Mail.Ru Group Limited Unaudited IFRS results for Q3 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 nine months ended 30 September 2018.

Performance highlights*

► Excluding Pandao on a pro-forma basis, three months ended 30 September 2018

– Q3 2018 Group aggregate segment revenue grew 32.4% Y-o-Y to RUR 17,749 million.
– Q3 2018 Group aggregate segment EBITDA grew 6.3% Y-o-Y to RUR 4,349 million.
– Q3 2018 Group aggregate net profit declined 0.6% Y-o-Y to RUR 2,744 million.

► Excluding Pandao on a pro-forma basis, nine months ended 30 September 2018

– 9m 2018 Group aggregate segment revenue grew 29.8% Y-o-Y to RUR 51,119 million.
– 9m 2018 Group aggregate segment EBITDA declined 0.9% Y-o-Y to RUR 13,209 million.
– Including one-off non-cash impairment charge of RUR 1,698 million in Q2 2018 reported in the previous quarter, 9m 2018 Group aggregate net profit declined 22.4% Y-o-Y to RUR 6,993 million. Ex this charge, net profit declined 3.6% Y-o-Y.

► Net cash position as of 30 September 2018 was RUR 10,079 million.

Key Recent Developments

Operational and product updates

► Launch of VK Business, an integrated platform helping online and offline entrepreneurs create and develop their business communities on VK.
► Launch of VK Apps, a new platform for mini-apps. Buy goods, sign up for services, order taxis, and manage daily tasks – all without leaving the VK mobile app.
► Overhaul of VK Music: convenient tools to create playlists and get updates on artists, improved search functionality.
► VK launched the Podcast platform.
► VK introduced a new design and a massive update to its mobile video player.
► OK launched OK for Business, an information platform focused on ad campaigns, online shops and other OK business instruments.
► OK rolled out audio/video calls and conferences for up to 100 participants with HD quality.
► OK introduced pay-per-view streaming as a new monetization option for creators/publishers of premium content.
► Mail.Ru email service introduced a new logo and released updates under its EGO strategy: subscription to phone balance notifications and an ability to top up from the email, detection and prevention of suspicious activities.
► Warface released on Playstation 4 and Xbox One.
► Global launch of new mobile game Left to Survive.
► Launch of Pathfinder: Kingmaker, a single-player RPG based on popular Pathfinder tabletop franchise.
► Mail.Ru Cloud Solutions launched Database PaaS with quick access to popular databases and flexible scaling depending on business demands. The service supports open-source databases such as MySQL, PostgreSQL and Mongo.
► Delivery Club unveiled a real-time order tracking technology helping users view the progress of their orders including estimated time of delivery.
► Delivery Club revamped the Promotions center with grouping deals by category and simplified navigation and search for suitable offers.
► Youla introduced an ML-based algorithm improving the feed relevance.
► Youla updated its Auto vertical with new cars and discount offers.
► VK held programming contest VK Cup 2018 (3,279 teams applied, 20 teams reached the Final) and major offline event in St. Petersburg VK Fest 2018 (350 interactive areas, 90k+ visitors, 1.7m live stream viewers).
► Mail.Ru Games held WARFEST 2018, an open-air event for Warface fans featuring LAN finals of Warface K.I.W.I. Cup.

Corporate updates

► RDIF, Alibaba Group, MegaFon and Mail.Ru Group announced a new strategic partnership to integrate Russia's key consumer internet and e-commerce platforms and launch a leading social commerce joint venture in Russia and the CIS.

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 third quarter of 2018 where we have continued the strong growth seen in H1. Following the signing of the framework agreement in September for the new e-commerce JV, Pandao is now classified as an asset held for sale and hence is excluded on a pro-forma basis from management results and guidance. Q3 2018 pro-forma revenues grew 32% Y-o-Y to RUR 17,749m. While our investments in 2018 were more H1 weighted, in Q3 we have continued to put significant resources behind a number of our new projects, especially our O2O initiatives where we see significant potential. None of these projects contributed to EBITDA but the proportional impact was somewhat smaller than H1. As a result, Q3 2018 EBITDA on a pro-forma basis grew 6% Y-o-Y to RUR 4,349m.

