Good evening. Welcome to the teleconference dedicated to CD Projekt Group's earnings of the first half of 2021. Today, as usual, I'll be running this call together with Piotr Nielubowicz and Michał Nowakowski. The webcast of the presentation, along with the audio feed are also streamed on our corporate website, cdprojekt.com, and on our IR YouTube channel. Let's start off with the Cyberpunk 2077 franchise and a brief summary of what we've accomplished so far with regard to supporting the game. In the first half of the year, we are focused on supporting Cyberpunk by rolling out successive improvements. So far, four patches and three hotfixes have been delivered. What's more, we recently released patch 1.3, also included additional free content referred to as DLC. With each update, we address multiple performance and stability issues, improving the overall gameplay experience for players.
Restoring Cyberpunk 2077 to the digital PlayStation Store front in the second half of June was an important milestone for us, reinforcing our confidence in our plans to improve the game. In terms of support, work on Cyberpunk will continue for as long as it's necessary. Our ultimate goal is to deliver on the promise we gave to gamers and regain their trust. We are fully committed to ensuring that Cyberpunk lives up to its full potential and becomes a long-term success. At the same time, we are focused on development of the next-gen version of the game, which brings me to slide number four. Our target date for the release of the next-gen update is late 2021. Please note, however, that as the game is still in development, production plans might be subject to change. The next-gen version is an important step on our adventure in the Cyberpunk universe.
As I said before, we strongly believe in the long-term potential of this IP. That's why we are currently working on the first expansion for the game, although I cannot say anything more about it at this point in time. Now, let's move on to the Witcher franchise. Please move on to the next slides. The two most significant events related to the Witcher universe took place after the close of the reporting period. In July, together with Netflix, we co-organized the first-ever edition of the WitcherCon, a 2-day virtual event for fans of the Witcher universe. This event attracted great community attention and was streamed by a number of key influencers.
At the WitcherCon, apart from interviews and panels attended by CD Projekt creators as well as The Witcher series staff and cast members, we announced that the base edition of "The Witcher 3: Wild Hunt," along with its next-gen, will, regardless of the platform, contain some extra content inspired by Netflix series. As with "Cyberpunk 2077," our target date for the release of the next-gen version of "The Witcher 3: Wild Hunt" is late 2021. Let's move on to slide eight. "The Witcher: Monster Slayer," a mobile location-based AR game developed and published by our daughter company, Spokko, was launched on the 21st of July. We are very satisfied with how the game has been reviewed and rated by gamers. Its ratings currently stand at 4.5 on App Store and 4.1 on Google Play.
Regular users as well as experts point to, among others, strong focus on storytelling and the game's immersive nature driven by AR. We are in process of collecting and analyzing data, in-game stats and feedback from gamers, and we have ambitious plans for the coming quarters. We plan to roll out new content, including new adventure seasons, monsters, and features. Now, let's move to slide nine . In July, following the signing of takeover agreement, Digital Scapes formally became a member of CD Projekt family. The studio was subsequently rebranded as CD PROJEKT RED Vancouver. The Canadian studio has set itself an ambitious goal to triple in size by the end of the calendar year, with a target team size of approximately 40 people. It will focus on supporting CD Projekt's efforts related to technology and gameplay programming for the studio's core IPs.
Let's move to the final slide of this part of the presentation, number 11. In accordance with our promise to gamers, we intend to keep improving Cyberpunk for, as I said, as long as it takes. Meanwhile, we do not lose sight on the bigger picture. We want to develop other products based on our franchises and to keep growing our core business. Right now, 160 people are working on the first expansions for Cyberpunk, while nearly 70 more are involved in other unannounced projects.
That's all from me for now. Let's move on to slide 12. Piotr, the floor is yours.
