VK COMPANY LIMITED 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 months ended 31 March 2018.
Performance highlights*
-
Excluding ESforce:
- Q1 2018 Group aggregate segment revenue grew 27.3% Y-o-Y to RUR 16,288 million.
- Q1 2018 Group aggregate segment EBITDA declined 19.3% Y-o-Y to RUR 4,234 million.
- Q1 2018 Group aggregate net profit declined 29.0% Y-o-Y at RUR 2,681 million.
-
Including ESforce on a pro-forma basis:
- Q1 2018 Group aggregate segment revenue grew 27.8% Y-o-Y to RUR 16,500 million.
- Q1 2018 Group aggregate segment EBITDA declined 20.1% Y-o-Y to RUR 3,993 million.
- Q1 2018 Group aggregate net profit declined 32.2% Y-o-Y at RUR 2,406 million.
- Net cash position as of 31 March 2018 was RUR 12,412 million.
Key Recent Developments
Operational and product updates
- Suggestions feed on VK reached over 1bn average daily post views.
- VK introduced a full-fledged text editor in stories with new fonts, colors, backgrounds etc.
- VK released Clever, the first daily mobile quiz show in Russia with cash prizes.
- OK launched Discover service, which provides personalized content on various themes, finds and promotes talented authors.
- OK introduced AI and neural networks based service Moments, creating personalized videos on various occasions.
- OK implemented AI-based algorithm selecting optimal parameters for a network protocol to improve the quality of voice and video calls.
- OK launched UGC-integrated online marketplace for Chinese goods powered by Pandao.
- Mobile game War Robots updated with new game modes (Skirmish and Free-For-All).
- Major update of MMO Skyforge (Overgrowth) with a new class, new achievement and quest leveling systems (available on PC, PS4 and Xbox One).
- Major update of mobile game Hustle Castle with clan wars and co-op battles.
- Pandao apps updated with personalized product feed.
- Mail.Ru Cloud Solutions in cooperation with NVIDIA launched a GPU cloud computing service in Russia.
- myTarget introduced oCPM advertising strategy based on installs.
- myTarget introduced a search-based context advertising tool that uses search queries in Mail.Ru Group's social networks and e-commerce projects.
- GeekBrains released a mobile app for iOS.
Corporate updates
- Mail.Ru Group closed the acquisition of 100% of ESforce, one of the largest eSports businesses globally.
- Mail.Ru acquired digital real estate agency 33 Slona and started its integration into Youla's real estate vertical.
- Mail.Ru Group acquired 51% of mobile game developer BIT.GAMES.
- Mail.Ru Group participated in the funding round of Citymobil, a taxi aggregator. Mail.Ru Group will invest up to USD 12m and will get an up to a 26% minority stake in the company. Mail.Ru Group will not consolidate Citymobil in its financial results.
- Mail.Ru Group established an investment division focused on foodtech projects and technologies.
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 first quarter of 2018 where we have had a strong start to the year. Excluding ESforce, Q1 2018 revenues grew 27.3% Y-o-Y to RUR 16,288m. Including ESforce on a pro-forma basis, revenues grew 27.8% to RUR 16,500m. As we stated previously we continue to put significant resources behind a number of our new projects, especially our O2O initiatives and in Q1 none of these projects contributed to EBITDA but continued to grow as a percentage of sales. As a result, ex ESforce Q1 2018 EBITDA declined 19.3% Y-o-Y to RUR 4,234m. As ESforce is currently not contributing into EBITDA, including ESforce on a pro-forma basis Q1 2018 EBITDA declined 20.1% to RUR 3,993m.
As previously announced all figures are now on the new, more conservative, IFRS 15 standard with 2017 figures also disclosed on that basis in order to allow for like-for-like comparison.
Advertising revenue growth was very strong in Q1, with all the major trends we have seen over the last few years continuing. Advertising revenues were driven by growing user engagement, improved advertising technologies and sales execution. Our advertising revenues (including ESforce on a pro-forma basis) in Q1 grew significantly ahead of the market with 40.3% Y-o-Y to RUR 6,555m.
Promo posts across the social networks remained the fastest growing advertising area and we continue to see strong adoption. We continue to see advertising budgets shift to online from all other mediums and in online towards mobile and social networks in particular. Traditional offline brands and SMEs are allocating growing parts of their media spend to mobile, especially to social.
In Q1 VK continued to perform strongly with further growth in engagement and in total Russian users, VK revenues grew 60.3% Y-o-Y to RUR 4,236m.
