20 Aug 2015 07:00
Mail.Ru Group Limited
Unaudited IFRS Results for H1 2015
20 August 2015. 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 releases unaudited interim condensed consolidated IFRS financial statements reviewed by an independent auditor and provides the following unaudited segment financial information and key operating highlights for the six months ended 30 June 2015.
H1 2015 Performance Highlights
u H1 2015 Group aggregate segment revenue grew 6.9% Y-o-Y to RUR 18,301 million. Q2 2015 Group aggregate segment revenue grew 6.4% Y-o-Y
u H1 2015 Group aggregate segment EBITDA grew 4.5% Y-o-Y to RUR 9,130 million
u H1 2015 Group aggregate net profit decreased by 10.5% Y-o-Y to RUR 5,606 million
u Net debt position as of 30 June 2015 was RUR 14,159 million (excluding interest payable of RUR 121 million)
u Mail.Ru Group is the leading online property in Russia with 75.4 million monthly active users (comScore MMX Multi-Platform, Russia, age 6+, June 2015)
Key Recent Developments
u New versions of myMail and Mail.Ru email apps: with fast photo attaching on iOS and offline search and separate version for tablets on Android
u myMail launched cooperation with ItaliaOnline
u Text search inside attachment content in Mail.Ru email service
u Secure email collection from and into Mail.Ru inbox via OAuth 2.0 protocol
u Cloud.Mail.Ru updated with online image editing on web, video streaming of all formats on all devices and screen grabber in desktop apps
u Video service relaunch in VK, including video catalogue with recommendations and licensed content as well as multiple new features
u VK starts vulnerability reward program on HackerOne platform
u Native advertising in VK newsfeed on both desktop and mobile
u Launch of Snapster: a new photo app by VK with photo editing, enhanced filters including new filter creation and sharing as well as self-destructing messages
u Multiple updates of OK.RU photo and video services in web and on mobile apps, including live streaming of events and video channels in groups
u New video player with adaptive streaming and photostreams in OK.RU apps for iOS and Android
u New extended group statistics for group administrators in OK.RU
u International (N.America and Europe) launch of internally developed MMORPG Skyforge
u Worldwide launch of closed beta test of MMO game Armored Warfare
u Launch of RB Videomatic, a technological targeted video advertising platform developed and owned by Mail.Ru Group, Gazprom-Media Digital switched its advertising network to RB Videomatic
u Launch of myTarget's English version and dollar based auction for international clients
u VK held VK CUP, a contest for young programmers, and VK FEST, a major two day off-line event in Saint-Petersburg
Commenting on the results of the Company, Dmitry Grishin, Chairman and CEO (Russia) of Mail.Ru Group, said:
In H1 2015, the Company achieved revenue growth of 6.9% Y-o-Y to RUR 18,301 million. As in previous reported results the revenue growth rates are based on a full pro-forma consolidation of VK from the beginning of 2013. Despite a challenging FX backdrop we have continued to exercise tight cost control during H1 and as a result have an H1 EBITDA margin of 49.9% with segment H1 EBITDA of RUR 9,130 million. As a result of the interest payments on the loan connected to the acquisition of VK net income declined 10.5% to RUR 5,606 million.
With the ongoing economic and geo-political situation the overall operating environment in H1 2015 remained somewhat challenging. However during Q2 we have seen some stabilization in the advertising environment. Targeted advertising, especially mobile and VK saw strong, and improving, growth rates. At this point visibility remains limited, and it is too early to say if these trends will continue, however Q3 advertising has thus far had a solid start.
VK integration is on track and the team continues to execute well. In Q2 VK revenues grew 41.4% to RUR 1,408 million. As previously commented the focus for 2015 in VK will be the continued expansion of video and mobile advertising where we continue to see strong advertising interest and execution. With H1 revenue growth of 34.4% and limited increase in costs we are pleased to announce that VK margins have increased from 34.4% in H1 2014 to 47.3% in H1 2015.
In H1 our MMO revenues grew by 1.4%, Q2 was affected by a high base effect from Q2 2014 and limited revenues from the new games. The outlook for H2 remains strong and we are pleased to announce that Skyforge has now started its international release and reception has been encouraging. In Q2 Armored Warfare started its closed beta test in Russia with the international closed beta in August. The full release in Europe, North America and Russia is currently scheduled for H2 2015. World of Speed closed beta test is also planned for H2 2015.
Community IVAS revenues showed solid growth in H1, growing ahead of the increase in the user base as we continue to focus on increasing paying user penetration - especially in virtual gifts and services, as well as in our API platform. We remain focused on increasing user engagement and improving our product. We would expect that FY IVAS revenue growth is likely to be slightly below the total revenue growth.
Our other revenue stream remains very sensitive to the underlying economic environment and hence saw revenues decline by 3.5% in H1. We do not anticipate any near term improvements in this revenue stream.
Our international expansion continues and we remain encouraged by the traction of myMail which continued to gain traction in H1. The US is the largest market followed by France, UK, Germany and Brazil. We will also look to leverage the myMail user base with the international release of games later this year.
