CD PROJEKT CAPITAL GROUP ACTIVITIES - MANAGEMENT BOARD REPORT ON

 
CD PROJEKT CAPITAL GROUP ACTIVITIES - MANAGEMENT BOARD REPORT ON
MANAGEMENT BOARD REPORT ON
CD PROJEKT CAPITAL GROUP ACTIVITIES
BETWEEN 1 JANUARY AND 30 JUNE 2019
CD PROJEKT CAPITAL GROUP ACTIVITIES - MANAGEMENT BOARD REPORT ON
Disclaimer

This English language translation has been prepared solely for the convenience of English
speaking readers. Despite all the efforts devoted to this translation, certain discrepancies,
omissions or approximations may exist. In case of any differences between the Polish and the
English versions, the Polish version shall prevail. CD PROJEKT, its representatives and employ-
ees decline all responsibility in this regard.
CD PROJEKT CAPITAL GROUP ACTIVITIES - MANAGEMENT BOARD REPORT ON
Table of contents

7    Brief description of the CD PROJEKT Capital Group

8    Activity profile

11   CD PROJEKT Capital Group growth outlook

15   CD PROJEKT Capital Group activity profile

16   Organizational structure of the CD PROJEKT Capital Group

18   Disclosure of business segments, products and services, outlets, suppliers
     and clients

34   Disclosure of external and internal factors affecting further growth of the
     CD PROJEKT Capital Group

36   Disclosure of factors which, in the issuer’s opinion, will affect its financial result
     during at least the coming quarter

36   Disclosure of significant agreements

37   Risk management at the Capital Group

38   Financial statement of the CD PROJEKT Capital Group

39   Overview of key economic and financial indicators disclosed in the consolidated
     and separate financial statement

57   Corporate governance

58   Entity contracted to audit financial statements

58   Shareholders controlling at least 5% of the vote at the General Meeting

59   Agreements which may result in changes in the proportions of shares held by
     shareholders and bondholders

63   Composition of the Management Board of CD PROJEKT S.A.

64   Changes in Management Board composition

65   Composition of the Supervisory Board of CD PROJEKT S.A.

65   Changes in Supervisory Board composition

66   Corporate governance policies

66   Disclosure of significant legal proceedings
CD PROJEKT CAPITAL GROUP ACTIVITIES - MANAGEMENT BOARD REPORT ON
16.04.2020
                                                CYBERPUNK 2077 RELEASE DATE

                       Keanu
                       Reeves
                       Starring as one
                       of the main characters
                       of Cyberpunk 2077           7 000
                                                   participants
                                                   attended Cyberpunk
                                                   presentations at E3

                                                   12 000
                                                   participants
                                                   attended Cyberpunk
                                                   presentations at gamescom

Cyberpunk 2077
has already received

over 200 awards
CD PROJEKT CAPITAL GROUP ACTIVITIES - MANAGEMENT BOARD REPORT ON
Over 30
                                                million*
                                                views (across all platforms)
                                                of the E3 2019 Cyberpunk 2077
                                                cinematic trailer

                       6.5 thousand
                       articles
                       — the most extensively
                       covered game of E3

                                                 Strong launch
                                                 of the preorder
                                                 campaign
                                                 of Cyberpunk 2077 – 09.06.2019

                                                 Cyberpunk 2077 announced for

                                                 Google Stadia
* As of 31 July 2019
CD PROJEKT CAPITAL GROUP ACTIVITIES - MANAGEMENT BOARD REPORT ON
The Witcher 3 for

                                                                                    Nintendo
                                                                                    Switch
                                                                                    announced for

                       iPhone edition                                               15.10.2019
                       of GWENT announced

                       CD PROJEKT S.A. market capitalization

                       22.1 billion PLN*

                                                                           214.4 million PLN
                                                                           in sales revenues
                       Two GWENT expansions released:

                       Crimson Curse                                       51.7 million PLN
                       and                                                 in net profit during H1 2019

                       Novigrad
                       beta version of                                     40
                       GOG GALAXY 2.0                                      million
                       garnering excellent reviews from                    copies of The Witcher
                       the media and gamers alike                          games sold

                       Blizzard classics                       CD PROJEKT
                       Available on GOG.com
                                                               RED STORE
                                                               now available
                                                               to EU residents
* As of 31 July 2019
CD PROJEKT CAPITAL GROUP ACTIVITIES - MANAGEMENT BOARD REPORT ON
Brief description
of the CD PROJEKT
Capital Group
CD PROJEKT CAPITAL GROUP ACTIVITIES - MANAGEMENT BOARD REPORT ON
8   |    Brief description of the CD PROJEKT Capital Group

Activity profile
CD PROJEKT S.A. (also referred to as CD PROJEKT or the Company), headquartered in Warsaw,
conducts business activities in the dynamically growing global digital entertainment segment.
These activities have been ongoing for 25 years and originally focused on the Polish market.
The Company – then called CD PROJEKT – began by distributing foreign games in Poland
(note that the corresponding activity segment, handled by the Group’s CDP.pl subsidiary, was
disaggregated in 2014). A pivotal moment in the Group’s history came in 2002 with the esta-
blishment of the CD PROJEKT RED development studio, which initiated work on the Company’s
first major RPG1 – The Witcher.

Map 1 CD PROJEKT – worldwide sales

                                                                                       Warsaw

                                                                           Wrocław

                                                                                                 Kraków
                                                                       Berlin

                                                                                                                      Seoul

                                                               Paris
                                                                                                                       Tokyo
                                                             Milan
                                                                                                                  Shanghai
        Los Angeles

                                                       São Paulo

        Headquarters (CD PROJEKT RED studio and GOG.com)
        Dev teams
        Branch offices
        Community managers

1   Role Playing Game – a storyline-driven game based on a consistent narrative.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
CD PROJEKT CAPITAL GROUP ACTIVITIES - MANAGEMENT BOARD REPORT ON
9   |    Brief description of the CD PROJEKT Capital Group

The CD PROJEKT Group currently conducts operating activities in two key segments.

CD PROJEKT RED

Development and publishing of videogames and tie-in products based on the Company’s
proprietary brands.

GOG.com

Digital distribution of videogames using the Company’s proprietary GOG.com platform and the
GOG Galaxy application.

CD PROJEKT S.A. headquarters in Warsaw

During the reporting period 96% of the Capital Group’s
sales revenues were generated by exports, with North
America accounting for 66% of sales and Europe coming
in second at 24%.

