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 difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. Now I now hand you over to Adam Kiciński who will lead you through this conference. Please go ahead.

Good afternoon everyone. Welcome to the project conference call dedicated to H1 of 2020. My name is Adam Kiciński and I will run this call together with Piotr Nielubowicz and Michał Nowakowski who will join us at the Q&A session in the second part of the call. Let's start with the presentation that sums up the first two quarters of 2020. It's available on our webpage fedeprojekt.com. Firstly, a short COVID update. We keep working from home mostly and will continue to do so till the end of the year, at least. It's not a perfect setup for a creative company, but we At the same time, we remain proactive in supporting the needs of our team. We've also recently introduced our latest COVID prevention protocol created and supervised by medical experts. Please move on to slide three. Cyberpunk is in its final stage and all our forces are preparing a global release on the 19th of November. As previously announced, the game will be launched on Xbox One, PlayStation 4 and PC. It will be also available on Stadia, although the launch date on this platform is yet to be announced. Moreover, thanks to the backwards compatibility, Cyberpunk will instantly play great on the next-gen consoles as well. Now, please jump to slide 5. The key moments for Cyberpunk were hands-on that we organized in June. Despite pandemic circumstances, we managed to invite over a hundred journalists, YouTubers and bloggers from 15 countries to play our game. That was supported by 60 interviews and resulted in hundreds of articles and previews. Please take a look at slides 6 and 7 with just a few samples of these third impressions and magazine covers. Let's go to the next slide, show number eight and nine. Also in June, we started reviewing more features of Cyberpunk at Digital events that we've called Night City Wire. In the first two episodes, we covered different life paths, weapons, music and brain dance gameplay. There are a few more Night City wires to come, with the next one coming up in September. Now please go to the next slide, cell number 10. You probably have seen it before, but it's updated with the addition of the trailer released in June, The Last Boss. And again, the difference in viewership compared to the most viewed trailers for Witcher 3 is huge. So we keep building the hype. And on the next slide, number 11, I'm pleased to share the most recent achievement. Cyberpunk has got five awards at Gamescom, making it the most awarded game at this most prominent European gaming event. And the last thing before financial. Please move to slide 12. We've announced our first movie project, the anime series called Cyberpunk Andromeda. It's co-developed with one of the best Japanese anime studios, Trigger, and will be aired on Netflix in 2022. Okay, that's all from me regarding the recent key business events. Please move to the next slide for number 13, and let's dive into the numbers. The floor is yours.

Thank you, Adam. Let's start from page 14. In business terms, the first half of this year was very good for us. Our total sales revenues reached 364 million zlotych, which is nearly 70% above the result of the first half of last year. Most of this revenue came from sales of our own products, over 237 million zlotych, over two times more than last year. This was driven by The Witcher 3, including The Witcher 3 and Nintendo Switch Edition, and Gwent, which had the best six months in its history. Our product sales were accompanied by respective costs of products sold of 50 million zloty, comprising mostly depreciation of expenditures on development projects for Gwent, The Witcher 3, Switch Edition and Thronebreaker. This position stayed at the same level as last year. Also, revenues from sales of goods and materials grew nicely by over 70%. This was thanks to the growth of sales of GOG and revenues achieved by CD Projekt Red on sales of physical components of our games, both Cyberpunk and The Witcher. This also includes the activity of CD Projekt Red Store, which commenced mid-2019. The costs of goods and materials sold also grew, mainly driven by the costs related to relatively low margin technical sales of physical components of CD Projekt Red. and in proportional increase on GOG's side alongside their increase in sales. All in all, even though this year, unlike last year, we had no revenues from sales of services, which were related to extraordinary cyberpunk promotional cooperation with our publishing partners, our gross profit on sales this year increased by over 100 million zloty and exceeded a quarter billion zloty. Operating costs for the first half of this year were slightly higher, Unsp's operating costs for the first half of this year were slightly higher than for the previous one. The main growth drivers are salaries and provisions for bonuses dependent on our financial results, which this year were much better than a year ago. Needless to say, marketing, both of Cyberpunk and Gwent, took an important share in our selling costs as well. Finally, our net profit for the period between January and June this year reached 147 million zloty. That's nearly three times more than a