MAIL.L Regulatory News (MAIL)

Mail.ru Group Limited

Unaudited IFRS results for Q3 2019

October 24, 2019. Mail.ru Group Limited (MAIL, hereinafter referred to as "the Company" and together with its subsidiaries "Mail.ru Group" or "the Group"), one of the largest companies in the Russian-speaking Internet market, today releases unaudited IFRS results and segment financial information for the three and nine months ended 30 September 2019.

Performance highlights*

► On a pro-forma basis, for the three months ended 30 September 2019:

- Q3 2019 Group aggregate segment revenue grew 25.1% YoY to RUB 21,398m.

- Q3 2019 Group aggregate segment EBITDA grew 33.0% YoY to RUB 7,207m.

- Q3 2019 Group aggregate net profit grew 37.3% YoY to RUB 3,906m.

► On a pro-forma basis, for the nine months ended 30 September 2019:

- 9M 2019 Group aggregate segment revenue grew 23.3% YoY to RUB 60,866m.

- 9M 2019 Group aggregate segment EBITDA grew 14.7% YoY to RUB 19,953m.

- 9M 2019 Group aggregate net profit increased 21.7% YoY to RUB 9,983m.

► Net debt position as of 30 September 2019 was RUB 1,697m.

* Performance highlights are based on the Group aggregate segment financial information, which is different from IFRS accounts. See "Presentation of Aggregate Segment Financial Information".

Commenting on the results of the Group, Dmitry Grishin, Chairman of the Board, and Boris Dobrodeev, CEO (Russia) of Mail.ru Group, said:

"Despite the somewhat challenging macro, the significant base effects we continue to face for the core advertising and games businesses, and given no new games launched during the quarter we are pleased with our Q3 2019 performance where we have continued to deliver strong growth in all areas.

Total revenues in Q3 2019 grew 25.1% YoY to RUB 21,398m.

Advertising revenues in Q3 2019 grew 21.8% YoY to RUB 8,941m.

MMO revenues in Q3 2019 grew 20.5% YoY to RUB 6,917m.

Community IVAS revenues in Q3 2019 grew 14.9% YoY to RUB 3,912m.

Other revenues in Q3 2019 grew 160.9% YoY to RUB 1,628m.

As previously stated we continue to expect to be H2 weighted for FY profitability, especially in Q4. While we see the backdrop to the 2019 advertising market as more challenging than in previous years, we continue to expect H2 advertising revenue growth to be at least in line with H1.

With the H1 results we provided updated guidance for FY 2019 revenue growth of 22-24% to RUB 86-88bn on a pro-forma basis given deconsolidation of Delivery Club and ESforce and EBITDA around RUB30bn. On the back of Q3 we are happy to re-iterate our FY guidance despite the shift of some Games launches into 2020, including Warface mobile.

We continue to focus on our leadership position in the core Social and Communications segment as we build the base for leadership in Russian social commerce on the back of the transformational AliExpress Russia transaction, which has now been closed. Despite the high hurdle rate and no benefit coming from AER-related integration, VK revenues have grown 24.7% YoY in Q3 and the asset continues its progress towards doubling revenues over the next 3-4 years, while we continue to focus our efforts on strengthening the asset, including through the newly announced digital payments JV with AliPay.

Our Games business, operating under the MY.GAMES brand globally, continues to increase its global reach, including through announced partnership with iDreamSky and we are confident in our H2 and 2020 pipeline, which includes an international PC games platform as well as one of the most-awaited MMO RPG titles in the region. The Modern Pick transaction documents have now been signed and the deal is expected to close shortly, which provides for future synergies between our Games business and esports as both are now international.

Delivery Club has reached a new milestone of 3m monthly orders in September, just 5 months after it reached 2m, having extended its leadership in the local food delivery space. At the same time, Citymobil has become the most downloaded app in the Russian App Store as it has embarked on a regional rollout in addition to being the second largest player in Moscow1, the largest local ride-hailing market. We expect further acceleration of both Delivery Club and Citymobil upon completion of O2O JV with Sberbank, where the legally binding agreement is expected to be signed before the end of the year. The new JV aims to be the leading O2O platform in Russia with sufficient capital to reach break-even in both Citymobil and Delivery Club over the coming years.

Youla continues its rapid growth, being one of the largest mobile-focused classifieds platforms globally in terms of Android DAU, four years following its launch. Monetization has only recently started but we continue to see ~RUB2bn in revenues as an achievable target for 2019.

In Q3, the cash generating capacity of our business remained strong. As previously stated, with the M&A related investments we will utilize bank lines for near term cash management. Our net debt position, post M&A costs, at the end of Q3 2019 stood at RUB 1,697m. To date, we have utilized RUB 15bn in credit lines We managed to space out payments related to AER, with $100m cash outflow only in October and the rest payable in twelve months. To fund the initial payment to AER we secured a RUB 6.5bn bank loan with an average effective interest rate of 7.7% vs 9.2% rate on prior borrowing.