Despite the continued challenging macro environment we have had a solid first half of the year. We are encouraged by the traction in myTarget and VK and continue to see a number of exciting opportunities in these areas. MMO has a busy second half with a number of releases both in mobile and desktop games. Based on current visibility and current market conditions, we are pleased to re-iterate our FY 2015 guidance of revenue growth (including both VK and Headhunter on a pro-forma basis) to be between 7%-12%, however given the continued strong cost control and the good revenue, and hence margin growth, in VK we now expect FY EBITDA margins of between 47-48% vs previous guidance of between 46-47%.
Conference Call
The Mail.ru Group management team will host an analyst and investor conference call at 9.00 UK time (11.00 Moscow time), on Thursday 20 August 2015, to discuss details of the Company's performance and certain forward-looking information. The conference call will include a Question and Answer session.
To participate in this conference call, please use the following access details:
Confirmation Code: | 7420579 |
Participant Toll Free Telephone Numbers: | |
Russia Free Phone | 810 800 2408 2044 |
UK Free Phone | 0800 694 5707 |
USA Free Phone | 186 6254 0808 |
Investor 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 Company. 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 Company'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 Company's success in identifying and responding to these and other risks involved in its business, including those referenced under "Risk Factors" in the Company's public filings. The forward-looking statements contained herein speak only as of the date they were made, and the Company 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 96% of Russian Internet users on a monthly basis (comScore, June 2015) and the Company is the sixth largest Internet business globally, based on the total time spent (comScore, June 2015).
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 Qiwi (1.31%) and a number of small venture capital investments in various Internet companies in Russia, Ukraine and Israel.
Group Aggregate Segment Financial Information*
RUR millions | |||
H1 2014 | H1 2015 | YoY, % | |
Group aggregate segment revenue (1) | |||
Online advertising | 5,819 | 6,363 | 9.3% |
MMO games | 4,074 | 4,131 | 1.4% |
Community IVAS | 5,734 | 6,366 | 11.0% |
Other revenue** | 1,493 | 1,442 | -3.5% |
Total Group aggregate segment revenue | 17,121 | 18,301 | 6.9% |
Group aggregate operating expenses | |||
Personnel expenses | 3,359 | 3,761 | 12.0% |
Office rent and maintenance | 846 | 950 | 12.3% |
Agent/partner fees | 2,215 | 2,416 | 9.1% |
Marketing expenses | 405 | 365 | -9.7% |
Server hosting expenses | 1,042 | 1,057 | 1.5% |
Professional services | 164 | 177 | 7.9% |
Other operating (income)/expenses, excl. D&A | 354 | 443 | 25.4% |
Total Group aggregate operating expenses | 8,384 | 9,171 | 9.4% |
Group aggregate segment EBITDA (2) | 8,736 | 9,130 | 4.5% |
margin, % | 51.0% | 49.9% | |
Depreciation and amortisation (3) | 1,123 | 1,188 | 5.8% |
Other non-operating income (expense), net | 381 | -853 | -324.2% |
Profit before tax (4) | 7,993 | 7,088 | -11.3% |
Income tax expense (5) | 1,731 | 1,482 | -14.4% |
Group aggregate net profit (7) | 6,262 | 5,606 | -10.5% |
margin, % | 36.6% | 30.6% | |
Note: Group aggregate segment financial information for the six months ended June 30, 2014 has been retrospectively adjusted to include pro-forma consolidation of VK and ICVA from January 1, 2014
(*) The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding
(**) Including Other IVAS revenues
(1) Group aggregate segment revenue is calculated by aggregating the segment revenue of the Company'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 Company's operating segments including allocated Company's 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) Profit before tax is calculated by deducting from Group aggregate segment EBITDA Group aggregate depreciation and amortisation 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 Company'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 and amortisation 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 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 (excluding VK);
• Online Games;
• VK;
• E-Commerce, Search and Other Services
The Email, Portal and IM segment includes email, instant messaging and portal (main page and content projects). It earns almost all revenues from display and context advertising.
The Social Networks (excluding VK) segment includes our two social networks (OK.RU 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 VK segment includes the Company's social network Vkontakte (VK.com) and earns revenues from (i) commission from application developers based on the respective applications' revenue, (ii) user payments for virtual gifts and stickers, and (iii) online advertising, including display and context advertising.
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 (HeadHunter and Rabota.Mail.Ru) 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 2015
Email, Portal and IM | Social Networks(ex VK) | Online Games | VK | E-commerce, Search and other | Eliminations | Group | |
RUR millions | |||||||
Revenue | |||||||
External revenue | 1,959 | 6,892 | 4,189 | 2,694 | 2,567 | - | 18,301 |
Intersegment revenue | 15 | 3 | - | - | 165 | (183) | - |
Total revenue | 1,974 | 6,895 | 4,189 | 2,694 | 2,732 | (183) | 18,301 |
Total operating expenses | 1,304 | 1,866 | 2,822 | 1,419 | 1,943 | (183) | 9,171 |
EBITDA | 670 | 5,029 | 1,367 | 1,275 | 789 | - | 9,130 |
EBITDA margin, % | 33.9% | 72.9% | 32.6% | 47.3% | 28.9% | 49.9% | |
Net profit | 5,606 | ||||||
Net profit margin, % | 30.6% |
Liquidity
As of 30 June 2015, the Company had RUR 4,977 million of cash (including term deposits) and RUR 19,136 million of debt outstanding (excluding interest payable of RUR 121 million), therefore the Company's net debt position was RUR 14,159 million.
