Press releases

10.08.2017

Mail.Ru Group Limited Unaudited IFRS results for Q2 2017

Mail.Ru Group Limited (MAIL:LI, hereinafter referred as "the Company" or "the Group"), one of the largest Internet companies in the Russian-speaking Internet market, today releases unaudited IFRS results and segment financial information for the three months ended 30 June 2017.

Performance highlights

Three months ended 30 June 2017

- Q2 2017 Group aggregate segment revenue grew 36.8% Y-o-Y to RUR 13,127 million.
- Q2 2017 Group aggregate segment EBITDA grew 6.5% Y-o-Y to RUR 4,595 million.
- Q2 2017 Group aggregate net profit grew 2.1% Y-o-Y to RUR 3,038 million.

Six months ended 30 June 2017

- H1 2017 Group aggregate segment revenue grew 33.3% Y-o-Y to RUR 26,328 million.
- H1 2017 Group aggregate segment EBITDA grew 12.8% Y-o-Y to RUR 9,846 million.
- H1 2017 Group aggregate net profit grew 18.5% Y-o-Y to RUR 6,812 million.

Net cash position as of 30 June 2017 was RUR 8,597 million.

Key Recent Developments

- Total number of orders processed by the combined Delivery Club business increased 2.5 times Y-o-Y to 957,000 in May 2017.
- VK was named the number one mobile destination in Russia in terms of time spent among all mobile apps (Mediascope, Russia, cities 700k+, April 2017).
- Major update of Delivery Club app: redesign, large-scale dishes presentation, UI improvements, 5-star rating system for restaurants.
- Youla was integrated into OK as classifieds section – listings posted on OK are available in Youla and vice versa.
- Youla added trendy selections of listings and last mile delivery across major cities, as well as full seller functionality in the web version.
- Am.ru web version and mobile apps were updated with a new design and new widgets (3D view, average selling time, price stats and value depreciation).
- Multiple updates of BeepCar: recommendations to add an avatar/vehicle/photo of the vehicle, ability to report an issue with an avatar/ride/profile/comment, search history and popular routes, ability to repeat previously created rides, social login, etc.
- Beta community of Mail.Ru email service. A unique platform to test and review new email features and discuss them with other beta-users.
- Mail.Ru email apps updated with scheduled sending and ability to send attachments of any size.
- Hotbox, Icebox and Teambox – our corporate cloud services for hot data storage, cold data storage and online teamwork – came out of beta.
- VK launched the first open platform for creating virtual masks: any artist can create a new mask.
- VK rolled out Streaming API allowing researchers and marketing professionals to follow public content updates using key words and automatically receive all relevant posts.
- The VK for Business section was completely updated: new ad formats, retargetings and community categories; video platform, letting admins of VK groups earn from ads in videos posted in groups.
- VK held programming contest VK Cup 2017 (2,736 teams applied, 39 participants from 7 countries reached the Final) and major offline event in St. Petersburg VK Fest 2017 (350 interactive areas within 20 themed zones and 85,000 visitors over 2 days).
- OK launched platform for apps in groups and introduced customizable portlets with content above the group’s newsfeed.
- Global launch of mobile game HAWK on Android.
- New content updates for Warface, War Robots, Skyforge for PS4, Revelation Online, Perfect World and Juggernaut Wars.
- Multiple updates of myTarget: an independent assessment of ads’ viewability provided by 3rd parties such as Moat, Inc.; users targeting based on their actions in the app; marketplace for 3rd party audience segments from DMPs.
- ME updated with detailed hotel pages, tours and activities from Viator.com, new car navigation UI and map styles, additional stops in navigation and reduced map size.

 Commenting on the results of the Company, Dmitry Grishin, Chairman of the Board, and Boris Dobrodeev, CEO (Russia) of Mail.Ru Group, said:

“We are pleased to report our results for the second quarter of 2017 where we have continued to see strong growth in all areas. Q2 revenue, including all acquisitions on a pro forma basis, grew 36.8% Y-o-Y to RUR 13,127m. As we have stated previously, 2017 remains an investment year for us and we continue to significantly invest and expand our new projects which, at this stage, are not contributing to EBITDA. As such EBITDA grew 6.5% Y-o-Y to RUR 4,595m.

