25 Apr 2013 07:00
Mail.Ru Group Limited
Final audited IFRS results for FY 2012 andpreliminary revenue update for Q1 2013
April 25, 2013. Mail.Ru Group Limited (LSE: MAIL, hereinafter referred as "the Company" or "the Group"), one of the largest Internet companies in the high-growth Russian-speaking Internet market, today releases its annual report for 2012 and provides the following final audited segment financial information for the year ended 31 December 2012 and an update on the preliminary unaudited segment revenues for Q1 2013.
Performance highlights
u Q1 2013 Group aggregate segment revenue grew 29.4% Y-o-Y to RUR 6,254m
- Context advertising and MMO games were the key growth drivers delivering 47.9% and 41.5% Y-o-Y growth respectively
- Display advertising saw improvement through the period
u Monthly audience of Mail.Ru portal in March 2013 reached 34.7m Russian users (TNS Russia, cities 100k+, age 12-54)
u Daily audience of Odnoklassniki ("OK") in March 2013 reached 39.3m users (LiveInternet)
u Final audited segment results for FY 2012 consistent with the preliminary trading statement
- Group aggregate segment revenue at RUR 21,151m, Group aggregate segment EBITDA at RUR 11,535m, Group aggregate net profit at RUR 8,552m compared to RUR 21,151m, RUR 11,534m and RUR 8,499m respectively reported on February 26, 2013
Key Recent Developments
Email & Portal
u Update of email apps for iOS (new design and iPad support), Android, Windows phone and Windows 8
u Enabled registration and login on Ukrainian domain Mail.ua
u Email collector now works via IMAP protocol
u Users can see log of their actions in email service
Instant Messaging
u Video calls on Mail.Ru Agent app for Android and ICQ app for Windows 8
u Paid themes on Mail.Ru Agent app for Android
u SMS invites on ICQ app for Android
u Photo filters on Windows Phone apps for both messengers
Social Networks
u Reworked video service on OK with new design, improved navigation and usability
u Launched music recommendation service "My Radio" on OK
u Newsfeed filters on OK enabling to view selected types of news (photos, games, statuses, etc.)
u Introduction of Armenian, Azerbaijani and Uzbek language interfaces on OK
u My World released app for Android and updated app for iOS introducing large photos in newsfeed, native music and messaging
u New service navigation, separated pages for user profile and newsfeed, and new photo viewer with improved usability on My World
Games
u Warface has become our #1 revenue generating game and continues gaining traction in terms of both users and revenue
u Launch of browser-based MMO Pirate Code
Search and E-commerce
u Our search product now adds relevant user profiles from social networks, sport events with live scores and companies location on map to search result page
u Launch of Avia.Mail.Ru, air tickets booking service
u Launch of iOS and Android apps for Realty.Mail.Ru
Other
u Announced 3rd annual Russian Code Cup - an all-Russian programming contest held by Mail.Ru Group. Qualifications in April and June with finals in September 2013
u The Company held Technology Forum, an IT-conference where industry experts shared their knowledge and experience in various information technology fields
u The Company paid a special dividend of USD 899m[a] (USD 4.3 per GDR) on 28 March 2013
u The Board of Directors has approved a USD 30m GDR buying programme for the Employee Benefit Trust. This will be undertaken through 2013
Commenting on the results of the Group, Dmitry Grishin, Chairman and co-founder of Mail.Ru Group, said:
"We are very pleased to report that both our final IFRS audited results for 2012 are consistent with the preliminary results we announced in February, and that we have started 2013 positively with continued strong revenue performance in the first quarter.
In Q1 2013, the Company achieved Group aggregate revenue Y-o-Y growth of 29.4% with a strong contribution from all revenue streams aside from display advertising. While contextual advertising continued to show strong growth, the beginning of the year for the display market was still impacted by the one off effects seen in H2 2012. However through the quarter we saw the impact of these events drop off, and by the end of the quarter the display business had returned to a stronger growth rate. We now expect to see continued improvement in display revenue growth rates through the year.