Strategy & focus areas

We continue to put the user at the heart of everything we do. Throughout our 21-year history, we have built an unparalleled platform and our product range covers most of user needs online and now also offline in Russia. We own leading social networks, largest e-mail service, top food delivery company, 2nd largest general classifieds business, major global games business, minority stake in the top e-commerce company & 2nd largest ride-hailing company in Moscow & large esports business. Having this we now aim to further consolidate our position through loyalty programs, payment systems, shared ID, with the objective to support the seamless operation of all divisions and achieve synergies between projects, connecting them though a unified infrastructure and service offering. We are happy about launching of Combo loyalty program and we are pleased with the success of VK Mini Apps, with VK having the potential to become a Super App. The development of the Super Apps within our ecosystem, payments systems and other connecting products will be our biggest priorities in the next three years with an ultimate goal of becoming the largest domestic online ecosystem. For more details around our strategic thinking, please follow the link: https://corp.mail.ru/en/company/strategy_ceo/."

1Moscow Transportation Department data

Segmental highlights

Communications and Social

Communications and Social segment revenues grew 19.2% in Q3 to RUB 12,447m driven by continued growth in all of the major engagement metrics.

VK

VK continued its growth in users, engagement and revenues. Russian MAU grew by 2.4% YoY to 70m as of September, including 63.4m on mobile (+5.7% YoY). Stickiness remains strong with DAU growing faster than MAU. VK continues to be the most popular communication platform in Russia. According to Mediascope data, 40% of Russian residents use VK daily, with 77% of the Runet audience reached every month.

Engagement continues to rise, with users spending on average 35 minutes per day on VK, up by 9.3% YoY. Users read 9bn posts daily on VK, with the number of published comments up 31% YoY on iOS and Android.

VK has now surpassed 10bn in daily messages delivered (+26% YoY in Q3). Administrators of groups are now able to reply to messages within the main VK app vs only from VK Admin app or desktop version, which improves convenience and increases response speed.

Other products are also showing solid dynamics, with live stream views up 39% YoY as of Q3, while the number of posted streams increased by 219% YoY. VK allowed users to add links to VK internal content to mobile streaming sessions. Growth in Stories also continued, with views up 63% YoY during the quarter.

~80m people consume video on VK monthly, with ~650m views daily, ~80% of which comes from mobile devices. As of Q3, video views were up 45% YoY.  In slightly over a year since its launch, the number of monthly calls on VK increased by 35% YoY to 53m as of Q3. VK is now testing community calls.

VK continues to focus on improving and diversifying advertising technologies. We have launched an interactive ad format in the newsfeed, based on HTML 5 mechanics. Users click on interactive ads 3 times more frequently than on other promoted posts, and spend 97 seconds on average interacting with the ad. One of the first ads of this kind was launched by Delivery Club - it invited users to play a small game, in exchange for a discount coupon for the first food delivery order. Overall, CTR continues to increase, and we have further reduced cost per lead (CPL) by 32% YTD, which continues to improve return on investment (ROI) for advertisers.

VK has recently released a big update of its business platform after a test period with changes in UX and additional features like mass ads editing. This and other recent improvements continue to support expansion of advertiser numbers (+16.5% YoY), especially among SMEs. This is why VK revenues grew by 24.7% in Q3 despite a high base, with 45% growth during the same period last year.

Q3 saw progress around social ecommerce integrations with the launch of AliExpress Mini App within VK in August, which offers users access to the whole range of goods on AliExpress, so users can make orders without leaving VK and without having to download a separate AliExpress app. This app will become the base element for further social ecommerce rollout within VK and aims to provide for synergies with the broader Group.

VK users can now add goods on sale on AliExpress to photos, stories or posts and promote related sales in exchange for commission set by AliExpress. Currently, the service is being tested on a limited group of users but is expected to be rolled out broadly shortly. E-commerce integrations will also be among the major priorities for Q4 given the completion of the AER JV and they should start to see first advertising support across Mail.ru Group.

We are also continuing our efforts to make VK the key platform in Russia for QR codes and QR code payment. 15m unique users used QR codes in Q3 to join communities, send money, receive cashback, add friends, etc.

The VK Mini Apps Platform is a major focus area, where the number of active apps has grown to >11,000 from ~5,000 in Q2, with >16m MAU in September up from 10m at the end of Q2. A broader set of Mail.ru Group services is being integrated into the platform, including Delivery Club and Citymobil, which provides for synergies between Mail.ru Group products. For example, 25% of Citymobil's taxi orders in Novosibirsk are already made through VK mini app. Delivery Club and Citymobil had earlier been integrated into VK Pay, which is now part of a planned e-wallet JV with AliPay. There are also plans to integrate the VK Mini Apps platform with the VK ad network to better monetize its audience.

VK introduced a new version of its main mobile app, with a complete redesign and new features. The design and navigation were fully reimagined to provide more features for communication, self-expression and quick access to interesting content. With this update, VK prepared the app for the addition of new sections and seamlessly integrated existing ones, placing emphasis on some of them. Within the last year alone, features such as the VK Mini Apps platform, artist overviews, podcasts, story archives, and new tabs were introduced on VK, among others. Now everything has its own place.

VK is focused on stimulating and promoting user-generated content (UGC) through the launch of the VK Talents platform. We also aim to further improve our music offering, including experiments around event promotion or special offers.

VK continues to add use cases, having launched the "Events" section in test mode in St Petersburg, which allows users to not only see which events are happening in the city but also what events their friends are attending or planning to attend. VK launched a podcast hosting service for communities. VK podcasts can now also be exported to any website.