On 28th June we announced that we had received formal notification from the tax authorities that a significant part of our Russian IVAS revenues are eligible for exception from Russian VAT. This change was applicable from January 1st. As a result of this we are presenting our Q1 2017 numbers to reflect this change on a pro forma basis. Q1 2017 revenues would have grown 30.0% Y-o-Y to RUR 13,201m from the reported 24.4% Y-o-Y growth to RUR 12,636m and Q1 2017 EBITDA would have been RUR 5,251m, compared to the reported RUR 4,884m. H1 revenues therefore grew 33.3% Y-o-Y to RUR 26,328m with EBITDA growing 12.8% Y-o-Y to RUR 9,846m.

Advertising revenue growth remained strong in Q2, with the trends that we have seen over the last few periods continuing. Despite us continuing to use part of our ad inventory to boost our new products (mainly Youla, Am.ru, Delivery Club and BeepCar) advertising revenues grew 28.7% Y-o-Y to RUR 5,395m. Growth was driven by both the further development of our advertising technologies and the adoption of our ad formats by advertisers. As in previous periods the fastest growing advertising revenues remained in-feed advertising across the social networks and in video and mobile. We continue to see advertising budgets shift from all other mediums to digital, and especially to mobile. Through H2 2017 we will continue to focus on the growth of mobile and video advertising and on the continued roll out of new ad technology. Engagement continues to rise across all platforms, better ad targeting and other tools increase efficiency and our unique market position on mobile allows us to continue to take advantage of the market trends.

In Q2 VK continued to perform strongly with further growth in engagement. Revenues grew 59.1% Y-o-Y to RUR 3,074m. Advertising continued to be the bulk of the revenues, and while VK IVAS increased in Q2, advertising revenues grew faster than total revenues. We continue to make improvements to the platform and the user experience. In Q2 we updated the VK for business section, added new ad formats. VK stories are becoming a good driver of user engagement. Despite the blocking of VK in Ukraine, and the usual seasonal effects, total and mobile monthly active users continued to grow Y-o-Y to 91m and 77m in June respectively.

For the rest of 2017 the focus will remain on mobile newsfeed advertising. As previously commented we expect the ad load and pricing to continue to increase from the current levels. We continue to see significant further opportunities for VK with both an expanding user base and an increasing number of features.

In Q2 2017 on a pro forma basis our MMO games revenue grew 53.6% Y-o-Y to RUR 3,850m. International revenues also continued to grow and in Q2 accounted for around 50% of total MMO revenues. Q2 growth was driven by both ongoing success in existing titles and new releases. Warface and War Robots continue to perform well and are our two largest games. Revelation also continues to deliver good performance both domestically and internationally. We have also had a number of successful new releases, most notably the console version of Skyforge which has been well received and the successful launch of HAWK. Through the rest of 2017 there will be a number of additional releases including a significantly updated version of Armored Warfare. As such, we expect to see continued good growth from games in 2017.

In Q2 2017 IVAS revenues grew 24.4% Y-o-Y. While aspects of mobile IVAS remain challenging we are pleased with the initial results of the new cross-platform IVAS initiatives specifically the subscription services including VIP services. There will be further new mobile products through the year. Including the effect of the VAT changes, we now expect IVAS revenues to see solid growth for the rest of the year. 

Since the acquisition of Delivery Club in November 2016 we have seen very significant growth in all operating metrics. In May we announced the acquisition of ZakaZaka which we are now integrating into Delivery Club. During Q2 2017 the total number of monthly orders for the combined Delivery Club business hit a new high of over 950,000 and the number of restaurants exceeded 5,750. We continue to make a number of improvements to the product to make it both easier for the user to order, and easier for the restaurants to manage and process orders. Based on the current trend lines we anticipate that Delivery Club H2 2017 revenues will continue to experience very strong growth. Delivery Club will remain in investment phase for the rest of 2017 as it consolidates its market leading position. However, while the business does not contribute to EBITDA at present we would expect it to move into profitability during 2018.

Since its launch around 18 months ago our location-based marketplace Youla has seen consistent and strong user growth. This has continued in Q2 2017 with a new high of 20m monthly active users and over 4m daily active users on all platforms. The app remains consistently in the Top-5 Overall in Russia in the App Store and Google Play combined (according to App Annie). Over the last twelve months the Youla app demonstrated the highest gain in monthly audience among all apps measured by Mediascope (Russia, cities 700k+, age 12-64, June 2017).  

