annual
report
Mail.ru Group
Limited
1
2019
2019Annual report сontents
Overview
Business review
Management
03
08
10
12
13
19
28
69
84
91
Intro
Mail.ru Group in brief
Our people
Our history
2019 key highlights
Chairman and CEO statement
Operating review
Financial review
Management
Corporate governance
104
Risk management
113
116
Board and management remuneration
Responsibility statement
Financial statements
120
Independent auditors’ report
123
Consolidated statement of financial position
124
Consolidated statement of comprehensive income
125
Consolidated statement of cash flows
126
Consolidated statement of changes in equity
128
Notes to consolidated financial statements
Additional information
177
Cautionary statements
2019
2
2
Annual report
2019Annual report
intro
Our mission
We believe that technologies
are created and developed
for the good of society. Our
mission is to improve people’s
lives by making technologies
simple and accessible to as
many users as possible.
Throughout our 21-year history, we have constantly evolved by
recognising and adapting to existing trends as well as creating
new trends, with a sharp focus on the digitalisation of daily user
needs. Today, we are a user-focused consumer and entertain-
ment company, with the largest direct audience access in Russia,
a mass-market and high-frequency focus, and an international
presence via games. We are a strong B2C player, with ambitions
in B2B.
3
2019Annual report online
offline
4
SuperAppKit
The year 2019 was pivotal for us in our strategic goal of making
the transition into an ecosystem. Our next phase is focused on
making our ecosystem the biggest in Russia via deeper integra-
tion and cross-selling of the Group’s assets. Group ID and VK
Pay are being scaled across the Group, VK Mini Apps will turn
into a unified Group platform for developers, and the VK Super
App Software Development Kit will be the technology uniting
all these initiatives, alongside the Сombo loyalty offer and the
Marusia virtual assistant.
2019Annual report 7:00 a.m.
8:00 a.m.
9:00 a.m.
Wake up and listen
to the news
Check your Combo
subscription
Start the working
day
Find out what's new
with your friends
Select a car to drive
to work
Start the morning with
a good deed
morning
with us
2019
55
Annual report
2019Annual report 10:00 a.m.
12:00 a.m.
2:00 p.m.
Listen to your special
work playlist
Work with Mail.ru Group
projects
Order a hot
lunch
Choose a contractor
for your project
Take care of your
health
4:00 p.m.
Keep in touch with your
colleagues
Look for relevant informa-
tion and save important
documents
the day
with us
6
2019Annual report 8:00 p.m.
9:00 p.m.
10:00 p.m.
Return home
after work
Order the goods
you need
Relax after a busy
day
Sell
your stuff
Support your
favourite creators
Learn new and
useful skills
evening
with us
2019
7
7
Annual report
2019Annual report Mail.ru Group
in brief
Mail.ru Group offers a variety of online
communication products, entertainment
and e-commerce services.
Communications
and Social
The two largest Russian-
language social networking
services and communication
platforms VKontakte (VK) and
Odnoklassniki (OK), Russia’s
leading email service (Mail.ru),
media projects, search and music
services (UMA and BOOM).
8
2019Annual report Games
Represented by the MY.GAMES
brand, a global digital enter-
tainment provider with leading
positions in Russia, which creates
and delivers immersive gaming
experiences on mobile, PC, and
console to millions of players
worldwide.
New
Initiatives
A location-based marketplace
(Youla), online learning platforms
(GeekBrains & Skillbox), new B2B
projects including Mail.ru Cloud
Solutions, and MRG Tech Lab
services.
9
2019Annual report our people
Our main asset is our people. Each year the whole
company votes for the strongest employees and
teams as part of the Mail.ru Group People Awards. We
celebrate professional achievements and formidable
expertise in 9 categories. You can see photographs of
our 2019 winners throughout this report.
2019
10
Annual report
We are grateful to everyone
for their contribution to the
company's development.
2019
11
Annual report
our
history
1998-2001
Communications
2006
Social
Launch of Email & Portal
We enter the social network business
2008
Games
2015-2019
New Initiatives
We enter the games market
Launch of e-commerce & O2O
2019
12
12
Annual report
2019Annual report 2019 key
highlights
01
02
February
January
03
March
Launch of Space Justice, a vertical
scrolling shooter for iOS and Android
developed by IT Territory studio.
Calls in VK Messenger come out of beta;
users can share their screens and mini-
mise video calls to continue chatting.
OK integrates an AI-based technology
developed by Mirror AI which turns pho-
tos into images in the style of emoji.
Launch of Pulse, a Suggestions Feed
offering personalised content based on
user interests with the help of extensive
analysis of user behaviour and machine
learning (ML) algorithms.
All business pages on VK can place ads in
the format of Stories with up to 3 photo/
video objects and call-to-action buttons.
OK Creative studio becomes available
to all video content creators, who can
now use its interactive mechanics such as
polls, quizzes, clickable descriptions and
texts, which can be added to videos.
Mail.ru for Business introduces Vision, a
computer vision-based technology for
the B2B market.
Launch of Atom, a new browser focused
on user privacy and security.
Mail.ru for Business launches Sitebox,
a website builder for creating promo
and corporate websites, online market-
places and personal blogs.
The Big Deal Game Conference, held
by Mail.ru Group, gathers the largest
international game companies such as
Blizzard, Tencent, Ubisoft, Riot Games,
etc.
13
2019Annual report 04
April
05
May
06
June
Start of open-beta testing of our virtual
assistant Marusia.
Launch of DonationAlerts in Brazil.
GeekUniversity, an online university
run by GeekBrains, launches a product
management programme.
MY.GAMES started OBT of Conqueror's
Blade, a new client MMO RPG/RTS title
licensed from Booming Games.
VK launches QR codes for personal
pages, communities or posts; making it
easier for users to download, send and
post them.
VK communities now feature an actions
history for admins to keep track of con-
tent management, changes to settings,
etc.
OK adds a post scheduler; the new tool is
useful for SMM specialists, bloggers and
other users who frequently post content
on OK.
OK introduces Playable Ads, a new ad
format for games: gameplay and me-
chanics are displayed in the News Feed,
which helps boost audience engagement
and downloads.
Launch of Bombastic Brothers, a mobile
run-and-gun platformer inspired by
the arcade and action games of the 80s,
developed by Fast Forward game studio.
Mail.ru Cloud Solutions launches Mail.ru
Cloud Managed Services, a new service
providing outsourced maintenance of IT
infrastructure.
The Mail.ru email service now supports
AMP technology, allowing users to edit
information right in the email interface.
Mail.ru Group, ivi, a media-streaming
service, and ADV Lab introduce target
video ads for Smart TV.
Launch of MADE Academy for product
managers.
Warface, the top PC game in our portfo-
lio, marks 7th anniversary.
VK users can add surveys and posts to
their articles, either new or imported from
other social networks.
VK Stories now get archived 24h after
posting and are available to the author
only.
OK and VK launch Games Cup 2019,
a tournament for developers of HTML-5
mobile games with a prize fund of
RUB 1.4m and traffic for their projects on
OK and VK.
DonationAlerts launches a monetisation
service for all authors, including bloggers,
journalists, artists etc.
Mail.ru Group introduces an internation-
al version of Disk-O which transforms
cloud services into hard drives.
Mail.ru Group launches Direct deals, a
new tool for advertisers to buy specific
ad placements from publishers based
on preset parameters such as price, ad
format, and location.
MY.GAMES, a global gaming brand, is
launched to unite all gaming projects of
Mail.ru Group under one umbrella.
MY.GAMES launches Evolution 2: Battle
for Utopia, a sequel to the popular sci-fi
mobile shooter developed by IT Territory.
MY.GAMES announces the consolida-
tion of Panzerdog studio, the developer
of Tacticool, a brand new fast-paced 5v5
multiplayer mobile shooter.
14
2019Annual report 07
July
Stickers featuring music, surveys and
geolocation can now be attached to
Stories on VK.
Admins of VK communities get access
to all important metrics, gathered on one
page.
VK starts testing of its advertising
account update, with a new design, navi-
gation, statistics, etc.
VK launches its own hosting service for
podcasts; episodes can now be exported
to external blogs, websites and other
podcast services.
OK launches its own advertising account:
all users can now set parameters for their
ads with any forms of content such as
video, photos and links.
OK launches shared photo albums where
users can upload and discuss photos of
each other.
Admins of OK groups can upload ani-
mated covers with up to 5 images.
08
August
MY.GAMES partners with iDreamSky,
one of the leading Chinese mobile game
developers, which will allow them to
strengthen their positions in key interna-
tional markets.
VK apps now offer access to the whole
range of goods on AliExpress, including
the ability to place an order.
VK users can upload subtitles for their
videos in up to 5 languages.
OK groups can now leave comments on
their behalf.
OK launches local news suggestions: the
service automatically identifies what will
be relevant for users in certain regions
and cities.
MY.GAMES announces MY.GAMES
Store, a global game platform for both
F2P and premium games.
Mail.ru Group and Proxima Capital ac-
quire a controlling stake in the carsharing
platform YouDrive.
MY.GAMES acquires SWAG MASHA
studio, the developer of Love Sick: Inter-
active Stories.
Mail.ru Group ranks 4th in the European
mobile developer ranking compiled by
AppAnnie as of H1 2019.
Mail.ru Cloud Solutions launches a new
PaaS for analytical data, making storage
and processing 3-5 times cheaper.
Mail.ru Group launches DOOH (digital-
out-of-home) target ads.
09
September
Mail.ru Group launches Myteam, a new
messaging app for corporate users.
VK launches Worki, a mini app for job
seekers where they can upload their
CVs and respond to vacancies suggest-
ed to them based on their professional
interests.
VK launches Biblio, a mini app for
streaming audiobooks; audiobooks can
be purchased individually or listened to
with a subscription.
VK Music now features a “Similar Artists”
section with suggestions based on musi-
cal genre.
VK opens an AI Lab at the Moscow Insti-
tute of Physics and Technology, one of
Russia’s leading technical universities.
OK introduces a new feature that blurs
the background during video calls, in-
cluding group calls.
Youla launches in-app P2P calls in coop-
eration with OK: users’ contact details are
not disclosed.
Tarantool launches Cartridge, a platform
for developing business apps with tools
for solving typical problems with cluster
management, testing, deployment and
scaling.
Mail.ru Group ranks first in terms of daily
mobile audience in all Russian cities
according to Mediascope.
VK and OK rank as the 2nd and 3rd most
popular websites in the C.I.S., according
to Deloitte.
Launch of Big Data MADE Academy for
data scientists.
15
2019Annual report 10
October
11
November
12
December
Youla introduces Stories, a new promo
tool for sellers.
Mail.ru Group launches the Combo
loyalty programme.
MY.GAMES launches American Dad!
Apocalypse Soon, a strategy mobile
game based on the Emmy®-nominated
series from 20th Century Fox Television,
developed by Fast Forward studio.
MY.GAMES launches a CBT of Lost Ark,
a highly anticipated MMOARPG licensed
from Smilegate, on PC in Russia and
the C.I.S.
Tarantool releases Data Grid, an enter-
prise solution for developing distributed
business apps.
Mail.ru Group, Alibaba Group, MegaFon
and RDIF announced the completion of
the AER JV transaction.
Mail.ru’s Email and Cloud apps are
the only Russian services listed in the top
20 most secure apps in Google Play.
16
Large VK communities and verified pag-
es can now attach call-to-action buttons
to their videos.
Sberbank and Mail.ru Group complete
the creation of the leading Russian O2O
(online-to-offline) services platform.
VK simplifies the verification process by
adding an interface to apply for a verifica-
tion badge.
OK becomes the first social network to
launch a virtual telephony system (ATS)
for OK groups.
OK sets a new record of new friend-
ships – 6m in one day.
Launch of Dom Mail.ru, a special vertical
content project inside Realty Mail.ru
devoted to housekeeping.
Mail.ru Group, Sberbank, Yandex, MTS,
Gazpromneft and RDIF announce the
AI-Russia Alliance.
DonationAlerts becomes the biggest
service for stream monetisation in Russia.
Mail.ru Group launches indoor advertis-
ing solutions.
Youla launches video calls for users to
evaluate the quality of online goods.
Mail.ru Group announces its unified
authorisation system Mail ID to ensure
seamless and convenient access to all the
products of its ecosystem.
Youla introduces AI technology which
can detect product type from a photo
and estimate time to sale based on the
price.
VK launches thematic news feeds fea-
turing posts selected by both algorithms
and participants of a content rating
programme.
VK Mini Apps launches Split the Bill,
a mini app that allows users to quickly
split the bill with friends.
MY.GAMES launches an OBT of
MY.GAMES Store platform.
VK launches Memories, where users can
see posts and photos that they added to
their wall on the same day several years
ago.
OK launches geo-targeting, allowing
advertisers to target audiences who live
close to a specific location.
OK launches an overhauled Music sec-
tion with a new algorithm for suggestions.
Mail.ru Digital Technologies announces
a fully-fledged solution designed to build
an integrated social platform for large
corporates.
Launch of Hi-Chef, a new convenient
mobile website with recipes featuring
a voice interface.
Mail.ru Group launches the Data Man-
agement Platform, which brings together
our omni-channel marketing solutions
and services.
Mail.ru Group and VEB.RF launch
a financial marketplace for businesses
featuring a smart selection of finan-
cial products based on basic company
details.
2019Annual report
financial
highlights
Revenue
RUB mln
23
EBITDA
RUB mln
8
Net profit
RUB mln
1
17
71,164
2018
87,663
2019
27,137
2018
29,405
2019
15,083
2018
15,300
2019
2019Annual report Online advertising
RUB mln
23
29,782
36,682
Community IVAS
RUB mln
9
15,005
16,371
2018
2019
MMO revenue
RUB mln
22
23,295
28,435
2018
2019
2018
2019
18
2019Annual report chairman
and CEO
statement
The year 2019 has been pivotal for us in our strategic goal of mak-
ing the transition into an internet ecosystem, to be formed on the
basis of our strong and well-diversified product portfolio as well as
complementary and well-funded partnerships.
Boris Dobrodeev
CEO (Russia)
Mail.ru Group
Dmitry Grishin
Co-Founder
and Chairman of the Board
Throughout our 21-year history, we have constantly evolved by recognising and adapt-
ing to existing trends and creating new ones, with a strong focus on the digitalisation of
daily user needs. Today, we are a user-focused consumer and entertainment company,
with the largest direct audience access in Russia (at ~58.4m, which means daily access to
~48% of the local population1), a mass-market and high-frequency focus, and an inter-
national presence via Games. Russians spend 168 minutes on mobile on average per day
(web+apps)2, and key Mail.ru Group platforms account for 17% of this time.
1
2
Mediascope WEB-Index, Russia 0+, age 12+,
December 2019
Mediascope WEB-Index, Russia 0+, age 12+,
December 2019
19
2019Annual report Our core communication and social platforms remain among the most popular on the
Russian and C.I.S. markets, with our email service being among the top five globally. Our
games continue to become more international and increasingly mobile, with a presence
across platforms and a focus on our own IP. We finished the year as a global top 50
games company and the largest European games company domiciled in Russia. Youla,
the second largest classified site in Russia, demonstrated further strong growth and
gained share on the local classifieds market. Our music subscriber numbers continued to
show strong growth, exceeding 3m, as we broaden the Group’s overall content offering.
We have also expanded our reach in EdTech through the consolidation of Skillbox, while
our B2B-technology business has grown at a triple-digit rate to reach its first RUB 1bn
revenue milestone. In the meantime, we maintain focus on ESG, having launched corpo-
rate NGO Kod Dobra, which raised >RUB 1m for 187 verified charity organisations from
46 Russian regions, among multiple other internal initiatives, which also include plans to
launch regular publication of a stand-alone Sustainability Report.
In 2019, we managed to complete two planned major transactions with the AliExpress
Russia JV in e-commerce and the O2O JV in food tech and mobility. Our new partners
include Alibaba, the world’s largest e-commerce company, and Sberbank, the largest
financial institution in Russia, both of which are now shareholders, along with Prosus and
Tencent. In the meantime, Delivery Club, Citymobil and AliExpress Russia are already
among the leaders in their respective categories, with significant growth ahead.
Our 2020-22 development phase will be focused on the formation of our ecosystem
via cross-selling and deeper integration of the Group’s assets, which we have already
started to do through the launch of the Combo loyalty programme and unified Group
ID. We are transforming VK into the heart of our ecosystem. A VK account will be the
foundation for our Group ID, and VK Pay is being scaled across the Group, VK Mini
Apps will turn into a unified Group platform for developers and the VK Super App Soft-
ware Development Kit will be the technology uniting all these initiatives, along with the
Сombo loyalty offering and our Marusia voice technology.
In advertising, we are targeting a broader presence across performance advertising,
while growing exposure to SMEs and broadening our offering in areas like video, as
well as omni-channel initiatives. Overall, our improving AdTech and growing ROIs for
our clients should allow us to continue to benefit from the ongoing shift of budgets on-
line and to social within digital, as well as to grow our ad market share over the coming
years.
Games will continue to increase their global reach and mobile focus. We will maintain
our dedication to reducing the hit-driven nature of the games business through long-
term planning and management of the games pipeline, studios, talent, analytics and
marketing budgets.
Among our New Initiatives, we want to continue to invest in Youla, as we believe in its
major potential for both audience growth and monetisation, with significant compet-
itive advantages coming not just from the quality of its team and tech stack, but also
synergies with the Group. These allow for social and other integrations, which we will
increasingly be exploring.
We will look to further develop and expand other New Initiatives, including Marusia
and the related Capsula smart speaker. Products like Pulse are a reflection of our
strategy to make our services more personalised in order to better satisfy the user's
continued demand for information and entertainment. A unified video platform for the
whole Group will be launched in 2020 and we will be more active in developing our
video product, while also creating more video entry points. We believe in the future
of online education and will continue to invest in this area. Our ambition is not only to
be a B2C, but also a B2B company, with ongoing related investments within our New
Initiatives as well.
Overall, we want to continue to enhance our AdTech and offer more use cases, be ac-
tive in AI, Big Data and various types of content, while connecting to our user through
multiple devices, loyalty and unified ID. There are a large number of synergies within
the Group, which we will actively exploit. The goal for all services is to be personalised,
with smooth and easy movement for the user between them, which should result in
a rise in paying user share and APRU. We believe that such a strategic approach will
significantly enhance our market position over the next three years.
Overall
strategic
focus
20
2019Annual report Performance
review
3
Newzoo, 2019 forecast: 7.2% YoY global games
growth, including 9.7% YoY for mobile
21
VK
VK finished the year as a strong leader among communication platforms in Russia, with
71.6m MAU (+2.2% YoY), including 65.2m on mobile (+7.9% YoY) as of December 2019. VK is
focused on boosting time spent and stickiness: this was up 12.5% in 2019 to 36 minutes per
day, including 16% growth on mobile.
Thanks to more than 200 product updates in 2019 and the development of the VK content
platform, engagement continued to rise, with, among others: 1) continued double-digit
growth for average daily newsfeed views; 2) +45% for Stories published monthly; 3) +47%
for daily live streams; 4) +34% for daily video uploads. According to Mediascope, on average
users visit VK every other day, more than any other Russian social network.
VK has been rolling out multiple community tools for interacting with audiences, which led
to the number of active communities on VK reaching 3m in December – a 26% increase YoY.
The updates also allowed content creators to earn RUB 1.5bn between November 2018 and
October 2019 using VK’s monetisation tools.
The VK Mini Apps platform continues to expand rapidly, with over 13,000 active Mini Apps
and ~23m MAU in December, with over 3m MAU for the AliExpress mini app offering the
full range of products available on the AliExpress marketplace, which was launched on VK
at the end of August 2019.
VK has added new statistics, improved its optimisation algorithms, introduced ad auction
predictions, launched retargeting using QR codes and updated the ad formats. These up-
dates have had a positive effect on advertisers’ ROI. The launch of the new HTML5-based
interactive ad format and the development of VK Mini Apps and QR codes have provid-
ed opportunities for an even deeper connection between offline and online, increasing
the sales of special offers for brands by 40%. The number of active businesses on VK has
reached the 1m mark. The introduction at the end of 2019 of quick launches for ad cam-
paigns via mobile, in which a smart system suggests a target audience and budget, has
significantly simplified the use of ads for SMEs or for those who want to launch campaigns
on the go. All these efforts resulted in VK delivering 27.3% revenue growth YoY in Q4, with
top-line tracking in line with medium-term guidance of doubling VK revenue over the next
3-4 years, as compared to the 2018 level.
OK
The OK audience was stable YoY in 2019, at 43m MAU in Russia, with rising engagement
driving +2.8% growth in DAU, including +11% on mobile.
In 2019, OK focused on the enhancement of its features as a communication services plat-
form for sharing emotions with friends and family. IVAS was one of the key drivers behind
the growth in engagement, along with other communication services in 2019. OK users
exchanged 45bn in virtual gifts, growing 4x YoY. The number of virtual gift senders grew by
45%. On peak days, during national holidays, gift numbers exceeded half a billion per day.
The monthly number of stickers and their senders doubled YoY.
OK’s mobile gaming platform continues to grow. OK made RUB 3.2bn in total payouts to game
developers in 2019, including RUB 600m for the mobile share, which has grown 2x YoY.
Thanks to new machine learning and neural network-based algorithms as well as new function-
ality allowing friends to be tagged in photos and videos, OK posted a record of 240m daily likes.
In Q4 2019 OK also set a record of 6m new daily friendships. AI-based friend recommendation
algorithms helped to increase monthly friend requests by 50% YoY.
OK also improved its video call service throughout 2019, resulting in the average daily number
of calls growing by 56%. Average video viewing time increased by 27% YoY, with OK continuing
to successfully monetise its own content.
In 2019, OK continued to expand the SME ecosystem, which resulted in a 2.2x YoY growth in
SME-related ad revenues. In Q4 2019, OK launched new business profiles for entrepreneurs.
As of now, over 1m users run a business through their OK pages.
OK’s Chinese goods marketplace underwent a major update, with enhanced personalisation
algorithms and improved social features. This resulted in 29.4% revenue growth, with over 4.5m
in orders made and 42% of users making a second purchase within a month of their initial order.
2019Annual report Games
At 26% for 2019, the growth of our gaming segment continues to outperform the global
games market for the fourth year in a row3, with full-year revenue of RUB 31,262m. Our
mobile-focused international expansion is progressing, including through partnerships
with regional players. We increased the number of registered users of our games by 26%
in 2019, to 605m. We finished the year with 13 in-house studios and 22 studios within our
gaming investment arm (MRGV). In 2019, international revenues accounted for 68% of total
MMO revenue. The share of mobile revenues stood at 61% in Q4 vs. 57% in 2018. We expect
mobile revenue share to further rise towards 80% in the coming two-three years.
The Warface franchise, one of our top three revenue-generating game franchises, con-
tinues to perform well, supported by community management. In 2018 the franchise
expanded to consoles and was among the top F2P games on the PS4 in the U.S. in terms of
downloads. We are continuing to expand Warface’s footprint by bringing it to new plat-
forms, including the 2020 releases of the first mobile and Nintendo Switch versions. A new
console game project will launch in Q2 for PS4 and Xbox One. As such, we continue to see
Warface as one of our key franchises.
War Robots (>150m installs) is in the mature phase of its lifecycle and hence is showing EBITDA
improvement, which is expected to continue in 2020. Hustle Castle continues to perform
strongly, with revenue growth of 36% in 2019, a new daily revenue record of RUB 100m and
55m downloads at year-end. Over the three years since its release, Hustle Castle continues to
be a strong margin generator. The product’s metrics remain consistent, and our development
team has a full pipeline of updates, with the title remaining core in our portfolio.
The American Dad! Apocalypse Soon mobile game, developed in-house in partner-
ship with FOX Next, was launched in November 2019, with 3.6m installs today. Lost
Ark MMOARPG was launched on PC within Russia/the C.I.S. in October 2019 and has
seen 1.7m in registered users. The PC title Conqueror’s Blade, with 1.7m registered users
at year-end, continues to show strong potential for growth on international markets,
with a full publishing pipeline in 2020. Left to Survive, our own title developed by the
Whalekit studio and released in July 2018, remains among the top five revenue-gener-
ating games in our portfolio with around 15m downloads. The narrative-driven mobile
game Love Sick: Interactive Stories from the SWAG MASHA studio remains among the
top 10 titles, with 4m downloads since its launch in February 2019. We will continue to
allocate resources to all of these games in 2020.
We launched our international games platform MY.GAMES Store in open beta-test mode in
December 2019. We have a full pipeline of releases for 2020, including from the studios acquired
by Mail.ru Games Ventures (MRGV), many of which have games suitable for global launch.
New Initiatives
Revenue from the New Initiatives segment in Q4 2019 grew 85.0% YoY to RUB 2,349m,
with 126.7% growth to RUB 6,233m for the year. Among the key drivers was continued
progress on the monetisation of Youla, as well as scaling up our cloud, online education and
other new initiatives.
Youla is the largest component here, and the platform’s solid growth continued in 2019 with
RUB 2.1bn in revenues (above budget), with a RUB 2bn EBITDA loss (in line with budget). Youla
has 27m MAU4 and has become one of the largest mobile-first classifieds globally5 in less than five
years since its launch. Our strategic goal in Classifieds is to remain a mobile-focused technological
leader among domestic players with a serious attitude to security and safety, and differentiation
through extensive social and e-commerce functionality, accessible through the Group.
Our B2B-technology business surpassed RUB 1bn in revenues in 2019, showing 140% YoY
growth.
Sales of Capsula, our Marusia-powered smart speaker, started in April 2020. Marusia
now has more than 60 skills and will be more deeply integrated with the Group’s services
throughout 2020.
The Pulse personalised content recommendation platform, launched in January 2019, con-
tinues to expand, having reached 45m MAU and 3.5m DAU in Q4. It is attracting users with
over 300,000 unique news items from more than 3,000 sources, with the average time
spent at 10 minutes per user per day. We will start initial monetisation projects in 2020.
4
5
Internal statistics on MAU on all platforms
AIM Group Marketplaces Report, May’19
22
2019Annual report 2019
financial
performance
Outlook
23
Despite the somewhat challenging macro and significant base effects throughout
2019 for the core advertising and games businesses, they continued to grow strongly.
FY 2019 revenues grew 23% YoY to RUB 87,663m, excluding high-growth businesses
in foodtech and e-commerce, compared to a revenue guidance of 22-24%. FY 2019
EBITDA was up 8% to RUB 29,405m, in line with our guidance of “around RUB 30bn”.
Despite the backdrop to the 2019 advertising market being more challenging and a high
base as a result of FY 2018 growth of >30%, advertising revenue trend remained solid,
with H2 performance better than H1 (+24.4% vs +21.6% YoY). VK will be among the pillars
for continued growth, having expanded revenues by >20% in 2019. Having nearly
doubled during the previous two years, MMO revenues continued to expand, rising by
22% in FY 2019, above the global average. Youla continued its rapid growth, being one of
the largest mobile-focused classifieds globally in terms of Android DAU. Having started
monetisation only in Q4 2017, Youla delivered RUB 2.1bn in revenues in 2019.
In Q4, the cash-generating capacity of our business remained strong, though it was
affected by the funding for Delivery Club, Citymobil and Pandao ahead of the closure
of the JV deals. The free cash flow (FCF) generation of our business is expected to
normalise in 2020. Our net debt position, post-M&A costs (including a USD 100m
contribution to the AER JV and RUB 8.5bn contribution to the O2O JV), at the end of
Q4 2019 was RUB 13,736m. We have another USD 82m contribution to make towards
the AER JV in October 2020 and a potential RUB 4.6bn payment due to the O2O JV
in November, subject to KPIs. In Q4 we utilised RUB 8.5bn in credit lines with an aver-
age effective interest rate of 7.2% vs a 7.7% rate on prior borrowing.
Despite near-term hurdles resulting from COVID-19 as well as the oil price and related
macroeconomic effects, our current three-year vision sees potential for an accelera-
tion of revenue growth into 2022 vs. 2019.
In 2020 we will remain focused on advertising solutions and technologies as well as
driving content consumption. In the coming years we will centre our efforts on growing
the effectiveness of our advertising through ongoing AdTech development and inno-
vative new ad products, while attracting new types of advertisers, such as SMEs and
offline retailers, and expanding our advertising network.
We set our ambitions high and aim to deliver above-market ad revenue growth as
macro stabilises. We see a large improvement in conversions from our recent initiatives
and will use any macro weakness to deepen our exposure to performance ad formats.
As core to our ecosystem, we will focus on further growth in VK revenues and engage-
ment. We aim to develop VK into a core Russian super-app and boost engagement
among the 30+ audience. We will invest in VK’s content platform (including video and
music), messaging, Mini Apps and other areas. We will be highly focused on growing
engagement and time spent. Our goal remains to double VK revenues by 2022 vs.
2018 levels. We aim to boost the advertising revenue share on OK. Gaming, social
commerce and SME will be a major focus for both of our core social networks, with
cross-pollination of video and Mini Apps.
We are confident in our 2020 games pipeline as well as the continued performance of
existing titles, including War Robots, Warface, Hustle Castle and others. We continue
to expect Games EBITDA to double its 2018 level in 2022 with a margin in the low to
mid-twenties through the cycle, with broadly similar revenue growth in 2020, subject
to balance between the potential positive impacts of COVID-19 on one hand and the
magnitude of macroeconomic weakness on the other hand.
We want to continue to invest into Youla as we believe in its significant audience growth
and monetisation potential, including through further synergies with the Group through
social and other integrations. Potential macroeconomic weakness in 2020 could serve
as a supportive factor for classifieds vs. other retail platforms.
There are a large number of unrealised synergies within the Group, which will be
leveraged through the integration of a single ID, a broad loyalty programme, and VK
Pay across the ecosystem. Our Unified ID service and the Combo loyalty programme
are being rolled out across products as tools that will provide the user with smooth
integration, simple authorisation and added value. The goal for all services is to be
personalised, with smooth and easy navigation between them.
2019Annual report Recently deconsolidated projects like Delivery Club and Pandao are now part of
the AER and O2O JVs and are equity accounted. Both have ambitions to be industry
leaders and will therefore see an active investment phase in the coming years. In 2020,
we expect to see deeper integration between AER and our social networks and further
collaboration in distribution. In 2020, Citymobil will work on further enhancement of
its mapping, routing and matching services, along with deeper integration with the
Sberbank and Mail.ru Group ecosystems, as well as other product initiatives. Delivery
Club is aiming to significantly scale its business in 2020, with potential support coming
from its rising exposure to e-grocery business, including the recent consolidation of
Samokat, the largest local express e-grocery delivery player.
Our people and culture
In every annual report we have said, and it is worth re-iterating, that our main asset is
our people and the technology-driven culture which they create. Our unique culture
remains one of the guiding principles for us, and Mail.ru Group's future success is very
dependent on our ability to attract, retain and motivate the best engineers and other
human talent. We continue to recognise this fact and very much value the contribu-
tion of every Mail.ru Group employee to the overall success of our business.
Thanks and appreciation
For the last few years we have chosen to close this section with an acknowledgement
to a number of key groups. In view of the success that we saw in 2019 and the motiva-
tion that we all need to successfully manage through turbulent times, it is quite right
that we continue to do this. First off, our employees. Since the start of the Group, our
success has been down to the dedication, commitment and passion that they show
every day. Our employees are highly skilled and continue to show great loyalty to
the Group. Underlying retention rates remain unchanged, and we believe that this is
mainly a function of our continued focus on a tech-heavy culture. The Board is again
delighted to extend its thanks to all the Mail.ru Group staff and to recognise their con-
tribution. Secondly, on behalf of the Board, we want to thank our shareholders, who
continue to believe in, encourage and support us. The year 2019 saw a number of ma-
jor strategic partnerships materialise and these have been showing strong results, with
a number of our New Initiatives demonstrating significant long-term potential. Despite
the required investments, we have been able to deliver on guidance on both growth
and profitability. We aim to continue to build on our success and use any weakness as a
potential opportunity to further strengthen our business and grow our audience base.
As Russia’s largest social and communications company, with significant exposure to
games and therefore international markets, we are approaching 2020 with confidence
in the long-term success of our Group and acknowledging the opportunities that this
year can present, even in turbulent times.
24
2019Annual report Marusia voice assistant
startup
of the year
Alexey Krivenkov
Worki
startup
of the year
Alla Arshevskaia, Anton Vorobyev,
Anna Tishchenko, Sergey Sharapov
Combo
startup
of the year
Vladimir Sukhodoev, Anna Tseytlina, Alena Semichastnova, Sergei Potapov
MAIL.RU GROUP
MONTHLY REACH
Mediascope, Russia,
cities 0+, age 12+, Dec 2019
89%
of Russian
mobile
internet
users
operating
review
93%
of Russian
internet
users
2019
28
28
Annual report
2019Annual report operating
review
Our services attract millions of users each day. Whether they are
using email, instant messaging (IM), our social networks or our
games, we aim to increase the time they spend on our sites and
mobile applications by continuously offering new features and ser-
vices.
Communications &
Social
We operate the two largest Russian language social networks:
VKontakte (VK) and Odnoklassniki (OK). They enable users to
find, connect and communicate with friends, families and col-
leagues. Our products include a newsfeed, messaging services,
status updates, photos, videos, stories and other features. Users
can play games together, send each other online gifts, rec-
ommend websites and keep track of events such as birthdays.
We frequently add new products and services to maintain and
increase user engagement.
VK
VK remains a strong leader among communication platforms
in Russia, with 72m MAU1, including 65m mobile users as of
December 2019. Throughout 2019 the VK team launched over
200 product updates, driving user engagement and revenue.
These updates include:
• a major mobile app redesign
• significant updates to the VK Mini Apps platform
• the launch of key O2O Mini Apps: VK Taxi, Delivery Club,
AliExpress, etc.
• simplified verification for profiles and communities
• dark mode for apps
• major updates to Stories
• curated content feeds arranged by theme
• an overhaul of ad management
• chats in VK communities, etc.
1 Monthly active users in Russia
29
Given the existing high internet penetration and the related
slowdown in the overall growth of the Runet audience, VK is
more focused on boosting time spent and stickiness: up 12.5%
in 2019 to 36 minutes per day, including 16% growth on mobile.
According to Mediascope, users visit VK every other day, more
than other social networks. Our ultimate goal is to grow the VK
audience in Russia and the C.I.S. to over 100m within the next
two-three years.
To accomplish this, VK will expand its line of products and
continue moving towards becoming a Super App. VK will also
expand its ecosystem beyond its main app and increase its au-
dience using VK Mini Apps, a unified ID system, VK Pay, a broad
loyalty programme, and other integrations with Mail.ru Group
products.
Young people aged 12–24 are VK’s most engaged users, they
spend on average 68 minutes per day on the platform. However,
we are investing resources into making VK equally relevant to
all age groups in our ambition to make VK the main Super App
in Russia.
Thanks to product updates and the development of the VK
content platform, engagement continued to grow in 2019:
• +45% in Stories published monthly
• +47% in daily live streams and +34% in daily video uploads,
with > 80m people watching video content monthly
• +15% in messages delivered daily, to > 10bn
• +42% in money transfers between VK users
• +27% in the number of monthly audio and video calls, to
55m a month in Q4 2019
• +10% in the number of likes
• +42% in active music subscriptions
2019Annual report The two largest Russian
language social networking
services and communication
platforms, VKontakte (VK)
and Odnoklassniki (OK)
VK Music, one of the largest licensed social music ecosystems
in Russia, is one of the most important drivers of growth in time
spent and user engagement. This is why we continued develop-
ing our music platform throughout 2019 and integrated it even
further into VK’s content ecosystem. Over the course of the
year, VK improved its personalised music recommendations so
users would get the exact kind of content they are interested in.
VK became the first Russian platform to launch music stickers in
Stories, based on its own music platform.
A platform to support independent artists was also launched in
2019. A special app provides a simplified way to contact record
labels, set up an artist profile and enable monetisation. In No-
vember, VK introduced 50% student discounts on music sub-
scriptions to VK Music and BOOM. These updates resulted in
more than 3m active paid and trial subscriptions on the Group's
platforms and in the integrated BOOM app by UMA (+42% YoY)
in January 2020.
VK aims to cover all the needs of its users and is actively devel-
oping the open Mini Apps platform for third-party developers;
this allows users to play games, shop, communicate, order food,
look for jobs and much more all inside the VK ecosystem without
having to download third-party apps. In 2019 the VK Mini Apps
platform expanded rapidly, with over 13,000 Mini Apps active.
The platform has seen 14x growth in MAU since January 2019, to
23m in December.
QR codes are an important tool that can be used to connect
people with services and communities, which is why VK has
invested in developing a product for generating and scanning
QR codes. This resulted in over 10m QR code scans in Q4 versus
300,000 in Q1. Users can scan QR codes to launch Mini Apps,
join communities, add friends, get cashback, etc.
The Mini Apps platform allows for strong synergy between
various Mail.ru Group products, in which business units can help
each other meet all the needs of their customers. This also helps
promote products more efficiently and improves conversion
rates. For example, the AliExpress Mini App, which offers the full
range of products available on the AliExpress marketplace, was
launched on VK at the end of August. Over 3m people use this
Mini App every month.
30
2019Annual report >3,000,000
active subscribers to the
Group's music ecosystem
To make Recommendations more varied, VK has launched the-
matic feeds by adding 11 tabs to the Recommendations section.
Content suggestions are made by algorithms as well as hu-
man editors and cover topics such as tourism, photos, science,
cinema, music, games, IT, style, humour, art and sports. There is
also a separate For You tab that suggests personalised content
unrelated to any particular theme. VK has also launched its own
infotainment media product, Focus, which dives into the most
popular topics discussed on VK as well as some VK products.
VK has also changed its smart News Feed approach. Instead
of just promoting the newest content, VK is aiming to promote
older posts, as long as they continue to be well-received by the
community’s core audience.
In 2020, users will be able to support content creators and
media projects using VK Donut, with monthly content subscrip-
tions and payments processed using VK Pay or payment cards.
There will be a 5% commission received on such transfers at
launch.
Stories continue to be one of the most engaging and fast-grow-
ing content formats, so VK has released a number of major
updates such as interactive stickers, music and location stickers,
GIFs, feedback, story archives and memories. Additionally, VK
has made Stories available to all communities and introduced
Story replies 2.0.
In June 2019, VK teamed up with Citymobil, one of Russia’s
leading taxi aggregators, to launch VK Taxi: a taxi booking
service on the VK Mini Apps platform. Using VK Taxi, users can
book and pay for a taxi on any device directly via VK. For exam-
ple, 25% of Citymobil taxi bookings in Tolyatti were made using
the VK Mini App in October 2019.
Last year also saw the launch of the Worki Mini App on the VK
Mini Apps platform. Worki allows users to look for jobs without
leaving the social network. Integrating Worki into VK has made
the job and candidate search process even more effective. The
Mini App takes full advantage of VK’s communication tools and
provides personalised job search results based on user informa-
tion.
VK has simplified user and community verification, allow-
ing more business representatives, influencers and talented
content creators to be able to receive the verified badge. Now
that all communities can publish Stories on VK, it is easier for
businesses to promote their products and inform users about
special offers. Content creators can use them to draw their audi-
ence’s attention to their most important or successful content.
Throughout the year, VK worked on developing community
tools for interacting with audiences, which saw the number
of active communities on VK reach 3m in December. These
updates also allowed content creators to earn RUB 1.5bn using
VK’s monetisation tools between November 2018 and October
2019.
The VK podcast service, which was launched in September
2018, hosted over 2,000 podcasters in 2019. VK users can now
share videos containing links to polls, products, articles and
other content. This feature will make ads more effective for
advertisers and more interactive for content creators.
In 2019, we actively developed the Recommendations section
and started to integrate it into the main News Feed. We expect
further development in the synergy of the News Feed and the
Recommendations Feed, which complement each other, with
the various themed content increasing overall content con-
sumption and audience retention.
31
2019Annual report VK, mobile users,
Russia, millions
65.2
63.4
62.6
61.6
60.0
60.0
59.2
60.4
58.5
56.8
54.5
Monthly
active users
53.6
42.7
43.9
41.5
40.9
40.8
39.7
39.3
38.4
37.9
36.4
Daily
active users
33.9
34.0
Mar’ 17
Jun’ 17
Sep’ 17
Dec’ 17
Mar’ 18
Jun’ 18
Sep’ 18
Dec’ 18
Mar’ 19
Jun’ 19
Sep’ 19
Dec’ 19
32
2019Annual report 23,000,000
One key update was the integration of Stories and Mini Apps.
Now any developer can create their own interactive stickers for
Stories. These stickers make it possible to collect feedback, take
orders, increase brand awareness and implement various game
mechanics. This integration distinguishes VK Stories from those
of other social networks and provides enormous potential for
developers and content creators.
As a result of these updates, the number of Stories published in
Q4 increased by 45% YoY, and views by 40% YoY. In December,
9m content creators published 114m stories, gathering more
than 7.6bn views from 42m viewers.
VK ad effectiveness continued to increase in 2019: click-
through rate (CTR) grew 35% for CPC ads. As for the lead ads,
cost per lead (CPL) declined by 50%, and the proportion of lead
ads grew 1.5x, following the latest optimisation. The overhaul
of the advertising account played an important part in this. VK
added new statistics, improved optimisation algorithms, intro-
duced ad auction predictions, launched retargeting using QR
codes, and updated the ad formats. These updates had a pos-
itive effect on advertisers’ ROI. Advertisers’ average ticket size
grew by 12% and the number of advertisers by 17%. VK launched
further automation of ad pricing: advertisers are now able to
simply set a daily ad budget limit, with the system determining
the rate that will allow the ad to achieve maximum reach.
active users
of VK Mini Apps
a smart system suggests a target audience and budget, has
significantly simplified the use of ads for SMEs or for those who
want to launch campaigns on the go.
Stickers are one of the key communication tools for VK users
and an important driver in revenue growth. A total of 166 sticker
packs were released in 2019, and revenue growth from stickers
amounted to 57% YoY.
Stories, video, music, communities, messaging and social
commerce are among the key growth areas for social net-
works, which is why our focus is centred on them. In 2020, we
will invest resources in the micro-video and short-form video
formats, which are the main underlying drivers of both the video
platform’s growth and the growth of the content platform in
terms of time spent. We will also provide support to bloggers
and influencers while continuing to stimulate and promote
user-generated content (UGC) and professionally generated
content (PGC) through the VK Talents platform.
The launch of the new HTML5-based interactive ad format and
the development of VK Mini Apps and QR codes have provided
opportunities for an even deeper connection between offline
and online, increasing the sales of special offers for brands by
40%. The number of active businesses on VK reached the 1m
mark following the development of the business ecosystem and
the launch of new tools. The introduction of the ability to quickly
launch ad campaigns via mobile at the end of 2019, in which
We aim to increase the penetration of the VK Mini Apps and
expand the platform throughout Mail.ru Group products while
simultaneously establishing VK as the core of the Group’s user
identification system. We will also invest resources in our key
products, including our content platform and messaging ser-
vice, to grow our 30+ audience and increase their engagement.
A new, adult paying audience will become one of the drivers of
SME and social commerce.
7,600m
story views every month on VK
33
2019Annual report 1,000m
virtual gifts sent
on New Year's Day
OK
In 2019, OK’s communication services demonstrated solid
growth, including virtual gifts, friendship-related services, likes,
calls, stickers and postcards. These were followed in turn by
overall increased engagement and a 3% DAU growth in Russia
YoY with an 11% increase in mobile DAU. MAU remained stable
with 43m users in Russia.