Advertising revenue growth remained very strong in Q3. This is a result of the ongoing shift in budgets, as well as increased user engagement, ongoing improvements in the advertising technologies and continued strong sales execution.

We have commented a number of times in the past that we continue to see advertising budgets shift towards mobile and social networks in particular. There was no change from this in Q3 2018. This is driven by the continued trend of big offline businesses and SMEs moving online and increasing digitalization of their businesses. 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.

The product of this is that our advertising revenues in Q3 continued to grow significantly ahead of the market with 38% Y-o-Y growth to RUR 7,713m. Albeit a small part of advertising revenues, search monetization continues to remain under pressure, and as a result the ex-search ad revenues grew 46%. As in previous periods, we use part of our ad inventory to promote our new services and this is not accounted for in the revenue.

In Q3 VK continued to perform strongly with further growth in all key engagement metrics. As a result we saw further growth in total Russian users, both monthly and daily, and in average daily reach, days per month and time spent per day. VK revenues grew 45% Y-o-Y to RUR 4,429m. As we have previously commented throughout 2018 the focus in monetization will remain on mobile advertising which continues to be the fastest growing revenue stream. Both Discover and Longreads continued to grow strongly: Discover reached 40.3bn monthly post views in September and Longreads hit 16m DAU in September. These are both good examples of how VK will continue to drive content consumption. Over Q4, we will continue to develop our communication tools to provide our users with the best services for sharing content and connecting with others.

We remain focused on delivering the widest possible eco-system of products to both users and the business. This includes VK Pay and new features for business pages. At the heart of VK remains the 5m monthly active communities including the 400,000 business communities. We will further leverage these communities into the wider e-commerce and communications ecosystem going forward.

At the beginning of 2017 we said that we estimated we would have doubled VK revenues again over the following 3-4 years. With the Q2 2018 results we revised this to say that 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. We confirm this is still our expectation. We also now expect that we will double VK revenues again over the next 3-4 years.

Despite the very high hurdle rate (Q3 2017 games revenues grew 83% Y-o-Y) we are very pleased with the continued strong performance in games. In Q3 2018 our MMO games continued the strong H1 performance with revenue growth of 31% Y-o-Y to RUR 5,740m. We continue our strategy to diversify games through having the fullest possible portfolio, distributing internationally and also being cross platform. In Q3 international revenues accounted for 64% of total MMO revenue with USA, Germany and Japan being the largest non-Russian markets. This now means that international gaming revenues make up 21% of the Group total revenues.

As has been the case for the last 2 years, growth was driven by a broad base with ongoing success in both established and recently released titles. War Robots and Warface continue to perform well and are our number one and three games respectively. In Q3, Hustle Castle, our internally developed mobile title, continued the very strong growth seen in Q2 and is now our second largest game with over 4m MAU. The game now has over 25m installs with over 700,000 reviews on Google play alone and an average rating of 4.7/5. In September, the Warface franchise was expanded to consoles with PS4 and Xbox versions launched. The PS4 gathered more 2m registrations in less than two weeks after its official release with 95% of these international players. In September, we also had the successful release of Pathfinder: Kingmaker which is the first isometric party-based RPG set in the Pathfinder fantasy universe. The initial results are very encouraging.

We have further releases planned for the rest of 2018 and a full pipeline in 2019. These include, amongst others, the release of Space Justice which is a mobile game based on the proved Hawk game mechanic and the monetization model from ITT Studio. We continue to see good growth in games for the rest of the year with FY games revenues growing broadly in line with the 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. Q3 margins were particularly affected by the accelerated spend on Hustle Castle. In Q4, we expect to see a significantly lower proportional marketing spend and hence a material improvement in games margins, which are expected to be broadly in line with Q4 2017.