In April 2017 we announced the acquisition of Am.ru, one of the major auto classified sites. Am.ru is currently being integrated into Youla. As we have previously stated we will continue to examine the potential of some limited monetization experiments later in H2 2017 however the main focus for this year will be the further driving of user numbers and engagement. In Q2 we added a number of new features to Youla such as full integration into OK and the addition of full seller functionality to the desktop version. User feedback and engagement remain very positive and hence we anticipate further user growth through 2017.

In Q1 2017, we launched our long distance ride sharing service BeepCar. In February the service was introduced in Russia, and later expanded to 18 more countries. During Q2 we saw strong growth in mobile app installs which reached 1.9m by June. In the near term we are focused on building user numbers and hence BeepCar currently is not a revenue contributor. 

In Q2 the cash generating capacity of our business remained unchanged and cash conversion was as expected. As a result net cash, post M&A related payments, at the end of Q2 was RUR 8,597m.  

Since Q4 2016 we have made a number of acquisitions, all of which fit well with the core strategy and mobile assets of the Group and present significant opportunities for the future. With a strong balance sheet and unchanged cash generation capabilities we will continue to examine further similar-sized acquisition opportunities in the future. 

We had a strong H1 2017 with good contributions from advertising, games, Delivery Club and with IVAS returning to growth in Q2. We are encouraged by the progress in games, and see great potential as Delivery Club continues to benefit from both a fast growing market, and increased user engagement. 

The blocking of our products in Ukraine during Q2 has had some adverse effects on the revenues and we estimate the negative effect of around 1.5% of total revenues in 2017. Despite this, the rest of the business continues to perform very well. As such, and taking into account the effect of Ukraine, based on current visibility, we are pleased to increase our FY 2017 revenue guidance from previous guidance of 17–21% Y-o-Y pro-forma revenue growth to pro-forma revenue growth of between 23-26% Y-o-Y to RUR 52.6-53.9bn. FY 2017 remains a year of significant investment in the new products and given the significant potential that we see in them we will continue to aggressively invest in our new initiatives. We do not expect them to contribute to EBITDA this year. We also continue to not anticipate any meaningful revenue contributions from BeepCar or Youla in 2017. Taking this into account we expect our 2017 EBITDA around RUR 20bn.”

Conference call

The management team will host an analyst and investor conference call at 9.00 UK time (11.00 Moscow time), on Thursday 10th August 2017, including a Question and Answer session.

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

Confirmation Code: 7460561

Participant Toll Free Telephone Numbers:

From Russia 8 800 500 9283
From the UK 0800 358 6377
From the US 866 548 4713 

For further information please contact:

Investors
Matthew Hammond
E-mail: hammond@corp.mail.ru

Press
George Lobushkin
E-mail: g.lobushkin@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.  

Performance highlights on page 1 are based on the Group aggregate segment financial information, which is different from IFRS accounts. See "Presentation of Aggregate Segment Financial Information" below.

About Mail.Ru Group

Mail.Ru Group, international brand My.com (MAIL:LI, listed since November 5, 2010) is the largest internet business in Russia, based on mobile daily audience (Mediascope Mobile Index, population aged 12-64 in the cities 700 000+, June 2017, Russia). 

In line with the communitainment (communication plus entertainment) strategy, the company is developing an integrated communications and entertainment platform. The company owns Russia’s leading email service and one of Russia’s largest internet portals, Mail.Ru. The company operates three of the major Russian language social networks, VKontakte (VK), Odnoklassniki (OK) and Moi Mir (My World), and Russia's largest online games, including such gaming titles as Warface, Armored Warfare, Skyforge and Perfect World. The сompany’s portfolio also includes a leading OpenStreetMap-based offline mobile maps and navigation service MAPS.ME, auto classifieds service Am.ru, instant messaging services ICQ, Agent Mail.Ru and TamTam, a mobile location based marketplace Youla, and a ride-sharing service BeepCar. 

The Company owns 100% of mobile games developer Pixonic, and 100% of Delivery Club and ZakaZaka, two largest food delivery companies in Russia. Mail.Ru Group also holds equity stakes in a number of small venture capital investments in various Internet companies in Russia, Ukraine and Israel. 

