Mail.Ru Group Announced Final Unaudited IFRS Results for 1H 2011
OREANDA-NEWS. October 25, 2011. Mail.Ru Group Limited (LSE: MAIL, hereinafter referred as "the Company" or "the Group"), one of the largest Internet companies in the high-growth Russian-speaking Internet market, today provides the following IFRS final unaudited financial results for the first half of the year ended June 30, 2011 and an update on the preliminary unaudited segment revenues for Q3 2011.
Continued Strong Performance
• Group aggregate Q3 2011 segment revenue was USD124.9m, an increase of 59.1% (51.3% ex-currency) compared to Q3 2010
• Display advertising and Community IVAS were the key growth drivers delivering 56.1% and 110.6% y-o-y growth respectively
• Monthly audience(TNS Russia) of Mail.Ru portal in September 2011 reached 27.8m Russian users
• Continued growth in social networking and instant messaging with Odnoklassniki reaching 18.9m monthly users (TNS Russia) and Mail.ru Agent at 21.4m monthly users
• Final unaudited 1H 2011 IFRS results were in line with preliminary trading statement for the 1H 2011
• Group aggregate segment revenue at USD 228.2m, Group aggregate segment EBITDA at USD 116.5m, Group aggregate segment net profit at USD85.9m compared to USD228.2m, USD115.2m and USD85.6m reported on August 31, 2011The Group reiterates its FY11 guidance of revenue growth around 50% with EBITDA margin percentage in the high forties
Key Recent Developments
• Active cross-product navigation launched
• Better user experience – ability to access e-mail, social networks, games and other products off the current page
• Ability to see active cross-product alerts
• Interoperability between Mail.ru Agent and ICQ introduced
• Ability to add friends between the two instant messengers without registering an extra account
• Continued progress on our communication products
• Introduced a variety of customized interface themes for e-mail
• Released touch-friendly version of the mobile e-mail site
• New mobile Mail.ru Agent versions (iPhone, Symbian, Java) released
• New mobile ICQ versions (iPhone, Symbian, Java) and multi-instant support (among all ICQ products) released
• Further development of Odnoklassniki
• Mobile applications (Android and Window Phone Mango, following earlier release of iPhone version), newsfeed improvements
• Face detection feature and personal URLs introduced
• Streamlined user payment mechanics
• Internal currency and “one-click” payments launched on My World
• Focused effort on existing games with several new game launches
• 2 MMO games: RIOT and Lord of the Rings (the latter was relaunched as a free-to-play game)
• 2 social games: Malinovka and Rock Band
• Started “Marathon Games@Mail.Ru” promotion campaign (the previous event during the summer attracted c. 4.5 mln participants)
• Released touch mobile interface of search for iPhone and Android
• Target, our self-serve advertising platform, launched auction and CPC mechanism for advertisers
• 2011 Russian Code Cup, the first Russian-speaking competition for programming, has been successfully completed
• More than 3,000 participants
• 50 finalists from 7 countries, 3 overall winners
• As per the shareholders’ agreement of the Group’s subsidiary Headhunter Group Limited (“Headhunter”), one of the minority shareholders in Headhunter has the ability to exchange his 5.89% of the share capital of Headhunter to 432,867 ordinary shares of the Company in Q4 2011. This agreement has been executed and as a result the Group now owns 97.2% of Headhunter. A shareholders resolution approving the transaction has been filed on the National Storage Mechanism appointed by the Financial Services Authority and can be accessed at http://www.hemscott.com/nsm.do
• Starting October 26, 2011 and during the fourth quarter of 2011, Mail.Ru Employee Benefit Trustees Limited (“the Trust”) will undertake a GDR buying programme of up to USD35m in order to cover a part of the employee and director options granted under IPO incentive plan. Under the GDR buying programme, the Trust will acquire GDRs representing shares of the Company and will subsequently transfer the GDRs to the respective option holders upon the exercise of the options. The GDRs acquired by the Trust under the GDR buying programme will be held by the Trust to be used over the lifetime of the options. No purchases of GDRs are intended to be made in the US. The Company will announce the termination of the buying programme.
Commenting on the Group’s results, Dmitry Grishin, co-founder and CEO of Mail.Ru Group, said:
"We are very pleased to deliver robust growth in the core areas of our business.
In Q3 2011, Mail.Ru Group has achieved the group aggregate segment revenue of USD124.9m, representing growth of 59.1% compared to Q3 2010 (which is 51.3% ex-currency). Online advertising and community IVAS remained the key monetization growth drivers. We also publish our final unaudited 1H 2011 IFRS results validating the figures released in our August 2011 trading statement. These results demonstrate ongoing efficiencies in headquarter, hosting and rental expenses, resulting in segment EBITDA margin expanding to 51.1% compared to 39.2% in 1H 2010.
