26 Feb 2013 12:15
Mail.Ru Group Limited
Preliminary Trading Statement for the Full Year 2012
26 February 2013. Mail.Ru Group Limited (LSE: MAIL, hereinafter referred as "the Company" or "the Group"), a leading Internet company in the high-growth Russian-speaking Internet market, today provides the following preliminary unaudited segment financial information and key operating highlights for the full year ended 31 December 2012.
FY 2012 Performance Highlights
u FY 2012 Group aggregate segment revenue grew 39% Y-o-Y to RUR 21,151 million
u FY 2012 Group aggregate segment EBITDA grew 38% Y-o-Y to RUR 11,534 million
u FY 2012 Group aggregate net profit grew 37% Y-o-Y to RUR 8,499 million
u Net cash position as of 31 December 2012 was RUR 28,777 million
u Monthly audience (TNS Russia) of Mail.Ru portal in December 2012 reached 33.3 million Russian users
Special dividend
u The company is also pleased to announce that it will pay a special dividend on Thursday 28th March 2013 of US$4.30 per share for shareholders on the record date of Wednesday 20th March 2013 representing a total payout of US$899m. The dividend was approved by the Board of Directors of Mail.ru on February 25th 2013.
Key Developments in 2012
u Email & portal
o New version of Mail.Ru Main Page - modern, lightweight and significantly faster
o IMAP support for Email
o HTTPS support for Email and Main Page
o "Social" email list design with user profile pictures
o Email mobile applications for all major platforms (iOS, Android, Windows Phone, Windows 8)
o Calendar.Mail.Ru - an extensive planning tool synchronized with mobile phones
o News.Mail.Ru and Sport.Mail.Ru mobile applications for all major platforms (iOS, Android, Windows Phone, Windows 8)
u Social networks
o Multichat allowing conversations with several friends at the same time in Odnoklassniki
o Significantly improved newsfeed allowing users seamlessly post multimedia attachments (links, multiple photos, user generated video and text)
o Odnoklassniki launched a tool for undertaking polls
o Users are able to customize personal profiles and groups with different skins
o A number of improvements to mobile versions and applications for major platforms (iOS, Android), including: music, video chat, photo filters, native messaging, credit card payments
u Instant messaging
o Mail.Ru Agent and ICQ PC clients merged to the same technological platform
o Release of Mail.Ru Agent and ICQ applications for iOS and Android supporting voice calls
o ICQ 8.0 for Windows featuring new design, mobile and fixed line calls
o ICQ development moved to Moscow and both messengers are developed by the same team now
u Online games
o Warface AAA shooter recorded 145,000 PCU in January 2013
o Worldwide launch of mobile Juggernaut
o ArcheAge AAA MMORPG license from XLGames
o Continued development of AAA title Skyforge
u Search & E-Commerce
o Machine learning algorithms for search results ranking, improving relevance
o Launch of geo-location based search with search results more relevant for the user's current location
o Launch of mobile applications for Money.Mail.Ru and Tovary.Mail.Ru (iOS and Android)
o Fully revamped design, improved services and usability of all e-commerce products
u Target.Mail.Ru
o Introduced retargeting solution
o API for third party developers
u Corporate
o The Company paid a special dividend of USD 795 million (USD 3.8 per GDR) on 28 August 2012
Commenting on the results of the Group, Dmitry Grishin, Chairman and CEO of Mail.Ru Group, said:
"I am pleased to report FY 2012 Mail.Ru Group results. Despite a tougher underlying market in display in H2 we continued to execute strongly in all other segments of the business. Compared to FY 2011, Group aggregate segment revenue increased by 39%, reaching RUR 21,151 million and Group aggregate segment EBITDA rose 38% to RUR 11,534 million.
Community IVAS has become a key contributor to our revenues as well as a material driver of revenue growth, delivering 78.7% growth Y-o-Y in FY 2012. The main driver of this growth is the increase of paying users - especially in virtual gifts and services, as well as in our API platform. We expect that IVAS will continue to show strong growth in 2013 as we remain focused on increasing user engagement and improving our product.
