Good evening. Welcome to the teleconference dedicated to Zetta Project Group's Earnings of the First Half of twenty twenty one. Today, as usual, I'll be running this call together with Kjellyn Rubovich and Smiho Novakowski. The webcast of the presentation along with the audio feed are also streamed on our corporate website, cedeperay.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 success improvements. So far, 4 patches and 3 hotfixes have been delivered. What's more, we we recently released Part 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 2,077 to the digital PlayStation storefront 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 we gained 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 4. Our target for the release of the NextGen update is late 2021.
Please note, however, that as the game is still in development, production plans might be subject to change. The next generation 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 slide. The 2 most significant events related to future 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 product creators as well as The Witcher series staff and staff members, we announced that the base edition of the UJET 3 Wild Hunt, along with its next generation will, regardless of regardless of the platform, contains some extra content inspired by Netflix series.
As with Cyberpunk 2,077, our target date for the release of the next generation of The Witcher 3 will come in late 2021. Let's move on to Slide 8. The Witcher Monster's Lair, a mobile location based AR game developed and published by our daughter company, Spokko, was launched on the 21st July. We are very satisfied with how the game has been reviewed and rated by gamers. Its ratings currently stand at 4.5 on ASTO and 4.1 on Google Play.
Regular users as well as experts point to, among others, strong focus on storytelling in the game's immersive nature driven by AR. We are in process of collecting and analyzing data, in game starts and feedback from gamers, and we have ambition plans for the coming quarters. The plan we plan to roll out new content, including new adventure seasons, monsters and futures. Now let's move to Slide 9. In July, following the signing of takeover agreement, Digital Scapes formally became a member of Celebrate Farming.
The studio was subsequently rebranded as Celebrate Room in Vancouver. The Canadian studio has set itself an ambitious goal to triple in size by the end of the calendar year with a target in size of approximately 40 people. It will focus on supporting third party efforts related to technology and gameplay programming for the studio's core IPs. Let's move with the final slide of this part of the presentation, number 11. In accordance with our promise to biomass, 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 as unannounced projects. That's all from me for now. Let's move on to Slide 12.
Piotr, the floor is yours.
Our revenues from sales of products reached PLN367 NOK67 million and we're 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 2,077 has been more than made up for this decrease. CP was the most important source of revenue chart this year, and most of net 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.
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 PLN40 1,000,000, which boosted our product sales revenues. And at the same time, we did increase our cost provisions related to cooperation with distributors by PLN 40,000,000, which boosted our cost of products sold. These two changes were we're effectively neutral with regard to the gross margin. However, they reflect our updated estimation of future settlements of contracts 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 34,000,000 hence nearly PLN 88,000,000 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 Zlata got visibly stronger against the dollar, while at Todeparekrat, the line decreased. At sales of relatively low margin physical goods and materials on the way to the Cyberpunk premium.
This year, it's back to normal in this respect. Hence lower sales and cost of goods and materials sold at Soteproika. All in all, our total sales revenues for this year reached PLN470 million and we're 29% above the sales of the first half of twenty twenty. Our gross profit from sales reached PLN 308,000,000, which is onefive more than a year ago. Moving to the operating costs.
Our selling costs increased this year to PLN 131,000,000, 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 Services reached nearly PLN48 1,000,000. G and A costs we 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 11,000,000
and also a PLN
10,000,000 increase in cost of our incentive program compared to a year ago. Our financial activity present, some negative outcome due to the negative FX differences and leasing 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 105,000,000, 28% less than a year ago.
As GOG posted negative results, PLN 109,000,000 net profit was generated by the prior perspective, let's go to the next slide number 13. Each of the four bars represents revenues for the 1st 6 months of each of the presented years. From these revenues, we covered our costs and expenses, marked gray, and earned our net profits, it's marked blue. However, this year, our cost structure was different than a year before. Please go to the next slide.
Represents CP servicing costs. This is our commitment to gamers, but also, I believe, an expense of temporary nature. The yellow slice represents depreciation of something natural after release yet non existing last year and of a non monetary nature this year. And the red part, these are the early phase research expenses, mostly of Q1. And finally, the dark gray part on Opera presents adjustments for the increase of sales revenues due to the reevaluation of our sales provisions that I 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 as of this year, our net expenditures on the development projects balance decreased by PLN27 million, mainly due to the depreciation of Cyberpunk I just mentioned. At the same time, our long and short term assets increased in line with our purchases of T bonds as a way of diversifying our financial reserves. At all the financial assets and cash are marked with a star and summed up under the total assets table to the amount of PLN 1,100,000,000. The significant decrease of receivables by over PLN1,000,000,000 down to nearly PLN250,000,000 it comes from collection of our receivables due to us after the release of Cyber Fund.
