5 Sep 2013 07:00
Mail.Ru Group Limited
Unaudited IFRS Results for H1 2013
5 September 2013. Mail.Ru Group Limited (LSE: MAIL, hereinafter referred as "the Company" or "the Group"), one of the largest Internet companies in the high-growth Russian-speaking Internet markets, today releases unaudited interim condensed consolidated IFRS financial statements and provides the following unaudited segment financial information and key operating highlights for the six months ended 30 June 2013.
H1 2013 Performance Highlights
u H1 2013 Group aggregate segment revenue grew 28.4% Y-o-Y to RUR 12,442 million. Q2 2013 Group aggregate segment revenue demonstrated 27.3% Y-o-Y growth
u H1 2013 Group aggregate segment EBITDA grew 26.1% Y-o-Y to RUR 6,706 million
u H1 2013 Group aggregate net profit grew 27.6% Y-o-Y to RUR 5,063 million
u Net cash position as of 30 June 2013 was RUR 6,818 million
u Monthly audience (TNS Russia) of Mail.Ru portal in June 2013 reached 33.2 million Russian users
Key Recent Developments
u Email & portal
o Email for business - free email service for your domain powered by Mail.Ru
o Email iOS app and mobile web version allow users to manage multiple Mail.Ru accounts
o Update of Android app with interface improvements
o Launch of Cloud.Mail.Ru (closed beta) with 100GB of free cloud storage and file syncing clients for Windows, Mac, iOS and Android
o Calendar.Mail.Ru released mobile app for Android
o Complete redesign of Sport.Mail.Ru project
u Social networks
o OK launched video 2.0 with new back-end, new design, and new services
o Launched achievements system rewarding users for different activities in OK
o Improved news feed, search and security algorithms for OK
o Introduced notification center, people tagging in statuses, polls, video upload, multichat and achievements across all mobile platforms in OK
o Updated OK applications for iOS and Android featuring native photos, discussions and sidebar navigation
o My World launched Groups service, ability to simultaneously publish photos, text and music
o Launched My World application for Android and updated application for iOS featuring improved navigation, multiple photo upload and photo filters
u Instant messaging
o Free and paid stickers in Mail.Ru Agent for iOS and Android
o Video-calls in Mail.Ru Agent for iOS (in addition to Android)
o Released Mail.Ru Agent application for Windows 8 featuring voice and video calls, group chat, photo/video/file sharing
u Online games
o Launched mobile game Jungle Heat on Android. The game's been featured on Google Play Games in Japan, Korea, USA, Australia and several other countries
o Launched mobile game Poker Arena on iOS and Android
o Warface continues to gain traction in terms of both users and revenue
o Pirate Code is catching up to our Top-5 revenue generating games - a successful story of porting social game to web platform
u Search & E-Commerce
o Mail.Ru Group's proprietary search engine provides all search results since July 1, 2013
o Search market share was 8.8% in July 2013 (LiveInternet)
o Search index volume has grown from 5 to 10 billion documents
o Signed search monetization agreement with Yandex
u Corporate
o Mail.Ru Group Moscow team moved to new Headquarters building in June 2013
o Mail.Ru Group disposed of its remaining 14.2 mln Facebook shares in the period of July-August 2013 yielding proceeds in excess of $525m
o Launched non-profit platform Dobro.Mail.Ru for charity crowd-funding
Commenting on the results of the Group, Dmitry Grishin, Chairman and CEO of Mail.Ru Group, said:
"I am pleased to report that our company has had another successful period with Mail.Ru Group meeting or exceeded all key performance indicators, and hence delivering strong growth across all segments - email & portal and instant messaging, social networking, online games and search & e-commerce. Compared to H1 2012, Group aggregate segment revenue increased by 28%, reaching RUR 12,442 million and Group aggregate segment EBITDA rose 26% to RUR 6,706 million.
As previously indicated display advertising growth rates saw an improvement in Q2 as the one time effects seen in H2 2012 dropped off through Q1. Contextual advertising continues to be strong supported by both our solid market share in search and an increased focus on the Target product. Community IVAS continues to show solid growth with the main driver of this being the increase of paying user engagement - especially in virtual gifts and services, as well as in our API platform and self-developed social games.
Evidenced by continued Y-o-Y growth in H1 we continue 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 has remained our top revenue generating game in Q2.
Despite the incremental costs of our new offices we continue to focus on profitability and maintain tight cost control. As a result, even taking into account the increased office costs we have delivered an EBITDA margin of 53.9% compared to 54.9% in H1 2012.
The structural drivers of our business remain unchanged and hence we look into H2 2013 with confidence. Given the strong first half of our year and our continued delivery we are increasing our FY 2013 guidance and now expect to see FY 2013 RUR Group aggregate segment revenue growth of 27-29% with contextual advertising and games showing the fastest growth. Despite the effect of the new offices we continue to keep tight control over costs and hence expect that a FY 2013 Group aggregate segment EBITDA margin of between 53-54%."