Our profit and loss account for the first half of this year. As of this year, our revenues from sales of products reached PLN 367 million and were 54% higher than a year ago. While 2020 had been our best H1 in years, the first half of this year was even better. Though we saw lower sales of the Witcher franchise this year, which is natural and expected, Cyberpunk 2077 has more than made up for this decrease. CP was the most important source of revenue this year, and most of its sales came from digital channels. As you may remember, at the end of 2020, we booked some provisions, mainly for settlements with our physical distributors. During this year, we were adjusting and utilizing them.
We've analyzed the situation and possible settlements of contracts with our distributors and have decided to decrease part of our unused sales provisions by nearly PLN 40 million, which boosted our product sales revenues. At the same time, we did increase our cost provisions related to cooperation with CP distributors by PLN 40 million, which boosted our cost of products sold. These two changes were effectively neutral with regard to the gross margin. However, they reflect our updated estimation of future settlements of contracts with our distributors. There is also one more important new element in the cost of products and services sold line. During the first half of last year, it included mostly the depreciation of The Witcher 3: Switch Edition, Gwent, and Thronebreaker.
This year, it also includes depreciation of Cyberpunk in the amount of PLN 34 million, hence nearly PLN 88 million total value of cost of products and services sold. Revenues from sales of goods and materials, we reported a decrease by 20%. GOG sales of goods and materials stayed at the same level as last year, although the złoty got visibly stronger against the U.S. dollar, while at CD PROJEKT RED, the line decreased. At sales of relatively low-margin physical goods and materials on the way to the Cyberpunk premiere. This year, it's back to normal in this respect. Hence, lower sales and costs of goods and materials sold at CD PROJEKT RED. All in all, our total sales revenues for this year reached PLN 407 million and were 29% above the sales of the first half of 2020.
Our gross profit from sales was PLN 308 million, which is one-fifth more than a year ago. Moving to the operating costs, our selling costs increased this year to PLN 131 million, being driven by the Cyberpunk servicing costs. A large number of our developers and testers were working on updates and patches to the game. This year alone, the total cost allocated to Cyberpunk servicing reached nearly PLN 48 million. G&A costs also increased versus last year. Among others, we included in this position some of the early project research phase costs in the amount of PLN 11 million and also a PLN 10 million increase in costs of our incentive program compared to a year ago. Our financial activity presents a negative outcome due to the negative effects differences and missing interest on deposits due to the low interest rates.
Our effective income tax rate was around 9%. This is slightly above the level of last year when it was just below 9%. All in all, our net profit for the first half of this year reached PLN 105 million, 28% less than a year ago. As GOG posted negative results, PLN 109 million net profit was generated by CD PROJEKT RED. Perspective, let's go to the next slide, number 13. Each of the four bars represents revenues for the first six months of each of the presented years. From these revenues, we covered our costs and expenses, marked gray, and earned our net profits, marked blue. This year, our cost structure was different than a year before. Please go to the next slide. It presents CP servicing costs. This is our commitment to gamers, but also, I believe, an expense of temporary nature.
The yellow slice represents depreciation of CP, something natural after release, yet non-existing last year and of a non-monetary nature this year. The red part, these are the early phase research expenses, mostly of Q1. Finally, the dark gray part on top represents adjustments for the increase of sales revenues due to the revaluation of our sales provisions that, as I explained, was neutralized by a cost provision of a similar value. Let's move to the next slide, number 15, our consolidated balance sheet. As of this year, our net expenditures on the development projects balance decreased by PLN 27 million, mainly due to the depreciation of Cyberpunk I just mentioned. 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.
All the financial assets and cash are marked with a star and summed up under the total assets table to the amount of PLN 1.1 billion. Assets, the significant decrease of receivables by over PLN 1 billion down to nearly PLN 250 million comes from collection of our receivables due to us after the release of Cyberpunk. I will elaborate more on how this cash flow was allocated in a moment. Our equity decreased over the first six months of 2021, mainly due to the 2020 dividend payout, which in some part was compensated by profits for 2020. I did not elaborate much on the expenditures and development projects as I wanted to share with you one more slide. Please go to the next page, number 16. That's expenditures on research, development, and service of released games quarter. Continuation of what I was presenting during our Q1 conference.
