Hello everyone. We would like to welcome on the annual 2023 Results Investor Call. My name is Marek Tymiński. I'm a Founder and the CEO for CI Games. Together with me today, David Broderick, who is the CFO for the group.
Morning.
Just briefly starting who we are at CI Games. We are established global AAA and AA game developer and publisher with popular IP franchises. We have experience and track record over first-person shooters and RPG games. Listed on Warsaw Stock Exchange main market. We develop games internally with and including help from our outsourcing partners, and we self-publish our products globally on all major platforms, both physically and digitally. We have two major evergreen franchises. One is Sniper Ghost Warrior. The second is Lords of the Fallen.
On that franchise, we are currently having the largest project to date for CI Games. Soon, we are also launching the third new IP that is in the survival genre. As you will see later in the financial statements, our back catalog performance was strong, and that's also part of our revenue and margin generation for the last years and the last year. We have very experienced global team, both in the development, publishing, commercial, finance. We have five key locations, but we in fact are a fully remote organization, and we hire best-in-class talent across the globe, mostly in Europe. The time zone is always advantage for us. We prefer to have people in a similar time zone.
Currently over 160 internally, and we are engaging almost 300 people in total full-time, including talent working for our partners. Over 130 people internally in the game development. It's important remark to say that as of end of last year, the team size internally got a bit lower. That was again further changes inside our mostly development and QA teams. Currently that number, which is over 160 people, is the latest number as of end of March 2023. I think very important aspect of, again, remote game development, that we think is our strong advantage so far and going forward, we have a strong track record. The last bigger game, Sniper Ghost Warrior Contracts 2, was developed 90% remotely.
Obviously looking through the latest releases, including Sniper Ghost Warrior Contracts 2 that on PlayStation 5 got over 80% Metacritic and including smaller games from United Label, there is a clear path of the quality being reached, both from the standpoint of users, gamers, players, and from the standpoint of reviewers. As of now, we focus on high quality projects with development that has to be and is efficient, and we are no longer any sort of a low cost development in terms of our strategy. We use Unreal Engine 5 for all our key projects and all our teams are efficient and proficient in using that technology, and there's more of synergies between the teams, and we look forward to working on that technology in the future.
Just briefly, that's our management and executive team. Recently, meaning 5, 6 months ago, Mich joined the company as a global marketing director. Ryan, who previously served as a marketing director, currently is a Senior Brand Director working across all our key franchises. Just a very brief summary. 20 years in development of video games and publishing, 3 main IPs, 60 million copies sold, including the subscription players. That's way, way more than 60 million. 5 main locations, 160 people internally, almost 300 people we engage in total, internally and externally, 18 years of experience from the management and the directors.
This is a focus on Lords of the Fallen, obviously, this is our most important project and the largest project we ever, we ever had, as CI Games. The project, the studio that is internal studio that is developing that game is called Hexworks, and it's a very senior and experienced team, mostly across Europe.
Here we have a couple of important facts in regards to action RPG genre with Soulslike combat and we see some of the important aspects of latest release of Elden Ring that sold over 20 million copies within the first 12 months, that basically made a very strong point of bringing Soulslike action RPG genre that was, to a degree, a niche genre to huge volumes and a mainstream audience. We will speak about that in a second. We absolutely see that being a great opportunity for us with Lords of the Fallen.
The situation that we have right now, launching Lords later this year, is very different when we launched the first Lords of the Fallen back in 2014, when basically that genre was still a niche genre and mostly owned by FromSoftware developer of Dark Souls. Yes, it means there is a lot of appetite for the next big game in that genre. That's a fact. And there's a lot of anticipation from players around the world to play that next big game in that genre with that Soulslike combat that has more of a challenge coming from playing the game and fighting the enemies and fighting the bosses, obviously.
As Lords of the Fallen, currently we are with 10 million players of that franchise, that is coming from 3 million copies sold, over 3 million copies sold, and over 7 million people playing that through the subscriptions coming from PlayStation and Microsoft, Xbox. Lords of the Fallen, the new Lords of the Fallen is a full reboot that absolutely widens the audience and appeal. It's just basically removing the potential barrier to entry for those who haven't played the previous game. We know that we work with different agencies. We do surveys, and we know that this is a major advantage that we have going with the full reboot instead of going with the sequel. On top of that, obviously, the game is much bigger.
The world is five times bigger than with Lords of the Fallen 1. It's also much upgraded in terms of the visuals and a lot of other aspects. We absolutely believe that that's the first statement to call Lords of the Fallen beyond the marketing, to call Lords of the Fallen as a full reboot. I think we touched on Unreal Engine 5 a bit before.
