Cd Projekt Sa Unsp/Adr

Dear ladies and gentlemen, welcome to the conference call of CD Projekt Group. At our customer's request, this conference will be recorded. As a reminder, all participants will be in the 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. We now hand you over to Adam Kuczynski, who will lead you through this conference. Please go ahead, sir.

Good afternoon, everyone. Welcome to CD Projekt's conference call dedicated to Q3 2020. My name is Adam Kiciński, and I will run this call together with Piotr Nielubocz, CFO. Please note that the presentation is posted on our corporate website, cdprojekt.com. After the call, we will also post the audio recording of the call and its transcripts. Let me start with a short pandemic update. As the COVID-19 situation is definitely not better now than it was in July, we have decided to extend the studio's home office mode until the end of March 2021. Of course, the well-being of our team remains our top priority and we'll take additional measures to ensure everyone's safety. In spite of these extraordinary and difficult circumstances, our team is giving it their very best at this final development stretch of Cyberpunk 2077. I'm truly grateful to them for their incredible work and dedication to the project. Thank you, thank you, thank you. Please move on to slides three and four. Even though the circumstances are less than perfect, we continue to work hard on delivering top quality content for our fans. The game went gold in early October and will hit stores around the world in 15 days. Please move on to slide five. The game will be launched on PC, Xbox One, PlayStation 4, and Stadia. Just days ago, next-gen consoles were released and our title will run great on Xbox Series X and S as well as PlayStation 5 from the very beginning thanks to their backward compatibility. We are excited to be able to bring our game to more players than ever before. Please move on to slide 6. In the past few days, we released two trailers presenting gameplay on current and next-gen consoles. The extra time gained by postponing the release is being used to further optimize the game. And we feel that it was the right decision. In the next few slides, starting with slide seven, I would like to tell you more about Cyberpunk's promotional campaign. Here we present An updated chart showing our promotional activities between September and today. The thickness of each bar represents the intensity of activities. As you can see, we are already in an advanced phase, but the crucial, most intensive period will begin in the first days of December. We want to reach as many funds as possible. which is why our apps appear in 55 countries and 34 different languages. Our goal is to be wherever gamers are and we want to talk to them in their mother tongues. As for the game itself, it has been localized into 18 languages including 10 fully dubbed versions . What's even cooler Mimics and facial performance are unique and fully natural in every voiceover language. Let me now briefly summarize the key events of the past weeks, starting with slide 12. We began October on a high note. At the opening game of this year's NBA Finals, we had new cyberpunk commercial starring Keanu Reeves. which kicked off our TV marketing campaign. We also carried on with the Night City Wire series. Please move on to slides 13 and 14. Each episode presents new facets of Cyberpunk, including trailers, behind the scenes footage, the game world, and key character. Interest has been huge, with each episode attracting more and more viewers. The gameplay trailer during the final fifth episode last week was viewed a record 23 million times over just three days following its release. Moving on to slide 15. We recently announced our collaboration with brands such Porsche, Nvidia, Adidas, Rockstar Energy Drink and Sprite. Each such collaboration is carefully tailored and fits into the cyberpunk game world. We now have far greater capabilities in this respect than in case of the Witcher universe. And we intend to exploit this potential to improve awareness of our new IP. Please move to slide 16. Earlier this month, we organized a second wave of hands-ons of cyberpunk. this time extended ones, focused on just a handful of gaming media outlets representing key global markets, the US, the UK, France, Germany, Japan, and Russia. Each guest we invited played Cyberpunk 2077 for about 15, 16 hours, and the feedback is really encouraging. Let's move on slide 17, Teotr, the floor is yours.