We are dedicated to copyright protection, having launched copyright checks for audiobook downloads by users. VK supports user privacy and fair competition and now allows group administrators/moderators not to disclose own group members. At the same time, members can still be used for targeting purposes as targeting data is non-personalized.

OK

OK is stable in terms of users while being among they key drivers of the recent IVAS improvement. Russia MAU remains stable while DAU was +3.3% YoY as of September, including +12% rise on mobile. OK continues to differentiate itself as a platform for exchange of emotions where own virtual services encourage users to communicate, including through stickers and gifts, which has become the largest driver in IVAS acceleration in Q3 for the Group. In September, the average daily number of unique recipients of virtual gifts in OK was +240% YoY, with the number of unique recipients of messages up by >30%. DAU sending stickers and postcards has risen 5x YoY.

OK set a record in likes at 5,000/second on September 2 (first day of new school year), with the number of likes on the network up 64% YTD. Such growth has been driven by the launch of facial recognition and improvement in smart algorithm technologies.

OK stimulates friendships and now lets users take a picture of their new contacts and instantly send them friendship requests. User privacy is protected as the profile information is visible only subject to an accepted friendship request.

OK improved its photo product, with users able to create shared albums with up to 20 other people, which helps share memories and experiences. Additionally OK was the first in Russia to launch face recognition technology for automatic friend tags on video and live streams. The service is intended for fast reactions from the friend list after loading videos to OK and aims to boost communication activity.

OK's video and audio calling service launched some new features for users, including "blurred background" for video calls, which allows users to avoid demonstrating what is around them and focus the visual picture on themselves during interviews, online classes or other situations. The functionality is based on machine learning and neural networks technologies, developed within OK. OK Live (the mobile streaming app of OK) launched a "dark theme", adaptive to latest updates of the app in Android or iOS.

As part of our group SME efforts in Q3 OK launched an ads manager, suitable for those with minimal marketing experience, and minimal budget requirements. More sophisticated advertising tools for brands and specialists are available through myTarget.

OK started to develop some products for local users and launched local news suggestions: the service automatically identifies what would be relevant for users in certain regions and cities based on AI and neural networks technology. OK has also started to promote regional news providers on its network, applying personalized recommendations using machine learning. Initial tests have demonstrated that local content is popular on OK, with reach of local media rising by 25% on average and subscriber numbers rising by 20%.

In Q3 OK retained its leadership in the local online video market. OK also continues to develop tools for creating interactive videos through its creative studio. Videos with interactive annotations (quizzes, polls, links embedded to the player) gained over 50m views per day. Overall, OK has 870m daily video views including 130m streams. OK continues to hold exclusive video-related content on the platform, including the recent launch of Star Wars Roll Out animated video series, own show for women with a prize of RUB500,000 and 3rd season of the "OK Online" show.

As a part of Mail.ru Group ecosystem the OK Antispam team launched some products for different business units based on neural networks: automatic photo processing in ICQ public chats, control over websites changing in advertising for myTarget, recognition of drivers' documents authenticity for Citymobil and texts on images in Youla ads.

Integration with AER will be a big focus for OK in Q4 and beyond.

Email

Mail.ru remains the largest e-mail service in Russia with 26.1 m MAU2. According to App Annie, our email service leads in terms of mobile downloads, with ~2x download gap to 2nd largest competitors on iOS and ~4x on Android.

We have completed a major update of the Android and iOS email apps, which was triggered by increasing shift of audience to mobile and need for easier access to all the portal functionality. The mobile audience share of our email service surpassed that of desktop in 2018, at 60% today, with growing share of mobile only users. Now users may change security settings, check the list of active connections, access calendar, cloud, payments and other services without leaving the e-mail app. In addition to the latest web and app UI updates we have launched the dark mode which significantly decreased energy consumption and improved usability.

The team has also introduced several smart and useful features for emails via JSON-LD integration with partners: 1) Add to calendar, navigate and book a taxi options for event invitations, with Citymobil among connected ride-hailing partners; 2) View receipt and pay buttons for bills coming through email. We have also significantly improved the ML-based detection and classifications. Now Mail.ru email distinguishes order related emails from 35 most popular Russian ecommerce sites, including AliExpress. This smart detection allows us to combine all messages in a single thread by order ID, provide quick access to order details and status.

Mail.ru Group and Ozon became the first companies on the local market to launch an interactive e-mail campaign. Interactive messages are created using AMP (accelerated mobile pages). Such emails may contain buttons, widgets and other multimedia features. Tests have shown 26% increase for clicks on photos in a slider format and 10% more answers for interactive polls compared to the standard message format. The SendBox platform of "Mail.ru for Business" offers the AMP functionality to its users as well as templates.

As part of the Google Play Security Reward Program our applications were included in the list of 20 most secure apps for Android.

2Mediascope, All Russia, August 2019

Games

The Games segment continued its solid growth despite no new launches. Q3 Gaming segment revenues grew by 24.7% YoY to RUB 7,686m. This was in line with budget given that Q3 is a seasonally low quarter for Games globally, combined with no new launches from MY.GAMES in Q3 versus three launches during the same quarter in 2018 (Pathfinder: Kingmaker (PC), Warface (console), Left to Survive (mobile)).