Our core products are continuing to deliver solid audience growth. Driven by ongoing product improvements, Odnoklassniki has achieved impressive growth in both monthly and daily audience with its September 2011 average audience increasing by 18% and 27% respectively, compared to the same period last year (TNS Russia). Our flagship instant messaging product, Mail.ru Agent, has continued its expansion with the September monthly audience growing by 29% year-on-year.
We continue to execute on integration of social graphs across our communications and entertainment products. We have launched two important features in September – active cross-product navigation and interoperability between Mail.ru Agent and ICQ. The first feature aims to simplify navigation between My World, Odnoklassniki, e-mail, games, search, instant messaging and other services ensuring that visitors can conveniently use our products without having to leave the site or type a new address in their browser bar. It also allows users to see activity updates across the different products, for example, events on our social networks and e-mail messages received. The second feature allows users of Mail.ru Agent to add ICQ users and vice versa without creating an extra account and therefore improving communication between friend lists across the two instant messengers.
Mobile remains a key priority for us. We have made significant progress in improving the mobile experience with our products – including the introduction of new mobile versions of Odnoklassniki, search, email and instant messaging products. This is evidenced by growth of mobile users in our core communication products, which is faster than the growth of PC users as compared to prior periods.
Our focus on developing the right talent was marked by a significant event – the finals of the largest competition for Russian-speaking programmers, the 2011 Russian Code Cup powered by Mail.ru Group. More than 3,000 people participated in the qualifying stages, 50 of the most talented proceeded to the final stage and the overall winner was determined in September in Moscow. We had participants from 7 countries and are very pleased with our assistance to provide new development opportunities for young Russian-speaking engineers.
During Q4 the Group will undertake a GDR buying programme of up to USD35m in order to cover a part of the employee and director options of the IPO incentive plan. These GDRs will be held by the Trust to be used over the lifetime of the options.
Given the continued strong execution in the business, and notwithstanding a slightly more challenging forecasting environment and a weaker RUB exchange rate, we are still confident to re-iterate our full year 2011 guidance of revenue growth around 50% with EBITDA margin percentage in the high forties. "
Conference Call
The Mail.Ru Group management team will host an analyst and investor conference call at 14.00 UK time (17.00 Moscow time, 9.00 U.S. Eastern Daylight Time), on Tuesday 25 October 2011, to discuss the final unaudited IFRS results for the first half ended June 30, 2011 and the preliminary revenue performance for Q3 2011 as well as certain forward-looking information. The conference call will include a Question and Answer session.
To participate in this conference call, please use the following access details:
Confirmation Code:
7462409
Participant Toll Free Telephone Numbers:
From Russia 810 800 500 9311
From the UK 0800 279 4841
From the US 1877 249 9037
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.
Group Aggregate Segment Financial Information*
USD in Millions 1H 2010 1H 2011
Group aggregate segment revenue (1) 137.2 228.2
Revenue growth, % 66.3%
Organic revenue growth (2), % 59.3%
Group aggregate segment EBITDA (3) 53.7 116.5
EBITDA margin, % 39.2% 51.1%
Group aggregate segment net profit (4-8) 39.7 85.9
Net profit margin, % 28.9% 37.6%
* The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding
(1) Group aggregate segment revenue is calculated by aggregating the segment revenue of the Mail.ru, Odnoklassniki (hereinafter referred to as "OK") and Headhunter segments and eliminating intra-segment and inter-segment revenues. This measure differs in significant respects from IFRS consolidated net revenue. This information may also differ from the proportionate core revenue presented in the operating segments notes to the interim consolidated financial statements of the Group as of and for the six months ended 30 June 2010. See "Presentation of Segment Financial Information." Group aggregate segment revenue numbers for the periods after July 2010 include the revenues of ICQ.
(2) Organic revenue growth excludes the impact of including revenues from ICQ from the date of acquisition of ICQ in the second half of 2010.
(3) 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 Mail.ru, OK and Headhunter segments with Group corporate expenses and eliminating intra-segment and inter-segment expenses. Prior to the Group IPO in November 2010 the Group corporate expenses included an advisory fee paid to DST Advisors (“DSTA”). Group aggregate segment EBITDA includes ICQ EBITDA from the date of acquisition.
(4) Group aggregate segment depreciation and amortization expense is calculated by aggregating the segment depreciation and amortization expense of the Mail.ru, OK and Headhunter segments with such expenses incurred at the corporate level, excluding amortization of fair value adjustments to intangible assets acquired in business combinations.
