Mail.Ru Group Limited (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 interim condensed consolidated IFRS financial statements reviewed by an independent auditor and provides the following unaudited segment financial information and key operating highlights for the six months ended 30 June 2016.

H1 2016 Performance Highlights

  • H1 2016 Group aggregate segment revenue grew 11.6% Y-o-Y to RUR 18,834 million. Q2 2016 Group aggregate segment revenue grew 11.9% Y-o-Y
  • H1 2016 Group aggregate segment EBITDA grew 3.2% Y-o-Y to RUR 8,691 million
  • H1 2016 Group aggregate net profit grew 14.0% Y-o-Y to RUR 5,737 million
  • Net cash position as of 30 June 2016 was RUR 7,573 million
  • Mail.Ru Group is the leading online property in Russia with 77.5 million monthly active users (comScore MMX Multi-Platform, Russia, age 6+, June 2016)

Key Recent Developments

Email, Portal and IM

  • myMail and Mail.Ru email apps performance optimization for bad internet connection and older/slower devices
  • ICQ for iOS and Android introduced Stories, a feed of photos and videos taken within the past 24 hours, and a handy photo/video editor
  • ICQ launched end-to-end encryption and data saving mode for voice and video calls in iOS, Android, Window and Mac OS apps

Social Networks

  • VK rollout of smart newsfeed across all devices
  • VK released sticker suggestions and in-message Graffiti painting in mobile and GIF autoplay and new photo-editor with options to place stickers, emojis and text over images and paint with a virtual brush
  • VK launched vk.me, a short URL service for personal and community messages, and callback API, a tool to track followers’ activity in the communities
  • Release of OK Live, a mobile app for live video streaming to OK (on iOS and Android)
  • Release of OK Messages, a fast, free and simple messaging app (on iOS and Android)

Online Games

  • Large Warface update: special operation Anubis, new maps and weapons, new sets of achievements
  • Launch of in-house mobile strategy game Jungle Clash with dynamic real-time PvP battles and MOBA elements
  • Armored Warfare was licensed out for operation in China
  • Acquisition of a license to operate MMORPG Revelation Online in CIS, the EU and North America

Search, E-commerce and Other Services

  • Our mobile location-based marketplace Youla has reached over 2.5mln monthly active users
  • ME partnered with Booking.com allowing users to view hotel details and book rooms and introduced bicycle navigation and OSM map editor ratings
  • Launch of Artisto and Vinci mobile apps that utilize neural networks and artificial intelligence to process short videos and photos respectively in the style of famous artist and artistic patterns
  • Multiple myTarget updates: carousel ads in OK and VK mobile newsfeeds; full screen video ads (reward/non-reward) in mobile ad network; server-to-server API for mobile ad network publishers; affiliate network for CPI-based sales
  • Mail.Ru Group’s Big Data business unit, in cooperation with Equifax Credit Services, launched a credit risk assessment product for the Russian banking system
  • Tarantool, our database management solution, has signed a number of large B2B clients from various industries (VimpelCom, AVITO, QIWI, Badoo)
  • Mail.Ru Group and United Music Agency partner with Universal Music, Sony Music and Warner Music to give access to media content for social networks
  • VK held VK Cup 2016, a contest for young programmers, and VK FEST 2016, a two-day open-air festival in St.Petersburg (with over 70k visitors, 40 bands and 70 speakers/bloggers performing at 15 stages)
  • OK launched a 2-year education program Technopolis in collaboration with Peter the Great St. Petersburg Polytechnic University

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

In H1 2016, the Company achieved revenue growth of 11.6% Y-o-Y to RUR 18,834 million with Q2 2016 revenue growth of 11.9% Y-o-Y. H1 EBITDA margins were 46.1% with H1 EBITDA of RUR 8,691 million mostly due to increased marketing spending. As a result of lower interest payments on the loan connected to the acquisition of VK, net profit increased 14.0% to RUR 5,737 million.

We continue to be pleased with the growth in advertising revenues which in H1 2016 grew 28.6% Y-o-Y to RUR 8,098 million. We saw a continuation of the trends of Q1 2016 with continued strong demand, and revenue growth, especially on mobile and generally in native ads.

