5 Sep 2012 07:00
Mail.Ru Group Limited
Unaudited IFRS Results for H1 2012
5 September 2012. 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 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 2012.
H1 2012 Performance Highlights
u H1 2012 Group aggregate segment revenue grew 49% Y-o-Y to RUR 9,693 million. Q2 2012 Group aggregate segment revenue demonstrated 48% Y-o-Y growth
u H1 2012 Group aggregate segment EBITDA grew 60% Y-o-Y to RUR 5,318 million
u H1 2012 Group aggregate net profit grew 66% Y-o-Y to RUR 4,003 million
u Net cash position as of 30 June 2012 was RUR 33,135 million (before special dividend payment)
u Monthly audience (TNS Russia) of Mail.Ru portal in June 2012 reached 31.8 million Russian users
Key Recent Developments
u Email & portal
o Main Page and Email optimized for touch phones
o Released Email application for Android in addition to previously released iOS application
o A number of improvements to Email service (speed, security and anti-spam)
o Introduced HTTPS support for our Email service and on the Main Page
o Email now supports IMAP
u Social networks
o Optimized the look of photos in Odnoklassniki (OK) newsfeed
o Introduced multiple photo upload in OK iOS application
o New OK application for Android (with music player)
o New design of notifications in OK
o New OK payment system interface launched
o Broad anti-spam and child protection activities
u Instant messaging
o Released Mail.Ru Agent 6.0 for Windows, better design and better voice and video call quality
o Mail.Ru Agent for MacOS now supports multiple accounts and ICQ
o Released Mail.Ru Agent application for Android with enhanced call quality
o New ICQ clients for iOS and Android with OK accounts support, photo sharing, videos and location
u Online games
o Launched Allods in Middle East, North Africa and Poland
o Continue to execute our games strategy, evidenced by accelerating MMO segment growth in Q2
o Warface and mobile Juggernaut continue to gain user traction and revenue
u Search & E-Commerce
o Search market share was 8.2% in June 2012 (LiveInternet)
o Machine learning algorithms for search results ranking launched, improving relevance
o Reworked search interface and results page: own style, new pictures output layout
o Released mobile applications for Bada and Windows Phone featuring voice search
o Tailored our Search for mobile browsers, including java phones and smartphones
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 delighted to report that during the Q2 and H1 2012 Mail.Ru Group has exceeded all key performance indicators, delivering strong growth across all segments - email & portal and instant messaging, social networking, online games and search & e-commerce. Compared to H1 2011, Group aggregate segment revenue increased by 49%, reaching RUR 9,693 million and Group aggregate segment EBITDA rose 60% to RUR 5,318 million.
Community IVAS has become a key contributor to our revenues as well as a material driver of revenue growth, delivering an impressive 107% growth Y-o-Y in H1. The main driver of this growth is the increase of paying user engagement - especially in virtual gifts and services, as well as in our API platform and self-developed social games. While context advertising continued to grow in line with the market, we have seen moderate slowdown of growth in display revenue, primarily driven by planned reduction in advertising inventory on some of our properties. Evidenced by continued improvement in Q2 Y-o-Y revenue growth, 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 become our Top 4 revenue generating game in Q2.
During the first half, we continued to attract new talent, especially core engineering expertise. In the first six months of the year our total headcount increased by 230 full-time employees and reached 2,895 as of 30 June 2012.
We continue to deliver significant improvements in profitability - EBITDA margin of 54.9% compared to 51.0% in H1 2011, driven by scale effect in personnel, server hosting and marketing costs.
Given the strong results of H1 and our continued delivery we are increasing our FY 2012 guidance and now expect to see FY 2012 RUR revenue growth of 40% with FY 2012 EBITDA margin percentage in the low fifties."
Conference call
The Mail.ru Group management team will host an analyst conference call at 14.00 UK time (17.00 Moscow time, 09.00 U.S. Eastern Daylight Time), on Wednesday 5 September 2012, including a Question and Answer session.
To participate in this conference call, please use the following access details:
Confirmation Code: |
18095346 |
Participant Toll Free Telephone Numbers: | |
Russia Free Phone | 8108 002 178 2044 |
UK Free Phone | 0800 694 1562 |
USA Free Phone | 1866 245 0744 |
Standard International Call | +44 (0) 1452 583 043 |
For further information please contact:
Investors:
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.
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, September 2011). Mail.Ru Group's sites reach approximately 84 per cent of Russian Internet users on a monthly basis (comScore, December 2011) and the Company is the world's sixth largest Internet business, based on total time spent online (comScore, December 2011).
