Mail.Ru Group Limited
FY 2017 Audited IFRS results.

Mail.Ru Group Limited (MAIL.IL, hereinafter referred to as "the Company" or "the Group"), one of the largest Internet companies in the Russian-speaking Internet market, today releases audited IFRS results and segment financial information for the year ended 31 December 2017.

Performance highlights*

Three months ended 31 December 2017
- Q4 2017 Group aggregate segment revenue grew 32.6% Y-o-Y to RUR 17,564 million.
- Q4 2017 Group aggregate segment EBITDA grew 29.7% Y-o-Y to RUR 6,445 million.
- Q4 2017 Group aggregate net profit grew 54.0% Y-o-Y at RUR 4,514 million.
Twelve months ended 31 December 2017
-FY 2017 Group aggregate segment revenue grew 34.4% Y-o-Y to RUR 57,469 million.
-FY 2017 Group aggregate segment EBITDA grew 14.7% Y-o-Y to RUR 20,551 million.
-FY 2017 Group aggregate net profit grew 22.6% Y-o-Y to RUR 14,244 million.
Net cash position as of 31 December 2017 was RUR 15,371 million.

Key Recent Developments

Operational and product updates

- Mail.Ru Group ranked No.1 mobile app publisher in Russia in terms of both downloads and consumer spend (AppAnnie 2017 Retrospective Report).
- VK, Youla, OK and Mail.Ru Email apps listed among the Best iPhone Apps of 2017 by Apple App Store (Russia).
- VK, VK Live, BeepCar and Pandao listed among the Best Apps of 2017 by Google Play (Russia).
- Youla introduced monetization; first results reported in mid-December with 2 million roubles daily revenue 1 month after launch.
- Youla launched cars section basing on the assets and expertise of Am.ru.
- Delivery Club reached a new record high of 1m monthly orders in December 2017.
- AI-based personalized restaurant feed in Delivery Club.
- Pandao processed 500k orders in Q4 2017 growing to a peak daily order of 370k in February 2018.
- Multiple enhancements of messaging in VK: delete message for all chat members, send chat invitation link, edit sent messages, pin messages in chat, etc.
- VK rolled out an editor for long-reads – tools for writers and new functional layout for readers. 400k articles were created within 1 week after launch.
- VK launched replies in stories and stories from groups.
- VK held its first VK Music Awards ceremony that was live-streamed in the mobile screencast format.
- OK launched online broadcasting in Ultra HD (4K).
- OK extends Like button with different animated emojis.
- New section with third-party services on OK.
- Global launch of new mobile game Hustle Castle on iOS and Android.
- Release of Skyforge console version for Xbox.
- New game modes (Team Deathmatch 2.0 and King of the Hill) and Battle Rewards system in War Robots.
- Major Chernobyl update in Warface: special operation Pripyat, a new map, weapon series, etc.
- Mail.Ru Group announced its own eSports professional league with Warface being the first title used.
- Release of Disk-O, a service providing unified access to multiple cloud storages. Disk-O desktop app displays each cloud in a file manager as a virtual drive; users can open/edit files directly from the cloud without taking up local space.
- myTarget added support of the CPI (cost per install) model for VK, OK and media projects of Mail.Ru Group.
- myTarget became the first platform in Russia with SDK (software development kit) approved by Google AdMob and DoubleClick for Publishers.

Corporate updates

- Mail.Ru Group announced the signing of the acquisition of 100% of ESforce, one of the largest eSports companies globally. The deal is expected to close in late Q1 2018.
- Mail.Ru Group brought together its B2B IaaS (Infrastructure as a service) products (Infra, Hotbox and Icebox) under new brand Mail.Ru Cloud Solutions.

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 fourth quarter and the full year 2017. In Q4 we have continued to see strong growth in all areas and revenues, including all acquisitions on a pro forma basis, grew 32.6% Y-o-Y to RUR 17,564m. As we have stated previously, 2017 was a year of sizeable investment for us as we put significant resources behind a number of our new projects, especially our O2O initiatives. In 2017, these new projects did not contribute to EBITDA. Headline Q4 EBITDA therefore grew 29.7% Y-o-Y to RUR 6,445m. For the FY 2017, revenues have grown on a pro-forma basis 34.4% Y-o-Y to RUR 57,469m and EBITDA 14.7% Y-o-Y to RUR 20,551m.

