CD Projekt S.A. (CDR) Earnings Call Transcript & Summary

Hello, everybody. Welcome to CD Projekt Group's earnings conference where we'll briefly wrap up last year's performance. I'll walk you through the presentation together with Piotr Nielubowicz. Michal Nowakowski will join us for the Q&A session after the presentation. Let's start with Slide 2 where you will find a short summary of what has been happening at the company since the beginning of last year. It was a year of major changes. Our transformation process, which we've called RED 2.0 kicked off in 2021, and throughout the past year, touched almost every aspect of the company's life. In terms of organizational changes, we've introduced the agile methodology in the game development process. Right now, 17 agile teams are in place. 10 of which are engaged in developing the Cyberpunk expansion, while the remaining 7 are setting up our internal core technology center that will serve our future games. The Cyberpunk expansion is being developed largely with the use of the agile methodology. And we plan to work in the same framework when developing the new game in The Witcher franchise. Our strategic goal to develop in parallel through 2 AAA projects starting in 2022 has been achieved. Although the team working on The Witcher project will continue to recruit new talent. Our organizational changes have recently led to the appointment of 2 new board members. Jeremiah Cohn, Chief Marketing Officer; and Pawel Zawodny, Chief Technology Officer and Head of Production at CD PROJEKT RED. Last but not least, we continue to focus on the needs of our team members. In 2021, we retained the voluntary remote work model and undertook many activities to improve well-being and working conditions for the team. We also established RTRs for RED team representatives, which are an advisory body to the Board consisting of team members elected in a popular vote. Finally, we rolled out whistleblowing procedures and enhanced our internal communication. In terms of personal and professional development, we provided coaching webinars and we are constantly expanding our training portfolio. On top of that, as we are competing for talent globally, in 2021, our team members received significant pay increases by 23% on average. In 2022, we are planning to continue this trend. Now let's move to Slide 3. Last year's top priority was fulfilling our commitment to quality with regard to Cyberpunk 2077. We worked hard and delivered 13 updates for the game, which include a wide range of enhancements. This work cumulated in the release of Patch 1.5, which brings further game play improvement on consoles and PCs. It also includes a dedicated next-gen update, which enables Cyberpunk to exploit additional features offered by new consoles. We are happy that through our release has had a positive impact on the perception of the Cyberpunk brand in the gaming community and has received positive ratings from Metacritic. We now please have a look at Slide 4. Up until now, gamers have purchased over 18 million copies of Cyberpunk 2077 globally. Over 55% of this represent PC sales while PlayStation and IP box sales account for 27% and 18%, respectively. We are fully committed to the Cyberpunk franchise and intend to develop it further. Moving on to Slide 5. As mentioned, we've recently released a new set of improvements for Cyberpunk, and we are also working on the next update 1.6, which will be out in the coming months. Afterwards, support for Cyberpunk will continue, but our focus will gradually shift to the new exciting endeavors in both Cyberpunk and The Witcher franchises. Right now, the bulk of our team is working on Cyberpunk 2077 expansion that is targeted to be released in 2023. With regard to our other plans, as you can see on the chart, the number of developers working on new projects is growing steadily. This number includes the developers currently working on the new game set in The Witcher universe, which we recently confirmed, of course, game setting in The Witcher universe. Moving on to Slide 6. To bolster our future development capabilities, in 2021, we carried out 2 acquisitions. In July, we acquired the Digital Scapes Studios, which then became CD PROJEKT RED Vancouver. While in October, we concluded a deal with Boston-based The Molasses Flood. CD PROJEKT RED Vancouver is working on our current projects, the Cyberpunk expansion as well as the new Witcher game; while The Molasses Flood continues to develop its own project based on 1 of our IPs. We continue to recruit talent at both studios. One of the key aspects of the RED 2.0 transformation is a much stronger focus on technology. Let's have a look at Slide 7. Signing a strategic long-term partnership with Epic Games enables us to use Unreal 5 to develop future CD Projekt web games. This move will allow us to concentrate more on creative direction areas outside of engine development. At the same time, it will provide us with a solid long-term foundation to build and expand open world story-driven games. As a result, we expect to develop -- we expect the development of future games to become more efficient, predictable and stable. Moving on to the next slide. Unreal Engine 5, will power our next game in The Witcher universe that we have already started working on. As we've announced, with the new installment of The Witcher game, a new saga will begun -- will begin. Now let's move to Slide 9. We are super excited to return to the world of The Witcher, which we love so much. We are really happy that the gamers are excited about it too. Although 7 years have passed since the release of Witcher 3, The Witcher IP remains strong as confirmed by continuing sales of the existing trilogy of games. I'm proud to say that so far, our 3 Witcher titles have sold over 65 million copies of which The Witcher 3 accounted for over 40 million. So just to quickly wrap up what we have prepared in our lineup on Slide 10. You can see the list for our production plans for 2022. We will continue working on Cyberpunk expansion, while at the same time, developing a new game set in The Witcher universe. We'll provide further support for Cyberpunk. Our in-house development team will carry out the remaining work on the next-generation version of The Witcher 3. The Molasses Flood will continue their own development work on an unannounced project. We will launch a cultivating single-player mode for GWENT: The Witcher Card Game and we'll support both Gwent and The Witcher: Monster Slayer. We also run conceptual and research work for future unannounced projects. Let me leave you with a quick update on CYBERPUNK: EDGERUNNERS. The anime series that we've been creating with the Japanese studio Trigger, and which is to be aired on Netflix this year. The production process is now complete, and we have recently advanced to the post production. We can't wait to show you the -- we can't wait to show the series to the world. Stay tuned. We'll have more information to share soon. Now Piotr will walk you through the financials. Piotr, the floor is yours.