In Q2, the yellow part, our total cost of servicing our released games decreased visibly versus Q1. Since the release of Cyberpunk, this part is mostly dedicated to Studio CP. The green part, which is the early research phase costs, were much lower in Q2 versus Q1. At the same time, the blue part, actual development of new projects, visibly increased. This is in line with what Adam was presenting just now regarding involvement of our team. Simplified cash flow on slide 17. The money flowing in from reduction of receivables by PLN 1,029,000 million was mainly dedicated to paying the dividend in the amount of PLN 503 million and decreasing our long and short-term liabilities and provisions by PLN 366 million.
All together, with the PLN 105 million net profit for the period, it increased our financial reserves by PLN 255 million, up to PLN 1,129,000 million of cash, bank deposits, and T-bonds as of the end of June 2021. This is the source of financing for our future projects and developments. That's all from me for now. Thank you for your attention. Let's now move to the Q&A section.
Thank you. Ladies and gentlemen, if you would like to ask a question, you may do so by pressing star one on your telephone keypad. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment. Star one for questions. We'll pause a moment to assemble our phone queue. We'll take our first question from Omar Sheikh with Morgan Stanley. Please go ahead.
Thanks very much, and good evening, everyone. I've got three questions, if I could. First of all, I wanted to just check in on the timing of the releases of the next-gen versions of Cyberpunk and The Witcher. You said late 2021, but I guess arguably any day from tomorrow is late 2021. If you could maybe just be a bit more specific on when during the next four months you broadly anticipate the release of these two titles, and maybe if you could comment on the risk of, or not the risk, but I guess your attitude towards pushing the release of these titles into 2022. That's the first question.
Secondly, I don't know whether I missed it, Piotr, but I just thought if you could just clarify what percentage of the total revenues or maybe the percentage of the sales of products came from Cyberpunk in Q2, that would be helpful. Thirdly, I just want to refer to slide 10. I can see from what you said there that if you look at other projects, does that include the next AAA release? I'm thinking about the next Witcher, for example. Is that included in other projects? Secondly, on this slide, should we assume that given the second biggest sort of chunk of the current split of your development staff is in the expansion for Cyberpunk, should we assume that that's the next thing that we'll see in terms of a big release? Thank you very much.
Okay. This is Michał Nowakowski. I'll start with the first one. Hi, Omar. Thanks for the questions. I'll tackle the first one, which I believe was about the next-gen releases of Cyberpunk and The Witcher. I think you kind of combined the question. I'll start with Cyberpunk. Our target is to release the next-gen version of CP2077 late this year, which is something that Adam mentioned in his opening statement. At the same time, keeping in mind the lessons we have learned during the past year and taking into account the fact that this project still remains in development, we can't say with full certainty that the production schedule will not change, of course.
With "The Witcher 3," the situation is slightly different in a way that this is being tackled by the external team mainly, which is Saber Interactive, the company we have worked before on Switch and also the updates in the past. As with "Cyberpunk 2077," our goal is to release that game still in late 2021. However, similarly, development process is ongoing, and we cannot be absolutely dead certain that the release schedule will not change. For the time being, we definitely are aiming with both titles for the late 2021. I don't want to be more specific at this moment in time. Thank you.
The revenue split, I was not referring to any precise revenue split for Cyberpunk or other products. What I can confirm is that Cyberpunk was the leading source of revenue for us during the first half of 2021.
Hi, Omar. Adam here. I'll take the third one regarding slide 10.
The yellow part is strictly related to Cyberpunk 2077, the game which is already released. Maybe the part which is not covered there yet, because we are in the transformation, is technology, because part of technology will be a separate division. For now, it's assigned to projects. Besides this, the yellow part just represents working on the game itself, Cyberpunk 2077, and the other projects are AAAs which are not announced yet. We do not provide any comments, obviously, on unannounced projects, so I can't confirm anything more than this is about games which we haven't announced yet. The next big AAA content will be obviously EP1, which you can see on the slide as well.
