Mail.Ru Group Limited Unaudited IFRS results for Q2 2018

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 unaudited IFRS results and segment financial information for the three and six months ended 30 June 2018.

Performance highlights*

► Three months ended 30 June 2018
- Q2 2018 Group aggregate segment revenue grew 30.2% Y-o-Y to RUR 17,077 million.
- Q2 2018 Group aggregate segment EBITDA declined 13.3% Y-o-Y to RUR 3,659 million.
​- Including one-off non-cash impairment charge of RUR 1,698 million Q2 2018 Group aggregate net profit declined 76.4% Y-o-Y to RUR 633 million. Ex this charge, net profit declined 13.1% Y-o-Y.

► Six months ended 30 June 2018
- H1 2018 Group aggregate segment revenue grew 29.0% Y-o-Y to RUR 33,577 million.
- H1 2018 Group aggregate segment EBITDA declined 17.0% Y-o-Y to RUR 7,652 million.
​- Including one-off non-cash impairment charge of RUR 1,698 million H1 2018 Group aggregate net profit declined 51.2% Y-o-Y to RUR 3,039 million. Ex this charge, net profit declined 24.0% Y-o-Y.

► Net cash position as of 30 June 2018 was RUR 8,565 million.

Key Recent Developments

► Initial launch of VK Pay: a user feature for money transfers to friends, communities, bloggers and businesses and a business eco-system tool for social commerce.
► VK introduced video and voice calls.
► VK released multiple updates for Messages: chat-bots for group chats, public channels, ability to grant admin rights to other chat members, etc.
► VK announced Nemesis, an AI-based original content protection algorithm.
► VK re-launched Polls service.
► VK launched dedicated FIFA World Cup 2018 newsfeed together with a special football widget and official community chat-bot.
► OK apps on iOS and Android were updated with a new video storefront and square videos.
► OK introduced 3D virtual masks for video calls on iOS and Android.
► OK Live app launched the feature for commenting live streams from other users and groups.
► OK introduced a video store with product reviews presented in OK Market and opportunity to buy goods from the video player.
► War Robots released a major update featuring new robots, weapons and map.
► Soft launch of Evolution 2 mobile game started on Android in Russia.
► EPICENTER XL, a cybersport tournament organized by ESforce, became the most popular major tournament of Dota Pro Circuit 2017-2018 on Twitch.
► Warface announced eSports Pro League (PvP league), 1st season starts in autumn 2018.
► Warface Console has been announced for release in September 2018.
► Hustle Castle reached 17.5m installs since the global launch in November 2017.
► Mail.Ru email service introduced EGO, its new product strategy: smart, useful and secure. EGO is the biggest update in years with a number of new features including smart email sorting, computer vision-based anti-phishing technology and a brand new UI.
► Mail.Ru Cloud Solutions entered the PaaS market with a new scalable PaaS service for big data analysis.
► Mail.Ru Cloud Solutions launched Sendbox and Askbox, paid SaaS services for creating newsletters and questionnaires.
► Pandao launched live streams (shopping channels) and expanded to the CIS market.
► Delivery Club added recommendations on the cart page.
► Delivery Club launched the promotions center allowing restaurants to upload their own special offers.
► Youla launched Jobs vertical and introduced cashbacks with reward points to sellers.
► myTarget integrated offline retail cashback offers into online advertising campaigns.
► Mediascope ranked Group’s video network as a leader in the Russian-language Internet in terms of audience.
► AppAnnie included VK and OK in the top-3 of Russia’s top grossing apps.
► Mail.Ru Games ventures and Unity Technologies announced a partnership to offer funding and other support to game developers.
► Clever app was updated with “clever coins”, its loyalty program and with play with the friends mode.

Commenting on the results of the Group, 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 2018 where we have continued the strong growth seen in Q1. We have now finalized the consolidation of ESforce and report all numbers including ESforce on a pro-forma basis. Q2 2018 revenues grew 30% Y-o-Y to RUR 17,077m. As we stated previously our investments in 2018 are H1 weighted and in Q2 we have continued to put significant resources behind a number of our new projects, especially our O2O initiatives, and while none of these projects contributed to EBITDA they grew as a percentage of sales. As a result Q2 2018 EBITDA including ESforce on a pro-forma basis declined 13% Y-o-Y to RUR 3,659m.