In 2018 the focus will remain on mobile advertising. There are significant further opportunities for VK with both engagement and the number of new communication and entertainment features. During Q1 we continued to add new features to the platform with further improvements to the newsfeed which drives engagement, and a continued focus on the communities allowing users to discover more content and also to transfer money to groups. Our suggestions section, which finds and promotes talented authors, continues to see very good growth; in Q1 it passed 1bn post views per day. As we announced in 2017 we share some of the advertising revenue with content creators. While this is lower margin, it is an integral part of driving engagement and original content.
VK Messenger also continues to be a core part of VK. During Q1 there were a number of further improvements to messenger with the addition on new editing features. Our live quiz game Clever, which is the first daily app-based show in Russia with cash prizes, has had a very strong user reception with over 6m installs in just 6 weeks. The show reached over 890,000 peak concurrent players. The game is topping the free game category in both the App Store and Google Play for more than 2 weeks. While Clever is a standalone app that has sponsorship based monetization model it also serves as a tool to test new VK technologies like video streams with interaction and also as a tool to promote forthcoming new features such as the wallet.
In Q1 2018 our MMO games revenue grew 28.5% Y-o-Y to RUR 5,121m. International revenues also continued to grow and in Q1 accounted for 59% of total MMO revenues. As was the case in 2017, Q1 2018 growth was driven by a broad base with ongoing success in both established and recently released titles. Warface and War Robots continue to perform well and are our two largest games. Both games had further updates and Warface is preparing for further internationalization with planned localizations for China, Korea and Portugal. Hustle Castle has continued to grow well and saw a major update in April. The game now has over 7.7m installs. We have a full pipeline for the rest of 2018 with further releases planned on PC, mobile and console. We continue to see good growth in games for the rest of the year with games revenues growing broadly in line with group revenues. As ever, the margin of our gaming business is a function of mix between different platforms. In Q1 mobile games were a higher proportion of revenues and hence this affected the margin.
In Q1 2018 IVAS revenues declined 0.2% Y-o-Y. As we have previously stated that while the transition to mobile IVAS remains challenging, the new cross-platform IVAS initiatives specifically the subscription service and the VIP services on OK have made some progress. At this point therefore they continue to offset the decline in desktop IVAS. There will be further releases of new mobile products during 2018 with an emphasis on music subscriptions, which are seeing very strong growth, and live-stream donations. We continue to forecast IVAS revenues to be broadly flat Y-o-Y for FY 2018. As such, IVAS revenues will continue to decline as a percentage of total revenues.
Since the acquisition of Delivery Club in 2016, and ZakaZaka in 2017 we have seen very strong growth in orders and customers. This has been driven through the testing and implementation of various approaches and promo mechanics. Having built a significant user base we are now focusing on the efficiency of marketing expenses. During Q1 Delivery Club continued to show good growth in all operating metrics. On the back of continued growth in order numbers Q1 revenues grew 55% Y-o-Y to RUR 424m. We continue to further improve the product by increasing the relevance of dish and restaurant recommendations for users and the convenience of inventory management tools for restaurants. Based on the current trend lines we anticipate that Delivery Club FY 2018 revenues will continue to experience strong growth. While we continue to invest in Delivery Club, we believe that we are past the peak investment phase and during Q1 we continued the process of marketing channel optimization. As previously stated, we continue to expect that Delivery Club will move into profitability during 2018.
Since its launch our location-based marketplace Youla has seen consistent and strong user growth. This has continued in Q1 2018 with a new high of 25m monthly active users and 5.25m daily active users on all platforms. We continue to focus on the user experience with the addition of a loyalty program and enhanced search functions. With the integration of Am.ru and our real estate offering on both desktop and mobile, we continue to expand the reach of Youla and have added a number of new features such as online auto loan calculator and car analytics and maintenance costs. Additionally we have deepened the integration of Youla into the social networks allowing users to create listing through OK. During Q1 we continued the monetization with promoted listings, listing fees and advertising. We are pleased to announce that we have seen strong sequential monthly growth in revenues and expect this to continue through 2018.
While it is still at a very early stage we remain pleased with the progress of our cross-border marketplace, Pandao. The business had its full launch in November 2017 and in Q1 we have seen very good growth in users and orders with over 6.0m monthly active users and daily orders running on average over 50,000. SKUs have also continued to see strong growth as we continue to make the platform more efficient and easier for merchants to onboard. We continue to see a very significant opportunity for Pandao.
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. As with all acquisitions we will now undertake a review and will look to exploit synergies with the wider network. As with previous acquisitions, and in order to give a like-for-like comparison, we will report all ESforce results going forward on a pro-forma basis.
In Q1, 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 Q1 2018 was RUR 12.4bn.