While context advertising continued to grow in line with the market for the FY, we saw a slowdown of growth in display revenue in H2. This was driven by a combination of a planned reduction in advertising inventory on some of our properties, the ban on alcohol advertising and the inventory adjustments for TV. While these impacted H2 2012 we do not expect these effects to continue through 2013 and hence forecast a recovery in display growth rates through the year.
Throughout 2012 we continued to execute on our MMO games strategy. Warface has been an important component of this and has seen an increasing traction in terms of both user and revenue, and became a Top 3 revenue generating game by the end of the year. We have a full release pipeline into 2013 and will continue to internationalize our most successful titles. As a result we would expect the MMO games division to continue to deliver solid growth in 2013.
During the year, we continued to attract new talent, especially core engineering expertise. In the year our total headcount rose by 15% (394 full-time employees) and reached 3,059 as of the end of 2012. Into 2013 we will continue to focus on attracting talent with our focus remaining on core programming and engineering skills.
While we continue to invest in the business, our continued growth and the operating leverage in the business allow us to continue to deliver strong margins with FY 2012 EBITDA margins of 54.5%.
As a company we have always been clear that as we disposed of non-core assets we would not retain excess cash. Following the special dividend of $3.80, paid in August 2012, we are pleased to announce today that the Board has approved the payment of a further $4.30 per share special dividend to be paid on Thursday 28th March 2013 with a record date of Wednesday 20th March 2013.
Looking into 2013 the structural drivers of our business remain unchanged. We expect that community IVAS and MMO gaming will be our key revenue streams, and with the events which have impacted display growth in H2 2012 dropping off we look into 2013 with confidence. As a result we would expect to see FY 2013 Group aggregate segment revenue growth of between 25-28%.
We continue to put a strong focus on resources being directed to driving user engagement and product development. As a result, and even taking into account the increased costs associated with our new offices, the operating leverage in our business remains unchanged. We would therefore expect FY 2013 Group aggregate segment EBITDA margin percentage to be in the low fifties."
Conference call
The management team will host an analyst conference call at 14.00 UK time (18.00 Moscow time, 09.00 U.S. Eastern Daylight Time), on Tuesday 26 February, including a Question and Answer session.
To participate in this conference call, please use the following access details:
Confirmation Code: |
96923097 |
Participant Toll Free Telephone Numbers: | |
Russia Free Phone | 81080024342044 |
UK Free Phone | 08000730438 |
USA Free Phone | 18773284999 |
Standard International Call | +44 (0) 1452 561488 |
For further information please contact:
Investor Relation Contacts:
Matthew Hammond
Managing Director Mail.Ru Group
Phone: +971 505 56 1315
E-mail: hammond@corp.mail.ru
Press:
Ksenia Chabanenko
Phone: +7 916 0906626
E-mail: 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.
Notes to announcement
Pursuant to the Articles of Association of the Company a written resolution has been passed on February 25th 2013 by members of the Company holding shares which represent at least 75% of the total number of votes attached to the issued and outstanding shares. The resolution has been filed on the National Storage Mechanism appointed by the Financial Services Authority and can be accessed at http://www.hemscott.com/nsm.do.
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 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 (Communications + Entertainment) strategy the Company is moving rapidly to build an integrated communication and entertainment platform. The Company operates two of the three largest Russian language online social networking sites (Odnoklassniki and Moi Mir (or "My World")). The Company also operates the two largest Instant Messaging networks in Russia (Mail.Ru Agent and ICQ), Russia's leading email service and Russia's largest Internet portal Mail.ru, and the Company operates Russia's largest online games platform.
The Company holds strategic minority equity stakes in VKontakte (39.99%) and Qiwi, formerly OE Investments (21.35%). The Company also holds a small minority stake in Facebook, and a number of small venture capital investments in various Internet companies in Russia and Ukraine.