                                                                               GOG sp. z o.o. headquarters in Warsaw

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
CD PROJEKT CAPITAL GROUP ACTIVITIES - MANAGEMENT BOARD REPORT ON
10   |    Brief description of the CD PROJEKT Capital Group

Business philosophy

The business philosophy of the CD PROJEKT Capital Group rests upon two pillars: uncompro-
mising dedication to quality in the videogame and service development process, and retention
of financial and creative independence (itself necessary to facilitate the former goal). The Board
regards these two factors as decisive in ensuring success on the competitive global digital
entertainment market. CD PROJEKT RED stands apart from other major videogame developers
and publishers in that it emphasizes control over every stage of the game development and
marketing process – from initial design, through work on technological solutions, publishing
activities, promotion and distribution, all the way to gamer community relations. This model is
implemented by operating a proprietary digital distribution and online gaming platform – part
of a broad user-friendly and gamer-centric ecosystem.

Scheme 1 Videogame development business model at CD PROJEKT RED

CREATION                                                                                                     DISTRIBUTION
                                                      TECHNOLOGY
IP ownership and full creative                                                                               Global reach by carefully selected retail
control.                                              Internally developed REDengine                         distribution partners in 109 countries.
                                                      tailored for story-driven open world
Focus on 2 franchises and limited                     RPG. Ready for next hardware                           Direct consoles and PC digital distribution
number of projects.                                   iterations.                                            including our digital store – GOG.com.

                          DEVELOPMENT                                            PUBLISHING                                         COMMUNITY
                          In-house experienced                                   Own publishing operation                           Honest and direct
                          development team with                                  ensures our GAMERS FIRST                           communication with
                          quality being an absolute                              core business philosophy is not                    gamers.
                          priority.                                              compromised.
                                                                                                                                    Full control over
                                                                                                                                    messaging.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
11   |    Brief description of the CD PROJEKT Capital Group

* Własne marki The Witcher i Cyberpunk

Employment structure

Scheme 2 CD PROJEKT Capital Group employment structure at the end of 2018 and at the
end of H1 2019

                       953
                        Individuals employed at the
                                                                             CD PROJEKT RED
                                                                                                                                777
                        CD PROJEKT Capital Group                                                                          698
                        as of 30.06.2019
                            Women (25%)                                      GOG.com
                            Men (75%)                                                       176
                                                                                             189

                        887
                        Individuals employed at the                          Developers
                        CD PROJEKT Capital Group                                                                    632
                        as of 31.12.2018
                                                                                                                  583
                            Women (24%)                                                                                               30.06.2019
                            Men (76%)                                                                                                 31.12.2018

At the end of the first half of 2019 the CD PROJEKT Capital Group employed 953 individuals,
82% of whom were employed in the CD PROJEKT RED segment, with the remaining 18% repre-
senting the GOG.com segment.

The dynamic growth in employment over the past year is mostly due to the upscaling of busi-
ness and development activities.

CD PROJEKT Capital Group
growth outlook

The CD PROJEKT Capital Group conducts its business in the global videogame market which is
among the fastest growing branches of the global economy. The cumulative annual growth rate
(CAGR) for the 2018-2022 period is estimated at 9%, with an estimated 2019 market volume of
152.1 billion USD.2 According to the PWC “Global Entertainment & Media Outlook 2018-2022”3,
consumers devote ever more time and money to media and entertainment, with computer
games currently ranking as the second most popular pastime.

The growth outlook of the Capital Group is affected not only by the increasing popularity of
this form of entertainment as an approachable and attractive mass market offering, but also
by the increasing sophistication and realism of products offered, increasing availability and

2 Key numbers, Newzoo, accessed on 26 August 2019; newzoo.com/key-numbers/
3 Perspectives from the Global Entertainment & Media Outlook 2018–2022, PWC, accessed on 19 January
2019, pwc.com/gx/en/entertainment-media/outlook/perspectives-from-the-global-entertainment-and-media-o-
utlook-2018-2022.pdf

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
12   |    Brief description of the CD PROJEKT Capital Group

affordability of gaming hardware, new methods of engaging potential gamers and new game
distribution channels.

CD PROJEKT S.A. on the securities market

The CD PROJEKT brand has been present on the Warsaw stock exchange since 2010, when –
as a result of an investment agreement concluded in 2009 by CDP Investment sp. z o.o.4, and
Optimus S.A., along with their respective shareholders – Optimus purchased 100% of shares in
CDP Investment while existing shareholders of CDP Investment acquired Optimus S.A. shares.
The formal merger between both companies was carried out in December 2010.

As of the publication date of this report 96 120 000 Company shares are traded on the Main
Market of the Warsaw Stock Exchange under the continuous trading system. Key shareholders
of CD PROJEKT S.A. are its co-founders – Marcin Iwiński and Michał Kiciński. Other major
shareholders who are also members of the Company’s Management Board are Adam Kiciński –
President of the Board, and Piotr Nielubowicz – Vice President and CFO.

Figure 1 Company shareholding structure as of the publication date of this report

                                                       Marcin Iwiński (12.64%)
                                                       Michał Kiciński (10.91%)
                                                       Piotr Nielubowicz (6.38%)
                                                                                                     Founders
                                                       Adam Kiciński (3.46%)                         and Board
                                                                                                     Members
                                                       Adam Badowski (0.16%)
                                                       Michał Nowakowski (0.04%)
                                                       Piotr Karwowski (0.01%)
                                                       Free float (66.40%)
                                                  The shareholding structure is updated on the basis of formal
                                                  notifications submitted by shareholders in accordance
                                                  with the applicable legal regulations.

On 25 June 2019 Nationale-Nederlanden Powszechne Towarzystwo Emerytalne S.A. notified
the Company that the percentage of Company shares held by itself dropped below the 5%
threshold.5

Free float accounts for 66.40% of CD PROJEKT S.A. stock.

In March 2019 the Warsaw Stock Exchange launched its WIG.GAMES sectoral index. As of
29 June 2019 Company stock contributes 41.78% to the value of this index.

4 Former holding company of the CD PROJEKT Group
5 CR 15/2019

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
13   |    Brief description of the CD PROJEKT Capital Group

     Figure 2 CD PROJEKT S.A. stock price and WIG20 index at the Warsaw Stock Exchange
     between 1 January and 30 June 2019.

     270
                             CD PROJEKT                   WIG20
     250

     230

     210

     190
                                                                                                                                      +43%

     170

     150
                                                                                                                                       +1%
     130

      110
                  01.2019                 02.2019                 03.2019                 04.2019                 05.2019   06.2019

     Between 1 January 2019 and 30 June 2019 the Company stock price fluctuated between 148
     PLN (3 January 2019) and 228.50 PLN (10 June 2019). During this period the stock price incre-
     ased by 43%, to 215.30 PLN at the close of the trading day on 28 June 2019. Over the same
     period the WIG20 index gained 1% while the main WIG index gained 3%.