Thank you, Adam. Now I would like to guide you through our results for 2021. Let's start with the consolidated profit and loss account, Slide 13. In total, our sales revenues reached PLN 888 million, which for both segments is naturally less than in 2020, the year of release of Cyberpunk. However, compared to 2019, which was the last financial year preceding the premier of Cyberpunk for the product sales nearly doubled and GOG sales increased by close to 1/4. Most of the sales in 2021 were based on our own products, PLN 691 million, where Cyberpunk was the most important source of revenues and most of its sales continue to come from digital channels. Revenues from sales of goods and materials amounting to PLN 100 million -- PLN 190 million were mainly driven by GOG digital sales. Cost of products and services sold amounted to PLN 107 million. Both this and last year, most of the amount comes from depreciation of historic expenditures on web development of Cyberpunk. All in all, we have already depreciated 52% of the Cyberpunk development budget in the P&Ls of 2020 and 2021. Cost of goods and materials sold came mostly from GOG and represent the amount due to the suppliers of games available on GOG platform. All in all, our gross profit from sales reached nearly PLN 638 million in 2021. Moving to the operating costs. In 2021, our selling costs decreased to PLN 299 million. The high amount in 2020 was influenced by our Cyberpunk promotion activity. This year, it also included costs related to marketing and publishing, however, a significant amount over PLN 80 million comes from our involvement in servicing Cyberpunk and working on all of the other. We continue supporting Cyberpunk, however, service stuff related to it should naturally decrease in 2022. Next line. In 2021, our G&A costs slightly increased versus last year. Among others, we include in this position the remuneration of G&A, which, as Adam mentioned before, grew over 2021. In G&A, we also present costs related to the incentive program settled in company stock. Recently, we changed our estimates regarding the company's ability to meet its earning goals throughout the duration of the program. These applauded historic costs related to 80% of entitlements based on the research costs. Overall, for the group, this led to a PLN 1 million program-related negative cost balance in 2021. The change of assumptions does not refer to 20% of incentive program entitlements dependent on the market law. Costs related to these will continue to be recognized in future periods. Another factor that visibly influenced our G&A cost was related to the early research phase of our development projects. Cost of this phase are recognized directly in the results for the period and are not capitalized. The total amount recognized in 2021 amounted to nearly PLN 24 million, much more than in 2020, when most of our team worked on Cyberpunk. Next line, other operating expenses minus operating revenues. The amount increased in 2021, mainly due to 2 reasons: first, CD PROJEKT RED, in past years, we worked on creating our multiplayer technology. In the wake of the recent decision to start strategic cooperation with Epic Games and to use Unreal Engine 5, which offers advanced multiplayer solutions, we ceased further development of our own multiplayer technology and created respective write-off in the amount of nearly PLN 21 million. The second amount comes from GOG, which revised past assumptions related to amortization of some of its client technology and decided to accelerate the amortization scheme plus we decided to write off some of its licensing minimal guarantees resulting altogether in additional nonmonetary charges of PLN 15 million in GOG costs. Both cases refer to historic expenses and are of a nonmonetary nature for 2021. All in all, our net profit for 2021 reached PLN 209 million, while GOG posted negative results, and net profit of over PLN 238 million was generated by CD PROJEKT RED. Regarding CD PROJEKT RED, I would like to draw our attention to the fact that substantial costs were either driven by time limited activity like the Cyberpunk servicing expenses and early phase research costs. The latter are actually in a way an investment into our future products and services. Also, the multiplayer technology write-off was a onetime nonmonetary charge. The 3 positions altogether amounted to over PLN 125 million, which is the equivalent of half of the segment's net profit. Regarding GOG, apart from the one-off events discussed above, its performance does present the challenge and recently, GOG took measures to improve. As we communicated previously, GOG will focus more on its reliable core business activity, which means offering a handpick selection of games with its unique DRM philosophy and gamer-first approach. In line with this approach, there were changes in the team structure and the company reorganized its operations. Moreover, at the end of 2021, GOG lost the Gwent consortium. This means that it will either bear its portion of expenses nor obtain the corresponding share of revenues associated with our consortium. From 2022, GOG continues to offer both Gwent and Thronebreaker to its customers that financial settlement between CD Projekt and GOG are already based on a standard revenue sharing model as for other digitally distributed products. The GOG team will not be involved in the live operation of the game. We believe that all of the changes will allow GOG to focus more on its core business and improve its financial effectiveness. Let's now move on to the next slide, #14, our provisions. After the half yearly presentation, we received many questions on the economics of the provisions. And this time, I would like to present them in more detail. Join me for long- and short-term provisions. Back in 2020, CD Projekt reserved PLN 194 million for potential returns and corrections of Cyberpunk sales and royalty reports. During 2021, based on received royalty