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 (TNS, December 2011) Russian language online social networking sites (Odnoklassniki and Moi Mir (or "My World")). The Company also operates the two largest Instant Messaging ("IM") networks in Russia (Mail.Ru Agent and ICQ), Russia's leading email service and Russia's largest Internet portal Mail.ru (based on monthly unique users, TNS, December 2011), 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 small minority stakes in international Internet companies including Facebook (1.34%), Zynga (1.15%) and Groupon (4.11%) as well as 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 2011 | H1 2012 | YoY, % | H1 2011 | H1 2012 | ||
Group aggregate segment revenue (1) | ||||||
Display advertising | 1,681 | 2,188 | 30.2% | 58.9 | 71.4 | |
Context advertising | 743 | 1,083 | 45.8% | 26.0 | 35.3 | |
Total online advertising | 2,424 | 3,271 | 34.9% | 84.9 | 106.8 | |
MMO games | 1,818 | 2,171 | 19.4% | 63.7 | 70.9 | |
Community IVAS | 1,556 | 3,220 | 106.9% | 54.5 | 105.1 | |
Total IVAS | 3,374 | 5,391 | 59.8% | 118.2 | 176.0 | |
Other revenue*** | 718 | 1,031 | 43.6% | 25.1 | 33.6 | |
Total Group aggregate segment revenue | 6,516 | 9,693 | 48.8% | 228.2 | 316.4 | |
Group aggregate operating expenses | ||||||
Personnel expenses | 1,747 | 2,107 | 20.6% | 61.0 | 68.8 | |
Office rent and maintenance | 161 | 219 | 36.0% | 5.6 | 7.1 | |
Agent/partner fees | 476 | 915 | 92.2% | 16.6 | 29.9 | |
Marketing expenses | 271 | 315 | 16.2% | 9.5 | 10.3 | |
Server hosting expenses | 239 | 295 | 23.4% | 8.4 | 9.6 | |
Professional services | 101 | 120 | 18.8% | 3.5 | 3.9 | |
Other operating (income)/expenses, excl. D&A | 201 | 404 | 101.0% | 7.0 | 13.2 | |
Total Group aggregate operating expenses | 3,196 | 4,375 | 36.9% | 111.6 | 142.8 | |
Group aggregate segment EBITDA (2) | 3,320 | 5,318 | 60.2% | 116.5 | 173.6 | |
margin, % | 51.0% | 54.9% | 51.1% | 54.9% | ||
Depreciation and amortisation (3) | 488 | 537 | 10.0% | 17.1 | 17.5 | |
Share of profit (loss) of key strategic associates (4) | 168 | 153 | -8.9% | 5.9 | 5.0 | |
Other non-operating income (expense), net | 64 | 200 | 212.5% | 2.2 | 6.5 | |
Profit before tax (5) | 3,064 | 5,134 | 67.6% | 107.6 | 167.6 | |
Income tax expense (6) | 655 | 1,131 | 72.7% | 22.9 | 36.9 | |
Group aggregate net profit (7) | 2,409 | 4,003 | 66.2% | 84.7 | 130.7 | |
margin, % | 37.0% | 41.3% | 37.1% | 41.3% | ||
(*) 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 represent a convenience translation. The RUR amounts have been translated into USD using the H1 2012 average exchange rate of RUR 30.64 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. 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 operating income 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 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. 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. A reconciliation of Group aggregate net profit to IFRS consolidated net profit is available under "Presentation of Aggregate Segment Financial Information" below.