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 Q4 we will host the international esports tournament EPICENTER CS:GO 2018 and the first Warface PvP League. We think there are further significant revenue and cost synergies that can be derived from this business and hence expect the revenue to continue to see solid growth and the losses to continue to reduce in Q4.

In Q3 2018, IVAS revenues continued the trend seen in Q2 with a sustained return to growth and increased 5% Y-o-Y. As in previous periods the OK desktop IVAS continues to decline. However, we are pleased with the growth of the new mobile IVAS products and also the subscriptions, especially in music where the number of active paid and trial subscriptions on our platforms and in an integrated Boom app by UMA reached 2m in September. We believe this is currently the largest online subscription service in Russia. We see good ongoing growth in subscriptions and will continue to add additional features to the music offering. As such, we now expect to see IVAS revenues for FY 2018 grow low single digits.

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. In Q3, average daily active users demonstrated continued strong growth and total number of listings reached 25.8m. Our team continued to focus on the user experience with further enhancements of loyalty program, more intuitive navigation in mobile apps and improved feed relevance based on machine learning algorithms. The autos vertical was updated with a section for new cars and discount offers. On monetization side, Youla introduced a new value added service to promote listings within a product category and launched advertising on the web version. During Q4 we expect to roll out further initiatives in the verticals and also launch new tools for professional sellers which we expect to drive further monetization improvements.

During Q3 Delivery Club continued to show good growth in all operating metrics with the average number of mobile monthly active users growing over 35% Y-o-Y and the number of restaurants exceeding 7,500. The service is now available in 63 cities in Russia. On the back of continued growth in order numbers Q3 revenues grew 37% Y-o-Y to RUR 427m. We see further acceleration of this growth rate in Q4.

During Q3 we continued the rollout of the promotions center which has now been introduced to all partners. The promotions center allows our partner restaurants to upload their own special offers and promote sales and other actions by themselves. We also introduced real-time order tracking technology helping users view the progress of their orders and allowing us to optimize the support. During Q4 there will be further improvements to the app with new navigation tools, the ability to search by products and a new restaurant screen. We continue to invest in Delivery Club and will re-invest some of the savings from Pandao into the partner network. As previously stated we continue to focus on creating a long-term profitably sustainable business.

In September it was announced that along with Alibaba, RDIF and MegaFon we had formed a new strategic partnership to launch a social commerce alliance in Russia and the CIS. The new platform will be the leading cross-border market place and will be further expanding into domestic e-commerce. We will use the distribution capacity of our wider network to drive traffic and users to the new platform. We will also look to integrate the new platform into the social networks. Since the announcement in September talks have continued to progress well and we continue to see the transaction closing in Q1 2019.

Pandao will become part of this new JV and hence has now been classified as an asset held for sale. This means that the direct Pandao revenues and costs are not included in management accounts. However, until closing we will continue to absorb the indirect costs of Pandao in the form of the advertising media inventory it takes up on our properties which is not treated as revenue. Post-closing our holding in the Joint Venture will be accounted for under the equity method and below the EBITDA line. Net losses in Pandao to the end of Q3 2018 were around RUR 1.6bn.

In Q3, 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 Q3 2018 was RUR 10bn.

We are also announcing today that we are considering the formation of a new O2O and local services e-commerce platform based around, but not exclusively made up of, our food delivery and classifieds businesses. We will consider ways of crystallising value of these businesses through closer inter business co-operation and synergies with the whole Mail.Ru ecosystem. With the help of UBS as our strategic advisor we will also review various structuring and funding options including possible strategic alliances, partnerships and capital structure alternatives.

Q3 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 Q4. Despite the removal of the Pandao revenue contribution from 2018 we are pleased to be able to increase our previous guidance of 26%-30% growth to 28%-30% pro-forma growth or RUR 72.7-73.8bn.