     On 30 June 2019 the Company market capitalization was 20.7 billion PLN, while by the end of
     July 2019 it increased to 22.1 billion PLN.

     Figure 3 Average daily turnover of CD PROJEKT S.A. stock by month; 1 January 2019 –
     30 June 2019 (PLN millions).

     100

      90

      80

      70
                                  Average daily turnover in H1 2019: 60.6 million PLN
      60

      50

      40                          Average daily turnover in H1 2018: 38 million PLN

      30

      20

      10

        0
                 01.2019           02.2019           03.2019           04.2019           05.2019            06.2019

     In 2019 the liquidity of CD PROJEKT S.A. stock, measured in terms of turnover, increased
     substantially. The aggregate turnover for the first half of 2019 was 7.4 billion PLN, which is 68%
     more than during the corresponding period in 2018. The average daily turnover was 60.6 million
90
     PLN, compared to 36 million PLN during the reference period. A substantial increase was also
80
     observed in the number of transactions per trading day – from 2686 to 4014.
70
60
50
40
30
     Management Board report on CD PROJEKT Capital Group activities
20   for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
10
 0
14   |    Brief description of the CD PROJEKT Capital Group

Table 1 Key indicators of CD PROJEKT S.A. stock

                                                                                    H1 2019           H1 2018     Change

 Net earnings per share (PLN)                                                           0.54              0.55     -1.43%

 Quantity of shares in trading (in thousands) at end of period                        96 120            96 120          -

 Highest closing price during fiscal year (PLN)                                      228.50             172.00    32.85%

 Lowest closing price during fiscal year (PLN)                                        148.00             98.00    51.02%

 Price at beginning of period (PLN)                                                   151.00            100.00    51.00%

 Price at end of period (PLN)                                                         215.30            161.80    33.07%

 Average price during period (PLN)                                                     194.81           124.64    56.30%

 P/E ratio at end of period                                                            398.7            294.18    35.53%

 Market capitalization at end of period (PLN thousands)                        20 694 636          15 552 216     33.07%

 Average number of transactions per trading day                                         4014             2 686    49.44%

 Average daily turnover (PLN thousands)                                              60 568             38 031    59.26%

 Average daily trading volume (shares)                                              307 524           278 337     10.49%

As of the publication date of this report 17 brokerage houses, both foreign and domestic, issue
recommendations concerning Company stock. A full list of analysts and brokerage houses
which issue recommendations concerning Company stock can be found on the CD PROJEKT
website at: cdprojekt.com/en/investors/analysts/.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
CD PROJEKT Capital
Group activity profile
16   |    CD PROJEKT Capital Group activity profile

Organizational structure
of the CD PROJEKT Capital Group

On 14 January 2019 a new company was incorporated in the framework of the CD PROJEKT
Capital Group under the name CD PROJEKT RED STORE sp. z o.o.

As of 31 December 2018 the CD PROJEKT Capital Group consists of the parent entity –
CD PROJEKT S.A. – and five subsidiaries: GOG sp. z o.o., CD PROJEKT Inc., CDPROJEKT Co.
Ltd., Spokko sp. z o.o. and CD PROJEKT RED STORE sp. z o.o.

Scheme 3 Structure of the CD PROJEKT Capital Group at the end of H1 2019.

                                                            CD PROJEKT S.A.

                                                                                                                       100%
    100%                          100%                         100%                             75%
                                                                                                                  CD PROJEKT RED
GOG sp. z o. o.              CD PROJEKT Inc.             CD PROJEKT Co. Ltd.               Spokko sp. z o.o.       STORE sp. z o. o.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
17   |    CD PROJEKT Capital Group activity profile

Table 2 Summary of business activities of the parent company and other members of the
CD PROJEKT Capital Group as of 30 June 2019

 Company                       Activity profile

                               The core activities of the company, carried out by its CD PROJEKT RED studio, include development
                               of videogames, publishing its own videogames, selling the associated distribution rights as well as
 CD PROJEKT S.A.               manufacturing, selling and/or licensing tie-in products which exploit the popularity of brands owned by
                               the company. CD PROJEKT S.A. also acts as the holding company of the CD PROJEKT Capital Group and
                               coordinates the activities of other companies belonging to the Group.

                               This company concerns itself with online distribution of videogames, enabling customers from around
                               the world to purchase games, remit payment and download game binaries to their personal devices.
                               To this end the company owns and maintains the global digital distribution platform at GOG.com.
 GOG sp. z o.o.
                               In addition, GOG sp. z o.o. has formed a consortium with CD PROJEKT S.A. to develop and operate
                               GWENT: The Witcher Card Game. Within the framework of this consortium, GOG sp. z o.o. is responsible
                               for the game’s online features and handling in-game transactions in the PC edition.

                               This company coordinates publishing and promotional activities covering the Group’s own products and
 CD PROJEKT Inc.               the GOG.com platform throughout North America. To facilitate this goal, the company operates an office
                               in Los Angeles.

                               This company coordinates publishing and promotional activities covering the Group’s products in the
 CD PROJEKT Co. Ltd.           People’s Republic of China, which includes managing a local team tasked with coordinating publishing
                               and promotional activities related to GWENT: The Witcher Card Game.

 Spokko sp. z o.o.             Gamedev studio focusing on mobile releases.

 CD PROJEKT RED                A company which engages in online marketing of tie-in products associated with CD PROJEKT RED
 STORE sp. z o.o.              releases throughout the European Union.

The above member companies of the CD PROJEKT Capital Group, with exception of CD PROJEKT
Co. Ltd., Spokko sp. z o.o. and CD PROJEKT RED Store sp. z o.o., were subject to full conso-
lidation as of 30 June 2019. Detailed information can be found in the Consolidated Financial
Statement of the CD PROJEKT Capital Group for the first half of 2019.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
18   |    CD PROJEKT Capital Group activity profile

Disclosure of business segments,
products and services, outlets,
suppliers and clients

In the first half of 2019 the Capital Group conducted business activities in two segments:
 ♦ CD PROJEKT RED,
 ♦ GOG.com.

CD PROJEKT RED

Target and scope of business activity

Videogame development is the main area of activity of the CD PROJEKT RED studio, which is
a subunit of CD PROJEKT S.A. (domestic holding company of the CD PROJEKT Capital Group),
CD PROJEKT Inc. (USA) and CD PROJEKT Co., Ltd. (China). Videogame development is based
on two brands owned by the Company: The Witcher and Cyberpunk.