We continue to expect a solid Q4 given seasonality having just launched American Dad (mobile) and are preparing for the launch of Lost Ark (PC). The launch of MY.GAMES Store, the international PC games platform of MY.GAMES is also in the pipeline for Q4. We have been investing into these launches already in Q3 to ensure broadest possible reach and solid initial traction.

We continue to broaden our internal talent pool and diversify our offering in terms of genres and geographies, with 13 in-house studios in our portfolio and 22 studios in the pipeline within our investment arm.

We remain committed to broadening our global reach, with 69% of revenues now coming from international markets. At this stage, we are selling our games across more than 190 countries. The US, Germany and Japan continue to be our largest markets outside Russia. Our overall strategic goal remains to be increasingly more global and draw ~80% of revenues from international markets by the end of 2022.

Our share of mobile revenues continues to rise, accounting for 62% of revenues as of Q3 vs 59% in 2018. The share of PC revenues may be increased temporarily following the launch of MMORPG Lost Ark, which has already completed its closed beta-testing.

A new strategy mobile game - American Dad! Apocalypse Soon, developed in-house in partnership with FOX Next, has been released this week. Hustle Castle, one of our most successful in-house developed gaming projects has now surpassed 50m installs. Our six-year-old title War Robots has now entered a more mature phase of its lifecycle (>133m installs) and is showing significant EBITDA improvement. The updated monetization system launched this summer continues to support revenue growth despite the maturity of its user base.

Warface, despite being more than 7 years old, remains one of our top revenue generators. It is among the top F2P games on the PS4 in the US in terms of downloads. Two mobile versions of the game were in the pipeline for late 2019, although we will now delay related launches to H1 2020 to maximize returns on our advertising at launch, while also shifting related revenues into next year.

Left to Survive, another title developed in-house by the WhaleKit studio and released in July 2018, remains among our top-5 revenue generating games with around 15m downloads. Narrative-driven mobile game Love Sick: Interactive Stories from our recently acquired SWAG MASHA studio is now among our top-10 titles with 4m downloads since its launch in February.

The MY.GAMES Store platform is set to launch in Q4 and will offer both F2P and premium games of MY.GAMES as well as third-party titles. The Group's Russian-speaking platform (Games.Mail.ru), which will be an integral part of MY.GAMES Store, currently has 13m MAU. 

As ever, the margin of our gaming business is a function of the mix between different platforms and the timing of marketing spend into planned launches. Our Games profitability is always Q4 weighted. Our longer-term goal remains to double Games EBITDA by 2022 while aiming for a low to mid 20's EBITDA margin through the cycle, with this year seeing an elevated relative level of investment within the current cycle.

New initiatives

The New Initiatives segment revenue in Q3 2019 grew 142.7% YoY to RUB 1,352m on the back of continued progress being made in Youla monetization as well as further progress in Cloud, online education and other new initiatives.

Youla

Solid growth continued in Q3 2019 with revenue reaching RUB 565m or 1.7x YoY, and Youla on track to deliver ~RUB 2bn in revenues in 2019 with typically higher seasonality for classifieds in Q4.

Youla continues to lead in terms of innovation and differentiation locally while making steps forward in building social e-commerce in Russia. Platform launched a "Stories" format, which allows sellers for a limited fee of RUB99/month to create an unlimited number of stories promoting own products and services. Initial tests have shown that users are more active subscribing to such sellers and sellers with subscribers have a 17% higher conversion on average.

At the same time, Youla is active in cross-selling and extracting synergies from being part of the Group. Youla has launched voice calls based on OK technology within the app, which allows users to save money on calls while also providing for more security and better privacy, including inability to use a phone number as spam as phone numbers are not shown in the new functionality. The new option should enhance user experience with calls available from anywhere in the world.

Worki, which was bought by Youla in May, launched integration with VK through VK Mini Apps, allowing users of the social network to search for a job without leaving the platform. Users can make a short CV, while the service will offer available job options on the basis of the CV as well as user profile information. Related information is also used for relevant ad targeting. Users can filter jobs by proximity, salary and other parameters. First weeks after the integration have shown promising results, with organic growth in key metrics (DAU, WAU, applications, registrations), and we expect this growth to continue along with deeper integration into VK. Conversion to registration and application, engagement of applicants and their retention are comparable to the main Worki application.

Youla now allows its users to utilize own bonus points for promo codes used on partner platforms, including Citymobil, working with partners on a CPA-based model. Users receive internal bonuses for filling out details in own profile and other actions. Previously, bonuses could only be used inside Youla.

We remain committed to the classifieds vertical as core to our ecosystem and plan to continue to invest into this vertical with expected RUB 2bn EBITDA loss for Youla in 2019. Our near-term focus remains on general classifies as well as services and jobs verticals. To build a better understanding of this vertical, we hosted a related teach-in and strategy presentation3 in September.

3For Youla presentation, please visit: https://corp.imgsmail.ru/media/files/youla-teach-in-2019.pdf

Cloud

Mail.ru Cloud Solutions (MCS), our IaaS and PaaS platform, continues to grow at triple digit rate. We launched MCS Private Cloud deployment wizard, a turnkey package that automated the deployment process of MCS Private Cloud on customer premises, which significantly speeds up time-to-market of digital transformation projects for enterprise customers. MCS has also launched an Industrial Internet of Things (IIoT) Platform, which is capable of handling efficiently millions of events from hundreds of thousands of Internet-connected devices. The platform is designed for large enterprises.

