Mail.Ru Group Limited Unaudited IFRS Results for Q3 2017

MOSCOW, Oct. 27, 2017 /PRNewswire/ -- Mail.Ru Group Limited (MAIL.IL) (LSE : MAIL), hereinafter referred as "the Company" or "the Group", one of the largest Internet companies in the Russian-speaking Internet market, today releases unaudited IFRS results and segment financial information for the three and nine months ended 30 September 2017.

Performance highlights*

Three months ended 30 September 2017

• Q3 2017 Group aggregate segment revenue grew 39.1% Y-o-Y to RUR 13,577 million.
• Q3 2017 Group aggregate segment EBITDA grew 1.1% Y-o-Y to RUR 4,260 million.
• Q3 2017 Group aggregate net profit declined 0.5% Y-o-Y at RUR 2,918 million.

Nine months ended 30 September 2017

• 9m 2017 Group aggregate segment revenue grew 35.2% Y-o-Y to RUR 39,905 million.
• 9m 2017 Group aggregate segment EBITDA grew 9.0% Y-o-Y to RUR 14,106 million.
• 9m 2017 Group aggregate net profit grew 12.0% Y-o-Y to RUR 9,730 million.

Net cash position as of 30 September 2017 was RUR 9,718 million.

Key Recent Developments

• VK released major updates of iOS and Android apps: a new design with simplified navigation, new Explore section (for personalized content discovery) and flexible notifications.
• VK introduced an algorithm called "Prometheus", which finds trending or potentially trending authors and promotes their content in Explore section, and announced the roll out of a platform for long-form journalism with the ability to format text and use multimedia attachments.
• A new tool for VK communities: a community can join the ad network and receive its share of promo posts' sales on community pages and in the newsfeed.
• VK Admin is a new app on iOS and Android letting administrators of groups communicate with group members/customers, take orders, add/edit goods and services, monitor statistics etc.
• VK launched Direct Games, a platform for HTML-5 games, which can be launched directly from within VK mobile apps.
• OK Live for Android was updated with the Full HD live streaming feature.
• Delivery Club introduced a VK built-in 'mini-app', on desktop and mobile.
• Delivery Club multiple updates: food takeaway, favorite restaurants, personalized promo codes and reordering.
• New content for Warface, War Robots, HAWK, Juggernaut Wars and Skyforge console.
• Warface eSport Final Atlas of War matches (over 2.5m views, 33k stream concurrent viewers).
• Am.ru listings are now available on Youla.
• Youla launched Real Estate section enabling a sale process from posting a listing to completion of the transaction.
• Youla introduced promoted listings.
• Mail.Ru email service introduces money transfers to any email address of any email service and supports embedded CSS and responsive email design.
• myMail and Mail.Ru email apps received new Smart replies function, suggestions for quick responses based on machine learning.
• Cloud Mail.Ru introduced face recognition and grouping of photos by recognized faces in mobile apps.
• VK held a 3-day Hackaton that attracted over 300 talented programmers, designers and other IT specialists.

Commenting on the results of the Company, Dmitry Grishin, Chairman of the Board, and Boris Dobrodeev, CEO (Russia) of Mail.Ru Group, said:

"We are pleased to report our results for the third quarter and first nine months of 2017 where we have continued to see strong growth. Q3 revenue, including all acquisitions on a pro forma basis, grew 39.1% Y-o-Y to RUR 13,577m. As we have stated previously, 2017 remains an investment year for us and we continue to put significant resources behind a number of our new projects which, at this stage, are not contributing to EBITDA. As such, EBITDA grew 1.1% Y-o-Y to RUR 4,260m. For the first nine months, revenues have grown on a pro-forma basis 35.2% Y-o-Y to RUR 39,905m and EBITDA 9.0% Y-o-Y to RUR 14,106m.

Advertising revenue growth remained strong in Q3, with the trends in both budget allocation and pricing that we have seen over the last years continuing. As in H1 we continue to boost our new mobile products, thus limiting the inventory available for sale.  Despite this, advertising revenues in Q3 grew 32.5% Y-o-Y to RUR 5,821m. As in previous periods, the fastest growing advertising revenues remained in-feed promo posts across the social networks including video. We continue to see advertising budgets shift to mobile and hence we benefit from our leading position in the Russian mobile space. A lot of traditional offline brands are allocating larger parts of their media spend to the social networks, and are adopting mobile and in-feed video ad formats. We have also released many new creative promotions with the brands, such as chatbots, masks, gifts and stickers.