2018 has had a good start. We have only just closed ESforce and with a review ongoing we will exclude it from guidance for the present. As such, we are pleased to be able to re-iterate our FY 2018 guidance of 23-28% to between RUR 68.6-71.4bn and EBITDA of between RUR 21 to 22bn.'
Conference call
The management team will host an analyst and investor conference call at 9.00 UK time (11.00 Moscow time), on Friday 4th May 2018, including a Question and Answer session.
To participate in this conference call, please use the following access details:
Confirmation Code: | 6327316 |
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
Filing Interim Condensed Consolidated Financial Statements for Q1 2018
The Group's interim condensed consolidated financial statements for the three months ended 31 March 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.rugroupifrsq12018.pdf.
Group Aggregate Segment Financial Information*
RUR millions | Three months ended 31 March | ||
2017 | 2018 | YoY, % | |
Group aggregate segment revenue (1) | |||
Online advertising | 4,673 | 6,555 | 40.3% |
MMO games | 3,984 | 5,121 | 28.5% |
Community IVAS | 3,764 | 3,756 | -0.2% |
Other revenue** | 486 | 1,068 | 119.8% |
Total Group aggregate segment revenue | 12,907 | 16,500 | 27.8% |
Group aggregate operating expenses | |||
Personnel expenses | 2,563 | 3,769 | 47.1% |
Office rent and maintenance | 542 | 601 | 10.9% |
Agent/partner fees | 1,953 | 3,614 | 85.0% |
Marketing expenses | 1,826 | 3,312 | 81.4% |
Server hosting expenses | 429 | 468 | 9.1% |
Professional services | 90 | 155 | 72.2% |
Other operating (income)/expenses, excl. D&A | 504 | 588 | 16.7% |
Total Group aggregate operating expenses | 7,907 | 12,507 | 58.2% |
Group aggregate segment EBITDA (2) | 5,000 | 3,993 | -20.1% |
margin, % | 38.7% | 24.2% | |
Depreciation, amortisation and impairment (3) | 802 | 1,055 | 31.5% |
Other non-operating income (expense), net | 125 | 130 | 4.0% |
Profit before tax (4) | 4,323 | 3,068 | -29.0% |
Income tax expense (5) | 774 | 662 | -14.5% |
Group aggregate net profit (6) | 3,549 | 2,406 | -32.2% |
margin, % | 27.5% | 14.6% | |
Note 1: Group aggregate segment financial information for the three months ended March 31, 2017 has been retrospectively adjusted to include pro-forma consolidation of ZakaZaka, Am.ru and ESforce from January 1, 2017.
Note 2: Group aggregate segment financial information for the three months ended March 31, 2017 has been retrospectively adjusted to include pro-forma effect of exemption from VAT on Russian Community IVAS revenues from January 1, 2017; the exemption from VAT affects both the revenue and the cost sides.
(*) The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding.
(**) Including Other IVAS revenues.
- 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.
- 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'.
- 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.
- 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 and available-for-sale investments and other non-operating items.
- 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.
- 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;
- E-Commerce, Search and Other Services.
The Email, Portal and IM segment includes email, instant messaging and portal (main page and verticals). 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) online advertising, including display and context advertising, (ii) commission from application developers based on the respective applications' revenue, and (iii) user payments for virtual gifts, stickers and other value-added services.
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, gifts, stickers and other value-added services, (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 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 a variety of other services, which are either not currently earning any material revenues or are considered insignificant by the CODM 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 - Q1 2018
Email, Portal | Social Networks (ex VK) | Online Games | VK | E-Commerce, Search and other | Eliminations | Group | |
RUR millions | |||||||
Revenue | |||||||
External revenue | 1,193 | 4,264 | 5,333 | 4,225 | 1,485 | - | 16,500 |
Intersegment revenue | - | 1 | - | 11 | 55 | (67) | - |
Total revenue | 1,193 | 4,265 | 5,333 | 4,236 | 1,540 | (67) | 16,500 |
Total operating expenses | 854 | 1,697 | 4,366 | 1,737 | 3,920 | (67) | 12,507 |
EBITDA | 339 | 2,568 | 967 | 2,499 | (2,380) | - | 3,993 |
EBITDA margin, % | 28.4% | 60.2% | 18.1% | 59.0% | -154.5% | 24.2% | |
Net profit | 2,406 | ||||||
Net profit margin, % | 14.6% |
Operating Segments Performance - Q1 2017
Email, Portal | Social Networks (ex VK) | Online Games | VK | E-Commerce, Search and other | Eliminations | Group | |
|---|---|---|---|---|---|---|---|
RUR millions | |||||||
Revenue | |||||||
External revenue | 1,108 | 4,229 | 4,008 | 2,554 | 1,008 | - | 12,907 |
Intersegment revenue | 2 | 24 | - | 89 | 92 | (207) | - |
Total revenue | 1,110 | 4,253 | 4,008 | 2,643 | 1,100 | (207) | 12,907 |
Total operating expenses | 736 | 1,312 | 2,786 | 798 | 2,482 | (207) | 7,907 |
EBITDA | 374 | 2,941 | 1,222 | 1,845 | (1,382) | - | 5,000 |
EBITDA margin, % | 33.7% | 69.2% | 30.5% | 69.8% | -125.6% | 38.7% | |
Net profit | 3,549 | ||||||
Net profit margin, % | 27.5% |
Note 1: Group aggregate segment financial information for the three months ended March 31, 2017 has been retrospectively adjusted to include pro-forma consolidation of ZakaZaka, Am.ru and ESforce from January 1, 2017.