Conference Call
The Mail.ru Group management team will host an analyst and investor conference call at 14.00 UK time (17.00 Moscow time, 09.00 U.S. Eastern Daylight Time), on Thursday, 5th September 2013, including a Question and Answer session.
To participate in this conference call, please use the following access details:
Confirmation Code: |
24639200 |
Participant Toll Free Telephone Numbers: | |
Russia Free Phone | 81080020972044 |
UK Free Phone | 08006940257 |
USA Free Phone | 18663899780 |
Standard International Call | +44 (0) 1452 542304 |
For Further Information Please Contact:
Investors:
Matthew Hammond
Chief Financial Offficer
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.
About Mail.Ru Group
Mail.Ru Group (LSE:MAIL, listed since November 5, 2010) is a leading Internet company in the high-growth Russian-speaking Internet markets (Russia is Europe's largest Internet market measured by the number of users, comScore). Mail.Ru Group's sites reach approximately 85% of Russian Internet users on a monthly basis (comScore, June 2013) and the Company is the sixth largest Internet businesses globally, based on the number of total pages viewed (comScore, June 2013).
In line with the 'communitainment' (communication plus entertainment) strategy, the Company is moving rapidly to build an integrated communications and entertainment platform. The Company owns Russia's leading email service and Russia's largest internet portal, Mail.Ru (TNS, all Russia, age 12-64, June 2013). The Company operates two of the three largest Russian language social networks, Odnoklassniki (OK) and Moi Mir (My World), and Russia's largest online game business. The Company's portfolio also includes Mail.Ru Agent and ICQ - two instant messaging services popular in Russia and CIS.
The Company holds minority equity stakes in VKontakte (39.99%) and Qiwi (15.04%). The Company also holds a number of small venture capital investments in various Internet companies in Russia and Ukraine.
Group Aggregate Segment Financial Information*
RUR millions | USD millions** | |||||
H1 2012 | H1 2013 | YoY, % | H1 2012 | H1 2013 | ||
Group aggregate segment revenue (1) | ||||||
Display advertising | 2,188 | 2,444 | 11.7% | 71.4 | 78.8 | |
Context advertising | 1,083 | 1,589 | 46.7% | 35.3 | 51.2 | |
Total online advertising | 3,271 | 4,033 | 23.3% | 106.8 | 130.0 | |
MMO games | 2,171 | 3,025 | 39.3% | 70.9 | 97.5 | |
Community IVAS | 3,220 | 4,050 | 25.8% | 105.1 | 130.6 | |
Total IVAS | 5,391 | 7,075 | 31.2% | 176.0 | 228.1 | |
Other revenue*** | 1,031 | 1,334 | 29.4% | 33.6 | 43.0 | |
Total Group aggregate segment revenue | 9,693 | 12,442 | 28.4% | 316.4 | 401.1 | |
Group aggregate operating expenses | ||||||
Personnel expenses | 2,133 | 2,702 | 26.7% | 69.6 | 87.1 | |
Office rent and maintenance | 219 | 507 | 131.8% | 7.1 | 16.3 | |
Agent/partner fees | 915 | 1,307 | 42.8% | 29.9 | 42.1 | |
Marketing expenses | 315 | 311 | -1.2% | 10.3 | 10.0 | |
Server hosting expenses | 295 | 414 | 40.5% | 9.6 | 13.3 | |
Professional services | 120 | 120 | -0.3% | 3.9 | 3.9 | |
Other operating (income)/expenses, excl. D&A | 378 | 375 | -0.9% | 12.4 | 12.1 | |
Total Group aggregate operating expenses | 4,375 | 5,736 | 31.1% | 142.8 | 184.9 | |
Group aggregate segment EBITDA (2) | 5,318 | 6,706 | 26.1% | 173.6 | 216.2 | |
margin, % | 54.9% | 53.9% | 54.9% | 53.9% | ||
Depreciation and amortisation (3) | 537 | 561 | 4.5% | 17.5 | 18.1 | |
Share of profit (loss) of key strategic associates (4) | 119 | 196 | 64.7% | 3.9 | 6.3 | |
Other non-operating income (expense), net | 200 | 151 | -24.5% | 6.5 | 4.9 | |
Profit before tax (5) | 5,100 | 6,492 | 27.3% | 166.4 | 209.3 | |
Income tax expense (6) | 1,131 | 1,429 | 26.3% | 36.9 | 46.1 | |
Group aggregate net profit (7) | 3,969 | 5,063 | 27.6% | 129.5 | 163.2 | |
margin, % | 40.9% | 40.7% | 40.9% | 40.7% | ||
(*) The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding
(**) The USD numbers for H1 2012 and H1 2013 represent a convenience translation. The RUR amounts have been translated into USD using average exchange rates for H1 2012 (30.64 RUR/USD) and H1 2013 (31.02 RUR/USD) respectively
(***) Including Other IVAS revenues
(1) Group aggregate segment revenue is calculated by aggregating the segment revenue of the Group's operating segments and eliminating intra-segment and inter-segment revenues. This measure differs in significant respects from IFRS consolidated net revenue. A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue is available under "Presentation of Aggregate Segment Financial Information" below.
