Press releases

20.02.2014

Mail.Ru Group Limited Preliminary Trading Statement for the Full Year 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 market, today provides the following preliminary unaudited segment financial information and key operating highlights for the full year ended 31 December 2013.

FY 2013 Performance Highlights

- FY 2013 Group aggregate segment revenue grew 29.6% Y-o-Y to RUR 27,404 million

- FY 2013 Group aggregate segment EBITDA grew 30.8% Y-o-Y to RUR 15,087 million

- FY 2013 Group aggregate net profit grew 36.1% Y-o-Y to RUR 11,447 million

- Net cash position as of 31 December 2013 was RUR 31,303 million

Key Developments in 2013

- Launch of my.com project that focuses on international markets and provides a suite of communication and entertainment mobile apps

  • myMail – mobile email client that lets users manage all email accounts in one place
  • myChat – mobile messaging service for free text messages, voice and video calls
  • myGames – collection of mobile games: Jungle Heat, Lucky Fields, Poker Arena, Evolution (February 2014 launch)

- Email web service updated with new interface and tutorial for new users

- Support for third-party email accounts in Mail.Ru email web service and mobile apps for iOS and Android

- Introduction of email for business – free email service for your domain powered by Mail.Ru

- Launch of Cloud.Mail.Ru with 100GB of free cloud storage and file syncing clients for Windows, Mac, iOS and Android

- OK music service updated with personalized radio, faster and easier music uploader and modern design

- OK video service updated with new back-end, new design, and new tools (channels, uploader, search)

- Enhanced tools for viewing and managing photos in OK (large photos, full-screen mode, new uploader, move, delete and set as main quick actions)

- Multiple improvements of newsfeed, search and security algorithms for OK

- New web design of My World

- MyWorld iOS and Android apps updated with new chat, built-in games and support for groups, gifts, music and video

- Warface continued growth, major update in November 2013 with “Liquidation” expansion pack

- Launch of web-based MMO games Pirate Code and War of Thrones

- Jungle Heat major update with “Heroes” expansion pack

- ArcheAge closed beta test gained significant attention from gaming community

- Announcement of H1 2014 release of World of Speed – AAA free-to-play online racing MMO

- Mail.Ru Agent for iOS and Android updated with video calls, themes and stickers

- Target.Mail.Ru launched mobile ad platform on Odnoklassniki and My World

- New UI for campaign management, new targetings, new reports and stats introduced by Target.Mail.Ru

- Mail.Ru Group’s proprietary search engine provides all search results since July 1, 2013

- Signed search monetization agreement with Yandex

- Search index volume has grown from 5 to 10 billion documents

- Significantly redesigned version of Amigo browser released

- Mail.Ru Group Moscow team moved to new Headquarters building in June 2013

- 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 FY 2013 Mail.Ru Group preliminary results during which time our company has had another successful period, meeting or exceeding key performance indicators, and hence delivering strong growth across all segments. Compared to FY 2012, Group aggregate segment revenue increased by 29.6%, reaching RUR 27,404 million and Group aggregate segment EBITDA rose 30.8% to RUR 15,087 million as the company continued to exercise tight control over costs.

Overall advertising continued to grow in line with the market with growth of 24.3% for FY 2013. Throughout the year contextual advertising continued to be strong supported by a continued focus on the Target product, and our solid market share in search. In addition in H2 contextual advertising also benefited from our monetization agreement with Yandex. Looking into 2014 we expect that advertising budgets will continue the trend of the last few years and continue to move online, away from all other genres. As such we expect another solid year in advertising growth.

As evidenced by the 40.6% growth we continued to execute on our MMO games strategy through 2013. Warface remains an important component of this and continues to see increasing traction in terms of both users (reaching over 170k PCU by the end of the year) and revenues, and during H2 2013 it remained our top revenue generating game. The closed launch of ArcheAge in Q4 2013 was well received and the initial signs for the game are very promising. With a number of further releases in 2014, and new genres of games, we expect that the MMO games revenues will continue to see good growth in both paying users and revenues.

In addition Jungle Heat, which was released under the my.com brand in June 2013, has seen strong initial success and in H2 became a material revenue contributor with the US as the largest market, and near 90% of the revenues outside of Russia. Since June 2013 the game has had over 10.6m downloads. Lucky Fields (launched in July 2013) has also been well received with over 1.0m downloads thus far. With the first launch of Evolution in Q1 2014 and further 2014 releases the initial signs for my.com games are promising and the site has had over 2.1m visits since it went live in November 2013.

Community IVAS remained an important contributor to our revenues in FY 2013 delivering 29.1% growth. The main driver of this growth is the continued increase of paying users reaching 7.6m monthly paying users in H2. As in 2013 we expect that IVAS will continue to show good growth in 2014 growing broadly in line with group revenues as we remain focused on increasing user engagement and improving our product.

While we continue to invest in the business, our sustained growth and the operating leverage in the business delivered strong margins with FY 2013 EBITDA margins of 55.1%.

Looking into 2014 the structural drivers of our business remain unchanged and we also continue to expand into new markets. As such we look into 2014 with confidence and we expect to see FY 2014 Group aggregate revenue growth of between 22-24%. We expect that this revenue growth will be broadly reflected in advertising, games and IVAS all seeing revenue growth rates at, or around, the overall group growth rate.

We continue to put a strong emphasis on dedicating resources to driving user engagement and product development. Further we will continue to invest in the best R&D talent and maintain our focus on the quality of our development base. As a result, and even taking into account costs associated with the expansion of my.com, the operating leverage in our business remains unchanged. We would therefore expect FY 2014 Group aggregate segment EBITDA margins of between 53-54%.