Thank you, Adam. Let's go to the first financial slide, profit and loss account. Between July and September, we focused on Cyberpunk, but our Witcher products continued to entertain people around the world. Group revenues reached nearly 105 million zloty, which technically is only 13% above the result for the previous year, but the structure of our sales changed in a favorable way. Sales of products, which is the most profitable part of our business, increased by nearly one-third. This is thanks to the great performance of the Witcher 3 on four platforms, but also strong performance of Gwent, operated on iOS since last October and Android since March. This summer, we had lower revenues from services, as last year we had some exceptional revenues related to cooperation with our marketing partner. Next important line, revenues from goods and materials, which consists of two major ingredients. First, revenues from sales of physical elements of our products. Last year we had an increase of such revenues due to shipments of Nintendo Switch cartridges for the October release of the Witcher 3 on Nintendo. This position at the Projekt Red decreased from 15 to 5 million zlotych year on year. It's a low margin part of the business as all revenues recognized as royalties, which constitute most of our gross profits, are included in our product's revenues line. second ingredient of our goods and materials sales, core revenues of GOG.com, which grew nicely by one fourth versus the third quarter of last year. The change of structure of our sales cost a slight decrease of our cost of products, goods and materials sold, parallel to an increase of overall sales. This resulted in an increase of our gross profits on sales up to 68 million zlotych by nearly one fourth versus last year. Our total operating costs remained fairly steady. Among them, selling costs increased, mostly due to promotional expenses related to cyberpunk, and G&A costs decreased, mostly thanks to ending the recognition of the cost of our previous incentive program valuation at the end of June. Next line, financial revenues less expenses. Recently, we see lower interest on bank deposits, and at the same time, surplus of negative FX differences on the more volatile market. All in all, despite having no major releases and accelerating internal engagement in the Cyberpunk launch, our net profit increased 57% versus last year and reached over 23 million zloty. Moving to the next page, graphic presentation of our quarterly revenues for the last three years. The third quarter is usually the quiet part of the year for us and so it was this year. Even so, it was the best third quarter in years. On the next page, the same revenues are decomposed into costs and expenses, light gray color, and net profits for each quarter, presented yellow. As I mentioned before, despite being focused on Cyberpunk, we maintained popularity of the Witcher franchise during the typically dry summer season, and also profit-wise, it was the best performing third quarter in recent years. Next page, number 21, our balance sheet. As usual, a major change on the asset side is visible on the expenditures on development projects, which increased by over 39 million zloty. This is mainly related to cyberpunk works, and I will have a dedicated chart for this in a moment. After the strong sales of the second quarter during the summertime, we decreased our receivables balance by 25 million zloty, which added to our cash flow of the third quarter. Speaking of cash, our cash reserves are currently diversified between banks and bank deposits and keybots, included in both short- and long-term other financial assets. Overall value of our cash reserves decreased by 7 million zloty over the three months of the third quarter. I will go into more details on that with a dedicated chart in a moment. Equity. It decreased by 179 million zloty due to the buyback of owned shares we run in July and August. and among short-term receivables, two big changes happened. First, the project was paid in the capital contributions by the participants of the previous incentive program. The new share issue is not registered yet, so the received capital contribution is presented as our liabilities towards the program participants. Second change, the nicest of all liabilities, Deferred revenues grossed by over 77 million zloty, mainly related to Cyberpunk royalties on selected pre-order sales and advances on minimal guarantees from our distributors. This is the biggest increase of deferred revenues we ever experienced. Let's go to the next page, number 22. Our quarterly expenditures and development projects in cash flow perspective. In the third quarter, we were still working full force on Cyberpunk. The decrease of spent cash in Q3 versus the previous quarter comes mostly from annual bonuses for developers being paid out in the second quarter. Next page, number 23, cash flow. We started July with 642 million zloty on our bank accounts in bank deposits and invested in T-bonds. In July and August, we ran our share buyback and spent 240 million zloty on it. Afterwards, the shares we bought were sold to our incentive program participants, plus we received from them additional capital contribution prepayments for the new shares issue. All of that amounted to 126 million zloty inflows. Effectively, our net cash contribution in the settlement of the previous incentive program via the share buyback was 88 million zloty so far. At the same time, on our core business, we spent 52 million zloty on development projects. Parallel to that, our deferred revenues increased by over 77 million zloty. The deferred revenues increase comes in vast majority from selected Cyberpunk pre-orders and received tranches of new guarantees. On top of that, we brought 23 million zloty of net profit to the equation and enjoyed other flows, mainly driven by decrease of receivables in the total amount of 32 million zloty. All in all, having financed our incentive program settlement via buyback of own shares and investing into Cyberpunk development, the total value of our cash deposits and t-bonds decreased by 7 million zloty only. And overall, during the first three quarters of this year, our cash reserves increased by over 152 million zloty. As you know, the main dish of the year is yet to come. Thank you. That's all from me. For now, please move to the next page.