Filing Interim Condensed Consolidated Financial Statements for Q2 2017

The Company's interim condensed consolidated financial statements for the three months ended 30 June 2017 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.rugroupifrsq22017.pdf

Group Aggregate Segment Financial Information*

RUR millions

Three months ended 30 June

Six months ended 30 June

 

2016

2017

YoY, %

2016

2017

YoY, %

Group aggregate segment revenue (1)

     

 

 

 

Online advertising

4,193

5,395

28.7%

8,112

10,265

26.5%

MMO games

2,506

3,850

53.6%

5,126

7,834

52.8%

Community IVAS

2,701

3,360

24.4%

6,110

7,283

19.2%

Other revenue**

193

522

169.9%

401

946

135.9%

Total Group aggregate segment revenue

9,593

13,127

36.8%

19,750

26,328

33.3%

Group aggregate operating expenses

     

 

 

 

Personnel expenses

2,042

2,370

16.1%

4,197

4,674

11.4%

Office rent and maintenance

505

536

6.0%

1,016

1,048

3.1%

Agent/partner fees

1,455

2,458

69.0%

2,937

4,794

63.3%

Marketing expenses

519

2,098

304.5%

1,217

3,921

222.2%

Server hosting expenses

479

448

-6.4%

1,007

877

-12.9%

Professional services

119

84

-29.5%

226

158

-30.0%

Other operating (income)/expenses, excl. D&A

159

537

237.1%

421

1,010

140.0%

Total Group aggregate operating expenses

5,277

8,532

61.7%

11,021

16,482

49.6%

Group aggregate segment EBITDA (2)

4,316

4,595

6.5%

8,729

9,846

12.8%

margin, %

45.0%

35.0%

 

44.2%

37.4%

 

Depreciation, amortisation and impairment (3)

666

924

38.8%

1,340

1,720

28.4%

Other non-operating income (expense), net***

87

68

-21.9%

-165

191

-215.3%

Profit before tax (4)

3,736

3,739

0.1%

7,223

8,316

15.1%

Income tax expense (5)

762

701

-8.0%

1,473

1,505

2.1%

Group aggregate net profit (6)

2,975

3,038

2.1%

5,750

6,812

18.5%

margin, %

31.0%

23.1%

 

29.1%

25.9%

 

Note 1: Group aggregate segment financial information for the three and six months ended June 30, 2016 has been retrospectively adjusted to include pro-forma consolidation of Pixonic, Delivery Club, ZakaZaka and Am.ru from January 1, 2016.
Note 2: Group aggregate segment financial information for the three months ended March 31, 2017 has been retrospectively adjusted to include pro-forma effect of exemption from VAT on Russian Community IVAS revenues from January 1, 2017.
Note 3: Group aggregate segment financial information includes effect of exemption from VAT on Russian MMO games revenues from October 1, 2016 and effect of exemption from VAT on Russian Community IVAS revenues from January 1, 2017; the exemption from VAT affects both the revenue and the cost sides.
(*) The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding.
(**) Including Other IVAS revenues.
(***) Including interest expenses of RUR 302 and 3 million in Q2 2016 and Q2 2017 and RUR 739 and 15 million in H1 2016 and H1 2017 respectively.

  • 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.
  • 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".
  • Group aggregate depreciation, amortisation and impairment expense is calculated by aggregating the depreciation, amortisation and impairment 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.
  • Profit before tax is calculated by deducting from Group aggregate segment EBITDA Group aggregate depreciation, amortisation and impairment expense 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.
  • 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.
  • Group aggregate net profit is the (i) Group aggregate segment EBITDA; less (ii) Group aggregate depreciation, amortisation and impairment 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 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;
- VK (VKontakte);
- Social Networks (excluding VK);
- 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 substantially all revenues from display and context advertising. 

The VK segment includes the Group’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 Social Networks (excluding VK) segment includes the Group’s two other social networks (OK and My World) and earns revenues from (i) user payments for virtual gifts, (ii) commission from application developers based on the respective applications’ revenue, 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 substantially 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 substantially all revenues from context advertising and e-commerce services (including O2O). This segment also includes a variety of other services, which are considered insignificant by the CODM 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 – Q2 2017

 

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

E-Commerce, Search and other

Eliminations

Group

RUR millions

 

 

 

 

 

 

 

Revenue

             

External revenue

 1,229

 3,846

 4,001

 3,041

 1,010

 -

 13,127

Intersegment revenue

 1

 7

 -

 33

 101

 (142)

 -

Total revenue

 1,230

 3,853

 4,001

 3,074

 1,111

 (142)

 13,127

Total operating expenses

 711

 1,394

 2,991

 1,165

 2,413

 (142)

 8,532

EBITDA

 519

 2,459

 1,010

 1,909

 (1,302)

 -

 4,595

EBITDA margin, %

42.2%

63.8%

25.2%

62.1%

-117.2%

 