The development of OK’s business platform, new hi-tech ad
instruments and close liaison with key ad market players have
seen the social network’s advertising share of total revenue almost
double over the past five years, from just over 20% in 2014 to more
than 40% in 2019. The ad revenue model retains high growth po-
tential. News feed ads will be one of the key drivers within the next
years, including mobile and video ads. This forecast is based on the
growth of engagement with the OK news feed, an increase in the
mobile audience and the development of the video platform.
Another OK revenue driver, its mobile gaming platform, contin-
ues to grow. OK made over RUB 3bn in total payouts to games
developers in 2019 under the revenue-sharing scheme, includ-
ing RUB 600m in payments to mobile game developers, double
that of 2018. Payouts to mobile games developers are expected
to triple to RUB 1.8bn by 2022. OK also actively developed
game monetisation, adding an in-game advertising model along
with in-game purchases. As a result, payments to developers for
in-game ads in their games increased 3x in 2019 YoY.
For the second consecutive year, OK held the Games Cup tourna-
ment for mobile games developers. This year the competition grew
in scale as it was organised together with VK. The competition, with
a total prize value of RUB 1.4m, drew over 100 participants, 70% of
them novice developers. The tournament helps to attract devel-
opers’ attention to the OK and VK gaming platforms and the game
promotion tools that the social networks provide to the winners.
Throughout the year, OK launched a number of up-to-date
products that boosted users’ activity on the social network:
• Photo-powered friend requests and a new friendship
platform
• Face recognition in video and live streams
• An updated music platform
• An ad manager for SME
• Business profiles for entrepreneurs
• A virtual telephony system (ATS)
• A donation system on OK Live
• AR-based background blur during video calls
• Shared photo albums for up to 20 friends
34
OK made communication services for sharing emotions with
friends and family a focus, and they paid off with sustainable
growth. Virtual gifts, OK’s crucial feature, hit new record highs
in 2019. OK users sent 45bn gifts (paid and free) to each other
in 2019, a fourfold increase YoY. Sender numbers grew 45%. On
peak days, during national holidays, gift numbers would exceed
half a billion per day. Notably, on Mother’s Day, which in Russia
is celebrated on 24 November, users sent 662m gifts, meaning
25% of Russian women received virtual gifts on OK. On Interna-
tional Women’s Day on 8 March, users sent 500m gifts. New Year
brought a historic new record, with over 1bn gifts sent by OK users.
OK was the first social network to launch an AI-based algorithm
capable of recognising users in pictures in order to easily find
and add them on OK. As user privacy has always been important
to OK, the profile information is visible only after the request is
accepted. Thanks to this launch and a new neural network-pow-
ered friendship platform with a personalised recommenda-
tion algorithm, the number of confirmed monthly friendship
requests grew 50%. In Q4 2019 OK also set a record of 6m new
daily friendships. This has boosted user engagement and the
number of user interactions on the social network.
Additionally, OK was the first in Russia to launch proprietary
face-recognition technology for automatic friend tagging on
video and live streams. The service is intended for fast reactions
from friends after uploading videos to OK and aims to boost
communication activity. Together with the new algorithms for
the smart news feed, users’ activity helped to post a record of
240m daily likes and over 5,000 likes per second in 2019, help-
ing to stimulate usage of OK Live, OK’s mobile streaming app
(with 65m daily views of OK Live streams).
Hundreds of new sticker sets were added by the OK team in
2019, with the wide variety of content triggering an increase
in audience numbers and user engagement. There was robust
growth in 2019 in the use of stickers in direct messages and
comments: 5.4x YoY. The use of postcards, meanwhile, in-
creased 5.3x YoY.
2019Annual report 240,000,000
In terms of video and audio calls, some new features were launched,
including a blurred background for video calls, which allows users to
avoid demonstrating what is around them and focus the visual pic-
ture on themselves – for example during interviews, online classes or
in other situations. The functionality is based on machine learning and
neural network technologies, and has been developed as part of OK.
The social network’s content and entertainment services found
new audiences in 2019, becoming one of the drivers behind
user engagement growth. The OK video platform, No. 12 in Rus-
sia for video uploads, attracted audiences not only with UGC
but also with professional content that gained millions of views.
The latter included live sports broadcasts, a new season of the
OK Online late-night show, OK’s own New Year show as well as
the exclusive launch of the Star Wars Roll Out animated video
series. Thanks to long-form content consumption, the average
video viewing time on OK increased by 27% in 2019 YoY. Overall,
OK can boast 870m daily video views, including 130m streams.
The OK Live mobile app has grown in popularity, with 50% of
live stream views attributed to the streams created in the app.
The number of OK Live installs has surpassed 6.9m on iOS and
Android. In 2019, OK Live launched a dark theme, compatible
with the latest updates of the app on Android and iOS. A new
donation-based monetisation system for streamers was also
unveiled on the app. Any content creator who streams online
on the app can accept donations in the form of virtual gifts with
a specific price tag. After the stream is finished, the author can
convert the total price value of the gifts into rubles.
OK’s music service went through a major update in 2019. The
music platform’s web and mobile interface were given a new
design and navigation as well as improved track recommen-
dation technology. Thanks to the latter, OK has seen a major
increase in playback sessions: recommended tracks were
played three times more often YoY. Apart from personal music
recommendations based on users’ interests, OK users can listen
to tracks shared by their friends via a special music feed that has
been added to the platform. In 2019, OK introduced a machine
learning-based service that searches for similar tracks.
OK has started to develop some products for local users and
launched local news suggestions: the service automatically identifies
what would be relevant for users in certain regions and cities based
on AI and neural network technology. OK has also started to pro-
mote regional news providers on its network, applying personalised
recommendations using machine learning. Initial tests have demon-
strated that local content is popular on OK, with local media reach
rising by 25% on average and subscriber numbers rising by 20%.
2 Brand Analytics, April 2019
35
likes daily on OK
SME promotion and the online marketplace offering goods
from China are the major growth drivers OK will focus on in
2020. The marketplace underwent some updates in 2019 by
boosting personalisation and expanding user content. Person-
alisation algorithms helped to ramp up revenue by 29%, with
the total number of orders exceeding 4.5m. In the meantime,
the marketplace maintained high retention levels: 42% of users
made a second purchase within a month of placing their first
order. In 2020, OK will introduce technology and tools from its
marketplace in joint products with AliExpress Russia – a joint
venture between Mail.ru Group, MegaFon, RDIF (Russian Di-
rect Investment Fund) and Alibaba Group.
As part of its SME promotion efforts in 2019, OK launched an ad
manager, suitable for those with minimal marketing experience
and minimal budget requirements. More sophisticated advertising
tools for brands and specialists are still available through myTarget.
Another major SME product is business profiles that allow users
to run a business from their personal profiles. Entrepreneurs can
set up online listings, add action buttons and promote posts within
a profile. These two SME-related launches have opened up new
opportunities for small businesses on OK. In 2019, the number of
business profiles created by entrepreneurs exceeded 1m. Ad Reve-
nue from SME increased 2.2x in 2019 year-on-year.
On top of that, OK added several communication tools for
companies, content creators and their followers, including a
virtual phone solution for groups, launched in November 2019.
Based on OK’s voice and video calls platform, it allows busi-
nesses to set up a call centre. Action buttons were also added
to groups, for immediate communication with an entrepreneur
or a company. The ad manager, which was launched in 4Q 2019,
now boasts the SuperGeo ad instrument, for location targeting
within a range of 500m-10km. Additionally, users with more
than 100 friends now have access to their profile statistics.
2019Annual report OK, mobile users,
Russia, millions
34.2
33.4
33.5
33.4
32.6
32.4
31.8
31.6
31.7
30.5
Monthly
active users
30.1
29.9
19.3
19.3
18.7
20.1
18.1
18.1
17.3
17.3
17.0
Daily
active users
16.5
16.7
16.1
Mar’ 17
Jun’ 17
Sep’ 17
Dec’ 17
Mar’ 18
Jun’ 18
Sep’ 18
Dec’ 18
Mar’ 19
Jun’ 19
Sep’ 19
Dec’ 19
36
2019Annual report Russia's leading
email service
(Mail.ru) and
media projects
OK has also continued to develop products in collaboration with
other MRG business units. The Atom browser now offers custo-
misation for OK with integration of OK services and instruments,
which allows users to navigate smoothly to various OK pages. Youla
has used OK’s technology to launch video calls for sellers and
buyers. As part of the Mail.ru Group ecosystem, the OK team has
launched some products for different business units based on neu-
ral networks and intended for content filtering: automatic photo
processing for ICQ public chats, monitoring of the content of the
websites advertised via the myTarget network, online game chat
moderation for MY.GAMES, and verification of drivers' documents
for Citymobil, as well as on-image text in Youla ads.
In 2020 OK will also continue developing services for sharing
emotions, as well as the OK SME platform, and new gaming and
content projects.
Email
Mail.ru continues to lead in the Russian-speaking email seg-
ment in terms of monthly and daily audience, with 11.69m daily
active users and 27.25m monthly active users3. In 2019 our email
service showed strong 25% year-on-year growth in the daily
mobile audience, outperforming its competitors in Russia3.
The product continues to develop and introduce new features
in accordance with the previously announced strategy of be-
coming a smart, practical and secure service:
• Smart — helps organise an overwhelming flow of emails
effectively; sorts, hides and removes unwanted messages
and brings important information to the foreground.
• Practical — upgrades from just notifying to handling daily
tasks.
• Secure — ensures data privacy and permanent access to
emails.
In 2019, the team continued to focus on improving and scaling
previously launched features. As a result, the number of users
accessing the function of smart email grouping increased 18x to
6.1m per day, and the improved smart reply algorithm suggests
answers for 34.1% of emails (an improvement of 1.4x YoY)4.
New technologies based on machine learning and artificial
intelligence now detect mailings that the user does not read
and suggest unsubscribing from them. The total number of un-
subscribes from unwanted newsletters has increased 1.9x YoY4.
Another algorithm determines the important text information in
the email and displays it in notifications on mobile devices.
Searching for emails has become more intelligent and conve-
nient: it searches the content of attachments, identifying their
type (contract, passport, driving licence, tax ID, etc.) by similar
words and corrects spelling mistakes. Attachments are also
immediately visible in the search results.
To help users with a range of everyday tasks, we added grouping
of online orders by ID, displaying order details, a payment but-
ton and payment status. In addition, we launched smart cards
for emails with event details, with "Find on the map" and "Add to
calendar" options.
Thanks to improved interfaces, work with large partners (JSON
LD integration) and a new payment centre (11 categories, 8,000
suppliers), the total number of payments via Mail.ru increased
by 269% YoY4.
Along with Google and Microsoft, in 2019 we began to support
the new AMP standard for emails, meaning mailers are now able
to create interactive newsletters.
The security of our service continues to be a priority. New au-
thorisation methods have been launched: via the use of a one-
time SMS code and the use of a physical token according to the
WebAuthN standard. Now all users undergo security checks on
a periodical basis and receive an extensive list of notifications
about any activity on the account related to security. Mail.ru’s
Email and Cloud applications have been included on the list of
the 20 most secure apps for Android as part of the Google Play
Security Reward Programme.
In order to better integrate all new features into the user expe-
rience, the service has transferred all desktop web users, as well
as users of Android and iOS applications, to a new interface.
Dark themes have also been added to the new interface.
3 Source: Mediascope, Russia, cities 100k+,
age 12-64, December 2019
4 Source: Internal data
37
2019Annual report
Media projects
Every month our media projects help 70m users find the right
information for any situation. The key achievements in 2019
were the transformation of the editorial process, the establish-
ment of a team for e-commerce projects and active collabora-
tion with large retailers such as AliExpress.
In 2019, we launched Hi-chef, an online cooking project based
on a collection of recipes selected by the editors of Lady Mail.
ru. A voice interface helps search and scroll the recipes via short
voice commands. The product was developed specially for smart-
phones, and the recipes are read out by Marusia, our in-house
developed virtual assistant. Having now integrated its grocery
delivery service, METRO Cash & Carry became Hi-chef's first
partner.
Realty Mail.ru presented a special content project called Dom
Mail.ru. The new project is dedicated to housekeeping: repair,
design, utility bills, personal experience etc. This expands the
potential advertiser base: from developers to large brands in
construction, repair and design. The Realty Mail.ru team re-
leased an overhauled property listings database and improved
the functionality of commercial clients’ personal accounts.
Hi-Tech Mail.ru announced the list of winners for The Best Gad-
gets 2019 online award chosen by Russian users from among
200 nominees in 45 categories. Supported by an incredible
amount of PR around the award, the website experienced a sig-
nificant influx of young users.
Best Bloggers 2019, another annual award, where users vote for
the best influencers in 15 nominations, was held by Lady Mail.ru.
Among the social initiatives undertaken by the Lady Mail.ru team
was a series of articles about domestic violence and abuse.
Marusia can now read out top articles of the day on News, Sport
and Weather Mail.ru. The News Mail.ru team has developed
an algorithm for detecting potentially offensive content, making
sure that our partners' ads will not appear next to it.
Auto Mail.ru released a redesigned version of the main page
for PC and mobile. The team also continued to focus on UGC,
resulting in an increased number of articles about key industry
events, electric vehicles, and car-sharing.
Kids Mail.ru presented a special educational project about
child security and safety created with the support of Liza Alert,
a non-profit volunteer organisation. Another socially important
project initiated by the Kids Mail.ru team was devoted to large
families with adopted children, and won the Word and Kindness
award held by the Life Line charity fund and the Russian TV
Academy.
Health Mail.ru and VseApteki added info cards with details on
medicines and rolled out an updated medicine database in
partnership with Bionika. Health Mail.ru also launched Serov, a
new big data technology helping to create customer profiles of
a brand and thus improve ad targeting.
Cinema Mail.ru introduced a new touch version of the Films &
Series page and the homepage, with a focus on the promotion
of film premieres and events. Users now have an opportunity to
buy cinema tickets or online subscriptions in order not to miss
premieres. Cinema Mail.ru has now partnered with EPG Service,
which has allowed us to improve functionality and content
distribution.
Pets Mail.ru launched the Pet Owners Club and created a spe-
cial project called Pet of the Year, as part of which over 80,000
questionnaires were collected from pet owners. Our content
was generally focused on informing and raising awareness, and
the editorial team launched several social and research projects,
which were cited in popular Russian media.
VseApteki rolled out a lot of new features: a goods catalogue,
simple sign-in, and personal accounts with information on users’
previous orders. The team also developed an innovative analyt-
ics tool to track results of any advertising campaigns all the way
through to purchase. Purchases made via the VseApteki apps
increased by 50%. In January 2020 VseApteki released a special
version of its apps for visually impaired users, featuring a special
font and voice commands for searching for and reading infor-
mation about medicines.
38
2019Annual report Mail.ru email, mobile
users, Russia, millions
29.2
27.7
27.2
27.5
25.8
23.6
24.1
23.2
22.3
Monthly
active users
19.8
19.9
21.2
16.3
14.1
14.0
13.9
13.5
12.9
12.1
11.6
11.0
Daily
active users
9.4
9.5
9.8
Mar’ 17
Jun’ 17
Sep’ 17
Dec’ 17
Mar’ 18
Jun’ 18
Sep’ 18
Dec’ 18
Mar’ 19
Jun’ 19
Sep’ 19
Dec’ 19
39
2019Annual report Online
Games
General overview
The year 2019 was a landmark for MY.GAMES, our international
gaming brand: A complex approach to our portfolio of game
titles as well as further international expansion resulted in a 26%
growth in revenue. In 2019 MY.GAMES outperformed the glob-
al games market by 16pp and the global mobile games market
by ~10pp . The total audience increased by 26%, reaching 605m
registered players around the world.
Launched in Q2 2019, MY.GAMES unites all our gaming proj-
ects and strengthens our commitment to expanding the global
reach of our titles. In 2019 international markets accounted for
68% of the total MMO revenue of the Group (vs. 63% in 2018).
The U.S., Germany, and Japan remain our largest overseas mar-
kets and we are looking forward to further expanding into the
North American and Asian markets with the support of strong
partnerships with local players.
We are continuing to build our talent pool and diversify our
business in terms of genres and geography, and there are cur-
rently 13 in-house studios and 22 partner studios working with
Mail.ru Games Ventures (MRGV), our investment arm. In 2019
MRGV successfully consolidated two new studios, Panzerdog
(developer of Tacticool) and SWAG MASHA (developer of
Love Sick: Interactive Stories). As part of the partnership with
MY.GAMES, the studios gained access to our business solutions
for project management, a wide selection of analytical tools,
marketing support, legal consulting and much more.
The Big Deal Conference for gaming experts was held for the
first time in 2019. Among the 1,000+ conference attendees were
experts from the largest international gaming companies such as
Ubisoft, Riot Games, Tencent, Blizzard, Google, Unity Technolo-
gies, and iDreamSky. The conference was devoted to the impor-
tance of product analytics and quantitative analysis in the gaming
industry. Inspired by the success of the conference, MY.GAMES
hosted a range of other meet-ups throughout the year.
40
2019Annual report Major online game launches in FY2019 - 1Q2020
Game
Space Justice
Tacticool
Love Sick: Interactive Stories
Evolution 2: Battle for Utopia
Conqueror's Blade
Bombastic Brothers
Lost Ark
American Dad! Apocalypse Soon
Warface: GO
Warface
World Above: Cloud Harbor
Ownership
Platform
Launch date
In-house
In-house
In-house
In-house
Licensed
In-house
Licensed
In-house
In-house
In-house
In-house
Mobile
Mobile
Mobile
Mobile
PC
Mobile
PC
Mobile
Mobile
Console (Switch)
Mobile
Jan 2019
Jan 2019
Feb 2019
May 2019
Jun 2019
Jul 2019
Oct 2019
Oct 2019
Jan 2020
Feb 2020
Mar 2020
PC and console games
Mobile games
The year 2019 marked the 7th anniversary of Warface, which
boasts over 85m registrations worldwide and remains the
third-largest revenue-generating game in our portfolio. War-
face was among the top F2P games on the PS4 in the U.S. in
terms of downloads in 2019 . It was also successfully released
on the Nintendo Switch, becoming the first CryEngine-based
game on the platform. In 2020 MY.GAMES will continue invest-
ing in the franchise with the launch of a new console title within
the Warface franchise tailored to U.S. and European markets.
Throughout 2019, mobile games were one of the key drivers of
revenue growth, generating 61% of total revenue in Q4 2019 vs.
57% in 2018. Around 93% of mobile revenue in Q4 was gen-
erated outside Russia, with 72% coming from North America
and Europe. The top three European markets were Germany,
France, and the U.K. We will continue focusing on expanding
our international presence, and we are expecting the share of
mobile revenue to further rise to 80% in the coming two-three
years.
In 2019 we launched Lost Ark, a highly anticipated MMOARPG
licensed from Smilegate, on PC in Russia and the C.I.S., which
became the first overseas markets for this title. The game was well
received by our gaming community, with 1.7m registered users
by the end of the year after only two months in operation. Con-
querors’ Blade, another recently launched PC title, also reached
1.7m registered users and is set for further growth in international
markets.
Hustle Castle showed exceptional performance throughout
2019, with revenue growth of 36% YoY in 2019. In the two years
since its release, Hustle Castle has built a solid core audience
and continues to generate strong margins, with downloads
reaching 55m. In 2019, Hustle Castle set a new daily revenue re-
cord for MY.GAMES, earning RUB 100m (USD 1.6m) in one day.
41
2019Annual report War Robots, a popular mobile game developed by Pixonic and
launched nearly six years ago, has reached 150m installs and,
now in the mature phase of its lifecycle, is showing sustainable
EBITDA improvement. The Pixonic studio also plans to release a
new game for all mobile platforms later in 2020.
In summer 2019, MY.GAMES, in cooperation with FOX Next, a
subsidiary of 20th Century Fox Television, announced a long-an-
ticipated mobile game called American Dad! Apocalypse Soon,
which was developed by our studio Fast Forward. The game was
released in November 2019 and was well received by fans around
the world, with 3.6m installs by the end of the year.
Left to Survive, developed by our studio Whalekit in 2018,
remained one of our top five revenue-generating games, with
around 15m downloads. The release of Warface: Global Oper-
ations, a new mobile game within the Warface franchise, was
postponed from H2 2019 in order to further improve the product
and gameplay experience.
Love Sick: Interactive Stories, a narrative-driven mobile game
from the SWAG MASHA studio, remains among our top 10
titles, with 4m downloads since its launch in February 2019. We
will continue allocating resources to all of these games in 2020.
Platforms and services
Our international games platform MY.GAMES Store was
launched in OBT in December 2019. This user-friendly platform
offers our partners an opportunity to effectively promote their
games. Moreover, we are working closely with developers on
building an infrastructure that would provide them with a toolset
for effective self-publishing, allowing players to get the best gam-
ing experience from games, streams and socialising.
Our vision of 2020
According to publicly available data, MY.GAMES is one of
the top 50 global gaming companies in the world in terms of
revenue. Our medium-term plan is to be among the top 25 largest
global players under the MY.GAMES brand. As we continue
investing in our gaming brand, the focus for 2020 will remain on
expanding internationally and into mobile, which offers a ~USD
150bn global revenue opportunity. We remain committed to
our goal of doubling the EBITDA of the Games segment in 2022
vs. 2018 and achieving an EBITDA margin in the low to mid-20s
throughout the cycle.
42
2019Annual report Notify & SMS API platform
internal
solution
of the year
Vladimir Nedashkovskiy, Artem Novikov, Igor Makarov, Alexander Orobinsky
Intranet
internal
solution
of the year
Sergey Lihobabin, Alena Elizarova
In-house shop for used
devices
internal
solution
of the year
Pavel Belinskiy, Elena Glukhikh, Nikolay Bobrovskiy, Yulia Mazuro
New Initiatives
Youla
Youla, our mobile-focused location-based classifieds business,
strengthened its position during 2019. With 27m1 MAU, it is the
second largest classifieds site in Russia, with room for expansion
in terms of both audience and its monetisation. Just four years
after its launch2, it has become one of the world's largest mo-
bile-first classifieds in terms of Android DAU. A focus on mon-
etisation and product development resulted in Youla growing
revenue 1.9x YoY to RUB 2.1bn, ahead of guidance.
In Q1 2019 Youla conducted its first ever full-scale rebranding,
which was positively received by both experts and users. This
fresh positioning became the basis for a massive new online and
TV marketing campaign with a focus on strong emotions and
leading product technologies.
Dominance in product development, supported by a fast-paced
release strategy in H2 2019, was a main focus for the team
during the year. Keeping user needs in mind, Youla launched
free P2P audio calls in September (first-to-market), video calls
in November (first globally) and call privacy settings in Decem-
ber. A new Stories format was launched in October, allowing
sellers to promote their goods and services through content,
driving Youla more into social e-commerce and differentiating it
locally through innovation.
As promised before, Youla made multiple enhancements to its
B2B platform and monetisation, such as advanced performance
and analytical tools for professional sellers, an internal wallet
and new subscriptions, tailored for a mobile audience. This led
to a 4x increase in paid subscriptions in December 2019 com-
pared to December 2018.
46
Youla also collaborated with other group assets, using proven
technology in audio and video calls as well as computer vision
and neural networks to reduce development costs. Youla pio-
neered the introduction of the Mail.ru Group-wide User ID to
simplify onboarding for new users and enhance retention.
During Q2 2019 Mail.ru Group acquired the job board Worki
in order to boost the Youla job vertical, launched in Q2 2018.
Worki is maintaining its own strong brand while developing
synergy with Youla and the Group, which has resulted in a more
than twofold increase in revenue during H2 2019 compared to
H2 2018. VK, where users spend a lot of time looking for jobs,
integrated Worki as a mini app in Q3 2019 and added an inter-
view function on VK Messenger for job seekers in Q4 2019. Job
seekers on VK were more active through the Worki mini app
compared to other platforms, with conversion from registration
to applications as high as 90%.
The near-term goal for the team in 2020 is to focus on general
classifieds as well as services and the job board, further expand
the B2B platform with more value-added features, and move
beyond high-frequency transaction verticals to ones with a
higher average bill over the longer term.
1 All platforms, internal data
2 AIM Group Marketplaces Report, Vol. 20 No.11,
May 2019
2019Annual report Voice assistant &
Smart speaker
Recommendation
system
In June 2019 Mail.ru Group launched Marusia, a virtual assis-
tant. It is capable of providing essential information, answering
questions, and helping users with everyday tasks. Marusia is also
a voice-enabled gateway to content, news, weather, entertain-
ment and interactive games.
Marusia is being integrated into the Group’s most popular mo-
bile apps, supplementing them with a voice interaction capabili-
ty and an extensive set of popular skills.
In December 2019 we finished development of the Group's first
consumer device, the Capsula smart speaker. It delivers powerful
acoustic performance, native integration with the VK Music ser-
vice, a voice calling capability, interactive fairytales for reading with
kids, and RFID-activated skills and content. The Marusia virtual
assistant is able to place repeat food delivery orders via Delivery
Club. Sales of the Capsula smart speaker started in April 2020.
In 2019 the team focused on three search elements: voice,
visual and quality.
Voice search was a challenge since people tend to use a more
natural language for queries when talking to their virtual assis-
tants compared to a traditional text-based search: They expect
to be able to refer to the context of previous queries, receive
relevant music suggestions, etc. All of these aspects were ad-
dressed and improved by the search team in preparation for the
Marusia app and Capsula product launches.
The team also added a significant number of various visual ele-
ments to search results (illustrating images, cards, multimedia,
icons) to help users to navigate the search results page quicker
and in a more intuitive way.
The search quality team made solid progress on the reduction
of irrelevant results for high-frequency queries in H1 2019, and
in H2 2019 they focused on rare queries by introducing a neural
network-based ranking and a more efficient machine learning
platform.
47
Pulse, a personal feed based on users’ interests, was official-
ly launched on the Mail.ru homepage on 31 January, 2019.
Recommendations are based on collaborative filtration algo-
rithms – document matching is based on a user’s behaviour on
the internet and feedback from users’ interaction with the Pulse
recommendation feed. Pulse has recommended articles from
approximately 1,500 media sources, which are selected based
on the exclusiveness of the content, subject, and resource
quality. By the end of 2019, the Pulse feed was located on the
homepage of the Mail.ru and Pulse Mail.ru services, on the start
page of the Atom browser and on the websites of approximately
450 partners. Around 3.5m users browse through the Pulse
feed daily, while MAU amounts to 45m.
During Q2 the team was developing widgets for instalment on pub-
lishers’ websites and began improving the traffic exchange network.
Partners receive additional traffic for placing widgets on their sites.
Also in Q2, we started developing full-text articles that allow
publishers to monetise their content. Pulse publishes content on
its platform and shows it to interested users. The partnership is
based on a 50/50 revenue-sharing model for showing ads on such
pages.
By the end of Q2, Pulse comprised 3,500 websites, with users
generating from 1.6 to 2m transitions to partners’ sites. By the
end of Q2 2019, Pulse DAU and MAU had reached 1.8m and
20m respectively.
In Q3 2019, the Pulse team launched personal accounts for part-
ners. A publisher can now confirm their rights to the domain, add
and check the RSS feed for compliance with technical require-
ments, send the content source to the moderation team and see
the basic stats of this source. Partners can also obtain a widget
code for their websites from their personal account.
Also in Q3 2019, the team launched a service of full-text articles.
DAU doubled to 2.5m QoQ, while MAU tripled to 34m QoQ.
Furthermore, in Q4 2019 we launched several ad products,
such as the CPC (cost-per-click) billing method and payment
for commercial articles that were read entirely. The team also
worked on the quality of recommendations by improving the
ranking model for documents, as well as introducing machine
learning based on decision trees into the re-ranking of interests
based on user behaviour on the internet and Pulse feed. This
resulted in a 13% increase in clicks per user.
2019Annual report Mail.ru for Business
In March 2019, Mail.ru for Business launched Sitebox, a service
for building websites, landing pages, blogs and online shops. The
service offers a selection of business website templates as well as
different SEO and analytics tools. There are also free stock photos
and a built-in tool to help create professional logos.
In September 2019, Mail.ru for Business introduced Myteam, an in-
stant messaging platform for corporates, offering audio and video
conference calls, group chats, file and document sharing etc. Cor-
porate communication can be monitored via the admin settings.
In February 2020, Mail.ru for Business rolled out a special
on-premise email solution for the Mail.ru Email service, which is
deployed on the client’s own server. It gives the client access to
all the functionality necessary for the management and admin-
istration of the email service.
Combo
In October 2019, Mail.ru Group launched Combo, a loyalty
programme in the form of a subscription service to the products
and offerings provided by us and our partners. For custom-
ers, Combo provides an exclusive-value proposition to boost
cross-selling and paying audience share, as well as user loyalty.
At the launch, Combo subscribers received attractive offers
from Delivery Club, Citymobil, Cloud Mail.ru, YouDrive, McDon-
ald’s, the Perekrestok supermarket chain (offline and online)
and the VOD service MegaFon TV.
Combo provides seamless integration with several apps (Delivery
Club, Citymobil, YouDrive), so access to their special user mechanics
is activated automatically. Users can also activate other products
via their Combo accounts - seamless integration will be available
for these products in the future. The subscription is a single entry
point for the best market conditions and additional privileges on the
popular services that a person needs in everyday life.
Combo’s partners and user mechanics were carefully selected
during several pilot launches in H1 2019. However, Combo has con-
tinued to evolve after its launch: by the end of the year VK Music
and Boom music streaming services had been integrated. At the
very beginning of 2020, Combo was strengthened through the
addition of an offering for the Okko video streaming service.
Combo is already available on VK as a mini app, with VK Pay
integrated as a payment method. In 2020, Combo plans to fur-
ther enhance its distribution channels: partnerships, retail and
product integrations.
GeekBrains
GeekBrains, our online learning platform, has entered the corpo-
rate training market in the following six areas: data science and big
data analytics, project and product management, web develop-
ment, mobile app development, internet marketing and design,
and the Python training programme for teenagers. Over 7,500
students are currently enrolled in all of the programmes, and the
number of registered portal users is now in excess of 4m people.
In 2019, GeekBrains launched 17 new programmes, focusing
on programming, design, marketing, and management. The
most popular programmes include Big Data Analytics, Internet
Marketing, Testing and Design.
Around 10,000 people went through the qualification stage to
attend the free training programmes for front-end developers,
software testers and online marketing specialists. Over 9,000
people registered for the GeekChange series of webinars
featuring GeekBrains and Mail.ru Group experts in order to
receive career guidance and learn about IT career options. A
total of 450 webinars and 16,300 classes were held in 2019. On
3 December, GeekBrains obtained a new licence to issue official
supplementary training certificates.
48
2019Annual report Payment processing
Mail.ru Group’s payment processing facilitates all of its proj-
ects and develops payment infrastructure for online payments
within our products. Money Mail.ru has now introduced a single
Checkout solution for all the Group’s major projects.
Money Mail.ru has improved its infrastructure and can now
process up to 2,000 transactions per second.
Money Mail.ru has also launched an Open Platform solution
for VK Pay merchants, closing the social e-commerce loop. It
has also developed an online solution for paying tips to Delivery
Club couriers.
Money Mail.ru is now a principal member of the VISA interna-
tional payment system and can offer internet acquiring and
make money transfers without an external bank as well as issue
pre-paid debit cards.
Skillbox
The Skillbox online university was launched in 2016. Mail.ru
Group acquired a controlling stake in Skillbox in December
2019. Today Skillbox offers online programmes in design, mar-
keting, coding, management and gaming, with more than 180
educational products (there were 104 new products in 2019).
Skillbox collaborates with more than 70 industry partners on
designing online courses, preparing graduation projects and
providing students with further employment assistance (Mic-
rosoft, MegaFon, Alfa Bank, Sberbank, Lamoda, Kalashnikov
Group, etc.). As of January 2020, the total number of students
is 45,000, while the number of registered users interested in all
Skillbox products is more than 1.1m. WAU (weekly active users)
rose from 13% in 2019 to 20% at the beginning of 2020.
In 2019 the Skillbox team held 850 online lectures with more
than 100,000 participants and opened an offline lecture hall
in the centre of Moscow for meetups and events. Skillbox also
became a regional partner of the OFFF Barcelona design and
digital art festival, and held OFFF Moscow 2019, which gath-
ered 900 participants and 14 international speakers.
According to research carried out with Tiburon in January 2020,
Skillbox is No. 1 in the top-of-mind awareness ranking in the
“online schools” category among respondents with an interest
in online education, and No. 2 among all respondents.
49
2019Annual report Mail.ru Digital Tech:
solutions and infrastruc-
ture, including B2B
In April 2019 we launched Mail.ru Digital Tech, a B2B division
of Mail.ru Group, where Mail.ru Cloud Solutions, Tarantool,
communication and other internally developed tools are offered
as a broad digital platform to corporates, with a particular focus
on large clients. During the year, Mail.ru Digital Tech made a
number of big product announcements. The Group started to
provide solutions for companies looking to roll out in-house
corporate social networks and increase employee engagement
with digital HR technologies.
In May 2019, Mail.ru Cloud Solutions (MCS), our B2B cloud
business, started building not only public cloud services, but also
private cloud services for strategic customers and made its Inter-
net of Things platform available for both cloud and on-premise
deployment options. MCS also launched an Industrial IoT (IIoT)
Platform for large enterprises, capable of handling millions of
events from hundreds of thousands of connected devices.
In July 2019 MCS received certification from the international
Cloud Native Computing Foundation (CNCF), with the Group’s
Kubernetes platform becoming the first in Russia to achieve
Certified Kubernetes status. Mail.ru Group has also joined the
Linux Foundation and CNCF to provide global IT specialists
with access to Russian technology.
In October 2019 the Tarantool team launched Tarantool Data
Grid, a readily available enterprise solution for developers of
business apps working with large data sets. Tarantool Data Grid
offers efficient integration tools for the smooth transition of new
products into the broader enterprise ecosystem. The Taran-
tool team also launched the Cartridge, a business application
development platform which provides off-the-shelf tools for
typical cluster management, testing, packaging, deploying and
scaling issues to simplify and reduce the cost of developing and
operating Tarantool-based services.
The team also significantly increased the number of B2B
products, such as a Tarantool-based solution for automating
the development of Nokia's industrial Internet of Things, which
will extend the capabilities of the Nokia Integrated Operations
Center platform, and a Tarantool-based caching system for
Yota, which will increase the speed of online processing of user
profiles and the interactivity of company services.
50
In 2020 the Tarantool team will focus on further growth of the
B2B portfolio by continuing to work on developing its gover-
nance model, risks and stakeholder management as well as on
product development, including the core of Tarantool Enter-
prise, omni-channel, MDM, smart contracts and excellence in
technical support. In addition to that, we plan to create a Taran-
tool cloud offering, allowing Tarantool to be easily used in public
clouds like AWS, Google Cloud, DigitalOcean, etc.
A number of big names in Russia have chosen Mail.ru Digital
Tech as a technology partner for their digital transformation,
including RosAtom, Rostelecom, Rosseti, MegaFon, Sukhoi and
many others. We have formed several important partnerships
with well-established local system integrators and software
distributors, including IBS Group, Merlion, and Axoft.
PREDICT (Predictive
Analytic Solutions)
Mail.ru Group is expanding its data analytics expertise by offer-
ing clients ML&AI-based solutions.
Our product portfolio includes market research and decision
support systems aimed at enhancing sales and marketing per-
formance, risk management, planning, personnel management,
etc. Our expertise covers a wide range of economic sectors,
such as telecom, banking, insurance, retail, e-com, and FMCG.
In 2019 we observed a growing interest from industrial compa-
nies and market demand in consulting services for developing
individual data-based solutions.
The signing of an agreement with IDGC of Centre, a leading
electric utility company in Russia, was an important milestone
in 2019. According to the agreement, the companies will work
together on introducing analytics services to IDGC of Centre’s
business processes.
2019Annual report Email & Portal voice-based
technologies
expert
of the year
Dmitry Solovyev
M&A integration
expert
of the year
Denis Savuta
Unix Maintenance
Department
expert
of the year
Mikhail Petrov
Key partnerships
O2O JV (equal ownership by
Sberbank and Mail.ru Group)
On 19 December, Sberbank and Mail.ru Group completed the for-
mation of a joint venture (JV), which aims to create a leading Rus-
sian O2O services platform focused on foodtech and mobility.
Delivery Club
Delivery Club is the leading online food delivery service in
Russia in terms of both audience1 and mobile app downloads2.
Delivery Club revenues were up 131% to RUB 4.46bn in 2019,
ahead of the target of doubling revenues for the year. In 2019
Delivery Club twice broke the record for the number of orders.
In March Delivery Club completed 2m orders, and by Septem-
ber it had set a new record of 3m orders. Delivery Club is now
present in more than 150 cities and was connected to over
13,700 restaurants as of Q4 reporting, compared to 115 cities
and 9,400 restaurants at the beginning of last year.
In 2019 Delivery Club completed its transformation into a com-
pany with its own delivery service. In Q4 2019, 53% of orders
came from 1P versus 23% as of Q4 2018. Its own delivery service
was available across 38 cities. In February 2020 Delivery Club
launched 1P delivery in its 50th Russian city, and further ex-
panded 1P coverage to 70 cities in April. This will have a strong
positive impact on retention, frequency, and average delivery
time. Although 1P will continue to increase in the short-term,
further stimulated by COVID-19 limitations for restaurants, we
are seeking a balanced operational model over the longer term
to ensure maximum profitability.
The growth of 1P logistics has stimulated Delivery Club to
develop IT logistics infrastructure. In 2019 we launched cashless
tips for couriers using VK Pay and Alan, an AI-based demand
forecasting system. More than 2,200 riders have already set up
VK Pay wallets in order to receive tips. More than RUB 200k in
tips was transferred directly to riders in one month, which helps
DC motivate riders in terms of customer behaviour and deliv-
ery speed. In Q3 Delivery Club started hiring self-employed
couriers and has further improved the auto-assignment service.
ML-based technologies allowed the average courier search
time to be reduced to just 0.5 sec. Delivery Club released a
redesigned version of the app for couriers with a focus on the
most important information and introduced geo validation for
couriers to prevent fraud and improve order tracking. Moreover,
the app now shows bonuses to reward couriers for long distance
delivery, which will increase acceptance rates for such orders.
Penalties, bonuses and money earned during the shift are dis-
played in the updated app for couriers.
54
As part of its drive to build a foodtech ecosystem, Delivery Club
launched an additional complimentary section for its app: ex-
press grocery delivery (from 15 min), with the Verniy retailer and
their Bystronom delivery service as the first partner. The service
is available in selected areas of Moscow. The initiative was later
expanded with a grocery delivery partnership with Samokat,
the largest local express delivery player. On 2 April, 2020, O2O
announced the signing of binding documents on investment in
Samokat. The deal is expected to be closed in H1 2020, pending
approval from Russia’s Federal Antimonopoly Service. After
that, the share of the JV in the service will amount to 75.6%.
In 2019, the Delivery Club team also focused on developing
mobile apps for users and partners. It now enables customers to
choose whether they want to add plastic utensils to their order,
create a list of their favourite restaurants or quickly receive
feedback from the customer support service via an in-app chat.
The updated mobile app for vendors now lets our partners use a
new simple editor for menu updating, with no need for Delivery
Club support.
In December 2019, Delivery Club launched an MVP version of
the app for the VK Mini Apps platform. Delivery Club is cur-
rently gathering user feedback, with further tech and product
investments in integration expected in 2020.
In 2020, Delivery Club will focus on further improvements to
the efficiency of logistics and order processing through contin-
uous investment in underlying technologies. Delivery Club re-
mains committed to providing the fastest delivery and best se-
lection in the market as well as attractive long-term economics.
Delivery Club will test new features for monetisation, including
the sale of ads on the mobile app, on couriers’ backpacks, leaf-
lets, etc. Overall, Delivery Club is observing a stronger network
effect, driven by an increased number of restaurants, higher
order counts and increased marketing and logistics efficiencies,
which are helping to grow the platform. Its overall offer will be
further enhanced in 2020 through broader synergies within the
O2O ecosystem as well as its key shareholders.
1 Source: Mediascope, Russia, cities 0+, age 12+,
December 2019.
2 Source: App Annie, December 2019.
2019Annual report Citymobil
In 2019 the Citymobil ride-hailing app demonstrated expo-
nential growth, increasing rides 3.7x YoY, with monthly rides in
December exceeding 13m and 30% growth in rides MoM. This
growth was driven by a rapid geographic expansion and an in-
crease in customer engagement among both riders and drivers.
Average MAU increased 3.9x YoY and average monthly rides
per user grew by 8% YoY, while corresponding indicators on the
supply side grew 2.7x and 53% YoY, respectively. GMV reached
RUB 3.6bn in December, with a RUB 8.9bn GMV in Q4 2019.
To achieve this growth and lay the ground for long-term devel-
opment, Citymobil focused on three business areas in 2019:
• Regional expansion. Most of the growth in 2019 came
from new regional launches. Previously, Citymobil oper-
ated only in Moscow and the Moscow Region. In H2 2019
Citymobil started an intense regional expansion, reaching
a pace of 1 new 1m+ city per week by the end of 2019. As
of Q1 2020, Citymobil is present in all 1m+ cities and in
more than 30 smaller ones. Citymobil positioned itself as
a strong player from the very beginning, and has become
No. 2 in most regions of operation.
• Product. A number of product upgrades have driven up
ride frequency and retention rates. The technological
stack was the team’s major focus in 2019. These included
introducing new algorithms (self-learning address sug-
gestions, car search time forecasting), revising existing
ones (dispatch, subsidy efficiency, routing, pricing), and
developing new technologies (computer vision, new geo
solutions). On the front-end side, Citymobil introduced
new tariffs, smart pick-up points, new design and order
flow for both rider and driver apps. Finally, a major revamp
of tools for partners and internal teams boosted efficiency
in internal business processes.
• Synergies in the ecosystem. Citymobil launched a range
of cross-company projects to appeal to new audiences.
VK Taxi is the result of Citymobil’s biggest collabora-
tion in 2019. It operates as a VK mini app and is natively
integrated into the VK interface while giving users the
full functionality of the main app. It became a break-
out hit, reaching up to 30% of Citymobil rides in some
regions. Another important milestone was the integration
of Sberbank and Mail IDs into the Citymobil rider app.
Riders can now log in to the apps in the O2O ecosystem
using the same ID. Finally, Citymobil organised a range of
cross-promos with companies in the ecosystem, includ-
ing Delivery Club, Okko, Boom, VK, OK and Sberbank
itself.
In 2020 Citymobil will continue its growth by making consistent
improvements in all the aforementioned areas. Citymobil will
keep increasing its coverage by expanding to smaller cities. Fur-
ther changes in product and platform for both Citymobil and VK
Taxi will improve ETA, completion rate, driving frequency and
user retention. Citymobil’s offering will be enhanced for both
riders and drivers through synergies with other products in the
O2O ecosystem. More effective technologies and scaling ef-
fects will see higher driver utilisation, further boosting the 30%
uplift in contribution margin per trip demonstrated in Q1 2020.
55
2019Annual report AliExpress Russia (AER) JV
(15% stake held by Mail.ru Group)
AER JV in Russia/C.I.S. was launched in October 2019.
AliExpress continues to be the leading cross-border e-com-
merce platform in Russia and the C.I.S., given the advantages of
its 50m SKU base, a monthly user base of around 25m in Russia,
major brand awareness and a mass market focus. The number
of buyers of AliExpress in Russia increased by 30% YoY to 24.9m
in November, with audience growth driven by the integration
of Mail.ru Group’s advertising tools and influenced by social
commerce.
