Mail.Ru Group Limited Preliminary Trading Statement for the Full Year 2014
26 February 2015. Mail.Ru Group Limited (LSE: MAIL, hereinafter referred as "the Company" or "the Group"), one of the largest companies in the Russian-speaking Internet market, today provides the following preliminary unaudited segment financial information and key operating highlights for the full year ended 31 December 2014.
FY 2014 Performance Highlights
- FY 2014 Group aggregate segment revenue grew 14.8% Y-o-Y to RUR 35,778 million
- FY 2014Group aggregate segment EBITDA grew 13.5% Y-o-Y to RUR 18,297 million
- FY 2014 Group aggregate net profit grew 11.4% Y-o-Y to RUR 12,518 million
- The above revenue and growth rates are based on a full pro-forma consolidation of VK from the beginning of 2013
- VK FY 2014 revenue growth was 12.9% to RUR 4,319 million and EBITDA growth of 54.9% to RUR 1,603 million. VK Q4 2014 revenue growth was 22.6% to RUR 1,348 million
- Net debt position as of 31 December 2014 was RUR 16,987 million (excluding interest payable of RUR 147 million)
Key recent developments
- Acquisition of MAPS.ME, a popular OpenStreetMap-based offline mobile maps and navigation service. Shortly after the acquisition the app became free
- New versions of myMail apps optimized for iOS 8 and Android 5 with support for offline actions with messages
- Two-factor authentication (password + SMS code) across most of Mail.Ru projects and mobile apps
- Conversation view (threads) as an opt-in feature in Mail.Ru email service
- “Clean up your mailbox” – a handy tool to sort incoming messages into folders “Promotions”, “Social Networks” and “Newsletters”
- Ability to unpack and view archived files attached to emails directly in web and mobile web
- Cloud.Mail.Ru moves from beta to production, introduces shared folders and updates apps for iOS and Android with additional security features
- New photo editor in VK: new engine, increased number of photo filters, advanced tools for editing photos
- New backend and new design of the video section in VK
- New VK apps optimized for iOS 8 and Android 5 multiple UX and UI updates
- Gifts are now available in Android application and on mobile web version of VK; amendments to stickers section on all platforms
- Launch of mobile advertising in VK
- Updates of video service in OK: new viewing mode and autoplay feature
- Updates in messaging system in OK: chat redesign, gift recommendations in birthday reminder, free and paid stickers
- OK apps for Android, iOS and Windows Phone updated with audio and video messages in the chat
- ICQ for iOS and Android updated with advanced search, new push notifications, new UI of audio and video calls, faster photosharing
- Mail.Ru Agent for iOS and Android updated with completely new design and significantly improved performance, synchronization of chat history, ability to send multiple photos and videos at once
- SkyForge closed beta test launched
- Evolution listed among Best of 2014 in Google Play and Apple App Store annual ratings; new update, Legacy of Dominion, launched on Android and iOS
- Release of a major update for Warface – Operation Cold Peak
- Horoscope app listed among the Best Android Apps of 2014 (by Google) and among the best new apps on the App Store (by Apple)
- HTTPS access to all content projects by default
- Sale of Money.Mail.Ru project to QIWI
- The board has approved a new long-term incentive plan based around restricted stock units; up to 5% of total shares outstanding to be issued subject to a members resolution
Commenting on the results of the Group, Dmitry Grishin, Chairman and CEO (Russia) of Mail.Ru Group, said:
"In 2014, the Company achieved aggregate segment revenue growth of 14.8% Y-o-Y to RUR 35,778 million with H2 2014 Y-o-Y revenue growth of 10.2%. This revenue and growth rates are based on a full pro-forma consolidation of VK from the beginning of 2013. VK generated revenue of RUR 4,319 for the full year and RUR 2,315 million in H2. Ex-VK like-for-like revenue growth for FY 2014 would have been 15.0%. Through the year our MMO games and community IVAS revenues remained broadly on budget, but advertising revenues and our Headhunter business continued to face challenging conditions as a result of the ongoing economic and geo-political environment. As in H1 this continued to have a negative effect on our advertising revenues, and in particular the display advertising revenues which during Q4 saw similar declines to the previous two quarters. Our other revenue stream also remains sensitive to the underlying economic environment and hence grew at 5.4% in H2. Including VK from the beginning of the year EBITDA margins were 51.1% in FY 2014 and 51.5% in H2 2014. Ex-VK FY 2014 margins would have been 53.0%.
