders, one more question. Pre-orders that you sell through GOG, where is this posted? Same item. Thank you.
Grzegorz Stanecki . My question about the IP Box, there are so many question marks around that. Probably, you're not going to benefit from this particular tax relief. Well, I'm still optimistic.
It's the first year where you can do that. Actually, we're settling this year in the beginning of the next year from the tax point of view. Maybe, yes. The Ministry has already announced that they have come up with this scheme with Polish game producers in mind. Yes, we're working on that. Can you tell us more about Google Stadia and how you're settling? Our game will be sold through this platform. PLN 60, just like other platforms.
Albert Lapitsky. Long term, you started your online store in the beginning of this year. Where in your report can we find revenues? Can you comment on that, and what do you think about the store's operations so far? We have created a separate company, CD Projekt RED Store. This company and its results are not included in our consolidated results.
You will not see that in the report that you're asking about. We're, of course, looking about. This is lower than our consolidation thresholds. Actually, this particular company selling The Witcher, Gwent, Cyberpunk, they are paying royalties to CD Projekt. Actually, in the report, you will see revenues coming from royalties that this company is paying. 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 tasks.
We want this online store to grow.
Beta version. We don't call it like this, we want it to be fully up and running, fully functional by the Cyberpunk release date. Anyway, so far we are very happy, especially product-wise. It seems that we have built a nice offer. We're still developing it, we think that this store is a very nice addition to our operations. Of course, its scale compared to big titles, big games, will always be rather small. 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. We need to be cautious. It's a very difficult task. Quality is top priority. A vast majority of our team are people who work on Cyberpunk. That's 450 ±10-20 people, and they are people working on three teams: Warsaw, Kraków, and Wrocław 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. This team hasn't been growing because Gwent is a service. We issue new extensions. We are finishing the mobile version for iPhones. There's 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 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 2.0. What's the stage of the project, and when can we expect the first publications related to the final form? 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, the feedback translates then into tasks. We keep developing the platform. We are adding some functionalities. There is no point in time where we know that closed beta is over. Beta will be finished once we are ready to let everyone in, when we can launch and release the platform. 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 issue it 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. Please bear in mind that it's a very important point in time. 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. The royalties concerned consoles and PCs. They are not the strongest platforms in China. The mobile versions can change something. First, we have to achieve the level of revenues that we had on the Chinese market. The last comment, iPhone in China or Android in China, it's much stronger than iPhone. 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. We need to run different tests. There's no need to launch it for both Android and iOS in parallel. We decided to start with iOS.
My understanding is that you will launch it for Android immediately in the first half of 2020. We haven't quoted the date yet, it's a matter of technical work. The design is in place. The design that we have for iPhone is a design for a small screen. I understand that you ran some tests on monetization for iPhone. 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 there any test group? No. We are testing it in-house. Are there any other questions? Mic, please. We can't see very well because of the lights.
Łukasz Kosiarski , can you tell us something about pre-orders in Q2? How many came from the Chinese market? What about pre-orders in Q3?
There's 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 it a while ago. We realize that the initial pre-order phase, in the case of The Witcher 3, 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. There hasn't been any warning so far, but looking at gamers and how they respond to Cyberpunk, it's all showing a coherent picture. 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. The standard spread of pre-orders 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 pre-orders starts two weeks or a week before the launch. If the spread is the way we've seen it for other games, Q3 will surely see less pre-orders 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. 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. To tell you the truth, I don't know whether we are planning any such steps on other markets. Me neither. 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.