Welcome everyone to our earnings call. Let's proceed to page two of the presentation. We have had a strong quarter in the second quarter. We have delivered the revenue growth both quarter-to-quarter and year-on-year. Second quarter historically is one of the weakest quarters in the year, so the fact that we have delivered quarter-to-quarter revenue growth in Q2 underlines the stability of the business. We have achieved revenue of SEK 104.5 million. That's growth of 17% year-on-year. We can say that we are back to the growth level that is in line with the growth of the market overall. The main driver of the growth was a game called Hidden City. It's one of our newer hidden object, free-to-play hidden object games that has been performing really well over the past couple of quarters.
As a result of the growth of Hidden City, our portfolio mix is improving. We are seeing less reliance on our top-performing games and more diversity game-wise. The operating profit was SEK 8.7 million, EBIT margin of 8%. It was affected by the currency exchange because of the intercompany loans that we have. That taken out, the EBIT margin was actually 10%. This non-cash FX rates charge is actually reversible, so if the currency goes the other way around in the later periods, it can work the other way around for the company results. Operating cash flow was SEK 9.4 million. We had substantial changes in working capital, where we have settled a certain amount of royalties outstanding, which contributed to negative cash flow in the quarter, but it was a good thing to do. Now on to slide number three.
The highlights of the quarter were the following things. The Paranormal Society is a new hidden object puzzle adventure, free-to-play game from G5, which is developed by G5 and owned by G5, and it was released during the quarter. The genre of the game is similar to the best-performing games that we have, The Secret Society and Hidden City. Right now the game is in the soft launch mode. It means that we are not actively scaling the revenue, but we are looking at the analytics, the performance of the game. We are making tweaks and changes to the monetization to make sure that we are hitting all the monetization and retention goals for the game. The game will be in this mode for a few more months. We usually spend about six months in the soft launch mode.
Survivors: The Quest, one of the games that we have released about a year ago has improved its sales in connection with the latest updates that we have made to the game. Suddenly became one of the better-performing games in our portfolio. We have also released another hidden object free-to-play game called Special Enquiry Detail. It was previously released on iOS, and it's still in the soft launch mode, but we also released it on the Google Play and Amazon Appstore, those app stores that are powered by the Android operating system. As I mentioned, we had very strong growth of our Hidden City game during the quarter. We have quadrupled earnings compared to the last year. Let's look at slide number four. You have this chart showing the development of the revenue of the company.
You can see that in the second quarter, we have delivered higher revenue, both overall but also in free-to-play games. The free-to-play games underlying growth was actually 23%, so more than the top-line revenue growth. The unlockable games, which are just a few percentage points of our revenue at this point, are still gradually sliding as expected. As we have communicated many times, this is what we expect the unlockable games to do, to continue to gradually slide and fade away over the coming months and probably years. This is what happened. Let's move on to slide number five and look at the operational costs. As you can see, we went through the period of a rather quick growth of our operational costs during 2014, in 2015, it has stabilized, and it remains stable in the first half of 2016 while the revenue is growing.
There you have the increasing profit margins. Administrative costs are about the same level as in the 2015 and the first quarter. We have gradually increasing research and development costs mostly because of the higher amortization. If you look at sales and marketing costs, the user acquisition expenses, the money that we spend on attracting new users is only 17% of sales in the second quarter compared to 25% a year ago. Again, the top line has actually grown from last year to this year, we are showing that we can achieve growth in terms of the user base and revenue spending essentially about the same, if not the lower amount of money on marketing. Let's move on to the slide number six and look at our EBIT and EBIT margin.
We have communicated in our reports that our goal is to focus more on earnings and to achieve growth of earnings year-over-year and quarter-to-quarter, ideally. It doesn't mean that we will do it every single time. We don't control it that precisely. In this quarter, if not for the revaluation of operational liabilities in connection with the intercompany loans within the group, we would probably have 10% EBIT margin, the same level as in Q1, we have this non-cash charge, that's why it's lower at 8%. Still, the rolling 12-month margin has significantly improved. I would say that you see if we maintain this performance in the future without even growing it will mean that the rolling 12 months will continue to grow for at least another quarter. Right. Next is slide number seven, the net capitalization.
We capitalize expenses directly connected to creating new games. We do it consistently. We also gradually depreciate these capitalized costs when the game comes out. The capitalization net of amortization amounted to about SEK 5 million in the second quarter, in line with the first quarter. I would say it looks as we have this stable level in the first half of the year. It's kind of difficult to predict specifically which level is normal and how it should be and because of the nature of the development of games where you spend less money on the game, developing the game at the beginning, towards the end of the project, you might have larger payouts and larger costs.
We expect that with a number of new games coming out of the soft launch window, the amortization will be gradually picking up and net capitalization, that will continue to be kind of shrinking. When we look at the total game portfolio, the capitalized cost of the game portfolio, the free-to-play games are responsible for 95% of the revenue at this point, and 5% are still unlockable games associated with that declining revenue portion of the company. The amount associated with the unlockable games that are still not released, and we still have a couple of these games that are coming to the market, is almost zero. Essentially, the risk in connection with this part of capitalized costs is rather low.
I think that the value of our free-to-play portfolio that's on the balance sheet is quite reasonable given the absolute size of the revenues that we have from free-to-play games. Okay. Next is slide number eight, cash flow. We had a cash flow from operating activities of SEK 9.4 million. We had this large negative change in working capital catching up with our royalty payments that were on the balance sheet as liabilities anyway and reducing those liabilities. We had compared to the second quarter last year, comparatively lower investment in the development of new products. I would say that's normal because last year was probably the most intensive in terms of the number of new games that we were developing and the number of new projects that we were launching.