During the local 11/11 sale AER reported RUB 17.2bn in GMV
over two days, the highest among all e-сommerce platforms.
AliExpress was also the most popular app in the shopping
category ahead of Black Friday1, with turnover over the related
three-day period rising by 60% YoY to RUB 22.3bn, setting a
new record and exceeding 1/3 of Russia’s total e-commerce
turnover for the same period2.
AliExpress Russia is expanding its domestic marketplace, which
accounted for 15% of total sales of AER in Q4, rising by ~2x YoY.
There are >1.5m SKUs (+38x YoY) from >10,000 local sellers
(>100x YoY) on the platform, with >RUB 500m in daily GMV
from the local marketplace in March 2020. Local sellers are now
present across most categories, with the largest being goods for
mothers and children (49% of GMV), accessories (25%), health
and beauty (19%) and clothes/shoes (7%). The local GMV share
is expected to increase as we move forward.
AER is actively investing in service quality, with all orders in ex-
cess of RUB 330 (>30% of all orders) now combined and given
a single tracking number. In September AER launched a free
returns function at AliExpress to stimulate growth in average
spend and demand in categories like fashion. Cainiao (Alibaba’s
logistics arm) leased seven aircraft in order to improve direct
deliveries to AER, with daily flights between China and Novo-
sibirsk, Yekaterinburg and Moscow, which account for ~70% of
AER’s turnover. Cainiao also opened another warehouse centre.
Expansion of the network of pick-up points continues (12,000
in March 2020), with availability across 3,500 cities. These
measures are among the multiple steps made towards a better
shipping and shopping experience by increasing scale and
efficiency. The goal is to reduce delivery time to major Russian
cities to 7-10 days.
The three top priorities for AER in 2020 include: a) further
enhancement of the cross-border AliExpress platform, with
a focus on service improvement, particularly delivery time; b)
further scaling of Tmall as the domestic marketplace; c) the
development of social commerce, primarily via Mail.ru Group’s
social networks.
56
1 App Annie
2 AKIT
2019Annual report Lost Ark
release
of the year
Ekaterina Sokolova, Andrey Ilyushin
57
2019Annual report Youla
release
of the year
Alexander Vydrin, Alexander Orlov, Anton Chernishev
58
2019Annual report Octavius Email & Portal
release
of the year
Alexander Lyskov, Alexander Tsvetkov
59
2019Annual report Other activities
IT infrastructure
Our network infrastructure is designed to meet the require-
ments of our operations and to support the growth of our busi-
ness. This infrastructure includes services supplied internally as
well as by third parties.
In 2019, Mail.ru Group continued using three international data
centres: two in Amsterdam, the Netherlands, and one in San
Jose, California, U.S. They are aimed at serving European and
North American users and currently host about 1,550 servers.
Our computer servers and networking equipment are located
in our own data centres as well as in rented ones. Mail.ru Group
also has a number of relationships with third-party IT providers,
which provide it with a range of telecommunication services,
including internet access and internet (traffic) transit.
The ability to provide products and services depends on the
continuous operation of our network and IT infrastructure. It
also relies on the provision of network facilities by third-party IT
providers and on the performance and reliability of the internet,
power and telecommunications infrastructure.
In 2019, the peak network traffic increased to 6.9 terabits per
second and the total amount of outgoing data reached 12,400
petabytes.
In 2019, the team made a lot of hardware upgrades which, de-
spite the rising demand for server capacity, allowed us to opti-
mise the total number of servers and avoid large YoY increases.
Due to the balanced high-density configurations based on the
newest CPU generations, we achieved one of the best TCO/
performance on the Russian market for new installations.
In Moscow and St. Petersburg, Mail.ru Group has 58,500 servers
in nine data centres. This ensures load balancing and protection
against the loss of data caused by network or power failures.
New optimised high-density server configurations and a
well-organised modernisation process have contributed to
increased efficiency in CAPEX and optimised operating costs.
Replacing old servers with new optimised ones has made it
possible to reduce the number of servers in use by 15% while
significantly increasing computing power.
The team believes that its present access to network facilities
and broadband capacity is sufficient to support its current
operations and can meet the planned growth of its business
for at least the next 12 months. A staff of full-time engineers
administers the network infrastructure. They handle the day-
to-day functioning of its system as well as hardware operations
and maintenance. Mail.ru Group's automation, dispatch and
monitoring systems are being continuously improved in all
infrastructure divisions. The team is committed to increasing
the systems' level of autonomy while reducing the human role in
the decision-making process.
The team pays close attention to the protection of user data.
The Information Security department monitors the entire
infrastructure and prevents, detects and responds to security
threats.
To achieve the most efficient use of technical and material
resources, the team of engineers monitors the changes in load
profiles and optimises the infrastructure while ensuring a high
level of availability for the Company’s products and services.
High priority is placed on providing users with a consistently
high-quality service and support through the technical support
staff.
60
2019Annual report Sales and marketing
Advertising is sold on our auction-based platforms as well as
in direct deals between advertisers and publishers. Mail.ru
Group works on ad products, technologies, sales, marketing and
client support. The team's main focus is on new technologies
that drive effectiveness and improve ROI for clients, as well as
strategic partnerships with major market leaders which open up
new opportunities for win-win projects and advertisers’ business
development.
In 2019, the team concentrated their efforts on six key areas of
improvement:
• Expanding the target area beyond the traditional internet
ads market to cover O2O solutions, including Digital Out-
of-Home and the digital indoor markets as well as the
Smart TV ads segment;
• Advertising technological developments aimed at further
efficiency growth with a focus on ad delivery optimisation
(oCPM), the improvement of contextual targeting, retar-
geting, a look-alike system, geo-targeting, and perfor-
mance retail in order to make the Group’s products more
efficient and attractive for advertisers;
• Inventory growth, especially video, mainly through the
development of the partner ad network;
• Traffic quality and independent verification improve-
ments, with a focus on traffic measurability and trans-
parency as well as upgrades to third-party verification
integrations;
• The development of big data solutions to increase part-
ners’ marketing and business performance;
• Expanding the SME base and increasing advertisers’ ROI
by tightening our ad requirements and thus improving
conversion rates, generating higher quality traffic and
reducing losses from fake clicks.
Major highlights of the improvements to our marketing product
development and ad technology improvement during FY2019:
• The launch of sales of Digital Out-of-Home ads with
available ad vehicles in Moscow in August and subse-
quent expansion to 10+ Russian cities by December, col-
laborating with two major DOOH operators: Gallery and
MAER GROUP. Ads are sold using real-time socio-de-
mographic targeting that allows the most relevant ad to
be automatically chosen based on the audience profile;
• The launch of sales of indoor ad placements in partner-
ship with the leading Russian retail company X5 Retail
Group, letting advertisers run their ads on loyalty termi-
nals placed inside stores and tracking the O2O results of
the campaigns;
61
• The expansion of the video ad network with a marked-
ly different type of inventory – video ads on Smart TVs
– in collaboration with ivi and ADV Lab. The product is
integrated with the myTarget platform, so advertisers can
reach target households with specific socio-demograph-
ic and economic characteristics and run their ads within
the licensed content;
• The launch of Mail.ru Group’s own Data Management
Platform (DMP). Based on Hard IDs instead of cookies,
the DMP is a unique product for the market. The solution
allows the use of audience segments to be dramatically
prolonged and the segmentation of onboarding and au-
dience profile enhancement to be processed within the
platform. It is the core of the Group’s marketing ecosys-
tem, integrated with crucial O2O tools like Notify CRM,
Social CRM, Performance Retail Platform, etc.;
• The establishment of direct deals between advertisers
and publishers on both premium ad placements and on
special projects. Integration with the Group’s marketing
tools provides advertisers with an opportunity to promote
their brands on Tier 1 media with a variety of specific ad
placements and to get end-to-end analytics on integrat-
ed campaigns. The launch sparked interest from major
advertisers in buying premium inventory via myTarget;
• Major updates to the VK ad account, including the launch
of new statistics indexes, the improvement of optimisa-
tion algorithms, the launch of ad auction predictor and
QR-code-based retargeting;
• Brand-new VK mobile business accounts that allow
advertisers to launch ad campaigns on the go via smart-
phones, using smart targeting and related budget
suggestions;
• New opportunities for O2O businesses on VK through
the launch of HTML5-based ads, the development of the
Mini Apps platform and interaction with BTL through QR
codes;
• The VK business platform also adds personalised sta-
tistics output, tracking of new parameters like CPL and
video views, mass editing of ads, additional statistical
data, a simplified top-up function and campaign brows-
ing feature;
• New formats — vertical video and playable ads have been
introduced to the OK social network. Playable ads are
intended to promote mobile apps and games and fully
demonstrate game mechanics right on the social net-
work’s news feed;
• OK’s new business profile platform and internal ad ac-
count has stimulated entrepreneurial growth and activity
on personal business pages throughout the network;
2019Annual report 36%
Women
64%
Men
• Multiple updates to myTarget: simplified contextual
targeting that has led to exponential growth within the
segment, the improved measurement of potential reach
prior to ad campaign launch, a new format for short out-
stream ads on our NativeRoll premium video ad network,
the launch of a product suggestion scheme in dynamic
retargeting, A/B tests, improved verification for indepen-
dent ad campaigns, an improved look-alike system, and
an extended pre-roll tool that now runs ads in VK apps;
• The extension of the VK inventory by adding the social
network’s news feed ad placements to the Carousel and
Multiformat ad formats in myTarget. Advertisers can now
use these formats for running ads throughout the set
of Mail.ru Group resources and those of its partner ad
network;
• myTarget App Marketplace launched as a platform for
advertising the apps and services of AdTech companies.
Developers can now integrate their own solutions into the
myTarget platform and monetise them, providing clients
with a broader set of tools and personalised services;
• The extension of third-party verification tools on the
myTarget platform, which has enhanced opportunities for
advertisers to audit traffic quality and ad viewability.
In 2019, the team not only developed ad products and technolo-
gies but also launched brand-new initiatives for the market by in-
troducing an Expertise Sharing Programme. The programme gives
major partners an opportunity to share their talents with the Group
in order to get a deep understanding of each others’ business pro-
cesses as well as to improve marketers’ digital advertising skills.
During the year, advertisers actively transferred their budgets from
traditional media to digital. This shift resulted in online ad budgets
making up half of the whole combined Russian advertising market,
compared to a 43% share a year ago.
In the course of 2019, Mail.ru Group made three major changes
to its organisational structure related to the ad business. Egor
Abramets, the founder and CEO of Youla, also took charge of
the Group’s AdTech, with a focus on expanding the SME offer-
ing. Purchased in July 2019, Relap.io combined with myWidget
(launched in 2016) to form a native ad platform with improved
content personalisation under the Relap brand, resulting in higher
user engagement and time spent on the platform. In April 2019,
Mail.ru Group purchased 50.8% of the NativeRoll video ad plat-
form. The deal will broaden the Group’s prospects in developing
AdTech solutions for publishers and advertisers.
myTracker has become one of the global pioneers in predictive
app user life-time value (LTV) forecasting, with post-download
and cross-device tracking. Users can now access data related to
62
the number of in-app subscriptions (including trials) and also see
related conversion data, which allows revenue streams to be split
up to understand which model is more profitable.
We are continuing to work on boosting performance marketing
efficiency through various channels across the Group’s ecosys-
tem. We are focusing on SME and striving for a synergetic effect.
Our leadership is the result of a continuous focus on technologi-
cal advancement and differentiation across mobile and desktop
platforms on the one hand, and a great contribution to strategic
partnerships on the other hand.
Employees
As of the end of 2019 the Group had 6,334 full-time employees.
We highly value our employees and believe that our culture
encourages individuality, creativity and a systematic approach
to providing excellent service to our users.
The great diversity of our internal projects allows us to grow and
constantly develop our potential.
Working at Mail.ru Group offers many challenges and a fast pace.
Our teams create products that are used by millions of people. A
significant proportion of our employees possess a strong product
and technical background that allows them to contribute to our
projects by generating new ideas and enhancing existing products.
Our structure by gender and position as of 31 December, 2019 is
presented in the chart above.
Youngest employee: 18
Oldest employee: 81
By gender:
Women: 36%
Men: 64%
2019Annual report Our recruitment strategy is to hire the most ambitious, compe-
tent, collaborative and innovative people. In 2019, we success-
fully hired 1,248 new employees through in-house recruitment.
Over 25% were hired thanks to a reference from current col-
leagues, management or HR – this is the most loyal group.
We strive to make the hiring process transparent and informa-
tive for our managers, develop B2B services, deepen the exper-
tise of recruiters and permanently enhance the experience of
candidates and employees.
We support a healthy and effective life for our employees and their
families. All our employees can enjoy top-tier health insurance
programmes, as well as additional office wellness initiatives such
as healthy snacks, and a juice bar at our HQ. In 2019 we introduced
a face-to-face psychological support programme that was highly
appreciated by employees at our head office in Moscow.
For many years we have supported our employees with mater-
nity benefits and gifts for newborns.
We also place great emphasis on sports: 500 of our employ-
ees take advantage of the eight types of sporting activities we
provide.
In 2019, we arranged over 50 meetups for developers and
enthusiasts in various IT fields. Over 240 employees gave talks
at external events. Family values and traditions are an important
part of our culture. We regularly organise family days in our of-
fice with a variety of family fun and kids' activities, from shows to
coding classes. During 2019 we organised 200 different events.
Education
Mail.ru Group actively develops its own educational projects
and invests in people changing Russian education.
First, we strengthen basic education and bring practice to
schools and universities. More than 3,000 students attended
our full-time programming classes as part of our educational
projects and semester courses at BMSTU, Lomonosov MSU,
MIPT, MEPhI, Peter the Great SPbPU, and the Voronezh and
Penza state universities. In 2019, we introduced a pilot course
in machine learning at the Moscow Aviation Institute (MAI),
as well as Digital Camp, a free educational project for non-IT
students. Classes are held in our office by our employees, with
230 experts teaching 90 different disciplines. A total of 160 of
the best graduates from all the programmes have joined us as
interns and employees.
In addition, we are developing a community of Mail.ru Group
ambassadors. Sixty students and university employees from
40 universities are acting as IT evangelists and promoting our
brand and products at different universities and in different
regions.
As a result of all our university projects in 2020 we are now in
third place in FutureToday’s Most Attractive Employers ranking.
As for schools, our team holds programming competitions and
helps schoolchildren all over the country with career guidance.
Our Technocup contest has become a 1st Level Contest in
computer science, meaning winners of the competition can
enter universities without taking entrance exams. Over 4,500
schoolchildren from 70 regions took part in Technocup in 2019.
In collaboration with other Russian IT companies, we organised
two large career guidance campaigns devoted to Big Data: the Day
of IT Studies and Digital Lesson. During the Day of IT Studies, em-
ployees of Mail.ru Group and other companies ran thematic les-
sons for 185,000 students from 4,000 schools. For Digital Lesson
we created a special Big Data game simulator. With their parents
and teachers, children took part in over 2.5m gaming sessions.
We also help IT professionals to boost their skills. In 2019, we
launched а new educational format for specialists with job
experience: MADE Academies (Big Data Academy and Product
Managers Academy). At the Big Data Academy students can
choose one of three specialities: Data Scientist, ML Engineer,
and Data Engineer. The course takes a year and a half. Product
Managers Academy is a two-month intensive course with a
large practical element.
We held several international IT championships in 2019, in-
cluding the Russian AI Cup, Mail Design Cup, ML Boot Camp,
and HighLoad Cup, which were the most prominent events of
this kind in the Russian-speaking internet community (about
30,000 participants from 30 countries, from school pupils to
leading experts).
And finally, we make quality educational content open and
accessible. We release online courses on the Coursera and
Stepik platforms, and individual lectures on the Technostream
YouTube channel (over 140,000 subscribers). In 2019, our
programming courses (Python and Go) on Coursera attracted
25,000 students.
63
2019Annual report Charity and social
projects
In 2019, Mail.ru Group organised a range of projects as part of
its social strategy: investing its technologies and experience in
social initiatives.
who has come to Moscow to receive treatment will now be able to
afford a ride from the railway station to the hospital and back. A total
of 500,000 kilometres have been collected to provide to NGOs.
Mail.ru Group carried out research into cyberbullying in Russia,
which revealed that more than 50% of Russian internet users
face bullying on social media. To attract attention to the phe-
nomenon and accumulate the technologies and NGOs that
help bullying victims both offline and online, the company or-
ganised a Day of Action Against Cyberbullying on 11 November.
Millions of people and more than 20 internet companies were
involved in the social campaign.
In 2019, Mail.ru Group launched a corporate NGO called Kod
Dobra, which gives business an opportunity to support Dobro
Mail.ru charity projects. During its first year Kod Dobra raised
over RUB 1m for charities.
Today Dobro Mail.ru comprises 187 verified charity organisations
from 46 Russian regions on its platform and allows users to par-
ticipate in social projects as volunteers or with one-off or regular
donations. Donations made in 2019 increased by 10% over the
year; the amount of recurring donations increased 2.5x.
In 2019, the Dobro Mail.ru volunteer fundraising service Dobry Den’
(Good Day) united 2,623 people and fundraised over 3.2m to char-
ities. Here users can create special events and invite their friends to
donate to any Dobro Mail.ru charity project instead of gifts.
Dobro Mail.ru continued to help NGOs boost their professional
level and held the DOBRO 2019 educational conference for
NGOs in partnership with MegaFon and Metalloinvest, and the
Dobraya Kazan (Good Kazan) forum in partnership with the
Kazan city administration.
DonationAlerts, Russia’s biggest streaming add-on service, and
Dobro Mail.ru actively support charity streaming in Russia. We
organise charity streams with famous Russian streamers and
public figures for charity fundraising. During the Dobry Mart
(Kind March) charity marathon, Russian streamers from the
Stream Family community raised more than RUB 1.3m for char-
ity funds and animal shelters. Thanks to the technologies used
for Dobro Mail.ru and DonationAlerts, donations were trans-
ferred directly to the funds selected by the streamers. Other
regular charity activities with streamers help to attract attention
to the importance of social responsibility and cooperation.
In 2019, VK continued developing its charitable efforts and
strengthening its support for charitable organisations. The
company also put emphasis on educating users about socially
important topics, leading to a considerable increase in user
engagement with charitable initiatives. VK continues to provide
full support to non-profit organisations by offering them free
use of its advertising capabilities, developing special tools and
holding professional events.
Over the year, VK launched dozens of large projects, including
ones designed to raise awareness about blood donation, autism,
HIV, and ecological issues. Additionally, 74 charitable organisa-
tions received grants to promote their projects on VK.
VK has launched two special sticker packs – perhaps the first
charitable stickers in Russia to be truly appreciated and liked
by users. The proceeds from the stickers were donated to two
charitable funds.
Mail.ru Group also held the PechaKucha: Dobro and Technolo-
gies event to showcase IT products and technologies that help
to solve social problems and support charities.
Before the New Year, VK introduced a charitable gift, the pro-
ceeds of which were given to three charitable funds. As a result,
the funds received RUB 1.5m.
Given that Money Mail.ru, our payment processing service, now
also facilitates Dobro Mail.ru, donations made via bank transfer
are exempt from any commissions.
In August 2019, Citymobil and Dobro Mail.ru launched a joint social
project called Miles of Kindness. Miles of Kindness allows every pas-
senger to donate “suspended” rides to charity – these can be used by
people receiving charity aid from partner funds. You simply choose
how much you would like to donate at the end of your journey on
top of your regular fare. With your help, for example, an individual
VK supported World Autism Awareness Day by launching the
#IAmSpecial campaign. Users explained what makes them
unlike others: strange habits, oddities in appearance, accom-
plishments and misfortunes. The campaign showed users that
everyone is unique.
VK has also released the first-ever sign-language stickers in
Russia. With these stickers, users can learn certain words and
phrases in Russian sign language as well as find out more about
what life is like with hearing disabilities.
64
2019Annual report For World Blood Donor Day, VK held its large traditional
campaign to encourage users to become blood donors. The
company created a mini app in collaboration with DonorSearch,
where users could enter information about their blood type and
share it with friends.
VK also worked alongside Greenpeace to organise a forest fire
prevention campaign. A special chatbot taught VK users about
how to handle fire with care. It helped users to understand how
to properly put out a campfire after a picnic, whether it is dan-
gerous to set fire to dry plants and what to do in case of a fire.
VK held its second annual VK for Good conference, which over
300 people attended. Among the conference participants were
representatives of non-profit organisations as well as the best
speakers from the world of business, media, and the non-profit
sector.
The third VK for Good auction set a new record for the number
of hours of ad agency services given to charitable organisations
free of charge. Seven non-profit organisations received a total
of 1,950 hours of ad agency services. Agency professionals also
helped NGOs create and promote creative projects for free.
In 2019, VK Fest 5 helped to arrange a presence at the festival
for three charitable organisations. In addition, free HIV testing
was available to festivalgoers.
Odnoklassniki (OK) pays a great deal of attention to charity and
social projects. OK uses all the available technology and media
channels to inform its users and attract their attention to socially
important causes and topics. In November 2019, OK teamed up
with the anti-violence support centre Nasiliyu.Net and UN Wom-
en, the UN entity dedicated to gender equality and the empow-
erment of women, for an online panel discussion about gendered
violence. The broadcast was viewed by over 2.1m users.
In 2019 OK also focused on projects that help to fight stereo-
types and discrimination in various areas of life. In September,
the Takie Dela online publication and OK launched an educa-
tional project focusing on clear language. With the help of OK
stickers, Takie Dela explained how language and words affect
people and situations. In November, OK and the So-edine-
nie foundation launched a social project called The Music of
Gestures. OK uploaded several tracks to its music platform, all
of which had been modified to reflect the way music is heard by
those with impaired hearing. The social network also added a
set of stickers featuring sign language gestures.
Over the course of 2019, OK carried out a number of anti-HIV
projects with UNAIDS and the UNESCO Institute for Informa-
tion Technologies in Education. The social network was deeply
involved in projects related to the problems experienced by
those with developmental challenges and dyslexia. The latter
was supported by a nationwide campaign called Dobroshrift, for
which Russia’s largest media and companies turned their logos
“dyslexic.”
COVID-19 update
The first months of 2020 have seen the world faced with an
unprecedented global health issue in the form of the coronavi-
rus outbreak. On 28 February, 2020, the World Health Or-
ganisation (WHO) assessed the COVID-19 threat as very high
on a global scale, and on 11 March, 2020, the WHO declared
COVID-19 a pandemic.
Due to the concerns over the COVID-19 pandemic, we have
made remote work mandatory for our staff. To ensure unin-
terrupted operations, we have adhered to our tested business
continuity and resilience plans.
We have seen a boost in demand for our products and services
during the lockdown, as people increasingly use social networks,
messaging apps and educational platforms, play online games
and order food. Our staff are working hard to support this soaring
demand by ensuring the uninterrupted operation of our infra-
structure.
To ensure users remain up to date with the latest government ac-
tion and recommendations we have launched special newsfeeds
on our OK and VK social networks and a website for education,
work and entertainment while at home, with 40+ solutions.
Delivery Club and Samokat have launched contactless delivery
and increased the number of couriers to ensure our service is safe
and convenient. Citymobil has launched a parcel delivery service.
It also offers its drivers a full disinfection service for their vehicles
and provides free rides for doctors.
The coronavirus situation is evolving and changing rapidly and we
are ready to maintain the quality of our services and operations
for users and employees. See the Risk Management section of
the annual report for further impact assessment of the COVID-19
pandemic.
65
2019Annual report AI photo restoration
Email & Portal
feature
of the year
Fedor Kitashov,
Tatiana Zlatina, Dmitry Shkinev
Citymobil and Dobro Mail.ru
Miles of Good
feature
of the year
Vladislav Kuzmenko, Aleksandra Babkina,
Dmitriy Sushkevich, Oganes Arakelyan
Email & Portal
Authorisation without
password
feature
of the year
Artur Khineltsev, Aleksandr Fedoseev,
Aleksandr Naumov, Anatoliy Ostapenko
REVENUE
& YOY GROWTH
RUB MLN
87,663
2019
71,164
2018
financial
review
23
2019
69
69
Annual report
2019Annual report financial
review
This review reflects the highlights of our financial performance for
2019. Full details can be found in the annual financial statements
presented on pages 117 to 176 of this annual report.
Overview
of consolidated results
We are pleased to have demonstrated solid progress through-
out 2019 in all key areas, with total revenues growing by 23%,
while we continued to put significant resources behind a num-
ber of our new projects, especially our O2O initiatives, where
we see significant potential. Online advertising showed strong
growth, driven by growing user engagement, improved adver-
tising technologies and sales execution. Customer budgets
continued shifting online and towards mobile and social net-
works in particular. Our games business continues to produce
very strong performance, with the international share increasing
to over 68% of our MMO revenues. As in previous periods, the
new mobile IVAS products and also the music subscriptions
continued to grow, with the number of active paid and trial
subscriptions on our platforms and in the integrated BOOM app
by UMA exceeding 3m.
Structure
Our segment reporting is prepared on a pro forma basis, i.e. 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 our subsidiaries, including for periods prior to the acquisition of
control of the entities in question. The financial information of sub-
sidiaries disposed of and operations classified as assets held for sale
prior to the date hereof is excluded from the segment presentation,
starting from the beginning of the earliest period presented.
70
Accordingly, our segment reporting presented herein includes
the financial information of UMA, NativeRoll, Relap, Skillbox,
Panzerdog, Swag Masha, Worki (all acquired in 2019), Beingame
(acquired in March 2020) and excludes the financial informa-
tion of Pandao, ESforce, Delivery Club, all starting from 1 Janu-
ary, 2018. Please refer to the below Reconciliation of Segment
results as presented herein to the audited consolidated financial
statements for the year ended 31 December, 2019.
In 2019 we changed the composition of the reporting segments
in order to better reflect our strategy, the way the business is
managed and units’ interconnection within its ecosystem. From
the first quarter of 2019 we have identified the following report-
able segments on this basis:
• Communications and Social
• Games
• New Initiatives
The Communications and Social segment includes email, in-
stant messaging and the portal (main page and media projects).
This segment also aggregates the Group’s social network Vkon-
takte (VK) and two other social networks (OK and My World);
The Games segment includes online gaming services, includ-
ing MMO, social and mobile games operated by the Group;
The New Initiatives reportable segment represents separate
operating segments aggregated for their similarity: they are all
newly acquired or recently started and dynamically developing
businesses.
Please refer to “Basis of preparation” below in the “Operating seg-
ment performance” section for more details on operating segment
presentation.
2019Annual report Reconciliation of segment results as presented herein to the audited consolidated financial statements for the year ended
31 December, 2019:
Note 5 to
Financial
Statements
2019
Beingame
ICO
elimination
2019
Annual
Report
Note 5 to
Financial
Statements
2018
Beingame
2018
Annual
Report
RUB millions
Group aggregate segment revenue
Online advertising
MMO games
Community IVAS
Other revenue
36,505
27,987
16,371
6,207
177
634
-
-
-
36,682
-186
28,435
-
-32
16,371
6,175
29,782
23,295
15,005
3,082
71,164
Total Group aggregate segment revenue
87,070
811
-218
87,663
Group aggregate operating expenses
Personnel expenses
Office rent and maintenance
Agent/partner fees
Marketing expenses
Server hosting expenses
Professional services
Other operating (income)/expenses,
excluding amortisation and depreciation
Total Group aggregate operating expenses
Group aggregate segment EBITDA
margin, %
Depreciation and amortisation
Other non-operating income/(expense), net
19,007
278
21,174
12,246
702
734
3,177
57,318
29,752
34.2%
10,012
851
21
-
390
743
-
1
3
1,158
-347
2
-
Profit before tax
Income tax expense
Group aggregate net profit
18,889
-345
3,240
-
15,649
-345
-
-
-186
-32
-
-
-
19,028
14,140
278
21,378
12,957
702
735
199
15,787
10,212
693
498
3,180
2,498
-218
58,258
44,027
-
-
-
-
-
-
29,405
33.5%
10,014
851
27,137
38.1%
9,302
-233
18,540
18,068
3,240
2,985
15,300
15,083
71
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29,782
23,295
15,005
3,082
71,164
14,140
199
15,787
10,212
693
498
2,498
44,027
27,137
38.1%
9,302
-233
18,068
2,985
15,083
2019Annual report Acquisitions
and disposals in 2019
In February 2019 we completed the acquisition of 100% of
Salerton Investments Limited (“UMA”), an internet and mobile
music service provider in Russia, for a total cash consideration of
RUB 6,391m. The main purpose of the acquisition is to expand
our presence in the music services market.
In April 2019 we acquired 50.83% in Native Media LLC (“Na-
tiveRoll”), a video ad platform. The primary purpose of the
acquisition of NativeRoll was to enhance our position on the ad-
vertising solutions market. As of 31 December, 2019 we acquired
control over the remaining share of 49.17%.
In May 2019 we acquired 51% in LLC “Iconjob” (“Worki”), a job
search platform. The primary purpose of the acquisition of
Worki was to leverage our expertise and resources by achieving
substantial synergies with Youla, our online classifieds product.
As of 31 December, 2019 we acquired control over the remain-
ing share of 49%.
Also, in May 2019 we acquired 100% in Surfingbird LLC (“Re-
lap”), a recommendatory platform. The primary purpose of the
acquisition of Relap was to leverage our expertise and resources
by achieving substantial synergies with Pulse, our recommen-
dation technologies and solutions.
The total cash consideration for the acquisition of NativeRoll,
Worki and Relap was RUB 2.1bn.
In May 2019 we acquired control in the mobile games developer
Panzerdog OY (“Panzerdog”) by increasing its share to 59.45%
(39.45% in addition to a 20% stake as of 31 March, 2019) for a
total cash consideration of RUB 626m.
In June 2019 we decided to create a partnership around the ES-
force esports business and accordingly, classified it as an asset
held for sale.
On 8 July, 2019 we acquired control over the mobile games
developer LLC “Swag Masha” (“Swag Masha”) by increasing our
share to 51% (16% in addition to the previously held 35% stake)
for a total cash consideration of RUB 79m. The primary purpose
of the acquisition of Swag Masha was to enhance our position
on the mobile games market.
72
On 8 October, 2019, the Group, in collaboration with Alib-
aba Group, MegaFon and RDIF, completed the formation
of the AliExpress Russia Joint Venture (AER or the AER JV).
The Group invested its Pandao e-commerce assets and a cash
consideration of USD 182m in exchange for a 15.01% stake in
the AER JV (voting – 18%). The cash consideration of USD 182m
is comprised of USD 100m paid on 8 October, 2019, with the
outstanding sum to be contributed by October 2020. Aliba-
ba Group invested USD 100m and contributed its AliExpress
Russia business in exchange for a 55.7% stake (voting – 49.9%),
RDIF invested USD 100m in exchange for a 5% stake (voting –
1.2%) and MegaFon sold a 9.97% economic stake in Mail.ru
Group to Alibaba Group in exchange for a 24.3% stake (vot-
ing – 30.2%) in the AER JV. All parties contractually agreed to
share control over AER based on the unanimous consent of the
parties over decisions related to the AER JV’s relevant activities.
In July 2019, the Group and Sberbank entered into an agree-
ment for investment into a new O2O group (O2O or the O2O
JV) focused on digital technologies for the food and trans-
portation markets. As of 18 December, 2019 all the necessary
corporate governance and regulatory approvals, including the
approval from the Federal Antimonopoly Service, had been re-
ceived, so the formation of the partnership was completed. The
Group contributed its stakes in Delivery Club (100%) and City-
mobil (29.67%), as well as a cash consideration of RUB 8.5bn
and a contingent consideration of RUB 4.6bn, dependent on
the achievement of a number of KPIs by contributed businesses
by November 2020.
As part of the O2O transaction, the following restructuring
steps were also taken: the Group sold to O2O 70% of partici-
pation interest in NGCity (owns 65% of YouDrive, a car sharing
operator) for RUB 434m, 6.9% in Instamart, a grocery delivery
service, for RUB 110m, 25% in Performance Food, a meal kit de-
livery service, for RUB 381m plus an earn-out of up to USD 3m
to be paid in future, subject to meeting of KPI targets specified
in the SPA between the Group and previous shareholders (the
earn-out amount will be determined not earlier than 31 May,
2020).
2019Annual report Operating segment
performance
Basis of preparation
In reviewing our operational performance and allocating re-
sources, our Chief Operating Decision Maker (CODM) reviews
selected items from each segment's income statement, as-
suming 100% ownership in all of our key operating subsidiaries,
based on management reporting.
Management reporting is different from IFRS, because it does
not include certain IFRS adjustments that are not analysed by the
CODM in assessing the business’s core operating performance.
Such adjustments affect such major areas as revenue recog-
nition, deferred tax on the unremitted earnings of subsidiaries,
share-based payment transactions, the disposal and impairment
of investments, business combinations, fair value adjustments, am-
ortisation and impairment thereof, net foreign exchange gains and
losses, share in the financial results of associates, as well as irregular
non-recurring items that occur from time to time and are evaluat-
ed for adjustment as and when they occur. The tax effect of these
adjustments is also excluded from management reporting.
The financial information of the key subsidiaries acquired during
the reporting period or after the reporting period but prior to the
date hereof is included in the segment disclosure, starting from the
beginning of the earliest comparative period included herein.
The financial information of subsidiaries disposed of and assets
classified as held for sale prior to the date hereof is excluded from
the segment presentation, starting from the beginning of the
earliest period presented.
Accordingly, segment reporting for the year ended 31 December,
2019 and the respective comparative segment financial informa-
tion has been retrospectively restated, as applicable, to include the
financial information of UMA, NativeRoll, Relap, Skillbox, Pan-
zerdog, Swag Masha, Worki, Beingame and to exclude Pandao,
ESforce, and Delivery Club, all starting from 1 January, 2018.
Sberbank contributed a total of RUB 39.7bn (used by the O2O
JV to acquire an additional 5.8% stake in Citymobil and a 100%
stake in Foodplex) and a contingent consideration of RUB
13bn, depending on the achievement of a number of KPIs by
contributed businesses by November 2020. The parties have
equal 50% stakes in the O2O JV, with up to 10% of shares to be
potentially allocated for the long-term motivation programme
to incentivise the O2O platform’s employees.
In December 2019 we acquired control in the educational
online platform LLC “Skillbox” (“Skillbox”) by increasing our
share to 60.3% (50% in addition to a 10.3% stake as of 14 Feb-
ruary, 2019 that was accounted as a financial asset at fair value
through profit and loss) for a total cash consideration of RUB 1.6
bn. The primary purpose of the acquisition of Skillbox was to ex-
pand our presence on the online education market by achieving
substantial synergies with GeekBrains, our online educational
platform.In April 2020, O2O signed binding documents on
investment in Samokat, the grocery and home goods express
delivery service. The deal is expected to be closed in H1 2020,
pending approval by Russia’s Federal Antimonopoly Service.
After that, the share of the O2O JV in the service will amount to
75.6%.
See also Notes 6 and 25 to our consolidated financial state-
ments for further details on acquisitions and disposals.
Goodwill
We account for business combinations by applying the acquisition
method. As a result, we record goodwill as the fair value of the
consideration transferred, including the recognised amount of any
non-controlling interest in the acquiree, less the net recognised
amount (generally fair value) of the identifiable assets acquired
and liabilities assumed, all measured as of the acquisition date. The
significant goodwill recorded in connection with our acquisitions
may lead to charges in future periods if goodwill is impaired.
Total goodwill amounted to RUB 140,665m as of 31 December,
2019, an increase of RUB 219m from 31 December, 2018. The good-
will is allocated to groups of cash-generating units (CGUs) – “Email,
Portal and IM”, “Search”, “Online Games”, “Social Networks”,
“VKontakte”, “Pixonic”, “E-Commerce”, “Skillbox” and others – in
accordance with the operating segment structure of our business
and IFRS requirements. Please see Note 11 to our consolidated
financial statements for further details.
73
2019Annual report We measure the performance of our operating segments through
a measure of earnings before interest, tax, depreciation and amor-
tisation (EBITDA). Segment EBITDA is calculated as the respective
segment’s revenue less operating expenses (excluding deprecia-
tion, amortisation and impairment of intangible assets), including
our corporate expenses allocated to the respective segment.
EBITDA is not a measure of financial performance under IFRS. Our
calculation of EBITDA may be different from the calculations of
similarly labelled measures used by other companies and should
therefore not be used to compare one company against another
or as a substitute for analysis of our operating results as reported
under IFRS.
EBITDA is not a direct measure of our liquidity, nor is it an alterna-
tive to cash flows from operating activities as a measure of liquidity,
and it needs to be considered in the context of our financial com-
mitments. EBITDA may not be indicative of our historical operat-
ing results, nor is it meant to be predictive of our potential future
results. We believe that EBITDA provides useful information to the
users of consolidated financial statements because it is an indicator
of the strength and performance of our ongoing business opera-
tions, including our ability to fund discretionary spending such as
capital expenditure, acquisitions and other investments and our
ability to incur and service debt.
In 2019 we changed the composition of the reporting segments
in order to better reflect our strategy, the way the business is
managed and units’ interconnection within its ecosystem. Since
the first quarter of 2019 we have identified the following reportable
segments on this basis:
• Communications and Social
• Games
• New Initiatives
The Communications and Social segment includes email, in-
stant messaging and the portal (main page and media projects).
It earns substantially all revenues from display and context
advertising. This segment also aggregates the social network
Vkontakte (VK) and two other social networks (OK and My
World) and earns revenues from (i) commissions from applica-
tion developers based on the respective applications’ revenue,
(ii) user payments for virtual gifts, stickers and music subscrip-
tions and (iii) online advertising, including display and context
advertising. It also includes the Search and music services
(UMA). These businesses have a similar nature and economic
characteristics as they are represented by social networks and
online communications, their products and services are used
by a similar type of customer and are regulated under a similar
regulatory environment.
The Games segment includes online gaming services, including
MMO, social and mobile games operated by the Group. It earns
substantially all revenues from (i) the sale of virtual in-game items
to users, (ii) royalties for games licensed to third-party online game
operators and (iii) in-game advertising.
The New Initiatives reportable segment represents separate
operating segments aggregated into one reportable segment
for their similarity: they are all newly acquired or recently started
and dynamically developing businesses. This segment primarily
consists of Youla classifieds, which earn revenues from listing and
promotion fees as well as advertising, MAPS.ME, GeekBrains, new
B2B projects (including Cloud), as well as MRG Tech Lab initiatives,
along with other services which are considered insignificant by
the CODM for the purposes of performance review and resource
allocation.
74
2019Annual report Principal
revenue drivers
Analysis of 2019
results compared with 2018
Organic growth in our revenue, including online advertising and
IVAS, is primarily driven by the audience of our assets. Advertis-
ing revenues also depend on the pricing of our advertisements
and availability and sell-through rates of our advertising inven-
tory, while IVAS revenue is also driven by paying user engage-
ment and average revenue per paying user (“ARPPU”).
The discussion that follows is based on the analysis of segment
and supporting management financial information according
to the Group’s actual structure as of the date of this Annual
Report. As discussed under “Basis of Preparation” above, this
information differs in certain significant respects from the infor-
mation presented in accordance with IFRS.
Group aggregate segment financial information*
RUB millions
2019
% of revenue
2018
% of revenue
YoY, %
Group aggregate segment revenue
Online advertising
MMO games
Community IVAS
Other revenue**
36,682
28,435
16,371
6,175
42%
32%
19%
7%
Total Group aggregate segment revenue
87,663
100%
Group aggregate operating expenses
Personnel expenses
Office rent and maintenance
Agent/partner fees
Marketing expenses
Server hosting expenses
Professional services
Other operating (income)/expenses,
excluding amortisation and depreciation
19,028
278
21,378
12,957
702
735
3,180
Total Group aggregate operating expenses
58,258
Group aggregate segment EBITDA
margin, %
Depreciation and amortisation ***
29,405
33.5%
10,014
Other non-operating expense/(income), net
851
Profit before tax
Income tax expense
Group aggregate net profit
margin, %
18,540
3,240
15,300
17.5%
22%
0%
24%
15%
1%
1%
4%
66%
34%
11%
1%
21%
4%
17%
29,782
23,295
15,005
3,082
71,164
14,140
199
15,787
10,212
693
498
2,498
44,027
27,137
38.1%
9,302
(233)
18,068
2,985
15,083
21.2%
42%
33%
21%
4%
100%
20%
0%
22%
14%
1%
1%
4%
62%
38%
13%
0%
25%
4%
21%
23%
22%
9%
100%
23%
35%
40%
35%
27%
1%
48%
27%
32%
8%
8%
465%
3%
9%
1%
(*) The numbers in this table and further in the document may not exactly foot
or cross-foot due to rounding.
(**) Including Other IVAS revenues.
(***) Including the impairment of Skyforge for RUB 630m in Q2 2019 and the
impairment of Armored Warfare for RUB 1,698m in Q2 2018.
75
2019Annual report The income statement items for each segment for the year ended 31 December, 2019, as presented to the CODM, are presented
below:
RUB millions
Revenue
External revenue
Intersegment revenue
Total revenue
Total operating expenses
EBITDA
Net profit
Communications
and Social
50,313
208
50,521
23,186
27,335
Games
31,144
118
31,262
26,365
4,897
New
Initiatives
Eliminations
Group
6,206
27
6,233
9,060
(2,827)
(353)
(353)
(353)
-
87,663
-
87,663
58,258
29,405
15,300
The income statement items for each segment for the year ended 31 December, 2018, as presented to the CODM, are presented
below (all numbers include the effect of IFRS 16 adoption – please see Note 2.2 in the financial statement for details):
RUB millions
Revenue
External revenue
Intersegment revenue
Total revenue
Total operating expenses
EBITDA
Net profit
Communications
and Social
43,575
191
43,766
18,122
25,644
Games
24,841
4
24,845
19,839
5,006
New
Initiatives
Eliminations
Group
2,748
1
2,749
6,262
(3,513)
(196)
(196)
(196)
-
71,164
-
71,164
44,027
27,137
15,083
Online advertising
Online advertising includes two major kinds of advertising
technology: Display and Context. Display advertising revenue
is generated from promo posts on social networks, and video,
banner and similar advertisements on our assets. Advertise-
ments are sold based on either the time that they last, or on the
number of ad views. Our standard rates depend on a number
of factors, including the asset on which the advertisement
appears, the amount and length of the contract, the season, and
the advertisement’s format, size and position.
Context advertising revenue is earned with our myTarget tech-
nology, as well as through partnerships with third parties.
myTarget (formerly known as Target Mail.ru), is our proprietary
self-service programmatic advertising technology, which sells
advertisements through an online auction both on desktop and
mobile using various pricing models. The technology is integrat-
ed in almost all advertising formats, so the advertiser can choose
whether to purchase impressions via display ads based on fixed
CPM or use an online auction in the myTarget programmatic
system. The technology features several improvements: new
cross-device ad formats, the integration of offline user experi-
ence and new targeting opportunities.
We generated revenue of RUB 36,682m from online adver-
tising in 2019 (2018: RUB 29,782m). Our advertising revenue
grew by 23%, ahead of the Russian online advertising market,
even though we continued to invest in our new businesses and
allocate part of our inventory to promote these new products,
which had a limiting effect on inventory available for sale. The
strong growth in our advertising revenues was driven by an
ongoing shift of budgets online and to social within digital, as
we boost engagement, improve AdTech and grow ROIs for our
clients, an increasing number of which are SMEs. In line with this
trend, promo posts across our social networks and our native
in-feed video formats were our fastest-growing advertising rev-
enues. The growth of our advertising revenue was additionally
supported by ongoing adtech development and the launch of
innovative ad products.