Note 2: Group aggregate segment financial information for the three months ended March 31, 2017 has been retrospectively adjusted to include pro-forma effect of exemption from VAT on Russian Community IVAS revenues from January 1, 2017; the exemption from VAT affects both the revenue and the cost sides.
Liquidity
As of 31 March 2018, the Group had RUR 12,412 million of cash and no debt outstanding.
Presentation of Aggregate Segment Financial Information
The Group aggregate segment financial information is derived from the financial information used by management to manage the Group's business by aggregating the segment financial data of the Group's operating segments and eliminating intra-segment and inter-segment revenues and expenses. Group aggregate segment financial information differs significantly from the financial information presented on the face of the Group's consolidated financial statements in accordance with IFRS. In particular:
- The Group's segment financial information excludes certain IFRS adjustments which are not analysed by management in assessing the core operating performance of the business. Such adjustments affect such major areas as revenue recognition, deferred tax on unremitted earnings of subsidiaries, share-based payment transactions, disposal of and impairment of investments, business combinations, fair value adjustments, amortisation and impairment thereof, net foreign exchange gains and losses, share in financial results of associates, as well as irregular non-recurring items that occur from time to time and are evaluated for adjustment as and when they occur. The tax effect of these adjustments is also excluded from segment reporting.
- The segment financial information is presented for each period on the basis of an ownership interest as of the date hereof and consolidation of each of the Group's subsidiaries, including for periods prior to the acquisition of control of the entities in question. The financial information of subsidiaries disposed of prior to the date hereof is excluded from the segment presentation starting from the beginning of the earliest period presented.
- Segment revenues do not reflect certain other adjustments required when presenting consolidated revenues under IFRS. For example, segment revenue excludes barter revenues and adjustments to defer online gaming and social network revenues under IFRS.
A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue of the Group for the three months ended 31 March 2017 and 2018 is presented below:
RUR millions | Q1 2018 | Q1 2017 |
Group aggregate segment revenue, as presented to the CODM | 16,500 | 12,907 |
Adjustments to reconcile revenue as presented to the CODM to consolidated revenue under IFRS: | ||
Effect of difference in dates of acquisition and loss of control in subsidiaries | (227) | (114) |
Differences in timing of revenue recognition | (1,183) | (1,451) |
Barter revenue | 4 | 10 |
Consolidated revenue under IFRS | 15,094 | 11,352 |
A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit before income tax expense of the Group for the three months ended 31 March 2017 and 2018 is presented below:
RUR millions | Q1 2018 | Q1 2017 |
Group aggregate segment EBITDA, as presented to the CODM | 3,993 | 5,000 |
Adjustments to reconcile EBITDA as presented to the CODM to consolidated profit before income tax expenses under IFRS: | ||
Effect of difference in dates of acquisition and loss of control in subsidiaries | 46 | 250 |
Differences in timing of revenue recognition | (1,083) | (1,451) |
Difference in timing of input VAT write-off due to VAT exemption | - | 199 |
Net loss on venture capital investments | (39) | (27) |
Share-based payment transactions | (1,723) | (916) |
Other | (4) | (11) |
EBITDA | 1,190 | 3,044 |
Depreciation and amortisation | (2,385) | (2,114) |
Share of profit of equity accounted associates | - | 8 |
Finance income | 177 | 119 |
Finance expenses | (15) | (12) |
Other non-operating income/(loss) | (33) | 11 |
Net gain on derivative financial assets and liabilities at fair value through profit or loss | 678 | 186 |
Net loss on disposal of shares in subsidiaries | - | (15) |
Net foreign exchange gain/(loss) | 170 | (274) |
Consolidated profit/(loss) before income tax expense under IFRS | (218) | 953 |
A reconciliation of Group aggregate net profit to IFRS consolidated net profit of the Group for the three months ended 31 March 2017 and 2018 is presented below:
RUR millions | Q1 2018 | Q1 2017 |
Group aggregate net profit, as presented to the CODM | 2,406 | 3,549 |
Adjustments to reconcile net profit as presented to the CODM to consolidated net profit under IFRS: | ||
Share-based payment transactions | (1,723) | (916) |
Differences in timing of revenue recognition | (1,083) | (1,451) |
Difference in timing of input VAT write-off due to VAT exemption | - | 199 |
Effect of difference in dates of acquisition and loss of control in subsidiaries | 37 | 225 |
Amortisation of fair value adjustments to intangible assets and impairment thereof | (1,330) | (1,318) |
Net loss on financial instruments at fair value through profit or loss | 639 | 158 |
Net loss on disposal of shares in subsidiaries | - | (15) |
Net foreign exchange gain/(loss) | 170 | (274) |
Share of profit of equity accounted associates | - | 8 |
Other | 4 | (16) |
Tax effect of the adjustments, tax on unremitted earnings | 189 | 655 |
Consolidated net profit/(loss) under IFRS | (691) | 804 |
Filing Interim Condensed Consolidated Financial Statements for Q1 2018
The Group's interim condensed consolidated financial statements for the three months ended 31 March 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.rugroupifrsq12018.pdf.