In Q1 we continued to execute on our MMO games strategy which proved successful in 2012. Warface has been an important component of this, and has seen an increasing traction in terms of both users and revenues. By the end of Q1 Warface was our largest revenue generating game with PCUs up to 145,000. In Q1 we also released browser based MMO game Pirate Code where the initial signs are very promising. We have further releases through the rest of 2013 and will continue to internationalize our most successful titles. As such we expect the MMO games revenues to continue to show strong growth through the year.
After the unprecedented growth in Community IVAS in 2012, revenues continued to show strong growth in Q1 with the main driver continuing to be the increase of paying users - especially in virtual gifts and services, as well as in our API platform. We remain focused on increasing user engagement and improving our product. As such we expect that community IVAS revenues will continue to deliver a good contribution to growth.
In Q1 2013 we continued to focus on our mobile products. Our strategy is to be device neutral wherever possible. As an example our email and IM apps have seen continued strong growth during Q1. During 2012 in email we launched iOS, Android and Windows Phone apps and we now have a significant user base with our Android app growing at a particularly fast rate. In IM our iOS, Android and Windows Phone apps have been even more successful. At present we remain primarily focused on growing the mobile user base and engagement, and we remain very excited about the future potential for further mobile growth and monetisation.
We have started the year well, and despite an uncertain global economic outlook, the underlying market remains supportive and the structural drivers of our business are unchanged. As a result we face the rest of the year with confidence and are pleased to reiterate our full year 2013 guidance of 25-28% y-o-y revenue growth and EBITDA margins in the low 50%."
Conference call
The Mail.Ru Group management team will host an analyst and investor conference call at 14.00 GMT UK time (17.00 Moscow time, 09.00 U.S. Eastern Daylight Time), on Thursday 25 April 2013, to discuss details of the Company's performance and certain forward-looking information. The conference call will include a Question and Answer session.
To participate in this conference call, please use the following access details:
Confirmation Code: | 32549682 |
Participant Toll Free Telephone Numbers: | |
Russia Free Phone | 81080024342044 |
UK Free Phone | 08000730438 |
USA Free Phone | 18773284999 |
Standard International Call | +44 (0) 1452 561488 |
Investor Relations Contacts:
Matthew Hammond
Managing Director Mail.Ru Group
Phone: +971 505 56 1315
Email: hammond@corp.mail.ru
Press Contacts:
Ksenia Chabanenko
Phone: +7 916 090 6626
Email: ks@corp.mail.ru
Cautionary Statement regarding Forward Looking Statements
This press release contains statements of expectation and other forward-looking statements regarding future events or the future financial performance of the Group. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "forecast", "intend", "will", "could", "may" or "might", the negative of such terms or other similar expressions including "outlook" or "guidance". The forward-looking statements in this release are based upon various assumptions that are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and may be beyond the Group's control. Actual results could differ materially from those discussed in the forward looking statements herein. Many factors could cause actual results to differ materially from those discussed in the forward looking statements included herein, including competition in the marketplace, changes in consumer preferences, the degree of Internet penetration and online advertising in Russia, concerns about data security, claims of intellectual property infringement, adverse media speculation, changes in political, social, legal or economic conditions in Russia, exchange rate fluctuations, and the Group's success in identifying and responding to these and other risks involved in its business, including those referenced under "Risk Factors" in the Group's public filings. The forward-looking statements contained herein speak only as of the date they were made, and the Group does not intend to amend or update these statements except to the extent required by law to reflect events and circumstances occurring after the date hereof.
About Mail.Ru Group
Mail.Ru Group (LSE:MAIL, listed since November 5, 2010) is a leading Internet company in the high-growth Russian-speaking Internet markets (Russia is Europe's largest Internet market measured by the number of users, comScore). Mail.Ru Group's sites reach approximately 85% of Russian Internet users on a monthly basis (comScore, December 2012) and the Company is in the TOP 5 largest Internet businesses globally, based on the number of total pages viewed (comScore, December 2012).
In line with the 'communitainment' (communication plus entertainment) strategy, the Company is moving rapidly to build an integrated communications and entertainment platform. The Company owns Russia's leading email service and Russia's largest internet portal, Mail.Ru (TNS, all Russia, age 12-64, December 2012). The Company operates two of the three largest Russian language social networks, Odnoklassniki (OK) and Moi Mir (My World), and Russia's largest online game business. The Company's portfolio also includes Mail.Ru Agent and ICQ - two instant messaging services popular in Russia and CIS.