This activity covers creation and publication of videogames, licensing the associated distri-
bution rights as well as manufacturing, distributing or licensing tie-in products which exploit
the commercial appeal of brands held by the Company.

In the scope of its publishing activities the Company also assumes responsibility for its promotio-
nal and advertising campaigns, and maintains direct relations with the player base via electro-
nic and social media channels (see the Communications section) as well as through regular
participation in trade fairs.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
19   |    CD PROJEKT Capital Group activity profile

Key products

Videogame development commenced in 2002 and initially focused on the studio’s RPG debut:
The Witcher. This game, set in Andrzej Sapkowski’s fantasy world, was released in 2007 to
global acclaim, garnering over 100 awards and accolades.

As of the publication date of this report, key releases in the Company’s portfolio include
The Witcher, The Witcher 2: Assassins of Kings and The Witcher 3: Wild Hunt along with its two
expansion packs: Hearts of Stone and Blood and Wine.

In 2018 the Company released the full version of GWENT: The Witcher Card Game, develo-
ped in collaboration with GOG sp. z o.o., as well as a single-player game – Thronebreaker:
The Witcher Tales, built around similar gameplay mechanics.

Scheme 4 Figure 4: Timeline of CD PROJEKT RED releases; 2007-2019

                                                                                        31.05.2016
                                                         The Witcher 3: Wild Hunt – expansion pack:                            23.10.2018
                                                               Blood and Wine (PC, Xbox One, PS4)                      GWENT: The Witcher
                                                                                                                         Card Game (PC)
                                            17.04.2012                            19.05.2015
    30.10.2007                          The Witcher 2:               The Witcher 3: Wild Hunt                               Thronebreaker:
    The Witcher (PC)         Assassins of Kings (X360)                   (PC, Xbox One, PS4)                          The Witcher Tales (PC)

      2008                      2010                     2012                      2014                      2016               2018

                                17.05.2011                                           13.10.2015                                     4.12.2018
                            The Witcher 2:                The Witcher 3: Wild Hunt – expansion                            GWENT: The Witcher
                    Assassins of Kings (PC)           pack: Hearts of Stone (PC, Xbox One, PS4)                     Card Game (Xbox One, PS4)

                                                                                                                                 Thronebreaker:
                                                                                                              The Witcher Tales (Xbox One, PS4)

Altogether, videogames featuring the professional monster hunter Geralt of Rivia have received
over 1000 awards.

A Nintendo Switch release of The Witcher 3: Wild Hunt, and a mobile edition of GWENT: The
Witcher Card Game for iOS devices have both been announced for 2019.

CD PROJEKT RED is continuing its development work on the largest RPG release in the Studio’s
history: Cyberpunk 2077, set in a vibrant, technologically advanced world. Players assume the
role of V – a cyberpunk who has recently migrated to the most crime-ridden city of the future.
Cyberpunk 2077 is based on the Cyberpunk 2020 pen-and-paper RPG system created by
Mike Pondsmith.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
20   |    CD PROJEKT Capital Group activity profile

Key sources of revenue

Sales of CD PROJEKT RED games are mainly carried out under the following business models:
 ♦ sales of territorial distribution rights (for box and digital editions), settled post factum on the
   basis of monthly or quarterly sales reports / licensing reports submitted by the Company’s
   business partners,
 ♦ supplies of physical box editions to the Company’s business partners for retail resale,
 ♦ supplies of batches of activation codes which permit games to be downloaded and installed,
 ♦ sales carried out through optional microtransactions in GWENT: The Witcher Card Game
   (incl. kegs and meteorite dust) via GOG and proprietors of console platforms.

Sales of CD PROJEKT S.A. products are governed by several dozen long-term licensing
and distribution agreements concluded with publishers and distributors, both international
(e.g. BANDAI NAMCO Entertainment Europe S.A.S., Microsoft, Sony, VALVE Corporation,
Warner Bros. Home Entertainment) and domestic (including cdp.pl and GOG) Digital distribution
agreements are typically settled in monthly cycles, while distribution of physical videogame
editions follows quarterly reporting cycles. Depending on the specific partner or contract, the
Company also collects licensing reports – these are submitted 30, 45 or 60 days following the
end of each reporting period (typically each month or quarter).

In the first half of 2019 the most important CD PROJEKT RED products from the point of view
of revenues were:
 ♦ The Witcher 3: Wild Hunt, together with its expansions – Hearts of Stone and Blood and Wine,
 ♦ Thronebreaker: The Witcher Tales,
 ♦ GWENT: The Witcher Card Game.

Additionally, the Company offered earlier instalments in The Witcher franchise, including The
Witcher and The Witcher 2: Assassins of Kings, both of which continue to attract players and
generate revenues.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
21   |    CD PROJEKT Capital Group activity profile

Key suppliers and clients

Within the CD PROJEKT RED activity segment, the Group carries out active distribution of its
games for various hardware platforms, using both traditional distribution channels, in coope-
ration with leading global distributors (such as BANDAI NAMCO Entertainment Europe S.A.S.,
BANDAI NAMCO Entertainment Australia PTY LTD, cdp.pl sp. z o.o. and Warner Bros. Home
Entertainment), and leading digital distribution platforms (e.g. Steam, PlayStation Store, Xbox
Games Store, Origin, Amazon, Humble Bundle and AppStore, along with its own proprietary
GOG.com platform).

In the first half of 2019 sales to two clients exceeded 10% of the Group’s consolidated sales
revenues and totaled 45 897 thousand PLN and 43 406 thousand PLN respectively (21.4% and
20.2% of the Group’s revenues respectively). These clients are not affiliated with CD PROJEKT S.A.
or any of its subsidiaries. No other client accounted for more than 10% of the Group’s consoli-
dated sales revenues.

The videogame development process relies on certain bought-in tools and technological solu-
tions; however, these do not result in significant concentration of supply. No CD PROJEKT RED
supplier accounted for more than 10% of the consolidated revenues of the Capital Group in
the first half of 2019.