Excluding the RUR 768m one-off non-cash tax charge in Q4 2016, to allow like-for-like comparison, EBITDA grew 12.3% and 10.0% Y-o-Y in Q4 and FY 2017 respectively.

Advertising revenue growth remained strong in Q4, with all the major trends we have seen over the last 2 years continuing, driven by growing user engagement, improved advertising technologies and sales execution. We continued to invest in our new businesses and allocate part of our inventory to promote these new products, which obviously had a limiting effect on inventory available for sale. Even taking this into account, our advertising revenue continued to grow ahead of the market. Advertising revenues in Q4 grew 29.4% Y-o-Y to RUR 7,679m and in FY 2017 grew 28.9% to RUR 23,766m.

As in previous periods, the fastest growing advertising revenues remained promo posts across the social networks. Our native in-feed video formats are getting increasingly adopted by both reach and performance oriented advertisers. In terms of overall customer budgets we continue to see advertising budgets shift to online from all other mediums and in online towards mobile and social networks in particular. Traditional offline brands are allocating growing parts of their media spend to mobile, especially to social. This trend accelerated in 2017 and we expect it to continue in 2018.

Mobile continues to be a key focus and the share of mobile advertising revenues inside the social networks rose from around one third in 2016 to a half in 2017. In 2017 we focused on the advertising product and technologies that drive efficiency, transparency and create value for our partners by improving ROI. We will continue these efforts in 2018.

In Q4 VK continued to perform strongly with further growth in engagement. VK remains above all of its key competitors in terms of user numbers and new downloads. It also continues to significantly outperform in terms of engagement metrics on both desktop and mobile. In Q4, VK revenues grew 53.2% Y-o-Y to RUR 4,584m. Advertising continued to be the bulk of the revenues, and as in previous periods, while IVAS increased in Q4, advertising revenues grew faster than total revenues.

As in 2017 the focus in 2018 will remain on mobile advertising. As previously commented we expect the ad load and pricing to continue to grow. We continue to see significant further opportunities for VK with both engagement and the improvement of the platform. We will also focus on the business eco-system and continue to develop features helping businesses and users to communicate and transact on the platform. There are already hundreds of thousands business groups on VK representing various large and small companies and private entrepreneurs, our goal is to help them grow their business while providing useful tools for our users.

We continue to promote our video platforms that now have over 1.1bn average daily views in total, and we are actively developing new formats such as live streaming where VK and OK have the leading live video platforms, VK Live and OK Live respectively, on the Russian market. We started to experiment with own content, bringing together major content producers, new media content creators, bloggers and brands. OK LIVE weekly talk show now has an audience of around 2m per episode on average. In Q4 VK streamed the world's only 24/7 live digital AI reality show which drew over 219 million views from 33 million users in total. VK has also developed and streamed its own music award that was made in mobile screencast format and accumulated more than 16m views.

In Q4 2017 on a pro forma basis our MMO games revenue grew 34.6% Y-o-Y to RUR 5,196m and for the full year grew 53.0% to RUR 17,422m. International revenues also continued to grow and in Q4 accounted for 55% of total MMO revenues. As was the case in the rest of the year, Q4 growth was driven by a broad base with ongoing success in both established and recently released titles. Warface and War Robots continue to perform well and are our two largest games. HAWK continued the good performance from Q3. Additionally the release of Hustle Castle has been well received and we have a full pipeline for 2018 on PC, mobile and console. Despite a high base effect and the VAT effect no longer applying to games we would expect that FY 2018 MMO games revenues will continue to show good performance with growth expected to be broadly in line with overall group revenue growth rates.