I think it's important to work on the state-of-the-art technology, the latest engine that on one side offers certain things that make the game basically feel and look more next gen, and at the same time, provides more stability than some of our technologies we used in the past, in terms of the performance, in terms of the efficiency on building games and then releasing the games. Just a quick summary. We started the marketing campaign in August during Gamescom. We had a very strong reception from gamers around the world. We and then we obviously continue with the further trailers, December, The Game Awards, and then we follow with the GDC Tech Showcase.
Very soon we will have a major gameplay reveal, and very soon we will also announce the release date. This is something that I already said on the previous slide. I think it's very important to understand the market change, and that genre becoming really a mainstream and Elden Ring being a proof of that. At the same time, we are not trying to suggest that we will be in the same units in terms of the same sales as Elden Ring was. That's not what we are trying to say here. We think that there's a great opportunity. The game should do several times better than Lords of the Fallen 1, and we think this is a great opportunity with the current game we have.
I mean, it would be overstatement if we say we're looking at 20 million. That's not what we are looking. Absolutely, we are looking to sell definitely more, several times better than the previous one. I think what's important from the standpoint of the game itself, and that goes beyond Lords of the Fallen, that's compelling thematic, that's the genre and the innovation and the gameplay that the game is offering. In case of Lords of the Fallen, good level of challenge in combat is very important. We know that the players want that. They want to be challenged. They want to be even frustrated to overcome that and complete. It's a very strong reason why people go and decide to play that game.
The strong lore meta story, very important, and I think we have it absolutely right. We're absolutely proud of what we currently having with the game. Beyond that, on the side of that is the effective marketing campaign. If you wanna reach a global audience, mainstream global audience, beyond the core audience, you absolutely have to have effective marketing campaign. Today, effective marketing campaign globally. Would say probably it's a simplification, but probably that's a minimum of EUR 15 million to be spent in order to have that reach or more. It's very clear to us, and we see that through different reports. If you don't really spend, if the company doesn't spend enough on the marketing, then the chances are very slim to succeed beyond the core and mid-core audience. That's absolutely.
I mean, that bigger part of the market is absolutely very, very important to us and very important to the success of Lords of the Fallen. That's why we are pretty bold in terms of the campaign. Just in the summary, we absolutely convinced we understand the audience, and we create our games with them in mind. Obviously, this is a very important aspect, what press, what journalists think about the game. We had a press event during GDC in March. We presented the game to selected journalists from global media, we got really great feedback from them and some great articles that came out.
Here are just some examples of those articles. We're very proud of the team who is behind the game. We are so looking forward to the next big milestone of the marketing campaign. I think in terms of the project status, I mean, that's important. We are currently during the QA phase testing and fixing bugs and polishing the game. The game is pretty much close to be completed or, I mean, it's never done. At the release, it's also never done 100%. We are very, very close. That process works as expected. We still need a bit more time to be able to decide on exact release date. We are very committed that this will be soon. The release date will be announced publicly.
In terms of executing against the detailed sales and marketing plan, from now on, after the release, I mean, that goes together 'cause at the same time we are speaking to the physical retailers and digital stores. We have a very strong feedback from some of the biggest retailers globally. I mean, it's too early to tell exact number, but we look to ship at least half a million copies physically globally. We absolutely have a strong commitment from the digital stores. They consider that game as their top priority, and we expect a certain high level of commitment, high level of support from their side before and after launch.
We think in terms of the split between physical and digital, based on the latest numbers, from other releases, we think that in our case, this could be between 30% to physical and 70% to digital. It could also end up to be a bit more digital than physical, but that's just our estimation. Obviously, we will see further once we launch the game. The physical part is still very important to us. It's also important not just because of that generates a strong revenue, and margins, but it's also important from the branding standpoint, to have a right exposure in, across other AAA games on a physical format. We have a clear pricing strategy. We're very much in line with other AAA releases.
We have not yet announced our retail price, you know, you should expect a very similar retail price to other AAA releases that have been coming to the market recently. We will also have a deluxe edition that will cost a bit more and will offer very meaningful content. We expect that big part of the audience will decide on buying deluxe edition versus the standard edition. A number in terms of the conversion, what we saw previously, one of the previous titles, initially we had over 40-45% of, depending on the platform, consumers deciding on deluxe edition versus standard edition. We look forward to have a similar mix with Lords of the Fallen, this is just estimation as of now. David, that's to you.