We have commented in the past that we continue to see advertising budgets shift to online from all other mediums, and in online towards mobile and social networks in particular. There was no change from this in Q2 2018. This is driven by the continued trend of traditional offline brands and SMEs moving online and allocating increasing percentages of their ad spend to mobile, and especially to social. Mobile promo posts across the social networks including video posts remained the fastest growing advertising area and we continue to see increasing adoption in both OK and VK. Mobile advertising now accounts for 64% of total social networks ad revenue.

Advertising revenue growth remained very strong in Q2. This is however not only a result of the ongoing shift in budgets, but also growing user numbers, increased user engagement, ongoing improvements in the advertising technologies driving ROI for our partners and continued strong sales execution.

The product of all of this is that our advertising revenues (including ESforce on a pro-forma basis) in Q2 continued to grow significantly ahead of the market with 37% Y-o-Y growth to RUR 7,294m. Search monetization continues to remain under pressure, and as a result the ex-search ad revenues grew 45% to RUR 6,897m. OK also continued to show solid growth in ad revenues with Q2 growth of 29%.

In Q2 VK continued to perform strongly with further growth in engagement and in total Russian users, VK revenues grew 59% Y-o-Y to RUR 4,364m. Throughout 2018 the focus in monetization will remain on mobile advertising which continues to be the fastest growing revenue stream. As we have stated before there are significant further opportunities for VK with the growth of both engagement and the number of new communication and entertainment features. During Q2 we continued to add new features to the platform with further improvements to the newsfeed and content discovery, which drives engagement. In Q2 average content consumption increased 30% Y-o-Y as we continue to focus on the user experience. VK Messenger also continues to be a core part of VK. During Q2 there were a number of further improvements to messenger, the most important being the release and subsequent significant user adoption of voice and video calls.

At the beginning of July we announced the initial roll out of VK Pay. All businesses, large and small, will now be able to accept money within VK and users are able to pay to businesses, make donations to other people and communities, and make their regular payments. We view VK Pay as a core part of the social eCommerce ecosystem as it will drive businesses to extend their presence on VK platform and add functionality to the users. As a result of collaboration with partners this service is free for the user and will remain so into the medium term. In H2 our focus will be to roll our VK Pay to as many of the 400,000 business groups and 1.8m active communities inside of VK and to make the payment system as pervasive as possible.

In order to further drive innovation in VK in H2 the VK Apps platform will be launched as a further development of an open platform for third party developers to create integrated apps within VK. The developers will be able to use all the benefits of VK Messenger and Bots platform, as well as VK Pay platform to collect payments.

At the beginning of 2017 we said that we estimated we would have doubled VK revenues again over the following 3-4 years. We can now significantly revise this, and we now estimate that we will be close to a doubling of the 2016 FY VK revenues in 2 years by the end of 2018.

In Q2 2018 our MMO games continued the strong performance seen in Q1 with revenue growth of 38% Y-o-Y to RUR 5,325m. We continue to diversify games through having the fullest possible portfolio, distributing internationally and also being cross platform. In Q2 international revenues accounted for 63% of total MMO revenue with USA, Japan and Germany being the largest non-Russian markets. This now means that international gaming revenues make up 20% of the Group total revenues.

As was the case in both 2017 and Q1 2018 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. Hustle Castle, our internally developed mobile title, is now becoming our third largest game and in Q2 saw significant growth. The game now has over 17.5m installs with over 500,000 reviews on Google play alone and an average rating of 4.7/5. Both Hustle Castle and War Robots were included in AppAnnie’s list of most successful global games from CIS and Baltic States. We continue to see significant opportunities for both titles. While Armored Warfare has had a number of successful updates in the past, its recent performance has been below our expectations, and as such we have taken a one-off non-cash impairment charge of RUR 1,698 million against its development.

We have a full pipeline for the rest of 2018, including the beta test of Conquerors Blade where we have licensed the rights for CIS, European and North American territories and further releases planned on PC, mobile and console. We continue to see good growth in games for the rest of the year with games revenues growing broadly in line with group revenues. As ever, the margin of our gaming business is a function of mix between different platforms and timing of marketing spend for the new titles. In Q2 mobile games were a higher proportion of newly launched games and hence this affected the margin. We expect lower proportional marketing spend in H2 2018 in games with the consequent effect on H2 games margins.

