Cd Projekt Sa Unsp/Adr

Dear ladies and gentlemen, welcome to the conference call of CD Projekt SA. 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 creative systems. May I now hand you over to Adam Kicinski, who will lead you through this conference. Please go ahead.

Good morning. Actually, good afternoon. Welcome to CD Projekt's Q1 2020 results conference call. My name is Adam Kiciński, and I will run the presentation together with Piotr Nielbowicz. There is also Michał Nowakowski with us, and he will join the discussion for the Q&A session that is planned after the presentation. The presentation is available on our web page, cdprojekt.com. What you can see on the cover slide of the presentation is not V. It's actually a Roman 5 to mark the fifth anniversary of the release of Witcher 3. And thanks to gamers, we've just got a birthday present. Take a look at the second slide. Sales of the Witcher series have hit another sales milestone, totaling 50 million copies, with Witcher 3 accounting for almost two-thirds of that number. Piotr will tell you later a bit more about figures. Let's go to slide number three and have a short update on COVID. We are still working from our homes and we have adapted to the situation. We are focused on the final phase of Cyberpunk and the whole development team will continue to work remotely till the end of August. We are also supporting local charities in the fight against the epidemic. Moving on to key business events of Q1, I would like to start with Thronebreaker's release on Nintendo Switch. Please go to slide number four. As you may know, Thronebreaker is our original take on CCG blended with classic isometric RPG. It found its niche within which it is performing well. Let's move on to slide number five. At the end of Q1, we released Gwent on Android as planned. It's worth mentioning that just As on iOS, Gwent is highly scored on Android. On the next slide, so number five, you can see our revenues for the first week after the release on each platform. For PC and consoles, as launch, we took the re-release of Gwent, so-called Homecoming, that took place at the end of 2018. Now our CCG is available on all systems, but on PC we've just extended accessibility by releasing Gwent on Steam earlier this month. Let's jump to slides number eight and nine. For the first time, media representatives and global opinion leaders will be able to try out Cyberpunk 2077 in June. This is an important milestone for us, and we expect to collect initial feedback around mid-June. Also, we plan to run Night City Wire, which will take place on June 11th. For now, we are not providing any detailed information regarding this event, but we wish to already invite everyone to tune in to our broadcast. Let's move on to the financial part. Piotr, the floor is yours. Thank you, Adam.

I'm proud to say that both in respect of sales and net profit, the first quarter of this year was the best first quarter we ever had in our history. Let's jump directly to page number 11, CD Projekt Group profit and loss calculation. Our consolidated revenues reached nearly 193 million zloty, which is 2.4 times more than a year ago. Both our segments posted increased sales. GOG grew nearly by half and CD Projekt Red tripled its last year's results. Where did the ghost come from and what supported it? There is no simple answer. Looking at our products in Q1 this year, we saw excellent performance of Witcher 3, including the Switch Edition, which wasn't released until last October. Other new products that added to this year and were not available in Q1 2019 are the ones Adam just mentioned a minute ago. Gwent released on iOS last Q4 and on Android at the end of March this year. and Thronebreaker, released this year on Nintendo Switch. The above four new editions boosted our sales this year versus the first quarter of 2019, but we also experienced increased sales of our other products. We believe that there was more than one reason behind it. First, the Netflix series, released at the end of 2019, which added to the recognition of the Witcher universe, and the lockdowns, implemented in many countries around the world due to the COVID pandemic. Along with the increase of revenues, our costs quarter on quarter also grew. On the Cox level, the growth was 1.7 times, which allowed the gross profit on sales to increase 2.8 times. And on the operating cost level, the growth was 1.5 times, which made the EBIT grow 4.8 times versus last year. Along with higher financial incomes and proportionally lower income tax, our net profit for the first three months of 2020 reached 92 million zlotych, growing over five times comparing to the first quarter of 2019. To put this into some longer perspective, please have a look at the next page, page number 12. Revenue-wise, during the last two quarters, it seems like Christmas came twice. The next page presents our net profit versus sales. Both in the last Q4 and in the first quarter of this year, roughly 50% of our group sales stayed with us as net profit after taxation. The next table, our balance sheet, page number 14. Assets and fixed assets to start with. The main growth comes from expenditures on development projects, obviously mainly due to Cyberpunk 2077 development. And again, to put this into some longer perspective, please have a look at the chart on the next page, our outgoing cash for expenditures on development projects. During the first three months of 2020, we spent a bit less on developing games and technologies than we did in the preceding quarter. This is mainly due to the completion of the Witcher 3 switchboard and lower spend on external services mainly related to Cyberpunk due to getting closer to the accomplishment of the project. Continuing with the balance sheet, on the next page, within working assets, two positions changed. Our receivables decreased, this is natural since after the successful fourth quarter of 2019, We had relatively high open balance of receivables. And the nicest part, our cash position, including all bank deposits, grew by 128 million zlotys. I will get to this in a moment. Equity and liability. Equity grew driven by our profits of the period, and on the short-term liability side, the biggest change was reported in the deferred revenues line. The over 22 million Zlotyc increase comes mainly from our royalties on continuously growing PC digital pre-order sales of Cyberpunk. Okay, and the most important, changes in our cash position. Please flip to the next page. We started this year with 482 million Zlotyc on our accounts. Our net profit for the period reached 92 million Zlotyc. From the reduction of receivables, we get additional 73 million Zlotyc inflows. The balance of all other adjustments added 17 million, and the main positive driver here comes from inflows related to the deferred revenues on Cyberpunk of 22 million zloty. At the same time, we spent 54 million zloty on development, as I said a minute ago, slightly less than in Q4. All in all, we ended March with 610 million zloty of cash and deposits, that is 128 million zloty more than the opening balance for the year. As many of you may know, a few weeks ago we reported our plan to diversify the allocation of our cash assets. We would like to convert up to 300 million zloty into treasury bonds split half-half between domestic and foreign T-bonds. The foreign ones issued by the USA, Germany and Switzerland. The FX exposure should be limited by respective hedging transactions. We are currently in the process of relocating the funds. Thank you. That's all from my side. We can now start the Q&A session.