26.04.2012

Final audited IFRS results for FY 2011 and preliminary revenue update for Q1 2012

Conference Call 26.04.2012

Dubai, April 26, 2012. 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 market, today releases its annual report for 2011 and provides the following final audited segment financial information for the year ended 31 December 2011 and an update on the preliminary unaudited segment revenues for Q1 2012.

Performance highlights

• Q1 2012 Group aggregate segment revenue grew Y-o-Y 45.0% to $160.3m. On a ruble basis, the Y-o-Y growth was 49.9%

–      Community IVAS was the key growth driver delivering 103.9% growth

• Monthly audience(TNS Russia) of Mail.Ru portal in March 2012 reached 32.7m Russian users

–      Continued growth in social networking and instant messaging with Odnoklassniki (“OK”) reaching 25.3m monthly users (TNS Russia) and Mail.Ru Agent at 25.5m monthly users

• Final audited segment results for FY 2011 slightly above the preliminary trading statement

–      Group aggregate segment revenue at $515.4m, Group aggregate segment EBITDA at $282.9m, Group aggregate segment net profit at $208.6m compared to $514.9m, $282.8m and $207.6m respectively reported on February 24, 2012

Key Recent Developments

Email & Portal

• Launch of a new version of Mail.Ru main page – modern, lightweight and significantly faster
• Release of email mobile application for iOS
• Launch of Mail.Ru Hub for Windows Phone 7. The application is a mobile version of Mail.Ru portal and represents a single entry point to our key vertical projects

Instant Messaging

• Release of the first mobile clients for Windows Phone 7 (Mail.Ru Agent, ICQ) and Bada (ICQ)
• Release of ICQ version 3.1 for Android featuring photo and location sharing
• Release of Mail.Ru Agent version 5.10 for Windows featuring in-house voice & video engine and further integration with Odnoklassniki (posting statuses to and receiving alerts from the network)
• We completely removed display advertising on ICQ in Russia and CIS

Social Networks

• OK introduced an enhanced privacy settings tool
• New features in OK mobile applications: music (iOS) and videochat (Android)
• Launch of video uploads in OK
• New registration guide in My World

Games

• Launch of Warface, MMO first person shooter
• Several launches of in-house developed social and mobile games

Search and E-commerce

• Release of search application for Android featuring voice search
• Money@Mail.Ru enabled users to top up accounts directly from Beeline numbers

Other

• Launch of the second annual Russian-speaking developer contest, Russian Code Cup 2012, with finals in Q3
• Held Technology Forum of Mail.Ru Group, an IT-conference where industry experts shared their knowledge and experience in developing and supporting high-load IT systems, etc.
• Opened new office in Volgograd

Commenting on the results of the Group, Dmitry Grishin, Chairman and co-founder of Mail.Ru Group, said:

“We are very pleased to report our final IFRS audited results for 2011 and continued strong revenue performance in Q1 2012.

In Q1 2012, Mail.Ru Group achieved Group aggregate segment revenue Y-o-Y growth of 50% on a ruble basis. Key drivers of our monetization remained Community IVAS and online advertising.

We continued to work on improving our products. We launched a new version of our main page – now it is significantly lighter and faster for a better user experience. This is an important milestone as the main page serves as an entry point for significant part of our users and drives traffic to other products. Our mobile development efforts advanced further with the launch of an iOS application for email, new versions of our instant messengers across mobile platforms as well as enhancements to mobile versions of OK. We are also actively re-tuning our online games business and the strategy starts paying off as Y-o-Y growth in MMO games in Q1 2012 improved compared to Q4 2011. Notably, we launched Warface, a very high-quality AAA first person shooter – we are currently focused on driving user engagement in Warface and early signs are encouraging.

We have started the year well, and despite an uncertain global economic outlook, the underlying market remains supportive and the structural drivers of our business are unchanged. As a result we reiterate our full year 2012 guidance of 35% y-o-y constant currency revenue growth and EBITDA margins of around 50%.”

Conference call

The Mail.Ru Group management team will host an analyst and investor conference call at 18.00 BST UK time (21.00 Moscow time, 13.00 U.S. Eastern Daylight Time), on Thursday 26 April 2012, 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:

Investor Relations Contacts:

Matthew Hammond

Managing Director Mail.Ru Group

Phone: +971 505 56 1315

Email: ir@corp.mail.ru

Press Contacts:

Ksenia Chabanenko

PR Director Mail.Ru Group (Russia)

Phone: +7 495 725 6359 / +7 916 090 6626

Email: 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 (2.25%), Zynga (1.16%) and Groupon (4.21%) as well as a number of small venture capital investments in various Internet companies in Russia and Ukraine.