In January 2018 we announced the acquisition of ESforce, one of the largest eSports companies in the world. The transaction closed in late March 2018. The strategic fit with both our social networks and our games is very clear and the underlying market continues to see very fast growth. In June we announced the launch of Warface PvP League, the first professional eSports league in CIS, which will utilize the expertise and infrastructure of ESforce. The start of the first season is scheduled for autumn 2018. We think there are further significant revenue and cost synergies that can be derived from this business and hence expect the losses to continue to reduce in H2. The business remains somewhat seasonal; however we are happy to re-iterate the previous guidance for ESforce FY 2018 revenue growth of between 80-100% and the losses to at least halve from the 2017 level.

In Q2 2018 IVAS revenues returned to growth and increased 3% Y-o-Y. While OK desktop IVAS continues to decline we are pleased with the growth of the new mobile IVAS products and also the subscriptions, especially in music. In July 2018 it was announced that the number of active paid and trial subscriptions on our platforms and in an integrated Boom app by UMA exceeded 1.5m for the first time. We continue to see good ongoing growth in subscriptions and will continue to add additional features to the music offering. As such we continue to expect IVAS revenues being broadly flat Y-o-Y for FY 2018. As a result of this IVAS revenues will continue to decline as a percentage of total revenues as a result of higher growth in other revenue streams.

During Q2 the focus for Delivery Club was the ongoing improvement of marketing spending, optimization of cohorts and the focus on user and platform efficiency. Despite Q2 2017 representing a very high base as it was the highest of marketing spend in 2017 Delivery Club continued to show good growth in all operating metrics during Q2 with the number of mobile monthly active users growing about 30% Y-o-Y. On the back of continued growth in order numbers Q2 revenues grew 26% Y-o-Y to RUR 442m. At this time we see no impact on our business from the change in the competitive dynamics with around 1.4 million orders in June. The relatively lower level of growth in Q2 2018 is a reflection of the high base in Q2 2017. Based on the start of Q3, we anticipate that Delivery Club FY 2018 revenues will continue to experience strong growth and H2 revenue will grow at a rate over 50%.

During Q2 we rolled out the promotions center which allows our partner restaurants to upload their own special offers and initial take up has been encouraging. During H2 there will be further improvements to both the website and the app which will highlight restaurant offers and also focus on further improvements in delivery times. Additionally there will be further tools for partner restaurants to manage their own inventory. While we continue to invest in Delivery Club, we believe that we are now well past the peak investment phase and during H2 we will continue the process of marketing channel optimization. As previously stated, we continue to expect that Delivery Club will move into profitability during 2018 as we continue to focus on creating a long term profitably sustainable business.

Since its launch in late 2015 our location-based marketplace Youla has built a significant and sustained user base and increased its exposure to high value verticals. Despite the usual seasonal effects Q2 user numbers were broadly in line with Q1 and demonstrated Y-o-Y growth in average daily and monthly active users. During Q2 Youla introduced cashbacks with reward points to sellers and also a new jobs vertical. Monetization experiments were started in late Q4 2017 and these have been accelerated through H1 2018 with revenue over RUR 100m in June 2018. During H2 we expect to roll out further initiatives in the verticals and also launch new tools for professional sellers and buyers both of which we expect to drive further monetization improvements.

During Q2 we continued to see good progress in Pandao. Despite the usual seasonal effects we saw continued growth in usage with 20m total downloads and over 6m MAU. During Q2 the focus has been on the product roll out and localization in CIS countries and on improving the fast delivery service which now guarantees the most popular goods in under 20 days. SKUs have also continued to see strong growth and now reach 34m as we continue to make the platform more efficient and easier for merchants to onboard. We continue to see a very significant opportunity for Pandao.

During H1 we also announced that we had participated in an investment round for Citymobil and undertaken a relatively small investment into Vezet. These investments allow us to deliver taxi functionality to our user base without being exposed to the ongoing subsidies and hence margin pressure. The exposure to taxi product via Citymobil and Vezet allows us to deliver functionality in both major cities and the regions where the two companies have their relative strengths. We are very pleased with the initial results of this integration. We benefit from this in two separate ways; firstly by offering functionality to users and secondly in that a significant proportion of the advertising is over our network. We will further integrate this taxi functionality in our network in H2 and already see further positive dynamics in terms of users and rides.

In Q2, the cash generating capacity of our business remained unchanged and cash conversion was as expected. As a result, net cash position, post M&A costs, at the end of Q2 2018 was RUR 8.6bn.