Group Aggregate Segment Financial Information*
RUR millions | Three months ended 31 March | |||
2017 | 2018 | YoY, % | ||
Group aggregate segment revenue (1) | ||||
Online advertising | 4,673 | 6,555 | 40.3% | |
MMO games | 3,984 | 5,121 | 28.5% | |
Community IVAS | 3,764 | 3,756 | -0.2% | |
Other revenue** | 486 | 1,068 | 119.8% | |
Total Group aggregate segment revenue | 12,907 | 16,500 | 27.8% | |
Group aggregate operating expenses | ||||
Personnel expenses | 2,563 | 3,769 | 47.1% | |
Office rent and maintenance | 542 | 601 | 10.9% | |
Agent/partner fees | 1,953 | 3,614 | 85.0% | |
Marketing expenses | 1,826 | 3,312 | 81.4% | |
Server hosting expenses | 429 | 468 | 9.1% | |
Professional services | 90 | 155 | 72.2% | |
Other operating (income)/expenses, excl. D&A | 504 | 588 | 16.7% | |
Total Group aggregate operating expenses | 7,907 | 12,507 | 58.2% | |
Group aggregate segment EBITDA (2) | 5,000 | 3,993 | -20.1% | |
margin, % | 38.7% | 24.2% | ||
Depreciation, amortisation and impairment (3) | 802 | 1,055 | 31.5% | |
Other non-operating income (expense), net | 125 | 130 | 4.0% | |
Profit before tax (4) | 4,323 | 3,068 | -29.0% | |
Income tax expense (5) | 774 | 662 | -14.5% | |
Group aggregate net profit (6) | 3,549 | 2,406 | -32.2% | |
margin, % | 27.5% | 14.6% | ||
Note 1: Group aggregate segment financial information for the three months ended March 31, 2017 has been retrospectively adjusted to include pro-forma consolidation of ZakaZaka, Am.ru and ESforce from January 1, 2017.
Note 2: Group aggregate segment financial information for the three months ended March 31, 2017 has been retrospectively adjusted to include pro-forma effect of exemption from VAT on Russian Community IVAS revenues from January 1, 2017; the exemption from VAT affects both the revenue and the cost sides.
(*) The numbers in this table and further in the document may not exactly foot or cross-foot due to rounding.
(**) Including Other IVAS revenues.
- 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.
- 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'.
- 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.
- 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 and available-for-sale investments and other non-operating items.
- 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.
- 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;
- E-Commerce, Search and Other Services.
The Email, Portal and IM segment includes email, instant messaging and portal (main page and verticals). 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) online advertising, including display and context advertising, (ii) commission from application developers based on the respective applications' revenue, and (iii) user payments for virtual gifts, stickers and other value-added services.