year ago. Most of this result was delivered by CD Projekt Red, which reached a net profitability of 50%. This result and growth we achieved in the recent months was obviously supported by some external factors, like the COVID pandemic or Netflix series further popularizing the Witcher universe, but it's fundamentally the result of our consistent policy that pays off in the longer term. Please have a look at page number 15, CDP Group Sales. This is the fifth consecutive period of six months where CDP Group revenues continued to grow. And the main event, the Cyberpunk release, is still ahead of us, planned for the current half of 2020. However, revenue is just the beginning. On the next page, number 16, I also visualized our profits for the last two and a half years. Current profits are the results of our current trading activity based on historical reasons, but most of the group employees are deeply involved into thinking, developing, preparing and planning for Cyberpunk, which leads us smoothly to the statement of our consolidated financial position on page 17. A major change among our assets is visible on expenditures on development projects that grew by 97 million zlotys. The increase is mainly driven by our works and projects within the cyberpunk universe, parallel to the depreciation of Finnish products, mainly Gwent, Switcher 3, Nintendo Switch and Train Breaker. There is also a new position on our balance sheet, other fixed assets, that consists mostly of T-Bonds we have acquired during the second half of this year. Approximately one-third is presented among fixed assets and two-thirds together with the valuation of respective hedging transactions among working assets. Altogether, our financial assets, including cash, bank deposits, T-bonds and respective hedging transactions, increased over the first half of this year by $160 million. I will go into more details on that in a moment. Another visible change among our working assets comes from receivables. Natural decrease from the high amount as per the end of 2019 linked to the intense end-of-year sales. On the equity and liability side, two major changes are visible. Equity itself grows by 155 million zloty, mainly due to the profits of the period. Deferred revenues increase by 45 million zloty, up to 206 million zloty. This comprises mostly of licensing royalties associated with pre-orders of the digital edition of the PC version of Cyberpunk and the so-called minimum guarantees for future royalties from foreign publishers and Let's go to the next page, number 18. We started this year with 482 million zlotych of cash and bank deposits. Our cash flow was based on great operational performance and net profits of nearly 147 million zlotych for this period. On top of that, open receivables decreased their balance by 75 million, which translated into additional cash flowing into the company. The next correction is related to the increase of the deferred revenues line, mostly advances on royalties for cyber funds. Our major investments this year were strictly linked to our core business and development of games and technologies. We spent on that 140 million zlotys. All in all, our financial assets, cash, bank deposits and t-bonds increased by 160 million zloty. It's fair to say, on aggregated numbers, that all the new cash earned by the group was invested into t-bonds, keeping the balance of cash and deposits at the opening level for the year. Let's jump to the next page. One more thing, not directly related to our past results. Between the 30th of July and the 17th of August for 13 days we run our share buyback program. We bought 516,700 shares. The aim of the buyback program was to offer the bought back shares free from lockup to all participants of our recent incentive program in order to enable them to sell the shares and gain source of funds with which to finance their participation in the program and expected tax liability. Together with a brokerage house, we designed and recommended to our employees a coordinated way to market the shares. We believe it's most fair to do this in a process similar but opposite to the previous buyback, extended for up to 15 working days, subject to a daily transaction limit of 15% of the daily trading volume. Participants of the Motivation Program declared the wish to transact approximately 490,000 shares, which is around 9.5% of the whole Intensive Program pool. Participants are entitled to amend their sale orders by changing the number of shares to be sold, changing their minimal sale price or cancelling the order, so this amount may vary over the course of the process. To sum up, we at CD Projekt spent 240 million zloty on the buyback, however, 129 million zlotys should be paid in or actually back to the project by program participants. Therefore, our corporate net participation via shares we acquired from the market should amount to approximately 85 million zlotys, which is close to the value of the dividend we paid last year. All in all, thanks to this action plan, issuing new shares as part of the incentive program was limited by nearly 517,000 shares. The remaining part of the incentive program will invest by newly issued shares, which will carry a one-year lock-up. We'll progress with that in the coming weeks. That's all from my side. Adam, the floor is yours again.