As we have previously commented the growing mobile audience and inventory as well as implementation of ad technologies are driving the shift of advertising budgets into mobile in which we are able to have good market share.

While the comparables clearly become tougher for advertising revenues in H2 2016 the favorable structural trends are expected to continue and we continue to see a number of opportunities. With the addition of new ad formats particularly on our social networks we expect more big brands to continue relocating their ad budgets from other media into digital. As such, for FY 2016 we continue to expect to see good growth in advertising revenues.

VK engagement and audience continued to see good growth. In H1 we launched the new smart (algorithmic) newsfeed which has been well received by users and led to a significant increase in views and engagement. 4 out of 5 users who tried the new smart newsfeed keep using it demonstrating positive user feedback and the adoption rate is already about 60% of the total audience. VK desktop redesign, which is now available to all users, has also been well received. We continue to focus on native, and especially mobile advertising, and expect the ad load and pricing to continue to increase from the current levels which are still comparatively low. In H1 2016 VK’s total revenues grew 41.0% to RUR 3,810 million. We continue to see significant further opportunities for VK with both an expanding user base and an increasing number of features.

In H1 2016 our MMO games revenue grew 9.1% Y-o-Y to RUR 4,507 million. Warface remains our largest revenue generating game and had a well-received update in May. Armored Warfare and Skyforge are now among our highest revenue generating games and in Q2 Armored Warfare was licensed out for operation in China. Armored Warfare now has 6.6m registered users. However user retention, especially on the international side has been lower than expected. Additionally the continued FX and macro pressures continue to squeeze the Russian consumer and that has started to impact our games revenues. This is expected to continue in H2. The pipeline is full and most notably we have the launch of Revelation in Q4 2016 in Russia and Q1 2017 internationally. Additionally we continue to develop further titles, and releases on different platforms, based around our key franchises. However we expect that the consumer spending will remain under pressure in H2 and hence this will affect games revenue growth.

In IVAS, we continue to focus on fine tuning the IVAS mechanics especially on mobile, and hence increasing paying user penetration. However we have not yet achieved suitable mobile monetisation. This, combined with the effect of the macro and FX headwinds on the consumer continues to weigh on IVAS revenues. As a result in H1 IVAS revenues declined 4.0%. We do not anticipate any significant change in the IVAS revenues in H2.

Our mobile location-based marketplace Youla has reached over 2.5mln monthly active users. We will continue its expansion in H2 with the addition of new features.

At the end of July we launched two new mobile-only products: Vinci and Artisto. Vinci uses neural networks and artificial intelligence to transform photos into paintings in the style of famous artists or any other artistic pattern. Artisto is the world’s first app that utilizes similar technology, but for processing short videos. We will monitor the progress of these standalone apps and continue to develop internally the underlying technologies that might also be utilized by various communication products of the Company.

The strong cash generating capacity of our business remains unchanged. As we previously commented at the end of Q1 2016 we moved into a net cash position of RUR 573 million. Since then we have received the second tranche of the payment connected to the sale of HeadHunter and fully repaid the balance of the Gazprombank loan. Q2 cash conversion was as expected. As a result net cash at the end of H1 was RUR 7,573 million.

H1 2016 EBITDA margins were 46.1%. As stated these were adversely affected by marketing costs being weighted to H1. In H2 we do not anticipate a repeat of this factor.

Overall H1 has seen a solid performance. We are encouraged by the growth in advertising and believe we are well positioned to benefit from the ongoing structural trends in that area. А number of the new projects are also showing very significant promise. However, as commented, the ongoing squeeze on the Russian consumer is expected to continue to affect our IVAS and games revenues in H2. Notwithstanding this, and based on current visibility and current market conditions, we retain our FY 2016 ex HeadHunter like-for-like revenue guidance of 8-14% but without an improvement in consumer spending we expect to be in the lower half of this range. As a function of timing of product releases we also expect that H2 will be Q4 weighted. While H1 margins were affected by H1 weighting on marketing we continue to maintain effective cost management and despite the slightly lower revenue growth assumptions we anticipate full year EBITDA margins at between 47-48%.