Taking into account both Q3 and the start to Q4, we expect to see further margin improvement for the rest of the year. This is driven by a combination of the timing of marketing spend in games and the ongoing planned ad revenue related costs reduction in social networks. We will re-invest up to a half of the savings from deconsolidating Pandao in Delivery Club but the rest will fall to the bottom line. As a result this allows us to retain our guidance inside the previous range but increase the headline guidance for FY 2018 EBITDA to between RUR 22.0-22.5bn 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 25th October 2018, including a Question and Answer session.

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

Confirmation Code:

9994981

Participant Toll Free Telephone Numbers:

From Russia

8 800 500 9283

From the UK

0800 358 6377

From the US

800 239 9838

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 and Disclaimers

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.

UBS Limited ("UBS") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom. UBS is acting exclusively as financial adviser to Mail.ru LLC and no one else for the purpose of the consideration of the matters described herein and will not be responsible to anyone other than Mail.ru LLC for providing the protections offered to clients of UBS nor for providing advice in relation to the subject matter of this announcement or any transaction, arrangement or other matter referred to herein.

*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 Q3 2018 and 9m 2018

The Group's interim condensed consolidated financial statements for the three and nine months ended 30 September 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.rugroupifrsq32018.pdf.

Group Aggregate Segment Financial Information*

RUR millions

Q3

2017

Q3

2018

YoY

9m

2017

9m

2018

YoY

Group aggregate segment revenue (1)

Online advertising

5,591

7,713

38.0%

15,571

21,573

38.5%

MMO games

4,392

5,740

30.7%

12,226

16,186

32.4%

Community IVAS

2,869

3,017

5.2%

9,880

10,114

2.4%

Other revenue**

553

1,279

131.3%

1,718

3,246

88.9%

Total Group aggregate segment revenue

13,405

17,749

32.4%

39,396

51,119

29.8%

Group aggregate operating expenses

Personnel expenses

2,889

3,749

29.8%

8,218

11,186

36.1%

Office rent and maintenance

560

618

10.4%

1,673

1,843

10.2%

Agent/partner fees

2,364

3,900

65.0%

6,485

11,537

77.9%

Marketing expenses

2,405

3,789

57.5%

6,399

9,516

48.7%

Server hosting expenses

462

501

8.4%

1,339

1,474

10.1%

Professional services

84

128

53.1%

329

393

19.5%

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

551

715

29.7%

1,621

1,961

20.9%

Total Group aggregate operating expenses

9,315

13,400

43.9%

26,064

37,910

45.5%

Group aggregate segment EBITDA (2)

4,090

4,349

6.3%

13,332

13,209

-0.9%

margin, %

30.5%

24.5%

 

33.8%

25.8%

 

Depreciation, amortisation and impairment*** (3)

927

1,155

24.7%

2,660

5,015

88.6%

Other non-operating income (expense), net

138

140

1.2%

326

403

23.6%

Profit before tax (4)

3,302

3,334

1.0%

10,998

8,597

-21.8%

Income tax expense (5)

541

590

9.0%

1,984

1,604

-19.2%

Group aggregate net profit (6)

2,760

2,744

-0.6%

9,014

6,993

-22.4%

margin, %

20.6%

15.5%

 

22.9%

13.7%

 

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

Note 2: Group aggregate segment financial information for the three and nine months ended September 30, 2017 and for the six months ended June 30, 2018 has been retrospectively adjusted to account for pro-forma deconsolidation of Pandao 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 recognized 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 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 – Q3 2018

RUR millions

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

E-Commerce, Search and other

Eliminations

Group

Revenue

External revenue

1,465

3,706

6,136

4,420

2,022

 -

17,749

Intersegment revenue

 -

 -

2

9

40

 (51)

 -

Total revenue

1,465

3,706

6,138

4,429

2,062

 (51)

17,749

Total operating expenses

917

1,618

5,806

1,908

3,202

 (51)

13,400

EBITDA

548

2,088

332

2,521

 (1,140)

 -

4,349

EBITDA margin, %

37.4%

56.3%

5.4%

56.9%

-55.3%

0.0%

24.5%

Net profit

           