35.0%

Net profit

           

 3,038

Net profit margin, %

 

 

 

 

 

 

23.1%

 Operating Segments Performance – Q2 2016

 

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

E-Commerce, Search and other

Eliminations

Group

RUR millions

 

 

 

 

 

 

 

Revenue

             

External revenue

 1,130

 3,274

 2,544

 1,928

 717

 -

 9,593

Intersegment revenue

 2

 2

 -

 4

 99

 (107)

 -

Total revenue

 1,132

 3,276

 2,544

 1,932

 816

 (107)

 9,593

Total operating expenses

 742

 1,075

 2,005

 852

 710

 (107)

 5,277

EBITDA

 390

 2,201

 539

 1,080

 106

 -

 4,316

EBITDA margin, %

34.5%

67.2%

21.2%

55.9%

13.0%

 

45.0%

Net profit

           

 2,975

Net profit margin, %

 

 

 

 

 

 

31.0%

 Operating Segments Performance – H1 2017

 

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

E-Commerce, Search and other

Eliminations

Group

RUR millions

 

 

 

 

 

 

 

Revenue

             

External revenue

 2,337

 8,076

 8,180

 5,845

 1,890

 -

 26,328

Intersegment revenue

 3

 31

 -

 121

 193

 (348)

 -

Total revenue

 2,340

 8,107

 8,180

 5,966

 2,083

 (348)

 26,328

Total operating expenses

 1,442

 2,697

 5,974

 2,214

 4,503

 (348)

 16,482

EBITDA

 898

 5,410

 2,206

 3,752

 (2,420)

 -

 9,846

EBITDA margin, %

38.4%

66.7%

27.0%

62.9%

-116.2%

 

37.4%

Net profit

           

 6,812

Net profit margin, %

 

 

 

 

 

 

25.9%

 Operating Segments Performance – H1 2016

 

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

E-Commerce, Search and other

Eliminations

Group

RUR millions

 

 

 

 

 

 

 

               

Revenue

             

External revenue

 2,137

 7,153

 5,218

 3,800

 1,442

 -

 19,750

Intersegment revenue

 2

 7

 -

 13

 193

 (215)

 -

Total revenue

 2,139

 7,160

 5,218

 3,813

 1,635

 (215)

 19,750

Total operating expenses

 1,543

 2,229

 4,340

 1,697

 1,427

 (215)

 11,021

EBITDA

 596

 4,931

 878

 2,116

 208

 -

 8,729

EBITDA margin, %

27.9%

68.9%

16.8%

55.5%

12.7%

 

44.2%

Net profit

           

 5,750

Net profit margin, %

 

 

 

 

 

 

29.1%

Note 1: Group aggregate segment financial information for the three and six months ended June 30, 2016 has been retrospectively adjusted to include pro-forma consolidation of Pixonic, Delivery Club, ZakaZaka and Am.ru from January 1, 2016.
Note 2: Group aggregate segment financial information for the three months ended March 31, 2017 has been retrospectively adjusted to include pro-forma effect of exemption from VAT on Russian Community IVAS revenues from January 1, 2017.
Note 3: Group aggregate segment financial information includes effect of exemption from VAT on Russian MMO games revenues from October 1, 2016 and effect of exemption from VAT on Russian Community IVAS revenues from January 1, 2017; the exemption from VAT affects both the revenue and the cost sides.

Liquidity

As of 30 June 2017, the Company had RUR 8,597 million of cash and no debt outstanding. 

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. 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 three months ended 30 June 2016 and 2017 is presented below:

RUR millions 

Q2 2016

Q2 2017

Group aggregate segment revenue, as presented to the CODM

9,593

13,127

Adjustments to reconcile revenue as presented to the CODM to consolidated revenue under IFRS:

 

 -

Effect of difference in dates of acquisition and loss of control in subsidiaries

 (484)

 -

Differences in timing of revenue recognition

 (155)

 (1,408)

Barter revenue

15

7

Dividend revenue from venture capital investments

13

9

Consolidated revenue under IFRS

8,982

11,735

 A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit before income tax expense of the Company for the three months ended 30 June 2016 and 2017 is presented below: 

RUR millions 

Q2 2016

Q2 2017

Group aggregate segment EBITDA, as presented to the CODM

4,316

4,595

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 and loss of control in subsidiaries

 (21)

 -

VAT exemption pro-forma to Q1

 -

367

Differences in timing of revenue recognition

 (155)