The Company holds minority equity stakes in VKontakte (39.99%) and Qiwi, formerly OE Investments (21.35%). The Company also holds a small minority stake in Facebook (14.2m shares), and a number of small venture capital investments in various Internet companies in Russia and Ukraine.
Current Trading Update*
RUR millions | Q1 2012 | Q1 2013 | Growth |
Display advertising | 1,023 | 1,078 | 5.4% |
Context advertising | 498 | 736 | 47.9% |
MMO games | 1,085 | 1,535 | 41.5% |
Community IVAS | 1,746 | 2,259 | 29.4% |
Other** | 481 | 646 | 34.4% |
Group aggregate segment revenue | 4,831 | 6,254 | 29.4% |
(*) The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding
(**) Including Other IVAS revenues
Note: Group aggregate segment revenue is calculated by aggregating the segment revenue of the Group's operating segments and eliminating intra-segment and inter-segment revenues. This measure differs in significant respects from IFRS consolidated net revenue. See "Presentation of Aggregate Segment Financial Information" below.
Key Performance Indicators
Millions | Dec-12 | Mar-13 |
Mail.Ru portal, monthly unique users, TNS | 33.3 | 34.7 |
Mail.Ru portal, daily unique users, TNS | 17.2 | 17.8 |
Email monthly unique users, TNS | 26.9 | 27.3 |
Email daily unique users, TNS | 12.0 | 12.3 |
Mail.Ru Agent global monthly users | 23.2 | 22.7 |
ICQ global monthly users | 15.9 | 13.1 |
ICQ Russia monthly users | 9.8 | 8.7 |
My World monthly unique users, TNS | 19.4 | 19.9 |
My World daily unique users, TNS | 3.8 | 3.8 |
Odnoklassniki monthly unique users, TNS | 23.2 | 24.2 |
Odnoklassniki daily unique users, TNS | 10.3 | 10.7 |
Note: All TNS data is limited to Russia, cities with population 100,000+ and age of 12-54. Mail.Ru Agent and ICQ data is internal. ICQ users include unaffiliated
Liquidity
As of 31 March 2013, the Group's net cash balance (including term deposits) was RUR 4,005m, or USD 128.8m[b], and the Group had no debt outstanding.
Filing of the Annual Report for 2012
The Group's Annual Report and audited consolidated financial statements for the year ended December 31, 2012 prepared in accordance with IFRS and accompanied by an independent auditor's report have been filed on the National Storage Mechanism appointed by the Financial Services Authority and can be accessed at http://corp.mail.ru/files/Mail.Ru_Group_AR_FY2012.pdf
Group aggregate segment financial information*
RUR millions | USD millions** | |||||
2011 | 2012 | Y-o-Y, % | 2011 | 2012 | ||
Group aggregate segment revenue (1) | ||||||
Display advertising | 4,357 | 5,006 | 14.9% | 147.6 | 161.0 | |
Context advertising | 1,685 | 2,431 | 44.3% | 57.1 | 78.2 | |
Total online advertising | 6,042 | 7,437 | 23.1% | 204.7 | 239.2 | |
MMO games | 3,807 | 4,732 | 24.3% | 129.0 | 152.2 | |
Community IVAS | 3,771 | 6,739 | 78.7% | 127.8 | 216.7 | |
Total IVAS | 7,578 | 11,471 | 51.4% | 256.7 | 368.9 | |
Other revenue*** | 1,596 | 2,243 | 40.6% | 54.1 | 72.1 | |
Total Group aggregate segment revenue | 15,215 | 21,151 | 39.0% | 515.4 | 680.2 | |
Group aggregate segment operating expenses | ||||||
Personnel expenses | 3,463 | 4,506 | 30.1% | 117.8 | 144.9 | |
Office rent and maintenance | 338 | 489 | 45.0% | 11.5 | 15.7 | |
Agent/partner fees | 1,273 | 1,971 | 54.7% | 43.3 | 63.4 | |
Marketing expenses | 551 | 702 | 27.2% | 18.8 | 22.6 | |
Server hosting expenses | 491 | 633 | 29.0% | 16.8 | 20.4 | |
Professional services | 244 | 257 | 5.4% | 8.3 | 8.3 | |
Other operating (income)/expenses, excl. D&A | 474 | 1,058 | 123.3% | 16.1 | 34.0 | |
Total Group aggregate segment operating expenses | 6,834 | 9,616 | 40.7% | 232.6 | 309.3 | |
Group aggregate segment EBITDA (2) | 8,381 | 11,535 | 37.6% | 282.8 | 371.0 | |
margin, % | 55.1% | 54.5% | 54.9% | 54.5% | ||
Depreciation and amortisation (3) | 1,160 | 1,133 | -2.2% | 39.5 | 36.5 | |
Share of profit of key strategic associates (4) | 337 | 291 | -13.7% | 11.5 | 9.4 | |