In Q4 2017 IVAS revenues grew 24.1% Y-o-Y and for the FY 2017 grew 17.6%. While the transition to mobile IVAS remains challenging, the new cross-platform IVAS initiatives specifically the subscription service and the VIP services on OK have made some progress. We will be further exploring new mobile products during 2018, including newly launched mobile-first IVAS products, such as music subscriptions and live-stream donations. For FY 2018 IVAS revenues are expected to be broadly flat Y-o-Y, as such IVAS revenues will continue to decline as a percentage of total revenues. Given the product release timings in 2018 we would also expect that IVAS revenues will be somewhat more H2 weighted than in previous years.

During Q4 Delivery Club continued to show very strong growth in all operating metrics. As expected, the ZakaZaka integration is now completed. In Q4 2017 the average monthly orders for the combined Delivery Club business grew 65% Y-o-Y on a pro-forma basis to 862,000 orders, and the number of restaurants reached 7,000. In December order numbers were around 1m. 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 FY 2018 revenues will continue to experience very strong growth. While we continue to invest in Delivery Club, we believe that we are past the peak investment phase and during Q4 we continued the process of marketing channel optimization. As previously stated, we continue to expect that Delivery Club will move into profitability during 2018.

Since its launch, just over 2 years ago, our location-based marketplace Youla has seen consistent and strong user growth. This has continued in Q4 2017 with a new high of 24m monthly active users and 5m daily active users on all platforms. The app remains consistently in the Top-10 Overall in Russia in the App Store and Google Play combined (according to App Annie). With the integration of Am.ru and the launch of our real estate offering on both desktop and mobile, we continue to expand the reach of Youla. As we said previously we considered that a user base above 20m would represent a strong base to start monetization. As such, during Q4 we started monetization experiments with promoted listings and then expanded this to advertising and other related payments. In December we announced that Youla had already reached a peak of RUR 2m daily revenue. We are pleased to announce that since then monetization has had further positive dynamics. During 2018 we plan to further increase monetization.

In December we commented on the initial results of our new cross border market place Pandao. Pandao had its full launch at the beginning of November and since then has made very significant progress and in Q4 Pandao had over 500,000 orders. To date we have had over 8.5m downloads and in February had 5.5m monthly active users. With 1.2m orders in January, and a peak daily order number of 370,000 in February we are very pleased with its initial progress. SKUs continue to see strong growth. The launch, and subsequent progress, has exceeded our expectations and we see that there is very strong demand from both suppliers and users. As such we see a very significant opportunity for Pandao and hence have increased, and brought forward, our investments into this area. We will therefore be putting significant resources behind Pandao through 2018 as we materially further expand marketing, content and distribution.

In January 2018 we announced the acquisition of ESforce, one of the largest eSports companies in the world. The strategic fit with both our social networks and our games is very clear. The underlying market continues to see very fast growth and ESforce is well positioned to benefit from this as it has exposure to all of the key verticals. As we said in the statement in January we will look to continue to aggressively expand the business and will look to exploit synergies with the wider network. As such we expect that ESforce 2018 revenues will grow between 80-100% and the losses seen in 2017 will halve with the business moving into profitability at the end of this year. The deal is expected to close in March, and as with previous acquisitions, and in order to give a like-for-like comparison, we will report all ESforce results going forward on a pro-forma basis.

In Q4, the cash generating capacity of our business remained unchanged and cash conversion was as expected. As a result net cash at the end of FY 2017 was RUR 15.4bn.

We are very pleased with the acquisitions we have made over the last 18 months and the progress they have made. All of them fit well with the core strategy and mobile assets of the Group and present significant opportunities for the future. The significant volume growth of the combined Delivery Club and ZakaZaka and its integration with Mail.ru’s social properties as well as leveraging the companies gaming distribution in War Robots are good examples of the network effects we continue to look for. With a strong balance sheet and unchanged cash generating capabilities, we will continue to examine further similar-sized acquisition opportunities in the future.