Okay, sounds good. Thanks very much, guys. Very clear.
We'll take our next question from Nick Dempsey with Barclays. Please go ahead.
Good afternoon, guys. I have three. First up, just looking at these provisions. To understand it, you are unwinding a negative provision in the revenue lines around PLN 40 million, and then you have a new provision of around PLN 40 million in the cost line. Effectively, without those things, you're boosting the revenue line by about PLN 40 million, but the operating profit is more or less unchanged by that activity. First of all, I wanted to understand if that is correct. Secondly, can we expect any other provisions in the rest of the year in relation to these areas? Second question, did you sell more or fewer units of Cyberpunk 2077 in Q2 versus Q1? Are you able to give us an indication there, even if you don't give us a number?
The third question, there's a comment in your release about Q3 being a lower quarter in general than Q2 and Q4. Are you pointing us towards Q3 being a lower revenue quarter than Q2?
I'll take the first two questions regarding provisions. Yes, your understanding is correct. Due to the, let's say, in very simplified terms, reclassification of provisions, so decrease of sales provisions and increase of cost provisions, our gross margin or gross profits were not affected because those values are very close to PLN 40 million. Actually, the cost provision was slightly bigger than the sales provision. As far as the other provisions are concerned, we still have PLN 160 million of provisions to be used for the second half of the year or for the future. Maybe not all of them are exactly for the second half of the year. We have them up to our best knowledge estimated as for the publication date. That's what is our judgment on the future potential settlements with distributors and the contracts we have is reflected into this amount.
This amount also includes provisions for bonuses for the team for the first half of this year. I hope it answers the question.
We'll take our next question from Matthew Walker with Credit Suisse. Please go ahead.
Actually, hold on. I don't think we answered all the questions that were asked here.
Oh, my apologies.
Sorry, there were two more, actually. Sorry, this is Michał Nowakowski. Regarding the Q2 versus Q1 CP units, we're not really commenting the number of unit sales for the time being. As for the third question on the revenue, I think that's probably going to be taken by Piotr. Sorry, I'm going to switch off right now.
Guiding on future sales results or future profits. Usually the third quarter of the year is the weakest quarter. It covers the summertime. It misses the big promo events like the summer promo or the promos that happen around Black Friday in the fourth quarter. I would say that the traditional seasonality for the third quarter is to expect it lower. It's just general rule, and I'm not intending to guide you on any specific results we may achieve in this particular third quarter. Yeah, I think now we have finished. Yeah.
Okay. Thank you very much. We'll take our next question from Matthew Walker. Please go ahead.
Thanks, everyone. Can you hear me okay?
Yes, sir.
Okay. Thanks a lot. Could you just explain, first of all, on the provision side, can you just go back to first principles and explain why you took these provisions in the first place, and now why you are releasing them into the revenue line? Explain about the provisions that you have dissolved in the period as well. That's the first question. The second question is on, you said, I think maybe I got it wrong, but did you say that you had PLN 160 million of potential provisions that you could release into the sales line in the second half of the year? Can you just explain that for us as well? Could you also maybe give us an indication of how many units you got through putting it back onto the PlayStation in the latter part of June?
Just confirm, when you're talking about the expansion for Cyberpunk, are you talking about the first paid DLC which is coming in 2022? Is that what you're referring to when you talk about expansion?
The question was why we took the provisions in the first place. We set some provisions in the first place back in 2020 upon releasing Cyberpunk. The provisions included both expected costs of releasing the game that were not invoiced to us back in 2020, and we expected the invoices to come into the company, and also potential returns or price protections that we were expecting to happen later on. However, we're supposed to correct the sales, which we already invoiced back in Q4 2020. The provisions for costs or sales revenues originate mostly from the premiere back in 2020. Each quarter, we have to evaluate them, and we have to adjust them. Right now, based on the market situation, based on the reports from our distributors, we decided to reevaluate them. In very simple terms, we reclassified some of the sales provisions into cost provisions.