Right now, we're focusing more on further narrowing down the number of projects that we're really focused on, and even thinking about reducing the number of free-to-play games going forward. That is it for the presentation. We're on to the slide number nine and the questions and answers section. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question of our speakers, please dial zero one on your telephone keypad now. Our first question comes from Viktor Holmberg of Redeye. Go ahead. Your line is open.
Hi, guys. Could you maybe talk about the virtual reality initiative you launched a couple of weeks ago? Talk a little about that.
Okay. Thanks for the question, Viktor. Basically, we have internally seen some interest towards the virtual reality, the early mobile virtual reality technology from people we would associate with our target audience, and that is, as you know, women 35 plus. The fact that they were interested in this experience kind of started the internal discussion on whether we should be dedicating some resources to just looking there and exploring what we could do, and could we make some products that would go after our target audience, if they will get excited in this technology to the point that it becomes widespread. We're probably thinking more about mobile virtual reality rather than something that you buy for your desktop PC, because most likely our audience are going to be getting one of the mobile platforms rather than something that works with a desktop computer.
We have decided to form a small team within the company that will basically look into what's going on there and try to implement some of the ideas that we have in terms of how could we provide entertainment that's similar to what we do on mobile, but in virtual reality. We do not expect this area to have any effect on the company results, really, both in terms of revenue and expenses, because the team is going to be quite compact, and it's difficult to say when, if ever, this is going to generate any money. We are looking there just to make sure that if there is something coming from there that can turn into a successful platform for the mass user, that at least we are there early on, and we are trying to see what could work for our audience.
We will meet them there. We will have the content if they will be looking for this type of content.
Okay, great. Thanks. The problems you had in Q1, which resulted in the stagnated growth, so to say, are those problems, so to say, fixed now or going forward? You mentioned your growth is now in line with the market. Is that to be expected for the rest of the year as well?
Well, we're not giving guidance for the rest of the year, as you know. If you even look at the slide number four, you can see that the first quarter last year was a particularly successful quarter, and it's a little bit out of the pattern. It just pops out. It's a really high base. I would say that our first quarter, of course, I can't say that we had really impressive growth in the first quarter, but the free-to-play revenue was actually growing quarter-to-quarter in the first quarter, and it's just that the total revenue was not as impressive compared to a high base last year. If you look at the second quarter last year compared to this year, you can see that there was a consequential decline last year. We have lower base, better growth.
Again, looking at the last four quarters, especially looking at the free-to-play revenue, there is growth in free-to-play revenue every quarter-to-quarter, and sometimes that increases or declines depending on how the portfolio works out, how the updates are working out. Sometimes what happens, developers are late with the updates, and then we don't get an impressive result as we can. Sometimes there is just a successful update with a great content that gets more people to play it, and they monetize better, and that works better for us. If you look at the report which just came out this morning, you can see we have this quarter growth across all the major parameters. The number of monthly active users, daily paying users, revenue per user also has increased, and it was the same thing in the first quarter.
Basically, we are gradually, continually increasing the audience and monetization per user. We will do our best to continue to do that.
Okay. Thank you. In continuing doing that, you mentioned you're going to release some new games this year. How many and when? Could you say something about that?
Well, again, we can't say more than we usually say. It's a number of games. Some of them are licensed, some of them are actually owned and developed by G5, and they're coming out before the end of the year. You will have to follow the company to see that happen.
Okay, great.
Thank you.
Thank you. Once again, if you would like to ask a question, please dial zero one on your telephone keypads now. We have one further question. That is from Johan Rosenquist, who is a private investor. Go ahead, sir, your line is open.
Yeah. Hi, guys. You have obviously had a great development for Hidden City during this quarter. Could you please elaborate what's behind this successful ramp-up of the game?
Sorry, could you repeat what's behind what?
The successful ramp-up of the game this quarter.
Yeah. The main driver, the main highlight was the Hidden City game. That game was released actually, two years ago, I think, initially. It has been in, for quite a long period of time, it was in the soft launch mode, for about a year. We were looking at why it's not performing ideally and in line with our rather high expectations, we were making changes to the game. Last year, I think we have finally understood what was going on. The developer took some time also to make the changes to the game, for the better. The game started performing better, over the last year, we've been working on adding more content into the game.
It's important that we have the length of the content that's enough for the player to stay in the game for a long enough time to give them the opportunity to monetize well and to spend enough money. At some point last year, we have achieved the understanding that the game is ready for better growth and that the fundamental equation works. For us, it's that the cost of acquiring the user is substantially lower than the expected lifetime value of the user. When we see a game with that working out well, we know that we can scale the game by bringing more users into the game. It's not only about acquiring users with user acquisition, with getting paid installs and paying for users.
It's also about cross-selling the game with our other products so we can justify bringing users from other games into this game, especially if we know that the lifetime value in this game is actually higher than in the other game, then it makes more sense to do more aggressive cross-promotion for the game. We've seen that Hidden City is doing exceptionally well on metrics, we just started getting more aggressive about promoting this game internally and also in terms of buying users for it. That has significantly improved the performance of the game over the last couple of quarters. We just see the result of it in the second quarter.
Needless to say, we continue to work on all of our other games, trying to achieve the same situation where we will see that there's an opportunity for much faster growth of other games as well. We want to bring more games into the same situation that we have with the Hidden City right now.
Yeah, great. Thank you for the answer.
Thanks.