reports and updates from retail as of the end of each quarter, we were adjusting this amount. For some of our distribution contracts, we created additional sales provisions together for an amount of PLN 43 million. This is the first green number on the upper left side of the table. Over the year, PLN 136 million out of all sales provisions was consumed. We also dissolved nearly $101 million of unused sales provisions. However, the dissolution of the PLN 101 million sales provisions came together with creating new cost provisions for nearly PLN 95 million, the red number in the right upper part of the page. Why was that so? Based on the evaluation of market situation, business decisions, and discussions with our distribution partners, in some cases, the settlements resulted in covering part of distributors marketing and publishing expenses by CD Projekt instead of reducing CD Projekt's revenues. During 2021, we consumed over PLN 74 million of cost provisions and nearly PLN 18 million provisions was dissolved. One could ask, why we increased sales of cost provisions at the same time when we dissolve them. The answer is simple. Over the year 2021, we reevaluated the provisions as of the end of each quarter based on most updated market information, and we did it for each contract individual, some resulted in changes in one way and some in the other. How did it all translate into our profit and loss account? The balance of created and dissolved sales provisions marked green on the bottom of the table, increased our 2021 sales revenues by PLN 58 million. At the same time, the balance of created and resolved cost provisions marked red, increased our costs by PLN 77 million. All in all, the negative effect of cost provisions was higher than the positive influence of sales provisions by nearly PLN 19 million. This amount decreased our EBIT value for 2021. Let's now move to the next slide, #15, our consolidated balance sheet. In 2021, our balance of expenditures on development projects decreased by PLN 56 million. New expenditures on development projects of the year reached PLN 67 million while depreciation of past projects in the amount of PLN 89 million, primarily Cyberpunk 2077 offset this figure. Additionally, an allowance of close to PLN 21 million due to abandonment of work on multiplayer technology was recognized in the CD PROJEKT RED segment. At the same time, our long- and short-term other financial assets increased in line with our purchases of T-bonds as a way of diversifying our financial reserves. The total value of T-bonds, cash and deposits included in the positions marked with the star is summed up under the table to the amount of PLN 1.154 billion as of the end of 2021. This means that our financial reserves increased by PLN 279 million during the year. At the same time, our receivables decreased from PLN 1.275 billion down to PLN 238 million, as in 2021, we collected receivables opened after the end of year release of Cyberpunk. Let's go to the other side of the balance, Page 16. As of the end of 2021, our group equity had a value of PLN 1.894 billion, nearly PLN 289 million less than at the end of 2020. The main reasons for this change are payment of over PLN 503 million dividend and the total comprehensive income for the period, increasing equity by PLN 240 million. Another major change among our liabilities is related to the provisions, which we just discussed. All in all, all our sales provisions decreased down to PLN 0. Cost provisions slightly increased by PLN 8 million up to PLN 44 million. At the same time, provisions for bonuses, mostly based on our annual profits, decreased in 2021 down to PLN 45 million as the bonuses for 2020 were paid in 2021, and the bonuses expected for '21 are proportional to the profits of the year. So far, I haven't elaborated much on the expenditures on development projects. So now please go to the next Page #12. CD PROJEKT RED's expenditures on research, development and service of released games presented quarterly to better show the changes happening at the studio. The yellow part represents our total cost of servicing our released games, mainly Cyberpunk and Gwent. The amount related to Cyberpunk declined in the first half of the year and was relatively stable during the second half, leading us finally to the release of Patch 1.5 and the next-gen version of Cyberpunk. At the same time, the proportion of the team, and therefore, the total expenditures related to future products keeps growing. It's represented by both the green slice early phase research costs and the blue part actual development of new projects. This is in line with what Adam was presenting just now regarding the involvement of our team. And finally, our simplified cash flow on Slide 18. PLN 209 million net profit for the period was supported by nearly PLN 1.037 billion reduction of receivables that we collected in 2021. Our liabilities, including all types of provisions decreased by PLN 396 million. In cash terms, we expensed PLN 155 million on development of new projects, while the noncash book depreciation of historic expenditures and release products reached nearly PLN 87 million. The dividend paid out in the amount of over PLN 503 million was another important driver of our cash flow. All other flows and changes cumulatively are around PLN 2 million. Altogether, our financial reserves increased by PLN 279 million, up to PLN 1.154 billion in cash, bank deposits and T-bonds as of the end of 2021. More detailed commentary on our financial performance can be found in our Management Board report. As we're talk about our reports, I would like to draw your attention to one more. Together with the annual report, we just released our first sustainability report. I'd like to use this opportunity to congratulate Amy Poplawski from our IR department for making this huge project. Thank you very much indeed. That's all from me for now. Thank you for your attention. Let's now move on to the Q&A.