2,744

Net profit margin, %

 

 

 

 

 

 

15.5%

Operating Segments Performance – Q3 2017

RUR millions

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

E-Commerce, Search and other

Eliminations

Group

Revenue

External revenue

 1,175

 3,531

 4,427

 3,041

 1,231

 -

 13,405

Intersegment revenue

 -

 1

 -

 14

 96

 (111)

 -

Total revenue

 1,175

 3,532

 4,427

 3,055

 1,327

 (111)

 13,405

Total operating expenses

 722

 1,449

 3,369

 893

 2,993

 (111)

 9,315

EBITDA

 453

 2,083

 1,058

 2,162

 (1,666)

 -

 4,090

EBITDA margin, %

38.6%

59.0%

23.9%

70.8%

-125.6%

0.0%

30.5%

Net profit

           

 2,761

Net profit margin, %

 

 

 

 

 

 

20.6%

Operating Segments Performance – 9m 2018

RUR millions

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

E-Commerce, Search and other

Eliminations

Group

Revenue

External revenue

 3,964

 11,840

 17,096

 12,995

 5,224

 -

 51,119

Intersegment revenue

 1

 2

 2

 32

 85

 (122)

 -

Total revenue

 3,965

 11,842

 17,098

 13,027

 5,309

 (122)

 51,119

Total operating expenses

 2,664

 5,027

 15,382

 5,601

 9,358

 (122)

 37,910

EBITDA

 1,301

 6,815

 1,716

 7,426

 (4,049)

 -

 13,209

EBITDA margin, %

32.8%

57.5%

10.0%

57.0%

-76.3%

0.0%

25.8%

Net profit

           

 6,993

Net profit margin, %

 

 

 

 

 

 

13.7%

Operating Segments Performance – 9m 2017

RUR millions

Email, Portal
and IM

Social Networks (ex VK)

Online Games

VK

E-Commerce, Search and other

Eliminations

Group

Revenue

External revenue

 3,511

 11,607

 12,309

 8,301

 3,667

 -

 39,395

Intersegment revenue

 3

 32

 -

 135

 291

 (460)

 1

Total revenue

 3,514

 11,639

 12,309

 8,436

 3,958

 (460)

 39,396

Total operating expenses

 2,171

 4,162

 8,998

 2,522

 8,671

 (460)

 26,064

EBITDA

 1,343

 7,477

 3,311

 5,914

 (4,713)

 -

 13,332

EBITDA margin, %

38.2%

64.2%

26.9%

70.1%

-119.1%

0.0%

33.8%

Net profit

           

 9,014

Net profit margin, %

 

 

 

 

 

 

22.9%

Note 1: Group aggregate segment financial information for the three and nine months ended September 30, 2017 has been retrospectively adjusted to include pro-forma consolidation ESforce from January 1, 2017.
Note 2: Group aggregate segment financial information for the three and nine months ended September 30, 2017 and for the six months ended June 30, 2018 has been retrospectively adjusted to account for pro-forma deconsolidation of Pandao from January 1, 2017.
Note 3: Group aggregate net profit for 9m 2018 includes the impairment of Armored Warfare in the amount of RUR 1,698 million recognized in Q2 2018.

Liquidity

As of 30 September 2018, the Group had a net cash position of RUR 10,079 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 and assets classified as held for sale 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 September 2018 and 2017 is presented below:

RUR millions 

Q3 2018

Q3 2017

Group aggregate segment revenue, as presented to the CODM

17,749

13,405

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

Effect of difference in dates of acquisition, loss of control in subsidiaries and assets held for sale

72

 (190)

Differences in timing of revenue recognition

 (1,573)

 (41)

Barter revenue

65

8

Dividend revenue from venture capital investments

4

 -

Consolidated revenue under IFRS

16,317

13,182

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

RUR millions 

Q3 2018

Q3 2017

Group aggregate segment EBITDA, as presented to the CODM

4,349

4,090

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, loss of control in subsidiaries and assets held for sale