Group aggregate segment financial information*

(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. This information may also differ from the proportionate core revenue presented in the operating segments notes to the interim consolidated financial statements of the Group as of and for the six months ended 30 June 2010. See "Presentation of Segment Financial Information." Group aggregate segment revenue numbers for the periods after July 2010 include the revenues of ICQ.

(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.  Prior to the Group IPO in November 2010 the Group Corporate expenses included an advisory fee paid to DST Advisors (“DSTA”).  Group aggregate segment EBITDA includes ICQ EBITDA from the date of acquisition.

(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 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 Segment Financial Information." Group aggregate segment net profit includes the impact of ICQ for the periods after July 2010.

Current Trading Update*

Key Performance Indicators

Liquidity

As at 31 March 2012, the Group's net cash balance was $245m (including short-term deposits) and the Group had no outstanding debt.

Filing of the Report

The Group’s audited consolidated financial statements for the year ended December 31, 2011 prepared in accordance with IFRS and accompanied by an independent auditor’s 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_AR_FY2011.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. This information may also differ from the data presented in the operating segments notes to the consolidated financial statements of the Group as of and for the years ended 31 December 2010 and to the interim consolidated financial statements of the Group as of and for the six months ended 30 June 2011 and 30 June 2010. 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.

• In 2011, the calculation of aggregate net profit was adjusted to include or exclude certain items as compared to the 2010 presentation 
  • Aggregate net profit in 2011 excludes the tax effect of the foreign exchange gains and losses excluded from the net income calculation; and
  • Aggregate net profit in 2011 includes dividend income from financial investments in associates and available-for-sale investments.

We present the respective comparative information for the year ended 31 December 2010 accordingly to conform to the current year presentation, as described above.

A reconciliation of segment financial information to our consolidated financial statements for 2011 prepared in accordance with IFRS is available on p.31 of our 2011 Annual Report and in Note 5 to our consolidated financial statements.

Segment Presentation prior to December 2011

Prior to December 2011, we had three major operating segments – Mail, OK and HeadHunter. With the exception of HeadHunter segment, in which we increased our equity interest from 91.3% to 97.2% on a non-diluted basis in 2011, these segments are 100% owned. The Mail segment included the My World social network, Mail.Ru Agent and ICQ instant messaging services, email, games and the Mail.Ru portal; the OK segment comprised the Odnoklassniki social network; the HeadHunter segment consisted of HeadHunter, a leading online recruitment service in Russia.

Change in Segment Presentation in December 2011

In 2011, we continued the integration of acquired businesses and aligned our organisational, management and reporting structure with our product offering, instead of the previously existing legal entity-based structure. Accordingly, the set of operating segments indentified for presentation of our segment financial information was modified to reflect these changes.

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.

We made several other changes to the presentation of segment information, mainly driven by the change in operating segments. The changes affected the presentation and calculation of each segment’s profitability measures reviewed by management.

Starting from 2011, management reviewed each segment’s revenue and EBITDA, while net profit was only presented on a consolidated basis and was not used to assess the performance of each operating segment. Each segment’s EBITDA is currently 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.

Prior to 2011, management reviewed each segment’s revenue, EBITDA and net income, and the segments’ EBITDA or net income did not include any allocation of our corporate expenses, which were separately shown under ‘Corporate, eliminations and other’.

The comparative segment information for 2010 was not presented to conform to current year presentation as described above, because the required information is not available, and we consider that the cost to retrospectively develop such information would be excessive. Accordingly, in addition to the 2011 presentation as described above, we also present the 2011 segment information in accordance with the segment identification principles used in 2010 for comparability purposes. This presentation is available on p.28 of our 2011 Annual Report and in Note 5 to our consolidated financial statements for 2011.

Operating segments performance – 2011 (current segments structure) 

2011 results summary          

A full discussion of the Group’s 2011 results is presented on pages 22-32 of the Group’s 2011 Annual Report available for download at http://corp.mail.ru/files/Mail.Ru_Group_AR_FY2011.pdf