[Operator Instructions] And the first question is from the line of Nick Dempsey from Barclays.

Yes, I've got 3 questions, please. Sorry. The first one, you're pointing to just over 18 million units of Cyberpunk 2077 having been sold as of the 14th of April. We know we had 13.7 million in 2020. I'm kind of backing out somewhere between 3.5 million and 4 million in 2021, but that's clearly not perfect. So are we kind of saying that we're only at kind of 0.5 million to 1 million, something like that sold so far in 2022. Is that a kind of decent ballpark? Second question, when we're considering 2022 group revenues versus 2021 group revenues, what would make 2022 group revenues be higher than 2021? When I'm looking at it, we don't have a Cyberpunk 2077 paid for expansion in 2022. The run rate so far is Cyberpunk sales doesn't really seem to be ahead of the 2021 run rate. And we can see Cyberpunk on sale in lots of places. So potentially, the average revenue per unit might be through the year lower than in 2021. So what is there other than I just talked about that, that could make 2022 group revenues higher than 2021? And yes, just last question. You've announced that you're Unreal Engine 5 for the new game in The Witcher universe. Can that make your development process faster so that you can get to a finished game earlier than you might have thought before you embarked on this change? Or is it going to be roughly the same?

Okay. So the first question was about the split of sales of Cyberpunk for 2021 and 2022. I'm sorry, but we were not revealing any precise data per year or per quarter. So the last updated number we had before this conference was this [ 18 million ], and it obviously includes accelerated sales, thanks to the next-gen release. The second question was what will make 2022 results or sales revenues better than 2021? And here, I have to say I'm sorry, but we are not guiding on 2022. Adam mentioned our publishing pipeline for this year and our production pipeline for this year. But we will not be able to comment what will make the sales higher or lower in the existing year.

And I will take the third one. Definitely, Unreal Engine is a proven technology, and it's very well developed and organized on the back-end side, I mean tool set for how -- for developers pipelines and so on. So the production should be smoother, but not necessarily fast. I mean it's hard to say now, but we expect that definitely the processes will be under better control, and I will be able, as I said, being more focused on the creative side. But bear in mind that we are talking about Unreal Engine 5 in which development will take our part as well together with happy face. So we are specialist of the open world RPGs and we'll work together on some areas of the technology to make it perfect for this kind of games.

The next question is from the line of Sheikh from Morgan Stanley.