Communications

CD PROJEKT RED prides itself on direct and honest communications with the global gaming commu-
nity under the “Gamers first” policy. Player relations are carried out primarily through social media
channels. CD PROJEKT RED actively manages over 90 social media profiles in over a dozen
languages, both global and local (such as the BILIBILI and Weibo platforms in China and the
Naver Cafe platform Facebook
                    in Korea).        Twitter       YouTube       LinkedIn      Instagram     Twitch                      Pozostałe
                   296 tys.        426 tys.       142 tys.       44 tys.      287 tys.      142 tys.                      91 tys.
                      obserwujących    obserwujących   obserwujących   obserwujących   obserwujących    obserwujących   obserwujących

Scheme 5 Number of users and subscribers of CD PROJEKT RED social media profiles as of
1 August 2019

                                                        Facebook
                                                        324 thousand followers
                                                                                                  Twitch
                                                                                                  148 thousand followers

               YouTube
               163 thousand subscribers
                                                                                                                         Instagram
                                                                  Twitter                                                399 thousand followers
                    LinkedIn
                    44 thousand connections              527 thousand followers

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
22   |    CD PROJEKT Capital Group activity profile

Key product and marketing events

Cyberpunk

The most notable event of the first half of 2019 was the presentation of Cyberpunk 2077 at
E3 – the world’s premier gaming fair, held annually in Los Angeles. On 9 June, at the official
Microsoft conference, the Company officially announced the game’s release date: 16 April 2020.

CD PROJEKT RED took this opportunity to unveil the contents of the game’s box edition, in both
standard and collector’s variants. Following the reveal the Company, together with its business
partners, began accepting preorders of the game.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
23   |    CD PROJEKT Capital Group activity profile

At the Microsoft conference the Company furthermore announced that Johnny Silverhand would
be played by Keanu Reeves. As part of his collaboration with the studio, the acclaimed actor
participated in a series of motion capture sessions and lent his visage as well as his voice to
the character (the latter refers to the game’s English localization).

During the same event a new cinematic trailer was also unveiled – as of the publication date
of this report, it has been viewed 30 million times across all of its distribution channels.

Figure 4 Viewership of CD PROJEKT RED promotional content on the Studio’s Youtube channel
(first 4 weeks following release).

                                                        The Witcher 3: Wild Hunt                                                                  Cyberpunk 2077
                   Killing Monsters Cinematic Trailer

14 000 000
                                                                                               “The Trail” Opening Cinematic

                                                                                                                                                                                  Launch Trailer ("Go Your Way")
                                                              The Sword Of Destiny Trailer

                                                                                                                                 Official Gameplay Trailer

10 500 000

                                                                                                                                                                                                                    Official E3 2018 trailer
                                                                                                                                                             Launch Cinematic

                                                                                                                                                                                                                                             Gameplay Reveal

                                                                                                                                                                                                                                                               Official cinematic
7 000 000

                                                                                                                                                                                                                                             48-minute demo

                                                                                                                                                                                                                                                               trailer E3 2019
3 500 000

          0
                08.2013                                     06.2014                          10.2014                           04.2015                     05.2015              05.2015                            06.2018                   08.2018           06.2019

At this year’s E3 Cyberpunk 2077 demos were showcased in both the public and the business
sector. CD PROJEKT RED held a series of closed presentations for media and business partners,
showcasing a nearly hourlong gameplay trailer of Cyberpunk 2077 for approximately 2000
attendees. In the public sector 54 presentations were organized over the course of three days,
attracting over 5000 spectators.

These events were very favorably received by journalists and the game received over 85 awards
for E3 excellence. Following the close of E3 Cyberpunk 2077 was featured on the covers of
numerous gaming magazines throughout the world, with over 6.5 thousand related articles
appearing in both gaming and mainstream media. According to data published by GameIndustry.
biz, Cyberpunk 2077 was the most widely covered videogame of E3.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
24   |    CD PROJEKT Capital Group activity profile

Following the balance sheet date, on 2-5 August, at China Joy – the largest gaming fair in
China – the Company presented Chinese localizations of the Cyberpunk gameplay trailer and
cinematic trailer. Presentations of the game were attended by representatives of several dozen
major media outlets and local influencers.

On 20-24 August the Company took part in Gamescom in Cologne – the largest such event
on the European videogame market. Cyberpunk demos, displayed in two theaters, attracted
12 000 spectators, including 2000 media representatives, influencers and business partners
from around the world.

At the fair the Company also held the first qualifying round of the official Cyberpunk cosplay compe-
tition. The winner – Katarina Petraskova – will face off against the winners of further qualifying
rounds in a grand finale for a chance to claim 40 000 USD in prizes and secure a cover photo
session deal with one of the world’s foremost entertainment mags.

After the close of the reporting period the Company also announced its collaboration with Refused,
which would appear as the in-universe SAMURAI band. The collaboration involves composition
                                                                                                                                                     Instagram
and recording of clips inspired
                            Facebookby Cyberpunk
                                           Twitter          pen-and-paper
                                                     2020YouTube              edition songs,
                                                                         Discord         Reddit as well as
                                                                                                         VK
                                                                                                                                                    172 tys.
a selection of entirely new260content
                                tys. created
                                         371 tys.        448 tys.
                                                  specifically for     65,8 tys.
                                                                   Cyberpunk     2077. 129 tys.     45,9 tys.                                      obserwujących
                          obserwujących obserwujących subskrybujących obserwujących subskrybujących obserwujących

Scheme 6 Number of users and subscribers of Cyberpunk 2077 social media profiles as of
1 August 2019

                                                                                                             other media
                                                                                                             8 thousand followers

                                         Twitter
                               558.3 thousand followers
                                                                                                                        VK
                                                                                                                        71.8 thousand followers

                                                                                                                        Discord
                                                                                                                        108.6 thousand followers
                             Facebook                                          YouTube
                             364.8 thousand followers              630.5 thousand subscribers                        Instagram
                                                                                                                     172 thousand followers
                              Reddit
                              221 thousand subscribers

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
25   |    CD PROJEKT Capital Group activity profile

GWENT

On 27 March 2019 the Company announced that GWENT would be coming to smartphones.
The iPhone release is scheduled for the fall of 2019, and will be followed by the Android release.

Two GWENT expansions were released in the first half of 2019: the Crimson Curse expansion
on 28 March, and the Novigrad expansion on 28 June, the latter introducing GWENT to one of
the most important locations of The Witcher 3: Wild Hunt.

Another GWENT Open tournament was held on 16-17 March, with a total prize pool of
25 thousand USD. This time the main prize was claimed by the Chinese gamer Ni “wangid1” Lipao.