Hence the close to neutral effect of these transactions to our gross profit. We believe having the knowledge we have today that they better present what should happen to our profit and loss calculation. The company should have higher sales, but at the same time, our settlements with distributors will include more costs that we will recount based on the contracts we have with them, at the same time, having higher sales and higher incomes from them. That's kind of technical booking, I would say, that better reflects how we should present it book-wise, and how we decided to adjust it based on the current knowledge we have right now.
As far as how much of the provisions were used and how much of the provisions were adjusted, I would love to point you to the note 12, as far as I remember, other provisions of our financial statement.
There are two tables precisely showing what sales provisions, what cost provisions, and what bonus provisions we had for the beginning of the period, how they were used, which were consumed and which were added, and which were canceled over the first six months. I believe this will be much more convenient than describing all of the numbers right now. If you would happen to have any additional questions, I will be happy to answer them directly. Thank you. I believe that's all from my side on the first two provision questions.
Michał Nowakowski again, I'll jump in on the fourth question. Regarding how many units were sold on CP when we came back to the Sony Store. We're not really commenting the units, as we mentioned before, so I can't go deeper in that question either.
Regarding the fourth question about the expansion that Adam mentioned in his opening statement, the first paid DLC. I'd actually like to first focus on the naming conventions here, because we actually make a distinction when we speak about DLCs, we mean small things like a skin for the character, like a new jacket or a new color of the hair or something similarly, well, not sizable. When we speak about expansions, then yes, we're talking about a bigger thing, like in the past was Blood and Wine or Hearts of Stone, for example. When Adam was mentioning in the opening statement the people working on the expansion, he did mean the bigger one, which historically has been paid. I hope that explains.
Yeah. Okay.
Thank you very much. Thanks a lot.
We'll take our next question from Ken Rumph with Jefferies. Please go ahead.
Hello, everybody. I suppose I'll try a further go at the provisions just to see if I'm understanding it in real-world terms. Are we to take it that you think that you will have sold more units, but suppliers will make use of the price protection type policies that you have? Anyway, I think you get my idea. What's happened in the real world, do you think, that's causing this reallocation of provisions, if there's a way of explaining that? My questions, however, were going to be mainly about slide 10, about staff. Firstly, any comment on staff turnover? Secondly, these are percentage numbers. Approximately where are the absolute numbers between the end of the year and now? Probably finally, I was a little bit surprised how large the Gwent number was.
Is this just kind of the normal number of people for Gwent, given that it has expanded to mobile now, or is there perhaps more going on in terms of development of that game than I'd realized? It's a bigger share of the total than I would have expected. Thank you.
Once again, no, they are not directly related to unit sales. Obviously, the sales are the data on which we base estimating the reserves and potential future outcome of settlements of our contracts with distributors. It's not that this or that number of units generated this result. We cooperate with a number of distributors, and with some of them, we were adjusting the reserves this way, with others the other way. We came to a conclusion, closing the books for the first half of this year, that all in all, the sales provisions should be smaller, but at the same time, provisions for costs of cooperation with the distributors and settling our accounts with them should also be higher. It happens that both amounts are close to being equal.
The cost is slightly higher than the sales, but it's not directly related or linked one to another, and neither it's linked to any specific situation with more units sold than we expected or less units sold. That's the effect of total calculation of a number of contracts with distributors and number of markets we evaluated for this purpose.
Okay.
If I can-
Shall we move on to the staff? Thanks.