Mail.ru for Business, our B2B-SaaS platform became private - started to offer its services on an "on premises" basis, which allows businesses to maintain all internal information on own servers to ensure maximum data privacy and security, while being able to use Mail.ru Group's services, including our e-mail service or our recently launched corporate messenger.

The B2C Cloud app, along with the Mail.ru e-mail service, are the only two local services in the top-20 rating of the most secure mobile apps rating within The Google Play Security Reward Program globally.

MRG Tech Lab

We continue to put resources behind our initiatives in new technologies as part of MRG Tech Lab, with a particular focus on artificial intelligence, speech and visual recognition.

Following the launch of Marusia virtual voice assistant in June, we have been working on extracting synergies between Marusia and the Group, with ongoing integration with social networks VK & OK (including around music subscribers), Delivery Club and Citymobil. In the meantime, the voice recognition offer continues to improve as it now includes streamed speech recognition. A Marusia-powered speaker is at an advanced launch phase.

The Tech Lab team has participated in the launch of a number of additional products within the Group, including the My Team B2B messenger, released in September. It enables enterprise users to create and block accounts, set up group chats and to appoint administrators, perform audio and video-calls, including conferencing, exchanging files, launching special links for company news, separate units as well as launching chat-bots, which could be used for monitoring and other actions. Only authorized staff are able to access the messenger. Data is protected, with end-to-end encryptions for video calls etc. The messenger aims to simplify business processes and help prevent data leaks.

MRG Tech Lab helped launch a smart algorithm for users to be able to better manage e-mail subscriptions and reduce spam as well as added install functionality for taxi ordering and automatic bill payment within e-mail apps, with improved search functionality using neural networks. The team also launched functionality for automatic geography detection on photographs stored within own Cloud platforms, which allows users to collect travel statistics. We launched own OCR (optical character recognition) technology for spam detection in images and improved content recommendation quality in Pulse.

We continued to develop Vision, our B2B computer-based vision solution. Our AI models in API allow to analyze faces, lines of people, densities, age, gender, objects like car plates and related details, restore photographs and increase their resolution, which has already led to industrial contracts as well as planned pilots with regional airport operators and retailers.

Our Pulse personalized content recommendation platform is seeing strong progress with 34mn MAU, supported by the recent Relap acquisition.

GeekBrains

The number of registered users continues to increase, up by 15% as of September YoY (to ~3.8m). We continue to expand our product offering, up by 1.8x YoY as of 1H19 to 60 various programs, with expansion into areas like software testing, web design, PR, product and SMM management and broader diversity of courses in data science and machine learning. The inaugural MADE product management training program, which is led by actual product managers at Mail.ru Group and is based on real Group case studies, was completed during Q3. The number of hosted webinars in Q3 increased by 1.3x YoY.

Partnerships

AliExpress Russia JV (15% stake held by Mail.ru Group)

The AER JV in Russia/CIS has now been launched with management in place. Dmitry Sergeev, Deputy CEO of Mail.ru Group, now serves as Co-CEO of AER JV, along with the head of AliExpress Russia, Liu Wei. Boris Dobrodeev, CEO of Mail.ru Group, now serves as the Chairman of the Board of Directors of AER JV. We expect deeper integration with our social networks and further collaboration in distribution following the deal closing announced in early October, beyond the launch of the AliExpress Mini App within VK as well as the opportunity for users to promote items from AliExpress within VK. Product integrations are expected to receive advertising support across our platforms, which will be more visible in 2020 and beyond. We are a 15% shareholder in AER JV and the completion of the transaction made Alibaba Group a 10% shareholder of Mail.ru Group.

Payment JV (40% stake to be held by Mail.ru Group)

Mail.ru Group, Alipay, USM, and RDIF plan to form a JV focused on digital payment services for Russian users, as part of the efforts to promote financial inclusion across the country. The signing of non-binding term sheets for the partnership followed the closing of the AliExpress Russia JV and aims to support e-commerce in Russia. Mail.ru Group will provide non-cash asset contributions of Money.Mail.ru and VK Pay to the Payment JV and will become its largest shareholder.

O2O JV (50% stake to be held by Mail.ru Group)

On July 25th, Sberbank and Mail.ru Group signed a letter of intent on the creation of the JV, which aims to create a leading Russian O2O services platform focused on the key areas of food and transportation. Significant progress has been made towards achieving such consolidation. The transaction documents are expected to be signed prior to the end of 2019, after approval is received from corporate governance bodies, anti-monopoly authorities and other regulators. In the meantime, both Delivery Club and Citymobil are rapidly developing and the transaction provides both assets with sufficient capital to reach break-even, ceteris paribus.

Delivery Club

In Q3 2019, growth at Delivery Club has further accelerated to 191.1% YoY (RUB 1,244m), with quarterly revenue having for the first time exceeded RUB 1bn and the business is firmly on track to double revenues in 2019.