It's Omar Sheikh from Morgan Stanley actually. I've got 3 questions as well. Not -- just similar from Nick, actually. So maybe if I could start with the '22 slate, you very helpfully gave us a comprehensive list of stuff that you're going to be developing in 2022. Could you just tell us what you think you might be able to release during the course of the year, just to help us understand kind of cadence of releases? So that would be helpful. In particular, if you could just touch on which next-gen, just to kind of update us on where exactly you are -- what you plan to do and where do you plan to release that in 2022 as well? That's the first question. And then on the Cyberpunk run rate, Piotr you said hopefully just -- I think you just said that you've seen accelerated sales for Cyberpunk post the release of next-gen. And you said you don't want to give us a number for December 30th -- December 31st. You said you don't know what '21 numbers are. But can you maybe just say whether the acceleration is significant? And whether you expect -- as you look into Q2, Q3, Q4, whether you expect the run rate to be the same or get better or get worse? I'm particularly thinking about the release of EDGERUNNERS is that going to have an impact on the sales of the game in your opinion? That's the second question. And then finally, I just wanted to ask about headcount. So you talked about -- you talked in the past about ramping up developer headcount. Could you just give us a December 31st year-end number for the number of developers that you have? And what are your kind of hiring plans for this year around whether it's in Vancouver or whether it's in Canada or whether it's in Poland. Just want to get a sense of how much you plan to ramp up the developer capacity as you go through '22?

This is Michal Nowakowski. So your question is, what will you be able to release in 2022? And then you got a little bit more specific about the next-gen version of The Witcher 3. So we're not going to be announcing new titles at this con call or the new releases or the new release date. Of course, the announcements are going to come when they're going to come and what is actually known out there as of now is what we're talking about. Now when it comes to next-gen, I'm sorry, the launch of The Witcher 3, I think there's one comment I actually wanted to make. I've been looking at the headlines that popped up over the Internet. And I've seen one that really drew my attention, which is The Witcher 3 next-gen delayed indefinitely, which sounds like the game is in some sort of development held. And I wanted to say this is not the fact. And in fact, I mean, there's been a lot of insinuations that we're going to launch like June next year or something like that, that's completely not the case. Everything we're saying is we are -- we have taken the development of the game in-house -- the game is going to be finished in-house. We're evaluating our time. That requires a bit of investigation. That's always saying, nobody is saying the game is delayed in some monumental sort of time gap ahead of us. So that's as much as I can say about The Witcher 3 next-gen, but I really wanted to emphasize that.

And the second question about the acceleration of sales for Cyberpunk after the premier of next-gen. I would call it kind of new release effect. Obviously, it was not an entirely new release how we prepared the version for owners of next-gen consoles who so far hesitated to buy the game that was released first and foremost for the old generations and now they had the opportunity to do so. And will the third, fourth -- the second, third and fourth quarter be equivalent to the releasing window? Probably not. And obviously, the sales are continued I guess, proportionally to the number of gamers using PCs, all gens and next-gens, both for PlayStation and IP box. So right now, I would say it's a natural trend that we should be expecting after adding the 2 new next-gen platforms to the family. The second part of the question was whether we believe EDGERUNNERS will also support sales? Yes, we hope it will make the Cyberpunk universe more popular, more reachable. We hope it will invite new customers who watch the anime series also to play the video game in the same universe. But right now, it's obviously hard to estimate what impact this anime will have. But definitely, we are looking for a positive extension of the Cyberpunk universe awareness.

So asking the third question, by the end of last year, there was always almost 700 developers in all our studios. And among them, 630 something into the PROJEKT RED. So the number of developers into the PROJEKT RED hasn't changed last year compared to the end of 2020. But bear in mind that after release -- the year after release is the year, naturally, the year of the highest turnover. So even having this peak in turnover, which is natural. The same was up to The Witcher 3, we keep the same level of the team. And for this year, we are planning increase, but it's too early to share what is the target. Recently, we were very, very active in GDC, and then we expect some boost in hiring. And we are implementing new policies, enabling people to work from -- not only from Warsaw, Warcraft. We have more locations and that should help as well.

The next question is from line of Jamie Bass from Berenberg.