I will elaborate more on how this cash flow was allocated in a moment. Our equity decreased over the 1st 6 months of 2021, mainly due to the 2020 dividends payout, which in some ARG was compensated by profits for the year. 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 servicing our released games decreased visibly versus Q1. Since the release of Cyberpunk, this part is mostly dedicated to to CP, also the green part, which is the early research phase costs, were much lower in Q2 versus Q1. And 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 and simplified cash flow on Slide 17. The money flowing in from reduction of receivables by PLN 1,029,000,000 was mainly dedicated to paying the dividend the amount of PLN503,000,000 and decreasing our loan contract liabilities and provisions by PLN 366,000,000.
Altogether with the PLN 105,000,000 net profit for the period, it increased our financial reserves by PLN 255,000,000 up to
RMB1 129 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 and A section.
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. So first of all, I wanted to just check-in on the Timing of the releases of the next gen versions of Spider of the Punk and The Witcher. I mean, you said late 2021, but I guess arguably any day from tomorrow is late 2021. So if you could maybe just be a bit more specific on when during the next 4 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 It's towards pushing the release of these titles into 2022. That's the first question. Secondly, I don't know whether I missed it, Piazza, 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. And then thirdly, I just want to refer to Slide 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? And 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 Biena Rojas Kiena. I'll start with the first one. Hi, Omar. So thanks for the questions.
I'll tackle the first one, which I believe was about the next gen releases of Cyberpunk and which I think you kind of combined the question. So I'll start with Cyberpunk. I mean, our target is to release the next gen version of of CP277 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. And with The Witcher 3, the situation is slightly different in a way that this is being tackled by the external team mainly, which is Sabre Interactive, the company we have worked before on Switch and also the updates in the past.
And as with Sun Point 2,077, our goal is to release that game still in late 2021. However, similarly, development process is ongoing, and we cannot be absolutely that certain that the release schedule will not change. But for the time being, we definitely are aiming with both titles for the late 2021. And I don't want to be more specific at this moment inside.
The revenue split, I was not referring to any precise revenue split for Cyberpunk or other products, but what I can confirm is that Cyberpunk was the leading source of revenue for us during the first half of twenty twenty one.
Hi, Omar. Adam here. I'll take the third one regarding Slide 10. So the yellow part is strictly related to Cyberpunk 2,077, the game which is already released. That maybe the part which is not covered there yet because we are in the transformation is technology because technology ultimately will be a separate and part of technology would be a separate division.
But for now, it's assigned to projects. But besides this, the yellow bars just represents working on the game itself, 7.27 and the other projects are AAAs, which are not announced yet. So we do not provide any comments obviously, on an unannounced project, so I can't confirm anything more than this is both games, which we haven't announced yet, and 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.
Yes. Good afternoon, guys. I have 3. So first off, just looking at these provisions, so to understand it, you are unwinding a negative provision in the revenue lines around PLN 40,000,000 and then you have a new provision of around PLN 40,000,000 in the cost line. So effectively, without those things, you're boosting the revenue line by about €40,000,000 But the operating profit is more or less unchanged by that activity.
But first of all, I want to understand if that's correct. And secondly, Can we expect any other provisions in the rest of the year in relation to these areas? 2nd question, did you sell more or fewer units of Cyberpunk 77 in Q2 versus Q1, are you able to give us an indication there even if you don't give us a number? And 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 in Q2.
I'll take the first two questions regarding provisions. So yes, your understanding is correct. Both our 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 EUR 40. Actually, the cost provision was slightly bigger than the same provision.
As far as the other provisions are concerned, we still have PLN 160,000,000 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. And yes, 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 TV 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 answered. Sorry, there were 2 more actually. Sorry, and this is Mila Koskin. 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 Yes. Sorry, I'm going to switch off right
now. Guiding on future sales results or future profits, but usually the Q3 of the year is the weakest quarter. It covers the summertime, it dismisses the big promo events like the summer promo or the promos that happened around Black Friday in Q4. So I would say that the traditional seasonality for the Q3 is to expect it lower. But it's just general rule, and I'm not intending to guide you on any specific results we may achieve in this particular Q3.
Yes, now we have finished.
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. Yes, so could you just explain the 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're leasing them into the revenue line and explain about the provisions that you've 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 €160,000,000 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? And then could you also maybe give us an indication of how many units you've got through putting it back onto the PlayStation in the latter part of June. And then 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?
Question was why we took the provisions in the first place. So we set some provisions in the first laid back in 2020 upon releasing Cyberpunk, and the provisions included both expected costs of releasing the game that were not invoiced to us back in 2020, and we expect 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. So the provisions for the costs or sales revenues originate mostly from the premier 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.