Conference call

The management team will host an analyst conference call at 9.00 UK time (13.00 Moscow time), on Thursday 20th February 2014, including a Question and Answer session.

To participate in this conference call, please use the following access details:

Confirmation Code:35702549
Participant Toll Free Telephone Numbers:
Russia Free Phone81080020972044
UK Free Phone08006940257
USA Free Phone18669669439
Standard International Call+44 (0) 1452 555566

For Further Information Please Contact:

Investors

Matthew Hammond

Mail.Ru Group

Phone: +971 505 56 1315

E-mail: hammond@corp.mail.ru

Press

Ksenia Chabanenko

Phone: +7 916 090 6626

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 94% of Russian Internet users on a monthly basis (comScore, December 2013) and the Company is the fifth largest Internet business globally, based on the total time spent (comScore, December 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, December 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 games 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 (10.42%). The Company also holds a number of small venture capital investments in various Internet companies in Russia and Ukraine.

Group Aggregate Segment Financial Information*

(*) The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding

(**) The USD numbers for FY 2012 and FY 2013 represent a convenience translation. The RUR amounts have been translated into USD using average exchange rates for FY 2012 (31.09 RUR/USD) and FY 2013 (31.85 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. See "Presentation of Aggregate Segment Financial Information" below.

(2) Group aggregate segment EBITDA is calculated by subtracting Group aggregate segment operating expenses from Group aggregate segment revenue. Group aggregate segment operating expenses are calculated by aggregating the segment operating expenses (excluding the depreciation and amortisation) of the Group's operating segments including allocated Group corporate expenses, and eliminating intra-segment and inter-segment expenses. See "Presentation of Aggregate Segment Financial Information".

(3) Group aggregate depreciation and amortisation expense is calculated by aggregating the depreciation and amortisation expense of the subsidiaries consolidated as of the date hereof, excluding amortisation and impairment of fair value adjustments to intangible assets acquired in business combinations.

(4) Group share of net profit from associates includes the Group's share of net profit from VK.com and Qiwi as calculated based on the ownership percentage as of the date hereof (i.e. 39.99% and 10.42%, 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 and other non-operating items.

(6) Group aggregate income tax expense is calculated by aggregating the income tax expense of the subsidiaries consolidated as of the date hereof. Group aggregate income tax expense is different from income tax as would be recorded under IFRS, as (i) it excludes deferred tax on unremitted earnings of the Group's subsidiaries and associates and (ii) it is adjusted for the tax effect of differences in profit before tax between Group aggregate segment financial information and IFRS.

(7) Group aggregate net profit is the (i) Group aggregate segment EBITDA; less (ii) Group aggregate depreciation and amortisation expense; plus (iii) Group share of net profit from associates; less (iv) Group aggregate other non-operating expense; plus (v) Group aggregate other non-operating income; less (vi) Group aggregate income tax expense. Group aggregate segment net profit differs in significant respects from IFRS consolidated net profit. See "Presentation of Aggregate Segment Financial Information".

Operating Segments

We identify our operating segments based on the types of products and services we offer. We have identified the following reportable segments on this basis:

  • Email, Portal and IM;
  • Social Networks;
  • Online Games;
  • E-Commerce, Search and Other Services

The Email, Portal and IM segment includes email, instant messaging and portal (main page and verticals). It earns almost all revenues from display and context advertising.

The Social Networks segment includes our two social networks (Odnoklassniki and My World) and earns revenues from (i) user payments for virtual gifts, (ii) revenue sharing with application developers, and (iii) online advertising, including display and context advertising.

The Online Games segment includes online gaming services, including MMO, social and mobile games. It earns almost all revenues from (i) sale of virtual in-game items to users and (ii) royalties for games licensed to third-party online game operators.

The E-Commerce, Search and Other Services segment primarily consists of search engine services earning almost all revenues from context advertising, e-commerce and online recruitment services and related display advertising. This segment also includes a variety of other services, which management considers insignificant for the purposes of performance review and resource allocation.

Each segment's EBITDA is calculated as the respective segment's revenue less operating expenses (excluding depreciation and amortisation and impairment of intangible assets), including our corporate expenses allocated to the respective segment.

Operating Segments Performance FY 2013

(*) The USD numbers represent a convenience translation. The RUR amounts have been translated into USD using FY 2013 average exchange rate of 31.85 RUR/USD

Liquidity

As of 31 December 2013, the Group's net cash balance (including term deposits) was RUR 31,303 million, or USD 956 million*, and the Group had no debt outstanding.

GDR buying programme

The Board of Directors of the Company has authorized USD 45 million to be transferred to the employee benefit trust to be used for a further GDR buying programme to be undertaken through 2014. All the GDR’s bought will be held by the employee benefit trust to be used over the lifetime of the option programme.

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.

Selected Operating Statistics

- Monthly audience of Mail.Ru portal in December 2013 reached 59.1 million users (TNS, Russia, all cities, age 12-64, desktop only)

- Mail.ru Agent had 18.8 million global monthly users in December 2013

- ICQ had 11.0 million and 6.7 million global and Russian users respectively in December 2013

- MMO average monthly payers amounted to 565 thousand users in H2 2013 (the numbers combine paying users of individual MMO games and may include overlap)

- Community IVAS average monthly payers amounted to 7.64m users in H2 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)

*The USD number represents a convenience translation. The RUR amounts have been translated into USD using an exchange rate of RUR 32.7292 to USD 1.00, the official exchange rate quoted as of December 31, 2013 by the Central Bank of the Russian Federation