IVAS
We generate a significant portion of our revenue from IVAS. This
includes MMO games and Community IVAS.
76
2019Annual report
MMO games
Community IVAS
About a third of our total revenue is generated by MMO games,
including client, browser and mobile titles. Players have the
opportunity to buy in-game enhancements for these free-to-play
games; revenue is recognised net of any commissions from SMS
operators, but gross of other revenue collection costs, including
commissions paid to mobile app stores. In 2019, we generat-
ed revenues of RUB 28,435m from MMO games (2018: RUB
23,295m). The 22% increase in MMO revenues is primarily due to
the strong growth of Hustle Castle, our most successful in-house
developed game, as well as War Robots and Left to Survive. We
have also launched a number of new successful projects, such
as Tacticool, Love Sick, Zero City, American Dad and others.
Community IVAS revenue is driven by payments for features and
virtual items sold primarily on our social networks. Such features
and items include virtual gifts, stickers, premium music access and
other paid features. Community IVAS revenue is also driven by
revenues shared with application developers through our Applica-
tion Programming Interface (“API”). A significant portion of these
payments is paid via online payment systems.
The fees for such services are collected from customers using
various payment channels, including bank cards, online pay-
ment systems and mobile operators, as well as from the applica-
tion developers.
Aggregate segment Community IVAS revenue increased by 9%
to RUB 16,371m (2018: RUB 15,005m), mostly driven by growth
in music subscribers, the development of stickers as a product,
and the growing popularity of these features among users.
MMO games, average monthly paying users, ths
H2 `19
H1 `19
H2 `18
H1 `18
H2 `17
H1 `17
H2 `16
H1 `16
1,116
1,061
1,033
945
801
758
651
573
Source: Company data
Footnote 1: The numbers combine the paying users of individual MMO and mobile games and may include overlap
Footnote 2: The calculation methodology was reviewed to account for paying users more accurately; the historical data were recalculated.
77
2019Annual report Costs and margins
Our principal cost items include personnel expenses, office
rent and maintenance expenses, agent/partner fees, marketing
expenses, server hosting expenses, professional services and
other operating expenses, excluding depreciation, amortisation
and impairment.
Personnel expenses increased by 35% to RUB 19,028m (2018:
RUB 14,140m), mainly driven by an increase in headcount,
principally within our B2B New Projects, VK and online games
businesses.
We adopted the new IFRS 16 standard using a modified ret-
rospective approach and utilising certain practical expedients
provided. We recognised right-of-use assets and lease liabilities
for those leases previously classified as operating leases, except
for leases of low-value assets. In order to achieve comparability,
the IFRS 16 adoption effect (Note 2.2) is included in segment
reporting starting from 1 January, 2018. Expenses increased to
RUB 278m (2018: RUB 199m), driven by the rental of additional
office space as the headcount increased.
Agent/partner fees increased by 35% to RUB 21,378m (2018:
RUB 15,787m). The increase in agent/partner fees was primarily
driven by growth in revenue collection costs, advertising com-
missions and payments to music licence owners.
Revenue collection costs represent fees to payment systems
for processing payments for our games and Community IVAS.
These costs also include the share of our mobile product reve-
nue that we pay to mobile app stores (mainly Google Play and
Apple’s App Store), as well as the share of our console gaming
revenue paid to the respective console platforms (Sony’s Play-
Station and Microsoft’s Xbox). The increase in revenue collec-
tion costs was mainly due to increased revenue from games,
mostly mobile and console titles.
Advertising commissions represent arrangements where we
share our advertising revenue with different external advertis-
ing agencies. The increase in commission is mainly due to the
significant growth in related revenue in 2019.
Marketing expenses increased by 27% to RUB 12,957m (2018:
RUB 10,212m), as we significantly stepped up marketing efforts
to support the fast growth of our mobile games such as Hustle
Castle, Left to Survive, Tacticool, Zero City and Love Sick.
Other operating expenses, excluding depreciation, amortisa-
tion and impairment, increased by 27% to RUB 3,180m (2018:
RUB 2,497m) due to an expensed VAT increase, mostly driven
by the growth of CAPEX and expenses, as well as a fine imposed
by the tax authorities following a tax audit.
In total, our aggregate segment operating expenses (excluding
depreciation, amortisation and impairment) increased by 32%
to RUB 58,258m (2018: RUB 44,027m). As a result, our aggre-
gate segment EBITDA increased by 8% to RUB 29,405m (2018:
RUB 27,137m) and the EBITDA margin decreased to 33.5% in
2019 (2018: 38.1%).
78
2019Annual report Depreciation, amortisation and impairment, other non-operating
income, income tax and net income
Depreciation, amortisation and impairment increased by 8%
to RUB 10,014m (2018: RUB 9,302m) primarily as a result
of growth in servers and network equipment, driven by the
development of new businesses, as well as due to the rental of
additional office space, driven by growth in headcount.
Profit before income tax expense increased by 3% to RUB
18,540m (2018: RUB 18,068m) as a result of the 23% increase
of revenues partially offset by a 32% increase in expenses.
Income tax expense increased by 9% to RUB 3,240m (2018:
RUB 2,985m), and as a result, the Group's aggregate net profit
increased by 1% to RUB 15,300m (2018: RUB 15,083m).
Other non-operating expenses increased to RUB 851m (income
in 2018: RUB 233m) due to interest expenses accrued on inter-
est-bearing loans received in 2020.
Consolidated results of
operations in accordance with IFRS
The following table summarises the principal line items from our consolidated income statements under IFRS:
RUB millions
Total revenue
Net (loss)/gain on venture capital investments
Total operating expenses
EBITDA
Profit/(loss) before income tax expense
Income tax expense
Net profit/(loss)
Attributable to:
Equity holders of the parent
Non-controlling interests
2019
96,231
(139)
(68,036)
28,056
22,279
(3,428)
18,851
18,686
165
2018
66,105
26
(62,581)
3,550
(7,517)
(546)
(8,063)
(7,991)
(72)
Our consolidated revenue increased by 45.6% to RUB 96,231m
(2018: RUB 66,105m) in 2019, mostly for the following reasons:
• (1) Organic growth and online gaming revenue. The
primary drivers of organic and gaming revenue growth
are described under “Operating segment performance”
above.
• (2) Changes to estimates in the calculation of MMO
deferred revenue with respect to the lifespan of in-game
virtual items purchased by game players. The changes in
estimates were recorded prospectively and resulted in
an increase in revenue of RUB 13,324m. For more details,
see note 4.2.9 in our consolidated financial statements for
the year ended 31 December, 2019.
EBITDA under IFRS increased to RUB 28,056m (2018: RUB
3,550m) and the EBITDA margin increased to 29.2% (2018:
5.4%) as a result of revenues growing at a faster pace than
operating expenses (excluding depreciation, amortisation and
impairment).
Operating expenses grew by 8.7% to RUB 68,036m, or 70.7% of
revenue (2018: RUB 62,581m, or 94.6% of revenue).
The growth in operating expenses was primarily driven by a RUB
8,626m increase in agent/partner fees, partially offset by a RUB
2,282m decrease in office rental and maintenance expenses due
to the adoption from 1 January, 2019 of new standard IFRS 16,
according to which operating lease expenses (except for leases
of low-value assets) are treated as finance leases and recorded as
right-of-use assets and lease liabilities, which have an effect on
expenses through amortisation and interest expense, and thus
no longer affect EBITDA. The key drivers and components of the
growth in agent/partner fees were mostly organic and are dis-
cussed in detail under “Operating segment performance” above.
Our profit before income tax expense under IFRS was RUB
22,279m (2018: RUB 7,517m loss) primarily due to an increase in
depreciation and amortisation, and the increase in EBITDA as
discussed above.
Our net profit under IFRS was RUB 18,851m (2018: RUB 8,063m
loss), a combination of profit before tax and income tax expense.
The income tax expense under IFRS increased to RUB 3,428m
(2018: RUB 546m) mostly due to an increase in taxable profit
before income tax.
The majority of our taxable profits as well as income tax expens-
es in 2019 and 2018 are generated in Russia. Pre-tax gains and
losses in other jurisdictions mostly relate to share-based pay-
ment expenses, fair value revaluation, foreign exchange gains
and losses, and other similar items which are generally non-tax-
able (non-deductible) in those jurisdictions. These items affect
pre-tax profit, but do not have an influence on income tax
expense, which has an effect on the blended tax rate.
A detailed reconciliation of our management reporting to IFRS
is presented in the tables below.
79
2019Annual report Reconciliation of aggregate segment financial information to IFRS
RUB millions
Group aggregate segment revenue, as presented to the CODM
Adjustments to reconcile revenue as presented to the CODM to consolidated revenue under IFRS:
Effect of difference in dates of acquisition,loss of control in subsidiaries and assets held for sale
Differences in timing of revenue recognition
Barter revenue
Dividend revenue from venture capital investments
Consolidated revenue under IFRS
RUB millions
Group aggregate segment EBITDA, as presented to the CODM
Adjustments to reconcile EBITDA as presented to the CODM to consolidated profit/(loss) before
income tax expenses under IFRS:
Effect of difference in dates of acquisition, loss of control in subsidiaries and assets held for sale
IFRS 16 implementation
Differences in timing of revenue recognition
Net (loss)/gain on venture capital investments
Share-based payment transactions
Other
EBITDA
Depreciation and amortisation
Impairment of intangible assets
Share of loss of equity accounted associates
Finance income
Finance expenses
Other non-operating loss
Gain on joint venture formation
Loss on fair value remeasurement of assets held for sale
Net loss on derivative financial assets and liabilities at fair value through profit or loss
Gain on remeasurement of previously held interest in equity accounted associate
Reversal of impairment / (impairment) of equity accounted associates
Net gain on disposal of intangible assets
Net gain on disposal of subsidiary
Net foreign exchange (loss)/gain
Consolidated profit/(loss) before income tax expense under IFRS
80
2019
87,663
2,022
6,520
8
18
2018
71,164
2,992
(8,154)
74
29
96,231
66,105
2019
29,405
2018
27,137
(7,744)
–
8,265
(139)
(1,742)
11
(5,904)
(3,540)
(7,464)
26
(6,732)
27
28,056
3,550
(12,771)
(9,665)
(659)
(1,691)
585
(1,459)
(182)
15,855
(4,519)
(758)
324
60
418
–
(980)
22,279
(1,711)
(497)
545
(17)
(12)
–
–
(516)
–
(37)
–
47
796
(7,517)
2019Annual report RUB millions
Group aggregate net profit, as presented to the CODM
Adjustments to reconcile net profit as presented to the CODM to consolidated net profit/(loss)
under IFRS:
Share-based payment transactions
Differences in timing of revenue recognition
2019
2018
15,300
15,083
(1,742)
8,265
(6,732)
(7,464)
Effect of difference in dates of acquisition, loss of control in subsidiaries and assets held for sale
(6,610)
(6,006)
IFRS 16 implementation
Amortisation of fair value adjustments to intangible assets
Gain on joint venture formation
Loss on fair value remeasurement of assets held for sale
Net loss on financial instruments at fair value through profit or loss
Gain on remeasurement of previously held interest in equity accounted associates
Net gain on disposal of intangible assets
Net gain on disposal of subsidiary
Net foreign exchange (loss)/gain
Share of loss of equity accounted associates
Reversal of impairment/(impairment) of equity accounted associates
Other non-operating loss
Other
Tax effect of adjustments
Consolidated net profit/(loss) under IFRS
–
(3,192)
15,855
(4,519)
(897)
324
418
–
(980)
(1,691)
60
(182)
(11)
435
(5,174)
–
–
(490)
–
–
47
796
(497)
(37)
(12)
(16)
(1,547)
2,004
18,851
(8,063)
81
2019Annual report Semi-annual analysis
2019
2018
H1 2019
% of
revenue
H2 2019
% of
revenue
H1 2018
% of
revenue
H2 2018
% of
revenue
RUB millions
Group aggregate segment
revenue
Online advertising
16,244
41%
20,438
13,289
8,099
2,121
39,753
33%
20%
5%
15,146
8,272
4,054
47,910
43%
32%
17%
9%
13,359
10,445
7,520
1,044
32,368
41%
32%
23%
3%
16,423
12,850
7,485
2,038
38,796
42%
33%
19%
5%
MMO games
Community IVAS
Other revenue*
Total Group aggregate
segment revenue
Group aggregate segment
EBITDA
12,694
32%
16,711
35%
11,980
37%
15,157
39%
Group aggregate net profit
6,022
15%
9,278
20%
5,349
17%
9,734
25%
The table above represents our segment semi-annual results with
a percentage of revenue for the four consecutive half-years ended
31 December, 2019.
Most of the revenue growth in H2 2019 was concentrated in
online advertising (24.4% vs. H2 2018) and MMO games (17.9%
vs. H2 2018).
The majority of our revenues are affected by seasonality and as a
result, revenues and operating profits are generally higher in the
second half of the year than in the first six months:
• Advertising revenues are generally higher in the second
half of each year since significant amounts of advertising
budgets are typically spent in the last quarters of the year.
• MMO games revenues are generally higher during the
second half of the year due to the end of the vacation
period, because users tend to play our MMO games more
when not on vacation.
• Community IVAS revenues are generally higher ahead of,
during and immediately after holidays and festive periods.
In addition to seasonal fluctuations, our semi-annual H2 2019
results were driven by strong growth in revenue from targeted
advertising and mobile games.
The growth in online advertising was primarily driven by myTar-
get on mobile and desktop applications and new projects such
as NativeRoll and Relap. Moreover, VK increased the proportion
of high-margin products. The growth in MMO games was most-
ly driven by the growth of War Robots and new projects such as
Tacticool, Love Sick, Zero City, American Dad and others.
Aggregate segment EBITDA increased by 10.3% in H2 2019 vs.
H2 2018 in line with revenue and expenses growth. Personnel
expenses increased by 38% in H2 2019 due to an increase in head-
count, principally within our B2B New Projects, VK and online
games businesses. In line with the strong growth in revenue from
mobile games, myTarget and music subscriptions, agent/partner
fees increased by 37% in H2 2019, including respective growth in
revenue collection costs, advertising commissions paid to external
advertising agencies and commissions to music copyright holders.
* Other revenue includes Other IVAS
82
2019Annual report
Financial position
Liquidity and capital resources
As of 31 December, 2019, the Group had RUB 9,782m in cash
and an outstanding debt of RUB 23,518m. The cash-generating
capacity of our business remained strong, though it has been
affected by the need to fund Delivery Club, Citymobil and Pan-
dao ahead of the JV deals closing. The free cash flow generation
of our business is expected to normalise in 2020. As previously
stated, with M&A-related investments we will utilise bank lines
for near-term cash management. In 2019, net cash provided by
operating activities before interest and income tax increased by
23.8% to RUB 18,438m (2018: RUB 14,887m). Net cash provid-
ed by operating activities before interest and income tax grew
following an increase in IFRS EBITDA (excluding the effect of
share-based payment expense, gain on joint venture formation,
loss on fair value re-measurement of assets held for sale, and
change in MMO revenue deferral estimate, which represents the
most significant non-cash IFRS adjustments to EBITDA).
The ratio of net cash provided by operating activities to consoli-
dated revenues decreased to 13.4% in 2019 (2018: 18.9%), mainly
as a result of a significant decrease in non-cash revenue deferral
in 2019 (change in estimate, see note 4.2.9 in the financial state-
ments for the year ended 31 December, 2019) and an increased
amount of venture capital investments.
Capital expenditure to acquire property and equipment and
intangible assets increased by 26.1% to RUB 8,385m, driven by a
71.5% increase in payments for intangible assets, mostly con-
sisting of music licence fees, as well as purchased and internally
developed game software, and was otherwise in line with the
organic growth of the business.
Net cash used in investment activities in 2019 also included a
net RUB 11,181m paid for the 2019 acquisitions of Worki, UMA,
Skillbox, Swag Masha, Relap, NativeRoll, Panzerdog and ESforce
acquired in 2018 and cash contributions of RUB 15,687m to
associates Citymobil (pre-O2O), AliExpress Russia Joint Venture,
O2O and others.
In March 2019 we borrowed RUB 8,500m from Raiffeisenbank to
finance our investment transactions, including deferred consid-
eration for ESforce and the acquisition of UMA.
In October 2019 we borrowed RUB 6,500m from Sberbank to
finance the AER partnership.
In December 2019 we borrowed RUB 8,500m from Sberbank to
finance our cash contribution into the O2O partnership.
We may attract additional bank borrowing to finance our further
investments and contingent consideration to be contributed into
the O2O and AER JVs.
Terms for RSU Plan
On 23 November, 2017 the Remuneration Committee of the
Board of Directors of the Company approved New Terms for
the 2015 Restricted Stock Unit Plan (the “2017 RSU Plan”),
establishing that RSU vesting shall generally be conditional on
the meeting of certain performance KPIs. Please refer to Note
24 to our Consolidated Financial Statements for further details.
In December 2018, an additional extension to the 2017 RSU
Plan for 2,000,000 units and the acquisition of the required
number of GDRs on the market were approved.
83
2019Annual report SHAREHOLDERS`
ECONOMIC
INTEREST
10.0%
Alibaba
49.8%
Others incl.
holders of GDRs
7.4%
Tencent
manage-
ment
5.2%
MF Technol-
ogies
27.6%
Prosus
2019
84
84
Annual report
2019Annual report management
Board of Directors
Dmitry Grishin, 41
Co-Founder and Chairman of the Board
Dmitry Grishin was appointed Chairman of the Board in March
2012. He co-founded Mail.ru Group in 2005 and served as Chief
Executive Officer (Russia) from November 2010 to October 2016.
Dmitry joined Mail.ru in 2000 and was promoted to Technical
Director in 2001. From 2003 to 2010, he led the business as CEO.
Dmitry graduated from the Faculty of Robotics and Complex
Automation at Moscow State Technical University and in 2012 he
founded Grishin Robotics, a global investment company dedicat-
ed to supporting personal robotics around the world.
Charles St. Leger Searle, 56
Director
Charles Searle is currently Chief Executive Officer of Prosus
Internet Listed Assets. He serves on the boards of a number of
companies associated with Prosus Group, including Tencent
Holdings Ltd. He joined Prosus Group in Hong Kong in 1998
to assist with the group’s expansion into Asia, prior to which he
held positions at Cable & Wireless plc and at Deloitte & Touche
in London and Sydney. Charles is a graduate of the University of
Cape Town and a member of the Institute of Chartered Ac-
countants in Australia and New Zealand. He has more than 25
years of international corporate development experience in the
telecommunications and internet industries.
Dmitry Sergeev, 44
Director
Dmitry Sergeev was appointed to the Board in October 2018.
Dmitry is Co-CEO of AliExpress Russia JV. From 2014 to 2019
he served as Deputy CEO of Mail.ru Group. Before joining Mail.
ru Group he held upper management positions in a number
of TV and media companies. He is a graduate of the School of
International Law at the Moscow State Institute of International
Relations.
Vladimir Gabrielyan, 37
Director
Vladimir Gabrielyan began his career in IT as a system admin-
istrator at Russia Telecom. He later launched his own project,
Web-Hosting.ru. He joined Mail.ru Group in 2001 as a system
administrator, then moved on to take charge of the develop-
ment and technical support of one of the Group’s largest assets,
the Mail.ru email service. Vladimir has been Mail.ru’s Vice-Pres-
ident and CTO since 2005. For 14 years he has run a number of
major projects and departments, supervising all major techno-
logical initiatives. Vladimir is an established expert in machine
learning and big data.
85
Jaco van der Merwe, 45
Director
Jaco van der Merwe is currently the Head of Treasury at
Naspers/Prosus Group. He joined Naspers as Group Financial
Manager of MIH in 2006. He has served on a number of boards
of Prosus Group companies and as a member of the audit
committees of Abril Media (Latin America’s leading magazine
publisher) and NMS Insurance Services (a short-term insurance
company in South Africa). Prior to joining Prosus Group he was
an audit partner at KPMG in South Africa. He graduated with
a Bachelor of Commerce degree from the University of Jo-
hannesburg, South Africa, where he also received a Bachelor’s
degree (Hons) in Accounting. He is a registered member of the
South African Institute of Chartered Accountants.
Mark Remon Sorour, 58
Director
Mark Sorour was appointed to the Board in August 2010. A
qualified chartered accountant, in 1994 he left investment
banking to join the Naspers Group, where he went on to be-
come its Chief Investment Officer from 2002 to his retirement
in 2018. During this time he led and held worldwide responsibil-
ity for the Naspers Group’s M&A and played a significant role in
capital market fundraising activities. Mark’s 25 years of expe-
rience in internet, technology and video entertainment busi-
nesses include business development and dealmaking in Africa,
the Middle East, Thailand, India, China, Europe, the U.S., Latin
America and South-East Asia. He currently serves as a non-ex-
ecutive director on the Naspers’ and newly listed Prosus Boards.
Lev Khasis, 53
Director
Lev Khasis is a member of the Executive Board, and First Depu-
ty Chairman of the Executive Board of Sberbank. He supervises
and coordinates the work of the International Operations Unit,
the Technologies Unit, the Services Unit, and several other
areas of the Bank's activity. From 1993 to 1995 Lev served as
Managing Director of the Samara branch of AvtoVazBank and
Vice President of AvtoVazBank. In 1994-1999 he was Arbitration
Manager and President of Aviakor OJSC. In 1997-1998 Lev was
Vice President of Alfa Bank. In 1999-2002 he was a member of
the Board of Directors, and from 2002 to 2006 he was Chair-
man of the Board of Directors at Perekrestok Trading House
CJSC. In 2006-2011 Lev was Chief Executive Officer of X5
Retail Group N.V., and from 2011-2013 he served as Senior Vice
President of Walmart Stores Inc.
2019Annual report Sang Hun Kim, 56
Independent Director
Sang Hun Kim was appointed to the Board in February 2011. He
was CEO of South Korea’s largest internet company, NAVER
Corp, from April 2009 until March 2017, when he stepped down
as CEO to become a senior advisor to the company. He has
served as an independent director of LG Corp. (the holding com-
pany of one of the largest business conglomerates in Korea) and
a non-executive director on the board of Woowa Brothers Com-
pany (a Korean food delivery service operator) since 2018 and
2017, respectively. An active investor in and a mentor to a number
of start-ups in Korea, he has served as President of the Korean
Internet Companies Association for six years and has contributed
to the development of the internet industry in Korea. Sang Hun
graduated from Seoul National University and received an LL.M.
degree from Harvard Law School. He is a member of both the
Korean Bar Association and the New York Bar Association. Before
joining NAVER Corp he served as a judge in the Seoul District
Court and was General Counsel at LG Corp.
Vladimir Gabrielyan, 37
First Deputy Chief Executive Officer (Russia)
Vladimir Gabrielyan began his career in IT as a system admin-
istrator at Russia Telecom. He later launched his own project,
Web-Hosting.ru. He joined Mail.ru Group in 2001 as a system
administrator, then moved on to head the development and
technical support of one of the Group’s largest assets, the Mail.
ru email service. Vladimir has been Mail.ru’s Vice-President
and CTO since 2005. For 14 years he has run a number of major
projects and departments, supervising all major technological
initiatives. Vladimir is an established expert in machine learning
and big data.
Vladimir Nikolsky, 47
Chief Operating Officer (Russia)
Vladimir Nikolsky joined Mail.ru Group as Vice President of the
Online Games business in 2009 and became Chief Operating
Officer (Russia) in 2013. He was previously CEO of the online
games holding Astrum Online Entertainment (from 2007 to
2009) which subsequently became a part of Mail.ru Group, and
co-founder and CEO of the online games company IT Territo-
ry (from 2004 to 2007). Vladimir graduated from the Ivanovo
State Power Engineering University.
Uliana Antonova, 46
Director
In April 2019 Uliana Antonova was appointed CEO of MF Tech-
nologies, JSC, to which she brought vast experience in legal
matters gained in a range of business sectors across different
jurisdictions. A graduate of the Faculty of Law at Lomonosov
Moscow State University, Uliana previously served as Vice
President for Legal Affairs and Leasing for the КАRО cine-
ma network (2014-2019) and Head of Legal at Rambler & Co
(2009-2014); she has also worked for Amtel-Vredestein Group
(2007-2009) and was a board member and Head of Legal for
Tinkoff Group (2004-2007).
Jan Buné, 67
Independent Director
Jan Buné was appointed as Independent Director and Mem-
ber of the Board in October 2013. In October 2014 he became
Chairman of the Audit Committee. He has extensive experience
in public accounting in the technology, media & telecommuni-
cations sector, fintech and the financial services sector. He was
a senior audit partner at Deloitte Netherlands until May 2013.
He currently holds a number of non-executive positions. He
serves as Commissioner at the Media Supervisory Authority in
the Netherlands. He is Chairman of the Audit Committee of the
Supervisory Board at Citco Bank Netherlands. He is also Inde-
pendent Chairman of the Risk Advisory Committee for Naspers’
PayU internet payments. He has gained extensive knowledge
on corporate governance, risk management and regulatory
compliance, and has a qualification as Certified Board Member
(CBM) in the Netherlands.
Senior
management
Boris Dobrodeev, 36
Chief Executive Officer (Russia)
Boris Dobrodeev was appointed to the Board of Directors in
February 2016 and became Chief Executive Officer (Russia) in
October 2016. From 2014 to 2016 he held positions as Mail.ru
Group’s Director for Strategy & Development and VKontakte’s
CEO and from 2013 to 2014 he was Deputy CEO of VKontakte.
Boris graduated from Moscow State University in 2007 with a
degree in History, and holds a Master of International Business
Degree, which he obtained from Moscow State University
Business School in 2009. He worked for Metalloinvest as an
analyst from 2006 to 2009, and occupied the position of a
Business Development Director at the online video company
Zoomby.ru from 2009-2011. From 2011 to 2012 Boris worked as
an investment analyst for DST Advisors and from 2012 to 2014
as the head of the Internet Asset Management Department at
USM Advisors.
Matthew Hammond, 45
Managing Director, Chief Financial Officer
Matthew Hammond was appointed to the Board in May 2010
and became Managing Director in April 2011. In June 2013 Mat-
thew also became Chief Financial Officer. He graduated from
the UK’s Bristol University in 1996 with a degree in Economics
and History. From 1997 to 2008, he was a technology analyst
at Credit Suisse and was ranked No. 1 in the Extell and Institu-
tional Investor Survey eight times. From 2008-2010 Matthew
was Group Strategist at Metalloinvest Holdings, dealing with
non-core investments. He is a non-executive director of Strike
Resources.
86
2019Annual report Email & Portal
leader
of the year
Ivan Myzdrikov
Youla & Advertising
Technologies
leader
of the year
Boris Kaptelov
MY.GAMES Fast Forward
Studio
leader
of the year
Ivan Fedyanin
Search
leader
of the year
Dmitry Roslyakov
corporate
governance
Mail.ru Group Limited is incorporated in the
British Virgin Islands with its principal office
in Limassol, the Republic of Cyprus.
Governance
structure
In accordance with the Memorandum and Articles of Asso-
ciation of the Company and applicable BVI law, our ultimate
decision-making body is the shareholders’ meeting. Any action
that can be taken by the members at a meeting may also be tak-
en by a Resolution of Members. This is followed by the Board of
Directors; they are responsible for the general management of
the Group, including coordinating strategy and general super-
vision. We also have an Audit Committee and a Remuneration
Committee. Senior managers are involved in the day-to-day
running of the Group.
91
2019Annual report Share capital structure
The Company’s authorised and issued share capital as of the
date hereof:
Class of share
Authorised shares
Issued shares
Class A (USD 0.000005 par value each)
10,000,000,000
11,500,100
Ordinary (USD 0.000005 par value each)
10,000,000,000
208,582,082
Annual General
Meeting (AGM)
of shareholders
The shareholders’ meeting is the Company’s supreme govern-
ing body. AGMs are convened by the Board of Directors or by a
written request from shareholders who hold, in aggregate, 30%
or more of the outstanding votes in the Company.
The share capital of the Company is divided into two classes of
shares: Class A Shares and Ordinary Shares. Class A Shares each
carry 25 votes at shareholders’ meetings, while Ordinary Shares
carry 1 vote per share.
The agenda for the shareholders’ meetings is determined by
the Board of Directors. However, a shareholder or shareholders
who hold, in aggregate, 7.5% or more of the outstanding voting
shares of the Company may add items to the agenda in compli-
ance with the following requirements:
i) no later than a week before the meeting;
ii) at the meeting itself, with the consent of shareholders who
hold, in aggregate, more than 50% of the outstanding voting
shares of the Company.
Transfer and conversion of shares
Ordinary Shares are freely transferable. Class A Shares are
freely transferable, save that a transfer of Class A Shares that
would result in a proposed acquirer (other than a person who
was already a member on 27 August, 2010) and persons acting
in concert with the acquirer holding 75% or more of the voting
rights of the Company is subject to meeting mandatory offer
requirements set out in the Articles.
At the request of any member holding any Class A Shares, the
Class A Shares which are the subject of the request are auto-
matically converted into Ordinary Shares. This is on the basis
that each Class A Share automatically converts into one Ordi-
nary Share and ranks pari passu in all respects with the existing
Ordinary Shares in issue.
Both classes of shares are in registered form. In respect of
the 186,641,934 Ordinary Shares, Global Depositary Receipts
(“GDRs”) (which represent interests in such Ordinary Shares)
have been issued by Citibank NA and are traded on the London
Stock Exchange.
As of the date hereof, there are the following types of options
over the Company’s shares:
• Options for 6,423,842 Ordinary Shares granted to
the Mail.ru Employee Benefit Trust on 11 November, 2010
with the initial exercise price of USD 27.70, which was
then reduced by USD 3.80 on 17 August, 2012 and further
reduced by USD 4.30 on 20 March, 2013 (due to dividend
payments) resulting in the current exercise price of USD
19.60. As of the date hereof, 755,755 of these options
remain allocated, all of which are vested. Out of 6,423,842
options, 5,554,180 options have been exercised;
• Options for 4,282,561 Ordinary Shares granted to the
Mail.ru Employee Benefit Trust on 22 December, 2011
with the initial exercise price of USD 25.60, which was
then reduced by USD 3.80 on 17 August, 2012 and further
reduced by USD 4.30 on 20 March, 2013 (due to divi-
dend payments) resulting in the current exercise price of
USD 17.50. As of the date hereof, 788,917 of these options
remain allocated, 493,917 of which are vested. The options
generally have a four-year vesting schedule. Out of
4,282,561 options, 3,385,708 options have been exercised.
In March, 2015 the Shareholders of the Company approved the
issue of up to 10,977,971 Ordinary Shares, all of which were issued
to the Mail.ru Employee Benefit Trust to establish an incentive plan
for employees, directors, officers and consultants of the Group, to
be known as the 2015 Restricted Stock Unit Plan. On 23 Novem-
ber, 2017 the Remuneration Committee of the Board of Directors
of the Company approved New Terms for the 2015 Restricted
Stock Unit Plan (the “2017 RSU Plan”), setting out that RSU vesting
shall generally be conditional on the meeting of certain perfor-
mance KPIs. In December 2018, an additional extension to the
2017 RSU Plan for 2,000,000 RSUs and the acquisition of the
required amount of GDRs on the market were approved. There
was no further extension of the Plan in 2019. As of the date hereof,
3,845,420 RSUs remain allocated, 782,950 of which are vested. A
total of 8,951,873 RSUs have been exercised. The RSUs generally
have a four-year vesting schedule.
During the 2019 financial year, the Company itself did not ac-
quire any of its own shares.
At the beginning of 2019 the Group announced that in order to
meet its ongoing commitments the Mail.ru Employee Benefit
Trust would acquire up to 1.8m GDRs on the market over the
next 18 months. As of the date hereof, 572,437 GDRs have been
acquired at an average price of USD 23.85 per GDR for the total
amount of USD 13,651,922.76.
92
2019Annual report Shareholders’ economic interest, %
5.2%
MF Technologies
7.4%
Tencent
10.0%
Alibaba
27.6%
Prosus
49.8%
Others incl. holders
of GDRs*
Voting rights
Board of Directors
Each Class A Share has the right to 25 votes at a meeting of the
shareholders of the Company or on any resolution of the share-
holders of the Company.
The Board of Directors is responsible for the general manage-
ment of the Group. This includes the co-ordination of strategy
and general supervision.
Each Ordinary Share has the right to 1 vote at a meeting of the
shareholders of the Company or on any resolution of the share-
holders of the Company.
The Memorandum and Articles of Association specify that there
shall be 10 Directors – eight of whom shall be nominated and elect-
ed by shareholders (the “Elected Directors”) and two of whom shall
be independent directors (the “Independent Directors”).
93
2019Annual report Shareholders’ voting interest, %
as of the date hereof
3.3%
Tencent
4.4%
Alibaba
58.3%
MF Technologies
12.3%
Prosus
21.7%
Others incl.
holders of
GDRs
The Elected Directors are appointed by a vote of the members,
with each proposed candidate being put to the members for a
vote, with voting on each candidate being treated as a separate
vote and with each member being entitled to vote on each
proposed candidate (to the effect that the eight candidates
who attract the highest number of votes shall be elected as
the eight Elected Directors) for a period from the date of their
appointment until the second AGM after that date. On expiry
of their term, Elected Directors must resign, but are eligible for
re-election.
Any shareholder, or group of shareholders, who holds, in
aggregate, not less than 5% of (a) the total number of votes
attached to the issued shares; or (b) the total number of the
issued shares, is entitled to nominate candidates for election by
the shareholders as Elected Directors to the Board of Directors.
Such nomination must be made not less than 21 days before any
AGM at which any Elected Director is due to resign.
94
The two Independent Directors are nominated by the Board of
Directors and appointed by a resolution of the Board of Direc-
tors. Independent Directors serve for the period fixed in their
terms of appointment, as specified by the Board.
The Board of Directors elects one of its members to act as the
Chairman of the Board.
*
incl. 1% economic interest held by Dmitry Grishin
2019Annual report Powers of the Board of
Directors
The Board of Directors is granted the authority to manage
the business affairs of the Group. They have the authority to
make decisions relating to, among other things, the following:
• The right to issue shares and other securities (except
as otherwise required by the Company’s Memorandum
and Articles of Association).
• The approval of the annual budget and annual financial
statements of the Company.
• The declaration of any dividend.
• The convening of any shareholders’ meeting.
• The appointment of the Group’s auditors.
• The appointment of any committee of the Board of
Directors, including the Company’s Audit Committee
and Remuneration Committee (see below).
• The exercise of all rights of the Company in relation to
ICQ LLC.
• The approval of any proposal under which the Compa-
ny or any of its subsidiaries delegates any substantial
management authority to any other entity.
• The approval of transactions which are not Substan-
tial Transactions (as defined in the Memorandum and
Articles of Association)
• The appointment and removal of any Officer of the
Company, or any Officers or Directors of any direct
subsidiary of the Company (including, but not limited
to, the Managing Director (being the chief executive
officer of the Group), Chief Financial Officer or Chief
Operating Officer) and the determination of the scope
of authority of such Officers of the Group.
• The Board of Directors, or any committees thereof,
meet when and how the Directors determine to be
necessary or desirable. Meetings are held in the Com-
pany’s principal office or wherever the majority of the
Directors agree.
A resolution at a duly constituted meeting of the Board of
Directors or of a committee of Directors is approved by a simple
majority vote of the Directors. A resolution consented to in
writing is approved by an absolute majority of all the Directors.
For the purposes of establishing a majority, the Chairman of the
Board (or chairman of the meeting as the case may be) has a
casting vote in the event of a tie.
Name
Dmitry Grishin
Lev Khasis
Uliana Antonova
Dmitry Sergeev
Charles Searle
Mark Remon Sorour
Vladimir Gabrielyan
Jaco Van Der Merwe
Jan Buné
Sang Hun Kim
Position
Date of appointment
Expiry of term
Chairman
May 31, 2019
2021 AGM
Elected Director
Dec 23, 2019
2021 AGM
Elected Director
May 31, 2019
2021 AGM
Elected Director
May 31, 2019
2021 AGM
Elected Director
May 31, 2019
2021 AGM
Elected Director
May 31, 2019
2021 AGM
Elected Director
May 31, 2019
2021 AGM
Elected Director
May 31, 2019
2021 AGM
Independent Director
May 31, 2019
2021 AGM
Independent Director
May 31, 2019
2021 AGM
Senior management
The senior management is involved in the day-to-day management of the Group.
Name
Matthew Hammond
Boris Dobrodeev
Vladimir Gabrielyan
Vladimir Nikolsky
95
Position
Appointment
Managing Director
Chief Financial Officer
April 2011
June 2013
Chief Executive Officer, Russia
October 2016
First Deputy Chief Executive Officer, Russia
November 2019
Chief Operating Officer, Russia
June 2013
2019Annual report Committees of the
Board of Directors
Mail.ru Group Limited has an Audit Committee and a Remuner-
ation Committee.
Audit Committee
The Audit Committee is appointed by the Company’s Board of
Directors and meets on a regular basis, but not less than four
times a year.
The purpose of the Audit Committee is to assist the Company’s
Board of Directors in fulfilling its responsibilities in respect of:
• the quality and integrity of the Group’s integrated report-
ing, including its financial statements;
• the Group’s compliance with key applicable legal and
regulatory requirements as relating to financial reporting;
• the quality and independence of the Group’s external
auditors;
• the performance of the Group’s internal audit function
and external auditors;
• the adequacy and effectiveness of internal control mea-
sures, accounting practices, risk management, informa-
tion systems and audit procedures;
• monitoring compliance with the Company’s code of
ethics.
The Audit Committee is responsible, among other things, for:
• reviewing annual financial statements and interim finan-
cial results;
• regular internal reports to management prepared by the
internal audit department and management’s response;
• consideration of external auditors’ reports – including the
receipt and review of reports, which furnish, in a timely
fashion, information related to various accounting mat-
ters – and matters relating to internal controls if applica-
ble, emphasising reported unadjusted audit differences
and disagreements between the external auditors and
management;
• annually reviewing and reporting on the quality and
effectiveness of the audit process; assessing external
auditors’ independence, deducing whether they have
performed the audit as planned and establishing the
reasons for any changes; obtaining feedback about the
conduct of the audit from key members of the Group’s
management, including the CFO;
96
• reviewing the performance of the external auditors and
evaluating the lead partner and discharging and replac-
ing, in consultation with the Board, the external auditor or
lead audit partner when circumstances warrant;
• presenting the Committee’s conclusions in respect of the
external auditors to the Board;
• evaluating and providing commentary on the external
auditors’ audit plans and scope of findings, identifying
issues and reports, and approving non-audit services
performed by the external auditor.
Members
of the Committee
• Jan Buné, Chairman
• Sang Hun Kim
• Jaco Van Der Merwe
Remuneration
Committee
The Remuneration Committee is responsible for approving the
terms of appointment and remuneration of the Group’s senior
managers as well as for the approval of options or RSUs to be
granted under incentive plans.
The Remuneration Committee meets on an as-and-when-ap-
propriate basis.
Members
of the Committee
• Dmitry Grishin, Chairman
• Charles Searle
• Sang Hun Kim
• Lev Khasis
2019Annual report Email & Portal
mentor
of the year
Vasily Romanov
MY.GAMES
mentor
of the year
Elena Grigorian
Internal control
system in relation
to the financial
reporting process
Internal control is exercised by the Group's Board of Directors,
executive bodies, officers and operational management. Their
aim is to secure the achievement of goals set by the Company in
the following areas:
• the efficiency and effectiveness of the Group’s business
activity;
• the reliability and credibility of the Group’s reporting; and
• compliance with the requirements of regulatory acts and
the Group’s internal documents.
The following functions are performed by the Internal Audit
Department:
• carrying out internal audits, reviews and other engage-
ments with respect to the Company’s subsidiaries;
• assessing the effectiveness of the Company’s internal
control system, including its subsidiaries, and proposing
recommendations as a result of those assessments;
• assessing the effectiveness of the risk management pro-
cess within the Group and proposing recommendations
as a result of those assessments;
• providing necessary consultations to the management of
the Company and its subsidiaries on appropriate correc-
tive action plans flowing from internal audits.
Risk management
system
Mail.ru Group is subject to certain risks that affect our ability to
operate, serve our clients, and protect our assets. Controlling
these risks through a formal programme is necessary for the
well-being of Mail.ru Group. The Group is committed to identi-
fying and managing risk, in line with international best corporate
governance practice.
Effective and adequate risk management and internal control
systems are crucial to the achievement of business strategies.
To ensure the effectiveness and efficiency of both these sys-
tems the Group has adopted the “three lines of defence” model,
which comprises day-to-day operations and management, risk
management function and independent assurance. These lines
are aimed at providing reasonable but not absolute insurance
against material losses or failures to achieve strategic objectives.
The existing risk management system operates as follows:
• the Board of Directors has a responsibility to ensure that
it has dealt with the governance of risk comprehensively;
• the Board is also responsible for overseeing the risk ap-
petite, i.e. the level of risk the Group is willing and is ready
to take;
• the CEO is accountable to the Board for the enter-
prise-wide management of risk;
• management is responsible for assessing and managing
the risks in accordance with approved plans and policies;
99
Annual report
2019Annual report • the Risk Management Committee assists the manage-
ment in carrying out its responsibility for the governance
of risk, reviews and approves risk management policy,
risk map and register, risk assessments and mitigation
activities;
• ensuring that an appropriate enterprise-wide risk manage-
ment system and process is in place with adequate and effec-
tive risk management processes that include strategy, ethics,
operations, reporting, compliance, IT and sustainability;
• the Audit Committee assists the Board in its responsibility
for overseeing the risks, including financial reporting risks
and internal financial controls, as well as fraud and IT risks
as they relate to financial reporting; the overall adequacy
and effectiveness of risk management;
• internal audit provides assurance on the adequacy and
effectiveness of the risk management process across the
Group.
The Risk Management Committee comprises the principal op-
erating managers of the Group (the heads of principal business
units) appointed by the CEO or his Deputy. The Risk Manage-
ment Committee is chaired by the Deputy CEO. Members of
the Risk committee, taken as a whole, must comprise individuals
with risk management skills and experience.
Corporate
governance code
Mail.ru Group Limited, as a BVI incorporated limited company
with a listing of Global Depositary Receipts on the Official List
maintained by the UK Listing Authority, which are admitted to
trading on the London Stock Exchange, is not subject to any
corporate governance code, nor has it voluntarily decided to
apply any corporate governance code.
However, the Company does apply corporate governance stan-
dards, including: the appointment of two Independent Direc-
tors to its Board of Directors; the appointment of Remuneration
and Audit committees; and the periodic re-election of Directors.
This goes beyond the requirements of national law.
The Board of Directors has adopted various policies and char-
ters relating to the Company’s governing bodies. These include
the Board Charter, Code of Ethics and Business Conduct,
Directors’ Right to Access Information/Documents Policy, Legal
Compliance Policy, Charter of the Audit Committee, Internal
Audit Charter, Remuneration Committee Charter, Risk Com-
mittee Charter, Risk Management Policy, and the Trading Policy
for Directors, Senior Managers and Employees. These are all
followed by the Group in all material respects.
Policies and other details of the Company’s corporate gover-
nance practices can be found at http://corp.mail.ru/en/inves-
tors/management/.