Starting from the beginning of 2018, and along with all other companies using IFRS, we will be applying the new IFRS 15 standard. IFRS 15 introduces a different revenue recognition model that, as applies to the Company, results in a more conservative treatment of certain contracts where third-party agents are involved. In order to allow for like-for-like comparison we have also given FY 2017 results on both the previously used IAS 18 and new IFRS 15 standards. Given the more conservative treatment of IFRS 15 under this standard our FY 2017 revenue would have been RUR 55,768m; FY 2017 EBITDA would have been the same (in the amount of RUR 20,551m). For total clarity, we will be applying IFRS 15 to both the management accounts and the audited IFRS statements going forward, and forward looking guidance will be given on this basis.

2017 was a very strong year for Mail.Ru Group with total revenues growing by more than a third. Advertising revenues continued to benefit from the shifts in ad budgets towards online, and in online budgets towards social networks. The games division executed well, and continues its expansion internationally and across new platforms. Delivery Club continues to show good growth, and Youla initial monetization was ahead of our expectations. Pandao has grown very rapidly from its launch in November and presents us with a significant future opportunity. While IVAS still has challenges with the mobile transition, 2017 saw some stabilization, and we continue to expect IVAS to progressively become a smaller part of revenues. Taking all this into account, we continue to believe we remain well positioned overall.

2018 has started well and based on current visibility, and as previously discussed, using the new more conservative IFRS 15 standard, we are pleased to give initial FY 2018 pro-forma Y-o-Y revenue growth guidance of 23–28% to between RUR 68.6-71.4bn. This does not include any contribution from ESforce given that the transaction has not yet closed. With Youla and Pandao monetisation increasing through the year and the H2 weighting of IVAS we would expect the total revenue growth will also be somewhat more H2 weighted than in previous years. 

Inside the core social network business, the underlying margins are expected to be broadly flat in 2018. However, we have been very encouraged by the initial progress of Pandao and as such are materially increasing, and bringing forward, our investment in this business. We are looking to invest at least an additional RUR 3bn in this area in 2018. Taking this investment into account, we expect FY 2018 EBITDA to be between RUR 21 to 22bn.”

Conference call
The management team will host an analyst and investor conference call at 9.00 UK time (12.00 Moscow time), on Thursday 1st March 2018, including a Question and Answer session.

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

Confirmation Code:

6755935

Participant Toll Free Telephone Numbers:

 

From Russia

+7 495 213 1767

From the UK

+44 (0)330 336 9105

From the US

+1 323 794 2551  

For further information please contact:

Investors

Matthew Hammond

Phone: +971 505 56 1315

E-mail: hammond@corp.mail.ru

Press

Olga Zyryaeva

Phone: +7 909 974 5996

E-mail: o.zyryaeva@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.IL, listed since November 5, 2010) is the largest internet business in Russia in terms of total daily audience (Mediascope Web Index, Russia, population aged 12-64 in the cities 100,000+, December 2017).

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, a ride-sharing service BeepCar and a cross-border marketplace Pandao. 

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

Mail.Ru Group is actively involved in IT education in Russia and has a number of education centers in partnership with major Russian universities. Mail.Ru Group also holds Russia’s most important programming contests.

 Filing of Consolidated Financial Statements for FY 2017

The Company's audited consolidated financial statements for the year ended 31 December 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.rugroupifrsfy2017.pdf.

 

 Group Aggregate Segment Financial Information*

 

RUR millions

Three months ended 31 Dec

Twelve months ended 31 Dec

2016

2017

YoY, %

2016

2017

YoY, %

Group aggregate segment revenue (1)

     

 

 

 

Online advertising

5,936

7,679

29.4%

18,442

23,766

28.9%

MMO games

3,861

5,196

34.6%

11,390

17,422

53.0%

Community IVAS

3,056

3,794

24.1%

11,854

13,946

17.6%

Other revenue**

388

895

130.7%

1,065

2,335

119.2%

Total Group aggregate segment revenue

13,241

17,564

32.6%

42,751

57,469

34.4%

Group aggregate operating expenses

     

 

 

 