 (377)

171

Differences in timing of revenue recognition

 (1,433)

 (41)

Share-based payment transactions

 (662)

 (450)

Other

2

 -

EBITDA

1,879

3,770

Depreciation and amortisation

 (2,431)

 (2,281)

Impairment of intangible assets

 (23)

 -

Share of loss of equity accounted associates

 (224)

 -

Finance income

116

115

Other non-operating income

24

35

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

185

 (102)

Impairment losses related to equity accounted associates

 -

 (28)

Net loss on disposal of shares in subsidiaries

 (40)

 -

Net foreign exchange gain

297

97

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

 (217)

1,606

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

RUR millions

Q3 2018

Q3 2017

Group aggregate net profit, as presented to the CODM

2,744

2,761

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

Share-based payment transactions

 (662)

 (450)

Differences in timing of revenue recognition and classification

 (1,433)

 (41)

Effect of difference in dates of acquisition, loss of control in subsidiaries and assets held for sale

 (369)

171

Amortisation of fair value adjustments to intangible assets

 (1,296)

 (1,363)

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

185

 (102)

Net foreign exchange gain

297

97

Share of loss of equity accounted associates

 (224)

 -

Impairment losses related to equity accounted associates

 -

 (28)

Other

 (50)

 (10)

Tax effect of the adjustments and tax on unremitted earnings

546

398

Consolidated net profit/(loss) under IFRS

 (262)

1,433

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

RUR millions 

9m 2018

9m 2017

Group aggregate segment revenue, as presented to the CODM

51,119

39,396

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

Effect of difference in dates of acquisition, loss of control in subsidiaries and assets held for sale

51

 (709)

Differences in timing of revenue recognition

 (4,348)

 (2,336)

Barter revenue

76

25

Dividend revenue from venture capital investments

20

9

Difference in classification of revenue

 -

 (565)

Consolidated revenue under IFRS

46,918

35,820

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

RUR millions 

9m 2018

9m 2017

Group aggregate segment EBITDA, as presented to the CODM

13,209

13,332

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, loss of control in subsidiaries and assets held for sale

 (1,536)

775

Differences in timing of revenue recognition

 (3,961)

 (2,336)

Net loss on venture capital investments

 (23)

 (27)

Share-based payment transactions

 (2,884)

 (1,686)

Other

 (13)

5

EBITDA

4,792

10,063

Depreciation and amortisation

 (7,254)

 (6,641)

Impairment of intangible assets

 (1,721)

 -

Share of profit/(loss) of equity accounted associates

 (356)

16

Finance income

381

349

Finance expenses

 (16)

 (15)

Other non-operating gain/(loss)

19

 (7)

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

580

 (20)

Impairment losses related to equity accounted associates

 -

 (273)

Net loss on disposal of shares in subsidiaries

 (40)

 (15)

Net foreign exchange gain

606

673

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

 (3,009)

4,130

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

RUR millions

9m 2018

9m 2017

Group aggregate net profit, as presented to the CODM

6,993

9,014

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

Share-based payment transactions

 (2,884)

 (1,686)

Differences in timing of revenue recognition

 (3,961)

 (2,336)

Effect of difference in dates of acquisition, loss of control in subsidiaries and assets held for sale

 (1,554)

716

Amortisation of fair value adjustments to intangible assets

 (3,952)

 (4,003)

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

557

 (46)

Net loss on disposal of shares in subsidiaries

 (40)

 (15)

Net foreign exchange gain

606

673

Share of (loss)/profit of equity accounted associates

 (356)

16

Impairment losses related to equity accounted associates

 -

 (273)

Other

 (21)

 (5)

Tax effect of the adjustments and tax on unremitted earnings

1,113

1,057

Consolidated net profit/(loss) under IFRS

 (3,499)

3,112

Consolidated IFRS Statement of Financial Position

RUR millions

September 30, 2018
(unaudited)