H1 2018 has seen continued very strong revenue growth with both the core, and the new businesses all contributing. We expect that advertising and games revenues will continue to show good growth in H2. We also continue to see significant growth and opportunities for further integration from our eCommerce businesses. ESforce will be further integrated in H2 and as a result we are pleased to be able to increase our revenue 2018 guidance from the previous guidance of 23–28% to 26%-30% growth or RUR 71.7-73.9bn.

Taking into account, both the start to Q3 and the trends we anticipate for H2 we expect to see margin improvement in H2. This is driven by a combination of a continued ramp up of Youla and Delivery Club revenues, the release schedule and related marketing spend in games and the planned ad revenue related costs reduction in social networks. As a result we are confident that for 2018 costs were H1 weighted and hence see profitability increase in H2. This allows us to re-iterate our previous FY 2018 EBITDA guidance of between RUR 21 to 22bn even including ESforce on a pro-forma basis.”

Conference call

The management team will host an analyst and investor conference call at 9.00 UK time (11.00 Moscow time), on Thursday 26th July 2018, including a Question and Answer session.

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

Confirmation Code:

6148689

Participant Toll Free Telephone Numbers:

From Russia

8 800 500 9283

From the UK

0800 358 6377

From the US

800 263 0877

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.

Filing Interim Condensed Consolidated Financial Statements for Q2 2018 and H1 2018

The Group's interim condensed consolidated financial statements for the three and six months ended 30 June 2018 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.rugroupifrsq22018.pdf.

Group Aggregate Segment Financial Information*

RUR millions

Q2

2017

Q2

2018

YoY

H1

2017

H1

2018

YoY

Group aggregate segment revenue (1)

Online advertising

5,307

7,294

37.4%

9,980

13,860

38.9%

MMO games

3,850

5,325

38.3%

7,834

10,445

33.3%

Community IVAS

3,247

3,341

2.9%

7,011

7,097

1.2%

Other revenue**

709

1,117

57.6%

1,195

2,174

82.0%

Total Group aggregate segment revenue

13,113

17,077

30.2%

26,020

33,577

29.0%

 

Group aggregate operating expenses

 

Personnel expenses

2,788

3,845

37.9%

5,351

7,615

42.3%

Office rent and maintenance

572

624

9.0%

1,114

1,225

9.9%

Agent/partner fees

2,170

4,057

87.0%

4,122

7,672

86.1%

Marketing expenses

2,170

3,577

64.8%

3,996

6,888

72.4%

Server hosting expenses

448

507

13.0%

877

974

11.1%

Professional services

157

111

-29.2%

247

267

8.0%

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

589

698

18.5%

1,094

1,285

17.4%

Total Group aggregate operating expenses

8,895

13,418

50.9%

16,802

25,925

54.3%

Group aggregate segment EBITDA (2)

4,218

3,659

-13.3%

9,218

7,652

-17.0%

margin, %

32.2%

21.4%

 

35.4%

22.8%

 

 

Depreciation, amortisation and impairment*** (3)

931

2,809

201.7%

1,733

3,864

123.0%

Other non-operating income (expense), net

65

135

107.2%

189

265

40.0%

Profit before tax (4)

3,352

984

-70.6%

7,674

4,052

-47.2%

Income tax expense (5)

671

351

-47.6%

1,444

1,013

-29.8%

Group aggregate net profit (6)

2,681

633

-76.4%

6,230

3,039

-51.2%

margin, %

20.4%

3.7%

 

23.9%

9.1%

 

Note: Group aggregate segment financial information for the three and six months ended June 30, 2017 has been retrospectively adjusted to include pro-forma consolidation ESforce from January 1, 2017.

 (*) 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 the impairment of Armored Warfare in the amount of RUR 1,698 million in Q2 2018.

(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’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 investments measured at fair value 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 Group'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; and
- E-Commerce, Search and Other Services.

The Email, Portal and IM segment includes email, instant messaging and portal (main page and media projects). 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, stickers and music subscriptions 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 and music subscriptions, (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 reportable segment primarily consists of search engine services earning substantially all revenues from context advertising, food delivery services earning substantially all revenue from restaurant's commission and our ESforce eSports business earning substantially all revenues from sponsorship and other advertising. This segment also includes the Group’s Youla classifieds business and Pandao cross-border marketplace, neither of which is currently earning material revenues, and a variety of other services, which are considered insignificant by the CODM for the purposes of performance review and resource allocation.