Personnel expenses

2,397

3,385

41.2%

8,630

10,673

23.7%

Office rent and maintenance

527

540

2.5%

2,052

2,126

3.6%

Agent/partner fees

2,317

3,595

55.2%

6,892

11,090

60.9%

Marketing expenses

1,166

2,411

106.8%

3,017

8,732

189.4%

Server hosting expenses

439

456

3.9%

1,894

1,795

-5.2%

Professional services

185

111

-40.0%

510

342

-32.9%

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

1,241

621

-50.0%

1,842

2,160

17.3%

Total Group aggregate operating expenses

8,272

11,119

34.4%

24,837

36,918

48.6%

Group aggregate segment EBITDA (2)

4,969

6,445

29.7%

17,914

20,551

14.7%

margin, %

37.5%

36.7%

 

41.9%

35.8%

 

       

 

 

 

Depreciation, amortisation and impairment (3)

881

949

7.7%

2,940

3,587

22.0%

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

99

146

47.5%

115

484

320.9%

Profit before tax (4)

4,187

5,642

34.8%

15,089

17,448

15.6%

Income tax expense (5)

1,255

1,128

-10.1%

3,473

3,204

-7.7%

Group aggregate net profit (6)

2,932

4,514

54.0%

11,616

14,244

22.6%

margin, %

22.1%

25.7%

 

27.2%

24.8%

 

Note 1: Group aggregate segment financial information for the three and twelve months ended December 31, 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 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 15 and 1 million in Q4 2016 and Q4 2017 and RUR 767 and 15 million in FY 2016 and FY 2017 respectively.

1. Group aggregate segment revenue is calculated by aggregating the segment revenue of the Company's operating segments and eliminating intra-segment and inter-segment revenues. This measure differs in significant respects from IFRS consolidated net revenue. See "Presentation of Aggregate Segment Financial Information" below.

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

3. Group aggregate depreciation, 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.

4. 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.

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

6. Group aggregate net profit is the (i) Group aggregate segment EBITDA; less (ii) Group aggregate depreciation, 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;
- Search, E-Commerce 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 Search, E-commerce and Other Services segment primarily consists of search engine services earning substantially all revenues from context advertising and food delivery services earning substantially all revenue from restaurant’s commission. This segment also includes a variety of other services, which are either not currently earning any material revenues 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 – Q4 2017

 

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

Search,
E-Commerce and other

Eliminations

Group

RUR millions

 

 

 

 

 

 

 

               

Revenue

             

External revenue

1,695

4,540

4,984

4,563

1,782

 -

17,564

Intersegment revenue

 -

1

 -

21

118

 (140)

 -

Total revenue

1,695

4,541

4,984

4,584

1,900

 (140)

17,564

Total operating expenses

853

1,798

3,465

1,789

3,354

 (140)

11,119

EBITDA

842

2,743

1,519

2,795

 (1,454)

 -

6,445

EBITDA margin, %

49.7%

60.4%

30.5%

61.0%

-76.5%

 

36.7%

Net profit

           

 4,514

Net profit margin, %

 

 

 

 

 

 

25.7%

 

Operating Segments Performance – Q4 2016

 

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

Search,
E-Commerce and other

Eliminations

Group

RUR millions

 

 

 

 

 

 

 

               

Revenue

             

External revenue

 1,512

 3,811

 3,801

 2,957

 1,160

 -

 13,241

Intersegment revenue

 1

 10

 -

 35

 95

 (141)

 -

Total revenue

 1,513

 3,821

 3,801

 2,992

 1,255

 (141)

 13,241

Total operating expenses

 1,011

 1,428

 2,826

 1,044

 2,104

 (141)

 8,272

EBITDA

 502

 2,393

 975

 1,948

 (849)

 -

 4,969

EBITDA margin, %

33.2%

62.6%

25.7%

65.1%

-67.6%

 

37.5%

Net profit

           

 2,932

Net profit margin, %

 

 

 

 

 

 

22.1%

 

Operating Segments Performance – FY 2017

 

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

Search,
E-Commerce and other

Eliminations

Group

RUR millions

 

 

 

 

 

 

 

               

Revenue

             