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, gifts, stickers and other value-added services, (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 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 a variety of other services, which are either not currently earning any material revenues or are considered insignificant by the CODM 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 - Q1 2018
Email, Portal | Social Networks (ex VK) | Online Games | VK | E-Commerce, Search and other | Eliminations | Group | |
RUR millions | |||||||
Revenue | |||||||
External revenue | 1,193 | 4,264 | 5,333 | 4,225 | 1,485 | - | 16,500 |
Intersegment revenue | - | 1 | - | 11 | 55 | (67) | - |
Total revenue | 1,193 | 4,265 | 5,333 | 4,236 | 1,540 | (67) | 16,500 |
Total operating expenses | 854 | 1,697 | 4,366 | 1,737 | 3,920 | (67) | 12,507 |
EBITDA | 339 | 2,568 | 967 | 2,499 | (2,380) | - | 3,993 |
EBITDA margin, % | 28.4% | 60.2% | 18.1% | 59.0% | -154.5% | 24.2% | |
Net profit | 2,406 | ||||||
Net profit margin, % | 14.6% |
Operating Segments Performance - Q1 2017
Email, Portal | Social Networks (ex VK) | Online Games | VK | E-Commerce, Search and other | Eliminations | Group | |
|---|---|---|---|---|---|---|---|
RUR millions | |||||||
Revenue | |||||||
External revenue | 1,108 | 4,229 | 4,008 | 2,554 | 1,008 | - | 12,907 |
Intersegment revenue | 2 | 24 | - | 89 | 92 | (207) | - |
Total revenue | 1,110 | 4,253 | 4,008 | 2,643 | 1,100 | (207) | 12,907 |
Total operating expenses | 736 | 1,312 | 2,786 | 798 | 2,482 | (207) | 7,907 |
EBITDA | 374 | 2,941 | 1,222 | 1,845 | (1,382) | - | 5,000 |
EBITDA margin, % | 33.7% | 69.2% | 30.5% | 69.8% | -125.6% | 38.7% | |
Net profit | 3,549 | ||||||
Net profit margin, % | 27.5% |
Note 1: Group aggregate segment financial information for the three months ended March 31, 2017 has been retrospectively adjusted to include pro-forma consolidation of ZakaZaka, Am.ru and ESforce from January 1, 2017.
Note 2: Group aggregate segment financial information for the three months ended March 31, 2017 has been retrospectively adjusted to include pro-forma effect of exemption from VAT on Russian Community IVAS revenues from January 1, 2017; the exemption from VAT affects both the revenue and the cost sides.
Liquidity
As of 31 March 2018, the Group had RUR 12,412 million of cash and no debt outstanding.
Presentation of Aggregate Segment Financial Information
The Group aggregate segment financial information is derived from the financial information used by management to manage the Group's business by aggregating the segment financial data of the Group's operating segments and eliminating intra-segment and inter-segment revenues and expenses. Group aggregate segment financial information differs significantly from the financial information presented on the face of the Group's consolidated financial statements in accordance with IFRS. In particular:
- The Group's segment financial information excludes certain IFRS adjustments which are not analysed by management in assessing the core operating performance of the business. Such adjustments affect such major areas as revenue recognition, deferred tax on unremitted earnings of subsidiaries, share-based payment transactions, disposal of and impairment of investments, business combinations, fair value adjustments, amortisation and impairment thereof, net foreign exchange gains and losses, share in financial results of associates, as well as irregular non-recurring items that occur from time to time and are evaluated for adjustment as and when they occur. The tax effect of these adjustments is also excluded from segment reporting.
- The segment financial information is presented for each period on the basis of an ownership interest as of the date hereof and consolidation of each of the Group's subsidiaries, including for periods prior to the acquisition of control of the entities in question. The financial information of subsidiaries disposed of prior to the date hereof is excluded from the segment presentation starting from the beginning of the earliest period presented.
- Segment revenues do not reflect certain other adjustments required when presenting consolidated revenues under IFRS. For example, segment revenue excludes barter revenues and adjustments to defer online gaming and social network revenues under IFRS.