(5) Group share of income from associates includes the Group's share of income from VK.com and Qiwi as calculated based on the ownership percentage as of the date hereof (i.e. 39.99% and 21.35%, respectively). Group share of income from associates as presented herein differs in significant respects from Group share of income from associates as would be recorded under IFRS due to: (i) difference in the ownership percentages as under IFRS the actual ownership would be used for each reporting period and (ii) differences in net profit of associates as the numbers presented herein are prepared based on principles used for Mail.ru, OK and Headhunter segments, i.e. do not include certain adjustments which would be required under IFRS. See "Presentation of Segment Financial Information."
(6) Profit before tax is calculated by deducting from Group aggregate segment EBITDA Group aggregate segment depreciation and amortisation and adding (i) Group share of income from associates and adding/deducting (ii) Group aggregate segment other non-operating incomes/expenses primarily consisting of interest income on cash deposits, dividends from financial and available-for-sale investments, release of certain accruals and other non-operating items.
(7) Group aggregate segment income tax expense is calculated by aggregating the segment income tax expense of the Mail.ru, OK and Headhunter segments with such expenses incurred at the corporate level.
(8) Group aggregate segment net profit is the (i) Group aggregate segment EBITDA; less (ii) Group aggregate segment depreciation and amortization expense; plus (iii) Group share of income from associates; less (iv) Group aggregate segment other non-operating expense; plus (v) Group aggregate segment other non-operating income; less (vi) Group aggregate segment income tax expense. Group aggregate segment net profit differs in significant respects from IFRS consolidated net profit. See "Presentation of Segment Financial Information." Group aggregate segment net profit includes the impact of ICQ for the periods after July 2010.
Current Trading Update
Revenue, USD Millions* Q3 2010 Q3 2011 Growth, %
Display advertising 21.9 34.1 56.1%
Context advertising 9.5 14.5 53.7%
MMO games 23.6 30.7 29.9%
Community IVAS 14.3 30.0 110.6%
Other** 9.3 15.5 67.0%
Total 78.5 124.9 59.1%
* The operating segment data is presented based on principles used for presentation of operating segments results, i.e. excluding certain IFRS adjustments (for further details, see Note 4 to the Group’s Interim Condensed Consolidated Financial Statements for the six months ended June 30, 2011)
** Includes other IVAS
Key Performance Indicators
Millions Sep-10 Sep-11
Mail.ru portal, monthly unique users, TNS 25.2 27.8
Mail.ru portal, daily unique users, TNS 12.3 14.0
Social Networks
My World monthly unique users, TNS 18.1 19.3
My World daily unique users, TNS 4.9 4.9
Odnoklassniki monthly unique users, TNS 16.1 18.9
Odnoklassniki daily unique users, TNS 6.2 7.9
Email
Email monthly unique users, TNS 21.4 22.7
Email daily unique users, TNS 9.7 10.4
Instant Messaging
Mail.ru Agent global monthly users 16.6 21.4
ICQ global monthly users 33.9 26.6
ICQ Russia monthly users 16.7 14.7
Thousands H1 2010 H1 2011
MMO games
Average monthly paying users 167 227
Community IVAS
Average monthly paying users - Mail 604 625
Average monthly paying users - OK 1,000 2,349
Note: All TNS data is Russia only. Mail.ru portal includes 34 projects. Mail.ru Agent, ICQ, MMO Games and Community IVAS is internal Company data. ICQ users include unaffiliated.
Liquidity
At September 30, 2011, the Group's net cash balance was USD124.3m and the Group had no debt outstanding as of September 30, 2011.
Filing of the Report
The Group’s interim condensed consolidated financial statements for the half year ended June 30, 2011 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/files/Mail.Ru_Group_6m_2011.pdf
Presentation of 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 Mail.ru, OK and Headhunter 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. This information may also differ from the data presented in the operating segments notes to the consolidated financial statements of the Group as of and for the year ended December 31, 2010 and to the interim condensed consolidated financial statements of the Group as of and for the six months ended June 30, 2010. In particular:
• The Group's segment financial information excludes items that management believes obscure the core operating performance of the business, including IFRS adjustments principally affecting major areas including but not limited to: revenue recognition (including online gaming revenue deferral), certain accruals, deferred taxation, share-based payments, business combinations, fair value adjustments,amortization and impairmentcharges related thereto.
• The segment financial information for each segment 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 forming the segment, 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.
• 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 revenues under IFRS.
• The segment net profit of individual segments does not reflect ''corporate'' expenses at the headquarters level. These corporate expenses are, however, reflected in the calculation of Group aggregate segment net profit and Group aggregate segment EBITDA.
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