External revenue

 5,206

 16,147

 17,614

 13,811

 4,691

 -

 57,469

Intersegment revenue

 3

 33

 -

 156

 408

 (600)

 -

Total revenue

 5,209

 16,180

 17,614

 13,967

 5,099

 (600)

 57,469

Total operating expenses

 3,016

 5,942

 12,828

 5,257

 10,475

 (600)

 36,918

EBITDA

 2,193

 10,238

 4,786

 8,710

 (5,376)

 -

 20,551

EBITDA margin, %

42.1%

63.3%

27.2%

62.4%

-105.4%

 

35.8%

Net profit

           

 14,244

Net profit margin, %

 

 

 

 

 

 

24.8%

 

Operating Segments Performance – FY 2016

 

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

Search,
E-Commerce and other

Eliminations

Group

RUR millions

 

 

 

 

 

 

 

               

Revenue

             

External revenue

 4,797

 14,219

 11,526

 8,883

 3,326

 -

 42,751

Intersegment revenue

 4

 20

 -

 54

 383

 (461)

 -

Total revenue

 4,801

 14,239

 11,526

 8,937

 3,709

 (461)

 42,751

Total operating expenses

 3,268

 4,690

 9,309

 3,605

 4,426

 (461)

 24,837

EBITDA

 1,533

 9,549

 2,217

 5,332

 (717)

 -

 17,914

EBITDA margin, %

31.9%

67.1%

19.2%

59.7%

-19.3%

 

41.9%

Net profit

           

 11,616

Net profit margin, %

 

 

 

 

 

 

27.2%

Note 1: Group aggregate segment financial information for the three and twelve months ended December 31, 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 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 31 December 2017, the Company had RUR 15,371 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 year ended 31 December 2016 and 2017 is presented below: 

RUR millions 

FY 2017

FY 2016

Group aggregate segment revenue, as presented to the CODM

57,469

42,751

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

 -

 (1,076)

Differences in timing of revenue recognition

 (5,181)

 (1,740)

Barter revenue

12

30

Dividend revenue from venture capital investments

9

36

Difference in classification of revenue

 (565)

 -

Consolidated revenue under IFRS

51,744

40,001

A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit before income tax expense of the Company for the year ended 31 December 2016 and 2017 is presented below:

RUR millions 

FY 2017

FY 2016

Group aggregate segment EBITDA, as presented to the CODM

20,551

17,914

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

 -

206

Differences in timing of revenue recognition

 (5,070)

 (1,740)

Net loss on venture capital investments

 (27)

 (769)

Share-based payment transactions

 (2,475)

 (2,226)

Dividend revenue from venture capital investments

9

36

Other

 (15)

 (47)

EBITDA

12,973

13,374

Depreciation and amortisation

 (8,931)

 (7,754)

Impairment of intangible assets

 -

 (52)

Share of profit of equity accounted associates

15

27

Finance income

511

839

Finance expenses

 (15)

 (732)

Other non-operating income/(loss)

 (21)

39

Net loss on disposal of shares in available-for-sale investments

 -

 (342)

Impairment losses related to equity accounted associates

 (273)

 -

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

 (30)

 (112)

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

 (15)

8,712

Net foreign exchange (loss)/gain

742

 (1,330)

Consolidated profit before income tax expense under IFRS

4,956

12,669

  

A reconciliation of Group aggregate net profit to IFRS consolidated net profit of the Company for the year ended 31 December 2016 and 2017 is presented below: 

RUR millions

FY 2017

FY 2016

Group aggregate net profit, as presented to the CODM

14,244

11,616

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

   

Share-based payment transactions

 (2,475)

 (2,226)

Differences in timing of revenue recognition

 (5,070)

 (1,740)

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

 -

214

Amortisation of fair value adjustments to intangible assets and impairment thereof

 (5,344)

 (4,867)

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

 (57)

 (882)

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

 (15)

8,712

Net foreign exchange (loss)/gain

742

 (1,330)

Net loss on disposal of shares in available-for-sale investments

 -

 (342)

Share of (loss)/profit of equity accounted associates

15

27

Impairment losses related to equity accounted associates

 (273)

 -

Other

 (15)

 (43)

Tax effect of the adjustments and tax on unremitted earnings

529

2,692

Consolidated net profit under IFRS

2,281

11,831 

Selected Operating Statistics

- Ru Group is holding the lead in Russian mobile and desktop internet (Mediascope Web Index, Russia, cities 100k+, age 12-64, December 2017).