We measure the performance of our operating segments through a measure of earnings before interest, tax, depreciation and amortisation (EBITDA). 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 2018

RUR millions

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

E-Commerce, Search and other

Eliminations

Group

Revenue

 

External revenue

1,305

3,867

5,627

4,352

1,926

 -

17,077

Intersegment revenue

1

2

 -

12

40

 (55)

 -

Total revenue

1,306

3,869

5,627

4,364

1,966

 (55)

17,077

Total operating expenses

867

1,647

5,097

1,958

3,904

 (55)

13,418

EBITDA

439

2,222

530

2,406

 (1,938)

 -

3,659

EBITDA margin, %

33.6%

57.4%

9.4%

55.1%

-98.6%

 

21.4%

Net profit

           

633

Net profit margin, %

 

 

 

 

 

 

3.7%

Operating Segments Performance – Q2 2017

RUR millions

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

E-Commerce, Search and other

Eliminations

Group

Revenue

 

External revenue

 1,228

 3,846

 3,874

 2,707

 1,458

 -

 13,113

Intersegment revenue

 1

 7

 -

 32

 101

 (141)

 -

Total revenue

 1,229

 3,853

 3,874

 2,739

 1,559

 (141)

 13,113

Total operating expenses

 713

 1,400

 2,843

 831

 3,249

 (141)

 8,895

EBITDA

 516

 2,453

 1,031

 1,908

 (1,690)

 -

 4,218

EBITDA margin, %

42.0%

63.7%

26.6%

69.7%

-108.4%

 

32.2%

Net profit

           

 2,681

Net profit margin, %

 

 

 

 

 

 

20.4%

Operating Segments Performance – H1 2018

RUR millions

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

E-Commerce, Search and other

Eliminations

Group

Revenue

 

External revenue

 2,498

 8,131

 10,960

 8,577

 3,411

 -

 33,577

Intersegment revenue

 1

 3

 -

 23

 95

 (122)

 -

Total revenue

 2,499

 8,134

 10,960

 8,600

 3,506

 (122)

 33,577

Total operating expenses

 1,721

 3,344

 9,463

 3,695

 7,824

 (122)

 25,925

EBITDA

 778

 4,790

 1,497

 4,905

 (4,318)

 -

 7,652

EBITDA margin, %

31.1%

58.9%

13.7%

57.0%

-123.2%

0.0%

22.8%

Net profit

           

 3,039

Net profit margin, %

 

 

 

 

 

 

9.1%

Operating Segments Performance – H1 2017

RUR millions

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

E-Commerce, Search and other

Eliminations

Group

Revenue

 

External revenue

 2,336

 8,075

 7,882

 5,261

 2,466

 -

 26,020

Intersegment revenue

 3

 31

 -

 121

 193

 (348)

 -

Total revenue

 2,339

 8,106

 7,882

 5,382

 2,659

 (348)

 26,020

Total operating expenses

 1,449

 2,712

 5,629

 1,629

 5,731

 (348)

 16,802

EBITDA

 890

 5,394

 2,253

 3,753

 (3,072)

 -

 9,218

EBITDA margin, %

38.1%

66.5%

28.6%

69.7%

-115.5%

0.0%

35.4%

Net profit

           

 6,230

Net profit margin, %

 

 

 

 

 

 

23.9%

Note 1: Group aggregate segment financial information for the three and six months ended June 30, 2017 has been retrospectively adjusted to include pro-forma consolidation ESforce from January 1, 2017.

Note 2: Group aggregate net profit for Q2 2018 and H1 2018 includes the impairment of Armored Warfare in the amount of RUR 1,698 million.

Liquidity

As of 30 June 2018, the Group had a net cash position of RUR 8,565 million.