A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue of the Group for the three months ended 31 March 2017 and 2018 is presented below:
RUR millions | Q1 2018 | Q1 2017 |
Group aggregate segment revenue, as presented to the CODM | 16,500 | 12,907 |
Adjustments to reconcile revenue as presented to the CODM to consolidated revenue under IFRS: | ||
Effect of difference in dates of acquisition and loss of control in subsidiaries | (227) | (114) |
Differences in timing of revenue recognition | (1,183) | (1,451) |
Barter revenue | 4 | 10 |
Consolidated revenue under IFRS | 15,094 | 11,352 |
A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit before income tax expense of the Group for the three months ended 31 March 2017 and 2018 is presented below:
RUR millions | Q1 2018 | Q1 2017 |
Group aggregate segment EBITDA, as presented to the CODM | 3,993 | 5,000 |
Adjustments to reconcile EBITDA as presented to the CODM to consolidated profit before income tax expenses under IFRS: | ||
Effect of difference in dates of acquisition and loss of control in subsidiaries | 46 | 250 |
Differences in timing of revenue recognition | (1,083) | (1,451) |
Difference in timing of input VAT write-off due to VAT exemption | - | 199 |
Net loss on venture capital investments | (39) | (27) |
Share-based payment transactions | (1,723) | (916) |
Other | (4) | (11) |
EBITDA | 1,190 | 3,044 |
Depreciation and amortisation | (2,385) | (2,114) |
Share of profit of equity accounted associates | - | 8 |
Finance income | 177 | 119 |
Finance expenses | (15) | (12) |
Other non-operating income/(loss) | (33) | 11 |
Net gain on derivative financial assets and liabilities at fair value through profit or loss | 678 | 186 |
Net loss on disposal of shares in subsidiaries | - | (15) |
Net foreign exchange gain/(loss) | 170 | (274) |
Consolidated profit/(loss) before income tax expense under IFRS | (218) | 953 |
A reconciliation of Group aggregate net profit to IFRS consolidated net profit of the Group for the three months ended 31 March 2017 and 2018 is presented below:
RUR millions | Q1 2018 | Q1 2017 |
Group aggregate net profit, as presented to the CODM | 2,406 | 3,549 |
Adjustments to reconcile net profit as presented to the CODM to consolidated net profit under IFRS: | ||
Share-based payment transactions | (1,723) | (916) |
Differences in timing of revenue recognition | (1,083) | (1,451) |
Difference in timing of input VAT write-off due to VAT exemption | - | 199 |
Effect of difference in dates of acquisition and loss of control in subsidiaries | 37 | 225 |
Amortisation of fair value adjustments to intangible assets and impairment thereof | (1,330) | (1,318) |
Net loss on financial instruments at fair value through profit or loss | 639 | 158 |
Net loss on disposal of shares in subsidiaries | - | (15) |
Net foreign exchange gain/(loss) | 170 | (274) |
Share of profit of equity accounted associates | - | 8 |
Other | 4 | (16) |
Tax effect of the adjustments, tax on unremitted earnings | 189 | 655 |
Consolidated net profit/(loss) under IFRS | (691) | 804 |
Consolidated IFRS Statement of Financial Position
RUR millions |
March 31, 2018 |
December 31, 2017 |
ASSETS | ||
Non-current assets | ||
Investments in equity accounted associates | 1,013 | 1,013 |
Goodwill | 138,506 | 133,038 |
Other intangible assets | 24,283 | 25,042 |
Property and equipment | 5,664 | 4,491 |
Financial assets at fair value through profit or loss | 835 | 365 |
Deferred income tax assets | 2,436 | 2,304 |
Other non-current assets | 1,742 | 1,585 |
Total non-current assets | 174,479 | 167,838 |
Current assets | ||
Trade accounts receivable | 6,083 | 6,556 |
Loans receivable | 96 | 7 |
Prepaid income tax | 226 | 27 |
Prepaid expenses and advances to suppliers | 1,122 | 1,463 |
Financial assets at fair value through profit or loss | 652 | 171 |
Other current assets | 456 | 194 |
Cash and cash equivalents | 12,412 | 15,371 |
Total current assets | 21,047 | 23,789 |
TOTAL ASSETS | 195,526 | 191,627 |
EQUITY AND LIABILITIES | ||
Equity attributable to equity holders of the parent | ||
Issued capital | - | - |
Share premium | 53,170 | 51,722 |
Treasury shares | (305) | (444) |
Retained earnings | 113,980 | 114,676 |
Accumulated other comprehensive income | 60 | 128 |
Total equity attributable to equity holders of the parent | 166,905 | 166,082 |
Non-controlling interests | 116 | 84 |
Total equity | 167,021 | 166,166 |
Non-current liabilities | ||
Deferred income tax liabilities | 2,646 | 2,520 |
Deferred revenue | 7,467 | 6,736 |
Other non-current liabilities | 242 | 245 |
Total non-current liabilities | 10,355 | 9,501 |
Current liabilities | ||
Trade accounts payable | 5,847 | 4,896 |
Income tax payable | 382 | 525 |
VAT and other taxes payable | 1,323 | 1,342 |