And in very simple terms, we reclassified some of the sales provisions into cost provisions, hence the close to neutral effect of this transactions to our gross profit, but we believe having the knowledge we have today that they better present what should happened to our profit and loss calculation. So the company should have higher sales, but at the same time, our settlements with distributors will include more costs that we will refund based on the contracts we have with them, at the same time, having higher sales and higher incomes from them. So that's kind of technical booking, I would say, that better reflects how we should presented book wise and how we decided to adjust it based on the current knowledge we have right now. And as far as how much of the provisions were used and how much of the provisions were adjusted, I would love point you to the Note 12 as far as I remember, other provisions of our financial statement. And there are 2 tables precisely showing what sales provisions, what cost provisions and what bonus provisions we hats for the beginning of the period, how they were used, which were consumed and which were added and which were canceled over the 1st 6 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.
And Mikhail Novakowski, again, I'll jump in on the 3rd and 4th question. Regarding the 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 4th question about the expansion that Adam mentioned in his opening statement is the 1st paid deal. I'd actually like to first focus On the naming conventions here because we actually make a distinction when we say about when we speak about VLCs, 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, it was Blood and Wine or Hearts of Stone, for example. So 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.
Yes. Okay. Thank you very much. Thanks a lot.
We'll take our next question from Ken Rump with Jefferies. Please go ahead.
Hello, everybody. I suppose I'll try and further go at the provisions just to see if I'm understanding it in real world terms. So 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 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? And 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 gain than I'd realized? It's a bigger share of the total than I would have expected. Thank
you. Again, No, they are not directly related to unit sales. Obviously, the sales our the data on which we base estimating the reserves and potential future outcome of settlements of our contracts with distributors, but it's not that this sort of 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 we've ordered the other way, and 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 cost of cooperation with the distributors and certainly our accounts with them should also be higher. It happens that closing months 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 either 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. Shall we move on to the stack? Thanks.
Yes, yes, yes. I'll try to cover it. So 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 always it is always like this. We have always also intensified our recruitment activities. And what I can say that the total number of employees to the project was I mean, at the end by the end of June, it's very similar comparable to what we had at the end of 2020. So no big changes there. And in terms of churn, it's comparable what we had with after which are true.
So, so far, nothing unexpected. About GWENT, well, expected. About GWENT, well, this is related to the project. And Gwent team sometimes a bit bigger, sometimes a bit smaller. So nothing under this.
I mean, it's a normal situation. So apparently, at the end of H1, the number was like this, but 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 is the where do we stand in 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 August?
And the other question I was going to ask was you referred to the fact that at the moment kind of technologyengine 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.
So 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 in a year from now, definitely big part of the of tech will we support more than 1 project at a time, but it is still in discussion. We are in the middle of first part, middle of transformation, so hard to say anything precise regarding numbers. But definitely, there'll be people working on technology, not necessarily at least bookkeeping wise assigned to projects.
Okay. Thank you very much.
We'll take our next question From Matti Litton with Bernstein. Please go ahead.
Thank you. Good afternoon. First question on revenue recognition. So just to check that, would all the days in June summer sale units be already recognized in Q2 revenue. So in other words, were all the June days from those channels included in the Q2 sales number?
And the second question is related to Red Engine 4, so you mentioned the technology investment. If we were to talk about 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 2,077, where you updated to a whole new version of the red engine while you're also working on the game. Thank you.
With revenues from digital storefronts, specifically Steam and PlayStation. So 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. So not the whole team 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 Red Engine. To be honest, it's too early to say because we are still very deep in working on the current technology for Cyberpunk 2,077, and we are evaluating and discussing future avenues in this regard. So it is definitely not the right moment to say precisely or firmly where it will go and what would 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 TB Capital. Please go ahead.
Hello and thank you for taking my questions. I have actually 2. During the Q1 conference call, you mentioned that each quarter fewer people would work On fixing Cyberpunk, will it be the case in the Q3? 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 cost could be capitalized, I assume. And the second question is on Spokka.
You haven't consolidated it yet, But given the release of the Monster Slayer game, are you going to consolidate it from the Q3 and if you are going to consolidate, what could we expect in terms of revenues costs, Just the overall effect on CD Projekt Financials. Thank you.
Question, with regard to Cyberpunk, we realized the game still needs improvement, 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 say to squawk or no, you asked whether it will increase profitability. Well, I would say it will decrease our costs for the period directly booked into the P and L, that's probably more proper to put it this way.