Following the acquisition of the remaining 48.01% of VK in late Q3 we have successfully started the integration process. As we commented at the time of the acquisition, the first priority for us is the retention of the talented programmers and engineers, and we are pleased that the team remains largely intact and continues their focus on the product and the user experience. The focus for 2015 will be the continued expansion of video and mobile advertising. This was started in Q4 2014 and the initial signs are very promising. In November 2014 we completed the acquisition of MAPS.ME and have subsequently made the product free. We are very encouraged with user growth, making MAPS.ME an important element in our international expansion under the My.com brand.
In H2 2014 we continued to execute on our MMO games strategy which proved successful over the last years. Warface remains our largest revenue generating game with continued strong performance and also benefited from major update in Q4 2014. In Q4 Skyforge went into closed beta release and will go into full release in H1 2015. Initial feedback has been encouraging. The pipeline remains strong with Armored Warfare due to go into closed beta in H1. World of Speed is slightly delayed and hence will potentially go into closed beta in H2. As previously commented, we will also continue to internationalize our most successful titles under the My.com brand. As such we expect the MMO games revenues to show solid growth through 2015.
We continued to be encouraged by the traction of My.com which was launched in November 2013 as part of the wider My.com launch. In Q4 this remained the most downloaded alternative email client on both iOS and Android globally. The US is the largest market followed by UK, France, Germany and Brazil and in January 2015 we had over 2.5m MAU and over 1.0m DAU. In 2015 we have begun some monetization experiments inside of the myMail product.
As of today the sale of Headhunter has not been closed and there is no certainty that it will close. As a result we are continuing to operate HeadHunter as a part of the Company.
At the end of 2014 our long-term incentive programme, based around options authorised at the time of the Company’s IPO in 2010 substantially came to an end. Our team remains our most valuable asset. The retention of engineering talent is key to the long term success of the Company. As such, the board has approved a new long-term incentive plan based around restricted stock units equivalent to up to 5% of total shares outstanding. The RSU’s have a 4-year vesting and the programme will expire at the end of 2022. Additionally we have extended the expiration date of the existing unexercised options for current employees to 2022 from 2018. These actions will help us both recruit and retain the highest quality staff.
Our engagement with users remains very strong, and user behavior remains unchanged. International initiatives under the My.com brand are going well and VK presents a number of opportunities. However there is no change in the underlying environment from what we said previously, and hence forecasting remains problematic. As such we do not anticipate any near or medium term improvement in the display revenues, or in the Headhunter business. Notwithstanding this, we see a number of opportunities in mobile and video advertising, and in our games business. Based on current visibility and current market conditions, we expect FY 2015 revenue growth, including both VK and Headhunter on a pro-forma basis, to be between 7%-12%. We continue to maintain tight cost control, however we are somewhat impacted by FX headwinds as some of our costs are USD denominated. While we have managed to offset some of the FX impact on USD based costs there is still some impact, and hence we anticipate full year EBITDA margins at between 46-47%.
The management team will host an analyst and investor conference call at 10.00 UK time (13.00 Moscow time), on Thursday 26th February 2015, including a Question and Answer session.