Yes. I'll try to cover it. Of course, we are observing increased churn this year. This is normal. This is what we expected after the conclusion of the large project. It is always like this. We have also intensified our recruitment activities, what I can say that the total number of employees to the project by the end of June, is very similar comparable to what we had at the end of 2020. No big changes there. In terms of churn, it's comparable what we had after Witcher 3. So far nothing unexpected. About Gwent, well, this is related to the project, Gwent team sometimes a bit bigger, sometimes a bit smaller, nothing under this. It's a normal situation. Apparently, at the end of H1, the number was like this, it might change in the future as well.
Okay. Could I ask a couple of supplementaries? One is to say, without going too much into current trading, but where do we stand at the end of August in terms of employees? Just do your comments regarding churn and against that recruitment still apply? Has there been any dramatic change kind of in July and August? The other question I was going to ask was, you referred to the fact that at the moment, kind of technology/engine staff are kind of included within the other groups, largely within the "Cyberpunk," I think it was yellow bar. What's your idea, do you think, for how large that group would be, either in absolute or percentage terms, kind of on the new model when you're working under the new sort of central resource for technology and engine model? Thank you.
After the end of July, there was no dramatic change. I mean, nothing new in terms of what we had at the end of H1. In terms of technology unit, it is still in discussion, so hard to say where we'll be a year from now. Definitely-Big part of tech will support more than one project at a time, but it is still in discussion. We are in the first part in the middle of transformation, so hard to say anything precise regarding numbers, but definitely there will be people working on technology, not necessarily at least bookkeeping-wise, assigned to projects.
Mm-hmm. Okay. Thank you very much.
We'll take our next question from Matti Littunen with Bernstein. Please go ahead.
Thank you. Good afternoon. First question on revenue recognition. Just to check that, would all the days in June summer sale units be already recognized in Q2 revenue? In other words, were all the June days from those channels included in the Q2 sales number? The second question is related to REDengine 4. You mentioned the technology investment. If we were to talk hypothetically about your next big project, would it be correct to sort of assume that the technological investment in the engine required to get the next big game out would be less than that between Witcher 3 and Cyberpunk 2077, where you updated to a whole new version of the REDengine while you're also working on the game? Thank you.
With the revenues from digital storefronts, specifically Steam and PlayStation. All of the sales by the end of June that were reported to us, and basically all of them were reported to us, are included in the revenues for the first half of the year. You mentioned the Steam summer sale. As far as I remember, this action started in June but ended in July. Not the whole Steam summer promo was included in the first half results, only the sales achieved by the end of June. The July sales, the finish of the summer promo, will be part of the Q3 report from us.
Adam, on this end, I'll take the second about REDengine. To be honest, it's too early to say because we are still very deep in working on the current technology for Cyberpunk 2077, and we are evaluating and discussing future avenues in this regard. It is definitely not the right moment to say precisely or firmly where it will go and what will be the impact to our books regarding technology.
Very clear. Thank you very much, both.
Thank you.
We'll take our next question from Vladimir Bespalov with VTB Capital. Please go ahead.
Hello, and thank you for taking my questions. I have actually two. During the first quarter conference call, you mentioned that each quarter fewer people would work on fixing Cyberpunk. Will it be the case in the third quarter, and should we expect some improvement in profitability as a result, as I would assume more people would work, even within the Cyberpunk project on expansions, and these costs could be capitalized, I assume. The second question is on Spokko. You haven't consolidated it yet, but given the release of the Monster Slayer game, are you going to consolidate it from the third quarter? If you're going to consolidate, what could we expect in terms of revenues costs, just the overall effect on CD Projekt's financials? Thank you.
Question. With regard to Cyberpunk, we realized the game still needs improvements, and we will continue to work on it as long as necessary. However, as the developers naturally move to other projects, the number of team members engaged in the support of the game decreases with each month. That's the status quo for now. You ask whether it will increase profitability. Well, I would say it will decrease our costs for the period directly booked into the P&L. That's probably more proper to put it this way. In Spokko company. We have certain rules for consolidating companies to evaluate the group results versus the Spokko results, both sales numbers, and the balance, the total value of their assets. As far as I remember, that's the second criteria.