100
2019Annual report myTracker
team
of the year
Ilnar Borkhanov, Timur Voloshin, Yulia Guseynova, Alexander Bykov
Legal Department
team
of the year
Ekaterina Iatsenko, Dmitry Fedorov, Dmitry Babichev
Mail.ru Cloud Solutions
team
of the year
Leonid Anikin, Ilya Letunov, Dmitrii Lazarenko
risk
management
Summary
The Group has developed a risk management policy which
covers the following major aspects: identification, mapping and
analysis of the risks the Group faces, setting appropriate control
frameworks, monitoring risks and ensuring that major risks are
properly identified, assessed, reported, and adequately miti-
gated. Risk management procedures and systems are reviewed
regularly. The Group, through its training and management
standards and procedures, aims to maintain a disciplined and
constructive control environment. The overall objective of risk
management is to minimise risks to an acceptable level.
The Company’s Audit Committee has been established to
oversee, among other things, how management monitors
compliance with the Group’s risk management practices and
procedures. Management regularly performs its assessment of
the principal strategic, operational and compliance risks that
the Group faces and has proper mitigation plans developed.
Management defines the risk appetite – the acceptable levels
of risk the Group is ready to tolerate in its operational activities,
the maximum performance variability and loss exposures – with
both qualitative and quantitative statements targeting param-
eters or acceptable boundaries when executing the business
model for creating value to the Group’s stakeholders.
Further information on the risk management system can be
found in the Corporate governance section on page 91.
We present below the major aspects of our financial risk man-
agement policies and objectives (see Note 23 to the financial
statements for further details), as well as the principal operating
risks and uncertainties faced by the Group.
Financial risk
management
The Group’s operations include strategic operations and ven-
ture capital investments. Its financial risk management objec-
tives and policies for these operations are based on the signifi-
cant difference in the degree of risk tolerance between strategic
and venture capital operations.
Financial risk arising from the Group’s strategic operations is
managed through regular in-depth reviews of all operational
segments and the day-to-day management of their financial
and operating activities by key management personnel. In con-
trast, management of the financial risk arising from the Group’s
venture capital activities is primarily based on regular reviews of
the effect of the existing and prospective investees’ operating
performance on their fair values, which serve as the foundation
for the Group’s investment and divestment decisions as part of
its venture capital operations.
The Group’s principal financial liabilities mainly comprise a
contingent consideration liability and trade accounts payable.
The main purposes of these financial liabilities are to finance the
Group’s operations and, in the case of the contingent con-
sideration, a business acquisition. The Group has short-term
receivables, short-term time deposits, cash and cash equiva-
lents and other current financial assets that arise directly from
the Group’s operations.
The Group also has a venture capital investment portfolio con-
sisting of equity investments in internet start-ups and smaller
internet companies and derivative contracts over the equity of
the Group’s venture capital investees.
104
2019Annual report
Liquidity and financial
resources
Capital management
policy
The Group monitors the risk of a shortage of funds by using a
liquidity planning tool.
The Group’s objective is to maintain a balance between conti-
nuity of funding and flexibility through the use of operating cash
flows and bank overdrafts. The Group’s other financial liabilities
are mostly represented by trade payables with maturity of less
than one year.
Credit risk
Credit risk is the risk that a counterparty will not meet its obliga-
tions under a financial instrument or customer contract, leading
to a financial loss.
The financial assets which potentially subject the Company and
its subsidiaries and associates to credit risk consist principally of
cash and cash equivalents, short-term time deposits, short-term
receivables and convertible loans. The total of these account bal-
ances represents the Group’s maximum exposure to credit risk.
The Group places its cash and cash equivalents with highly rated
financial institutions which are considered at the time of deposit
to have minimal risk of default. The Group does not require collat-
eral or other security to support the financial instruments subject
to credit risk. Accounts receivable from the two largest customers
collectively represented 12% of the Group’s total trade receiv-
ables as of 31 December, 2019 and 12% as of 31 December, 2018.
No customer accounted for more than 10% of revenue in 2019 or
2018. The Group provides credit payment terms to its customers
in accordance with market practices and based on thorough
review of the customer’s profile and creditworthiness. Although
collection of receivables could be influenced by economic fac-
tors, management believes that there is no significant risk of loss
beyond the allowance already recorded.
For the purpose of the Group’s capital management, capital in-
cludes issued capital, share premium and all other equity reserves
attributable to the equity holders of the parent. The primary
objective of the Group’s capital management is to maximise
shareholder value. The Group manages its capital structure and
makes adjustments in light of changes in economic conditions.
Market risk
Market risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in market
prices. The market risks the Group is exposed to comprise
two types of risk: currency risk (Note 23.6) and equity risk. The
Group’s financial instruments affected by market risk include
payables, cash and cash equivalents, short-term time depos-
its, financial investments in associates and derivative financial
instruments. The Group’s equity risk arises from uncertainties
about the future values of investments in unlisted securities.
Foreign
currency risk
The functional currency of the Company and majority of its
subsidiaries and associates is the Russian ruble. The Group has,
however, monetary assets and liabilities which are denominated
in other currencies, and changes in exchange rates can result in
gains or losses. In 2019, the Group recorded a loss of RUB 980m
(2018: a gain of RUB 796m).
Credit lines
and covenant risk
The Group does not believe it has a significant cash flow risk
that will affect the assessment of its assets, liabilities, finan-
cial position and performance. The Group has opened loan
facilities with major Russian banks which subject it to certain
financial and non-financial covenants. A failure to comply with
those covenants may give the non-breaching party the right
to impose fines and perform other actions as agreed by the
contracts.
105
2019Annual report Business risks
Technological changes
and development
The internet industry is characterised by constant and rapid
change in technology, consumer preferences, the nature of
services offered and business models. A failure to innovate, to
provide popular products and services or to react quickly to
changes in the market could affect the popularity of the Group’s
sites and, in turn, could affect advertising revenue. If we are
unable to respond effectively to change and to continue to offer
attractive and innovative products to our users, the popularity
of our websites and services may decline, which could adversely
affect our business in a number of ways, including through lower
revenues from advertising and IVAS.
Quality products for
expansion to new
markets
The Group aims to continue its expansion to foreign markets
in Europe and the U.S. by offering innovative and competitive
products to audiences. Should we fail to ensure a sufficient
supply of high-quality game titles, mail services and social net-
work features for our users, we may face a decline in respective
audiences and, subsequently, revenues.
Mobile distribution
As we distribute our mobile products primarily via two app stores,
we are dependent on the interoperability of our products with
two major operating systems which we do not own or otherwise
control – iOS and Android. If Google Play or Apple's App Store
alter their search mechanisms or otherwise give preferential
treatment to competing apps, we may face a decrease in ratings
for our products and, subsequently, changes in mobile market
shares.
106
Mobile technology
development
The use of mobile devices to access internet services is growing
every year. Mobile device monetisation may not catch up with
desktop monetisation rates. Manufacturers may introduce their
own standards and technical requirements for their devices, which
may adversely affect the performance and usability of our services
and products on these devices. If we fail to successfully develop or
use new mobile technologies or adapt in a cost-effective and timely
manner to changing industry standards or user preferences, whether
due to legal, financial or technical reasons, our financial results could
be adversely affected. An inability to develop products and services
which are compatible with new mobile devices could result in a failure
to capture a significant share of an increasingly important market.
Ad-blocking
technologies
We earn a significant portion of our revenues from displaying
advertisements on our websites. Some users install ad-block-
ing technologies provided by third-party developers on their
browsers. Should this practice become more popular and effec-
tive, we may face a decrease in our advertising revenues
Advertising market
Advertisers’ spending depends on the overall economic situation
in Russia and could be negatively affected by a recession or other
economic factors. Advertisers may also re-distribute their budgets to
other channels, such as TV, should the latter offer favourable terms or
additional inventory. Such a decrease in online advertising expendi-
ture due to any of these factors may negatively affect our revenue.
Underlying markets
If penetration rates for the internet, spending on advertising and
IVAS in Russia do not increase, our ability to increase revenue
could be significantly and adversely affected.
2019Annual report Competition
The development by domestic and large international internet
companies of products which compete with the services pro-
vided by the Group could decrease the Group’s user base and
make it less attractive to advertisers.
Increased competition could result in a reduction in the number
of users who buy the Group’s Community IVAS – including
games – which, in turn, would result in lower revenue and net
income. Similarly, the Group may be required to spend addi-
tional resources to promote or improve its services in order to
compete effectively, which could require additional capital or
adversely affect the Group’s profitability.
Delays in launch
of new game titles
We could face delays in the launch of new game titles due to
insufficient staffing and/or failures from third party develop-
ers. Delays in launch time may disappoint users and lead to a
loss of potential audience and revenue and/or result in high-
er-than-expected development spending.
Unsuccessful
game titles
User expectations regarding the quality, performance and
gameplay of MMOs are high, though even the most successful
titles remain in high demand only for a limited period of time,
unless refreshed or otherwise enhanced with additional content.
In order to remain competitive and attractive to our users we
must constantly develop new products or enhance existing ones.
There is a risk that the major new MMO titles may fail to gain
traction with users, which would lead to the underperformance of
the online games business and lower-than-expected revenues.
Mobile games could also be unsuccessful as they may fail to
achieve the required profitability targets due to the high cost of
marketing and revenue share payable to mobile platforms.
Investments
and acquisitions
Investments in and acquisitions of other entities are an import-
ant part of our overall strategy. We have invested in a number
of diverse businesses over the last few years. We expect to
continue to consider various businesses, technologies, services
and products as potential investment targets for our develop-
ment strategy and use of capital. We may face difficulties in
integrating these diverse corporate cultures, technologies, busi-
ness models, employees, internal controls, financial reporting,
and other policies and procedures into our existing business
processes in an effective and efficient manner. We may also
encounter difficulties with those investments in relation to their
underperformance relative to our initial expectations or acqui-
sition price, or we may incur unexpected expenses pertaining to
these integrations.
Joint ventures
To pursue our strategic development goals we have entered
into several joint venture agreements with third parties in the
online-to-offline (O2O) segment. These transactions could
have a significant impact on our financial position and results.
We do not exercise sole control over such entities, as share-
holders’ agreements provide certain contractual and manage-
ment rights to our partners.
Failure to successfully develop such new businesses and to oper-
ate them in a sustainable and efficient manner or a failure to reap
the anticipated benefits of our investments could cause us to
face unanticipated liabilities and harm our overall financial results.
Personnel
As competition in Russia’s internet industry increases, our busi-
ness and operations could be adversely affected by difficulties
in hiring, motivating and retaining highly skilled people. Our
performance and future success depend on the talents and
efforts of a large number of highly skilled individuals within the
Group. We will need to continue to identify, hire, develop, mo-
tivate and retain highly skilled personnel for all areas of our or-
ganisation, including those with programming skills in rare lan-
guages. Competition in the internet industry, and in particular in
Russia, for suitably qualified employees is high. As this compe-
tition in Russia increases, and in particular if larger multinational
107
2019Annual report internet companies focus their attention on the Russian-speak-
ing market, it may be more difficult for us to motivate, retain and
hire highly skilled personnel. If we do not succeed in retaining
or motivating existing personnel or attracting additional highly
skilled personnel, there may be a significant and adverse effect
upon our business and operational results.
Our future success depends heavily upon the continuing
services of our senior management team, and a failure to retain
these personnel could have a significant adverse effect on our
business.
In addition, even if sufficient numbers of highly skilled personnel
can be retained, salaries may rise significantly due to competi-
tion within the internet industry in Russia, increasing our costs.
This could have a significant adverse effect on our business,
operational results and financial condition.
Infrastructure
and capacity
If the infrastructure in Russia is not able to support increased
demand, the Group’s services could be interrupted or its
systems damaged. A reduction in the availability of third-par-
ty providers of network and server capacity could limit the
Group’s ability to offer certain services or to expand. Recent
coronavirus or other similar outbreaks or adverse public health
developments, may lead to our operations, and those of our
customers and suppliers, facing delays or disruptions, such as
difficulty obtaining equipment and its components, and/or the
temporary suspension of operations. Network or power failures
could result in the loss of data and in a reduction in the number
of users, which could have a significant effect on the Group’s
business, operational results and financial condition.
Cyber security
Hackers and groups of hackers may create malicious software
(malware) to pursue their own criminal interests. These cyber
criminals create Trojan programs and computer viruses, including
adware and ransomware, which are becoming more and more so-
phisticated and numerous, aimed at stealing sensitive information
or otherwise harming users and their data. Although we believe
we have processes and systems in place to protect the data we
possess, no measures can ensure absolute security and prevention
of data loss, as our industry is especially prone to cyber threats.
Should hackers target the Group's customer databases or
online gamers' personal data, and we fail to appropriately and
rapidly defend our servers, we may face serious reputational
losses and significant financial effects.
Private information
To become registered on the website operated by the Group,
users have to input their personal data, which is then protected
by the Group from access by third parties. We collect, store and
process large amounts of data, which include personal informa-
tion, payment details and content, on a daily basis. Should such
data become available to third parties as a result of hacker at-
tacks, the Group may become party to litigations from its users.
Intellectual property
rights
The Group may be subject to infringement claims from third
parties in the future resulting from the technology and intellec-
tual property used in the provision and marketing of its services.
If the Group is found liable for infringement, it may be required
to pay significant damages, and if it is unable to license or devel-
op non-infringing technology in good time, it may be unable to
continue offering the affected services without risk of liability.
Similarly, third parties may obtain and use the Group’s intellec-
tual property without authorisation. The validity, application,
enforceability and scope of protection of intellectual property
rights for many internet-related activities are uncertain and
still evolving, which may make it more difficult for the Group to
protect its intellectual property. This could have a significant
effect on its business, operational results and financial condi-
tion. The Group and its associates have been subject to such
proceedings in the past. Although none of them was individually
significant, similar potential claims may potentially subject the
Group to significant losses in the future, which currently cannot
be reliably estimated.
108
2019Annual report Political, economic
and social risks
Political instability
in Russia
Political instability or changes and inconsistencies in govern-
ment or in economic policy could adversely affect our business
and the value of investments in GDRs. The parliament may
adopt and government officials may apply politically motivated
or ambiguous legislative acts that would have an unpredictable
adverse effect on our business.
Economic and military
conflicts
The involvement of the Russian Federation in any economic and
military conflicts could negatively affect the Group’s operational
results and business prospects.
Economic instability
in Russia
Mail.ru Group Limited is registered in the BVI with the Com-
pany’s principal office in the Republic of Cyprus, whereas the
operating business of the Company’s subsidiaries is mostly in
Russia. As an emerging market, Russia is generally more vulner-
able to economic instability, market downturns and economic
slowdowns elsewhere in the world than more developed coun-
tries. Such risks, whether actual or perceived, may negatively
affect investors’ intentions and willingness to invest money in
the Russian economy.
In 2018-2019 the continued economic sanctions imposed on
certain Russian companies, sectors and government officials
by the U.S., EU and certain other countries over the conflict in
Ukraine also added significant uncertainty to the investment cli-
mate and overall economic situation. This may create difficulties
for the Russian economy to properly develop, obtain sufficient
liquidity, avoid volatility, and for foreign investors to pursue
confidence and expect returns on investments.
109
First identified in December 2019, the coronavirus outbreak has
affected countries, industries, businesses, families and individ-
uals. In light of the rapid spread and unpredictable duration of
the COVID-19 pandemic, its broader implications on our oper-
ating and financial performance remain uncertain. We believe
the potential positive impact of COVID-19 on our services may
be balanced out by the macroeconomic instability caused by
the volatility in the oil market and the weakness of the Russian
ruble.
Our operating and financial performance may be adversely
affected, since we may be unable to run our business activities
as usual for an indefinite period of time.
The global adverse impact caused by the rapid spread of
COVID-19 in the form of disruption to financial markets and
recession may materially affect our liquidity and the value of our
shares.
Given the unpredictable nature of future events, which will de-
fine the extent of the impact of COVID-19, our business may be
materially affected if we are not able to respond to the situation
promptly.
Management believes it is taking appropriate measures to
support the sustainability of the Group’s business in the current
circumstances of a global pandemic, however, its consequences
are currently hard to predict.
Inflation
High inflation rates could increase our costs, and there can be
no assurance that we will be able to maintain or increase our
margins.
2019Annual report Legislative
and legal risks
Regulation
The Group is subject to various specific Russian legislation, such
as recent laws on piracy, extremism, internet blacklisting, news
aggregation services, and the identification of users of messag-
ing apps, as well as regulations on goods and services aggrega-
tors, etc.
Certain of the Group’s assets are subject to the laws of
non-Russian jurisdictions.
Our failure or the failure of our third party providers to accu-
rately comply with applicable laws and regulations could create
liability for us, result in adverse publicity, or otherwise have a
significant adverse effect on our business, operational results
and financial condition, including the blocking of our assets.
Legal proceedings
The Group has been and continues to be the subject of legal
proceedings and adjudications from time to time, none of which
has had, individually or in aggregate, a significant adverse im-
pact on the Group. Management believes that the resolution of
all current and potential legal matters will not have a significant
impact on the Group’s financial position or operational results.
Taxation
Russian tax, currency and customs legislation is subject to vary-
ing interpretations and changes, which can occur frequently.
Management's interpretation of such legislation as applied to
the transactions and activity of the Group may be challenged
by the Russian tax authorities. Current practice within the
Russian Federation suggests that the tax authorities are taking
a more assertive position in their interpretation of legislation
and assessments and as a result, it is possible that transactions
and activities that have not been challenged in the past may
be challenged. As such, significant additional taxes, penalties
and interest may be assessed. Fiscal periods remain open to
review by the authorities in respect of taxes for three calendar
years preceding the year of review. Under certain circumstances
reviews may cover longer periods.
110
The Group’s management believes that its interpretation of
the relevant legislation is appropriate and is in accordance with
current industry practice and that the Group’s tax, currency
and customs positions will be sustained. However, the interpre-
tations of the relevant authorities could differ and the effect
of additional taxes, fines and penalties on these consolidated
financial statements, if the authorities were successful in enforc-
ing their different interpretations, could be significant.
The Russian Federation is actively considering measures that
may be taken in order to prevent tax evasion, such as limiting
the use of low tax jurisdictions and aggressive tax planning
structures. Initiatives incorporated into Russian law and effec-
tive from 2015 include the concept of beneficial ownership,
regulations relating to the tax residency of legal entities and
the introduction of “controlled foreign companies” rules. The
Russian tax authorities now pay more careful attention to any
structure that contains a foreign element. They now have more
instruments allowing them to identify risks, collect relevant
tax information and impose taxes than ever before, including
international information exchange under double tax treaty
provisions and/or automatic international exchange (in effect
from 2018 for Russia). In addition, in 2017 Russia enacted Article
54.1 of the Tax Code, on the basis of which the Russian tax
authorities disallow both VAT and tax deductions on profits for
payments made to bad faith suppliers.
No assurance can currently be given as to how the above legis-
lative changes will be interpreted by the Russian tax authorities
and the potential impact this could have upon the Group. The
Group may be subject to additional tax liabilities as a result of
such changes being applied to transactions carried out by the
Group, which could have a significant adverse effect on the
Group’s business, financial condition and operational results.
Modifications of the Group’s legal structure carried out from
time to time may result in additional taxes, interest, and penal-
ties in various jurisdictions. Any such taxes or penalties caused
by the Group’s structure or its modifications could have a
significant adverse effect on the Group’s business, operational
results, financial condition or prospects.
2019Annual report Email & Portal
intern
of the year
Evgenia Barsukova
Operation Department
Predictive analytics team
intern
of the year
Ivan Mazharov
board and
management
remuneration
The Remuneration Committee is responsible for approving the
remuneration of the Directors and senior managers of the Group.
It is also charged with reviewing and approving general policy re-
lating to the Group’s strategic compensation and the approval of
grants under the incentive schemes.
Further information on the Remuneration Committee can be
found in the Corporate Governance section on page 96.
Interests of members of our Board of
Directors and our employees
Certain members of our Board of Directors have beneficial own-
ership interests in our Global Depositary Receipts. The table
below includes information on their ownership. It also highlights
options and RSUs over Ordinary Shares of the Company held,
directly or indirectly, by each Director as of the date hereof.
The aggregate beneficial interest in the Company (excluding
options granted over Ordinary Shares) held by senior managers
and employees of the Group (including Matthew Hammond) as
of the publication date is about 1.5%.
113
2019Annual report Directors of the Company approved New Terms for the 2015
Restricted Stock Unit Plan (the “2017 RSU Plan”), setting out
that RSU vesting shall generally be conditional on the meeting
of certain performance KPIs. In December 2018, an additional
extension of the 2017 RSU Plan for 2,000,000 RSUs and the
acquisition of the required quantity of GDRs on the market
were approved. There was no further extension of the Plan in
2019.
At the beginning of 2019, the Group announced that in order to
meet its ongoing commitments, the Mail.ru Employee Benefit
Trust would acquire up to 1.8m GDRs on the market over the
next 18 months. As of the date hereof, 572,437 GDRs have been
acquired at an average price of USD 23.85 per GDR, making a
total amount of USD 13,651,922.76.
A new KPI and bonus payment structure was approved by
the Remuneration Committee in February 2020. In the 2020
financial year, the Group is adopting a new KPI system with a
number of weighted KPI parameters based around financial
performance, key engagement metrics and the wider Group
strategy. The aim is to align the operating performance of all
the key employees with the 2020-2023 strategy of the Group
as well as minority interests through a focus on meeting set
financial targets, while growing the Group’s audience reach and
broadening synergies within the Group as part of its ongoing
ecosystem development.
Incentive
scheme
In November 2010, the Board of Directors of the Company
adopted an equity-based long-term incentive scheme. Under
the scheme, the Board, or its Remuneration Committee, is au-
thorised to grant options to acquire Ordinary Shares to a broad
base of employees, consultants and Directors. This can be direct
or through an employee benefit trust or vehicles controlled by
such persons.
The 2010 Option Plan comprised options over an aggregate of
10,706,403 Ordinary Shares. On the IPO date, the Company
assigned options for 6,423,842 Ordinary Shares to the Mail.ru
Employee Benefit Trust with an exercise price equal to the IPO
price of USD 27.70, which was reduced by USD 3.80 on 17 Au-
gust, 2012 and then by USD 4.30 on 20 March, 2013, resulting in
an exercise price of USD 19.60. As of the date hereof, 755,755 of
these options remain allocated, all of which are vested. Except
for the options allocated for the benefit of the Directors, the
options have generally a four-year vesting schedule. Options al-
located for the benefit of the Directors have a two-year vesting
schedule and are fully vested.
Subsequently, in December 2011 the Company assigned
options for 4,282,561 Ordinary Shares to the Mail.ru Employee
Benefit Trust with an exercise price equal to the then-current
market price of USD 25.60, which was reduced by USD 3.80 on
17 August, 2012 and then by USD 4.30 on 20 March, 2013, re-
sulting in the exercise price of USD 17.50. As of the date hereof,
788,917 of these options remain allocated, 493,917 of which are
vested. The options have generally a four-year vesting schedule.
In March 2015, the Company’s shareholders approved the
issue of up to 10,977,971 Ordinary Shares to the Mail.ru Employ-
ee Benefit Trust to establish an incentive plan for employees,
directors, offices and consultants of the Group, to be known
as the 2015 Restricted Stock Unit Plan. As of the date hereof,
3,845,420 RSUs remain allocated, 782,950 of which are vested.
The RSUs generally have a four-year vesting schedule. On 23
November, 2017 the Remuneration Committee of the Board of
114
2019Annual report Compensation
Directors
of the Company
Key Management
of the Group
The total cash remuneration of the members of the Board of
Directors (each a “Director” and collectively, “Directors”) of
the Company amounted to RUB 107 m for the year ended 31
December, 2019. In 2019, no RSUs from the 2017 RSU Plan were
granted to Directors in their capacity as Directors. During the
year ended 31 December, 2019, Directors did not forfeit any
options or RSUs and exercised a combined 2,500 options and
RSUs granted to them in their capacity as Directors. The corre-
sponding share-based payment expense was a negative RUB
31m for the year ended 31 December, 2019.
The total cash remuneration of the key management of the
Group (excluding Directors) amounted to RUB 843 m for the
year ended 31 December, 2019. In addition to the cash remu-
neration for the year ended 31 December, 2019, key executive
employees of the Group were granted 1,280,000 RSUs from
the 2017 RSU Plan in 2019. During the year ended 31 Decem-
ber, 2019, the Group’s key management (excluding Directors)
did not forfeit any options or RSUs and exercised a combined
1,268,750 RSUs and options over the Company’s shares. The
corresponding share-based payment expense amounted to
RUB 583m for the year ended 31 December, 2019.
Class A shares
(direct and indirect)
Ordinary shares/GDRs
(direct and indirect)
Total % of the
Company’s issued
share capital
represented by
outstanding shares
Outstanding options
and RSUs over
Ordinary Shares **
Dmitry Grishin
Lev Khasis
Uliana Antonova
Dmitry Sergeev
Sang Hun Kim
Charles Searle*
Jaco Van Der Merwe
Mark Remon Sorour*
Vladimir Gabrielyan
Jan Buné
-
-
-
-
-
-
-
-
-
-
2,300,792
1.04%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,000
-
-
-
-
1,600
0.0007%
5,000
*
107,064 options granted to the Directors nominated by Prosus were assigned
to the shareholder that nominated these Directors.
** Granted to Directors in their capacity as Directors
115
2019Annual report responsibility
statement
We confirm that, to the best of our knowledge:
• The consolidated financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities,
financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole.
• This annual report includes a fair review of the development and performance of the business and the position of the Compa-
ny and the undertakings included in the consolidation, taken as a whole, together with a description of the principal risks and
uncertainties that they face.
By order of the Board
Matthew Hammond
Managing Director, Chief Financial Officer
Mail.ru Group Limited
22 April 2020
116
2019Annual report 2019
financial
statements
2019
117
Annual report
MMaaiill..rruu GGrroouupp LLiimmiitteedd
Consolidated Financial Statements
For the year ended December 31, 2019
118
2019Annual report
Contents
Independent Auditor' s Report
...................................................................................................................................................................................…120
Consolidated Financial Statements:
Consolidated Statement of Financial Position ............................................................................................................................................................123
Consolidated Statement of Comprehensive Income ................................................................................................................................................124
Consolidated Statement of Cash Flows ........................................................................................................................................................................125
Consolidated Statement of Changes in Equity ............................................................................................................................................................126
Notes to Consolidated Financial Statements ...............................................................................................................................................................128
119
2019Annual report 120
2019Annual report 121
2019Annual report 122
2019Annual report Consolidated Statement of Financial Position
As of December 31, 2019
(in millions of Russian Roubles)
ASSETS
Non-current assets
Investments in equity accounted associates and joint ventures
Goodwill
Right-of-use assets
Other intangible assets
Property and equipment
Financial assets at fair value through profit or loss
Deferred income tax assets
Long-term loans receivable
Other non-current assets
Total non-current assets
Current assets
Trade accounts receivable
Prepaid expenses and advances to suppliers
Financial assets at fair value through profit or loss
Loans receivable
Other current assets
Cash and cash equivalents
Assets held for sale
Total current assets
Total assets
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued capital
Share premium
Treasury shares
Retained earnings
Accumulated other comprehensive income/(loss)
Total equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Non-current liabilities
Deferred income tax liabilities
Deferred revenue
Non-current lease liabilities
Long-term interest-bearing loans and borrowings
Total non-current liabilities
Current liabilities
Trade accounts payable
Income tax payable
VAT and other taxes payable
Deferred revenue and customer advances
Short-term portion of long-term interest-bearing loans
Current lease liabilities
Other payables, accrued expenses and contingent consideration liabilities
Liabilities directly associated with assets held for sale
Total current liabilities
Total liabilities
Total equity and liabilities
Mail.Ru Group 2019 Results
123
Notes
10
11, 7
2.2
7
8
22
18
22
15
12
22
22
13
6.2
14
18
4.2, 17
2.2, 23.2
22.3, 23.2
23.2
4.2, 17
22.3, 23.3
2.2, 23.2
16, 23.2
6.2
As at
December 31,
2019
As at
December 31,
2018
49,834
140,665
4,942
19,526
8,330
1,749
1,774
286
115
227,221
12,288
978
90
655
1,367
9,782
2,334
27,494
254,715
60,286
(1,152)
125,351
170
184,655
809
185,464
2,181
1,737
1,568
19,474
24,960
7,863
481
1,939
10,920
4,044
3,153
15,348
543
44,291
69,251
254,715
2,816
140,446
–
20,759
7,050
2,015
4,793
110
1,574
179,563
9,916
1,123
1,072
35
1,318
11,723
32
25,219
204,782
–
58,482
(286)
106,685
(165)
164,716
259
164,975
2,405
12,397
–
–
14,802
8,263
893
1,430
8,809
–
–
5,610
–
25,005
39,807
204,782
6
2019Annual report
Consolidated Statement of Comprehensive Income
For the year ended December 31, 2019
(in millions of Russian Roubles)
Online advertising
MMO games
Community IVAS
Other revenue
Total revenue
Net (loss)/gain on venture capital investments
Personnel expenses
Office rent and maintenance
Agent/partner fees
Marketing expenses
Server hosting expenses
Professional services
Other operating expenses
Total operating expenses
EBITDA
Depreciation and amortisation
Impairment of intangible assets
Share of loss of equity accounted associates and joint ventures
Finance income
Finance expenses
Other non-operating loss
Gain on joint ventures formation
Loss on fair value remeasurement of assets held for sale
Net loss on derivative financial assets and liabilities at fair value through profit or loss
Reversal of impairment/(impairment) of equity accounted associates
Net gain on disposal of intangible assets
Net gain on disposal of shares in subsidiaries
Gain on remeasurement of previously held interest in equity accounted associates
Net foreign exchange (loss)/gain
Profit/(loss) before income tax expense
Income tax expense
Net profit/(loss)
Attributable to:
Equity holders of the parent
Non-controlling interests
Notes
22
2.2, 7, 8
7
10
6.9, 6.10
6.2
22
10
15
18
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 year
Total other comprehensive income/(loss) net of tax effect of 0
Total comprehensive income/(loss), net of tax
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings/(loss) per share, in RUR:
Basic earnings/(loss) per share attributable to ordinary equity holders of the parent
Diluted earnings/(loss) per share attributable to ordinary equity holders of the parent
19
2019
36,571
36,417
15,763
7,480
96,231
(139)
(21,507)
(246)
(25,030)
(16,422)
(675)
(785)
(3,371)
(68,036)
28,056
(12,771)
(659)
(1,691)
585
(1,459)
(182)
15,855
(4,519)
(758)
60
418
–
324
(980)
22,279
(3,428)
18,851
18,686
165
335
335
19,186
19,021
165
86
85
2018
31,970
15,728
13,890
4,517
66,105
26
(22,698)
(2,528)
(16,404)
(15,583)
(1,966)
(587)
(2,815)
(62,581)
3,550
(9,665)
(1,711)
(497)
545
(17)
(12)
–
–
(516)
(37)
–
47
–
796
(7,517)
(546)
(8,063)
(7,991)
(72)
(293)
(293)
(8,356)
(8,284)
(72)
(37)
n/a
Mail.Ru Group 2019 Results
124
7
2019Annual report
Consolidated Statement of Cash Flows
For the year ended December 31, 2019
(in millions of Russian Roubles)
Cash flows from operating activities
Profit/(loss) before income tax
Adjustments to reconcile profit/(loss) before income tax to cash flows:
Depreciation and amortisation
Impairment losses on financial assets at amortized cost
Net loss/(gain) on venture capital investments
Net loss on financial assets and liabilities at fair value through profit or loss
Gain on joint ventures formation
Loss on fair value remeasurement of assets held for sale
Net gain on disposal of subsidiaries
Net gain on disposal of intangible assets
Loss on disposal of property and equipment and intangible assets
Gain on remeasurement of previously held interest in equity accounted associate
Finance income
Finance expenses
Dividend revenue from venture capital investments
Share of loss of equity accounted associates
(Reversal of impairment) / impairment of equity accounted associates
Impairment of intangible assets
Net foreign exchange loss/(gain)
Share-based payment expense
Other non-cash items
Change in operating assets and liabilities:
Increase in accounts receivable
(Increase)/decrease in prepaid expenses and advances to suppliers
Decrease/(increase) in inventories and other assets
(Decrease)/increase in accounts payable and accrued expenses
Decrease/(increase) in non-current prepaid expenses and advances
(Decrease)/increase in deferred revenue and customer advances
Increase in financial assets at fair value through profit or loss
Increase in financial liabilities at fair value through profit or loss
Operating cash flows before interest, income taxes and contingent consideration
settlement
Dividends received from venture capital investments
Settlement of contingent consideration of business combination
Interest received
Interest paid
Income tax paid
Net cash provided by operating activities
Cash flows from investing activities
Cash paid for property and equipment
Cash paid for intangible assets
Dividends received from equity accounted associates
Loans issued
Loans collected
Cash paid for acquisitions of subsidiaries, net of cash acquired
Settlement of initial fair value of the contingent consideration at acquisition date
Proceeds from disposal of subsidiaries, net of cash disposed
Cash paid for investments in equity accounted associates and joint ventures
Net cash provided by investing activities
Cash flows from financing activities
Payment of lease liabilities
Loans received, net of bank commission
Cash paid for treasury shares
Net cash used in financing activities
Net decrease in cash and cash equivalents
Effect of exchange differences on cash balances
Cash and cash equivalents at the beginning of the period
Change in cash related to asset held for sale
Cash and cash equivalents at the end of the period
Mail.Ru Group 2019 Results
125
Notes
2019
2018
22,279
(7,517)
22
22
6.9, 6.10
6.2
7
10
10
7
22
22
6.2, 16, 22
6
6.2, 16, 22
6
2.2
22.4
14
12,771
301
139
758
(15,855)
4,519
–
(418)
–
(324)
(585)
1,459
(18)
1,691
(60)
659
980
1,742
16
(3,566)
(406)
1,340
(2,818)
67
(8,065)
(1,820)
3,652
18,438
7
(688)
493
(1,459)
(3,871)
12,920
(4,688)
(3,697)
71
(790)
1,903
(9,361)
(1,132)
–
(15,687)
(33,381)
(3,493)
23,383
(896)
18,994
(1,467)
(431)
11,723
(43)
9,782
9,665
164
(26)
516
–
–
(47)
–
15
–
(545)
17
(29)
497
37
1,711
(796)
6,732
30
(2,934)
604
(314)
1,592
(217)
7,588
(3,081)
1,225
14,887
28
–
561
(13)
(2,981)
12,482
(4,492)
(2,156)
40
(83)
–
(8,031)
–
(20)
(1,960)
(16,702)
–
–
–
–
(4,220)
572
15,371
–
11,723
8
2019Annual report
Consolidated Statement of Changes in Equity
For the year ended December 31, 2018
(in millions of Russian Roubles)
Balance at January 1, 2018
Loss for the year
Other comprehensive loss:
Foreign currency translation
Total other comprehensive loss
Total comprehensive loss
Share-based payment transactions
Exercise of RSUs and options over the
shares of the Company
Acquisition of treasury shares (Note 14)
Effect of disposal of subsidiary
Share capital
Number of shares
issued and outstanding
212,424,794
–
–
–
–
–
3,545,128
–
–
Balance at December 31, 2018
215,969,922
–
–
–
–
–
–
–
–
–
–
Amount
Share premium
Treasury shares
Retained earnings
Foreign currency
translation reserve
51,722
(444)
114,676
–
–
–
–
6,918
(158)
–
–
–
–
–
–
–
158
–
–
(7,991)
–
–
(7,991)
–
–
–
–
128
–
(293)
(293)
(293)
–
–
–
–
Total equity
attributable to equity
holders of the parent
166,082
(7,991)
–
(293)
(293)
(8,284)
6,918
–
–
–
Non-controlling
interests
84
(72)
–
–
(72)
–
–
269
(22)
259
Total equity
166,166
(8,063)
–
(293)
(293)
(8,356)
6,918
–
269
(22)
164,975
58,482
(286)
106,685
(165)
164,716
Mail.Ru Group 2019 Results
126
9
2019Annual report
Consolidated Statement of Changes in Equity
For the year ended December 31, 2019
(in millions of Russian Roubles)
Balance at January 1, 2019
Share capital
Number of shares
issued and outstanding
215,969,922
Impact of IFRS 16 adoption (Note 2.2)
–
Adjusted balance at January 1, 2019
215,969,922
Profit for the year
Other comprehensive income:
Foreign currency translation
Total other comprehensive income
Total comprehensive income
Share-based payment transactions
Exercise of RSUs and options over the
shares of the Company
Acquisitions of treasury shares (Note 14)
Acquisitions of non-controlling interests in
business combinations (Note 6)
Effect of disposal of subsidiary
–
–
–
–
–
1,786,831
(572,437)
–
–
Balance at December 31, 2019
217,184,316
Amount
Share premium
Treasury shares
Retained earnings
Foreign currency
translation reserve
Total equity
attributable to equity
holders of the parent
Non-controlling
interests
–
–
–
–
–
–
–
–
–
–
–
–
–
58,482
–
58,482
–
–
–
–
1,826
(30)
–
–
8
(286)
106,685
(165)
164,716
–
(20)
–
(20)
(286)
106,665
(165)
164,696
–
–
–
–
–
30
(896)
–
–
18,686
–
–
18,686
–
–
–
–
–
–
335
335
335
–
–
–
–
–
18,686
–
335
335
19,021
1,826
–
(896)
–
8
60,286
(1,152)
125,351
170
184,655
259
–
259
165
–
–
165
–
–
–
385
–
809
Mail.Ru Group 2019 Results
127
Total equity
164,975
(20)
164,955
18,851
335
335
19,186
1,826
–
(896)
385
8
185,464
10
2019Annual report
Notes to Consolidated Financial Statements
For the year ended December 31, 2019
(in millions of Russian Roubles)
1
Corporate information and description of business
These consolidated financial statements of Mail.ru Group Limited (hereinafter “the Company”) and its subsidiaries (collectively – “the Group”) for the
year ended December 31, 2019 were authorised for issue by the directors of the Company on February 26, 2020.
The Company was registered on May 4, 2005 in the Territory of the British Virgin Islands (“BVI”), pursuant to the International Business Companies
Act (the “Act”), Cap. 291. The principal office of the Company is at 28 Oktovriou, 365, VASHIOTIS SEAFRONT, office 402, Neapoli, 3107 Limassol,
Cyprus.
The Company consolidates or participates in businesses that operate in the Internet segment, including portals, social networking and
communications, online marketplaces, online-to-offline services, massively multiplayer online games (“MMO games”), social and mobile games. The
Group has leading positions in Russia and other CIS states where its properties are present.
Information on the Company’s main subsidiaries is disclosed in Note 9.
2
Basis of preparation
These consolidated financial statements have been prepared on a historical cost basis, except for financial assets and liabilities designated as at fair
value through profit or loss and derivative financial instruments that have been measured at fair value.
2.1
Statement of compliance
These consolidated financial statements have been prepared in accordance with and comply with International Financial Reporting Standards
(“IFRS”).
The Group maintains its accounting records and prepares its statutory accounting reports in accordance with domestic accounting legislation and
instructions for each of its subsidiaries. These consolidated financial statements are based on the underlying accounting records, appropriately
adjusted and reclassified for fair presentation in accordance with the standards and interpretations issued by the International Accounting
Standards Board (“IASB”). IFRS adjustments include and affect such major areas as consolidation, revenue recognition, accruals, deferred taxation,
fair value adjustments, business combinations, impairment, share-based payments etc.
2.2 Application of new and amended IFRS and IFRIC
The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended
December 31, 2018, except for the following new and amended IFRS and International Financial Reporting Interpretations Committee (“IFRIC”)
interpretations effective as of January 1, 2019:
IFRS 16 Leases
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement Contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27
Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model.
Lessor accounting under IFRS 16 is substantially unchanged under IAS 17. Lessors will continue to classify leases as either operating or finance
leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have an impact for leases where the Group is the lessor.
The Group adopted the new standard using a modified retrospective approach and utilizing certain practical expedients provided. In IFRS
consolidated financial statements assets and liabilities under IFRS 16 were recognized as at January 1, 2019. The Group elected to use the
recognition exemptions for lease contracts for which the underlying asset is of low value (‘low-value assets’).
The effect of adoption IFRS 16 as at January 1, 2019 (increase/(decrease)) is as follows:
Assets
Right-of-use assets
Other non-current assets
Prepaid expenses and advances to suppliers
Deferred income tax assets
Total assets
Liabilities
Current lease liabilities
Non-current lease liabilities
Total liabilities
Retained earnings
Mail.Ru Group 2019 Results
128
6,295
(323)
(525)
(7)
5,440
2,902
2,558
5,460
(20)
11
2019Annual report
Notes to Consolidated Financial Statements (continued)
2
Basis of preparation (continued)
2.2 Application of new and amended IFRS and IFRIC (continued)
a)
Nature of the effect of adoption of IFRS 16
The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for leases of
low-value assets. The right-of-use assets were recognised based on the amount of the lease liabilities, adjusted for any related prepaid and accrued
lease payments previously recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted
using the incremental borrowing rate at the date of initial application.
The Group also applied the available practical expedients wherein it:
•
•
•
Used a single discount rate to a portfolio of leases with reasonably similar characteristics;
Relied on its assessment of whether leases are onerous immediately before the date of initial application;
Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application.
Based on the foregoing, as at January 1, 2019:
•
•
•
•
Right-of-use assets of RUR 6,295 were recognised and presented separately in the statement of financial position;
Lease liabilities are presented within Non-current lease liabilities and Current lease liabilities;
Prepayments of RUR 801 related to previous operating leases were derecognized and added to the carrying amounts of the relevant
right-of-use assets;
Accrued provision for straight-line adjustment under IAS 17 in Current lease liabilities and respective deferred tax assets had been adjusted
to retained earnings.
The lease liabilities as at January 1, 2019 can be reconciled to the operating lease commitments as at December 31, 2018 as follows:
Operating lease commitments as at December 31, 2018
Weighted average incremental borrowing rate as at January 1, 2019
Discounted operating lease commitments as at January 1, 2019
Add
Payments in optional extension periods not recognised as at December 31, 2018
Lease liabilities as at January 1, 2019
Amounts recognised in the statement of financial position and profit or loss
2,249
9.6%
2,100
3,394
5,494
Set out below, are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements during the period:
As at January 1, 2019
Additions
Amortisation expense
Interest expense
Payments
Assets held for sale
As at December 31, 2019
Premises
Racks in data centers
Right-of-use assets
5,704
1,170
(2,627)
–
–
(67)
4,180
566
1,360
(1,179)
–
–
–
747
Other
25
43
(53)
–
–
–
15
Total
Lease liabilities
6,295
2,573
(3,859)
–
–
(67)
4,942
5,494
2,787
–
579
(4,072)
(67)
4,721
Lease liabilities payments in the amount of RUR 4,072 include payment of lease liability principal amount of RUR 3,493 and interest of RUR 579.
Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures
The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture to which the equity method is not
applied but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant
because it implies that the expected credit loss model in IFRS 9 applies to such long-term interests.
The amendments also clarified that, in applying IFRS 9, an entity does not take account of any losses of the associate or joint venture, or any
impairment losses on the net investment, recognised as adjustments to the net investment in the associate or joint venture that arise from
applying IAS 28 Investments in Associates and Joint Ventures.
These amendments have no impact on the consolidated financial statements of the Group.
Mail.Ru Group 2019 Results
129
12
2019Annual report
Notes to Consolidated Financial Statements (continued)
2
Basis of preparation (continued)
2.2 Application of new and amended IFRS and IFRIC (continued)
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments
In June 2017, the IASB issued IFRIC 23 Interpretation entitled Uncertainty over Income Tax Treatments. The IFRIC clarifies that for the purposes of
calculating current and deferred tax, companies should use a tax treatment of uncertainties, which will probably be accepted by the tax authorities.