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 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 Group'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 Group for the three months ended 30 June 2018 and 2017 is presented below:

RUR millions 

Q2 2018

Q2 2017

Group aggregate segment revenue, as presented to the CODM

17,077

13,113

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

 -

 (435)

Differences in timing of revenue recognition

 (1,592)

 (1,408)

Barter revenue

7

7

Dividend revenue from venture capital investments

15

9

Consolidated revenue under IFRS

15,507

11,286

A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit before income tax expense of the Group for the three months ended 30 June 2018 and 2017 is presented below:

RUR millions 

Q2 2018

Q2 2017

Group aggregate segment EBITDA, as presented to the CODM

3,659

4,218

Adjustments to reconcile EBITDA as presented to the CODM to consolidated profit/(loss) before income tax expenses under IFRS:

   

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

 -

378

VAT exemption pro-forma to Q1

 -

367

Differences in timing of revenue recognition

 (1,446)

 (1,408)

Net gain on venture capital investments

16

 -

Share-based payment transactions

 (499)

 (320)

Other

 (7)

14

EBITDA

1,723

3,249

Depreciation and amortisation

 (2,438)

 (2,246)

Impairment of intangible assets

 (1,698)

 -

Share of (loss)/profit of equity accounted associates

 (132)

8

Finance income

88

115

Finance expenses

 (1)

 (3)

Other non-operating income/(loss)

28

 (53)

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

 (283)

 (104)

Impairment losses related to equity accounted associates

 -

 (245)

Net foreign exchange gain

139

850

Consolidated profit/(loss) before income tax expense under IFRS

 (2,574)

1,571

A reconciliation of Group aggregate net profit to IFRS consolidated net profit of the Group for the three months ended 30 June 2018 and 2017 is presented below:

RUR millions

Q2 2018

Q2 2017

Group aggregate net profit, as presented to the CODM

633

2,681

Adjustments to reconcile net profit as presented to the CODM to consolidated net profit/(loss) under IFRS:

   

Share-based payment transactions

 (499)

 (320)

Differences in timing of revenue recognition and classification

 (1,445)

 (1,408)

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

 -

357

Amortisation of fair value adjustments to intangible assets

 (1,326)

 (1,322)

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

 (267)

 (104)

VAT exemption pro-forma to Q1

 -

296

Net foreign exchange gain

139

850

Share of (loss)/profit of equity accounted associates

 (132)

8

Impairment losses related to equity accounted associates

 -

 (245)

Other

 (28)

6

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

379

76

Consolidated net profit/(loss) under IFRS

 (2,546)

875

A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue of the Group for the six months ended 30 June 2018 and 2017 is presented below:

RUR millions 

H1 2018

H1 2017

Group aggregate segment revenue, as presented to the CODM

33,577

26,020

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

 (227)

 (549)

Differences in timing of revenue recognition

 (2,774)

 (2,294)

Barter revenue

9

17

Dividend revenue from venture capital investments

16

9

Difference in classification of revenue

 -

 (565)

Consolidated revenue under IFRS

30,601

22,638

A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit before income tax expense of the Group for the six months ended 30 June 2018 and 2017 is presented below:

RUR millions 

H1 2018

H1 2017

Group aggregate segment EBITDA, as presented to the CODM

7,652

9,218

Adjustments to reconcile EBITDA as presented to the CODM to consolidated profit/(loss) before income tax expenses under IFRS:

   

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

40

628

Differences in timing of revenue recognition

 (2,528)

 (2,294)

Net loss on venture capital investments

 (23)

 (27)

Share-based payment transactions

 (2,222)

 (1,236)

Other

 (6)

4

EBITDA

2,913

6,293

Depreciation and amortisation

 (4,823)

 (4,360)

Impairment of intangible assets

 (1,698)

 -

Share of (loss)/profit of equity accounted associates

 (132)

16

Finance income

265

234

Finance expenses

 (16)

 (15)

Other non-operating loss

 (5)

 (42)

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

395

82

Impairment losses related to equity accounted associates

 -

 (245)

Net loss on disposal of shares in subsidiaries

 -

 (15)

Net foreign exchange gain

309

576

Consolidated profit/(loss) before income tax expense under IFRS

 (2,792)

2,524

A reconciliation of Group aggregate net profit to IFRS consolidated net profit of the Group for the six months ended 30 June 2018 and 2017 is presented below:

RUR millions

H1 2018

H1 2017

Group aggregate net profit, as presented to the CODM

3,039

6,230

Adjustments to reconcile net profit as presented to the CODM to consolidated net profit/(loss) under IFRS:

   

Share-based payment transactions

 (2,222)

 (1,236)

Differences in timing of revenue recognition

 (2,528)

 (2,294)

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

37

582

Amortisation of fair value adjustments to intangible assets

 (2,656)

 (2,640)

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

372

55

Net loss on disposal of shares in subsidiaries

 -

 (15)

Net foreign exchange gain

309

576

Share of (loss)/profit of equity accounted associates

 (132)