Sorry in advance. I've got 3 questions as well as they are relatively similar to Nick and Omar's, but I'm slightly different. First one, would you be able to say whether once the next-generation of Cyberpunk came out, whether that not only boosted sales in general, but did you see that there was a boost to the old generation sales from the marketing and that sort of thing? So old generation sales, was that boosted? Second question, kind of coming at the next-gen, which a question from a different angle. Would it be fair to say that the development of the next-gen update was relatively on track and then you had to in-house the production for -- given the circumstances and then there's just the friction of changing studios. Is that a fair way to look at it? Or was there more of a development issue behind it as well? Third question, on the transition to the Unreal Engine for the next Witcher 4, would you be able to give some color on whether -- and I know you haven't given too much detail on what the development cost would be anyway for The Witcher 4. But compared to sort of your base case expectations, would you say that there is a difference to the cost level you would be expecting for the overall development for the next Witcher, given that you're now using the Unreal Engine?

Okay. I'll start with the first 2, I'm Michal Nowakowski. So the first question was what is Cyberpunk next-gen release actually boosted on -- I'm sorry, sales for both generations. I mean, for the next-gen, I mean it was the initiation of sales really. So of course, it opened up the sales for PlayStation 5 and Xbox Series X. And -- but I think your question was more what it boosted the sales for the previous gen. It did, of course, to some extent, also because the Patch 1.5 introduced a lot of new things and improvement in fixtures to the last generation as well. So whenever you -- it was a major, major patch. So whenever you have an event like that, naturally, some people will want to check on the game and see what has changed, what's new? And that was the case with Cyberpunk next-gen patch as well for sure. The second question, I think you -- I'll try to shorten it. What was the reason we switched to internal? And well, the reason was we -- it was based on recommendations from the people in charge of development. We -- as a result of these recommendations, we have decided to move the development of The Witcher 3 next-gen to our in-house team and finish the work on the next-gen, which are prerelease. So that's pretty much what we're saying.

And the third question was about how development costs could influence our total development -- how new engine could influence the development cost of the next project. As for now being at the beginning of the journey using Unreal Engine, we do not plan any significant influence of switching to new technology within that budget of the game. Obviously, we are at the very beginning of the journey using Unreal Engine. And we will know more in some time from now. But as for now, the assumption is that it should not have a significant impact.

The next question is from the line of Matthew Walker from Credit Suisse.

Just a few questions, please. The first 1 is, how many customers so far have taken up the free copy of Cyberpunk next-gen? The other 1 is, any clues on when in 2023, the expansion might come out? And then on Molasses. Are they working on like a major AAA title? Or is that something different? And then are you still anticipating something like a 4% reduction in sales from Russia and Belarus?

So answering the first question I had to ask -- are you asking about the number of gamers that downloaded free trial of...

I guess what I'm asking is the people that bought the original copy were promised the free -- a free copy of the next-gen version when it came out. So I'm asking how many people have claimed a free copy next-gen. .

All right. All right. I'm not -- I can't provide you with a precise number. But we don't have this data actually precisely. So I can't answer this.

Mr. Walker, are you finished with your questions?

Yes. I just had the other questions, which was about when in 2023, we can expect the expansion? Is that the first of half of '23?

Sorry. Sorry, does the rest, yes, Sorry, we start with here. Yes, the second question was an equally when the expansion. I am assuming you're talking of cost about the Cyberpunk expansion they come out. So we're at this moment not sharing the date -- the release date for the full expansion yet. Of course, that will be announced when the right comes from marketing production perspective, that time will come for sure. But we're not sharing it just yet. We hope for your understanding. .

And regarding The Molasses Flood. Regarding The Molasses Flood, the project is not -- isn't announced yet. So we can't say anything more that we're working on the game within the our IT -- 1 of our IT site and that's it what we can share as for now.

And the last question referred decrease of sales from Russia and Belarus. It's hard to measure something we are not seeing. But as we reported some time ago, the sales to Russia and Belarus altogether for the past 12 months amounted to between 3 and 6 or 5-point something percent as far as I remember. So depending whether you measure GOG itself or to the PROJEKT RED that was the size of our Russian and Belorussian sales revenues.

The next question is from the line of Ken Rumph from Jefferies.

Hello, everyone. Maybe I have different questions. The first one was just a quick one. You commented on the -- I think it was 23% average wage increase last year, and you said a similar progress this year. Did you mean another 23% or just another significant increase, simple enough? Secondly, on multiplayer. You've written off some of the RED engine kind of multiplayer related development costs. What about the people, the team who are working on that which I think was a mixture of people and also some of the digital games people. What are they doing? Are you restructuring that? Do they -- and also, it seems that multiplayer version of Cyberpunk is not in the offing. That now seems like quite a distant prospect, a multiplayer mode of some kind? Although something that you still want to do. So basically, what's happening with that team? Is it shrinking? Are they working on something that's very long term? And finally, kind of a couple of questions related to Unreal Engine. I had rather a different view talking to people at GDC that -- in the end, it will be great, but you can spend a couple of years getting used to a new engine. So I'm presenting rather the opposite idea than it being quicker. How long do you think it will get -- take you to get to grips with a new engine? And secondly, as you observe, UE5 isn't really set up for an open world game, you're going to be kind of codeveloping a whole load of capability. I assume that you've, therefore, gained some preferential terms from Epic for effectively improving their product, if I put it briefly. Is that a fair assumption?

