MAIL.L Regulatory News (MAIL)

Mail.Ru Group Limited

Preliminary Trading Update for Q3 2016

26 October 2016. Mail.Ru Group Limited (LSE: MAIL, hereinafter referred as "the Company" or "the Group"), one of the largest Internet companies in the Russian-speaking Internet market, today provides an update on the preliminary unaudited segment revenues for Q3 2016.

Q3 2016 Performance Highlights

u Excluding Pixonic, Q3 2016 Group aggregate segment revenue grew 5.0% Y-o-Y to RUR 9,127 million (9 month 2016 Group aggregate segment revenue grew 9.3% Y-o-Y)

u Including Pixonic, Q3 2016 Group aggregate segment revenue grew 9.4% Y-o-Y to RUR 9,620 million (9 month 2016 Group aggregate segment revenue grew 12.7% Y-o-Y)

u Net cash position as of 30 September 2016 was RUR 9,550 million

u Mail.Ru Group is the leading online property in Russia with 77.5 million monthly active users (comScore MMX Multi-Platform, Russia, age 6+, June 2016)

Key Recent Developments

u Boris Dobrodeev takes the position of CEO (Russia)

u Mail.Ru Group acquired a 100% stake in Pixonic, a global mobile game developer, and a 51% stake in GeekBrains, an online IT educational platform

u Email released two-factor authentication app Access Code for iOS

u Navigation in MAPS.ME was updated with altitude charts and new ergonomic design

u ICQ released photo and video editor and new filters that utilize neural networks

u ICQ introduced masks for video calls and snaps

u Our mobile marketplace Youla reached over 1m DAU and 5m MAU

u Youla was updated with a new interface, advanced search filters and improved moderation

u Cloud.Mail.Ru released Clouder, a browser plugin to save images from the web to cloud, and Screenshoter, a desktop app to make and share screenshots

u VK launched money transfer service

u VK launched voice messages

u VK introduced community's message widget for external sites

u In-feed comments and likes in VK newsfeed on mobile

u Restoration of the music section in VK and OK apps for iOS

u Autoplay of videos in newsfeed in VK and OK

u Live chat commenting on video streaming in OK

u Animated themes for user profile page in OK

u New types of groups (for public pages, businesses, places, celebrities, events, etc.) in OK

u Launch of mobile game Juggernaut Champions

u Closed beta test of MMORPG Revelation Online

u myTarget programmatic ads now available on Mail.Ru main page and inside Mail.Ru email mobile app

Commenting on the results of the Company, Dmitry Grishin, Chairman of Mail.Ru Group, said:

In Q3 2016, the Company achieved revenue growth of 5.0% Y-o-Y to RUR 9,127 million with 9 month 2016 revenue growth of 9.3%. With the Pixonic acquisition in Q3, overall revenue growth would have been 9.4% on a pro-forma basis. The acquisition of Pixonic was completed in early October.

Advertising revenue growth remained strong in Q3 with 21.3% Y-o-Y to RUR 4,408 million with 9 month growth of 25.9% to RUR 12,506 million. The trends that we experienced in H1 2016 are broadly unchanged and as we have previously commented the growing mobile audience and inventory as well as implementation of ad technologies are driving the shift of advertising budgets into mobile in which we are able to have good market share.

Native advertising remains strong across the social networks and this growth, especially on mobile allows us to mitigate the more negative trends in search revenue that is also included into our advertising revenue segment.

While the comparable in H2 remains tougher for advertising revenues the favourable structural trends are expected to continue and with the ongoing movement of budget from other mediums, combined with the effect of new ad formats we expect to see a solid end to 2016 for the advertising revenues.

VK engagement and audience continued to see good growth. With redesign on desktop and the addition of new features on mobile, embedded VK messaging on mobile and desktop has reached 80mln monthly active users, more than 50mln of them in Russia. Mobile usage continued to see strong growth with a new record of over 73mln mobile monthly users in September. We continue to focus on native, and especially mobile advertising, in newsfeed and as previously commented we expect the ad load and pricing to continue to increase from the current levels. In Q3 2016 VK's total revenues grew 39.3% to RUR 2,127 million. We continue to see significant further opportunities for VK with both an expanding user base and an increasing number of features.

In Q3 2016 our MMO games revenue declined 13.5% Y-o-Y to RUR 1,909 million. This was mainly a function of the very high international revenue base from Q3 2015 and timings of the release schedule. With the domestic release of Revelation and the contribution from Pixonic we expect that Q4 2016 games revenue on a pro-forma basis will return to growth. The pipeline of major releases for 2017 based around the key franchises is very full with the international release of Revelation, the console version of Skyforge, the mobile and Chinese versions of Armored Warfare are all planned for H1 2017. In addition to this there will be a number of mobile titles.