- MMO average monthly payers amounted to 764 and 811 thousand users in H1 2017 and H2 2017 respectively (the numbers combine paying users of individual MMO and mobile games and may include overlap).

- Community IVAS average monthly payers amounted to 7,214 and 5,910 thousand users in H1 2017 and H2 2017 respectively (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).

Adoption of IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. The Group will adopt the new standard on the required effective date using the full retrospective method adjusting each financial statement line item affected for the period immediately preceding the first period for which this Standard is applied.

The application of IFRS 15 to the FY 2017 results would decrease revenue from online advertising and Community IVAS and Agent/partner fees by RUR 1,700 million.

Consolidated IFRS Statement of Financial Position

RUR millions

December 31, 2017

December 31, 2016

ASSETS

 

 

Non-current assets

 

 

Investments in equity accounted associates

1,013

649

Goodwill

133,140

132,309

Other intangible assets

24,915

29,894

Property and equipment

4,491

3,840

Financial assets at fair value through profit or loss

365

403

Deferred income tax assets

2,304

2,600

Other non-current assets

1,585

2,265

Total non-current assets

167,813

171,960

Current assets

   

Trade accounts receivable

6,556

5,089

Prepaid income tax

27

49

Prepaid expenses and advances to suppliers

1,463

2,111

Financial assets at fair value through profit or loss

171

105

Other current assets

201

201

Cash and cash equivalents

15,371

5,513

Total current assets

23,789

13,068

TOTAL ASSETS

191,602

185,028

     

EQUITY AND LIABILITIES

   

Equity attributable to equity holders of the parent

   

Issued capital

-

-

Share premium

51,722

51,758

Treasury shares

 (444)

 (1,290)

Retained earnings

114,676

112,415

Accumulated other comprehensive income

128

470

Total equity attributable to equity holders of the parent

166,082

163,353

Non-controlling interests

84

64

Total equity

166,166

163,417

Non-current liabilities

   

Deferred income tax liabilities

2,495

3,265

Deferred revenue

6,736

2,710

Other non-current liabilities

245

748

Total non-current liabilities

9,476

6,723

Current liabilities

   

Trade accounts payable

4,896

3,355

Income tax payable

525

389

Financial liabilities at fair value through profit or loss

-

195

VAT and other taxes payable

1,342

2,231

Deferred revenue and customer advances

6,295

4,893

Short-term interest-bearing loans

-

122

Other payables and accrued expenses

2,902

3,703

Total current liabilities

15,960

14,888

Total liabilities

25,436

21,611

TOTAL EQUITY AND LIABILITIES

191,602

185,028

 

Consolidated IFRS Statement of Comprehensive Income

RUR millions

FY 2017

FY 2016

Online advertising

23,769

18,492

MMO games

12,072

8,745

Community IVAS

13,662

11,647

Other revenue

2,241

1,117

Total revenue

51,744

40,001

     

Other operating gain

565

-

Net loss on venture capital investments

 (27)

 (769)

     

Personnel expenses

 (13,148)

 (10,722)

Office rent and maintenance

 (2,126)

 (2,023)

Agent/partner fees

 (11,091)

 (6,512)

Marketing expenses

 (8,637)

 (2,429)

Server hosting expenses

 (1,795)

 (1,863)

Professional services

 (347)

 (493)

Other operating expenses

 (2,165)

 (1,816)

Total operating expenses

 (39,309)

 (25,858)

EBITDA

12,973

13,374

     

Depreciation and amortisation

 (8,931)

 (7,754)

Impairment of intangible assets

-

 (52)

Share of profit of equity accounted associates

15

27

Finance income

511

839

Finance expenses

 (15)

 (732)