To participate in this conference call, please use the following access details:
Confirmation Code: 81835492
Participant Toll Free Telephone Numbers:
Russia Free Phone 810 800 240 82044
UK Free Phone 0800 694 5707
USA Free Phone 1866 254 0808
For Further Information Please Contact:
Cautionary Statement regarding Forward Looking Statements
This press release contains statements of expectation and other forward-looking statements regarding future events or the future financial performance of the Group. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "forecast", "intend", "will", "could", "may" or "might", the negative of such terms or other similar expressions including "outlook" or "guidance". The forward-looking statements in this release are based upon various assumptions that are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and may be beyond the Group's control. Actual results could differ materially from those discussed in the forward looking statements herein. Many factors could cause actual results to differ materially from those discussed in the forward looking statements included herein, including competition in the marketplace, changes in consumer preferences, the degree of Internet penetration and online advertising in Russia, concerns about data security, claims of intellectual property infringement, adverse media speculation, changes in political, social, legal or economic conditions in Russia, exchange rate fluctuations, and the Group's success in identifying and responding to these and other risks involved in its business, including those referenced under "Risk Factors" in the Group's public filings. The forward-looking statements contained herein speak only as of the date they were made, and the Group does not intend to amend or update these statements except to the extent required by law to reflect events and circumstances occurring after the date hereof.
About Mail.Ru Group
Mail.Ru Group (LSE:MAIL, listed since November 5, 2010) is a leading company in the Russian-speaking Internet markets (Russia is Europe's largest Internet market measured by the number of users, comScore). Mail.Ru Group's sites reach approximately 96% of Russian Internet users on a monthly basis (comScore, December 2014) and the Company is the sixth largest Internet business globally, based on the total time spent (comScore, December 2014).
In line with the ‘communitainment’ (communication plus entertainment) strategy, the Company is moving rapidly to build an integrated communications and entertainment platform. The Company owns Russia’s leading email service and one of Russia’s largest internet portal, Mail.Ru (TNS, all Russia, age 12-64, December 2014). The Company operates three largest Russian language social networks, Vkontakte (VK), Odnoklassniki (OK) and Moi Mir (My World), and Russia’s largest online games business. The Company’s portfolio also includes Mail.Ru Agent and ICQ – two instant messaging services popular in Russia and CIS.
The Company holds minority equity stakes Qiwi (1.31%) and a number of small venture capital investments in various Internet companies in Russia, Ukraine and Israel.
Group Aggregate Segment Financial Information*
(*) The numbers in this table and
further in the document may not exactly foot or cross-foot due to rounding
(**) The USD numbers for FY 2013 and FY 2014 represent a convenience translation. The RUR amounts have been translated into USD using average exchange rates for FY 2013 (31.8480 RUR/USD) and FY 2014 (38.4217 RUR/USD) respectively
(***) Including Other IVAS revenues
(1) Group aggregate segment revenue is calculated by aggregating the segment revenue of the Group's operating segments and eliminating intra-segment and inter-segment revenues. This measure differs in significant respects from IFRS consolidated net revenue. See "Presentation of Aggregate Segment Financial Information" below.
(2) Group aggregate segment EBITDA is calculated by subtracting Group aggregate segment operating expenses from Group aggregate segment revenue. Group aggregate segment operating expenses are calculated by aggregating the segment operating expenses (excluding the depreciation and amortisation) of the Group's operating segments including allocated Group corporate expenses, and eliminating intra-segment and inter-segment expenses. See "Presentation of Aggregate Segment Financial Information".
(3) Group aggregate depreciation and amortisation expense is calculated by aggregating the depreciation and amortisation expense of the subsidiaries consolidated as of the date hereof, excluding amortisation and impairment of fair value adjustments to intangible assets acquired in business combinations.
(4) Profit before tax is calculated by deducting from Group aggregate segment EBITDA Group aggregate depreciation and amortisation and other non-operating incomes/expenses primarily consisting of interest income on cash deposits, interest expenses, dividends from financial and available-for-sale investments and other non-operating items.
(5) Group aggregate income tax expense is calculated by aggregating the income tax expense of the subsidiaries consolidated as of the date hereof. Group aggregate income tax expense is different from income tax as would be recorded under IFRS, as (i) it excludes deferred tax on unremitted earnings of the Group's subsidiaries and associates and (ii) it is adjusted for the tax effect of differences in profit before tax between Group aggregate segment financial information and IFRS.