Other non-operating (income)/expense, net | 244 | 431 | 76.3% | 8.3 | 13.9 | |
Profit before tax (5) | 7,803 | 11,123 | 42.5% | 263.1 | 357.7 | |
Income tax expense (6) | 1,588 | 2,572 | 61.9% | 54.0 | 82.7 | |
Group aggregate net profit (7) | 6,215 | 8,552 | 37.6% | 209.1 | 275.0 | |
margin, % | 40.8% | 40.4% | 40.6% | 40.4% |
(*) The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding. Certain reclassifications have been made to 2011 operating expenses to achieve comparability with current year presentation.
(**) The USD numbers for FY 2012 represent a convenience translation. The RUR amounts have been translated into USD using the FY 2012 average exchange rate of RUR 31.09 to USD 1.00
(***) Including Other IVAS revenues
(1) Group aggregate segment revenue is calculated by aggregating the segment revenue of the Group's operating segments and eliminating intra-segment and inter-segment revenues. This measure differs in significant respects from IFRS consolidated net revenue. A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue is available under "Presentation of Aggregate Segment Financial Information" below.
(2) Group aggregate segment EBITDA is calculated by subtracting Group aggregate segment operating expenses from Group aggregate segment revenue. Group aggregate segment operating expenses are calculated by aggregating the segment operating expenses (excluding the depreciation and amortisation) of the Group's operating segments including allocated Group corporate expenses, and eliminating intra-segment and inter-segment expenses. A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit before income tax expense is available under "Presentation of Aggregate Segment Financial Information" below.
(3) Group aggregate depreciation and amortisation expense is calculated by aggregating the depreciation and amortisation expense of the subsidiaries consolidated as of the date hereof, excluding amortisation and impairment of fair value adjustments to intangible assets acquired in business combinations.
(4) Group share of net profit from associates includes the Group's share of net profit from VK.com and Qiwi as calculated based on the ownership percentage as of the date hereof (i.e. 39.99% and 21.35%, respectively). Group share of net profit from associates as presented herein differs in significant respects from Group share of net profit from associates as would be recorded under IFRS due to: (i) difference in the ownership percentages as under IFRS the actual ownership would be used for each reporting period and (ii) differences in net profit of associates as the numbers presented herein are prepared based on principles used for the segment financial information of the Group's consolidated operations, i.e. do not include certain adjustments which would be required under IFRS. Group share of net profit from associates for 2011 has been retrospectively adjusted for operations discontinued by Qiwi in 2012. See "Presentation of Aggregate Segment Financial Information."
(5) Profit before tax is calculated by deducting from Group aggregate segment EBITDA Group aggregate depreciation and amortisation and adding (i) Group share of net profit from associates and adding/deducting (ii) Group aggregate other non-operating incomes/expenses primarily consisting of interest income on cash deposits, dividends from financial and available-for-sale investments, release of certain accruals and other non-operating items.
(6) Group aggregate income tax expense is calculated by aggregating the income tax expense of the subsidiaries consolidated as of the date hereof. Group aggregate income tax expense is different from income tax as would be recorded under IFRS, as (i) it excludes deferred tax on unremitted earnings of the Group's subsidiaries and associates and (ii) it is adjusted for the tax effect of differences in profit before tax between Group aggregate segment financial information and IFRS.