IFRIC 23 is effective for annual periods beginning on or after January 1, 2019.
The Interpretation has no impact on the consolidated financial statements of the Group.
Annual Improvements 2015-2017 Cycle
•
IFRS 3 Business Combinations
The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business
combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In
doing so, the acquirer remeasures its entire previously held interest in the joint operation.
An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after January 1, 2019, with early application permitted. Since the Group’s current practice is in line with these
amendments, the Group does not expect impact on its consolidated financial statements.
•
IFRS 11 Joint Arrangements
An entity that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the
activity of the joint operation constitutes a business as defined in IFRS 3. The amendments clarify that the previously held interests in that joint
operation are not remeasured. An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the
first annual reporting period beginning on or after January 1, 2019, with early application permitted. These amendments have no impact on the
consolidated financial statements of the Group.
•
IAS 12 Income Taxes
The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated
distributable profits than to distributions to owners. Therefore, an entity recognises the income tax consequences of dividends in profit or loss,
other comprehensive income or equity according to where the entity originally recognised those past transactions or events.
An entity applies those amendments for annual reporting periods beginning on or after January 1, 2019, with early application is permitted. When
an entity first applies those amendments, it applies them to the income tax consequences of dividends recognised on or after the beginning of the
earliest comparative period. Since the Group’s current practice is in line with these amendments, the Group does not expect impact on its
consolidated financial statements.
2.3
Standards issued but not yet effective
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial
statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they
become effective.
Amendments to IFRS 3: Definition of a Business
In October 2018, the IASB issued amendments to IFRS 3 Business Combinations. The amendments enhance definition of a business set out by the
standard. The amendments are effective for acquisitions to occur on or after January 1, 2020; earlier application is permitted. Possible impact of
the amendments on the consolidated financial statements as well as the necessity of early adoption will be assessed in course of accounting
support for future significant transactions.
Amendments to IAS 1 and IAS 8: Definition of Material
In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition. The new definition states
that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of
general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting
entity.’ The amendments to the definition of material are not expected to have a significant impact on the Group’s consolidated financial statements.
Amendments to IAS 1 and IAS 8: Classification of Liabilities as Current or Non-current
On January 23, 2020, the International Accounting Standards Board (IASB or the Board) issued amendments to paragraphs 69 to 76 of IAS 1
Presentation of Financial Statements (the amendments) to specify the requirements for classifying liabilities as current or non-current. The new
guidance will be effective for annual periods starting on or after January 1, 2022. The amendments must be applied retrospectively in accordance
with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Earlier application is permitted. Possible impact of the amendments on
the consolidated financial statements as well as the necessity of early adoption will be assessed in course of accounting support for future
significant transactions.
Mail.Ru Group 2019 Results
130
13
2019Annual report
Notes to Consolidated Financial Statements (continued)
2
Basis of preparation (continued)
2.3
Standards issued but not yet effective (continued)
Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform
In September 2019, the IASB issued amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement and
IFRS 7 Financial Instruments: Disclosures, which concludes phase one of its work to respond to the effects of Interbank Offered Rates (IBOR) reform
on financial reporting. The amendments provide temporary reliefs which enable hedge accounting to continue during the period of uncertainty
before the replacement of an existing interest rate benchmark with an alternative nearly risk-free interest rate (an RFR). These amendments should
be applied for annual periods beginning on or after January 1, 2020. Earlier application is permitted. Possible impact of the amendments on the
consolidated financial statements will be assessed in course of accounting support for future significant transactions.
Amendments to classification of liabilities as current or non-current
On January 23, 2020, the International Accounting Standards Board (IASB or the Board) issued amendments to paragraphs 69 to 76 of IAS 1
Presentation of Financial Statements (the amendments) to specify the requirements for classifying liabilities as current or non-current.
The IASB’s amendments clarify the criteria for determining whether to classify a liability as current or non-current. The amendments specify that
the conditions which exist at the end of the reporting period are those which will be used to determine if a right to defer settlement of a liability
exists The amendments clarify the situations that are considered settlement of a liability.
The new guidance will be effective for annual periods starting on or after January 1, 2022. These amendments will have no impact on the
consolidated financial statements of the Group.
The Conceptual Framework for Financial Reporting
The IASB issued the Conceptual Framework for Financial Reporting (the Conceptual Framework) in March 2018. It sets out a comprehensive set of
concepts for financial reporting, standard setting, guidance for preparers in developing consistent accounting policies and assistance to others in
their efforts to understand and interpret the standards.
The Conceptual Framework is effective for annual periods beginning on or after January 1, 2020. The changes to the Conceptual Framework may
affect the application of IFRS in situations where no standard applies to a particular transaction or event.
3
Summary of significant accounting policies
Set out below are the principal accounting policies used to prepare these consolidated financial statements.
3.1 Principles of consolidation
These consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at December 31, 2018 and for
the year then ended.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect
those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
•
•
•
power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
exposure, or rights, to variable returns from its involvement with the investee; and
the ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in
assessing whether it has power over an investee, including:
•
•
•
the contractual arrangement with the other vote holders of the investee;
rights arising from other contractual arrangements; and
the Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three
elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses
control of the subsidiary. Income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of
comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated
until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent
company, using consistent accounting policies.
All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated.
Mail.Ru Group 2019 Results
131
14
2019Annual report
Notes to Consolidated Financial Statements (continued)
3
Summary of significant accounting policies (continued)
3.1 Principles of consolidation (continued)
If the Group loses control over a subsidiary, it:
•
•
•
•
•
•
•
derecognises the assets (including goodwill) and liabilities of the subsidiary;
derecognises the carrying amount of any non-controlling interests;
derecognises the cumulative translation differences recorded in equity;
recognises the fair value of the consideration received;
recognises the fair value of any investment retained;
recognises any surplus or deficit in profit or loss; and
reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings,
as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.
3.2 Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each
business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the
acquiree’s identifiable net assets. Acquisition costs incurred, such as finder’s fees, legal fees, due diligence fees, and other professional and
consulting fees, are expensed and included in operating expenses.
The Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in
the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the
acquisition date.
Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree,
and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and vested share-
based payment awards of the acquiree that are replaced in the business combination.
If control is achieved in stages, the acquirer’s previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date
through profit or loss.
A contingent liability of the acquiree is recognised in a business combination only if such a liability represents a present obligation and arises from a
past event, and its fair value can be measured reliably.
Only components of non-controlling interest constituting a present ownership interest that entitles their holder to a proportionate share of the
entity’s net assets in the event of liquidation are measured at either fair value or at the present ownership instruments’ proportionate share of the
acquiree’s identifiable net assets. All other components are measured at their acquisition date fair value.
The Group accounts for a change in the ownership interest of a subsidiary (without loss of control) as a transaction with owners in their capacity as
owners. Therefore, such transactions do not give rise to goodwill, nor do they give rise to a gain or loss and are accounted for as an equity transaction.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill
acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefit
from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill forms part of a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the
operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill
disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit
retained.
If the Group reorganises its reporting structure in a way that changes the composition of one or more cash-generating units to which goodwill has
been allocated, the goodwill is reallocated to the units affected. The reallocation is performed using a relative value approach similar to that used in
connection with the disposal of an operation within a cash-generating unit, unless some other method better reflects the goodwill associated with
the reorganised units.
3.3
Investments in associates and joint ventures
Associates are entities in which the Group generally has between 20% and 50% of the voting rights, or is otherwise able to exercise significant
influence, but which it does not control or jointly control.
The Group participates in the operating management of its equity accounted associates and intends to stay involved in their operations from a long-
term perspective. Under the equity method, the investments in associates are carried in the statement of financial position at cost plus post
acquisition changes in the Group’s share of net assets of the associate. Distributions received from an investee reduce the carrying amount of the
investment. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested
for impairment.
Mail.Ru Group 2019 Results
132
15
2019Annual report
Notes to Consolidated Financial Statements (continued)
3
Summary of significant accounting policies (continued)
3.3
Investments in associates and joint ventures (continued)
The consolidated statement of comprehensive income reflects the Group’s share of the results of operations of associates. Where there has been a
change recognised directly in the equity of the associates, the Group recognises its share of any changes in the investment balance and discloses
this, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the
associate are eliminated to the extent of the interest in the associate.
Dividends received from equity accounted associates are shown in investing activities in the statement of cash flows.
The share of profit and other comprehensive income of equity accounted associates is shown on the face of the statement of comprehensive
income. This is the profit attributable to equity holders of the associates and therefore is profit after tax of the associates and after non-controlling
interests in the subsidiaries of the associates. The Group’s share of movements in reserves is recognised in equity. However, when the Group’s
share of accumulated losses in a equity accounted associate equals or exceeds its interest in the associate, the Group does not recognise further
losses, unless the Group is obliged to make further payments to, or on behalf of, the associate.
The financial statements of equity accounted associates are prepared for the same reporting period as the parent company. Where necessary,
adjustments are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on the Group’s investment in
its associates. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is
impaired. Determining whether the investment is impaired is based on the guidance of IFRS 9 discussed under 3.13.6.
If there is objective evidence that an associate is impaired, the Group calculates the amount of impairment as the difference between the
recoverable amount of the associate and its carrying value in accordance with IAS 36 (as discussed under 3.15) and recognises the amount of
impairment in earnings under ‘Impairment losses related to equity accounted associates’. If the recoverable amount of the impaired investment
subsequently increases, the related impairment is reversed to the extent of such increase.
Step acquisitions of significant influence in equity accounted associates previously classified as available-for-sale financial assets are accounted for
using a cost-based approach whereby the investment in associate is recognised at the aggregate of (a) the historical cost of the available-for-sale
investment and (b) the consideration transferred by the Group upon acquisition of significant influence. Any changes in the fair value of the
available-for-sale investment are reversed through other comprehensive income upon acquisition of significant influence. Goodwill is calculated as
a difference between (c) the cost of the investment so determined and (d) the Group’s share in the fair value of the investee’s net assets at the date
significant influence is attained.
Upon acquisition of an additional stake in an existing associate where control is not obtained, the fair value of the consideration transferred for the
additional stake is allocated to the acquired share of the fair value of associate’s assets and liabilities, and the excess is recognised as goodwill as
part of the investment in equity accounted associates.
Upon loss of significant influence over a equity accounted associate, the Group measures and recognises any remaining investment at its fair value.
Any difference between (a) the carrying amount of the associate upon loss of significant influence and (b) the fair value of the retained investment
and proceeds from disposal is recognised in profit or loss.
3.4 Group as a lessee
•
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-
use assets are measured at cost, less any accumulated depreciation and impairment losses. The cost of right-of-use assets includes the amount of
lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives
received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use
assets are amortised on a straight-line basis over the shorter of its estimated useful life and the lease term as follows:
Premises
Racks in data centers and optic fibre channels
Right-of-use assets are subject to impairment.
•
Lease liabilities
1 to 6 years
1 to 3 years
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over
the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable
lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also
include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if
the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are
recognised as expense in the period on which the event or condition that triggers the payment occurs.
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3.4 Group as a lessee (continued)
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest
rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the
accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the
underlying asset.
•
Leases of low-value assets
The Group applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value. Lease
payments on leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
•
Accounting for short-term leases
The Group elects not to apply simplifications for short-term leases and account for them using right-of-use asset model.
•
Operating leases before January 1, 2019
Leases of assets under which substantially all the risks and benefits of ownership were effectively retained by the lessor were before January 1,
2019 classified as operating leases. Payments made under operating leases were charged to the consolidated statement of comprehensive income
on a straight-line basis.
3.5 Property and equipment
3.5.1 Recognition and measurement
Property and equipment are recorded at purchase or construction cost less accumulated depreciation and accumulated impairment. Interest costs
on borrowings to finance the construction of property and equipment are capitalised, during the period of time that is required to complete and
prepare the asset for its intended use. Expenditures for continuing repairs and maintenance are charged to earnings as incurred.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of
materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of
dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the
related equipment is capitalised as part of that equipment.
When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of
property and equipment.
Gains and losses on disposal of an item of property and equipment are recognised net under ‘Other non-operating income/(expense)’ in the
statement of comprehensive income.
The cost of replacing part of an item of property and equipment is recognised in the carrying amount of the item if it is probable that the future
economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part
is derecognised.
3.5.2 Depreciation and useful life
Depreciation is calculated on property and equipment on a straight-line basis from the time the assets are available for use, over their estimated
useful lives as follows:
Servers and computers
Furniture
Office IT equipment
Leasehold improvements
Estimated useful life (in years)
2-5
7
2-3
Lesser of useful life or life of lease
The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted as appropriate, at each financial year-end. The Group
classifies advances paid to equipment suppliers as assets under construction in property and equipment in the consolidated statement of financial
position.
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3.6
Intangible assets other than goodwill
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is
their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation
and assessed for impairment whenever there is an indication that the intangible asset may be impaired.
3.6.1 Software development costs
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised
in the statement of comprehensive income when incurred.
Development activities involve a plan or design for the production of new or substantially improved products and processes. Development
expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible,
future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset.
The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for
its intended use. Other development expenditure is recognised in profit or loss as incurred.
Research and development costs recognised as an expense in the statement of comprehensive income during 2019 amounted to RUR 888 (2018:
RUR 258).
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All
other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.
3.6.2 Useful life and amortisation of intangible assets
The Group assesses whether the useful life of an intangible asset is finite or indefinite and, if finite, the length of, or number of production or similar
units constituting, that useful life. An intangible asset is regarded by the entity as having an indefinite useful life when, based on an analysis of all of
the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. The
Group did not have any intangible assets with an indefinite useful life in the years ended December 31, 2019 and 2018.
Intangible assets with finite lives are amortised over the useful economic lives and assessed for impairment whenever there is an indication that the
intangible asset may be impaired.
Amortisation periods and methods for intangible assets with finite useful lives are reviewed at least at each financial year-end. Changes in the
expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the
amortisation period or method, as appropriate, and treated as changes in accounting estimates.
The estimated useful lives of the Group’s intangible assets are as follows:
Patents and trademarks
Capitalised software development costs
Domain names
Games
Customer base
Licenses
Purchased software
3.7 Cash and cash equivalents
Estimated useful life (in years)
7-20
3
10
3-9
3-15
3-5
1-4
Cash and cash equivalents comprise cash at banks and on hand, short-term deposits with an original maturity of three months or less and short-
term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in
value. All these items are included as a component of cash and cash equivalents for the purpose of the statement of financial position and
statement of cash flows.
3.8
Employee benefits
Wages and salaries paid to employees are recognised as expenses in the current period or are capitalised as part of software development costs.
The Group also accrues expenses for future vacation payments.
Under provisions of Russian legislation, social contributions are made through social insurance payments calculated by the Group by the application
of a 30% rate to the portion of the annual gross remuneration of each employee not exceeding RUR 1,150 and a rate of 15% to the portion
exceeding this threshold.
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3.9 Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is
virtually certain.
If the effect of discounting is material, provisions are determined by discounting the expected value of future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used,
the increase in the provision due to the passage of time is recognised as an interest expense.
3.10 Revenue recognition
Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for
transferring goods or services to a customer. Revenues from services are recognised in the period when services are rendered.
3.10.1 Online advertising
3.10.1.1 Display advertising
Promo posts in social networks, video and banner advertising space for display advertising is sold on a dynamic basis (i.e., a function of time that an
advertisement lasts) or a static basis (i.e., according to the number of page views on an advertisement). The Group has standard rates for online
advertisements that depend on several factors, including the specific web page on which the banner appears, the length of the contract, the season,
and the format, size and position of the advertisement. Display advertising revenue is recognised as the services are provided (i.e., as per page view
for dynamic banners and over the contractual term for static banners). For display advertising sold through some third party advertising agencies,
revenue generally is recognised net of any portion attributable to the third parties. For arrangements related to display advertising where the
Group does not control advertising services before these services are transferred to end customers, and hence, the Group is an agent rather than a
principal in these contracts.
3.10.1.2 Context advertising
The Group earns revenues for search context advertising through partnerships with third parties. Once a user carries out a search on certain of the
Group’s websites, search results and advertisement links are displayed on the webpage based on relevancy to the search topic and other known
user parameters. When clicked on by the user, the advertisement links lead to sites owned by the third parties’ advertising customers, for which the
third party receives a fee, a portion of which it shares with the Group. Context advertising revenue is recognised as the services are provided
(i.e., upon “click-through”, which is when a user clicks on an advertiser’s listing) on a net basis. This type of context advertising revenues is based on
reports provided by third parties.
Context advertising also includes revenue from the Group’s myTarget self-serve advertising technology (“target advertising”). Target
advertisements are priced on either pay-per-click or pay-per-view basis. Revenue from pay-per-click advertisements is recognised upon click-
through, while revenue from pay-per-view advertisements is recognised as the advertisements are viewed.
Context advertising also includes revenue related to the placement of target advertising, display advertising and advertising through integration in
applications, advertising thought offers on the Group’s websites and in applications, advertising via networks comprising advertising banners
placement on third party websites and advertising on the Group's site communities pages. The revenue from advertising in applications, on the web
pages of communities and via networks is recognised on a gross basis with costs and commissions paid to third party owners and administrators of
websites, applications, platforms and communities recognised in “Agent/partner fees”.
3.10.2 Internet value-added services (“IVAS”)
Revenue from IVAS is derived from a variety of Internet-based services, including communication products and online games.
3.10.2.1 Revenue from MMO games
The Group operates its games mainly under the free-to-play game model. The Group derives its online game revenue from in-game virtual items
representing additional functionality and features for the game players’ characters purchased by game players to play the Group’s MMO games and
casual games. The amounts of cash or receivables from payment systems for cash from the users, net of short messaging service operators, are
not recognised as revenues and are credited to deferred revenue. They are then converted by the players into in-game points. In-game points are
used to purchase in-game items. Under the item-based revenue model, revenues are recognised over the life of the in-game virtual items that
game players purchase or as the in-game virtual items are consumed. Deferred revenue is reduced as revenues are recognised. The estimated life
span of in-game items is determined based on historical player usage patterns and playing behaviour.
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3.10 Revenue recognition (continued)
The Group enters into licensing arrangements with overseas licensees to operate the Group’s games in other countries and regions. These licensing
agreements provide two separate elements, each having commercial substance: the initial non-refundable fees and the usage-based royalty fees.
The initial non-refundable payment represents the license of the game and is recognised as license revenue immediately once the games are
launched into commercial use by the licensees. Ongoing usage-based royalties determined based on the amount of money charged to the players’
accounts or services payable by players in a given country or region to the licensees are recognised when they are earned, provided that the
collection is probable.
3.10.2.2 Community IVAS
The Group derives Community IVAS revenues through certain communication products, where users pay a fee for the paid content and online
services, mainly through social networking web sites and through the commission from third party developers of the various applications placed on
social networking web sites, including games, based on the respective applications’ revenue. The fees for such services are collected from
customers using various payment channels, including bank cards, online payment systems and mobile operators and from the applications
developers. The mobile network operators collect fees for such services from their customers, usually through mobile short message services
(“SMS”), and pass such fees to the Group. Revenues from third party applications and developers on the Group’s platforms are recognised net of
commission to mobile operators and any portion attributable to the developer of the application, at the time when customer payment is due.
Revenues from services including games developed by the Group and operated on third party platforms are reported gross as the services are
provided net of commission to mobile operators. If the amount of revenue is measured based on third party data, such amounts of revenue are
recorded based on the best available data at the date of issuance of the financial statements.
3.10.3 Other revenue
Other revenues primarily consist of classifieds revenue, e-learning, non-advertising b2b big data services,database software implementation and
support services, listing fees and dividends from venture investments.
3.11
Income taxes
The Company as a Cypriot tax resident is not subject to tax on capital gains and withholding taxes. However, in some jurisdictions where the
Company’s subsidiaries and associates are incorporated (particularly in Russia), investment income is subject to withholding tax deducted at the
source of the income. The Group presents the withholding tax separately from the gross dividend income in the statement of comprehensive
income and the statement of cash flows.
The Group is also subject to taxation in Russia, the Netherlands and some other jurisdictions its subsidiaries operate in (see also Note 18).
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the
taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting
date. Current income tax relating to items recognised directly in other comprehensive income is recognised in other comprehensive income and not
in profit or loss.
Deferred income tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition
of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and
differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the
foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have
been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to
offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different
tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that
future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced
to the extent that it is no longer probable that the related tax benefit will be realised.
3.12 Share-based payment transactions
Employees (including senior executives) of the Group and its associates (each of which a “share-based payment recipient”), may receive
remuneration in the form of share-based payment transactions, whereby share-based payment recipients render services as consideration for
equity instruments (“equity-settled transactions”) or a cash equivalent thereof (“cash-settled share-based payments”).
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3.12 Share-based payment transactions (continued)
Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been modified.
An additional expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is
otherwise beneficial to the share-based payment recipient as measured at the date of modification.
If the Group has a choice to settle share-based payments in cash or in equity, the entire transaction is treated either as cash-settled or as equity-
settled, depending on whether or not the Group has a present obligation to settle in cash.
3.12.1 Equity-settled transactions
The cost of equity-settled transactions with share-based payment recipients for awards granted is measured by reference to the fair value of the
awards at the date on which they are granted. The fair value is determined using an appropriate pricing model (Black-Scholes-Merton, binomial,
Monte-Carlo or other).
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance
and/or service conditions are fulfilled, ending on the date on which the relevant share based payment recipients become fully entitled to the award
(“the vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the
extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The
expense or credit for a period recognised in profit or loss represents the movement in cumulative expense recognised as at the beginning and end
of that period.
No expense is recognised for awards that do not ultimately vest based on estimated forfeiture rates or as actual forfeitures occur for groups of
employee where we cannot make reliable estimates.
Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been modified.
An additional expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is
otherwise beneficial to the share-based payment recipient as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the
award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the counterparty
are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted,
the cancelled and new awards are treated as if they were a modification of the original award, as described in the preceding paragraph.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (Note 19).
3.12.2 Cash-settled transactions
The cost of cash-settled transactions is measured initially at fair value at the grant date using a binomial model, further details of which are
provided in Note 24. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is
remeasured to fair value at each reporting date up to, and including the settlement date, with changes in fair value recognised in ‘Personnel
expense’.
3.12.3 Accounting for the change in form of settlement of share-based payments
As a result of modification of share-based payment awards from equity-settled to cash-settled the Group recognises a share-based payment
expense which comprises as a minimum the following elements:
•
•
•
the grant date fair value of the original equity-settled award; plus
any incremental fair value arising from the modification of that award; plus
any remeasurement of the liability between its fair value at modification date and the amount finally settled.
At the date of modification a liability is recognised based on the fair value of the cash-settled award as at that date and the extent to which the
vesting period has expired, with a corresponding increase in equity. The total fair value of the cash-settled award is remeasured through profit or
loss on an ongoing basis between the date of modification and the date of settlement.
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3.13 Financial instruments
3.13.1 Initial recognition and measurement
Financial assets within the scope of IFRS 9 are classified as financial assets at fair value through profit or loss, financial assets through other
comprehensive income or financial assets at amortised cost, as appropriate.
Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at fair value through profit or loss and financial liabilities at
amortised cost as appropriate.
The Group determines the classification of its financial assets and liabilities at initial recognition. All financial assets are recognised initially at fair
value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. At initial recognition, the Group
measures trade receivables at their transaction price (as defined in IFRS 15) if the trade receivables do not contain a significant financing
component in accordance with IFRS 15. Financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, directly
attributable transaction costs.
In order for a financial asset to be classified and measured at amortised cost, it needs to give rise to cash flows that are ‘solely payments of
principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an
instrument level. The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash
flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
The Group’s financial assets include cash and cash equivalents, short-term time deposits, trade and other receivables, financial investments in
venture capital investees (as defined under 3.18), and derivative financial assets, mainly over equity instruments of the Group’s investees. The
Group's financial liabilities include trade and other payables, loans and borrowings, and derivative financial liabilities, mainly over equity instruments
of the Group’s associates and subsidiaries. None of the derivative financial instruments held by the Group were designated as effective hedging
instruments.
3.13.2 Subsequent measurement
The subsequent measurement of financial instruments depends on their classification. The Group classifies its financial assets and liabilities into the
categories below in accordance with IFRS 9, as follows:
3.13.2.1 Financial assets and liabilities at fair value through profit or loss
Financial assets and liabilities at fair value through profit and loss are carried in the statement of financial position at fair value. The changes in
their fair value are recognised in the statement of comprehensive income as follows:
•
•
The changes in the fair value of financial investments in associates and those derivative financial assets and liabilities where the underlying
asset is represented by equity instruments of a financial investee, are recorded under ‘Net gain/(loss) on venture capital investments and
associated derivative financial assets and liabilities’ and are included in the Group’s operating income; and
The changes in the fair value of derivative financial assets where the underlying asset is represented by equity instruments of a subsidiary,
as well as other derivative financial assets, are recorded under ‘Net gain/(loss) on financial assets and liabilities at fair value through profit or
loss over the equity of subsidiaries and other agreements’.
3.13.2.2 Financial assets and liabilities at amortised cost
This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met:
•
•
The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on
the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and
losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group’s financial assets at amortised cost includes trade receivables, and loan to an associate and loan to a director included under other non-
current financial assets.
After initial recognition, interest bearing loans and borrowings and other financial liabilities are subsequently measured at amortised cost using the
EIR method. Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised as well as through the
amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.
The EIR amortisation is included in ‘Finance expenses in the statement of comprehensive income.
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3.13 Financial instruments (continued)
3.13.2.3 Contingent consideration
Contingent consideration recognised by the Group in a business combination to which IFRS 3 applies is subsequently measured at fair value with
changes recognised in profit or loss under ‘Net gain/(loss) on derivative financial assets and liabilities at fair value through profit or loss’.
Contingent consideration includes the liabilities shown in the statement of financial position under ‘Other payables, accrued expenses and
contingent consideration liabilities’.
3.13.3 Derecognition
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is de-recognised where:
•
•
•
The rights to receive cash flows from the asset have expired; or
The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full
without material delay to a third party under a ‘pass-through’ arrangement; and
Either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor
retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
The Group de-recognises a financial liability when the obligation under the liability is discharged, cancelled or expires.
3.13.4 Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if,
there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the
assets and settle the liabilities simultaneously.
3.13.5 Fair value of financial instruments
The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid
prices at the close of business on the reporting date. For financial instruments where there is no active market, fair value is determined using
valuation techniques. Such techniques may include: using recent arm's length market transactions; reference to the current fair value of another
instrument that is substantially the same; discounted cash flow analysis or other valuation models.
An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 22.
3.13.6 Impairment of financial assets
The Group recognises an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. ECLs are
based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to
receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of
collateral held or other credit enhancements that are integral to the contractual terms.
For trade receivables the Group applies a simplified approach in calculating ECLs. The Group has established a provision matrix that is based on its
historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
3.13.6.1 Financial assets carried at amortised cost
For financial assets carried at amortised cost (loans and receivables), evidence of impairment may include indications that the debtor or a group of
debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter
bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash
flows, such as changes in arrears or economic conditions that correlate with defaults.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred)
discounted using the asset’s original EIR. The carrying amount of the asset is reduced through the use of an allowance account and the amount of
the loss is recognised in profit or loss as a ‘Bad debt expense’ in ‘Other operating expenses’. The allowance is estimated based on a combination of
specific accounts and general ageing analysis.
Trade accounts receivable are recorded at the invoiced amount and are non-interest bearing. Credit is only granted to customers after a review of
credit history.
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3.14 Foreign currency translation
The consolidated financial statements are presented in RUR, which is the Group's presentation currency, and all values are rounded to the nearest
million (RUR ’000000) except per share information and unless otherwise indicated. Each entity in the Group determines its own functional currency
and items included in the financial statements of each entity are measured using that functional currency. The functional currency of the Group’s
Russian subsidiaries and associates as well as the Company itself is RUR.
Transactions in foreign currencies are initially recorded in the functional currency at the rate ruling at the date of transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the measurement currency rate of exchange ruling at the reporting date. All
resulting differences are taken to the consolidated statement of comprehensive income and included in the determination of net profit as ‘Net
foreign exchange (losses)/gains’. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate as at the date of initial transaction.
As at the reporting date, the assets and liabilities of the Company and its subsidiaries with functional currencies other than the RUR are translated
into the presentation currency of the Group (RUR) at the rate of exchange ruling at the reporting date and their operations are translated at
exchange rates prevailing at the date of the transactions. The exchange differences arising on the translation are recognised in other
comprehensive income.
3.15
Impairment of non-financial assets and investments in equity accounted associates
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual
impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an
asset’s or cash-generating unit’s (“CGU”) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset
or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These
calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.
Impairment losses of continuing operations are recognised in earnings in those expense categories consistent with the function of the impaired
asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised
impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s
recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the
asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not
exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no
impairment loss been recognised for the asset in prior years. Such reversal is recognised in earnings.
Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. Where
the recoverable amount of the CGU is less than its carrying amount an impairment loss is recognised. Impairment losses relating to goodwill cannot
be reversed in future periods.
3.16 Earnings per share
The Group presents basic and diluted earnings per share (“EPS”) data for its ordinary and Class A shares. Basic EPS is calculated by dividing the
profit or loss attributable to shareholders of the Company by the weighted average number of shares outstanding during the period, adjusted for
own shares held.
Diluted EPS is determined by adjusting the profit or loss attributable to shareholders and the weighted average number of shares outstanding,
adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which may comprise share options granted to employees of the
Group.
3.17 Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses,
including revenues and expenses that relate to transactions with any of the Group’s other components. An operating segment’s operating results
are reviewed regularly by the Group’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment
and assess its performance, and for which discrete financial information is available.
Segment results that are reported to the CODM include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis.
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Notes to Consolidated Financial Statements (continued)
3
Summary of significant accounting policies (continued)
3.18 Financial investments in venture capital investees
Financial investments in venture capital investees, are the Group’s investments in start-up Internet ventures and smaller Internet companies in
Russia, Ukraine and Israel with ownership ranging from 1.5% to 50% and which gives the Group significant influence in some of these investments.
They form the Group’s venture capital portfolio and are monitored and managed exclusively on the basis of their fair values. The Group’s
involvement in the operating management of the investees is limited, and the possibility of the Group maintaining a specific financial investment in
its investment portfolio in the long run is remote. Financial investments in such associates are carried in the statement of financial position at fair
value even though the Group may exert significant influence over those companies. This treatment is permitted by IAS 28 Investments in Associates
and Joint Ventures, which allows investments held by venture capital organisations to be excluded from its scope where those investments are
designated, upon initial recognition, as at fair value through profit or loss and accounted for in accordance with IFRS 9, with changes in fair value
recognised in profit or loss in the period of the change. Accounting policies of the Group with respect to financial investments in associates are
discussed in more detail under Note 3.13 above as part of the Group’s accounting policies with respect to financial assets.
4
Significant accounting judgments, estimates and assumptions
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the reporting dates and the reported amounts of
revenues and expenses during the reporting periods. However, uncertainty about these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of the asset or liability affected in future periods.
4.1
Judgments
In the process of applying the Group's accounting policies, management has made the following judgments which have the most significant effect
on the amounts recognised in the consolidated financial statements:
4.1.1 Consolidation and accounting for associates
The Company directly or indirectly owned up to 50% in certain of its investments. Based on its voting rights and restrictions in the respective
governing documents, the Group made judgments about whether it has control or significant influence over these investments. Subsequently, these
entities are either accounted for as subsidiaries (consolidated) or associates (accounted for under the equity method or as financial assets at fair
value through profit or loss).
Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is
adjusted to recognise changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the
associate or joint venture is included in the carrying amount of the investment and is not tested for impairment separately.
The statement of profit or loss reflects the Group’s share of the results of operations of the associate or joint venture. Any change in OCI of those
investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the associate or
joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses
resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or
joint venture.
The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss
outside operating profit and represents profit or loss after tax and noncontrolling interests in the subsidiaries of the associate or joint venture.
The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments
are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its
associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or
joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable
amount of the associate or joint venture and its carrying value, and then recognises the loss within ‘Share of profit of an associate and a joint
venture’ in the statement of profit or loss.
Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained
investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint
control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.
4.1.2 Consolidation of a structured entity
In November 2010, the Company established, as settlor, an employee benefit trust (the “Trust”) under a Trust Deed dated November 11, 2010
(“Trust Deed”), the trustee of which is Mail.ru Employee Benefit Trustees Limited (the “Trustee”). The purpose of the Trust consists in holding trust
funds for present and former employees and consultants and related persons. The Trustee manages employee stock options under the 2010 Option
Plan (as defined in Note 24). Starting from October 2011, the Trustee was also instructed by the Company to acquire GDRs representing shares of
the Company on the stock market and transfer those GDRs to employees in settlement of the 2010 Option Plan options as the options are exercised
by the employees. The Group does not hold any equity interest in the Trust; however, under the Trust Deed, the Group has the power to appoint and
remove the Trustee at its sole discretion. The operations of the Trust are restricted per the Trust Deed to the activities described above and are
solely used by the Group. Based on these facts and circumstances, management concluded that the Group controls the Trustee and, therefore,
consolidates the Trustee in its financial statements.
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Notes to Consolidated Financial Statements (continued)
4
Significant accounting judgments, estimates and assumptions (continued)
4.1
Judgments (continued)
4.1.3 Accounting treatment of share-based payments where the Group has a choice to settle in cash or equity
The Group has wide discretion over the manner of settlement of options issued and determines the accounting treatment of the options based on
whether the Group has a present obligation to settle in cash. Specifically, any option holder granted an aggregate of 20,000 or more options was
only allowed to exercise the respective portion options in the form of GDRs, while exercises by the optionees granted a smaller cumulative number
of options can continue to be in GDRs or cash at the Group’s discretion. The terms of the option plan and past exercise history make it reasonable
to expect cash settlement of most of the smaller option exercises, even though the Group continues to have discretion over the way of option
exercise settlement. Larger than cumulative 20,000 options per person continue to be accounted for as equity awards.
4.2
Estimates and assumptions
revenue recognition;
useful lives of intangible assets;
fair value of financial instruments;
Significant estimates and assumptions reflected in the Group’s financial statements include, but are not limited to the following:
•
•
•
•
•
•
•
fair value of assets and liabilities in business combinations; and
impairment of goodwill and other intangible assets;
recoverability of deferred tax assets.
software development costs;
Actual results could materially differ from those estimates.
The key assumptions concerning the future events and other key sources of estimation uncertainty at the reporting date that have a significant risk
of a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
4.2.1 Revenue recognition – in-game items life span
Deferred revenue is recognised as revenue over the estimated life span of the in-game items purchased or as the in-game items purchased with
the game points are consumed. The estimated life span of in-game items is determined based on historical player usage patterns and playing
behaviour. Future usage patterns may differ from the historical usage patterns on which the Group’s revenue recognition policy is based. The Group
monitors the operational statistics and usage patterns of its online games and modifies the expected life span when materially different.
Another significant judgements that significantly affect the determination of the amount and timing of revenue from contracts with customers in
accordance with IFRS 15 include (i) the timing of satisfaction of performance obligations and (ii) the transaction price and the amounts allocated to
performance obligations.
4.2.2 Fair value of financial instruments
Where the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active
markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from
observable markets where possible, but where this is not feasible, estimates and assumptions have to be made, and a degree of judgment has to be
applied in establishing fair values. The judgments, estimates and assumptions include considerations of inputs such as liquidity risk, credit risk and
volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
The expected volatility in the pricing models used to measure the fair value of the derivative financial assets and liabilities is determined by
reference to peer companies’ historical volatility, as the issuers of the underlying equity instruments are not public. When determining risk-free
rates to be used in the pricing models, regard is given to US Treasury bonds or Russian government bonds with maturities equal to the expected
terms of the respective derivative financial instruments.
Detailed information on the fair values of the Group’s financial instruments is available in Note 22.
4.2.3 Useful life of intangible assets
The Group estimates remaining useful lives of its intangible assets at least once a year at the reporting date. If the estimation differs from the
previous estimations, the changes are accounted for in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. These
estimates may have a significant impact on the carrying value of intangible assets and amortisation, charged to earnings. The carrying value of
intangible assets is disclosed in Note 7.
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Notes to Consolidated Financial Statements (continued)
4
Significant accounting judgments, estimates and assumptions (continued)
4.1
Judgments (continued)
4.2.4 Software development costs
Software development costs are capitalised in accordance with the accounting policy described in Note 3.6.1. Initial capitalisation of costs is based
on management's judgment that technological and economical feasibility is confirmed, usually when a product development project has reached a
defined milestone according to an established project management model. In determining the amounts to be capitalised management makes
assumptions regarding the expected future cash generation of the assets, discount rates to be applied and the expected period of benefits.
4.2.5 Impairment of goodwill and other intangible assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value
less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions,
conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use
calculation is based on a discounted cash flow (“DCF”) model. The cash flows are derived from management forecast. The recoverable amount is
sensitive to the discount rate used for the DCF model as well as the growth rate used for extrapolation purposes. The key assumptions used to
determine the recoverable amount for the different CGUs are disclosed and further explained in Notes 7 and 11.
4.2.6 Fair value of assets and liabilities in business combinations
At the acquisition date the Group recognises separately the identifiable assets, liabilities and contingent liabilities acquired or assumed in a business
combination at their fair values, which involves estimates. Such estimates are based on valuation methods that require considerable judgment in
forecasting future cash flows and developing other assumptions.
4.2.7 Share-based payments
Management estimates the fair value of equity-settled stock options at the date of grant and the fair value of cash-settled options at each reporting
date using the Black-Scholes-Merton, binominal, Monte-Carlo or other option pricing models, as applicable. The option pricing models were
originally developed for use in estimating the fair value of traded options, which have different characteristics than the Group’s stock options
granted by the Company. The models are also sensitive to changes in the subjective assumptions, which can materially affect the fair value
estimate. These subjective assumptions include expected volatility, dividend yield, risk-free interest and forfeiture rates.
4.2.8 Deferred taxes on undistributed earnings
Deferred tax is recognised based on estimated dividends distributions of Company’s subsidiaries taking into account limitation of cash and cash
equivalents available at the reporting date.
4.2.9 Changes in estimates
In Q3 2019, the Group changed its estimates with respect to the life span of the in-game virtual items purchased by game players. The changes
resulted from the fact that the Group accumulated sufficient data related to the patterns of how the in-game items are consumed by paying game
players. As a result the Company refined its estimate of the period of satisfaction of the performance obligation in relation to virtual in-game items.
The changes in estimates were recorded prospectively starting from Q3 2019 and resulted in an increase in revenue and a decrease in deferred
MMO Games revenue estimated at RUR 13,324 as at December 31, 2019 (RUR 13,037 as at September 30, 2019).
4.2.10 Significant judgement in determining the lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease
if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors
that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a
significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g.,
a change in business strategy).
4.2.11. Significant judgement in determining incremental borrowing rate
At for the interest rate the Group obtained estimation from banks and compared it to the rate of interest rate swap applicable for currency of the
lease contract and for similar tenor, corrected by the average credit spread of entities with rating similar to the Group’s rating. The rate is close to
9.6% for weighted average lease duration. Duration for discount rate is based on weighted average lease period (2.4 years for January 1, 2019).
The discount rate is applied to all lease contracts.
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Notes to Consolidated Financial Statements (continued)
5
Operating segments
In reviewing the operational performance of the Group and allocating resources, the Chief Executive Officer of the Group, who is the Group’s Chief
Operating Decision Maker (CODM), reviews selected items of each segment's income statement, assuming 100% ownership in all of the Group’s key
operating subsidiaries, based on management reporting.
Management reporting is different from IFRS, because it does not include certain IFRS adjustments which are not analysed by the CODM 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 payments, disposal or 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 management reporting.
The financial information of the key subsidiaries acquired during the reporting period or after the reporting period but prior to the date of these
consolidated financial statements is included into the segment disclosure starting from the beginning of the earliest comparative period included in
the financial statements.
The financial information of subsidiaries disposed of and assets classified as held for sale prior to the date of these consolidated financial
statements is excluded from the segment presentation starting from the beginning of the earliest period presented.
Accordingly, segment reporting for the year ended December 31, 2019 and the respective comparative segment financial information has been
retrospectively adjusted, as applicable, to include the financial information of new acquisitions which took place during the period (Note 6) and to
exclude the information related to assets held for sale reclassified during the reporting period.
Additionally, in order to achieve comparability, IFRS 16 adoption effect (Note 2.2) is included in segment reporting starting from January 1, 2018.
In 2019 the Group has changed the composition of the reporting segments in order to better reflect Group’s strategy, the way the business is
managed and units’ interconnection within its eco-system. From the first quarter of 2019 the Group has identified the following reportable
segments on this basis:
•
•
•
Communications and Social;
Games; and
New initiatives.
The Communications and Social segment includes email, instant messaging and portal (main page and media projects). It earns substantially all
revenues from display and context advertising. This segment also aggregates the Group’s social network Vkontakte (VK) and two other social
networks (OK and My World) and earns revenues from (i) commission from application developers based on the respective applications’ revenue,
(ii) user payments for virtual gifts, stickers and music subscriptions and (iii) online advertising, including display and context advertising. It also
includes Search and music services (UMA). These businesses have similar nature and economic characteristics as they are represented by social
networks and online communications, common type of customers for their products and services and are regulated under similar regulatory
environment.
The Games segment includes online gaming services, including MMO, social and mobile games operated by the Group. It earns substantially all
revenues from (i) sale of virtual in-game items to users, (ii) royalties for games licensed to third-party online game operators and (iii) in-game
advertising.
The New initiatives reportable segment represents separate operating segments aggregated in one reportable segment for its similar nature of
newly acquired and dynamically developing businesses. This segment primarily consists of Youla classifieds earning substantially all revenues from
advertising and listing fees, Maps.me, Geek Brains, B2B new projects including cloud as well as MRG Tech Lab initiatives along with other services,
which are considered insignificant by the CODM for the purposes of performance review and resource allocation.
The Group measures the performance of its operating segments through a measure of earnings before interest, tax, depreciation and amortisation
(EBITDA). Segment EBITDA is calculated as the respective segment’s revenue less operating expenses (excluding depreciation and amortisation and
impairment of intangible assets), including Group corporate expenses allocated to the respective segment.
EBITDA is not a measure of financial performance under IFRS. The calculation of EBITDA by the Group may be different from the calculations of
similarly labeled measures used by other companies and it should therefore not be used to compare one company against another or as a
substitute for analysis of the Group’s operating results as reported under IFRS. EBITDA is not a direct measure of the Group’s liquidity, nor is it an
alternative to cash flows from operating activities as a measure of liquidity, and it needs to be considered in the context of the Group’s financial
commitments. EBITDA may not be indicative of the Group’s historical operating results, nor is it meant to be predictive of the Group’s potential
future results. The Group believes that EBITDA provides useful information to the users of the consolidated financial statements because it is an
indicator of the strength and performance of the Group’s ongoing business operations, including the Group’s ability to fund discretionary spending
such as capital expenditure, acquisitions and other investments and the Group’s ability to incur and service debt.
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Notes to Consolidated Financial Statements (continued)
5
Operating segments (continued)
The information about the breakdown of revenue from external customers by the customers’ country of domicile and non-current assets by country
is not available to the management of the Group, and it considers that the cost to develop such information would be excessive.