We continue to expand our partner network, now exceeding 12k restaurants vs

As we are already present in 120+ cities, near-term focus is mainly on expansion of own delivery across cities of presence. During Q3 we rolled out own delivery to another 12 cities, increasing our total 1P coverage to 30 cities with a combined population of 42 m people (30% of Russian population). In Q3 2019, the volume of orders delivered by our own logistics service grew 7.1x YoY and now exceeds 50% of total orders vs ~20% a year ago. We are on track to expand own delivery to 40 cities by the end of the year, which means that the share of 1P will continue to increase in the short-run, albeit we seek a balanced operational model over the longer term to ensure maximum profitability. In the meantime, we are seeing a strong positive impact from 1P on retention, frequency, and average delivery time across the network, which stimulates market share growth.

We believe that we are the largest online food delivery player on the market not only in terms of GMV but now also in terms of 1P order volume, which we started to focus on less than a year ago. We also believe that we continue to lead in total order volume, with a new benchmark of 3m orders achieved in September, ahead of the peak season, which is Q4 and Q1 in Russia.

Our major focus continues to be on the improvement of the efficiency of logistics and order processing, which is supported by "Alan", the recently launched demand forecasting system with artificial intelligence, as well as new approach to courier pay, with more focus on delivery speed. Overall, we are committed to a further shortening of delivery times and providing the fastest delivery in the market. We also perceive 2 orders per hour as a globally recognized benchmark. In Q3 Delivery Club started hiring self-employed couriers and has further improved the auto-assignment service. Technologies based on machine learning allowed reducing average courier search time to just 0.5 seconds.

During Q3, Delivery Club has further improved its mobile app for partners. Now they have the ability to independently manage the menu in the app. This update has significantly improved the quality of information for the users and convenience for restaurants. Additionally, Delivery Club launched a new version of the website and updated the mobile app for customers. In particular, in the user application appeared new review form which includes a series of questions with Tinder-like swipe mechanics. More accurate ratings will provide for a better experience for customers, we believe.

We continue to explore ways to expand our value proposition as well as add business lines, which can help us achieve maximum profitability in the long-run. During Q3 we announced target opening of our first dark kitchens in Moscow together with the well-known local restaurateur Arkady Novikov. We will open 24 restaurants specifically for online orders with 3 dark kitchens to be opened in the coming weeks and another 3 by year-end. Delivery Club serves as a delivery partner, with no capital commitment planned at the first stage.

We believe that changing consumer habits will be the basis for rapid growth of the market in the future, with food delivery set to become a daily habit of Russians. Alongside our partner Sberbank we reiterate our strong commitment to Delivery Club and its sustained market leadership. Among the initial steps, we have already integrated DC into "Spasibo" loyalty program of Sberbank, which means that users of the bank's loyalty program can use Sberbank loyalty points to get discounts on their DC purchases across its entire network.

To strengthen the team during its growth phase Guvenc Donmez, former CEO of Domino's Pizza Russia has joined Mail.ru Group as Vice President in charge of food tech, including Delivery Club.

Citymobil

Citymobil continues its regional expansion, having entered Samara (May), Tolyatti (June), Kazan (August), Nizhny Novgorod (August), St Petersburg (September), Novosibirsk (September), Saratov (October) so far this year in addition to its presence in Moscow and Yaroslavl as of the end of 2018. The target is to be present in all Russian cities with a >1m population within several months.

Due to both regional expansion and continued growth in Moscow Citymobil has shown 33% growth MoM and +260% YoY in the number of rides in September, with monthly GMV of the business expected to approach RUB 3bn in Dec. Given the acceleration in the regional rollout, the business has been growing +10% WoW in recent weeks with up to 300k in daily rides. In addition to being the second largest operator in the largest domestic market (Moscow)4, Citymobil is already top-3 across all new locations, with a strategic goal to be at least number 2 across all selected markets.

Citymobil has also already launched a collaborative promotion program with Sberbank with users able to exchange their Spasibo (loyalty program of Sberbank) bonus points for ride discounts. Citymobil is also present on the VK Mini Apps platform. Citymobil has been the most downloaded iOS app in Russia since the beginning of October.

4Moscow Transportation Department data

Modern Pick (~20% stake to be held by Mail.ru Group at launch)

In July we announced a partnership agreement with Modern Pick around 51% stake in ESforce. Transaction documents have now been signed, with the deal expected to close shortly. We will hold 19.95% of Modern Pick at closing with the ultimate long term size of the Group's stake dependent on a number of operational KPIs for the combined company set for 2022 and could increase or decrease from the initial level. The Group will remain a 49% shareholder of ESforce post transaction.

Recently, Slightly Mad Studios (SMS) announced that it signed a purchase agreement to "transfer substantial shares" to Modern Pick. SMS offers a track record of development of racing hits, including the Project CARS franchise and Need for Speed. It is considered to be among top-3 developers of racing titles globally. 

We are very excited about the new partnership and the potential it offers for deeper synergies with MY.GAMES.

Advertising technology & marketing tools

Mail.ru Group ranked 1st across all Internet holdings present in Russia in terms of daily reach, based on latest data from Mediascope5, at ~56m, which means daily access to ~46% of local population and ~71% reach monthly (~87m or ~91% of domestic Internet users).