(7) Group aggregate net profit is the (i) Group aggregate segment EBITDA; less (ii) Group aggregate depreciation and amortisation expense; plus (iii) Group share of net profit from associates; less (iv) Group aggregate other non-operating expense; plus (v) Group aggregate other non-operating income; less (vi) Group aggregate income tax expense. Group aggregate segment net profit differs in significant respects from IFRS consolidated net profit. A reconciliation of Group aggregate net profit to IFRS consolidated net profit is available under "Presentation of Aggregate Segment Financial Information" below.
Operating segments
We identify our operating segments based on the types of products and services we offer. We have identified the following reportable segments on this basis:
• Email, Portal and IM;
• Social Networks;
• Online Games;
• E-Commerce, Search and Other Services
The Email, Portal and IM segment includes email, instant messaging and portal (main page and verticals). It earns almost all revenues from display and context advertising.
The Social Networks segment includes our two social networks (Odnoklassniki and My World) and earns revenues from (i) user payments for virtual gifts, (ii) revenue sharing with application developers, and (iii) online advertising, including display and context advertising.
The Online Games segment includes online gaming services, including MMO, social and mobile games. It earns almost all revenues from (i) sale of virtual in-game items to users and (ii) royalties for games licensed to third-party online game operators.
The E-Commerce, Search and Other Services segment primarily consists of search engine services earning almost all revenues from context advertising, e-commerce and online recruitment services and related display advertising. This segment also includes a variety of other services, which management considers insignificant for the purposes of performance review and resource allocation.
Each segment's EBITDA is calculated as the respective segment's revenue less operating expenses (excluding depreciation and amortisation and impairment of intangible assets), including our corporate expenses allocated to the respective segment.
Operating segments performance FY 2012
Email, Portal and IM | Social Networks | Online Games | E-Commerce, Search and Other Services | Eliminations | Group | |
RUR millions | ||||||
Revenue | ||||||
External revenue | 3,956 | 7,856 | 5,329 | 4,010 | - | 21,151 |
Intersegment revenue | 33 | 22 | - | 265 | (320) | - |
Total revenue | 3,989 | 7,878 | 5,329 | 4,275 | (320) | 21,151 |
Total operating expenses | 1,490 | 2,192 | 3,770 | 2,484 | (320) | 9,616 |
EBITDA | 2,499 | 5,686 | 1,559 | 1,791 | - | 11,535 |
EBITDA margin, % | 62.6% | 72.2% | 29.3% | 41.9% | 54.5% | |
Net profit | 8,552 | |||||
Net profit margin, % | 40.4% | |||||
USD millions* | ||||||
Revenue | ||||||
External revenue | 127.2 | 252.7 | 171.4 | 129.0 | - | 680.2 |
Intersegment revenue | 1.1 | 0.7 | - | 8.5 | (10.3) | - |
Total revenue | 128.3 | 253.4 | 171.4 | 137.5 | (10.3) | 680.2 |
Total operating expenses | 47.9 | 70.5 | 121.2 | 79.9 | (10.3) | 309.3 |
EBITDA | 80.4 | 182.9 | 50.1 | 57.6 | - | 371.0 |
EBITDA margin, % | 62.6% | 72.2% | 29.3% | 41.9% | 54.5% | |
Net profit | 275.0 | |||||
Net profit margin, % | 40.4% |
(*) The USD numbers for FY 2012 represent a convenience translation. The RUR amounts have been translated into USD using the FY 2012 average exchange rate of RUR 31.09 to USD 1.00
2012 results summary
A full discussion of the Group's 2012 results is presented on pages 27-37 of the Group's 2012 Annual Report available for download at http://corp.mail.ru/files/Mail.Ru_Group_AR_FY2012.pdf
Change in presentation currency
Starting from 2012, we present operating results and prepare consolidated financial statements in RUR, which is the functional currency of the majority of the Group's operations. All USD amounts presented for 2012 are convenience translations.