In IVAS, there is no change to our focus on mobile IVAS through new features and mobile UX, and hence increasing paying user penetration. However we have not yet achieved suitable mobile monetisation and there is no change to the macro and FX headwinds which continue to weigh on IVAS revenues. As a result in Q3 IVAS revenues declined 3.8%. We do not anticipate any significant change in the IVAS revenues in Q4.

Our mobile location-based marketplace Youla has now reached over 5mln monthly active users and over 1mln daily active users. This is a doubling of the user base from the 2.5mln MAU at the time we reported H1 results in late August. The app has been consistently in Top-5 overall in Russia in both the App Store and Google Play. We are currently focusing on further driving user growth and engagement. We will continue its expansion in Q4 with the addition of new features. User feedback is very strong and hence we anticipate continued growth in this area.

The strong cash generating capacity of our business remains unchanged and Q3 cash conversion was as expected. As a result net cash at the end of Q3 was RUR 9,550 million. This is prior to the acquisition of Pixonic.

We are very pleased with the two acquisitions that we have announced over the last quarter. They fit well within the core strategy and mobile assets of the Group and present significant opportunities for the future. With a strong balance sheet and cash generation we expect that we are likely to make further acquisitions going forward.

We are also announcing today that in order to focus more on strategy, international expansion and M&A there will be changes in management responsibility. Boris Dobrodeev, who was CEO of VK and also head of strategy and development will now take responsibility for day to day operations as CEO (Russia). I shall remain with the company as Chairman and fully involved.

In Q3 we are pleased with the continued growth in advertising and believe we are well positioned to benefit from the ongoing structural trends in that area. We are very excited by the potential for Youla and believe that it has very significant potential and will make a contribution to 2017 growth. The games pipeline is very full and the acquisition of Pixonic presents new opportunities. While there is no change with the Russian consumer we retain our FY 2016 like-for-like revenue guidance. Adding in Pixonic on a pro-forma basis we therefore expect to see FY 2016 revenue growth of around 10%. In the near term Pixonic is expected to be EBITDA neutral as we continue to invest in its business. As a result we would expect EBITDA margins on the higher revenue base (on a pro-forma basis) to be around 45% for FY 2016.

Q3 2016 Trading Update*

(*) The numbers in these tables 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.

Liquidity

As of 30 September 2016, the Company's net cash balance (including term deposits) was RUR 9,550 million and the Company had no debt outstanding.

Pixonic pro-forma consolidation

As per the announcement of 3rd October, in FY 2015 Pixonic had revenues of RUB 456 million. In H1 2016 Pixonic had revenues of RUB 619 million and in Q3 2016 revenues of RUB 494 million. In FY 2015 and H1 2016 Pixonic was broadly EBITDA neutral. Mail.Ru Group will fully consolidate Pixonic from the beginning of Q4 2016. We will disclose all results on a pro-forma basis going forward to allow like-for-like comparison.

Conference call

The Mail.ru Group management team will host an analyst and investor conference call at 09.00 UK time (11.00 Moscow time), on Wednesday 26 October 2016, including a Question and Answer session.

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

 Investors Relations Contacts:

Matthew Hammond

Phone: +971 505 56 1315

E-mail: hammond@corp.mail.ru

Press Contacts:

Madina Tayupova

Phone: +7 926 510 50 21

E-mail: m.tayupova@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 company in the 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 93% of Russian Internet users on a monthly basis (comScore, June 2016).

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 one of Russia's largest internet portals, Mail.Ru (TNS, all Russia, age 12-64, June 2015); three major Russian language social networks, Vkontakte (VK), Odnoklassniki (OK.RU) and Moi Mir (My World); and Russia's largest online games business. Our portfolio also includes a leading OpenStreetMap-based offline mobile maps and navigation service MAPS.ME and two instant messaging (IM) services, Mail.Ru Agent and ICQ, popular in Russia and CIS.

The Company holds minority equity stakes in a number of small venture capital investments in various Internet companies in Russia, Ukraine and Israel.

Presentation of Aggregate Segment Financial Information

The Group aggregate segment financial information is derived from the financial information used by management to manage the Company's business by aggregating the segment financial data of the Company'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 Company's consolidated financial statements in accordance with IFRS. In particular:

• The Company'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 Company'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.