 (1,408)

Net loss on venture capital investments

 (105)

 -

Share-based payment transactions

 (443)

 (320)

Other

15

15

EBITDA

3,607

3,249

Depreciation and amortisation

 (1,872)

 (2,246)

Share of profit of equity accounted associates

7

8

Finance income

371

115

Finance expenses

 (291)

 (3)

Other non-operating loss

 -

 (53)

Net loss on derivative financial assets and liabilities at fair value through profit or loss

 (189)

 (104)

Impairment losses related to equity accounted associates

 -

 (245)

Net foreign exchange gain/(loss)

 (469)

850

Consolidated profit before income tax expense under IFRS

1,164

1,571

 A reconciliation of Group aggregate net profit to IFRS consolidated net profit of the Company for the three months ended 30 June 2016 and 2017 is presented below: 

RUR millions

Q2 2016

Q2 2017

Group aggregate net profit, as presented to the CODM

2,975

3,038

Adjustments to reconcile net profit as presented to the CODM to consolidated net profit under IFRS:

 -

 -

Share-based payment transactions

 (443)

 (320)

Differences in timing of revenue recognition

 (155)

 (1,408)

Effect of difference in dates of acquisition and loss of control in subsidiaries

 (8)

 -

Amortisation of fair value adjustments to intangible assets and impairment thereof

 (1,209)

 (1,322)

Net loss on financial instruments at fair value through profit or loss

 (294)

 (104)

Net foreign exchange gain/(loss)

 (469)

850

VAT exemption pro-forma to Q1

 -

296

Share of profit of equity accounted associates

7

8

Impairment losses related to equity accounted associates

 -

 (245)

Other

 (6)

6

Tax effect of the adjustments, tax on unremitted earnings and non-recurring deferred tax asset reversal

719

76

Consolidated net profit under IFRS

1,117

875

A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue of the Company for the six months ended 30 June 2016 and 2017 is presented below: 

RUR millions 

H1 2016

H1 2017

Group aggregate segment revenue, as presented to the CODM

19,750

26,328

Adjustments to reconcile revenue as presented to the CODM to consolidated revenue under IFRS:

   

Effect of difference in dates of acquisition and loss of control in subsidiaries

 (386)

 -

Differences in timing of revenue recognition

 (491)

 (2,294)

Barter revenue

28

17

Dividend revenue from venture capital investments

13

9

Difference in classification of revenue

 -

 (565)

Consolidated revenue under IFRS

18,914

23,495

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 2016 and 2017 is presented below:

RUR millions 

H1 2016

H1 2017

Group aggregate segment EBITDA, as presented to the CODM

8,729

9,846

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 and loss of control in subsidiaries

223

 -

Differences in timing of revenue recognition

 (491)

 (2,294)

Net loss on venture capital investments

 (216)

 (27)

Share-based payment transactions

 (1,015)

 (1,236)

Other

 (44)

4

EBITDA

7,186

6,293

Depreciation and amortisation

 (3,768)

 (4,360)

Share of profit of equity accounted associates

42

16

Finance income

563

234

Finance expenses

 (718)

 (15)

Other non-operating income/(loss)

38

 (42)

Net gain on derivative financial assets and liabilities at fair value through profit or loss

179

82

Impairment losses related to equity accounted associates

 -

 (245)

Net (loss)/gain on disposal of shares in subsidiaries

8,712

 (15)

Net foreign exchange gain/(loss)

 (617)

576

Consolidated profit before income tax expense under IFRS

11,617

2,524

A reconciliation of Group aggregate net profit to IFRS consolidated net profit of the Company for the six months ended 30 June 2016 and 2017 is presented below: 

RUR millions

H1 2016

H1 2017

Group aggregate net profit, as presented to the CODM

5,750

6,812

Adjustments to reconcile net profit as presented to the CODM to consolidated net profit under IFRS:

 -

 -

Share-based payment transactions

 (1,015)

 (1,236)

Differences in timing of revenue recognition

 (491)

 (2,294)

Effect of difference in dates of acquisition and loss of control in subsidiaries

207

 -

Amortisation of fair value adjustments to intangible assets and impairment thereof

 (2,424)

 (2,640)

Net gain/(loss) on financial instruments at fair value through profit or loss

 (37)

55

Net (loss)/gain on disposal of shares in subsidiaries

8,712

 (15)

Net foreign exchange gain/(loss)

 (617)