Presentation of Aggregate Segment Financial Information
The Group aggregate segment financial information is derived from the financial information used by management to manage the Group's business by aggregating the segment financial data of the Group's operating segments and eliminating intra-segment and inter-segment revenues and expenses. Group aggregate segment financial information differs significantly from the financial information presented on the face of the Group's consolidated financial statements in accordance with IFRS. In particular:
• The Group's segment financial information excludes items that management believes obscure the core operating performance of the business. Such adjustments affect such major areas as revenue recognition, deferred tax on unremitted earnings of subsidiaries, share-based payment expense, impairment of investments, business combinations, fair value adjustments, amortisation and impairment thereof, net foreign exchange gains and losses, share in financial results of non-core associates, as well as irregular non-recurring items that occur from time to time and are evaluated for adjustment as and when they occur. The tax effect of these adjustments is also excluded from segment reporting.
• The segment financial information is presented for each period on the basis of an ownership interest as of the date hereof and consolidation of each of the Group's subsidiaries, including for periods prior to the acquisition of control of the entities in question, so long as the Group held at least one share of such entities during such periods. The financial information of subsidiaries disposed of prior to the date hereof is excluded from the segment presentation starting from the beginning of the earliest period presented.
• Segment revenues do not reflect certain other adjustments required when presenting consolidated revenues under IFRS. For example, segment revenue excludes barter revenues and adjustments to defer online gaming and social network revenues under IFRS.
A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue of the Group for the years ended 31 December 2012 and 2011 is presented below:
RUR millions | 2012 | 2011 |
Group aggregate segment revenue | 21,151 | 15,215 |
Adjustments to reconcile revenue as presented to CODM to consolidated revenue under IFRS: | ||
Differences in timing of revenue recognition | (436) | (446) |
Barter revenue | 78 | 61 |
Dividend revenue from venture capital investments | 112 | 105 |
Consolidated revenue under IFRS | 20,905 | 14,935 |
A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit before income tax expense of the Group for years ended 31 December 2012 and 2011 is presented below:
RUR millions | 2012 | 2011 |
Group aggregate segment EBITDA | 11,535 | 8,381 |
Adjustments to reconcile EBITDA as presented to CODM to consolidated profit before income tax expenses under IFRS: | ||
Depreciation and amortisation | (2,703) | (2,665) |
Differences in timing of revenue recognition | (436) | (446) |
Finance income | 325 | 120 |
Gain/(loss) on venture capital investments revaluation | 563 | (630) |
Impairment losses related to strategic associates and available for sales investments | (718) | (173) |
Impairment of intangible assets | (11) | (209) |
Net foreign exchange gains/(losses) | 764 | (128) |
Net gain on disposal of shares in available-for-sale investments | 33,948 | - |
Other | 15 | 50 |
Share of profit of strategic associates | 112 | 14 |
Share-based payments expenses | (2,217) | (1,895) |
Dividend revenue from venture capital investments | 112 | 105 |
Profit before income tax expense | 41,289 | 2,524 |
A reconciliation of Group aggregate net profit to IFRS consolidated net profit of the Group for the years ended 31 December 2012 and 2011 is presented below:
RUR millions | 2012 | 2011 |
Group aggregate net profit | 8,552 | 6,215 |
Adjustments to reconcile net profit as presented to CODM to consolidated net profit under IFRS: | ||
Share-based payments expenses | (2,217) | (1,895) |
Differences in timing of revenue recognition | (436) | (446) |
Effect of operations disposed of, difference in shareholding percentages and acquisition dates of subsidiaries and associates | - | (19) |
Amortisation of fair value adjustments to intangible assets and impairment thereof | (1,721) | (1,801) |
Gain/(loss) on financial instruments at fair value through profit or loss | 563 | (630) |
Fair value adjustments related to acquisitions and disposals | - | 9 |
Net gain on disposal of shares in available-for-sale investments | 33,948 | - |
Impairment of investments in strategic associates and available-for-sale investments | (718) | (173) |
Net foreign exchange gains (losses) | 764 | (128) |
Share in financial results of non-core associates | 27 | (165) |
Other | (45) | (44) |
Tax effect of the adjustments and tax on unremitted earnings | (441) | 85 |
Consolidated net profit under IFRS | 38,276 | 1,008 |
[a]Including USD 2m paid to the Employee Benefit Trust
[b] The USD number represents a convenience translation. The RUR amount has been translated into USD using an exchange rate of RUR 31.0834 to USD 1.00, the official exchange rate quoted as of March 31, 2013 by the Central Bank of the Russian Federation