In Q3 VK continued to perform strongly with further growth in engagement. A recent study by Mediascope reiterated VK as a leader among Russian mobile apps in terms of both daily and monthly audience (in cities with 100k+ population, August 2017). In Q3, VK revenues grew 60.3% Y-o-Y to RUR 3,417m. Advertising continued to be the bulk of the revenues, and as in previous periods, while IVAS increased in Q3, advertising revenues grew faster than total revenues. VK team continues to make improvements to the platform and the user experience. In Q3 VK introduced major updates of its mobile apps that now include new features and sections. VK announced a number of initiatives to introduce new content creation, distribution and monetization. We believe these product updates will further drive user engagement and benefit the wide VK ecosystem.

For the rest of 2017 and into 2018 the focus will remain on native, and especially mobile advertising. As previously commented we expect the ad load and pricing to continue to grow. We continue to see significant further opportunities for VK with both engagement and the improvement of the platform.

In Q3 2017 on a pro forma basis our MMO games revenue grew 82.8% Y-o-Y to RUR 4,392m. International revenues also continued to grow and in Q3 accounted for 56% of total MMO revenues. Q3 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. HAWK gained traction since global launch on Android in late Q2. We have further releases in Q4 and a full pipeline for 2018.

In Q3 2017 IVAS revenues grew 6.7% Y-o-Y. Much of mobile IVAS remains challenging but we are pleased with the initial results of the new cross-platform IVAS initiatives specifically the subscription service and the VIP services on OK. However at this point they are not growing fast enough to offset the declines in the legacy desktop IVAS revenues. We will be further exploring new mobile products, but continue to expect IVAS revenues to decline as a percentage of revenues.

During Q3 Delivery Club continued to show very strong growth in all operating metrics. ZakaZaka integration is ongoing and should be finished by the end of the year. In Q3 2017 the average monthly orders for the combined Delivery Club business grew 84% Y-o-Y to 735,000, and the number of restaurants exceeded 6,200. We continue to make a number of improvements to the product to make it both easier for the user to order, and easier for the restaurants to manage and process orders. Based on the current trend lines we anticipate that Delivery Club Q4 2017 revenues will continue to experience very strong growth. Delivery Club will clearly remain in investment phase for the rest of 2017 as it consolidates its market leading position. While this business does not, at present, contribute to EBITDA we have already started the process of marketing channel optimization in Q3 and hence continue to expect Delivery Club to move into profitability during 2018.

Since its launch around 2 years ago our location-based marketplace Youla has seen consistent and strong user growth. This has continued in Q3 2017 with a new high of 22m monthly active users and 4.5m daily active users on all platforms. The app remains consistently in the Top-5 Overall in Russia in the App Store and Google Play combined (according to App Annie). With the integration of Am.ru and the launch of our real estate offering on both desktop and mobile, we continue to expand the reach of Youla. We started monetization experiments with promoted listings in October 2017 and plan to increase monetization during 2018. User feedback and engagement remain very positive and hence we anticipate further user growth through 2017.

During Q3, our long distance ride sharing service BeepCar saw strong growth in mobile app installs which reached 4.2m by the end of September. In the near term, we are focused on building user numbers and hence BeepCar currently is not a revenue contributor.

In Q3, the cash generating capacity of our business remained unchanged and cash conversion was as expected. As a result net cash, post M&A related payments, at the end of Q3 was RUR 9,718m.

Over the last year, we have made a number of acquisitions, all of which fit well with the core strategy and mobile assets of the Group and present significant opportunities for the future. With a strong balance sheet and unchanged cash generation capabilities, we will continue to examine further similar-sized acquisition opportunities in the future.

We had a strong first nine months of 2017 with very strong contributions from advertising and games. Delivery Club continues to show very good growth and while IVAS still has challenges with the mobile transition, it is progressively becoming a smaller part of revenues. We continue to believe we are well positioned to benefit from the ongoing structural trends in advertising, and are encouraged by the ongoing progress in games. We continue to see great potential in our ecommerce initiatives and hence continue to believe we are well positioned.

Based on current visibility, we are pleased to increase our FY 2017 revenue guidance for the third time this year from previous guidance of 23-26% Y-o-Y pro-forma revenue growth to pro-forma revenue growth of 30-31% Y-o-Y to RUR 55.6-56.0bn. 2017 remains a year of significant investment in the new products and given the significant potential that we see in them we will continue to aggressively invest in our new initiatives. We do not expect them to contribute to EBITDA this year. We also continue to not anticipate any meaningful revenue contributions from BeepCar or Youla in 2017 but wish to use most of the further revenue upside to invest in the new products. Even taking this investment into account, we are pleased to increase our FY 2017 EBITDA guidance from RUR 20.0bn to around RUR 20.5bn."

SOURCE Mail.Ru Group