Other non-operating income/(loss)

 (21)

39

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

 (30)

 (112)

Net loss on disposal of shares in available-for-sale investments

-

 (342)

Impairment losses related to equity accounted associates

 (273)

-

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

 (15)

8,712

Net foreign exchange gain/(loss)

742

 (1,330)

Profit before income tax expense

4,956

12,669

Income tax expense

 (2,675)

 (838)

Net profit

2,281

11,831

Attributable to:

   

Equity holders of the parent

2,261

11,813

Non-controlling interest

20

18

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

 (353)

381

Available-for-sale financial assets:

   

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

-

 (328)

Reclassification adjustments for loss included in profit or loss

-

342

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

 (353)

395

Total comprehensive income, net of tax

1,928

12,226

Attributable to:

   

Equity holders of the parent

1,908

12,208

Non-controlling interest

20

18

Earnings per share, in RUR:

   

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

10.7

56.7

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

10.5

54.4

 

Consolidated IFRS Statement of Cash Flows

RUR millions

FY 2017

FY 2016

Cash flows from operating activities:

   

Profit before income tax

4,956

12,669

Adjustments to reconcile profit before income tax to cash flows:

   

Depreciation and amortisation

8,931

7,754

Bad debt expense

27

60

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

30

112

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

15

 (8,712)

Net loss on disposal of shares in available-for-sale investments

-

342

Loss on disposal of property and equipment and intangible assets

8

-

Net loss on venture capital investments

27

769

Finance income

 (511)

 (839)

Finance expenses

15

732

Dividend revenue from venture capital investments

 (9)

 (36)

Share of profit of equity accounted associates

 (15)

 (27)

Impairment of intangible assets

-

52

Net foreign exchange loss/(gain)

 (742)

1,330

Share-based payment expense

2,475

2,226

Impairment losses related to equity accounted associates

273

-

Other non-cash items

 (3)

1

Working Capital adjustments:

   

Increase in accounts receivable

 (1,437)

 (1,458)

Decrease/(increase) in prepaid expenses and advances to suppliers

803

 (906)

(Increase)/decrease in other assets

7

 (27)

Increase in accounts payable and accrued expenses

1,248

719

Decrease/(increase) in non-current prepaid expenses and advances

597

 (1,522)

Increase in deferred revenue and customers advances

5,415

1,968

Increase in financial assets at fair value through profit or loss

 (89)

 (100)

Decrease in financial liabilities at fair value through profit or loss

 (104)

-

Operating cash flows before interest and income taxes

21,917

15,107

Dividends received from financial investments

8

34

Interest received

521

786

Interest paid

 (13)

 (740)

Income tax paid

 (3,110)

 (2,567)

Net cash provided by operating activities

19,323

12,620

Cash flows from investing activities:

   

Cash paid for property and equipment

 (2,627)

 (2,064)

Cash paid for intangible assets

 (1,755)

 (1,763)

Dividends received from equity accounted associates and investments designated as available-for-sale financial assets

18

68

Cash paid for investments in equity accounted associates

 (640)

-

Collection/(issuance) of loans receivable

 (3)

23

Proceeds from disposal of shares in available-for-sale investments

-

604

Cash paid for acquisitions of subsidiaries, net of cash acquired

 (2,769)

 (7,157)

Proceeds from disposal of subsidiaries, net of cash disposed

 (43)

9,709

Collection of short-term and long term deposits

-

17

Net cash used in investing activities

 (7,819)

 (563)

Cash flows from financing activities:

   

Loans repaid

 (122)

 (15,534)

Loans received

-

298

Loans issued

 (53)

-

Cash paid for treasury shares

 (1,430)

-

Dividends paid by subsidiaries to non-controlling shareholders

-

 (2)

Net cash used in financing activities

 (1,605)

 (15,238)

Net increase/(decrease) in cash and cash equivalents

9,899

 (3,181)

Effect of exchange differences on cash balances

 (41)

18

Cash and cash equivalents at the beginning of the period

5,513

8,676

Cash and cash equivalents at the end of the period

15,371

5,513