Operating segments
Starting from December 2011, we have identified 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 2012
Email, Portal and IM | Social Networks | Online Games | E-Commerce, Search and Other Services | Eliminations | Group | |
RUR millions | ||||||
Revenue | ||||||
External revenue | 1,771 | 3,655 | 2,475 | 1,792 | - | 9,693 |
Intersegment revenue | 12 | - | - | 126 | (138) | - |
Total revenue | 1,783 | 3,655 | 2,475 | 1,918 | (138) | 9,693 |
Total operating expenses | 708 | 977 | 1,701 | 1,127 | (138) | 4,375 |
EBITDA | 1,075 | 2,678 | 774 | 791 | - | 5,318 |
EBITDA margin, % | 60% | 73% | 31% | 41% | 55% | |
Net profit | 4,003 | |||||
Net profit margin, % | 41% | |||||
USD millions* | ||||||
Revenue | ||||||
External revenue | 57.8 | 119.3 | 80.8 | 58.5 | - | 316.4 |
Intersegment revenue | 0.4 | - | - | 4.1 | (4.5) | - |
Total revenue | 58.2 | 119.3 | 80.8 | 62.6 | (4.5) | 316.4 |
Total operating expenses | 23.1 | 31.9 | 55.5 | 36.8 | (4.5) | 142.8 |
EBITDA | 35.1 | 87.4 | 25.3 | 25.8 | - | 173.6 |
EBITDA margin, % | 60% | 73% | 31% | 41% | 55% | |
Net profit | 130.7 | |||||
Net profit margin, % | 41% |
(*) The USD numbers for H1 2012 represent a convenience translation. The RUR amounts have been translated into USD using the H1 2012 average exchange rate of RUR 30.64 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 | Jun-11 | Jun-12 |
Mail.ru portal, monthly unique users, TNS | 27.5 | 31.8 |
Mail.ru portal, daily unique users, TNS | 13.6 | 15.6 |
Email monthly unique users, TNS | 22.9 | 25.7 |
Email daily unique users, TNS | 10.3 | 11.3 |
Mail.ru Agent global monthly users | 21.0 | 21.9 |
ICQ global monthly users | 30.8 | 20.5 |
ICQ Russia monthly users | 15.6 | 10.8 |
My World monthly unique users, TNS | 18.6 | 19.3 |
My World daily unique users, TNS | 4.7 | 4.1 |
Odnoklassniki monthly unique users, TNS | 18.0 | 22.2 |
Odnoklassniki daily unique users, TNS | 7.8 | 9.6 |
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 | H1 2011 | H1 2012 |
MMO games | ||
Average monthly paying users* | 227 | 263 |
Community IVAS | ||
Average monthly paying users** | 2 975 | 5 421 |
* 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 30 June 2012, the Group's net cash balance (including term deposits) was RUR 33,135 million, or USD 1,010 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 2012 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_H12012.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 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.
A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue of the Group for the six months ended 30 June 2012 and 2011 is presented below:
RUR millions | 2012 | 2011 |
Group aggregate segment revenue | 9,693 | 6,516 |
Adjustments to reconcile Group aggregate segment revenue to consolidated revenue under IFRS: | ||
Differences in timing of revenue recognition | (142) | (97) |
Barter revenue | 24 | 31 |
Dividend revenue from venture capital investments | 36 | 41 |
Consolidated revenue under IFRS | 9,611 | 6,491 |
A reconciliation of Group aggregate segment EBITDA to IFRS consolidated operating income of the Group for the six months ended 30 June 2012 and 2011 is presented below:
RUR millions | 2012 | 2011 |
Group aggregate segment EBITDA | 5,318 | 3,320 |
Adjustments to reconcile Group aggregate segment EBITDA to consolidated operating income under IFRS: | ||
Impairment of intangible assets | (1) | (93) |
Depreciation and amortisation | (1,327) | (1,274) |
Share-based payments | (774) | (816) |
Net gain on venture capital investments | 112 | 28 |
Differences in timing of revenue recognition | (142) | (97) |
Dividend revenue from venture capital investments | 36 | 41 |
Other | 13 | 1 |
Consolidated operating income under IFRS | 3,235 | 1,110 |
A reconciliation of Group aggregate net profit to IFRS consolidated net profit of the Group for the six months ended 30 June 2012 and 2011 is presented below:
RUR millions | 2012 | 2011 |
Group aggregate net profit | 4,003 | 2,409 |
Adjustments to reconcile Group aggregate net profit to consolidated net profit under IFRS: | ||
Share-based payments | (774) | (816) |
Differences in timing of revenue recognition | (142) | (97) |
Effect of operations disposed of, difference in shareholding percentages and acquisition dates of subsidiaries and associates | - | (19) |
Amortisation of fair value adjustments to intangible assets and impairment thereof | (851) | (912) |
Gain/(loss) on financial instruments at fair value through profit or loss | 97 | (250) |
Net gain on disposal of shares in available-for-sale investments | 20,498 | - |
Impairment of investments in strategic associates | - | (173) |
Net foreign exchange gains (losses) | 1,616 | (120) |
Share in financial results of non-core associates | 7 | (59) |
Other | (25) | 3 |
Tax effect of the adjustments and tax on unremitted earnings | (287) | 140 |
Consolidated net profit under IFRS | 24,142 | 105 |
[a] The USD number represents a convenience translation. The RUR amounts have been translated into USD using an exchange rate of RUR 32.8169 to USD 1.00, the official exchange rate quoted as of June 30, 2012 by the Central Bank of the Russian Federation