Thank you, Marek. Obviously, just to bring you through the highlights of 2022. 2022 was obviously a year of no releases and is effectively the performance of the back catalog. Net revenues of just over PLN 56 million, strong EBITDA of PLN 16.1 million and a net profit of PLN 8.6 million. Organic EBITDA margin of 28.4% and a net profit margin of 15.1%. Ending the year with gross cash of PLN 6.6 million and EPS of PLN 0.04. The next slide on the P&L, which I'll walk you through, I think really shows the real underlying performance.
What I've done is I've produced an adjusted income statement. This is primarily because we've taken a significant amount of cost upfront around marketing for Lords of the Fallen, production of trailers, other assets, marketing collateral, well in advance of the game. Also we have the dual listing costs that we incurred in terms of the advisors and other aspects. Combined, those costs totaled over PLN 11.8 million. So if you look at this and you read across and you look at the EBIT margins, and you look at the EBITDA margins and the margin, gross margin, the net margins, you can see they're generally in line with last year and not far off that performance.
The message here is that, you know, the business, the underlying business outside of those exceptional costs running off the back catalog is performing very strongly, continuing to produce very strong margins, and, you know, in line with performance in previous years. Again, you know, we've given you the highlight numbers at the starting page. Again, I think this important message is around this adjusted number so that you get a really clear look through into the underlying performance of the business outside of these kind of exceptional or what I'll call exceptional one-off costs in the year. On the balance sheet, again, you know, our total assets increased 18%, and this is obviously as in a year absent of releases, we continue to invest into the development of games.
Most of those being Lords, the Sniper franchise/Project Scorpio, and Project Survive being the three kind of major projects that the group has underway at the moment. Obviously to fund a lot of this, we've taken debt. We're very fortunate to have PKO BP as our bank. You know, they have a good understanding of the company, they have a good understanding of the sector, and they're very supportive of what we continue to do and how we build this business. At the end of 31st of December, there was group debt of PLN 22.6. PLN 18.5 of this related to the bank debt and the balance related to the finance liability on the property leases, for which there's a corresponding asset. Net operating cash flow.
This is a primarily a function of our continued investment into game development and gives you the result there. As I said earlier in the previous slide, we finished the year with PLN 6.6 million of net cash or sorry, gross cash. We've obviously previously presented on the strategic roadmap, Marek, I don't know whether you want to.
Yeah. I think it's important just to state it again, I think, just to make it clear, that's our strategic, those are the strategic pillars and timeline. We have seven pillars and obviously pillar number one is around Hexworks and Lords of the Fallen and then Project Three. Pillar number two is around Underdog and the partner studio, Sniper Ghost Warrior. Pillar number three is around Project Survive. That game is also getting more and more advanced, hopefully later this year we can share more information and potentially start a campaign for that game. Pillar number four, that's United Label. I think it's clear. It's the segment of the smaller games, coming from the indie developers. Pillar number five is Underdog.
Project Scorpio, very important project going forward for us, where this is not just a premium game, a premium release, but it's premium release with game as a service post-release. Pillar number six, the project potential. Obviously this is something we're looking forward into the future. Same as pillar number seven. We think that both pillar number six, pillar number seven, will become important to our business going forward in a mid to long term perspective. I think we have more information in the presentation. The presentation is available on the website. I think we should just now move to questions and answer some of them or hopefully most of them from today audience.
I suppose, Marek, just to jump off, one of the questions here, I mean, how are you feeling after today's results, and how are you feeling about the outlook for 2023?
It's a good question. The results were pretty much according to our expectations, the last year is a consolidation year. We haven't had any major release. Obviously as you David explained, we had some of the one-offs that decreased our net profit drastically. As of 2023, I mean, this is a very important year for us. We have Lords of the Fallen release later this year, in the second half of the year. We look forward to that. This absolutely looks as the best ever year, significantly better than ever before, and that can get the company to the next level. I think that there is a question around will the release of Lords of the Fallen be multi-platform right away?
If we have a certainty that Lords of the Fallen will release this year? Both questions, the answer is yes. The release of Lords of the Fallen will be day one multi-platform, but we're speaking about the next-gen platform, so it's PlayStation 5, new Xbox, and PC. There's no support for PlayStation for previous Xbox generation. We always said this is a next-gen project, and also honestly speaking, Unreal Engine 5 is not, as far as I know, is not really supporting the previous gens. Yes, there is absolutely a certainty on our side internally that we will release Lords of the Fallen later this year. How do you feel about combat in Lords of the Fallen as its most important aspect in Soulslike games?
Yes, we feel very good about the combat. We play test the combat and play test the with external agencies, the whole game. We play testing the boss fights, we play testing a general gameplay experience. We feel very good about that. We absolutely look forward to deliver very strong and competitive challenging combat across the whole game.