The Group has changed presentation of its reporting segments retrospectively to provide corresponding basis for comparison.
The income statement items for each segment for the year ended December 31, 2019, as presented to the CODM, are presented below:
Communications and Social
Games
New initiatives
Eliminations
Group
Revenue
External revenue
Intersegment revenue
Total revenue
Total operating expenses
EBITDA
Net profit
50,313
208
50,521
23,186
27,335
30,551
118
30,669
25,425
5,244
6,206
27
6,233
9,060
(2,827)
–
(353)
(353)
(353)
–
87,070
–
87,070
57,318
29,752
15,649
The income statement items for each segment for the year ended December 31, 2018, as presented to the CODM, are presented below:
Communications and Social
Games
New initiatives
Eliminations
Group
Revenue
External revenue
Intersegment revenue
Total revenue
Total operating expenses
EBITDA
Net profit
43,575
191
43,766
18,122
25,644
24,841
4
24,845
19,839
5,006
2,748
1
2,749
6,262
(3,513)
–
(196)
(196)
(196)
–
71,164
–
71,164
44,027
27,137
15,083
A reconciliation of group aggregate segment revenue, as presented to the CODM, to IFRS consolidated revenue of the Group for the years ended
December 31, 2019 and 2018 is presented below:
Group aggregate segment revenue, as presented to the CODM
Adjustments to reconcile revenue as presented to the CODM to consolidated revenue under IFRS:
Effect of difference in dates of acquisition,loss of control in subsidiaries and assets held for sale
Differences in timing of revenue recognition
Barter revenue
Dividend revenue from venture capital investments
Consolidated revenue under IFRS
2019
87,070
2,615
6,520
8
18
96,231
2018
71,164
2,992
(8,154)
74
29
66,105
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Notes to Consolidated Financial Statements (continued)
5
Operating segments (continued)
A reconciliation of group aggregate segment EBITDA, as presented to the CODM, to IFRS consolidated profit/(loss) before income tax expense of the
Group for the years ended December 31, 2019 and 2018 is presented below:
Group aggregate segment EBITDA, as presented to the CODM
Adjustments to reconcile EBITDA as presented to the CODM to consolidated profit/(loss) before income tax
expenses under IFRS:
Effect of difference in dates of acquisition, loss of control in subsidiaries and assets held for sale
IFRS 16 implementation
Differences in timing of revenue recognition
Net (loss)/gain on venture capital investments
Share-based payment transactions
Other
EBITDA
Depreciation and amortisation
Impairment of intangible assets
Share of loss of equity accounted associates
Finance income
Finance expenses
Other non-operating loss
Gain on joint ventures formation
Loss on fair value remeasurement of assets held for sale
Net loss on derivative financial assets and liabilities at fair value through profit or loss
Gain on remeasurement of previously held interest in equity accounted associate
Reversal of impairment / (impairment) of equity accounted associates
Net gain on disposal of intangible assets
Net gain on disposal of subsidiary
Net foreign exchange (loss)/gain
Consolidated profit/(loss) before income tax expense under IFRS
2019
29,752
(8,091)
–
8,265
(139)
(1,742)
11
28,056
(12,771)
(659)
(1,691)
585
(1,459)
(182)
15,855
(4,519)
(758)
324
60
418
–
(980)
22,279
2018
27,137
(5,904)
(3,540)
(7,464)
26
(6,732)
27
3,550
(9,665)
(1,711)
(497)
545
(17)
(12)
–
–
(516)
–
(37)
–
47
796
(7,517)
A reconciliation of group aggregate net profit, as presented to the CODM, to IFRS consolidated net profit/(loss) of the Group for the years ended
December 31, 2019 and 2018 is presented below:
Group aggregate segment net profit, as presented to the CODM
Adjustments to reconcile net profit as presented to the CODM to consolidated net profit/(loss) under IFRS:
Share-based payment transactions
Differences in timing of revenue recognition
Effect of difference in dates of acquisition, loss of control in subsidiaries and assets held for sale
IFRS 16 implementation
Amortisation of fair value adjustments to intangible assets
Gain on joint ventures formation
Loss on fair value remeasurement of assets held for sale
Net loss on financial instruments at fair value through profit or loss
Gain on remeasurement of previously held interest in equity accounted associate
Net gain on disposal of intangible assets
Net gain on disposal of subsidiary
Net foreign exchange (loss)/gain
Share of loss of equity accounted associates
Reversal of impairment/(impairment) of equity accounted associates
Other non-operating loss
Other
Tax effect of the adjustments
Consolidated net profit/(loss) under IFRS
2019
15,649
(1,742)
8,265
(6,959)
–
(3,192)
15,855
(4,519)
(897)
324
418
–
(980)
(1,691)
60
(182)
(11)
(1,547)
18,851
Mail.Ru Group 2019 Results
147
2018
15,083
(6,732)
(7,464)
(6,006)
435
(5,174)
–
–
(490)
–
–
47
796
(497)
(37)
(12)
(16)
2,004
(8,063)
30
2019Annual report
Notes to Consolidated Financial Statements (continued)
6
Business combinations in 2018 and 2019
6.1 UMA
In February 2019, the Group completed the acquisition of 100% of Salerton Investments Limited (“UMA”), an Internet and mobile music service provider
in Russia, for a total cash consideration of RUR 6,391. As of September 30, 2019, as a result of the control acquisition the Group derecognized equity
accounted investment in UMA. The main purpose of the acquisition is to expand the Group’s presence in the market of music services.
In February 2020 the Group finalised purchase price allocation for UMA acquisition, which resulted in no change from provisional values. The fair
values of the identifiable assets and liabilities of UMA at the date of acquisition were as follows:
Intangible assets
Property and equipment
Deferred income tax assets
Trade accounts receivable
Prepaid expenses and advances to suppliers
Other current assets
Cash and cash equivalents
Total assets
Trade accounts payable
Deferred income tax liabilities
Income tax payable
Other taxes payable
Other payables, provisions and accrued expenses
Total liabilities
Total net assets
Goodwill on the transaction was calculated as the excess of:
(a) The consideration transferred by the Group measured at fair values:
[1] Cash paid
[2] The acquisition date fair value of the Group’s previously held equity interest
Consideration transferred by the Group
(b) The amount of non-controlling interest in UMA measured at the proportionate share of the identifiable net assets
Over
(c) The net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed measured at final
fair values
Goodwill
Fair value
693
3
111
356
169
26
1,079
2,437
858
31
13
100
47
1,049
1,388
6,391
1,601
7,992
14
1,388
6,618
Goodwill is mainly attributable to development of music services, cost saving and potential synergy with the Group’s business. Goodwill is allocated
to Vkontante and Social Networks CGUs.
Goodwill is not expected to be deductible for income tax purposes.
Intangible assets mainly include software and customer base, and are amortised over the period of 2 to 5 years.
The cash flows on acquisition were as follows:
Cash paid (included in cash flows from investing activities)
Cash acquired (included in cash flows from investing activities)
Net cash flow on acquisition
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6,391
(1,079)
5,312
31
2019Annual report
Notes to Consolidated Financial Statements (continued)
6
Business combinations in 2018 and 2019 (continued)
6.2
ESforce
In January 2018 the Group acquired a leading eSport group of companies operating under the ESforce brand (together “ESforce”) for a cash
consideration of RUR 5,659 and contingent consideration, measured at fair value, of RUR 1,132 based on ongoing financial KPIs in a period of
1 year. Contingent liability was denominated in USD and remeasured in December 2018 to RUR 1,948 (Note 16) and paid in full amount in March
2019. The primary purpose of the acquisition of ESforce was to enhance the Group’s position on the eSports market.
In January 2019 the Group finalised purchase price allocation for ESforce acquisition, which resulted in no change from provisional values. The fair
values of the identifiable assets and liabilities of ESforce at the date of acquisition were as follows:
Property and equipment
Other intangible assets
Deferred income tax assets
Trade accounts receivable
Prepaid income tax
Prepaid expenses and advances to suppliers
Other current assets
Other non-current assets
Cash and cash equivalents
Total assets
Deferred income tax liabilities
Trade accounts payable
VAT and other taxes payable
Deferred revenue and customer advances
Provisions for tax contingencies
Other payables and accrued expenses
Total liabilities
Total net assets
Goodwill on the transaction was calculated as the excess of:
(a) The consideration transferred by the Group measured at fair values:
[1] Cash consideration
[2] Contingent consideration liability (Note 16)
Consideration transferred by the Group
(b) The amount of non-controlling interest in ESforce measured at the proportionate share of the identifiable net assets
Over
(с) The net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed measured at final
fair values
Goodwill
Fair value
648
674
227
191
12
23
167
9
207
2,158
144
235
12
68
128
130
717
1,441
5,659
1,132
6,791
22
1,441
5,372
Goodwill is mainly attributable to the potential of ESforce to further enhance its leadership position in the eSports market, as well as the prospects
of potential synergies with the Group’s other operations. Goodwill is not expected to be deductible for income tax purposes.
Intangible assets mainly include trademark and customer base, and are amortised over the period of 2 to 5 years.
The cash flows on acquisition were as follows:
Cash paid (included in cash flows from investing activities)
Cash acquired (included in cash flows from investing activities)
Net cash flow on acquisition
5,730
(207)
5,523
In June 2019 the Group decided to create a partnership around ESforce eSports business. As of June 30, 2019 the Group reclassified related to
ESforce assets in amount RUR 6,920 as assets held for sale and liabilities directly associated with assets held for sale in the amount RUR 0.6 billion.
In December 2019, the Group remeasured fair value of ESforce, classified as assets held for sale, from RUR 6.3 billion to RUR 1.8 billion and,
therefore recognized, remeasurement loss in the amount of RUR 4.5 billion for 2019 primarily related to goodwill.
Mail.Ru Group 2019 Results
149
32
2019Annual report
Notes to Consolidated Financial Statements (continued)
6
Business combinations in 2018 and 2019 (continued)
6.2
ESforce (continued)
As at December 31, 2019, the Group classified related to ESforce assests in the amount RUR 2,334 as assets held for sale and liabilities directly
associated with assets held for sale in the amount RUR 543 as the Group plans to recover its carrying value through a sale transaction or
contribution to a joint venture.
The Group decided to use the right to reverse Modern Pick partnership transaction around ESforce due to non-completion of the key asset
consolidation condition by the majority shareholder as of December 31, 2019.
6.3 BitGames, 33 Slona and InShopper
In April 2018 the Group acquired control in mobile games developer PBL Bitdotgames Publishing Limited (“BitGames”) by increasing its share to
51% (49% in addition to 2% stake as of March 31, 2018). The primary purpose of the acquisition of BitGames was to enhance the Group’s position
on mobile games market.
Also in April 2018 the Group completed the acquisition of 100% in LLC “33 Slona” and LLC “Tekhnologii nedvizhimosti” (collectively, “33 Slona”), a
digital real estate agency. The primary purpose of the acquisition of 33 Slona was to leverage the Group’s expertise and resources by achieving
substantial synergies with Youla, the Group’s general online classifieds product.
In June 2018 the Group completed the acquisition of the 100% in Consult Universal Corp (“InShopper”), a cash-back technology provider. The
primary purpose of the acquisition of InShopper was to leverage the Group’s expertise and resources by achieving substantial synergies with
Group’s payment technologies and solutions.
Total cash consideration for the transactions above was RUR 2.5 bln and contingent consideration, measured at fair value, of RUR 93 (based on
ongoing financial KPIs in a period of 1 year. Contingent liability was remeasured in March 2019 to RUR 9.
In April 2019 the Group finalised purchase price allocation for BitGames, 33 Slona and InShopper acquisitions, which resulted in no change from
provisional values. The fair values of the identifiable assets and liabilities of BitGames, 33 Slona and InShopper at the date of acquisition were as follows:
Other intangible assets
Loans receivable
Deferred income tax assets
Prepaid expenses and advances to suppliers
Trade accounts receivable
Other current assets
Cash and cash equivalents
Total assets
Deferred income tax liabilities
Trade accounts payable
Deferred revenue and customer advances
Loans payable
VAT and other taxes payable
Other payables and accrued expenses
Total liabilities
Total net assets
Goodwill on the transaction was calculated as the excess of:
(a) The consideration transferred by the Group measured at fair values:
[1] Cash paid
[2] Financial assets at fair value through profit or loss – derivative over the equity of investee
[3] The acquisition date fair value of the Group’s previously held equity interest
[4] Contingent consideration liability (Note 16)
Consideration transferred by the Group
(b) The amount of non-controlling interest measured at the proportionate share of the identifiable net assets
Over
(с) The net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed measured at final
fair values
Goodwill
Fair value
1,140
5
59
14
36
36
26
1,316
143
83
473
33
5
10
747
569
2,515
11
114
93
2,733
247
569
2,411
Goodwill is not expected to be deductible for income tax purposes. Goodwill is mainly attributable to development of new games, cost saving and
potential synergy with the Group’s classified business, payment solutions and other operations.
Mail.Ru Group 2019 Results
150
33
2019Annual report
Notes to Consolidated Financial Statements (continued)
6
Business combinations in 2018 and 2019 (continued)
6.3 BitGames, 33 Slona and InShopper (continued)
Goodwill related to BitGames and 33 Slona acquisition is allocated to Games and Youla CGUs correspondingly. Goodwill related to InShopper
acquisitions is allocated to Vkontakte, Social Networks and Email and Portal CGUs.
Intangible assets mainly include social and mobile games and are amortised over the period of 2 to 5 years.
The cash flows on acquisition were as follows:
Cash paid (included in cash flows from investing activities)
Cash acquired (included in cash flows from investing activities)
Net cash flow on acquisition
6.4 Citymobil
2,534
(26)
2,508
In April 2018 as a result of a number of transactions the Group acquired a 25.38% stake in taxi aggregator City-Mobil LLC (“Citymobil”) for a total
cash consideration of RUR 530, including RUR 120 conversion of loan. In 2019 the Group participated in new funding rounds and contributed
additionally RUR 679. As a result of RUR 2.2 bln loan conversion the Group’s share in Citymobil increased to 29.669%.
The Group concluded that it has significant influence over Citymobil as the Group has the power to participate in the financial and operating policy
decisions through its representation on Citymobil’s Board of Directors. The Group’s ownership interest in Citymobil represents an investment in an
associate and is accounted for under the equity method. As of April 2019, the Group finalized purchase price allocation of Citymobil, which resulted
in no change from provisional values.
In July 2019 the Board of Directors of the Company approved the signing of a term sheet assuming investment into a new O2O-focused company.
In December 2019 the O2O deal was finalized and Citymobil was transferred to new O2O JV as a part of the Group investment. For details please
refer to Note 6.10.
6.5 Panzerdog
In May 2019 the Group acquired control in mobile games developer Panzerdog OY (“Panzerdog”) by increasing its share to 59.45% (39.45% in addition
to 20% stake as of March 31, 2019) for total cash consideration of RUR 626. As of September 30, 2019, as a result of the control acquisition the Group
derecognized equity accounted investment in Panzerdog with the gain from remeasurement of previously held interest in equity accounted associates
of RUR 285. The primary purpose of the acquisition of Panzerdog was to enhance the Group’s position on mobile games market.
Provisional fair values of the identifiable assets and liabilities as at the date of acquisition were as follows:
Provisional fair value
Intangible assets
Property and equipment
Trade accounts receivable
Other current assets
Cash and cash equivalents
Total assets
Deferred revenue
Deferred income tax liabilities
Trade accounts payable
Total liabilities
Total net assets
Goodwill on the transaction was calculated as the excess of:
(a) The consideration transferred by the Group measured at fair values:
[1] Cash paid
[2] The acquisition date fair value of the Group’s previously held equity interest
Consideration transferred by the Group
(b) The amount of non-controlling interest in Panzerdog measured at the proportionate share of the identifiable net assets
Over
(c) Financial assets at fair value through profit or loss – derivative over the equity of investee (Note 22)
(d) The net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed measured at fair
provisional values
Goodwill
Mail.Ru Group 2019 Results
151
654
2
87
31
89
863
168
131
215
514
349
626
317
943
141
110
349
625
34
2019Annual report
Notes to Consolidated Financial Statements (continued)
6
Business combinations in 2018 and 2019 (continued)
6.5 Panzerdog (continued)
Goodwill is mainly attributable to development of new games and potential synergy with the Group’s business. Goodwill is not expected to be
deductible for income tax purposes.
Intangible assets mainly include mobile games and are amortised over the period of 2 to 5 years.
The cash flows on acquisition were as follows:
Cash paid (included in cash flows from investing activities)
Cash acquired (included in cash flows from investing activities)
Net cash flow on acquisition
6.6 Native Roll, Worki and Relap
630
(89)
541
In April 2019 the Group acquired 50.83% in Native Media LLC (“Native Roll”) – a video ad platform. The primary purpose of the acquisition of Native
Roll was to enhance the Group’s position on advertising solutions market. As of December 31, 2019 the Group acquired control over the remaining
share of 49.17%.
In May 2019 the Group acquired 51% in LLC “Iconjob” (“Worki”), a job search platform. The primary purpose of the acquisition of Worki was to
leverage the Group’s expertise and resources by achieving substantial synergies with Youla, the Group’s general online classifieds product. As of
December 31, 2019 the Group acquired control over the remaining share of 49%.
Also, in May 2019 the Group acquired 100% in Surfingbird LLC (“Relap”), a recommendatory platform. The primary purpose of the acquisition of
Relap was to leverage the Group’s expertise and resources by achieving substantial synergies with Pulse, the Group’s recommendation technologies
and solutions.
Total cash consideration for the transactions above was RUR 2.1 bln.
In accounting for the business combinations, the Group has provisionally determined the amounts of the acquired companies’ identifiable assets
and liabilities at their fair value. The acquisition accounting will be finalised upon completion of the tax planning and valuation of Native Roll, Worki
and Relap’s assets and liabilities.
Provisional fair values of the identifiable assets and liabilities of Native Roll, Worki and Relap as at the date of acquisition were as follows:
Provisional fair value
Intangible assets
Property and equipment
Trade accounts receivable
Other current assets
Cash and cash equivalents
Total assets
Trade accounts payable
Loans payable
Deferred income tax liabilities
VAT and other taxes payable
Other payables
Total liabilities
Total net assets
Goodwill on the transaction was calculated as the excess of:
(a) The consideration transferred by the Group measured at fair values:
[1] Cash paid
[2] Contingent consideration liability
Consideration transferred by the Group
(b) Financial liability at fair value through profit or loss – derivative over the equity of investee (Note 22)
Over
(c) The net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed measured at fair
provisional values
Goodwill
Mail.Ru Group 2019 Results
152
335
4
200
22
86
647
139
67
55
13
28
302
345
2,064
71
2,135
461
345
2,251
35
2019Annual report
Notes to Consolidated Financial Statements (continued)
6
Business combinations in 2018 and 2019 (continued)
6.6 Native Roll, Worki and Relap (continued)
Goodwill is not expected to be deductible for income tax purposes. Goodwill is mainly attributable to enhancement the Group’s position on
advertising and online recruitment markets and potential synergies with the Group’s businesses.
Intangible assets mainly include software, trademark and customer base and are amortised over the period of 2 to 10 years.
The cash flows on acquisition were as follows:
Cash paid (included in cash flows from investing activities)
Cash acquired (included in cash flows from investing activities)
Net cash flow on acquisition
6.7
Swag Masha
2,064
(86)
1,978
On July 8, 2019 the Group acquired control over mobile games developer LLC “Swag Masha” (“Swag Masha”) by increasing its share to 51% (16% in
addition to 35% stake as of March 31, 2019) for a total cash consideration of RUR 79. The primary purpose of the acquisition of Swag Masha was to
enhance the Group’s position on mobile games market.
Provisional fair values of the identifiable assets and liabilities as at the date of acquisition were as follows:
Provisional fair value
Intangible assets
Property and equipment
Trade accounts receivable
Other current assets
Cash and cash equivalents
Total assets
Trade accounts payable
Other payables, provisions and accrued expenses
Total liabilities
Total net assets
Goodwill on the transaction was calculated as the excess of:
(a) The consideration transferred by the Group measured at fair values:
[1] Cash paid
[2] The acquisition date fair value of the Group’s previously held equity interest
Consideration transferred by the Group
(b) The amount of non-controlling interest in Swag Masha measured at the proportionate share of the identifiable net assets
Over
(c) The net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed measured at fair
provisional values
Goodwill
Goodwill is mainly attributable to development of new games and potential synergy with the Group’s business. Goodwill is not expected to be
deductible for income tax purposes.
Intangible assets mainly include mobile games and are amortised over the period of 2 to 5 years.
The cash flows on acquisition were as follows:
Cash paid (included in cash flows from investing activities)
Cash acquired (included in cash flows from investing activities)
Net cash flow on acquisition
Mail.Ru Group 2019 Results
153
273
1
68
1
33
376
140
1
141
235
79
170
249
115
235
129
79
(33)
46
36
2019Annual report
Notes to Consolidated Financial Statements (continued)
6
Business combinations in 2018 and 2019 (continued)
6.8
Skillbox
In December 2019 the Group acquired control in educational online platform LLC “Skillbox” (“Skillbox”) by increasing its share to 60.3% (50% in
addition to 10.3% stake as of February 14, 2019 that was accounted as financial asset at fair value through profit and loss) for a total cash
consideration of RUR 1.6 bln. The primary purpose of the acquisition of Skillbox was to expand the Group’s presence on the online education market
by achieving substantial synergies with Geekbrains, the Group’s online educational platform.
Provisional fair values of the identifiable assets and liabilities as at the date of acquisition were as follows:
Provisional fair value
Property and equipment
Intangible assets
Trade accounts receivable
Prepaid expenses and advances to suppliers
Other current assets
Cash and cash equivalents
Total assets
Trade accounts payable
Deferred revenue and customer advances
Other payables, provisions and accrued expenses
Total liabilities
Total net assets
Goodwill on the transaction was calculated as the excess of:
(a) The consideration transferred by the Group measured at fair values:
[1] Cash paid
[2] the acquisition date fair value of the Group’s previously held equity interest measured at fair values
Consideration transferred by the Group
(b) The amount of non-controlling interest in Skillbox measured at the proportionate share of the identifiable net assets
Over
(c) The net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed measured at fair
provisional values
Goodwill
26
741
7
46
1
118
939
21
603
53
677
262
1,602
331
1,933
104
262
1,775
Goodwill is mainly attributable to educational services and potential synergy with the Group’s business. Goodwill is not expected to be deductible for
income tax purposes.
Intangible assets mainly include software, trademark and customer base and are amortised over the period of 2 to 10 years.
The cash flows on acquisition were as follows:
Cash paid (included in cash flows from investing activities)
Cash acquired (included in cash flows from investing activities)
Net cash flow on acquisition
6.9 Aliexpress Russia Joint Venture
1,602
(118)
1,484
On October 8, 2019, the Group with Alibaba Group, MegaFon and RDIF completed formation of Aliexpress Russia Joint Venture (AER or AER JV).
The Group invested its Pandao e-commerce assets with fair value of RUR 1 bln and cash consideration in the amount of RUR 11.8 bln in exchange
for a 15.01% stake in the AER JV (voting – 18%).
Cash consideration in the amount of RUR 11.8 bln is comprised of RUR 6.5 bln paid on October 8, 2019 and the rest of the amount to be
contributed by October 2020.
Alibaba Group invested cash in the amount of RUR 6.5 bln and contributed its AliExpress Russia business in exchange for a 55.7% stake (voting –
49.9%), RDIF invested cash in the amount of RUR 6.5 bln in exchange for a 5% stake (voting – 1.2%) and MegaFon sold 9.97% economic stake in
Mail.ru Group to Alibaba Group in exchange for a 24.3% stake (voting – 30.2%) in the AER JV.
Mail.Ru Group 2019 Results
154
37
2019Annual report
Notes to Consolidated Financial Statements (continued)
6
Business combinations in 2018 and 2019 (continued)
6.9 Aliexpress Russia Joint Venture (continued)
All parties contractually agreed sharing of control over AER based on the unanimous consent of the parties over decisions related to AER JV’s
relevant activities.
The Group recognizes this investment as a joint venture and has accounted for it under the equity method.
The calculation of the gain on joint venture formation at the date of formation (October 8, 2019) is presented in the table below:
Fair value of 15.01% retained interest in joint venture adjusted for gain related to the Group’s interest
Carrying value of net assets disposed
Cash consideration
Gain on joint venture formation (related to disposal of Pandao)
Provisional fair values of the identifiable assets and liabilities as at the date of acquisition were as follows:
Intangible assets
Property and equipment
Other non-current assets
Inventories
Trade accounts receivable
Other current assets
Cash and cash equivalents
Total assets
Deferred tax liabilities
Trade accounts payable
Other payables, provisions and accrued expenses
Total liabilities
Total net assets
Group's effective share in equity – 15.01%
Goodwill on the transaction was calculated as the excess of:
(a) Fair value of 15.01% retained interest in joint venture adjusted for gain related to the Group’s interest
Over
(b) The net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed measured at fair
provisional values
Goodwill
Goodwill in the amount in RUR 3.3 bln is included in the carrying amount of the AER JV investment.
Intangible assets mainly include trademark and customer base and are amortised over the period of 3 to 8 years.
6.10 O2O Joint Venture
12,692
(32)
(11,799)
861
Provisional fair value as of
October 8, 2019
44,237
825
346
1,075
12,196
41
13,170
71,890
8,787
969
96
9,852
62,038
9,314
12,692
9,314
3,378
In July 2019, the Group and Sberbank entered into an agreement for the investment into a new O2O group (O2O or O2O JV) focused on digital
technologies for food and transportation markets. As of December 18, 2019 all the necessary corporate governance and regulatory approvals,
including the approval from Federal Antimonopoly Service, had been received so the formation of a partnership was completed.
The Group contributed its stakes in Delivery Club (100%) and Citymobil (29.67%) as well as cash consideration of RUR 8.5 bln and contingent
consideration in the amount of RUB 4.6 bln depending on the achievement of a number of KPIs by contributed businesses by November 2020 and
other contingent consideration in amount of RUR 0.8 bln.
Sberbank contributed cash in the amount of RUR 39.7 bln (used by O2O JV to acquire additional 5.8% stake in Citymobil and 100% stake in
Foodplex) and contingent consideration in the amount of RUB 13 bln depending on the achievement of a number of KPIs by contributed businesses
by November 2020.
The parties have equal 50% stakes in the O2O JV, with up to 10% of shares to be potentially allocated for the long-term motivation program to
incentivize O2O platform’s employees.
Mail.Ru Group 2019 Results
155
38
2019Annual report
Notes to Consolidated Financial Statements (continued)
6
Business combinations in 2018 and 2019 (continued)
6.10 O2O Joint Venture (continued)
The Group recognizes this investment as a joint venture and has accounted for it under the equity method.
The calculation of the gain on joint venture formation at the date of formation (December 18, 2019) is presented in the table below:
Fair value of 50% retained interest in joint venture adjusted for gain related to the Group’s interest
Cash consideration
Carrying value of net assets disposed
Contingent consideration payable at fair value
Gain on joint venture formation (related to disposal of Delivery Club and carrying amount of Citymobil)
Provisional fair values of the identifiable assets and liabilities as at the date of acquisition were as follows:
Investments in associates
Right-of-use assets
Intangible assets
Property and equipment
Deferred income tax assets
Other non-current assets
Trade accounts receivable
Other current assets, including consideration receivable of RUR 17.6 bln
Cash and cash equivalents
Total assets
Other non-current liabilities
Trade accounts payable
Lease liabilities
Other payables, provisions and accrued expenses
Total liabilities
Total net assets
Group's effective share in equity – 50% (effective share in equity adjusted by NCI – 48.6%)
Goodwill on the transaction was calculated as the excess of:
(a) Fair value of 50% retained interest in joint venture adjusted for gain related to the Group’s interest
Over
(b) The net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed measured at fair
provisional values
Goodwill
Goodwill in the amount in RUR 7.8 bln is included in the carrying amount of О2О JV investment.
Intangible assets mainly include trademark and customer base and are amortised over the period of 3 to 10 years.
37,019
(8,447)
(8,177)
(5,401)
14,994
Provisional fair value as of
December 18, 2019
559
1,698
18,084
153
447
454
963
19,000
44,456
85,814
235
3,149
1,440
21,011
25,835
59,979
29,148
37,019
29,148
7,871
Mail.Ru Group 2019 Results
156
39
2019Annual report
Notes to Consolidated Financial Statements (continued)
7
Intangible assets
Goodwill
Trademark
Customer base
Game software
and software
development costs
Other software,
licenses and other
Cost
At January 1, 2018
Additions
Disposals
Additions due to acquisition of subsidiaries (Note 6)
Disposal due to disposal of subsidiaries
Translation adjustment
133,038
–
–
7,780
(372)
–
14,844
13
–
265
(18)
1
22,063
–
–
253
(17)
–
13,299
1,407
(93)
1,041
–
739
5,292
950
(1)
255
(54)
86
Total
188,536
2,370
(94)
9,594
(461)
826
At December 31, 2018
140,446
15,105
22,299
16,393
6,528
200,771
Additions
Disposals
Additions due to acquisition of subsidiaries (Note 6)
Impairment
Assets held for sale
Translation adjustment
–
–
11,398
–
(11,179)
–
817
(1)
692
–
(1,116)
(81)
–
–
147
–
(585)
–
620
(4,955)
922
(59)
–
(534)
3,316
(36)
935
–
(538)
(83)
4,753
(4,992)
14,094
(59)
(13,418)
(698)
At December 31, 2019
140,665
15,416
21,861
12,387
10,122
200,451
Accumulated amortisation and impairment
At January 1, 2018
Charge for the year
Disposals
Disposal due to disposal of subsidiaries (Note 6)
Impairment
Translation adjustment
At December 31, 2018
Charge for the year
Disposals
Impairment
Assets held for sale
Translation adjustment
At December 31, 2019
Net book value
At January 1, 2018
At December 31, 2018
At December 31, 2019
–
–
–
–
–
–
–
–
–
–
–
–
–
(7,064)
(1,476)
–
–
–
–
(11,846)
(3,022)
–
–
–
–
(8,282)
(945)
3
–
(1,711)
(442)
(3,264)
(1,524)
(1)
33
–
(25)
(30,456)
(6,967)
2
33
(1,711)
(467)
(8,540)
(14,868)
(11,377)
(4,781)
(39,566)
(1,153)
221
–
78
4
(1,479)
124
–
74
–
(967)
4,573
(630)
–
399
(2,245)
115
(29)
165
56
(5,844)
5,033
(659)
317
459
(9,390)
(16,149)
(8,002)
(6,719)
(40,260)
133,038
140,446
140,665
7,780
6,565
6,026
10,217
7,431
5,712
5,017
5,016
4,385
2,028
1,747
3,403
158,080
161,205
160,191
Because of the significant downward revision of the forecasted cash inflows of the game Skyforge in Q2 2019, the Group fully impaired the game,
recording an impairment charge of RUR 630. The impairment entirely belongs to the Games operating segment.
Game software and development costs consist of internally and externally developed and acquired software for online games in use and in process
of development.
Games represent separable CGUs and the analysis of impairment was performed at the level of each game, where either impairment was
previously recognised or current operating performance was below the original forecasts. The analysis included the comparison of the value in use
determined based on discounted future cash flows to the carrying amount. The value in use calculation uses cash flow projections from financial
budgets approved by senior management covering a period limited to the useful life of the respective game, ranging from 6 to 8 years.
Determining value in use requires the exercise of significant judgment, including judgment about appropriate discount rates, remaining useful life,
the amount and timing of expected future cash flows. The cash flows employed in the DCF analysis are based on the Group’s most recent budget
and, for years beyond the budget, the Group’s estimates, which are based on assumed growth rates. The discount rates used in the DCF analysis are
intended to reflect the risks inherent in the future cash flows of the respective cash generating units. The pre-tax discount rates used in the
DCF models as of December 31, 2019 was 21.4% (2018: 20.6%).
Russian online entertainment market growth rates;
The calculation of value in use is most sensitive to the following assumptions:
•
•
•
•
Games operating performance and net profit margins;
The Group's market share;
Discount rates.
Mail.Ru Group 2019 Results
157
40
2019Annual report
Notes to Consolidated Financial Statements (continued)
8
Property and equipment
Cost
At January 1, 2018
Additions
Transfers
Disposals
Assets held for sale
Additions due to acquisition of subsidiaries (Note 6)
Disposal due to disposal of subsidiaries
Translation adjustment
At December 31, 2018
Additions
Transfers
Disposals
Assets held for sale
Additions due to acquisition of subsidiaries (Note 6)
Translation adjustment
At December 31, 2019
Accumulated depreciation and impairment
At January 1, 2018
Charge for the year
Disposals
Translation adjustment
At December 31, 2018
Charge for the year
Disposals
Assets held for sale
Translation adjustment
At December 31, 2019
Net book value
At January 1, 2018
At December 31, 2018
At December 31, 2019
Servers and
computers
Leasehold
improvements
Furniture,
office equipment
and motor vehicles
Assets under
construction
Other property and
equipment
10,224
–
3,228
(364)
(32)
32
(1)
59
13,146
111
3,520
(247)
(35)
20
(53)
16,462
(6,980)
(2,278)
358
(51)
(8,951)
(2,763)
270
15
51
(11,378)
3,244
4,195
5,084
516
–
135
–
–
434
–
–
1,085
–
1
–
(484)
–
–
602
(274)
(253)
–
(1)
(528)
(117)
–
268
1
(376)
242
557
226
263
–
76
(6)
–
68
(1)
2
402
–
91
(1)
(74)
–
(10)
408
(164)
(38)
2
(7)
(207)
(53)
1
1
8
(250)
99
195
158
582
4,657
(3,747)
–
–
41
–
–
1,533
4,653
(3,751)
(35)
(14)
4
(9)
2,381
–
–
–
–
–
–
–
–
–
–
582
1,533
2,381
Total
12,383
4,656
0
(376)
(32)
648
(2)
63
798
(1)
308
(6)
–
73
–
2
1,174
17,340
–
139
(7)
(111)
12
(1)
4,764
–
(290)
(718)
36
(73)
1,206
21,059
(474)
(129)
–
(1)
(604)
(135)
–
14
–
(725)
324
570
481
(7,892)
(2,698)
360
(60)
(10,290)
(3,068)
271
298
60
(12,729)
4,491
7,050
8,330
Mail.Ru Group 2019 Results
158
41
2019Annual report
Notes to Consolidated Financial Statements (continued)
9
Consolidated subsidiaries
These consolidated financial statements include the assets, liabilities and financial results of the Company and its subsidiaries, whose main activity
is providing Russian-language Internet services. The significant subsidiaries as at December 31, 2019 and 2018 are listed below:
Subsidiary
Main activity
Mail Coöperatief UA (Netherlands)
MRGroup Investments Limited (Cyprus)
Mail.Ru, LLC (Russia)
NBSCI Money.Mail.Ru, LLC (Russia)
Mail.Ru Development LLC
MGL MY.COM (CYPRUS) LIMITED (renamed from
Benstar limited)
Mail.Ru Group LLC (renamed from Internet
company Mail.Ru LLC)
Data Centre M100 LLC (Russia)
My.com B.V. (Netherlands)
Mail.ru Internet Holdings B.V. (Netherlands)
Mail.ru Aggregates B.V. (Netherlands)
Mail.ru Holdings B.V. (Netherlands)
V kontakte LLC (Russia)
Pixonic LLC (Russia)
Pixonic Games Limited (Cyprus)
Delivery Club LLC (Russia)**
Holding entity
Holding entity
Online portal services, development and support
of online games, social network
Internet payment system
Reserch and development of online products
Support of online games
Holding company
Hosting services
Support of online games and portal services
Holding company
Holding company
Holding company
Social network
Reserch and development of online products
Online games operation
Food delivery
Ownership,%*
December 31, 2019
December 31, 2018
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
–
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
*
**
The ownership percentages above represent the Company’s effective indirect ownership in each subsidiary. There are no differences between economic and voting
rigths which the Group holds in subsidiaries.
the Group lost control over the subsidiary due to the formation of JV. For details please refer to Note 6.10
10
Investments in equity accounted associates and joint ventures
The Group has investments in associates operating popular Internet websites and providing various services over the Internet. Also since 2019 the
Group entered into new joint ventures. For details please refer to Note 6.
Investments in equity accounted associates and joint ventures at December 31, 2019 and 2018 comprised the following:
Main activity
Voting shares
Carrying value
December 31,
2019
December 31,
2018
December 31,
2019
December 31,
2018
Joint ventures
Aliexpress Russia Holding Pte. Ltd.
O2O Holding LLC
Associates
Inplat Holdings Limited (Cyprus)
Haslop Company Limited (Cyprus)
and Russian subsidiaries
(collectively, "Mamba")
Salerton Investment Limited
(Cyprus) (Note 6.1)
Others
Total
Cross-border marketplace
Russia’s leading platform in mobility and
food-tech
18%
50%
0%
0%
12,021
36,517
Operation of electronic online payment systems
Provides content for www.love.mail.ru, a vertical
of the www.mail.ru portal operated by a
subsidiary of Mail.Ru Internet NV
17.76%
17.76%
31.19%
31.19%
The company holds music library rights
100%*
20%
581
493
–
222
49,834
–
–
573
393
1,730
120
2,816
*
the Group obtained control over Salerton Investment Limited (UMA) (see Note 6.1)
The above entities have the same reporting date as the Company. None of the entities were listed on a public exchange as of December 31, 2019.
The tables below illustrate the summarized financial information of the Group’s significant equity accounted investments and joint ventures in:
Mail.Ru Group 2019 Results
159
42
2019Annual report
Notes to Consolidated Financial Statements (continued)
10
Investments in equity accounted associates and joint ventures (continued)
10.1
Investments in associates
a)
Inplat Holdings Limited
Current assets
Non-current assets
Current liabilities
Equity
Group's share in equity – 17.76% (2018: 17.76%)
Goodwill
Group's carrying amount of the investment
Revenue
Cost of sales
Administrative expenses
Finance and other costs
Profit before tax
Income tax expense
Profit for the year
Group's share of profit for the year
b)
Haslop Company Limited
Current assets
Non-current assets
Current liabilities
Equity
Group's share in equity – 31.19% (2018: 31.19%)
Goodwill
Reversal of impairment
Group's carrying amount of the investment
Revenue
Cost of sales
Administrative expenses
Finance and other costs
Profit before tax
Income tax expense
Profit for the year
Group's share of profit for the year
Mail.Ru Group 2019 Results
160
December 31, 2019
December 31, 2018
287
86
(99)
274
48
533
581
2019
938
(801
(75)
(1)
61
(17)
44
8
237
72
(84)
225
40
533
573
2018
1,050
(843
(54)
(8)
145
(19)
126
22
December 31, 2019
174
32
(116)
December 31, 2018
294
17
(205)
90
28
360
105
493
2019
954
(474)
(192)
(10)
278
(66)
212
66
106
33
360
–
393
2018
865
(470)
(84)
–
311
(56)
255
80
43
2019Annual report
Notes to Consolidated Financial Statements (continued)
10
Investments in equity accounted associates and joint ventures (continued)
10.2
Interest in joint ventures
c)
О2О Holding LLC
Current assets, including cash and cash equivalents of RUR 30 bln and consideration receivable of RUR 17.6 bln
Non-current assets, including intangible assets of RUR 18 bln, right-of-use assets of RUR 1.6 bln and deferred tax assets of
RUR 635
Current liabilities, including trade accounts payable and advances received of RUR 3 bln, deferred consideration of RUR 5 bln
and lease liability of RUR 1.4 bln
Non-current liabilities
Equity
Group's share in equity – 50% (effective share in equity adjusted by NCI – 48.6%)
Net profit on acquisition
Group's carrying amount of the investment
Revenue
Cost of sales
Administrative expenses, including depreciation and amortization of RUR 115
Finance and other income/expenses, including net interest expense of RUR 13
Loss before tax
Income tax benefit
Loss for the period
Non-controlling interest share
Group's share of loss for the period
d)
Aliexpress Russia Holding Pte Limited
Current assets, including cash and cash equivalents of RUR 18 bln and trade accounts receivable of RUR 8 bln
Non-current assets, including intangible assets of RUR 43 bln
Current liabilities, including trade accounts payable of RUR 7 bln
Non-current liabilities, including deferred tax liability of RUR 8 bln
Equity
Group's share in equity – 15.01%
Goodwill
Group's carrying amount of the investment
Revenue
Cost of sales
Marketing expenses
Administrative expenses, including depreciation and amortization of RUR 1 bln
Finance and other costs
Loss before tax
Income tax expense
Loss for the period
Group's share of loss for the period
Mail.Ru Group 2019 Results
161
Provisional values as of
December 31, 2019
49,872
21,473
(12,193)
(210)
58,942
28,646
7,871
36,517
December 2019
459
(296)
(1,289)
(29)
(1,155)
96
(1,059)
(56)
(501)
December 31, 2019
28,417
45,717
(8,421)
(8,140)
57,573
8,643
3,378
12,021
October-December 2019
6,428
(5,780)
(2,158)
(1,712)
(1,243)
(4,465)
–
(4,465)
(670)
44
2019Annual report
Notes to Consolidated Financial Statements (continued)
10
Investments in equity accounted associates and joint ventures (continued)
10.2
Interest in joint ventures (continued)
Movement in investments in equity accounted associates and joint ventures for the years ended December 31, 2019 and 2018 is presented below:
Investments in equity accounted associates and joint ventures at January 1
Acquisition of shares in equity accounted associates
Acquisition of shares in equity accounted joint ventures (Note 6.9, 6.10)
Disposal of associate due to formation of joint ventures
Reversal of impairment/(impairment) of equity accounted associates and joint ventures
Acquisition of control over strategic associates
Share in net profits of equity accounted associates and joint ventures
Dividends from equity accounted associates and joint ventures
Investments in equity accounted associates and joint ventures at December 31
2019
2,816
3,749
49,711
(2,998)
60
(1,742)
(1,691)
(71)
49,834
2018
1,013
2,377
–
–
(37)
–
(497)
(40)
2,816
11
Impairment testing of goodwill
The table below shows movements in goodwill per groups of CGUs, corresponding to the Group`s operating segments for each of the years ended
December 31, 2019 and 2018:
Email, Portal
and IM
Social
Networks
Online
Games
Search E-commerce
Vkontakte
Pixonic DeliveryClub
ESforce
Skillbox
Others
Total
Cost at January 1,
2018
Additions
Disposal
Cost at December 31,
2018
8,192
18,474
1,952
2,496
462
93,691
1,592
6,179
–
–
–
–
–
210
–
–
–
1,720
–
–
–
–
–
–
–
5,372
(372)
8,192
18,474
2,162
2,496
2,182
93,691
1,592
6,179
5,000
–
–
–
–
–
133,038
478
–
7,780
(372)
478
140,446
Additions
Assets held for sale
–
–
2,515
–
754
–
–
–
1,565
–
4,103
–
–
–
–
(6,179)
–
(5,000)
1,775
–
686
–
11,398
(11,179)
Cost at December 31,
2019
8,192
20,989
2,916
2,496
3,747
97,794
1,592
–
–
1,775
1,164
140,665
The recoverable amount of goodwill has been determined based on value in use calculations as of December 31, 2019 and 2018.
Goodwill related to Delivery Club in the amount of RUR 6,179 was reclassified into assets held for sale as of June 30, 2019 and subsequently
disposed of as a result of O2O JV formation. For details please refer to Note 6.10.
Goodwill related to ESforce in the amount of RUR 5,000 was reclassified into assets held for sale as of June 30, 2019 and subsesuently
remeasured. For details please refer to Note 6.2.