In Spokko company. So we have certain rules for consolidating companies to evaluate the group results versus the Spokol results, both sales numbers and the balance, the total value of their assets, as far as I remember, that's the second criteria. And based on that, having the Q3 results, we'll make final decision. It has not decided yet whether Spokka should be consolidated in starting from potential, it should be consolidated starting from Q3 or starting from the full year results for 2021. And the question what how stock or 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. So please be patient. Please be with us, 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 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 EUR 43,000,000, but dissolved or release provisions seem to be EUR 82,000,000. So like first look could imply that the impact on your P and L would be still positive, but you are saying it's neutral and referring to release provisions of €40,000,000 rather than €82,000,000 So if you could just explain the difference that I'm probably not seeing in those numbers.
So that will be the first question. And the other question would just refer to the revenues of CD Projekt RED. So basically, if you could just explain what was the reason, the main reason for quarter on quarter growth in revenues? If we exclude the positive impact Provisions. So if we just adjust this EUR 40,000,000 provision for the Q2, it would be still like quite visibly higher revenues than in Q1.
So 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 Cyberkapan, our sales increased quarter on quarter for Witcher or anything else. That's all for my sake. Thank you.
PLN 40,000,000 I referred to was the balance of all the adjustments we've made for the number of distributors we work with. So if you look at the referred note in our financial statement, actually, nearly EUR 70,000,000 provisions were consumed. So they were effectively used during this period, there were SEK 82,000,000 provisions dissolved and SEK 42,000,000 created. So the balance of the PLN 82,000,000 minus PLN42,000,000 is the PLN40,000,000 that influenced directly our revenues for the period and then 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's that we reflect in our provisions assessment and the €40,000,000 around €40,000,000 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 and most of the sales generated during 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, but it also allowed us to generate some extra revenues that were not present in the Q1 and so I mean, 100 stores like Steam added to the sales and all in all made Q2 better in this respect than in Q1.
I can comment from the top of my head for now. Thank you very much.
Okay. Thank you.
We'll take our next question from Tomas 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. Does it 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?
And with regards to second half of this year, you will probably be maybe reducing the provisions in the future in the second half. What is there any chance that the reduction provision in the second half be profit contributing? If yes, what would have to happen to make the reduction of provision profit Contributing. And yes, and if you Could you give us some information on the digital versus physical revenue structure in the Q1 and Q2. Yes, and that's it.
Thank you.
Have a 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 it 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 set to improve the distributors and not directly on the units sold by them. So your question whether we could be evaluating these provisions in the 3rd or Q4 and will it affect and will it affect our profitability?
Yes, we are evaluating the provisions every quarter. And 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, but 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. So 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 it was definitely the most important part of 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 talking the retail channels, most of the corporation and most of the revenues with physical distribution partners are settled right now on the level of provisions.
So the new royalties and new revenues by to the prior credit are generated mostly we are the distribution channels for now.
Okay. Thank you.
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 the chart. 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, we'll reach out to program participants who are contemplating potentially contemplating sale of shares soon after the lockup 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 to the I'd like to inform the market ahead of time how such sale orders should be carried out. As within transactions carried out last year, all sales order placed by our shareholders would 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 Striagon when preparing for the and of the lockup 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. But at the same time, I can say that we've discussed it among with my colleagues from the board and none of the board members intend to sell their shares following the end of the lockup period that will expire this September.
So that's the info on this I can share right now.
And the next question I have is we have here, sorry, this is Mihael Rafacoskis from Konrad Krastuski from Bloomberg News. And there's 2 questions actually. So the first one is regarding expansion to regarding the expansion to Cyberpunk, when should we expect it? And the question is here, 2022. And is it finally agreed it will be paid?
And what scale of price should we expect similar to Witcher expansions? Yes. So I'll cover that first and then I'll read the other one before switching off. So regarding the expansion, as we mentioned earlier, we're actually not it's in development, but we're not providing any specifics about the dates, and 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.
So I'll refrain from going deeper here. And regarding the price, what it will be paid, what scale of price should we expect, I mean, historically, expansions have been paid, as you have rightly noted with the wheelchair. However, it is definitely way too early to talk about price since we're not even getting the date. So again, I cannot give any details? And then the second question that was asked here was regarding your cover of report.
You came back to Geraintim. Does it suggest that you refocus on Witcher 3, Next Gen or Witcher 4 maybe? So well, the choice of course is very often purely aesthetic, relying on aesthetics. I don't think any of us actually thought about it like you suggested But obviously, there's a free next year coming. So I guess you could tie it to that.
I hope That covers the question. I'm switching off now. Thank you.
All right. The time this is 7 p. M. In Poland at least, and this is the end of the conference. Thank you very much.
If you have any further questions, please contact our IR, and we'll gladly to answer all the questions, of course, there's questions we can answer. Thank you very much. Bye bye.