                                                                                                               Instagram
                                                                                                             20,7 tys.
                                                                                                            obserwujących

                      Facebook         Twitter                          YouTube            VK            Weibo             Wechat        Reddit        Pozostałe
                     520 tys.        100 tys.                          80 tys.        86,6 tys.        56 tys.             41 tys.    71,6 tys.      25,2 tys.
                    obserwujących   obserwujących                   subskrybujących   obserwujących   obserwujących    użytkowników   użytkowników   obserwujących

Scheme 7 Number of users and subscribers of GWENT social media profiles as of
1 August 2019

                                                                Twitter
                                                                101.6 thousand followers

                                                                                      Weibo
                                                                                      57.2 thousand followers
                   Facebook                                                  VK
            524 thousand followers
                                                                             85.5 thousand followers
                                                                                                                      Pozostałe
                                                        Reddit                                                        32.2 thousand followers
                                                        78.6 thousand subscribers
                                                                                                            YouTube
                                             Wechat                                                         83.1 thousand subscribers
                                             37.4 thousand users

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
26   |    CD PROJEKT Capital Group activity profile

Other events related to The Witcher videogame series

On 8 February 2019 add-on content inspired by The Witcher 3: Wild Hunt was released for
Monster Hunter: World.

On 11 June, during an official Nintendo Direct live stream the Company announced that The
Witcher 3: Wild Hunt Complete Edition would be coming to Nintendo Switch as the first game
in the series’ history. The Complete Edition features the main game, both expansions – Hearts
of Stone and Blood and Wine – as well as all bonus content published after the game’s official
launch. The Nintendo Switch release is being developed in collaboration with Saber Interactive,
and has been scheduled for 15 October 2019.

                       Facebook         Twitter         YouTube            VK
                      1,4 mln.        1,11 tys.       300 tys.          84 tys.
                     obserwujących   obserwujących   subskrybujących   użytkowników

Scheme 8 Number of users and subscribers of The Witcher social media profiles as of
1 August 2019

                                                                  Twitter
                                                           1.1 million followers

                   Facebook
             1.4 thousand followers
                                                                                       VK
                                                                                       92 thousand followers
                                                                  YouTube
                                                                  310 thousand subscribers

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
27   |    CD PROJEKT Capital Group activity profile

GOG.com

Target and scope of business activity

The GOG.com platform was launched in August 2008. Its initial mission was to revitalize major
PC cult classics and offer them for sale to international customers with particular focus on
English-speaking countries, i.e. United States, Canada, United Kingdom and Australia. The plat-
form is now offered in English, French, German, Russian, Chinese and Polish – this includes full
game localizations as well as dedicated customer support and integration with locally popular
payment channels, accepting payments in thirteen currencies. GOG.com also carries releases
for the macOS and Linux operating systems.

GOG.com activities focus on:
 ♦ digital distribution of videogames via the Company’s proprietary GOG.com distribution plat-
   form and the GOG Galaxy application, based on contracts concluded by GOG sp. z o.o. with
   producers, IPR holders and external publishers. The platform enables customers to purchase
   games, remit payment and download game files to their personal devices.
 ♦ development and support for the Company’s proprietary GOG Galaxy application to provide
   user-friendly and straightforward purchase, launch and update features for all games from
   the GOG.com catalogue, and to facilitate cross-platform online gameplay. GOG Galaxy
   is currently responsible for all networking features of GWENT, including in-game sales and
   payment processing in the PC edition.
♦ collaboration with CD PROJEKT S.A. in the framework of a consortium set up to develop
   and operate GWENT: The Witcher Card Game and Thronebreaker: The Witcher Tales.
             Facebook        Twitter         YouTube          Twitch        Pozostałe
   In this scope,  GOG sp.348
            437 tys.         z o.o.
                                 tys.is responsible
                                            51,3 tys.for handling
                                                          58,2 tys.  in-game
                                                                          60,5 purchases
                                                                                 tys.    in the PC edition,
           obserwujących obserwujących    subskrybujących użytkowników    użytkowników
   and for delivering the required IT infrastructure and implementing networking features.

Scheme 9 Number of users and subscribers of GOG.com social media profiles as of
1 August 2019

                                                        Twitter                                        other media
                                               348 thousand followers
                                                                                                       60.5 thousand followers

               Facebook
        437 thousands followers
                                                                                         Twitch
                                                                                         58.2 thousand followers

                                                       YouTube
                                                       51.3 thousand subscribers

Payments collected by GOG sp. z o.o. from customers are split with the Company’s suppliers
as agreed upon in distribution contracts. Typical contracts require the Company to submit
sales reports in monthly or quarterly cycles, not later than 30 days following the close of the
given reporting period. With regard to certain older products the company may be contractu-
ally permitted to adapt them to the requirements of modern operating systems, or to enable
multiplayer gameplay if such features were originally provided by the given game.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
28   |    CD PROJEKT Capital Group activity profile

Key products

As of the publication date of this report, the GOG.com catalogue comprises nearly 2800 products
from more than 600 publishers and producers of videogames, including such well-known
brands as Activision Blizzard, Bethesda, Disney, Electronic Arts, Ubisoft and Warner Bros. The
key difference between GOG.com and its competitors (i.e. other independent platforms – Steam,
Gamersgate, Humble Bundle etc.) is its set of core principles. As a rule, the company ensures
that all of its games are free of cumbersome DRM measures. Products offered on GOG.com are
richly featured and usually include bonus content such as soundtracks, maps and wallpapers.
GOG.com. also ensures full compatibility of its games with current versions of MS Windows,
Mac OS and popular distributions of Linux, and provides technical support in case of installation
problems. If a game cannot be made to run on the user’s computer, it can be returned within
30 days of purchase for a full refund. Owing to these values GOG.com has become one of the
most popular digital videogame distribution platforms in the world.

The Group uses GOG.com to market its own products directly to end users – this includes
The Witcher and The Witcher 2: Assassins of Kings, The Witcher 3: Wild Hunt (along with its
expansion packs – Hearts of Stone and Blood and Wine, also offered as the Game of the Year
Edition), Thronebreaker: The Witcher Tales and The Witcher Adventure Game. Thanks to GOG
Galaxy support for GWENT networking features, distribution of GWENT to PC users can take
advantage of the sales and payment mechanisms offered by GOG.com.

Key sources of revenue

Revenues obtained in the GOG.com segment are directly dependent on the popularity of the
offered games and their respective sales volumes. The Company continuously expands the
scope of its cooperation with suppliers and seeks access to new, attractive products. GOG.com
is also home to seasonal and one-off sales campaigns, including summer, fall and Christmas
bargain packages as well as other events which introduce new means of attracting gamers.