Value in use
At December 31, 2019, value in use was determined using cash flow projections from financial budgets and forecasts approved by senior
management covering a seven to nine-year periods. The nine-year period was taken as the basis because the Group expects that the growth rates
of the Russian Internet market will exceed the terminal growth rates in the four-year period following the first five years of forecast. The Group
used the cash flow projections based on financial forecasts over a period longer than five years as it is confident that these projections are reliable
and accurate.
The major assumptions used in the DCF models at December 31, 2018 are presented below:
Terminal growth rate
Pre-tax discount rate
Email, Portal
and IM
5.0%
17.1%
Social Networks
Online Games
Search
E-commerce
Vkontakte
Pixonic
DeliveryClub
ESforce
5.0%
17.2%
5.0%
17.5%
5.0%
17.0%
5.0%
4.5%
5.0%
16.9%
5.0%
16.1%
4.0%
15.4%
5.0%
22.3%
The major assumptions used in the DCF models at December 31, 2019 are presented below:
Terminal growth rate
Pre-tax discount rate
Email, Portal
and IM
5.0%
16.8%
Social Networks
Online Games
Search
5.0%
17.6%
5.0%
16.8%
5.0%
16.1%
E-commerce
and EdTech
5.0%
18.7%
Vkontakte
5.0%
17.0%
Pixonic
Skillbox
5.0%
16.1%
5.0%
20.4%
Mail.Ru Group 2019 Results
162
45
2019Annual report
Notes to Consolidated Financial Statements (continued)
11
Impairment testing of goodwill (continued)
Determining value in use requires the exercise of significant judgment, including judgment about appropriate discount rates, terminal growth rates,
the amount and timing of expected future cash flows. The cash flows employed in the DCF analysis are based on the Group’s most recent budget
and, for years beyond the budget, the Group’s estimates, which are based on assumed growth rates. The discount rates used in the DCF analysis are
intended to reflect the risks inherent in the future cash flows of the respective cash generating units.
The calculation of value in use is most sensitive to the following assumptions:
•
•
•
•
Revenue Compound annual growth rates (“CAGR”);
EBITDA margins;
Growth rates used to extrapolate cash flows beyond the budget period including terminal growth rate in last year of projections; and
Discount rates.
Reasonably possible changes in any key assumptions would not result in impairment of goodwill of any CGU. No impairment of goodwill was
recognised in 2019 and 2018.
12
Trade accounts receivable
As of December 31, 2019 and 2018 trade receivables comprised the following:
Trade accounts receivable, gross
Allowance for expected credit losses
Total trade receivables, net
December 31, 2019
December 31, 2018
12,728
(440)
12,288
10,273
(357)
9,916
The accounts receivable increased primarily due to growth of online advertising and MMO games revenue.
The movements in the allowance for expected credit losses of trade receivables were as follows:
Balance as of January 1, 2018
Charge for the year
Accounts receivable written off
Balance as of December 31, 2018
Charge for the year
Accounts receivable written off
Balance as of December 31, 2019
(300)
(84)
27
(357)
(201)
118
(440)
An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are
based on days past due for groupings of various customer segments with similar loss patterns and the likelihood of default over a given time
horizon. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is
available at the reporting date about past events, current conditions and forecasts of future economic conditions.
Set out below is the information about the credit risk exposure on the Group’s trade and other receivables as of December 31, 2019 and 2018
using a provision matrix:
As of December 31, 2019
Expected credit loss rate
Estimated total gross carrying amount at
default
Expected credit loss
As of December 31, 2018
Expected credit loss rate
Estimated total gross carrying amount at
default
Expected credit loss
<90 days
Trade accounts receivable
Days past due
90-180
180-360
>360
Total
1.10%
11.50%
20.55%
75.51%
11,754
(129)
348
(40)
375
(77)
251
(194)
12,728
(440)
<90 days
1.56%
9,550
(149)
Trade accounts receivable
Days past due
90-180
180-360
>360
Total
12%
404
(49)
21%
146
(30)
75%
173
(129)
10,273
(357)
Mail.Ru Group 2019 Results
163
46
2019Annual report
Notes to Consolidated Financial Statements (continued)
12
Trade accounts receivable (continued)
Trade receivables not impaired as of December 31, 2019 and 2018 are presented below:
As of December 31, 2019
Trade accounts receivable
As of December 31, 2018
Trade accounts receivable
Total
<90
12,288
9,916
11,625
9,401
Ageing of receivables (days)
>90
663
515
The accounts receivable balances as of December 31, 2019 and 2018 mainly represented amounts due from online electronic payment systems
and advertising customers.
The trade receivables are non-interest bearing and are generally settled in RUR on a 40-90 days basis. There is no requirement for collateral to
receive credit.
Management considers that the carrying amount of the receivable balances approximated their fair value as of December 31, 2019 and 2018.
13
Cash and cash equivalents and short-term deposits
As of December 31, 2019 and 2018 cash and cash equivalents consisted of the following:
Current accounts and cash on hand:
Cash attributable to assets held for sale
Total current accounts and cash on hand
Deposit accounts with an original maturity of three months or less:
Total deposit accounts with an original maturity of three months or less
Total cash and cash equivalents and short-term deposits
14
Share capital
14.1 Charter capital and share issues
Currency
USD
RUR
EUR
Other
USD
RUR
December 31, 2019
December 31, 2018
917
1,692
1,501
3
(43)
4,070
680
5,032
5,712
9,782
1,468
1,436
977
3
–
3,884
834
7,005
7,839
11,723
The charter capital of the Company consisted of 208,582,082 ordinary shares and 11,500,100 Class A shares with USD 0.000005 par value each as
of December 31, 2019, while the number of authorised shares of the Company as of the same date consisted of 10,000,000,000 ordinary shares and
10,000,000,000 Class A shares. GDRs representing 126,979 shares of the Company were held in treasury by the Group as of December 31, 2019.
The charter capital of the Company consisted of 208,582,082 ordinary shares and 11,500,100 Class A shares with USD 0.000005 par value each as
of December 31, 2018, while the number of authorised shares of the Company as of the same date consisted of 10,000,000,000 ordinary shares and
10,000,000,000 Class A shares. GDRs representing 157,371 shares of the Company were held in treasury by the Group as of December 31, 2018.
As of December 31, 2019 and 2018 all issued shares were fully paid.
Rights attached to the share classes as of December 31, 2019 and 2018
The Class A shares and the ordinary shares rank pari passu in all respects, but constitute separate classes of shares, i.e. each and every ordinary
share and Class A share has the following rights:
(i)
(ii)
the right to an equal share in any dividend or other distribution paid by the Company to the holders of the shares, pari passu with all other
Class A shares and ordinary shares; and, for the avoidance of doubt, any dividend or other distribution may only be declared and paid by the
Company to the holders of the Class A shares and the ordinary shares together, and not to the holders of one of those classes of shares
only;
the right to an equal share in the distribution of the surplus assets of the Company pari passu with all other ordinary shares and Class A
shares upon the winding up of the Company.
Each Class A share has the right to twenty five votes and each ordinary share has the right to one vote at a meeting of members of the Company or
on any resolution of members of the Company.
For additional details on the options over the shares of the Company outstanding as of December 31, 2019 and 2018, refer to Note 24.
Mail.Ru Group 2019 Results
164
47
2019Annual report
Notes to Consolidated Financial Statements (continued)
14
Share capital (continued)
14.2 GDR buying programme
Starting 2011, the Trustee commenced a GDR buying programme in order to cover a part of the employee and director options. Under the GDR
buying programme, the Trustee acquires GDRs representing shares of the Company and will subsequently transfer the GDRs to the respective
option holders upon the exercise of the options. The Trustee intends to hold the GDRs to be used over the next seven years.
During 2019 the Trustee acquired a total of 572,437 GDRs on the market for an aggregate consideration of RUR 896. The Group accounts for GDRs
repurchased as treasury shares.
In December 2018 an additional extension of the RSU 2017 Plan for 2,000,000 units and acquisition of required number of GDRs on the market
were approved.
15
Other assets
The table below represents other non-current assets:
Advances for royalties
Advance under office lease contract
Total other non-current assets
December 31, 2019
December 31, 2018
–
115
115
1,176
398
1,574
In a number of non-cash transactions, the Group disposed certain MMO games titles including advances for royalty of RUR 1,176 and obtained
equity investment in Modern Pick with carrying value of RUR 551. The Group recognised gain of RUR 400 as a result of these transactions.
16
Other payables and accrued expenses
Other payables and accrued expenses consist of:
Payables to personnel
Accrued vacations
Accrued professional consulting expenses
Contingent consideration liabilities (Note 6, Note 22)
Deferred consideration on formation of joint ventures (Note 6, Note 22)
Other current payables and provisions
Total other payables and accrued expenses
17
Revenue
December 31, 2019
December 31, 2018
2,482
1,314
71
5,472
5,076
933
15,348
2,140
1,046
41
1,997
–
386
5,610
The presentation and disclosure requirements in IFRS 15 are more detailed than under previous standard. As required for consolidated financial
statements disaggregation of revenue from contracts with customers for the year ended December 31, 2019, based on the Group’s segment
reporting (Note 5) is presented below:
Communications and
Social
Games
New initiatives
Eliminations
Group
Revenue
External revenue
Intersegment revenue
Total revenue
Services transferred at a point in time
Services transferred over time
50,313
208
50,521
40,969
9,552
30,551
118
30,669
4,299
26,370
6,206
27
6,233
4,242
1,991
–
(353)
(353)
(353)
–
87,070
–
87,070
49,157
37,913
Disaggregation of revenue from contracts with customers for the year ended December 31, 2018 based on the Group’s segment reporting (Note 5)
is presented below:
Communications and
Social
Games
New initiatives
Eliminations
Group
Revenue
External revenue
Intersegment revenue
Total revenue
Services transferred at a point in time
Services transferred over time
Mail.Ru Group 2019 Results
165
43,575
191
43,766
35,562
8,204
24,841
4
24,845
2,119
22,726
2,748
1
2,749
1,920
829
–
(196)
(196)
(196)
–
71,164
–
71,164
39,405
31,759
48
2019Annual report
Notes to Consolidated Financial Statements (continued)
18
Income tax
The business activity of the Group and its associates is subject to taxation in multiple jurisdictions, including:
The Russian Federation
The Group’s subsidiaries and associates incorporated in the Russian Federation are subject to corporate income tax at the standard rate of 20%
applied to their taxable income. Withholding tax of 15% is applied to any dividends paid out of Russia, reduced to as low as 5% for some countries
(including Cyprus), with which Russia has double-tax treaties.
Cyprus
The Company and the Group’s subsidiaries and associates incorporated or tax residents in Cyprus are subject to a 12.5% corporate income tax
applied to their worldwide income. Capital gains derived from sale of securities are tax exempt (except for capital gains realised in connection with
sale of shares in companies deriving their value or the greater part of their value from immovable property located in Cyprus). Dividend income is
also tax exempt.
British Virgin Islands
The Company and its subsidiaries and associates incorporated in the British Virgin Islands are exempt from all taxes under the respective laws,
unless they become tax residents in other jurisdictions.
United States of America
The Group’s subsidiaries incorporated in the USA are subject to federal corporate income tax at standard rates of up to 35% applied to their
taxable income.
The Netherlands
The Group’s subsidiaries incorporated in the Netherlands are subject to corporate income tax at a standard rate of 25% applied to their taxable
income. Dividend income and capital gains received by the Dutch subsidiaries are exempt from the corporate income (participation exemption).
The major components of income tax expense in the consolidated statement of comprehensive income are as follows:
Current income tax expense
Deferred income tax expense/(benefit)
Total income tax expense
2019
3,370
58
3,428
2018
3,067
(2,521)
546
The reconciliation between tax expense and the product of accounting profit multiplied by domestic rates applicable to individual Group entities for
the years ended December 31, 2019 and 2018 is as follows:
Profit/(loss) before income tax expense
Tax at domestic rates applicable to individual group entities
Non-deductible expenses
Non-taxable foreign exchange and other gains
Adjustments in respect of current income tax of previous year
Effect of changes in tax rates
Tax accruals and penalties
Unrecognised deferred tax assets
Effect of reameasurement of assets held for sale
Other
Total income tax expense
2019
22,279
(4,934)
(485)
3,618
(119)
(393)
(45)
(539)
(565)
34
(3,428)
2018
(7,517)
1,103
(1,723)
559
135
–
(42)
(618)
–
40
(546)
The majority of our taxable profits as well as income tax expenses in 2019 and 2018 are generated in Russia. Pre-tax gains and losses in other
jurisdictions in 2019 mostly relate to share based payment expenses, fair value revaluation, foreign exchange gains and losses, and other similar
items which are generally non-taxable (non-deductible) in those jurisdictions. These items affect pre-tax profit, but do not have an influence on
income tax expense, which has an effect on the blended tax rate.
Mail.Ru Group 2019 Results
166
49
2019Annual report
Notes to Consolidated Financial Statements (continued)
18
Income tax (continued)
Deferred income tax assets and liabilities as of December 31, 2019 and 2018 are summarised below:
Consolidated statement of financial position
December 31, 2019
December 31, 2018
Deferred tax liabilities arising from:
Intangible assets book basis in excess of tax basis
Basis of investment in associate in excess of tax basis
Unremitted earnings of subsidiaries
Other
Deferred tax liabilities netting
Related to assets held for sale
Total deferred tax liabilities
Deferred tax assets arising from:
Tax credit carryforwards
Deferred compensation and accrued employee benefits
Accrued expenses
Revenue recognition
Unrealised intercompany profit
Other
Deferred tax assets netting
Related to assets held for sale
Total deferred tax assets
Net deferred tax assets/(liabilities)
(2,634)
12
(10)
(725)
1,071
105
(2,181)
735
673
461
972
105
204
(1,071)
(305)
1,774
(407)
(3,002)
–
(7)
(579)
1,183
–
(2,405)
1,733
549
336
3,107
105
146
(1,183)
–
4,793
2,388
Consolidated statement of comprehensive income
2019
381
12
(4)
(121)
–
–
268
1,423
133
40
(1,965)
–
43
–
–
(326)
(58)
2018
804
47
(6)
(229)
–
–
616
698
172
64
1,054
(56)
(27)
–
–
1,905
2,521
The temporary differences associated with investments in subsidiaries for which a deferred tax liabilities have not been recognised, aggregate to
RUR 79,968 (2018: RUR 79,659).
Changes in net deferred tax liabilities from January 1, 2018 to December 31, 2019 were as follows:
Total deferred income tax liabilities, net at January 1
Translation reserve
Effect of disposal of subsidiary
Deferred tax (expense)/benefit
Effect of acquisition of subsidiaries (Note 6)
Assets held for sale
Total deferred income tax assets/(liabilities), net at December 31
19
EPS
19.1 Basic EPS
2019
2,388
(27)
(2,502)
(29)
(72)
(165)
(407)
2018
(216)
86
–
2,554
(36)
–
2,388
Basic EPS amounts are calculated by dividing earnings/loss for the year attributable to equity holders of the parent by the weighted average
number of ordinary and Class A shares outstanding during the year.
Net profit/(loss)attributable to equity holders of the Company
2019
18,686
2018
(7,991)
Weighted average number of ordinary and class A shares in issued and outstanding
216,694,354
213,798,296
Basic EPS (RUR per share)
19.2 Diluted EPS
86
(37)
Diluted EPS is calculated by adjusting the weighted average number of ordinary and Class A shares outstanding by the assumption of the
conversion of all potential dilutive ordinary shares arising from share options and RSUs granted by the Company (collectively forming the
denominator for computing the diluted EPS).
For share options and RSUs, a calculation is done to determine the number of shares that would have been issued assuming the exercise of the
share options and RSUs. The above number is added to the denominator as an issue of ordinary shares for no consideration. Net profit/loss
attributable to equity holders of the parent (numerator) is adjusted for the charge that would arise if equity settlement took place.
Mail.Ru Group 2019 Results
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2019Annual report
Notes to Consolidated Financial Statements (continued)
19
EPS (continued)
19.2 Diluted EPS (continued)
The calculation of diluted EPS is summarised in the table below:
Net profit/(loss) attributable to equity holders of the Company
Adjustment for the gains from cash setlled option
Adjusted net profit/(loss) attributable to equity holders of the Company
Weighted average number of ordinary and class A shares in issue and outstanding
Effect of equity-settled share based payments of the Company
Total diluted weighted average number of shares
Diluted EPS (RUR per share)
20
Commitments, contingencies and operating risks
20.1 Operating environment of the Group
2019
18,686
(111)
18,575
2018
(7,991)
(82)
(8,073)
216,694,354
2,466,961
213,798,296
2,844,785
219,161,315
216,643,081
85
n/a
Most of the Group’s operations are in Russia. Russia continues economic reforms and development of its legal, tax and regulatory frameworks as
required by a market economy. The future stability of the Russian economy is largely dependent upon these reforms and developments and the
effectiveness of economic, financial and monetary measures undertaken by the government.
The Russian economy has been negatively impacted by sanctions imposed on Russia by a number of countries. The Rouble interest rates remained
high. The combination of the above resulted in reduced access to capital, a higher cost of capital and uncertainty regarding economic growth, which
could negatively affect the Group’s future financial position, results of operations and business prospects. Management believes it is taking
appropriate measures to support the sustainability of the Group’s business in the current circumstances.
20.2 Taxation
Russian tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Management's
interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant regional and federal
authorities. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive position in their interpretation
of the legislation and assessments and as a result, it is possible that transactions and activities that have not been challenged in the past may be
challenged. As such, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in
respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.
Management estimates that possible exposure in relation to the aforementioned risks, as well as other profits tax and non-profits tax risks (e.g.
imposition of additional VAT liabilities), that are more than remote, but for which no liability is required to be recognized under IFRS, could be few
times as high as income tax payable and VAT and other taxes payable reflected in the statement of financial position at that date. This estimation is
provided for the IFRS requirement for disclosure of possible taxes and should not be considered as an estimate of the Group’s future tax liability.
20.3 Legal proceedings
The Group has been and continues to be the subject of legal proceedings and adjudications from time to time, none of which has had, individually or
in the aggregate, a material adverse impact on the Group. Management believes that the resolution of all current and potential legal matters will
not have a material adverse impact on the Group’s financial position or operating results.
20.4 Managing Joint Ventures
To pursue our strategic development goals we entered into joint venture agreements with third parties in ecommerce and online-to-offline (O2O)
segments. Failure to successfully develop new businesses and to operate those in a sustainable and efficient manner could cause us to face
unanticipated liabilities and harm our overall financial results.
20.5 Private information
To become registered on a website operated by the Group, users have to input their personal data, which is then protected by the Group from
access by third parties. Should such data become available to third parties as a result of hackers’ attacks, the Group may become a party to
litigation from its users. Management believes it takes all necessary steps to reduce the related risk to an acceptable level.
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2019Annual report
Notes to Consolidated Financial Statements (continued)
20
Commitments, contingencies and operating risks (continued)
20.6
Intellectual property rights
The Group may be subject to infringement claims from third parties in the future resulting from the technology and intellectual property used in the
provision and marketing of its services. If the Group is found liable for infringement, it may be required to pay significant damages, and if it is
unable to license or develop non-infringing technology on a timely basis, it may be unable to continue offering the affected services without risk of
liability. Similarly, third parties may obtain and use the Group’s intellectual property without authorisation. The validity, application, enforceability
and scope of protection of intellectual property rights for many Internet-related activities are uncertain and still evolving, which may make it more
difficult for the Group to protect its intellectual property and could have a material effect on its business, results of operations and financial
condition. The Group has been subject to such proceedings. Although none of them was individually significant, similar potential claims may subject
the Group to significant losses in the future, which currently cannot be reliably estimated.
20.7 Development
A failure to innovate, to provide popular products and services or to react quickly to changes in the market could affect the popularity of the
Group’s sites and, in turn, could affect the Group`s revenue. An inability to develop competitive products and services which are compatible with
new mobile devices could result in a failure to capture a significant share of an increasingly important market.
20.8 Regulation
The Internet and its associated technologies are subject to government regulation. Substantial part of Group’s business is subject to Russian laws.
On January 1, 2019 the Russian law on aggregators of goods and services came into force. Such law introduced obligations of aggregators to
disclose certain information on the goods and services and on the seller of goods and the provider of services. The law determined liability of
aggregators for causing damages to a buyer of goods or services by providing false information to the buyer.
On March 18, 2019 new law came into force banning publishing “fake news” and information showing “disrespect” to government bodies in mass
media and internet. In March 2019 a law aimed at increasing Russian “sovereignty” over Russian internet has been adopted with effective date
November 1, 2019 and certain provisions to come into force on January 1, 2021. The law seeks to create national system of routing web traffic and
proposes building a national domain name system to allow the internet to continue functioning even if Russia is cut off from foreign infrastructure.
The Group is also subject to other various specific Russian laws, such as so called Anti-Piracy Law, Anti-extremism Law, Black List Law etc.
Non-compliance with the applicable regulations could lead to penalties or blocking of non-compliant services. The Group complies with the existing
and new laws in all material respect.
20.9 Personnel
As competition in Russia’s internet industry increases, the Group’s business and operations could be adversely affected by difficulties in hiring,
motivating and retaining highly-skilled people. Competition for senior managers is high. One or more could join a competitor, or set-up a competing
company, with the result that operations and profitability could be affected by a loss of strategic direction, users, know-how and additional staff.
20.10 Infrastructure and capacity
If the infrastructure in Russia were not able to support increased demand, the Group’s services could be interrupted or the Group’s systems
damaged. A limited availability of third-party providers of network and server capacity could limit the Group’s ability to offer certain services or to
expand. Network or power failures could result in the loss of data and in a reduction in the number of users, which could have a material effect on
the Group’s business, results of operations and financial condition.
21
Balances and transactions with related parties
The following table provides the total amount of transactions, which have been entered into with related parties for the relevant financial year,
excluding Directors and key management of the Group (see Notes 21.2 and 21.3). All related party transactions were made in accordance with
contractual terms and conditions agreed between the parties. Other entities represents other than equity accounted associates (Note 3.18).
Sales to related parties
Purchases from
related parties
Amounts owed by
related parties
Amounts owed to
related parties
2019
Equity accounted associates
Joint ventures
Other entities
2018
Equity accouned associates
Joint ventures
Other entities
1,212
442
705
1,156
–
1,124
208
1
1,313
574
–
22
795
1,040
629
305
–
833
All related party transactions were made in accordance with contractual terms and conditions agreed between the parties.
Mail.Ru Group 2019 Results
169
202
10,651
15,050
136
–
7
52
2019Annual report
Notes to Consolidated Financial Statements (continued)
21
Balances and transactions with related parties (continued)
21.1 The ultimate controlling party
Starting October 18, 2018, no single shareholder of JSC MF Technologies is entitled solely to nominate 5 directors to the Company’s Board of
Directors at its discretion. As such, starting from that date, the Group does not have an ultimate controlling party.
21.2 Directors of the Company
Total cash remuneration of the members of the Board of Directors (each a “Director” and collectively, “Directors”) of the Company amounted to
RUR 107 for the year ended December 31, 2019 (2018: RUR 144). In 2019 no RSUs or options over the shares of the Company were granted to
Directors (2018: nil RSUs). During the year ended December 31, 2019, Directors did not forfeit any RSUs or options (2018: nil) and exercised 2,500
options (2018: 2,500). The corresponding share-based payment expense was a negative RUR 31 for year ended December 31, 2019
(2018: negative 49).
21.3 Key management of the Group
Total cash remuneration of the key management of the Group (excluding Directors) amounted to RUR 843 for the year ended December 31, 2019
(2018: 563). In addition to the cash remuneration for the year ended December 31, 2019, key executive employees of the Group were granted
1,280,000 RSUs out of 2017 RSU Plan (2018: 200,000). During the year ended December 31, 2019, key management of the Group (excluding
Directors) did not forfeit any options (2018: nil) and exercised 1,268,750 RSU`s and options over shares of the Company (2018: 3,082,500). In Q4
2018 3,535,000 RSUs held by key management of the Company were accelerated. The corresponding share-based payment expense amounted to
RUR 583 for year ended December 31, 2019 (2018: 3,405).
22
Financial instruments
The carrying amounts of the Group's financial instruments approximated their fair values as of December 31, 2019 and December 31, 2018 and are
presented by category of financial instruments in the table below:
Category*
December 31, 2019
December 31, 2018
FAFVPL
FAFVPL
FAFVPL
FAFVPL
FAFVPL
FAFVPL
FAAC
FAAC
FAAC
FLFVPL
FLAC
FLAC
FLAC
FLAC
FLAC
Financial assets at fair value through profit and loss
Non-current
Financial investments in venture capital investees
Derivative financial assets over the equity of investee
Convertible loans
Financial derivative under lease contract
Current
Derivative financial assets over the equity of investee
Convertible loans
Financial assets at amortised cost
Trade accounts receivable
Loans and interest receivable
Cash and cash equivalents
Total financial assets
Financial liabilities at fair value through profit and loss
Current
Contingent consideration liabilities (Note 6, Note 16)
Financial liabilities at amortised cost
Current
Trade accounts payable, other payables and accrued expenses
Short-term portion of long-term interest-bearing loans
Short-term lease liabilities
Non-current
Long-term interest-bearing loans
Non-current lease liabilities
Total financial liabilities
* Financial instruments used by the Group are included in one of the following categories:
–
–
–
–
FAFVPL – financial assets at fair value through profit or loss;
FLFVPL – financial liabilities at fair value through profit or loss;
FAAC – financial assets at amortised cost; or
FLAC – financial liabilities at amortised cost.
Mail.Ru Group 2019 Results
170
673
110
452
514
3
87
12,288
941
9,782
24,850
5,472
–
17,739
4,044
3,153
19,474
1,568
51,450
256
92
1,167
500
2
1,070
9,916
145
11,723
24,871
1,997
11,876
–
–
–
–
13,873
53
2019Annual report
Notes to Consolidated Financial Statements (continued)
22
Financial instruments (continued)
None of the Group’s financial investees are public companies and none of the Group’s financial instruments are traded in active markets.
Accordingly, fair values of the Group’s financial assets and liabilities at fair value through profit or loss are determined using valuation techniques,
including discounted cash flow models, comparison to similar instruments for which observable market prices exist, option pricing models and other
relevant valuation models. Such valuation techniques require management to make certain assumptions about model inputs, including credit risk
and volatility.
Fair value of cash and cash equivalents, short-term time deposits, short-term accounts receivable, other current assets, trade accounts payable
approximate their carrying amounts largely due to the short-term maturities of these instruments.
22.1 Financial assets at amortised cost
The Group classifies the following financial assets at amortised cost:
•
•
•
The asset is held within a business model with the objective of collecting the contractual cash flows and the contractual terms give rise on
specified dates to cash flows that are solely payments of principal and interest on the principal outstanding;
Trade receivables;
Cash and cash equivalents
Detailed information on short-term receivables, cash and cash equivalents and short-term time deposits is available in Notes 12 and 13.
22.2 Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or
indirectly (i.e., derived from prices)
•
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
As at December 31, 2019 and 2018 the Group held the following financial instruments measured at fair value through profit or loss:
December 31, 2019
Level 1
Level 2
Level 3
Financial assets measured at fair value through profit or
loss
Financial assets at fair value through profit or loss:
Financial investments in venture capital investees
Convertible loans
Financial derivative under lease contract
Derivative financial assets over the equity of investee
Total financial assets at fair value through profit or loss
Total financial assets measured at fair value through
profit or loss
Financial liabilities measured at fair value through profit
or loss
Contingent consideration liabilities
Total financial liabilities measured at fair value through
profit or loss
673
539
514
113
1,839
1,839
5,472
5,472
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Mail.Ru Group 2019 Results
171
673
539
514
113
1,839
1,839
5,472
5,472
54
2019Annual report
Notes to Consolidated Financial Statements (continued)
22
Financial instruments (continued)
22.2 Fair value hierarchy (continued)
Financial assets measured at fair value through profit or
loss
Financial assets at fair value through profit or loss:
Financial investments in venture capital investees
Convertible loans
Financial derivative under lease contract
Derivative financial assets over the equity of investee
Total financial assets at fair value through profit or loss
Total financial assets measured at fair value through
profit or loss
Financial liabilities measured at fair value through profit
or loss
Contingent consideration liabilities
Total financial liabilities measured at fair value through
profit or loss
December 31, 2018
Level 1
Level 2
Level 3
256
2,237
500
94
3,087
3,087
1,997
1,997
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
256
2,237
500
94
3,087
3,087
1,997
1,997
The balance of Level 3 measurements as of January 1, 2019 is reconciled to the balance of those measurements as of December 31, 2019 as
follows:
Balance as of
January 1,
2019
Gains/(losses)
recognized in
profit and loss
Foreign
exchange
gains/(losses)
Purchases/
settlement
Convertible
loan execution
Recognition of
deposit
Balance as of
December 31,
2019
Financial assets measured at fair value through profit or
loss
Financial assets at fair value through profit or loss:
Financial investments in venture capital investees
Derivative financial assets over the equity of investee
Convertible loans
Financial assets and derivatives under lease contracts
Total financial assets at fair value through profit or loss
Financial liability measured at fair value through profit or
loss
Financial liabilities at fair value through profit or loss –
contingent consideration liabilities
Total financial liabilities measured at fair value through
profit or loss
256
94
2,237
500
3,087
(139)
(90)
(468)
(245)
(942)
(29)
–
–
–
(29)
484
109
1,508
–
101
–
(2,738)
–
2,101
(2,637)
–
–
–
259
259
673
113
539
514
1,839
(1,997)
(1,997)
45
45
132
(3,652)
132
(3,652)
–
–
–
–
(5,472)
(5,472)
Balance as of
January 1,
2018
Gains/(losses)
recognized in
profit and loss
Foreign
exchange
gains/(losses)
Purchases
Acqusition of
control in
investees
Acquisition of
significant
influence in
investee
Balance as of
December 31,
2018
Financial assets measured at fair value through profit or
loss
Financial assets at fair value through profit or loss:
Financial investments in venture capital investees
Derivative financial assets over the equity of investee
Convertible loans
Financial derivatives under lease and hosting contracts
Total financial assets at fair value through profit or loss
Financial liability measured at fair value through profit or
loss
Financial liabilities at fair value through profit or loss –
contingent consideration liabilities
Total financial liabilities measured at fair value through
profit or loss
264
122
–
150
536
–
–
26
275
(626)
350
25
5
–
–
–
5
72
3
3,006
–
3,081
(111)
(11)
–
–
(122)
–
(295)
(143)
–
(438)
256
94
2,237
500
3,087
(515)
(257)
(1,225)
(515)
(257)
(1,225)
–
–
–
–
(1,997)
(1,997)
Mail.Ru Group 2019 Results
172
55
2019Annual report
Notes to Consolidated Financial Statements (continued)
22
Financial instruments (continued)
22.3 Interest-bearing loans
In 2019 the Group raised several loans in the total amount of RUR 23,500 (net of loan origination fees of RUR 117) for funding increasing M&A
activity. All loans are unsecured. The loan agreements contain restrictive financial and non-financial covenants that the Group as the borrower is
obliged to fulfil. Restrictive covenants include maintaining certain financial ratios. As of December 31, 2019 all restrictive covenants are met.
The table below represents the major loans as of December 31, 2019:
Sberbank RUR 6.5 bln loan
Sberbank RUR 8.5 bln loan
Raiffeisen bank loan
Original currency
Interest rate
Maturity date
Outstanding principal amount as of
December 31,2019
RUR
RUR
RUR
7.5%
7.0%
9.0%
October 6, 2023
December 7, 2023
March 6, 2023
6,500
8,500
8,500
23
Financial risk management objectives and policies
23.1
Introduction
The Group’s principal financial liabilities mainly comprise a contingent consideration liability and trade accounts payable. The main purposes of
these financial liabilities are to finance the Group’s operations and, in the case of the contingent consideration, a business acquisition. The Group
has short-term receivables, short-term time deposits, cash and cash equivalents and other current financial assets that arise directly from the
Group’s operations.
The Group also has a venture capital investment portfolio consisting of equity investments in Internet start-ups and smaller Internet companies and
derivative contracts over the equity of the Group’s venture capital investees.
The Group also has a venture capital investment portfolio consisting of equity investments in Internet start-ups and smaller Internet companies and
derivative contracts over the equity of the Group’s venture capital investees.
The Group’s senior management is responsible for identifying and controlling risks. These activities are supervised by the Board of Directors, the
Group’s governing body that is ultimately responsible for the Group’s overall approach to risk management. The Board of Directors is developing
risk management policies covering the following major aspects: identification and analysis of the risks the Group faces, setting appropriate risk
limits and controls, and monitoring risks and adherence to limits. Risk management procedures and systems are contemplated to be reviewed
regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and
procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and responsibilities.
The Group’s Audit Committee has been established to oversee, inter alia, how management monitors compliance with the Group’s risk
management practices and procedures when these are approved by the Board of Directors.
23.2 Liquidity and financial resources
Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group
monitors its risk of a shortage of funds using a liquidity planning tool. Management regularly monitors projected and actual cash flow information,
analyzes the repayment schedules of the existing financial assets and liabilities and performs annual detailed budgeting procedures.
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of operating cash flows, bank loans and
overdrafts. Other financial liabilities of the Group are mostly represented by trade payables with maturity less than one year.
The contractual maturities of the Group’s financial liabilities are presented below:
Year ended December 31, 2019
Less than 3 months
3 to 12 months
1 to 3 years
> 3 years
Total
Short-term and long-term interest-bearing loans and
borrowings
Trade accounts payable
Current and non-current lease liabilities
Contingent consideration liabilities
Other payables, accrued expenses
708
7,863
966
–
4,800
3,336
–
2,403
5,472
5,076
Total financial liablities
14,337
16,287
14,526
–
1,608
–
–
16,134
4,948
–
291
–
–
5,239
Year ended December 31, 2018
Less than 3 months
3 to 12 months
1 to 3 years
> 3 years
Trade accounts payable
Contingent consideration liabilities
Other payables, accrued expenses
Total financial liablities
Mail.Ru Group 2019 Results
173
8,263
–
3,613
11,876
–
1,997
1,997
–
–
–
–
–
–
–
–
23,518
7,863
5,268
5,472
9,876
51,997
Total
8,263
1,997
3,613
13,873
56
2019Annual report
Notes to Consolidated Financial Statements (continued)
23
Financial risk management objectives and policies (continued)
23.3 Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss.
Financial assets, which potentially subject the Company and its subsidiaries and associates to credit risk, consist principally of cash and cash
equivalents, short-term time deposits, short-term receivables and convertible loans. The total of these account balances represents the Group’s
maximum exposure to credit risk.
The Group places its cash and cash equivalents with highly rated financial institutions, which are considered at the time of deposit to have minimal
risk of default. The Group does not require collateral or other security to support the financial instruments subject to credit risk. Accounts
receivable from the two largest customers collectively represented 12% of total trade accounts receivable of the Group as of December 31, 2019
and 12% as of December 31, 2018. No customer accounted for more than 10% of revenue in 2019 or 2018. The Group provides credit payment
terms to its customers in accordance with market practices and based on thorough review of the customer’s profile and creditworthiness. Although
collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss beyond the
allowance already recorded.
23.4 Capital management policy
For the purpose of the Group’s capital management, capital includes issued capital, share premium and all other equity reserves attributable to the
equity holders of the parent. The primary objective of the Group’s capital management is to maximise the shareholder value. The Group manages
its capital structure and makes adjustments in light of changes in economic conditions.
23.5 Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. The
market risks the Group is exposed to comprise two types of risk: currency risk (Note 23.6) and equity risk. The Group’s financial instruments
affected by market risk include payables, cash and cash equivalents, short-term time deposits, financial investments in associates and derivative
financial instruments. The Group’s equity risk arises from uncertainties about future values of the investment into unlisted securities.
23.6 Foreign currency risk
The following table demonstrates the sensitivity to a reasonably possible change in USD and EUR exchange rate, with all other variables held
constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities. The Group’s exposure to
foreign currency changes for all other currencies is not material.
2019
2018
2019
2018
Change in USD rate
(Negative)/Positive effect
on profit before tax
`+15%
`-15%
`+14%
`-14%
(681)
681
(456)
456
Change in EUR rate
(Negative)/Positive effect
on profit before tax
`+20%
`-20%
`+15%
`-15%
397
(397)
12
(12)
Mail.Ru Group 2019 Results
174
57
2019Annual report
Notes to Consolidated Financial Statements (continued)
24
Share-based payments
24.1 Share-based payment arrangements of the Company
24.1.1 Option plans
During 2019 and 2018, the Company had the following outstanding option plans:
Adoption date
Type of shares
Number of options or RSU
reserved
Exercise price
2010 Option Plan
November 2010
Ordinary shares
10,706,403
2015 RSU Plan
February 2015
Ordinary shares
5,795,500
2017 RSU Plan
November 2017
Ordinary shares
7,202,471
Granted:
Nil
Nil
Exercise basis
Expiration date
Vesting period
Other major terms
• prior December 31, 2011 –
USD 19.60
• since December 31, 2011 –
USD 17.50
Prior to November 2011 –
net share basis only
Since November 2011 –
net share basis or cash at the
Group’s discretion
December 2022
Generally 4 years
• The options are not
transferrable;
• All other terms of the options
under the 2010 Option Plan are
to be determined by the
Company’s Board of Directors
or Remuneration Committee.
Shares or cash at the Group’s
discretion
Shares or cash at the Group’s
discretion
December 2022
Generally 4 years
• The RSUs are not transferrable;
• All other terms of the options under
the 2015 RSU Plan are to be
determined by the Company’s
Board of Directors or Remuneration
Committee.
December 2026
Generally 4 years
• The RSUs are not transferrable;
• Performance conditions
•
Immediate vesting due to change
of ultimate controlling party.
• All other terms of the options
under the 2017 RSU Plan are to
be determined by the Company’s
Board of Directors or
Remuneration Committee.
24.1.2 Changes in outstanding options
The table below summarises the number and weighted average exercise prices (WAEP) of and movements in share options and RSUs in 2019 and
2018:
Outstanding as of December 31, 2017
Exercisable as of December 31, 2017
Available for grant as of December 31, 2017
Granted during the year
Exercised during the year
Cancelled during the year
Forfeited during the year
Outstanding as of December 31, 2018
Exercisable as of December 31, 2018
Available for grant as of December 31, 2018
Granted during the year
Exercised during the year
Cancelled during the year
Forfeited during the year
Outstanding as of December 31, 2019
Exercisable as of December 31, 2019
Available for grant as of December 31, 2019
Mail.Ru Group 2019 Results
175
Number of options/RSU
7,204,764
2,464,597
2,393,864
1,352,293
3,796,842
0
110,200
4,650,015
3,586,139
3,151,771
2,938,000
1,839,423
0
201,250
5,547,342
1,598,622
415,021
WAEP
4.04
11.01
4.79
5.05
1.68
n/a
6.75
6.18
5.94
1.71
1.07
0.65
n/a
8.48
5.22
13.58
9.51
58
2019Annual report
Notes to Consolidated Financial Statements (continued)
24
Share-based payments (continued)
24.1 Share-based payment arrangements of the Company (continued)
The weighted-average share price was USD 23.51 for options and RSUs exercised in 2019 and USD 27.59 for options and RSUs exercised in 2018
The range of exercise prices for options and RSUs outstanding as of December 31, 2019 and 2018 is presented in the table below:
Exercise price
–
17.5
19.6
December 31, 2019
3,982,670
808,917
755,755
December 31, 2018
3,101,093
782,167
766,755
24.1.3 Valuations of share-based payments
The valuations of all equity-settled options and RSUs granted during 2018 and 2019 are summarised in the table below:
Option plan/Grant date
2011 Option Plan/ 2018
2017 RSU Plan / 2018
2011 Option Plan/ 2019
2017 RSU Plan / 2019
Number of options
390,000
962,293
180,000
2,758,000
Share price
(USD)
21.54-27.96
22.38-35.54
22.20-23.70
19.01-26.26
Fair value, total
(million RUR)
Fair value per option
(RUR)
353
1,676
102
4,389
905
1,742
568
1,591
The valuations of all cash-settled options as of December 31, 2019 are summarised in the table below:
Number of options
435,980
Dividend yield
%
0%
Volatility,
%
33%
Risk-free interest
rate,
%
Expected term,
years
1.67%
N/A
Share price
(USD)
22.30
Fair value, total
(million RUR)
Fair value per option
(RUR)
Valuation method
185
423
Binomial
The forfeiture rate used for expenses calculation in 2019 is 0.1-16.0%. It is based on historical data and current expectations and is not necessarily
indicative of forfeiture patterns that may occur.
The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options/RSUs is indicative of future
trends, which may not necessarily be the actual outcome.
24.2 Share-based payment expense
The Group recognised RUR 1,742 in share-based payment expenses in the year ended December 31, 2019 (2018: RUR 6,732), including RUR 1,826
(2018: 6,918) related to equity-settled share-based payments and negative change related to cash-settled portion of RUR 84 (2018: negative 186).
The expense was included under “Personnel expenses” in the consolidated statement of comprehensive income. According to the terms of 2017
RSU Plan the change of control results in immediate acceleration of related RSUs. The total expense related to such acceleration recognized in Q4
2018 is RUR 3.7 bln (3,166,250 RSUs).
25
Events after the reporting period
There were no events after the reporting period to be separately reported.
Mail.Ru Group 2019 Results
176
59
2019Annual report
сautionary
statements
Forward-looking
statements
Competitive
position
The Mail.ru Group Limited Annual Report and Accounts for
2019 contain certain “forward- looking statements” which
include all statements other than those of historical facts
that relate to the Group’s plans, financial position, objectives,
goals, strategies, future operations and performance, together
with the assumptions underlying such matters. Mail.ru Group
Limited generally uses words such as “estimates”, “expects”,
“believes”, “intends”, “plans”, “may”, “will”, “should” and other
similar expressions to identify forward-looking statements. Mail.
ru Group Limited has based these forward-looking statements
on the current views of its management with regard to future
events and performance. These views reflect management’s
best judgement, but involve uncertainties and are subject to
certain known and unknown risks together with other important
factors outside the Group’s control, the occurrence of which
could cause actual results to differ materially from those ex-
pressed in Mail.ru Group Limited's forward-looking statements.
Statements referring to the Group’s competitive position reflect
the Group’s beliefs and, in some cases, rely on a range of sourc-
es, including investment analysts’ reports, independent market
studies and the Group’s internal estimates of market share
based on publicly available information regarding the financial
results and performance of various market participants.
Rounding
Certain figures included in this document have been subject to
rounding adjustments. Accordingly, figures shown for the same
category presented in different tables may vary slightly and fig-
ures shown as totals in certain tables may not be an arithmetic
aggregation of the figures that precede them.
Terminology
In this document, a reference to the "Company" means Mail.ru
Group Limited, which together with its subsidiaries is referred
to as “we”, the “Group” or “Mail.ru Group”. Any reference to
the position of Boris Dobrodeev as Chief Executive Officer
(CEO) means reference to his position as Chief Executive
Officer (CEO), Russia. Any reference to the position of Vladimir
Nikolsky as Chief Operating Officer (COO) means reference
to his position as Chief Operating Officer (COO), Russia. Any
reference to the position of Vladimir Gabrielyan as First Deputy
Chief Executive Officer means reference to his position as First
Deputy Chief Executive Officer, Russia.
177
2019Annual report see you
soon
press: pr@corp.mail.ru
investors: ir@corp.mail.ru