576

Share of profit of equity accounted associates

42

16

Impairment losses related to equity accounted associates

 -

 (245)

Other

 (45)

 (9)

Tax effect of the adjustments, tax on unremitted earnings and non-recurring deferred tax asset reversal

1,299

659

Consolidated net profit under IFRS

11,381

1,679

Selected Operating Statistics

  • Ru Group is holding the lead in Russian mobile internet (Mediascope, Russia, cities 700k+, age 12-64, mobile daily active users, June 2016).
  • MMO average monthly payers amounted to 764 thousand users in H1 2017 (the numbers combine paying users of individual MMO and mobile games and may include overlap).
  • Community IVAS average monthly payers amounted to 7,214 thousand users in H1 2017 (the numbers combine paying users of VK, OK, My World, love.mail.ru and our own social games on third-party networks and may include overlap). 

Consolidated IFRS Statement of Financial Position

RUR millions

December 31, 2016
(audited)

June 30, 2017
(unaudited)

ASSETS

 

 

Non-current assets

 

 

Investments in equity accounted associates

649

420

Goodwill

132,309

133,239

Other intangible assets

29,894

27,848

Property and equipment

3,840

4,085

Financial assets at fair value through profit or loss

403

310

Deferred income tax assets

2,600

2,818

Other non-current assets

2,265

1,664

Total non-current assets

171,960

170,384

Current assets

   

Trade accounts receivable

5,089

4,109

Prepaid income tax

49

532

Prepaid expenses and advances to suppliers

2,111

1,984

Financial assets at fair value through profit or loss

105

298

Other current assets

201

268

Cash and cash equivalents

5,513

8,597

Total current assets

13,068

15,788

TOTAL ASSETS

185,028

186,172

EQUITY AND LIABILITIES

   

Equity attributable to equity holders of the parent

   

Issued capital

-

-

Share premium

51,758

52,479

Treasury shares

 (1,290)

 (1,856)

Retained earnings

112,415

114,089

Accumulated other comprehensive income

470

247

Total equity attributable to equity holders of the parent

163,353

164,959

Non-controlling interests

64

69

Total equity

163,417

165,028

Non-current liabilities

   

Deferred income tax liabilities

3,265

2,914

Deferred revenue

2,710

3,860

Other non-current liabilities

748

345

Total non-current liabilities

6,723

7,119

Current liabilities

   

Trade accounts payable

3,355

3,682

Income tax payable

389

240

Financial liabilities at fair value through profit or loss

195

-

VAT and other taxes payable

2,231

1,582

Deferred revenue and customer advances

4,893

6,203

Short-term interest-bearing loans

122

-

Other payables and accrued expenses

3,703

2,318

Total current liabilities

14,888

14,025

Total liabilities

21,611

21,144

TOTAL EQUITY AND LIABILITIES

185,028

186,172

Consolidated IFRS Statement of Comprehensive Income

RUR millions

Q2 2016
(unaudited)

Q2 2017
(unaudited)

H1 2016
(unaudited)

H1 2017
(unaudited)

Online advertising

4,197

5,402

8,144

10,279

MMO games

2,065

2,772

4,155

5,980

Community IVAS

2,643

3,030

5,976

6,277

Other revenue

77

531

639

959

Total revenue

8,982

11,735

18,914

23,495

Other operating gain

-

565

-

565

Net loss on venture capital investments

 (105)

-

 (216)

 (27)

Personnel expenses

 (2,387)

 (2,690)

 (5,232)

 (5,910)

Office rent and maintenance

 (493)

 (536)

 (1,005)

 (1,048)

Agent/partner fees

 (1,330)

 (2,456)

 (2,741)

 (4,796)

Marketing expenses

 (324)

 (2,100)

 (926)

 (3,934)

Server hosting expenses

 (472)

 (448)

 (989)

 (877)

Professional services

 (116)

 (87)

 (221)

 (163)

Other operating expenses

 (148)

 (734)

 (398)

 (1,012)

Total operating expenses

 (5,270)

 (9,051)

 (11,512)

 (17,740)

EBITDA

3,607

3,249

7,186

6,293

Depreciation and amortisation

 (1,872)

 (2,246)

 (3,768)

 (4,360)

Share of profit of equity accounted associates

7

8

42

16

Finance income

371

115

563

234

Finance expenses

 (291)

 (3)

 (718)

 (15)

Other non-operating income/(loss)

-

 (53)

38

 (42)

Net gain/(loss) on derivative financial assets and liabilities at fair value through profit or loss