Deferred revenue and customer advances | 6,685 | 6,295 |
Other payables and accrued expenses | 3,913 | 2,902 |
Total current liabilities | 18,150 | 15,960 |
Total liabilities | 28,505 | 25,461 |
TOTAL EQUITY AND LIABILITIES | 195,526 | 191,627 |
Consolidated IFRS Statement of Comprehensive Income
RUR millions |
Q1 2018 |
Q1 2017 |
Online advertising | 6,557 | 4,627 |
MMO games | 3,753 | 3,208 |
Community IVAS | 3,843 | 3,089 |
Other revenue | 941 | 428 |
Total revenue | 15,094 | 11,352 |
Net loss on venture capital investments | (39) | (27) |
Personnel expenses | (5,443) | (3,220) |
Office rent and maintenance | (598) | (512) |
Agent/partner fees | (3,533) | (1,932) |
Marketing expenses | (3,086) | (1,834) |
Server hosting expenses | (466) | (429) |
Professional services | (155) | (76) |
Other operating expenses | (584) | (278) |
Total operating expenses | (13,865) | (8,281) |
EBITDA | 1,190 | 3,044 |
Depreciation and amortisation | (2,385) | (2,114) |
Share of profit of equity accounted associates | - | 8 |
Finance income | 177 | 119 |
Finance expenses | (15) | (12) |
Other non-operating income/(loss) | (33) | 11 |
Net gain on derivative financial assets and liabilities at fair value through profit or loss | 678 | 186 |
Net loss on disposal of shares in subsidiaries | - | (15) |
Net foreign exchange gain/(loss) | 170 | (274) |
Profit/(Loss) before income tax expense | (218) | 953 |
Income tax expense | (473) | (149) |
Net profit/(loss) | (691) | 804 |
Attributable to: | ||
Equity holders of the parent | (696) | 803 |
Non-controlling interest | 5 | 1 |
Other comprehensive income/(loss) that may be reclassified to profit or loss in subsequent periods | ||
Exchange differences on translation of foreign operations: | ||
Differences arising during the period | (68) | 148 |
Total other comprehensive income/(loss) net of tax effect of 0 | (68) | 148 |
Total comprehensive income/(loss), net of tax | (759) | 952 |
Attributable to: | ||
Equity holders of the parent | (764) | 951 |
Non-controlling interest | 5 | 1 |
Earnings/(Loss) per share, in RUR: | ||
Basic earnings/(loss) per share attributable to ordinary equity holders of the parent | (3.27) | 3.84 |
Diluted earnings/(loss) per share attributable to ordinary equity holders of the parent | (3.22) | 3.78 |
Consolidated IFRS Statement of Cash Flows
RUR millions |
Q1 2018 |
Q1 2017 |
Cash flows from operating activities: | ||
Profit/(Loss) before income tax | (218) | 953 |
Adjustments to reconcile profit before income tax to cash flows: | - | - |
Depreciation and amortisation | 2,385 | 2,114 |
Bad debt expense/(reversal) | 9 | (3) |
Net gain on financial assets and liabilities at fair value through profit or loss | (678) | (186) |
Net loss on disposal of shares in subsidiaries | - | 15 |
Finance income | (177) | (119) |
Finance expenses | 15 | 12 |
Share of profit of equity accounted associates | - | (8) |
Net foreign exchange (gain)/loss | (170) | 274 |
Share-based payment expense | 1,723 | 916 |
Other non-cash items | 3 | (49) |
Net loss on venture capital investments | 39 | 27 |
Working Capital adjustments: | ||
Decrease in accounts receivable | 710 | 1,410 |
Decrease/(Increase) in prepaid expenses and advances to suppliers | 533 | (168) |
Increase in inventories | (57) | - |
Decrease/(Increase) in other assets | 25 | (50) |
Increase/(Decrease) in accounts payable and accrued expenses | 30 | (50) |
(Increase)/Decrease in other non-current assets | (85) | 417 |
Increase in deferred revenue and customers advances | 1,042 | 996 |
Increase in financial assets at fair value through profit or loss | (312) | (70) |
Operating cash flows before interest and income taxes | 4,817 | 6,431 |
Interest received | 173 | 112 |
Interest paid | (13) | (12) |
Income tax paid | (944) | (982) |
Net cash provided by operating activities | 4,033 | 5,549 |
Cash flows from investing activities: | ||
Cash paid for property and equipment | (1,005) | (651) |
Cash paid for intangible assets | (394) | (596) |
Cash paid for acquisitions of subsidiaries, net of cash acquired | (5,491) | (1,174) |
Loans issued | (164) | - |
Proceeds from disposal of subsidiaries, net of cash disposed | - | (43) |
Net cash used in investing activities | (7,054) | (2,464) |
Cash flows from financing activities: | ||
Loans repaid | - | (122) |
Net cash used in financing activities | - | (122) |
Net (decrease)/increase in cash and cash equivalents | (3,021) | 2,963 |
Effect of exchange differences on cash balances | 62 | (48) |
Cash and cash equivalents at the beginning of the period | 15,371 | 5,513 |
Cash and cash equivalents at the end of the period | 12,412 | 8,428 |
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mail.ru Group Ltd. published this content on 04 May 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 04 May 2018 06:21:04 UTC