Our leadership is a result of our continued focus on technological advancement and differentiation across mobile and desktop platforms. We are focused on boosting ROIs for our advertisers, with myTarget tightening requirements for ads shown through it platform, accounting and charging for clicks when website visits are registered by top.mail.ru calculator and the user spends >2 seconds on the resource. Such approach improves conversion levels by providing advertisers with higher quality traffic while limiting advertiser losses from fake clicks. "Share of voice" was launched for media advertisers to evaluate their campaigns in terms of market share reached in targeted category. The tool aims to stimulate brands to take larger share of advertising interactions compared to those of competitors.

myTarget has further broadened reach of its ad campaigns through enhancing advertising network and expanded usage of own platforms, e.g. adding VK ad inventory to the campaigns with Multiformat and Carousel ad formats, as well as simplified contextual targeting and upgraded analytical tools with deeper metrics on video ads. myTarget was ranked among top platforms for automated ad campaigns around media banner ads.

We combined Relap.io (purchased in July, 2019) and myWidget (launched in 2016) native ad platforms into one under the Relap brand with a goal to offer improved content personalization with higher time spent and user engagement while offering native ads.

myTracker users can now access data related to the number of in-app subscriptions (including trials) and the audience which uses their apps on a subscription model. They can also see related conversion data. New functionality allows users to split out revenue streams from apps between in-app purchases and subscriptions and understand which model is more profitable for them and drives a higher retention rate. myTracker platform users can also see churn-rate data on their apps.

We enlarged myTarget Data Marketplace with additional external audiences, including target B2B, partners apps' and Mail.ru media projects unique users' segments.

We continue to diversify our advertising revenue streams, having launched targeted Digital Out-of-Home advertising, which will be integrated into myTarget offering before year-end. Placements are purchased in real time based on a programmatic model. Along with placing campaigns in DOOH, advertisers have the opportunity to continue working with affinitive audiences using myTarget remarketing technologies.

We are focused on developing O2O tools and solutions, which is why we continue to enhance our Performance Retail platform in order to improve omnichannel marketing campaigns efficiency and increase analytical transparency that would simplify client experience.

We improved our video ads capabilities not only with additional analytics but also with enhanced inventory available for distributing video ads, especially outstream ones that keep on increasing its share in the Russian advertising market.

Egor Abramets, Founder and CEO of Youla, is now also in charge of Mail.ru Group's ad tech, with special focus on expanding SME offering along with reduction in internal competition and duplication of development work. The goal is to eliminate internal competition, unify SME customer base and focus purely on the best and most balanced solutions for advertisers.

5Mediacope, Russia, Desktop + mobile, all cities 0+, aged 12+, August 2019

Conference call and webcast:

The management team will host an analyst and investor conference call and webcast at 12.00 UK time / 7.00 NY / 14.00 Moscow today, including a Question and Answer session.

To participate in this conference call, please use the following access details:

Participant Toll Free Telephone Numbers:

Confirmation Code: 9750706

From Russia 8 800 500 9283

From the UK 0800 358 6377

From the US 800-458-4148

To join the audio webcast from your laptop, tablet or mobile device, please click on the following link:

Event Link

For further information please contact:

Investors

Tatiana Volochkovich

Phone: +7 495 725 6357 extension: 3434

Mobile: +7 905 594 6604

E-mail: t.volochkovich@corp.mail.ru

Press

Olga Zyryaeva

Mobile: +7 (925) 347-83-81

E-mail: o.zyryaeva@corp.mail.ru

Cautionary Statement regarding Forward Looking Statements and Disclaimers

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 (MAIL, listed since November 5, 2010) is the largest internet business in Russia in terms of total daily audience (Mediascope Web Index Desktop+Mobile, Russia, population aged 12-64 in the cities 100,000+, August 2019).

Mail.ru Group is developing the leading domestic internet communications and entertainment platform. The company owns Russia's two largest Russian language social networks, VKontakte (VK) and Odnoklassniki (OK), leading email service, one of Russia's largest internet portals (Mail.ru), and four instant messaging services. Mail.ru Group's gaming portfolio under MY.GAMES brand includes Russia's largest MMO games and global mobile games. In 2019, MRG Tech Lab was launched with a primary focus on technology and innovation development.

Mail.ru Group is a shareholder of AliExpress Russia JV along with Alibaba Group, MegaFon and Russian Direct Investment Fund. The company partners with Sberbank to jointly develop O2O service platform targeting food delivery and taxi markets.

Filing of the Interim Condensed Consolidated Financial Statements for Q3 and 9m 2019

The Group's interim condensed consolidated financial statements for the three and nine months ended 30 September 2019 prepared in accordance with IFRS and accompanied by an independent auditor's review report have been filed on the National Storage Mechanism appointed by the Financial Conduct Authority and can be accessed at http://www.morningstar.co.uk/uk/NSM or on the Group's website at http://corp.mail.ru/media/files/mail.rugroupifrsq32019.pdf.

Group Aggregate Segment Financial Information*

Note 1: Group aggregate segment financial information for Q3 and 9m 2018 has been retrospectively adjusted to account for pro-forma inclusion of UMA, Native Roll, Panzerdog, Relap, Worki and Swag Masha.

Note 2: Group aggregate segment financial information for Q3 and 9m 2018 and Q1 2019 has been retrospectively adjusted to account for pro-forma exclusion of Delivery Club and ESforce.

 (*) The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding.

(**) Including Other IVAS revenues.