December 31, 2017
(audited)
restated*

ASSETS

Non-current assets

Investments in equity accounted associates

2,819

1,013

Goodwill

140,700

133,038

Other intangible assets

21,203

25,042

Property and equipment

6,518

4,491

Financial assets at fair value through profit or loss

1,490

365

Deferred income tax assets

3,902

2,304

Other non-current assets

1,825

1,585

Total non-current assets

178,457

167,838

Current assets

Trade accounts receivable

7,441

6,556

Prepaid income tax

79

27

Prepaid expenses and advances to suppliers

1,136

1,463

Financial assets at fair value through profit or loss

1,385

171

Other current assets

689

201

Cash and cash equivalents

10,079

15,371

Total current assets

20,809

23,789

Assets held for sale

47

-

TOTAL ASSETS

199,313

191,627

 

EQUITY AND LIABILITIES

Equity attributable to equity holders of the parent

Issued capital

-

-

Share premium

54,525

51,722

Treasury shares

 (286)

 (444)

Retained earnings

111,152

114,676

Accumulated other comprehensive income

 (75)

128

Total equity attributable to equity holders of the parent

165,316

166,082

Non-controlling interests

419

84

Total equity

165,735

166,166

Non-current liabilities

Deferred income tax liabilities

2,832

2,520

Deferred revenue

9,295

6,736

Other non-current liabilities

-

245

Total non-current liabilities

12,127

9,501

Current liabilities

Trade accounts payable

6,883

4,896

Income tax payable

351

525

VAT and other taxes payable

1,350

1,342

Deferred revenue and customer advances

8,265

6,295

Other payables and accrued expenses

4,360

2,902

Total current liabilities

21,209

15,960

Liabilities directly associated with the assets held for sale

242

-

Total liabilities

33,578

25,461

TOTAL EQUITY AND LIABILITIES

199,313

191,627

* Certain amounts shown here do not correspond to the 2017 financial statements and reflect adjustments made, refer to Note 5 of the Q3 2018 financial statements.

Consolidated IFRS Statement of Comprehensive Income

RUR millions

Q3 2018
(unaudited)

Q3 2017
(unaudited)
restated*

9m 2018
(unaudited)

9m 2017
(unaudited)
restated*

Online advertising

7,716

5,467

21,583

15,161

MMO games

4,311

3,427

11,832

9,407

Community IVAS

3,016

3,793

10,312

9,798

Other revenue

1,274

495

3,191

1,454

Total revenue

16,317

13,182

46,918

35,820

Other operating gain

-

-

-

565

Net loss on venture capital investments

-

-

 (23)

 (27)

 

Personnel expenses

 (4,500)

 (3,064)

 (14,288)

 (8,974)

Office rent and maintenance

 (618)

 (538)

 (1,840)

 (1,586)

Agent/partner fees

 (3,916)

 (2,340)

 (11,502)

 (6,279)

Marketing expenses

 (3,988)

 (2,406)

 (10,516)

 (6,340)

Server hosting expenses

 (502)

 (462)

 (1,475)

 (1,339)

Professional services

 (130)

 (73)

 (415)

 (236)

Other operating expenses

 (784)

 (529)

 (2,067)

 (1,541)

Total operating expenses

 (14,438)

 (9,412)

 (42,103)

 (26,295)

EBITDA

1,879

3,770

4,792

10,063

         

Depreciation and amortisation

 (2,431)

 (2,281)

 (7,254)

 (6,641)

Impairment of intangible assets

 (23)

-

 (1,721)

-

Share of (loss)/profit of equity accounted associates

 (224)

-

 (356)

16

Finance income

116

115

381

349

Finance expenses

-

-

 (16)

 (15)

Other non-operating income/(loss)

24

35

19

 (7)

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

185

 (102)

580

 (20)

Impairment losses related to equity accounted associates

-

 (28)

-

 (273)

Net loss on disposal of shares in subsidiaries

 (40)

-

 (40)

 (15)

Net foreign exchange gain

297

97

606

673

(Loss)/profit before income tax expense

 (217)