So I'll take the first one regarding the wage increases. Yes. We -- for 2022, we expect similar wage increases that Adam mentioned during his part of the presentation. Obviously, right now, this is planned. So very precise percent will be possible to be measured closer to the end of the year. But in general, we are planning to head into the same direction with wage increases.

So I'll take the second. Regarding people who have been working on market are, of course, all of them taking into considering some turnover -- natural turnover, but there were no layoffs related to this, and we are definitely for having multiplayers in our games, and we need those people to help us to bring it to life one day. So no layoffs in this regard whatsoever.

And on the last one here, Unreal-related questions. I mean, your suggestion was that it could take years to learn new things such as new engine. And of course, this can be true. But one thing I can tell is, first of all, we actually have on board some people who have prior experience with the build. So it's not like the team is completely -- it's a completely unknown ground for the team. It's also -- there's also quite a lot of specialists on Unreal. In fact, one could argue that it's easier to draw talent who knows about Unreal rather than to draw talent that is faced with 1-year learning curve of proprietary engine, which was the case with us before. . As for the Unreal 5, not really being set up for the open world game, that's actually contrary to what our internal investigation has told us. I mean, Unreal 5 is much better suited contrary to Unreal 4, which was a little bit more challenging in that regard, not impossible, but more challenging. Unreal 5 is much better suited for open world games. And what Adam mentioned in his speech, I think we were trying to say something a little bit different is that we're actually going to be chipping in significantly with what we can offer and as to the table for Unreal together with them rather than we have to somehow hack Unreal Engine so that can work in the open world games. That's definitely not what we're saying. UE5 according to our expertise is perfectly fine to run open world games, and we can -- we feel, together with them, we can make it work even better for our games. I hope that answers the question.

The next question is from the line of Matti Littunen from Bernstein.

A couple of questions on product. The first one, a follow-up on multiplayer. Would you -- now in sort of your new technology plan, of course, you don't have to reveal anything specific about, say, the next Witcher game. But philosophically, would you be opposed to releasing a multiplayer version of the game at the same time as the single player 1? Or would you prefer to sort of do those separate releases going forward? The second one, I suppose, looking back at kind of RED engine free and sort of the process going from that to Cyberpunk. Would you say that some of the stability issues with the engine, would those have been greater when you were developing Cyberpunk 2077? And do you think that, for example, affected the Quest design of the game -- the finished game versus what we saw in Witcher 3?

I probably will take the second one as well, maybe, but I would need to ask a little bit more what you have in your mind, sorry. On the first one, the multiplayer, are we philosophically okay with that being released appropriately altogether? I'm afraid we're not really in place to comment on that. Once we reveal the plans, talk more about them, we'll be happy to jump into conversation philosophically and in real life, what it means for us. But here now, I'm afraid I cannot got bit further. Now as for the RED engine, I'm not sure I understood what is it you had on your mind, like what did RED engine affect how we designed the Quest versus the Witcher 3? I mean I'm not sure I followed.

Yes. I just saw some developer interviews from your developers talking about how they expect the improved stability overall on a technical level from the Unreal Engine, which would make developing the sort of open-ended sort of structures of open world games easier. So I was wondering, for example, obviously, you have lots of player choice in open world games, and you've had that in the Quest Design in Witcher 3, but perhaps less so with Cyberpunk 2077. So I was just wondering, was that 1 perhaps a bottleneck in development for Cyberpunk 2077, which you'd hope to improve with the switch to Unreal 5?

I don't think this was the case really, to be honest, plus I actually probably wouldn't agree with the thesis because of the philosophy of the Quest Design when you cut it through the bone, I mean, it was actually similar in Witcher 3 and CP. I understand the perception may be different for some people, especially if you read a lot of comments in the Internet and so on, but that was actually not the case. So no, I think, again, I cannot jump into the shoes of people who are giving the interviews of GDC, but the impression was -- my impression would be that they were just saying that they expect to move well conditions and that's probably -- that will be my comment. .