 (189)

 (104)

179

82

Impairment losses related to equity accounted associates

-

 (245)

-

 (245)

Net (loss)/gain on disposal of shares in subsidiaries

-

-

8,712

 (15)

Net foreign exchange gain/(loss)

 (469)

850

 (617)

576

Profit before income tax expense

1,164

1,571

11,617

2,524

Income tax expense

 (47)

 (696)

 (236)

 (845)

Net profit

1,117

875

11,381

1,679

Attributable to:

       

Equity holders of  the parent

1,114

871

11,372

1,674

Non-controlling  interest

3

4

9

5

Other comprehensive income/(loss) that may be reclassified to profit or loss in subsequent periods

       

Exchange differences on translation of foreign operations:

-

-

-

-

     Differences arising during the period

133

 (384)

83

 (236)

Available-for-sale financial assets:

-

-

-

-

     Loss arising during the period (net of tax effect of zero)

 (98)

-

 (332)

-

Total other comprehensive income/(loss) net of tax effect of 0

35

 (384)

 (249)

 (236)

Total comprehensive income, net of tax

1,152

491

11,132

1,443

Attributable to:

       

Equity holders of  the parent

1,152

487

11,127

1,438

Non-controlling  interest

-

4

5

5

Earnings per share, in RUR:

       

Basic earnings per share attributable to ordinary equity holders of the parent

5.34

4.13

54.62

7.97

Diluted earnings per share attributable to ordinary equity holders of the parent

4.68

4.07

52.90

7.83

Consolidated IFRS Statement of Cash Flows

RUR millions

H1 2016
(unaudited)

H1 2017
(unaudited)

Cash flows from operating activities

   

Profit  before income  tax

11,617

2,524

Adjustments to  reconcile profit before income tax to net cash flows:

   

Depreciation and amortisation

3,768

4,360

Bad debt expense/(reversal)

21

 (23)

Net gain on financial assets and liabilities at fair value through profit or loss

 (179)

 (82)

Net (gain)/loss on disposal of shares in subsidiaries

 (8,712)

15

(Gain)/loss on disposal of property and equipment and intangible assets

 (4)

-

Finance income

 (563)

 (234)

Finance expenses

718

15

Dividend revenue from venture capital investments

 (11)

 (9)

Share of profit of equity accounted associates

 (42)

 (16)

Impairment losses related to equity accounted associates

-

245

Net foreign exchange (gain)/loss

617

 (576)

Share-based payment expense

1,015

1,236

Other non-cash items

 (64)

26

Working Capital adjustments:

   

Decrease in accounts receivable

537

1,040

(Increase)/decrease in prepaid expenses and advances to suppliers

 (383)

232

(Increase)/decrease in other assets

 (7)

 (40)

Decrease in accounts payable and accrued expenses

 (676)

 (739)

(Increase)/decrease in  non-current prepaid expenses and advances

 (1,901)

480

Increase in deferred revenue and customers advances

526

2,447

(Increase)/decrease in financial assets at fair value through profit or loss

216

 (126)

Operating cash flows before dividends received, interest and income taxes

6,493

10,775

Dividends received from financial investments

43

8

Interest received

523

228

Interest paid

 (727)

 (15)

Income tax paid

 (884)

 (1,996)

Net cash provided by operating activities

5,448

9,000

Cash flows from investing activities:

   

Cash paid for property and equipment

 (712)

 (1,148)

Cash paid for intangible assets

 (307)

 (1,033)

Dividends received from equity accounted associates

23

-

Collection of loans receivable

19

-

Cash paid for acquisitions of subsidiaries, net of cash acquired

-

 (2,734)

Proceeds from disposal of subsidiaries, net of cash disposed

9,709

 (43)

Collection of short-term and long-term deposits

15

-

Issuance of loans receivable

-

 (9)

Net cash (used in)/provided by investing activities

8,747

 (4,967)

Cash flows from financing activities:

-

-

Loans repaid

 (15,299)

 (122)

Cash paid for treasury shares

-

 (854)

Dividends paid by subsidiaries to non-controlling shareholders

 (2)

-

Net cash used in financing activities

 (15,301)

 (976)

Net increase/(decrease) in cash and cash equivalents

 (1,106)

3,057

Effect of exchange differences on cash balances

2

27

Cash and cash equivalents at the beginning of the period

8,676

5,513

Cash and cash equivalents at the end of the period

7,572

8,597