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 | 4,507 | 30.1% | 117.8 | 145.0 | |
Office rent and maintenance | 338 | 489 | 45.0% | 11.5 | 15.7 | |
Agent/partner fees | 1,273 | 1,969 | 54.6% | 43.3 | 63.3 | |
Marketing expenses | 551 | 702 | 27.3% | 18.8 | 22.6 | |
Server hosting expenses | 491 | 633 | 29.0% | 16.8 | 20.4 | |
Professional services | 244 | 258 | 5.8% | 8.3 | 8.3 | |
Other operating (income)/expenses, excl. D&A | 474 | 1,057 | 123.1% | 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 | 11,534 | 37.6% | 282.8 | 371.0 | |
margin, % | 55.1% | 54.5% | 54.9% | 54.5% | ||
Depreciation and amortisation (3) | 1,160 | 1,135 | -2.1% | 39.5 | 36.5 | |
Share of profit of key strategic associates (4) | 337 | 250 | -25.9% | 11.5 | 8.0 | |
Other non-operating (income)/expense, net | 244 | 431 | 76.4% | 8.3 | 13.9 | |
Profit before tax (5) | 7,803 | 11,080 | 42.0% | 263.1 | 356.3 | |
Income tax expense (6) | 1,588 | 2,581 | 62.5% | 54.0 | 83.0 | |
Group aggregate net profit (7) | 6,215 | 8,499 | 36.8% | 209.1 | 273.3 | |
margin, % | 40.8% | 40.2% | 40.6% | 40.2% | ||
(*) 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. 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 corporate expenses, and eliminating intra-segment and inter-segment expenses. See "Presentation of Aggregate Segment Financial Information".
(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. See "Presentation of Aggregate Segment Financial Information".
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 | 1,492 | 2,195 | 3,768 | 2,482 | -320 | 9,616 |
EBITDA | 2,497 | 5,683 | 1,561 | 1,793 | - | 11,534 |
EBITDA margin, % | 62.6% | 72.1% | 29.3% | 41.9% | 54.5% | |
Net profit | 8,499 | |||||
Net profit margin, % | 40.2% | |||||
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 | 48.0 | 70.6 | 121.2 | 79.8 | -10.3 | 309.3 |
EBITDA | 80.3 | 182.8 | 50.2 | 57.7 | - | 371.0 |
EBITDA margin, % | 62.6% | 72.1% | 29.3% | 41.9% | 54.5% | |
Net profit | 273.3 | |||||
Net profit margin, % | 40.2% |
(*) 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
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.
Key Performance Indicators
Millions | Dec-11 | Dec-12 |
Mail.ru portal, monthly unique users, TNS | 30.0 | 33.3 |
Mail.ru portal, daily unique users, TNS | 15.7 | 17.2 |
Email monthly unique users, TNS | 24.5 | 26.9 |
Email daily unique users, TNS | 11.5 | 12.0 |
Mail.ru Agent global monthly users | 22.9 | 23.2 |
ICQ global monthly users | 27.0 | 15.9 |
ICQ Russia monthly users | 15.7 | 9.8 |
My World monthly unique users, TNS | 20.2 | 19.4 |
My World daily unique users, TNS | 4.9 | 3.8 |
Odnoklassniki monthly unique users, TNS | 20.8 | 23.2 |
Odnoklassniki daily unique users, TNS | 9.4 | 10.3 |
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 | ||
Thousands | FY 2011 | FY 2012 |
MMO games | ||
Average monthly paying users* | 234 | 261 |
Community IVAS | ||
Average monthly paying users** | 3,370 | 5,526 |
* The numbers combine paying users of individual MMO games and include overlap | ||
** The numbers combine paying users of Odnoklassniki, My World, love.mail.ru and our own social games on third-party networks and include overlap | ||
Source: Internal data | ||
Liquidity
As of 31 December 2012, the Group's net cash balance (including term deposits) was RUR 28,777 million and the Group had no debt outstanding.
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.