Mail Ru : Final audited IFRS results for FY 2013 and preliminary revenue update for Q1 2014

24.04.2014

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 releases its annual report for 2013and provides the following final audited segment financial information for the year ended 31 December 2013 and preliminary revenue update for Q1 2014.

Performance highlights

• Final audited segment results for FY 2013 are consistent with the preliminary trading statement
• Group aggregate segment revenue at RUR 27,404m, Group aggregate segment EBITDA at RUR 15,087m, Group aggregate net profit at RUR 11,453m
• Monthly audience of Mail.Ru portal in March 2014 reached 59.0m Russian users (TNS, all Russia, age 12-64, desktop)
• Q1 2014 Group aggregate segment revenue grew 24.6% Y-o-Y to RUR 7,794m

Key Recent Developments

• myMail app became the most downloaded alternative email client on iOS (Distimo, March 2014)
• myChat apps for iOS and Android updated with new design of contact list and chat; right-side bar; and Spanish, German and Turkish language interfaces
• Email iOS app updated with new iOS 7-style design, Android app updated with new layout with single bar at the top of the screen, message selection by tapping avatar and native registration
• Mail.Ru for Business launched new service Migration - move your corporate email from 3rd party servers to Mail.Ru yet retaining all correspondence and former email address
• Mail.Ru for Business introduced API for partners
• Intergration of Mail.Ru email service and Cloud.Mail.Ru - option to save files to and attach files from the cloud
• Cloud.Mail.Ru released the first app for Windows Phone and redesigned iPhone app in iOS 7 style
• Video streaming in Cloud.Mail.Ru apps for iOS and Android
• Calendar.Mail.Ru released the first mobile app for iOS
• Redesign of Auto.Mail.Ru content project
• ICQ apps for iOS and Android updated with new lightweight interface, video calls, group chats and stickers
• Mail.Ru Agent for Android updated with built-in HTML5 mobile games and support for PSTN calls
• Mail.Ru Agent app for Windows updated with new design, left-side navigation bar and improved voice calls quality
• Video editing service Magisto in OK - turn photos and videos into beautifully edited movies
• OK launched free online cinema with popular Russian and foreign TV-series and films
• Launch of MMORPG ArcheAge
• Launch of mobile game Evolution on iOS
• Launch of Jungle Heat on Facebook
• Target.Mail.Ru introduced new behavioral targetings and specific targetings for mobile advertising, launched data exchange with third party DMPs, and developed mobile installs tracking solution
• Mail.Ru Group has increased its stake in VK.com from 39.99% to 51.99%

Commenting on the results of the Company, Dmitry Grishin, Chairman and co-founder of Mail.Ru Group, said:

"We are very pleased to report our final IFRS audited results for 2013 in line with the preliminary announcement in February. Despite a more challenging macro environment we have started 2014 positively with a good performance in the first quarter.

In Q1 2014, the Company achieved Group aggregate segment revenue Y-o-Y growth of 24.6% with a solid contribution from all revenue streams. As previously mentioned we have now started to report our advertising revenues as a single line which is a better reflection of both the way that we manage the business, but also to eliminate the significant transfers between the display and contextual revenue lines.

In Q1 we continued to execute on our games strategy which proved successful in 2013. Warface remains an important component of this, and has seen continued traction in terms of both users and revenues - during Q1 Warface remained our largest revenue generating game. In Q1 we also released client-based MMORPG ArcheAge where, as we commented in February the initial signs are very promising. As we announced at the GDC conference in San Francisco we have further releases through the rest of 2014 and will continue to internationalize our most successful titles under the my.com brand. As such we expect the MMO games revenues to continue to show strong growth through the year.

Community IVAS revenues continued to show solid growth in Q1, growing ahead of the increase in the user base as we continue to focus on increasing paying user penetration - especially in virtual gifts and services, as well as in our API platform. We remain focused on increasing user engagement and improving our product.

We are also encouraged by the initial success of myMail which was launched in November 2013 as part of the wider my.com launch. According to Distimo myMail app became the most downloaded alternative email client on iOS in March this year and we continue to see very good growth in users.

While we have had a solid start to the year, the underlying economic, and geo-political environment has become more challenging which impacts the longer term visibility and makes forecasting more problematic. Notwithstanding this, the underlying market remains broadly supportive and the structural drivers of our business are unchanged. As a result we reiterate our full year 2014 guidance of 22-24% y-o-y revenue growth and EBITDA margins of between 53-54%."