Other notable sources of revenue include Thronebreaker: The Witcher Tales and GWENT:
The Witcher Card Game. In this scope, revenues attributed to the GOG.com segment comprise:
 ♦ the GOG sp. z o.o. share of revenues from in-game sales to final customers in the PC edition
   (excluding the Chinese market), as stipulated in the consortium agreement,
 ♦ the GOG sp. z o.o. share of revenues from in-game sales handled by external partners
   (including the Chinese partner), as stipulated in the consortium agreement.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
29   |    CD PROJEKT Capital Group activity profile

Key product and marketing events

GOG Galaxy 2.0

In the second quarter of 2019 GOG unveiled GOG Galaxy 2.0, which has now entered its beta
testing phase. The goal of the application is to enable players to integrate all their game shelves
into a single library, to communicate with friends and to track their progress regardless of their
preferred gaming platforms. Its functionality will span PC and console platforms, extending
beyond the GOG.com user base.

The application is being developed in response to the growing fragmentation of the gaming
market, where new digital distribution platforms are emerging and an increasing number of
games are released on a platform-exclusive basis.

During this year’s E3 fair demo versions of the applications where showcased to invited repre-
sentatives of top gaming media (including Gamespot, IGN and Game Informer). Following the
launch of the beta testing phase, access to GOG Galaxy 2.0 was provided to several hundred
media editors and influencers from around the world, resulting in a large volume of positive
reports and recommendations. Beta subscriptions are still available – see: gogalaxy.com/en/
for details.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
30   |    CD PROJEKT Capital Group activity profile

New games in the GOG.com catalogue

In the first half of 2019 the list of classic PC games offered on GOG.com was extended with
several cult classics from Blizzard Entertainment games. Remastered games, such as Diablo
(along with its long-unavailable Hellfire expansion pack), Warcraft: Orcs and Humans and
Warcraft II Battle.net Edition quickly topped the list of fastest-selling classic games in GOG.com’s
history, becoming the most important external products marketed on GOG.com in the first half
of 2019 – in terms of revenues.

Other notable fresh releases and new games introduced in the first of the year include Imperator:
Rome, Mutant Year Zero: Road to Eden, Spec Ops: The Line, Blood: Fresh Supply, Bioshock
Infinite: Complete Edition and Vampyr.

In terms of the total transaction volume, the most important product of the first half of 2019
was Cyberpunk 2077, whose preorder campaign began on 9 June. During this initial period
approximately one third of all Cyberpunk 2077 digital PC preorders were placed using the
GOG.com platform.

Transactions which correspond to Cyberpunk 2077 preorders will not be aggregated with
GOG.com or Capital Group revenues until the game’s official release. Prior to this release,
all such inflows will instead be reported as deferred revenues.

Sales support

With regard to digital distribution sales support focuses primarily on securing distribution rights
to new, appealing videogames, and on seasonal sales campaigns.

The most important sales-related event of the first half of 2019 was the annual Summer Sale,
which covered nearly 2500 games. With regard to revenues, it was the biggest single sale
in GOG.com’s history. The theme of this year’s edition was the summer music festival. Daily
recommended game packages were published, featuring videogame characters as vocal
talents – including Geralt and V from Cyberpunk 2077.

In addition to its other themed events, such as the Spring Sale, Hot Sale, Lantern Festival Sale
and Indie Week, GOG.com also hosts weekly sales.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
31   |    CD PROJEKT Capital Group activity profile

Key suppliers and clients

GOG.com markets games via online channels directly to millions of individual users worldwide.
As such, the segment does not have key clients in the usual sense of the term.

Figure 5 Sales of products and goods by GOG.com in the first halves of 2018 and 2019 by
territory.

                                                                        Other
       Other                                                      territories (22%)
 territories (23%)
                                                  USA (34%)                                                        USA (30%)
                                                                 The
Sweden (2%)                                                 Netherlands (2%)
                            H1 2019                            Sweden (2%)                  H1 2018
Australia (4%)
                                                                Australia (4%)
   Russia (4%)
                                                                    Russia (4%)
    Canada (5%)                                                                                                   Germany (14%)
                                                                     Canada (4%)
         France (5%)                     Germany (13%)
                                                                          France (5%)
                    United                                                              Poland   United
                 Kingdom (5%) Poland (6%)                                                (6%) Kingdom (6%)

In the first half of 2019 the largest group of GOG.com customers comprised residents of the
United States (34%), followed by Germany (13%), Poland (6%) and the United Kingdom (5%).

Key corporate events

On 14 January 2019 a new member company was incorporated in the framework of the Capital
Group – CD PROJEKT RED STORE sp. z o.o., fully owned by CD PROJEKT S.A. On 8 May the
new company launched an online store which sells high quality collector’s items inspired by the
studio’s videogames. The store’s catalogue will be progressively expanded with new products
and categories. Currently CD PROJEKT RED STORE serves European Union member states;
however, its geographical reach will soon expand to cover – among others – the US and Canada.

On 4 April 2019 Oleg Klapovskiy tendered his resignation from the Management Board of the
Company, effective on the date of the nearest General Meeting, which took place on 23 May
2019. The stated reason behind the resignation was the need for full involvement in the affairs
of a subsidiary Company – GOG sp. z o.o. – including further expansion of the GOG.com plat-
form and work on new projects which will affect the operation of the online store and the
GOG.com platform as a whole.

On 23 May 2019 the Ordinary General Meeting of the Company adopted a resolution concer-
ning the payment of a dividend in the amount of 100 926 000.00 PLN, i.e. 1.05 PLN per share.
The dividend date was set to 31 May 2019, with payment occurring on 13 June 2019.

Events occurring after the balance sheet date

No significant events occurred after the close of the reporting period which would merit inclusion
in this semiannual report on CD PROJEKT Capital Group activities.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
32   |    CD PROJEKT Capital Group activity profile

 Disclosure of seasonal or cyclical activities

CD PROJEKT RED

The revenues and financial result of the CD PROJEKT RED segment are strongly affected by
the videogame release schedule. CD PROJEKT RED usually takes between 2 and 4 years
to produce a game. Initial development work occurs before the previous game in the series
is complete and ready to be released.

CD PROJEKT RED also engages in smaller-scale projects – such as add-ons for its own games
or adapting existing products to work on new gaming platforms. Such projects may be carried
out directly by the Company or by its external partners, and their implementation may take
several months (up to about a dozen).

 With regard to games which have already been released, their yearly sales distribution is depen-
 dent on the schedule of periodic sales campaign. In most cases, strong sales are reported in
 the second and fourth quarter, while the first and the third quarter (the latter of which overlaps
 with the summer vacation season) see weaker sales.