Filing of the Report
The Company's interim condensed consolidated financial statements for the six months ended 30 June 2015 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/media/files/mail.rugroupifrsh12015.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 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, so long as the Company held at least one share of such entities during such periods. The financial information of subsidiaries disposed of prior to the date hereof is excluded from the segment presentation starting from the beginning of the earliest period presented.
• Segment revenues do not reflect certain other adjustments required when presenting consolidated revenues under IFRS. For example, segment revenue excludes barter revenues and adjustments to defer online gaming and social network revenues under IFRS.
A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue of the Company for the six months ended 30 June 2015 and 2014 is presented below:
RUR millions | H1 2015 | H1 2014 |
Group aggregate segment revenue, as presented to the CODM | 18,301 | 17,121 |
Adjustments to reconcile revenue as presented to the CODM to consolidated revenue under IFRS: | ||
Effect of difference in dates of acquisition of control in subsidiaries | - | (1,978) |
Differences in timing of revenue recognition | (135) | (154) |
Barter revenue | 38 | 37 |
Dividend revenue from venture capital investments | 51 | 72 |
Consolidated revenue under IFRS | 18,255 | 15,098 |
A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit before income tax expense of the Company for the six months ended 30 June 2015 and 2014 is presented below:
RUR millions | H1 2015 | H1 2014 |
Group aggregate segment EBITDA, as presented to the CODM | 9,130 | 8,736 |
Adjustments to reconcile EBITDA as presented to the CODM to consolidated profit before income tax expenses under IFRS: | ||
Effect of difference in dates of acquisition of control in subsidiaries | (55) | (690) |
Differences in timing of revenue recognition | (135) | (154) |
Net gain on venture capital investments | 8 | 11 |
Share-based payment transactions | (796) | (89) |
Dividend revenue from venture capital investments | 51 | 72 |
Non-recurring VAT charge | (250) | - |
Other | (169) | (11) |
EBITDA | 7,784 | 7,875 |
Depreciation and amortisation | (3,557) | (1,416) |
Impairment of intangible assets | (59) | (352) |
Share of profit of equity accounted associates | 20 | 159 |
Finance income | 300 | 279 |
Finance expenses | (1,243) | - |
Other non-operating income | 36 | 22 |
Net gain on financial assets and liabilities at fair value through profit or loss over the equity of subsidiaries and other agreements | 111 | 195 |
Net gain on disposal of shares in associates | - | 2,673 |
Net foreign exchange (losses)/gains | (411) | 934 |
Consolidated profit before income tax expense under IFRS | 2,981 | 10,369 |
A reconciliation of Group aggregate net profit to IFRS consolidated net profit of the Company for the six months ended 30 June 2015 and 2014 is presented below:
RUR millions | H1 2015 | H1 2014 |
Group aggregate segment net profit, as presented to the CODM | 5,606 | 6,262 |
Adjustments to reconcile net profit as presented to the CODM to consolidated net profit under IFRS: | - | - |
Share-based payment transactions | (796) | (89) |
Differences in timing of revenue recognition | (135) | (154) |
Effect of difference in dates of acquisition of control in subsidiaries | (30) | (207) |
Amortisation of fair value adjustments to intangible assets and impairment thereof | (2,447) | (1,086) |
Net gain on financial instruments at fair value through profit or loss | 119 | 206 |
Net gain on disposal of shares in equity accounted associates | - | 2,673 |
Net foreign exchange (losses)/gains | (411) | 934 |
Share in financial results of equity accounted associates | 20 | 159 |
Non-recurring VAT charge | (250) | - |
Other | (170) | (6) |
Tax effect of the adjustments and tax on unremitted earnings | 527 | (193) |
Consolidated net profit under IFRS | 2,033 | 8,499 |
Selected Operating Statistics
u Monthly audience of Mail.Ru portal in June 2015 reached 54.9 million Russian users (TNS, all Russia, age 12-64, desktop)
u VK mobile apps remain the most popular apps in Russia in terms of both downloads (App Annie Index, Top Apps, iOS and Google Play combined, Russia, Overall, June 2015) and audience (TNS, Russian cities with population over 700 thousand, age 12-64, June 2015)
u MMO average monthly payers amounted to 575 thousand users in H1 2015 (the numbers combine paying users of individual MMO games and may include overlap)
u Community IVAS average monthly payers amounted to 9,015 thousand users in H1 2015 (the numbers combine paying users of VK, OK.RU, My World, love.mail.ru and our own social games on third-party networks and may include overlap)