Conference call

The Mail.Ru Group management team will host an analyst and investor conference call at 14.30 UK time (17.30 Moscow time, 09.30 U.S. Eastern Daylight Time), on Thursday 24 April 2014, to discuss details of the Company's performance and 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: 30295920

Participant Toll Free Telephone Numbers:

Russia Free Phone: 81080024342044
UK Free Phone: 08000730438
USA Free Phone: 18773284999
Standard International Call: +44 (0) 1452 561488

Investor Relation Contacts:

Matthew Hammond
Mail.Ru Group
E-mail: hammond@corp.mail.ru

Press Contacts:

Ksenia Chabanenko
E-mail: ks@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 Company. 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 Company'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 Company's success in identifying and responding to these and other risks involved in its business, including those referenced under "Risk Factors" in the Company's public filings. The forward-looking statements contained herein speak only as of the date they were made, and the Company 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 Internet company in the high-growth 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 94% of Russian Internet users on a monthly basis (comScore, December 2013) and the Company is the fifth largest Internet business globally, based on the total time spent (comScore, December 2013).

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 Russia's largest internet portal, Mail.Ru (TNS, all Russia, age 12-64, December 2013). The Company operates two of the three largest Russian language social networks, 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 non-controlling equity stakes in VK.com (51.99%) and Qiwi (10.42%). The Company also holds a number of small venture capital investments in various Internet companies in Russia, Ukraine and Israel.

Current Trading Update*

(*) The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding

(**) Including Other IVAS revenues

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

Liquidity

As of 31 March 2014, the Company's net cash balance (including term deposits) was RUR 34,706m, or USD 973m [1], and the Company had no debt outstanding.

Filing of the Annual Report for 2013

The Company's Annual Report and audited consolidated financial statements for the year ended December 31, 2013 prepared in accordance with IFRS and accompanied by an independent auditor's 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.rugrouparfy2013.pdf

Resolution of Shareholders

Pursuant to the Articles of Association of the Company a written resolution has been passed on April 18, 2014 by members of the Company holding shares which represent at least 75% of the total number of votes attached to the issued and outstanding shares. The resolution amends the Articles of Association of the Company by deleting article 4.5 in its entirety. The resolution 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

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 2012 and FY 2013 represent a convenience translation. The RUR amounts have been translated into USD using average exchange rates for FY 2012 (31.09 RUR/USD) and FY 2013 (31.85 RUR/USD) respectively

(***) Including Other IVAS revenues

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

(2) Group aggregate segment EBITDA is calculated by subtracting Group aggregate segment operating expenses from Group aggregate segment revenue. Group aggregate segment operating expenses are calculated by aggregating the segment operating expenses (excluding the depreciation and amortisation) of the Company's operating segments including allocated 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) Group share of net profit from associates includes the Company's share of net profit from VK.com and Qiwi as calculated based on the ownership percentage as of the date hereof (i.e. 51.99% and 10.42%, respectively). Group share of net profit from associates as presented herein differs in significant respects from Group share of net profit 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 the segment financial information of the Company's consolidated operations, i.e. do not include certain adjustments which would be required under IFRS. See "Presentation of Aggregate Segment Financial Information."

(5) Profit before tax is calculated by deducting from Group aggregate segment EBITDA Group aggregate depreciation and amortisation and adding (i) Group share of net profit from associates and adding/deducting (ii) Group aggregate other non-operating incomes/expenses primarily consisting of interest income on cash deposits, dividends from financial and available-for-sale investments and other non-operating items.

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

(7) Group aggregate net profit is the (i) Group aggregate segment EBITDA; less (ii) Group aggregate depreciation and amortisation expense; plus (iii) Group share of net profit from associates; less (iv) Group aggregate other non-operating expense; plus (v) Group aggregate other non-operating income; less (vi) 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".

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;
• Social Networks;
• 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 segment includes our two social networks (Odnoklassniki 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 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 2013

(*) The USD numbers represent a convenience translation. The RUR amounts have been translated into USD using FY 2013 average exchange rate of 31.85 RUR/USD

2013 results summary

A full discussion of the Company's 2013 results is presented on pages 26-36 of the Company's 2013 Annual Report available for download at http://corp.mail.ru/media/files/mail.rugrouparfy2013.pdf

Presentation of Aggregate Segment Financial Information

The Group aggregate segment financial information is derived from the financial information used by management to manage the Company's business by aggregating the segment financial data of the Company's operating segments and eliminating intra-segment and inter-segment revenues and expenses. Group aggregate segment financial information differs significantly from the financial information presented on the face of the Company's consolidated financial statements in accordance with IFRS. In particular:

• The Company's segment financial information excludes certain IFRS adjustments which are not analysed by management in assessing the core operating performance of the business. Such adjustments affect such major areas as revenue recognition, deferred tax on unremitted earnings of subsidiaries, share-based payment 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 Company's subsidiaries, including for periods prior to the acquisition of control of the entities in question, so long as the Company 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.

A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue of the Company for the years ended 31 December 2013 and 2012 is presented below:

A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit before income tax expense of the Company for years ended 31 December 2013 and 2012 is presented below:

A reconciliation of Group aggregate net profit to IFRS consolidated net profit of the Company for the years ended 31 December 2013 and 2012 is presented below:

[1]The USD number represents a convenience translation. The RUR amount has been translated into USD using an exchange rate of RUR 35.6871 to USD 1.00, the official exchange rate quoted as of March 31, 2014 by the Central Bank of the Russian Federation