Figure 6 CD PROJEKT RED release quarters – sales of products, goods and materials in
2011-2019 (PLN thousands)

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   450 000
   400 000
   350 000
   300 000
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 Management Board report on CD PROJEKT Capital Group activities
 for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
33   |    CD PROJEKT Capital Group activity profile

GOG.com

The digital videogame distribution market, which is the main area of activity of GOG.com, is
characterized by seasonal fluctuations in revenues. On an annual basis, the highest revenues
are typically obtained in the fourth quarter while the lowest revenues correspond to the third
quarter. Sales in Q2 and Q4 are boosted by promotional activities organized in these periods.

The sales volume is also strongly dependent on the timing of new releases in each reporting period.

GOG.com also obtains revenues from microtransactions carried out within GWENT: The Witcher
Card Game. The volume of such revenues depends, among others, on the game’s popularity
and on new content released to gamers during each period.

Figure 7 Quarterly sales of goods and materials in the GOG.com segment; 2018-2019
(PLN thousands).
50 000
                     2018
45 000               2019

40 000

35 000

30 000

25 000

20 000

15 000
                      Q1                        Q2                        Q3                         Q4

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
34   |    CD PROJEKT Capital Group activity profile

Disclosure of external and internal
factors affecting further growth
of the CD PROJEKT Capital Group

Future growth of the Company and its Capital Group is critically dependent on the ability to
retain world-class creative professionals and experts, and to attract a growing number of
specialists, both Polish and foreign, to work on the Group’s future releases. Ongoing expansion
of the company also calls for effective management of production and publishing activities rela-
ted to several projects carried out in parallel at the Company HQ in Warsaw and at its branch
offices in Kraków, Wrocław, Berlin, Los Angeles, Shanghai and Tokyo. The market performance
of each new release is an important aspect of the Studio’s reputation as a developer of top-qu-
ality, highly sought-after entertainment products. It also underpins the value and recognition
of brands such as The Witcher, Cyberpunk and CD PROJEKT RED, upon which the long-term
development strategy of the Company and its Capital Group is founded.

Moreover, the activities of CD PROJEKT Capital Group member companies are affected by
external factors such as the global macroeconomic conditions, legal reforms and changes in
taxation. In this sense, CD PROJEKT is in a similar position to many other companies conducting
business on domestic and international markets.

Key internal and external factors which may, in the Board’s opinion, prove detrimental to the
Group’s activities and growth prospects are listed in the risk assessment section of the Mana-
gement Board report on CD PROJEKT Capital Group and CD PROJEKT S.A. activities in 2018.

With regard to further quarters of 2019, the CD PROJEKT Capital Group intends to develop its
activities in parallel in two key segments: CD PROJEKT RED and GOG.com, while also pursuing
new initiatives in the framework of its subsidiaries – Spokko and CD PROJEKT RED STORE.
A description of further growth plans can be found in the Strategy of the CD PROJEKT Capital
Group for the years 2016-2021, announced in March 2016. The full text of this document is
available on the Company’s corporate website at: cdprojekt.com/en/capital-group/strategy/.

CD PROJEKT RED

Key factors which will guide activities in the CD PROJEKT RED segment include ongoing projects,
the scale of development work associated with those projects and their perceived popularity
among players. In this context, the most significant factors shaping the current results of the
CD PROJEKT Capital Group include the popularity of previously published games set in The
Witcher universe, as well as – in future periods – the progress of development and market
reception of the Company’s new releases, including Cyberpunk 2077 and further products.
To-date enthusiastic reception of the Studio’s new product by gamers and experts alike sugge-
sts strong potential of the brand, both in terms of PR and commercial appeal. Commitment to
product quality, maintaining the pace of the Cyberpunk 2077 marketing campaign, PR activities,
hype management and fostering community relations are all important aspects of the game’s
anticipated market success. In addition, global recognition and popularity of the Cyberpunk 2077
brand may entice gamers who are not yet familiar with The Witcher games to seek access to
the Company’s earlier products.

Future results of the CD PROJEKT Capital Group will also depend on the popularity and progress
of development of GWENT: The Witcher Card Game. The GWENT team currently focuses on

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
35   |    CD PROJEKT Capital Group activity profile

porting the game to mobile devices, on adding new content, card sets and vanity items as well
as organizing regular in-game events with the aim to attract and retain gamers.

GWENT: The Witcher Card Game is the first multiplayer game developed by the CD PROJEKT
Group in which CD PROJEKT and GOG collaborate to jointly create new technological solutions
while extending their knowledge and experience in terms of provisioning online products.
These technologies and know-how are strategically important for the Group and its future
development and publishing capabilities.

The Company believes that maintaining the observed growth dynamics and expansion of its
activity profile will depend on further enhancement of its world-class videogame development
skillset and on maintaining effective communication channels with the global gaming commu-
nity. Managing two separate major franchises (The Witcher and Cyberpunk), along with several
independent development teams, enables the Company to conduct parallel work on several
projects and smoothens its long-term release schedule. This migration towards a dual-franchise
model supported by several independent product lines also permits optimization of manufac-
turing and financial activities, mitigates important risk factors and makes it easier for Company
employees to seek professional fulfillment.

GOG.com

In the GOG.com segment, maintaining the current high sales volume should be supported by
the customers’ increasing tendency to turn to online channels for purchases.

GOG.com growth also depends on seeking additional brand-new products. Accordingly, GOG
sp. z o.o. actively communicates with leading global developers and publishers of videogames,
continually expanding its list of business partners and products offered. Each new release on
GOG.com contributes to the platform’s popularity and drives up sales. In addition to adding new
products GOG sp. z o.o. also seeks to expand its user base by attracting new players – those
who have not yet set up a GOG.com account. The Company has been successful in this regard,
owing to its PR activities and synergies resulting from cooperation with CD PROJEKT S.A. The
GOG.com customer pool continues to grow at a steady pace.

Expanding the reach of services operated by GOG.com may strongly depend on the community
reception of GOG Galaxy 2.0. Conceptually, this newest edition of GOG’s proprietary technology
aims to provide convenient access to games purchased by customers regardless of platform,
as well as facilitate social interaction. GOG Galaxy 2.0 is currently in its closed beta stage.

Further growth of activities in the GOG.com segment, including the potential to acquire unique
know-how and experience, and to fully leverage the Company’s technological expertise, will be
influenced by the Company’s involvement in the GWENT project, where GOG.com is responsible
for networking and online sales.

Participation in the GWENT project and applying GOG Galaxy in the development of a free-to-play
online game marks GOG.com’s entry into a new market segment. The resulting technologies
and experience will, in the Board’s opinion, strongly affect future growth prospects of GOG.com
in this heretofore unexplored area of the market.

Management Board report on CD PROJEKT Capital Group activities
for the period between 1 January and 30 June 2019 (all figures quoted in PLN thousands unless stated otherwise)
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