16

Impairment losses related to equity accounted associates

 -

 (245)

Other

 (24)

 (9)

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

568

659

Consolidated net profit/(loss) under IFRS

 (3,237)

1,679

Selected Operating Statistics

1.Mail.Ru Group is holding the lead in Russian mobile and desktop internet (Mediascope, Russia, cities 100k+, age 12-64, daily active users, May 2018).
2. MMO average monthly payers amounted to 987 thousand users in H1 2018 (the numbers combine paying users of individual MMO and mobile games and may include overlap).
3. Community IVAS average monthly payers amounted to 6,475 thousand users in H1 2018 (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

June 30, 2018
(unaudited)

December 31, 2017
(audited)
Restated*

ASSETS

 

 

Non-current assets

 

 

Investments in equity accounted associates

3,049

1,013

Goodwill

140,865

133,038

Other intangible assets

22,277

25,042

Property and equipment

6,119

4,491

Financial assets at fair value through profit or loss

1,745

365

Deferred income tax assets

2,771

2,304

Other non-current assets

1,833

1,585

Total non-current assets

178,659

167,838

Current assets

   

Trade accounts receivable

6,974

6,556

Prepaid income tax

51

27

Prepaid expenses and advances to suppliers

1,044

1,463

Financial assets at fair value through profit or loss

282

171

Other current assets

676

201

Cash and cash equivalents

8,565

15,371

Total current assets

17,592

23,789

TOTAL ASSETS

196,251

191,627

     

EQUITY AND LIABILITIES

   

Equity attributable to equity holders of the parent

   

Issued capital

-

-

Share premium

53,808

51,722

Treasury shares

 (291)

 (444)

Retained earnings

111,429

114,676

Accumulated other comprehensive income

63

128

Total equity attributable to equity holders of the parent

165,009

166,082

Non-controlling interests

409

84

Total equity

165,418

166,166

Non-current liabilities

   

Deferred income tax liabilities

2,496

2,520

Deferred revenue

8,760

6,736

Other non-current liabilities

267

245

Total non-current liabilities

11,523

9,501

Current liabilities

   

Trade accounts payable

5,582

4,896

Income tax payable

288

525

VAT and other taxes payable

1,322

1,342

Deferred revenue and customer advances

7,307

6,295

Other payables and accrued expenses

4,811

2,902

Total current liabilities

19,310

15,960

TOTAL LIABILITIES

30,833

25,461

TOTAL EQUITY AND LIABILITIES

196,251

191,627

* Certain amounts shown here do not correspond to the 2017 financial statements and reflect adjustments made, refer to Note 5 of the Q2 2018 financial statements.

Consolidated IFRS Statement of Comprehensive Income

RUR millions

Q2 2018
(unaudited)

Q2 2017
(unaudited)
Restated*

H1 2018
(unaudited)

H1 2017
(unaudited)
Restated*

Online advertising

7,299

5,067

13,867

9,694

MMO games

3,768

2,772

7,521

5,980

Community IVAS

3,453

2,916

7,296

6,005

Other revenue

987

531

1,917

959

Total revenue

15,507

11,286

30,601

22,638

Other operating gain

-

565

-

565

Net gain/(loss) on venture capital investments

16

-

 (23)

 (27)

         

Personnel expenses

 (4,345)

 (2,690)

 (9,788)

 (5,910)

Office rent and maintenance

 (624)

 (536)

 (1,222)

 (1,048)

Agent/partner fees

 (4,053)

 (2,007)

 (7,586)

 (3,939)

Marketing expenses

 (3,442)

 (2,100)

 (6,528)

 (3,934)

Server hosting expenses

 (507)

 (448)

 (973)

 (877)

Professional services

 (130)

 (87)

 (285)

 (163)

Other operating expenses

 (699)

 (734)

 (1,283)

 (1,012)

Total operating expenses

 (13,800)

 (8,602)

 (27,665)

 (16,883)

EBITDA

1,723

3,249

2,913

6,293

         

Depreciation and amortisation

 (2,438)

 (2,246)

 (4,823)

 (4,360)

Impairment of intangible assets

 (1,698)

-

 (1,698)

-

Share of (loss)/profit of equity accounted associates

 (132)

8

 (132)

16

Finance income

88

115

265

234

Finance expenses

 (1)

 (3)

 (16)

 (15)

Other non-operating income/(loss)

28

 (53)

 (5)