Based on that, having the Q3 results, we'll make final decision. It is not decided yet whether Spokko should be consolidated starting from Q3 or starting from the full year results for 2021. The question, how Spokko results will influence our group results, that's obviously a question about future results that are still in front of us. We are not guiding on that. We've not calculated this yet ourselves. Please be patient. Please be with us, and we'll cover it as soon as we have some news to share.
Okay. Thank you very much.
We'll take our next question from Maria Mickiewicz with Wood & Company. Please go ahead.
Good afternoon. I've got two questions. First, sorry for another follow-up on provisions, but I'm just trying to understand, looking at the note 12 that you mentioned of your financial statement. I can see for provisions for returns that actually those created in first half are almost PLN 43 million, but dissolved or released provisions seem to be PLN 82 million. First look could imply that the impact on your P&L would be still positive, but you are saying it's neutral and referring to released provisions of PLN 40 million rather than PLN 82 million. If you could just explain the difference that I'm probably not seeing in those numbers. That would be the first question. The other question would just refer to the revenues of CD Projekt RED. Basically, if you could just explain what was the main reason for quarter-on-quarter growth in revenues.
If we exclude the positive impact of provisions, if we just adjust this PLN 40 million provisions for the second quarter, it would be still quite visibly higher revenues than in first quarter. I'm aware that you are not commenting specifically on the numbers for Cyberpunk or Witcher, but maybe you could just at least say whether this growth came mostly from Cyberpunk sales increase quarter-on-quarter, or Witcher or anything else. That's all from my side. Thank you.
The PLN 40 million I referred to was the balance of all the adjustments we've made for the number of distributors we work with. If you look at the referred note in our financial statement, actually nearly PLN 70 million provisions were consumed, so they were effectively used during this period. There were PLN 82 million provisions dissolved and PLN 42 million created. The balance of the PLN 82 million minus PLN 42 million is the PLN 40 million that influenced directly our revenues for the period, and that I mentioned in my presentation. As I said, there is more than one customer, there is more than one contract that we monitor and that we reflect in our provisions assessment. The around PLN 40 million net effect is the outcome of all of the calculations. The second question was what influenced the Q2 results being better than the Q1.
As I said, the biggest revenue driver was Cyberpunk. Most of the sales generated during this period on Cyberpunk came from digital distribution. During Q1, we were not present on Sony PlayStation Store. Cyberpunk came back to sales. It was an event for us. It also allowed us to generate some extra revenues that were not present in the Q1. Other Cyberpunk in other stores like Steam added to the sales and all in all made Q2 better in this respect than the Q1. Can comment from the top of my head for now. Thank you very much.
Okay. Thank you.
We'll take our next question from Tomasz Rodak with BOS Brokerage House. Please go ahead.
Yes. Hi, can you hear me well?
Yes, sir.
Hello? Yes. Hi. Thank you for taking my questions. First question once again is related to the provisions, it's a reduction of provision, and it's fairly simple I think. The fact that you reduced the provision, does it to any extent mean that the sale of Cyberpunk in physical channels is better than you expected when you was creating this provision or is it at all not connected with this? With regards to second half of this year, you will probably be maybe reducing the provisions in the future, in the second half. Is there any chance that the reduction of provision in the second half be profit contributing? If yes, what would have to happen to make the reduction of provision profit contributing? Could you give us some information on the digital versus physical revenue structure in the first quarter and second quarter? That's it. Thank you.
Actually, distributors have number of possible ways of settling. In some cases, we get sales revenues, but in some other, we are also liable to refund them some of the expenses they covered on their side. The fact that we dissolved part of the sales provisions but increased the cost provisions does not naturally mean that we expect better sales on the sales side or worse sales on the cost side of the provisions. That's the effect of our estimation of what the future may bring in respect of our settlements with distributors. It happened to be close to neutral for the gross profit, but it's based on the amounts we contractually expect to be settling with the distributors and not directly on the units sold by them. Your question whether we could be re-evaluating the provisions in the third or fourth quarter, and will it affect our profitability?