(2) Group aggregate segment EBITDA is calculated by subtracting Group aggregate segment operating expenses from Group aggregate segment revenue. Group aggregate segment operating expenses are calculated by aggregating the segment operating expenses (excluding the depreciation and amortisation) of the Group's operating segments including allocated Group corporate expenses, and eliminating intra-segment and inter-segment expenses. A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit before income tax expense is available under "Presentation of Aggregate Segment Financial Information" below.
(3) Group aggregate depreciation and amortisation expense is calculated by aggregating the depreciation and amortisation expense of the subsidiaries consolidated as of the date hereof, excluding amortisation and impairment of fair value adjustments to intangible assets acquired in business combinations.
(4) Group share of net profit from associates includes the Group's share of net profit from VK.com and Qiwi as calculated based on the ownership percentage as of the date hereof (i.e. 39.99% and 15.04%, 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. 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 segment net profit differs in significant respects from IFRS consolidated net profit. A reconciliation of Group aggregate net profit to IFRS consolidated net profit is available under "Presentation of Aggregate Segment Financial Information" below.
Operating Segments
We identify our operating segments based on the types of products and services we offer. We have identified the following reportable segments on this basis:
• Email, Portal and IM;
• Social Networks;
• Online Games;
• E-Commerce, Search and Other Services
The Email, Portal and IM segment includes email, instant messaging and portal (main page and verticals). It earns almost all revenues from display and context advertising.
The Social Networks segment includes our two social networks (Odnoklassniki and My World) and earns revenues from (i) user payments for virtual gifts, (ii) revenue sharing with application developers, and (iii) online advertising, including display and context advertising.
The Online Games segment includes online gaming services, including MMO, social and mobile games. It earns almost all revenues from (i) sale of virtual in-game items to users and (ii) royalties for games licensed to third-party online game operators.
The E-Commerce, Search and Other Services segment primarily consists of search engine services earning almost all revenues from context advertising, e-commerce and online recruitment services and related display advertising. This segment also includes a variety of other services, which management considers insignificant for the purposes of performance review and resource allocation.
Each segment's EBITDA is calculated as the respective segment's revenue less operating expenses (excluding depreciation and amortisation and impairment of intangible assets), including our corporate expenses allocated to the respective segment.
Operating Segments Performance - H1 2013
Email, Portal and IM | Social Networks | Online Games | E-Commerce, Search and Other Services | Eliminations | Group | |
RUR millions | ||||||
Revenue | ||||||
External revenue | 2,048 | 4,628 | 3,349 | 2,417 | - | 12,442 |
Intersegment revenue | 14 | 15 | - | 149 | (178) | - |
Total revenue | 2,062 | 4,643 | 3,349 | 2,566 | (178) | 12,442 |
Total operating expenses | 954 | 1,245 | 2,146 | 1,569 | (178) | 5,736 |
EBITDA | 1,108 | 3,398 | 1,203 | 997 | - | 6,706 |
EBITDA margin, % | 54% | 73% | 36% | 39% | 54% | |
Net profit | 5,063 | |||||
Net profit margin, % | 41% | |||||
USD millions* | ||||||
Revenue | ||||||
External revenue | 66.0 | 149.2 | 108.0 | 77.9 | - | 401.1 |
Intersegment revenue | 0.5 | 0.5 | - | 4.8 | (5.7) | - |
Total revenue | 66.5 | 149.7 | 108.0 | 82.7 | (5.7) | 401.1 |
Total operating expenses | 30.8 | 40.1 | 69.2 | 50.6 | (5.7) | 184.9 |
EBITDA | 35.7 | 109.6 | 38.8 | 32.1 | - | 216.2 |
EBITDA margin, % | 54% | 73% | 36% | 39% | 54% | |
Net profit | 163.2 | |||||
Net profit margin, % | 41% |
(*) The USD numbers represent a convenience translation. The RUR amounts have been translated into USD using H1 2013 average exchange rate of 31.02 RUR/USD
Liquidity
As of 30 June 2013, the Group's net cash balance (including term deposits) was RUR 6,818 million, or USD 208 million[a], and the Group had no debt outstanding.