 (42)

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

 (283)

 (104)

395

82

Impairment losses related to equity accounted associates

-

 (245)

-

 (245)

Net loss on disposal of shares in subsidiaries

-

-

-

 (15)

Net foreign exchange gain

139

850

309

576

(Loss)/profit before income tax expense

 (2,574)

1,571

 (2,792)

2,524

Income tax (expense)/benefit

28

 (696)

 (445)

 (845)

Net (loss)/profit

 (2,546)

875

 (3,237)

1,679

Attributable to:

       

Equity holders of the parent

 (2,551)

871

 (3,247)

1,674

Non-controlling interest

5

4

10

5

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

       

Exchange differences on translation of foreign operations:

-

-

-

-

     Differences arising during the period

3

 (384)

 (65)

 (236)

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

3

 (384)

 (65)

 (236)

Total comprehensive (loss)/income, net of tax

 (2,543)

491

 (3,302)

1,443

Attributable to:

 

Equity holders of the parent

 (2,548)

487

 (3,312)

1,438

Non-controlling interest

5

4

10

5

Earnings/(loss) per share, in RUR:

 

Basic (loss)/earnings per share attributable to ordinary equity holders of the parent

 (11.92)

4.13

 (15.21)

7.97

Diluted (loss)/earnings per share attributable to ordinary equity holders of the parent

 (12.21)

4.07

 (14.98)

7.83

* Certain amounts shown here do not correspond to the interim condensed financial statements for the three and six months ended June 30, 2017 and reflect full retrospective application of IFRS 15, refer to Note 11 of the Q2 2018 financial statements.

Consolidated IFRS Statement of Cash Flows

RUR millions

H1 2018
(unaudited)

H1 2017
(unaudited)

Cash flows from operating activities:

(Loss)/profit before income tax

 (2,792)

2,524

Adjustments to reconcile profit before income tax to cash flows:

Depreciation and amortisation

4,823

4,360

Impairment losses on financial assets/(reversals of impairment losses)

8

 (23)

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

 (395)

 (82)

Net loss on disposal of subsidiaries

-

15

Loss on disposal of property and equipment and intangible assets

12

-

Finance income

 (265)

 (234)

Finance expenses

16

15

Dividend revenue from venture capital investments

 (16)

 (9)

Share of (profit)/loss of equity accounted associates

132

 (16)

Impairment losses related to equity accounted associates

-

245

Impairment of intangible assets

1,698

-

Net foreign exchange gain

 (309)

 (576)

Share-based payment expense

2,222

1,236

Other non-cash items

 (4)

26

Net loss on venture capital investments

23

27

Working Capital adjustments:

(Increase)/Decrease in accounts receivable

 (95)

1,040

Decrease in prepaid expenses and advances to suppliers

630

232

Increase in inventories

 (71)

-

Increase in other assets

 (148)

 (40)

Decrease in accounts payable and accrued expenses

 (13)

 (739)

(Increase)/decrease in other non-current assets

 (131)

480

Increase in deferred revenue

2,572

2,447

Increase in financial assets at fair value through profit or loss

 (1,675)

 (153)

Operating cash flows before interest and income taxes

6,222

10,775

Dividends received from venture capital investments

16

8

Interest received

286

228

Interest paid

 (13)

 (15)

Income tax paid

 (1,413)

 (1,996)

Net cash provided by operating activities

5,098

9,000

Cash flows from investing activities:

Cash paid for property and equipment

 (2,151)

 (1,148)

Cash paid for intangible assets

 (757)

 (1,033)

Dividends received from equity accounted associates

19

-

Loans issued

 (71)

-

Cash paid for acquisitions of subsidiaries, net of cash acquired

 (7,502)

 (2,734)

Proceeds from disposal of subsidiaries, net of cash disposed

-

 (43)

Cash paid for investments in equity accounted associates

 (1,758)

-

Issuance of loans receivable

-

 (9)

Net cash used in investing activities

 (12,220)

 (4,967)

Cash flows from financing activities:

   

Loans repaid

-

 (122)

Cash paid for treasury shares

-

 (854)

Net cash used in financing activities

-

 (976)

Net increase/(decrease) in cash and cash equivalents

 (7,122)

3,057

Effect of exchange differences on cash balances

316

27

Cash and cash equivalents at the beginning of the period

15,371

5,513

Cash and cash equivalents at the end of the period

8,565

8,597