Yes, we are evaluating the provisions every quarter. Depending on what the future market situation will be, we may either be required to increase them or if we were to secure, maybe we will be lucky to lower the amount of provisions. What we booked for the end of June reflects our estimations on future cooperation with distributors and our and their future liabilities arising from the contracts we have. That's our best knowledge on this. Regarding the physical, digital speed of our revenues in both Q2 and Q1, I would say digital, from the top of my head without checking in tables, digital was definitely the most important source of revenues for us.
As in case of physical, for vast majority of our cooperation with distributors due to the nature of physical distribution, that first high quantities of games are shipped to the market and then you manage the stock in the retail channels. Most of the cooperation and most of the revenues with physical distribution partners are settled right now on the level of provisions. The new royalties and new revenues by CD Projekt Red are generated mostly via the distribution channels for now.
Okay. Thank you.
Ladies and gentlemen, as a reminder, if you'd like to ask a question, star one. We'll pause a moment to reassemble the queue. We have no further questions at this time on the phones. I would like to turn the conference back to your speakers for any additional remarks or chat questions.
Hello, Adam here. I'll take the question from chat. Does the management board have any idea how to manage the supply of the employee shares? Yes, we do have an idea. Piotr, maybe you can cover this because I think that you're running this project. If you may. The brokerage house which mediated the take-up of shares at the beginning of the program when we were making it back in 2020 will reach out to program participants who are potentially contemplating sale of shares soon after the lock-up period is over and present them with a comprehensive offer, which should enable such transactions to be carried out in an organized manner.
The offer would also enable CD Projekt to inform the market ahead of time how such sale orders should be carried out. As with the transactions carried out last year, all sales orders placed by our shareholders will be aggregated and processed by an experienced team of Trigon brokers. We expect these transactions to be spread over some time and to have a limited share in our daily turnover. That's the idea which we discussed with Trigon when preparing for the end of the lock-up, to be able to offer them to come to our employees with a proposal of some organized solution, how to potentially help them if they decide to sell their shares.
At the same time, I can say that we've discussed it with my colleagues from the board, and none of the board members intends to sell their shares following the end of the lock-up period that will expire this September. That's the info on this I can share right now.
The next question we have here, sorry, this is Michał Nowakowski from Konrad Krasuski from Bloomberg News. There's two questions, actually. The first one is regarding the expansion to Cyberpunk, when should we expect it? The question is here, 2022. Is it finally agreed it will be paid, and what scale of price should we expect similar to Witcher expansions? I'll cover that first, and then I'll read the other one before switching off. Regarding the expansion, as we mentioned earlier, it's in development, but we're not providing any specifics about the dates. I know 2022 is a broader question. It's not super specific, like XYZ given month, but we still would like to keep up the rule that we're not committing the dates until we're ready to deliver that. I'll refrain from going deeper here.
Regarding the price, when it will be paid and what scale of price should we expect? Historically, expansions have been paid, as you have rightly noted, with The Witcher. However, it is definitely way too early to talk about price, since we're not even giving the date. Again, I cannot give any details. The second question that was asked here was regarding your cover of report, you came back to Geralt theme. Does it suggest that you refocus on The Witcher 3 next-gen or The Witcher 4, maybe? Well, the choice of covers is very often purely aesthetic, relying on aesthetics. I don't think any of us actually thought about it like you suggested here, obviously, there's a The Witcher 3 next-gen coming, I guess you could tie it to that. I hope that covers the question, and I'm switching off now. Thank you.
All right. The time, this is 7:00 P.M., in Poland at least. This is the end of the conference. Thank you very much. If you have any further questions, please contact our IR. We'll gladly to answer all the questions, of course, just the questions we can answer. Thank you very much. Bye-bye.