The next question is from the line of Chirag Vadhia from Bank of America.

On the Unreal partnership, I just wanted to understand why such a long agreement, a 15-year agreement with Epic 4? And was it just to do with the stronger multiplayer capabilities? First question. The second question, wage inflation has become I guess, more notable for game developers in the industry. Do you feel it is transitioning your workforce to Unreal means there's more scope for competitors to higher talent given how valuable the Unreal skill set is? And then third question, did the launch of Elden Ring have any impact on the sales of Cyberpunk next-gen?

So I'll take the first one. 15 years is not that long, to be honest. I mean we -- when we think about our plans, we have it's normal that we have to take 15 or 20 years in advance. I mean that's the normal term of planning. So this is a strategic deal. So I can't imagine shorter term than this.

Yes, I will take the second question regarding Unreal Engine influence on the risk of losing our talent to other developers also using this technology. And honestly speaking, we see the situation totally opposite. So there are many, many more specialists around experience with Unreal Engine then we can fight out of CD Projekt experience using RED engine. So we rather see this as an opportunity for us to extend the team and have easier opportunities for hiring new team members.

As for the third question that the launch of Elden Ring effects Cyberpunk sales. Elden Ring is a fantastic games that we sent congratulations to Miyazaki and his team. It did not really -- I mean, the games launches were separated by 1 year. And if you are meaning the launch of the patch. No, I mean the patch did what it was supposed to do, the upgrade and the opening of the next-gen. I think the genres are so different. I mean, if you're looking for a fantasy thing that is more like oriented, I mean, I think the best place for both games. Of course, Elden Ring is launching a new title, we were launching a next-gen version of the title that has already existed in the market for 1 year, but it did not seem to affect the sales in any way we could really measure or say, okay, if we did something else would have been X times better or something else. So no, in our opinion, not.

The next question is from the line of Thomas Rodak from [indiscernible].

First of all, I have 1 more question regarding the impact of new gen version of Cyberpunk on sales. You said that 55% of Cyberpunk units were sold on PC so far. I wonder if the sales currently is more skewed towards console users after the new gen version was released? Maybe you could give us some percentage number, how it's looked in the first quarter or in the second quarter? The second question is related to the write-offs you created. You created a write-off for the RED engine with regard to multiplayer technology. And on the other hand, during the previous conference, you said that you're going to work on online elements to Cyberpunk. I wonder if that means that you gave up the development of online elements to Cyberpunk? And the third question is, could you give us some light on the value of cost of Cyberpunk service that we should expect in 2022, maybe the first quarter of '22, and in the later quarters?

Hello, Thomas. So regarding the precise fleet platforms after the release of next-gens within Q1, we have no data to share in this respect right now. Stay with us for the Q1 results, and I hope we'll be able to share a bit more data on results and sales for this period.

I'll take the second one. So we are just switching our activities from RED engine our multiplayer works from RED engines to Unreal because having signed a licensing and partnership agreement with Epic, we gained access to multiplayer solutions available in Unreal Engine. So as a result, we abandoned further R&D work on adding multiplayer features to RED engine. So the corresponding to date expenditures were reassigned from fixed assets to other operating expenses.

And again, the question about financial elements of 2022 and future quarters. I cannot go into details, but as I mentioned during the first part of the presentation, the Cyberpunk servicing costs, after releasing the Patch 1.5 and next-gen addition, will naturally decrease. We will obviously continue supporting the game and still working on updating it. But first part of the job, we believe, has already been done and was done in 2021.

There are no further telephone questions at this time. And I would like to hand back to Adam Kicinski.

Thank you very much. And we have a question from webcast from [indiscernible], how many days The Witcher 3 next-gen update may require to be completed? So not many. Not many. Fortunately, those staffs, those engineers and programmers are those who can work on it. So it's around 15 people. And to a limited extent, it will also make us of external support. So taking over this project will not affect the development of any our next-gen in the framework of the previously announced new Witcher saga. So yes, it's a minor project. The second question is from [indiscernible]. What percentage of developers working on other projects are working on the new game in The Witcher? Sorry, but we so far have not been sharing this information, and I cannot answer the question right now. So we are coming to the end. So thank you very much for joining us today for our financial year 2021 conference. Should you have any follow-up questions, please contact our IR team directly. Thank you very much. Bye-bye.