There's a question here. Obviously, we've announced the PLAION deal, for distribution. How do we see or can people expect more of these deals to be announced, or what...
Right. Yeah. PLAION distribution agreement is important. It's pan-European agreement, except several smaller southern eastern European countries. It's important for the physical release of the game. It's a distribution agreement, based on finished goods distribution. They will also be supporting us in terms of the local marketing, will work with our marketing teams and PR teams and the agencies that work for us, different the different countries, different territories. I mean, look, this is a very established company, working for some of the largest publishers in distribution in Europe, including, I think Electronic Arts in France and Nintendo in the U.K.
We know each other for long, and I think it's a very good partner for Lords of the Fallen. Yes, we're looking forward to obviously announcing more distribution deals. We will be announcing the distribution deals that are big enough to be announced. Obviously, we'll not be announcing every distribution agreement we have or we had. Yes, we are looking forward to more. I think it's also interesting with PLAION, they just recently released Dead Island 2, and that was their own game coming from their own studio. According to our knowledge, somehow similar in terms of the scope, the team to us. It's interesting, they sold over 1 million copies within the first 2 days from launching that.
Again, we're not suggesting we will do that number or another number, but I mean, it's definitely the segment, the volumes that they know well, and I think they know how to max out in that, in that sort of a range. That's, that should also be very helpful to us.
Lots of people very eager to find out when they can get to see more gameplay. Any future announcements that we can talk to or, where people can get to see more of the game or what we can say at this point?
Yeah, we will be showing more gameplay very soon. In the next weeks, we will be showing way more gameplay, and we will be announcing the release date. Nothing else we can say right now, but it's soon. It's soon, or it's very soon.
Again, just some questions around expectations around digital versus physical and how we see that maybe rolling out.
Yeah, that's what I already said. It's a good question. We think that this is between, probably less than 30 on physical and 70 on digital, at least in the initially, then probably this will move more towards the digital. Again, this is our estimation. It's, you know, we'll have more details after the launch of the game, that's based on some of other numbers that we recently saw from some other bigger games. I think that's a question to you, David. How much impact does the weakening of U.S. dollar have on the company?
I think certainly .for the last kind of 12 months, it continues to kind of hover around the similar levels that it's been at to, you know, or that it is at today. I think again, the benefit for us is that I think our major pairings are probably kind of dollar on the revenue side, and then from a cost perspective, we're probably predominantly euro. And again, the diversity and the mix of our footprint and our kind of global footprint, both in terms of sales and both from an operational perspective, I think, help us in that regard. You know, like I said, at the moment, that kind of 1 EUR to 1.10 rate has been the prevailing rate, certainly for the last year to 2 years.
The outlook similarly is around the same kind of levels. We'll look to monitor that as best we can, but, you know, at the moment, there's no real change from where it has been in, except the last year to 2 years.
I think, David, if you can just add a bit more potentially on kind of the side of, you know, what % or costs are in Polish zlotys for investors to understand. Obviously, That's the minority of our costs. If you can just give a bit more of a highlight here for people to understand that it's really more between the US dollar and euro for us.
Yeah. I mean, in terms of our Polish costs, I mean, I would say they're primarily linked to our, I suppose, administrative functions. In part IT, finance, legal, HR. We obviously have an office facility in Poland, in Warsaw. You know, from a headcount perspective, that is a very small proportion of our total overall headcount. The majority of it on the development side, which is where, you know, certainly probably 80%-90% of our headcount sits at, you know, the vast majority of that will be in the Eurozone or outside. That is all predominantly kind of euro. Like I said, most of our revenues will probably be slightly more skewed towards the dollar on that side.
A question here. Will distribution contracts come with some meaningful advanced payments? Obviously we cannot really give, ... That's confidential, but the only way I can answer that question specifically is the recent agreement that we signed are absolutely in line with our expectations and what we have stated publicly before. Okay. Will we see in Lords of the Fallen large, beautiful landscapes? Yes. The answer is yes. Will you work with high- view YouTubers and Twitch streamers to build hype before release? Yes. The answer is yes. The dual listing, David, that's a question to you.
Yeah. I mean, that's a process that we were very advanced in near to kind of concluding it. I think what we saw, and we've effectively paused that process, given the kind of both global equity market conditions and certainly some of the peer group that was listed in London and their kind of performance. Again, it's a process we've gone through. We got to a pretty advanced stage on it. You know, it was the conditions at that point that have made us pause that process at this point in time.