Filing of the Report
The Group's interim condensed consolidated financial statements for the six months ended 30 June 2013 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 Services Authority and can be accessed at http://corp.mail.ru/files/Mail.Ru_Group_IFRS_H12013.pdf
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 expense, 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 non-core associates, as well as irregular non-recurring items that occur from time to time and are evaluated for adjustment as and when they occur. The tax effect of these adjustments is also excluded from segment reporting.
• The segment financial information is presented for each period on the basis of an ownership interest as of the date hereof and consolidation of each of the Group's subsidiaries, including for periods prior to the acquisition of control of the entities in question, so long as the Group held at least one share of such entities during such periods. The financial information of subsidiaries disposed of prior to the date hereof is excluded from the segment presentation starting from the beginning of the earliest period presented.
• Segment revenues do not reflect certain other adjustments required when presenting consolidated revenues under IFRS. For example, segment revenue excludes barter revenues and adjustments to defer online gaming and social network revenues under IFRS.
A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue for the six months ended 30 June 2013 and 2012 is presented below:
RUR millions | H1 2013 | H1 2012 |
Group aggregate segment revenue | 12,442 | 9,693 |
Adjustments to reconcile Group aggregate segment revenue toconsolidated revenue under IFRS: | ||
Differences in timing of revenue recognition | (19) | (142) |
Barter revenue | 39 | 24 |
Dividend revenue from venture capital investments | 6 | 36 |
Consolidated revenue under IFRS | 12,468 | 9,611 |
A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit before income tax expense for the six months ended 30 June 2013 and 2012 is presented below:
RUR millions | H1 2013 | H1 2012 |
Group aggregate segment EBITDA | 6,706 | 5,318 |
Adjustments to reconcile Group aggregate segment EBITDA to consolidated profit before income tax expenses under IFRS: | ||
Differences in timing of revenue recognition | (19) | (142) |
Net gain on venture capital investments and associated derivative financial assets and liabilities | 211 | 112 |
Share-based payments expenses | (709) | (774) |
Dividend revenue from venture capital investments | 6 | 36 |
Other | 29 | 13 |
EBITDA | 6,224 | 4,563 |
Depreciation and amortisation | (1,348) | (1,327) |
Impairment of intangible assets | (3) | (1) |
Share of profit of strategic associates | 144 | 62 |
Finance income | 162 | 160 |
Other non-operating income/(expense) | (17) | 4 |
Net gain/(loss) on financial assets and liabilities at fair value through profit or loss over the equity of strategic associates, subsidiaries and other agreements | 14 | (15) |
Net gain on disposal of shares in available-for-sale investments | - | 20,498 |
Net gain on disposal of shares in strategic associates | 1,286 | - |
Net foreign exchange gains | 72 | 1,616 |
Consolidated profit before income tax expense under IFRS | 6,534 | 25,560 |
A reconciliation of Group aggregate net profit to IFRS consolidated net profit for the six months ended 30 June 2013 and 2012 is presented below:
RUR millions | H1 2013 | H1 2012 |
Group aggregate net profit | 5,063 | 3,969 |
Adjustments to reconcile Group aggregate net profit toconsolidated net profit under IFRS: | ||
Share-based payments expenses | (709) | (774) |
Differences in timing of revenue recognition | (19) | (142) |
Effect of operations disposed of, difference in shareholding percentages and acquisition dates of subsidiaries and associates | 38 | 34 |
Amortisation of fair value adjustments to intangible assets and impairment thereof | (831) | (851) |
Gain on financial instruments at fair value through profit or loss | 225 | 97 |
Net gain on disposal of shares in available-for-sale investments | - | 20,498 |
Net foreign exchange gains | 72 | 1,616 |
Share in financial results of non-core associates | (9) | 7 |
Net gain on disposal of shares in strategic associates | 1,286 | - |
Other | (12) | (25) |
Tax effect of the adjustments and tax on unremitted earnings | (372) | (287) |
Consolidated net profit under IFRS | 4,732 | 24,142 |
Selected Operating Statistics
u Monthly audience of Mail.Ru portal in June 2013 reached 33.2 million users (TNS, Russia, cities with 100k+ population, age 12-54, desktop only)
u Mail.ru Agent had 20.7 million global monthly users in June 2013
u ICQ had 12.3 million and 7.9 million global and Russian users respectively in June 2013
u MMO average monthly payers amounted to 481 thousand users in H1 2013 (the numbers combine paying users of individual MMO games and may include overlap)
u Community IVAS average monthly payers amounted to 6,904 thousand users in H1 2013 (the numbers combine paying users of Odnoklassniki, My World, love.mail.ru and our own social games on third-party networks and may include overlap)
[a] The USD number represents a convenience translation. The RUR amounts have been translated into USD using an exchange rate of RUR 32.7090 to USD 1.00, the official exchange rate quoted as of June 30, 2013 by the Central Bank of the Russian Federation