(***) Including the impairment of Skyforge in the amount of RUB 630m in Q2 2019 and impairment of Armored Warfare in the amount of RUB 1,698m in Q2 2018.

(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. See "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's corporate expenses, and eliminating intra-segment and inter-segment expenses. See "Presentation of Aggregate Segment Financial Information".

(3) Group aggregate depreciation, amortisation and impairment expense is calculated by aggregating the depreciation, amortisation and impairment 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) Profit before tax is calculated by deducting from Group aggregate segment EBITDA Group aggregate depreciation, amortisation and impairment expense and adding/deducting Group aggregate other non-operating incomes/expenses primarily consisting of interest income on cash deposits, interest expenses, dividends from financial and available-for-sale investments and other non-operating items.

(5) 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 (ii) it is adjusted for the tax effect of differences in profit before tax between Group aggregate segment financial information and IFRS.

(6) Group aggregate net profit is the (i) Group aggregate segment EBITDA; less (ii) Group aggregate depreciation, amortisation and impairment expense; less (iii) Group aggregate other non-operating expense; plus (iv) Group aggregate other non-operating income; less (v) Group aggregate income tax expense. Group aggregate net profit differs in significant respects from IFRS consolidated net profit. See "Presentation of Aggregate Segment Financial Information".

Operating Segments

We have changed the composition of the reporting segments in order to better reflect Group's strategy, the way the business is managed and units' interconnection within its eco-system. From the first quarter of 2019 the Group has identified the following reportable segments on this basis:

• Communications and Social;

• Games; and

• New initiatives.

The Communications and Social segment includes email and portal (main page and media projects). It earns substantially all revenues from display and context advertising. This segment also aggregates the Group's social network Vkontakte (VK) and two other social networks (OK and My World) and earns revenues from (i) commission from application developers based on the respective applications' revenue, (ii) user payments for virtual gifts, stickers and music subscriptions and (iii) online advertising, including display and context advertising. It also includes Search and music services (UMA). These businesses have similar nature and economic characteristics as they are represented by social networks and online communications, common type of customers for their products and services and are regulated under similar regulatory environment.

The Games segment includes online gaming services, including MMO, social and mobile games operated by the Group. It earns substantially all revenues from (i) sale of virtual in-game items to users, (ii) royalties for games licensed to third-party online game operators and (iii) in-game advertising.

The New initiatives reportable segment represents separate operating segments aggregated in one reportable segment given the similar nature of newly acquired and dynamically developing businesses. This segment primarily consists of Youla classifieds earning substantially all revenues from advertising and listing fees. Maps.me, Geek Brains, B2B new projects including cloud as well as MRG Tech Lab initiatives are booked here along with other services, which are considered insignificant by the CODM 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 - Q3 2019

Operating Segments Performance - Q3 2018

Operating Segments Performance - 9m 2019

Operating Segments Performance - 9m 2018

Note 1: Group aggregate segment financial information for Q3 and 9m 2018 has been retrospectively adjusted to account for pro-forma inclusion of UMA, Native Roll, Panzerdog, Relap, Worki, Swag Masha..

Note 2: Group aggregate segment financial information for Q3 and 9m 2018 and Q1 2019 has been retrospectively adjusted to account for pro-forma exclusion of Delivery Club and ESforce.

Liquidity

As of 30 September 2019, the Group had RUB 6,820 million of cash and RUB 8,517 million of debt outstanding. The Group's net debt position was RUB 1,697 million.

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 certain IFRS adjustments which are not analysed by management in assessing 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 transactions, disposal of and impairment of investments, business combinations, fair value adjustments, amortisation and impairment thereof, net foreign exchange gains and losses, share in financial results of 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. 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 three months ended 30 September 2018 and 2019 is presented below:

A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit/(loss) before income tax expense of the Group for the three months ended 30 September 2018 and 2019 is presented below:

A reconciliation of Group aggregate net profit to IFRS consolidated net profit/(loss) of the Group for the three months ended 30 September 2018 and 2019 is presented below:

Note: In Q3 2019, the Group changed its estimates with respect to the life span of the in-game virtual items purchased by game players. The changes resulted from the fact that the Group accumulated sufficient data related to the patterns of how the in-game items are consumed by paying game players. As a result the Company refined its estimate of the period of satisfaction of the performance obligation in relation to virtual in-game items. The changes in estimates were recorded prospectively starting from July 1, 2019.

A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue of the Group for the nine months ended 30 September 2018 and 2019 is presented below:

A reconciliation of Group aggregate segment EBITDA to IFRS consolidated loss before income tax expense of the Group for the nine months ended 30 September 2018 and 2019 is presented below:

A reconciliation of Group aggregate net profit to IFRS consolidated net loss of the Group for the nine months ended 30 September 2018 and 2019 is presented below:

Note: In Q3 2019, the Group changed its estimates with respect to the life span of the in-game virtual items purchased by game players. The changes resulted from the fact that the Group accumulated sufficient data related to the patterns of how the in-game items are consumed by paying game players. As a result the Company refined its estimate of the period of satisfaction of the performance obligation in relation to virtual in-game items. The changes in estimates were recorded prospectively starting from July 1, 2019.

Consolidated IFRS Statement of Financial Position

Consolidated IFRS Statement of Comprehensive Income