Last year, you mentioned the issue of talks with strategic investors. Can you say more about this? You know, obviously the conversations and the discussions with strategic investors are all confidential. I can only tell you that we have been pretty much in contact, and we have live contacts with most of the strategic investors, if not almost every strategic investor. Yes, the conversations are absolutely there. At this moment, we're looking forward to, first and foremost, release Lords of the Fallen. We'll see, you know, if there are opportunities to partner and how to partner with potentially strategic investors. Can you address the corporate ownership issue? What is really going on? Are you going to sell shares? Well, leave the company. I'm not planning to sell my shares.
Absolutely, absolutely not now, I don't have any plans to do it in the future. As far as I know, Active Ownership, second largest investor, they don't have those plans, but that question would have to go directly to them. I think they're enjoying being investor and shareholder of CI Games. Recently, Florian, who is a founder and one of the founders or one of the two founders of Active Ownership, joined our board, our supervisory board. We look forward to working together in the future.
Just a question about cash flow and how we manage that over the next while. You know, what you will have seen is we have a couple of streams available to us as a company. We have our underlying trading, which, you know, contributes towards our cash. We have a very strong relationship with PKO BP as our traditional bank lender, who have given us monies under two facilities now. To help drive towards what we have planned for 2023. You know, there's also the commercial deals that we have entered into that both from an operational cash flow and from a straight cash flow perspective are helpful and are another means of kind of quasi-funding, for want of a better word.
We will continue to be disciplined in terms of our operational execution and delivery. We have already established means of funding and driving this business, and we also have executed on others in recent weeks and months. You know, that's what we intend to continue doing.
Question on Project Survive. It's important for investors to have more information about that game. Obviously, we cannot give more information at this moment, apart from the fact that it's advancing as expected. It looks really good. The team currently is around 40 people. It's experienced, ex-very experienced and senior team behind that game. We are happy from the progress, and we look forward to share more with players, communities, and obviously investors, hopefully later this year. There's nothing else we can say. This is important project for us, and this is looking really good. Why are you convinced that you understand players' expectations? I think that's the We try to be and we are as analytical as we can, and that's a common practice, especially among the bigger developers, bigger publishers.
We obviously have feedback from, you know, we do focus groups, we do play testing, we work with different agencies that are feedbacking all our projects, different stages, different milestones. We hear a lot from the external on projects that we develop and bring into the market. That's not only Lords of the Fallen. Obviously, Lords of the Fallen probably has more of that than other projects because the project is the largest we have. Based on that, yes, we You never know 100%, but I think we have a very good grip and very good understanding of players' expectations. I think we absolutely looking forward to satisfy those expectations.
There's a question here: Do we expect any more kind of one-off or one-time events to impact 2023? No. I think the activities unlike last year around marketing will be more aligned with the release of the games in the year that they arise, unlike last year. Obviously, the costs associated with the dual listing were exceptional and, you know, tied to that. Again, that was a process that we were very, very advanced into the latter stages of, before we paused it. No, at this point, don't expect any similar type of related out-of-sync costs to occur.
Yeah, there's a question. Can you please tell us a little bit more in regards to CI Games investor call that we had with institutional investors? Should we expect some investors over 5% share? Obviously, I think that, as any public company that has an interest from institutional investors, that's in the best interest for the company and for the shareholders of the company. For the company to meet with investors, institutional investors, we also meet with institutional investors abroad. We also do investor calls abroad. We did one with Jefferies a few months ago as well. I think what I can say based on around that particular investor call with Polish institutional investors, we had a lot of interest. Almost 30 institutional funds were at the investor call.
I think we had some very good questions, and I think this also helps the institutional investors to understand our business better, the company better, and what basically they can expect. It's absolutely not asked to speak what they will do in terms of, you know, who will invest and to what degree. I mean, this is absolutely out of us. I think we, it was very successful, investor call, and we look forward to have more of those investor calls again in Poland and abroad. David, do you see anything else that we haven't really answered on the questions?
Not at the moment. Scanning down.
I think there is a question on the dividend that is coming here. I mean, there's absolutely Whether we will pay dividend or not when after the success of Lords. First, let's focus on Lords of the Fallen, release that. We need to do everything to make that game as successful as it can be. Once it's out, then we will make further decisions. Not just in regards to the dividends, but, you know, strategic growth of the business and a lot more. I think, right now we want to be fully focused on releasing Lords of the Fallen and progressing successfully with other projects that are currently in the development. I think we answered pretty much most of the questions.
Some questions are asking, you know, around the same. I think we're not gonna be repeating that. I think we're good, David.
Yeah.
Unless you see anything. I think we're good.
No, I can't see anything else there, so.
All right. Thank you very much for taking part in the investor call from CI Games, and look forward to the next call together. Thank you very much.