(6) Group aggregate net profit is the (i) Group aggregate segment EBITDA; less (ii) Group aggregate depreciation and amortisation 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 segment net profit differs in significant respects from IFRS consolidated net profit. See "Presentation of Aggregate Segment Financial Information".
We identify our operating segments based on the types of products and services we offer. We have identified the following reportable segments on this basis:
- Email, Portal and IM;
- Social Networks (excluding VK);
- Online Games;
- E-Commerce, Search and Other Services
The Email, Portal and IM segment includes email, instant messaging and portal (main page and verticals). It earns almost all revenues from display and context advertising.
The Social Networks (excluding VK) segment includes our two social networks (OK and My World) and earns revenues from (i) user payments for virtual gifts, (ii) revenue sharing with application developers, and (iii) online advertising, including display and context advertising.
The Online Games segment includes online gaming services, including MMO, social and mobile games. It earns almost all revenues from (i) sale of virtual in-game items to users and (ii) royalties for games licensed to third-party online game operators.
The 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, and (ii) online advertising, including display and context advertising.
The E-Commerce, Search and Other Services segment primarily consists of search engine services earning almost all revenues from context advertising, e-commerce and online recruitment services and related display advertising. This segment also includes a variety of other services, which management considers insignificant for the purposes of performance review and resource allocation.
Each segment's EBITDA is calculated as the respective segment's revenue less operating expenses (excluding depreciation and amortisation and impairment of intangible assets), including our corporate expenses allocated to the respective segment.
Operating Segments Performance –FY 2014
(*) The USD numbers represent a convenience translation. The RUR amounts have been translated into USD using FY 2014 average exchange rate of 38.4217 RUR/USD
Operating Segments Performance – FY 2013
(*) The USD numbers represent a convenience translation. The RUR amounts have been translated into USD using FY 2013 average exchange rate of 31.8480 RUR/USD
As of 31 December 2014, the Group had RUR 5,075 million of cash (including term deposits) and RUR 22,062 million of debt outstanding (excluding interest payable of RUR 147 million), therefore the Group's net debt position was RUR 16,987 million, or USD 302 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 expense, disposal of and impairment of investments, business combinations, fair value adjustments, amortisation and impairment thereof, net foreign exchange gains and losses, share in financial results of non-core associates, as well as irregular non-recurring items that occur from time to time and are evaluated for adjustment as and when they occur. The tax effect of these adjustments is also excluded from segment reporting.
- The segment financial information is presented for each period on the basis of an ownership interest as of the date hereof and consolidation of each of the Group's subsidiaries, including for periods prior to the acquisition of control of the entities in question, so long as the Group held at least one share of such entities during such periods. The financial information of subsidiaries disposed of prior to the date hereof is excluded from the segment presentation starting from the beginning of the earliest period presented.
- Segment revenues do not reflect certain other adjustments required when presenting consolidated revenues under IFRS. For example, segment revenue excludes barter revenues and adjustments to defer online gaming and social network revenues under IFRS.
Selected Operating Statistics
- Desktop monthly audience of Mail.Ru Group in December 2014 reached 66.1 million users (TNS, all Russia, age 12-64, desktop)
- MMO average monthly payers amounted to 614 thousand users in H2 2014 (the numbers combine paying users of individual MMO games and may include overlap)
- Community IVAS average monthly payers amounted to 7,699 thousand users in H2 2014 (the numbers combine paying users of OK, My World, love.mail.ru and our own social games on third-party networks and may include overlap)
Total number of shares issued and outstanding as of December 31, 2014 was 209,104,211, including 11,500,100 Class A shares and 197,604,111 ordinary shares. As a result of the new LTIP RSU programme the Company may issue, subject to respective members’ resolution, up to 10,977,971 additional Ordinary Shares to Mail.ru Employee Benefit Trustees Limited for use until the end of 2022.
 The USD number represents a convenience translation. The RUR amounts have been translated into USD using an exchange rate of RUR 56.2584 to USD 1.00, the official exchange rate quoted as of December 31, 2014 by the Central Bank of the Russian Federation
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