1,606

 (3,009)

4,130

Income tax expense

 (45)

 (173)

 (490)

 (1,018)

Net (loss)/profit

 (262)

1,433

 (3,499)

3,112

Attributable to:

Equity holders of the parent

 (277)

1,425

 (3,524)

3,099

Non-controlling interest

15

8

25

13

Other comprehensive loss that may be reclassified to profit or loss in subsequent periods

Exchange differences on translation of foreign operations:

     Differences arising during the period

 (138)

 (59)

 (203)

 (295)

Total other comprehensive loss net of tax effect of 0

 (138)

 (59)

 (203)

 (295)

Total comprehensive (loss)/income, net of tax

 (400)

1,374

 (3,702)

2,817

Attributable to:

Equity holders of the parent

 (415)

1,366

 (3,727)

2,804

Non-controlling interest

15

8

25

13

(Loss)/earnings per share, in RUR:

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

 (1)

7

 (17)

15

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

 (1)

7

 (17)

14

* Certain amounts shown here do not correspond to the interim condensed financial statements for the three and nine months ended September 30, 2017 and reflect full retrospective application of IFRS 15, refer to Note 11 of the Q3 2018 financial statements.

Consolidated IFRS Statement of Cash Flows

RUR millions

9m 2018
(unaudited)

9m 2017
(unaudited)

Cash flows from operating activities:

(Loss)/Profit before income tax

 (3,009)

4,130

Adjustments to reconcile (loss)/profit before income tax to cash flows:

   

Depreciation and amortisation

7,254

6,641

Impairment losses on financial assets

47

44

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

 (580)

20

Net loss on disposal of subsidiaries

40

15

Loss on disposal of property and equipment and intangible assets

39

2

Finance income

 (381)

 (349)

Finance expenses

16

15

Dividend revenue from venture capital investments

 (20)

 (9)

Share of profit of equity accounted associates

356

 (16)

Impairment losses related to equity accounted associates

-

273

Impairment of intangible assets

1,721

-

Net foreign exchange gain

 (606)

 (673)

Share-based payment expense

2,884

1,686

Other non-cash items

45

 (44)

Net loss on venture capital investments

23

27

Working Capital adjustments:

(Increase)/decrease in accounts receivable

 (527)

110

Decrease in prepaid expenses and advances to suppliers

468

628

Increase in other assets

 (249)

 (66)

Increase/(decrease) in accounts payable and accrued expenses

1,307

 (124)

(Increase)/decrease in other non-current assets

 (149)

534

Increase in deferred revenue

4,055

2,472

Increase in financial assets at fair value through profit or loss

 (2,337)

 (193)

Operating cash flows before interest and income taxes

10,397

15,123

Dividends received from venture capital investments

20

8

Interest received

402

324

Interest paid

 (13)

 (15)

Income tax paid

 (2,152)

 (2,743)

Net cash provided by operating activities

8,654

12,697

Cash flows from investing activities:

Cash paid for property and equipment

 (3,264)

 (2,074)

Cash paid for intangible assets

 (1,244)

 (1,399)

Dividends received from equity accounted associates

40

18

Loans issued

 (70)

 

Cash paid for acquisitions of subsidiaries, net of cash acquired

 (8,031)

 (2,769)

Proceeds from disposal of subsidiaries, net of cash disposed

 (20)

 (43)

Cash paid for investments in equity accounted associates

 (1,766)

(640)

Issuance of loans receivable

-

 (3)

Net cash used in investing activities

 (14,355)

 (6,910)

Cash flows from financing activities:

Loans repaid

-

 (122)

Cash paid for treasury shares

-

 (1,430)

Net cash used in financing activities

-

 (1,552)

Net increase/(decrease) in cash and cash equivalents

 (5,701)

4,235

Effect of exchange differences on cash balances

409

 (30)

Cash and cash equivalents at the beginning of the period

15,371

5,513

Cash and cash equivalents at the end of the period

10,079

9,718