Mail.Ru Group Limited

Audited IFRS results for FY 2018

March 01, 2019. Mail.Ru Group Limited (MAIL.IL, hereinafter referred to as "the Company" or "the Group"), one of the largest Internet companies in the Russian-speaking Internet market, today releases audited IFRS results and segment financial information for the year ended 31 December 2018.

Performance highlights*

u Including UMA on a pro-forma basis, for the three months ended 31 December 2018

-    Q4 2018 Group aggregate segment revenue grew 33.7% Y-o-Y to RUR 23,441 million.

-    Q4 2018 Group aggregate segment EBITDA grew 42.2% Y-o-Y to RUR 8,724 million.

-    Q4 2018 Group aggregate net profit grew 62.4% Y-o-Y to RUR 6,813 million.

u Including UMA on a pro-forma basis, for the twelve months ended 31 December 2018

-    FY 2018 Group aggregate segment revenue grew 32.5% Y-o-Y to RUR 75,260 million.

-    FY 2018 Group aggregate segment EBITDA grew 13.9% Y-o-Y to RUR 22,222 million.

-    Including one-off non-cash impairment charge of RUR 1,698 million in Q2 2018, FY 2018 Group aggregate net profit grew 6.4% Y-o-Y to RUR 14,099 million. Ex this charge, net profit grew 19.2% Y-o-Y.

u Net cash position as of 31 December 2018 was RUR 11,723 million.

* Performance highlights are based on the Group aggregate segment financial information, which is different from IFRS accounts. See "Presentation of Aggregate Segment Financial Information".

Key Recent Developments

u VK introduced new user-friendly comment threads.

u VK launched a platform to support and promote indie musicians.

u VK launched Safety Guidelines on online threats, including hate speech, violence, bullying and child exploitation. VK also reported that since the start of 2018 over 7.9m pieces of content, 1.8m profiles and 11.3k communities were removed.

u VK enabled users to download a copy of their VK data. This allows users to get a transparent and complete representation of their data stored by VK.

u The number of daily video views on OK reached 870m in early 2019.

u OK launched a 'creative studio' for all video content creators; the platform supports interactive mechanics such as polls, quizzes, clickable descriptions and texts, which can be added to the video.

u OK shifted the focus from native mobile games to HTML5 games, and held a large-scale competition for developers OK Instant Games Cup. As a result, the number of games run on the mobile platform doubled by the end of the year.

u Mail.Ru IT Territory studio launched Space Justice, a new mobile game with 3D graphics and a PvP mode.

u Warface Console was ranked #3 free-to-play title by downloads on Sony PS4 in the US.

u Launch of Pulse, a recommendations feed offering personalized content based on user's preferences.

u Launch of Atom, a new browser focused on user privacy and security.

u Mail.Ru Cloud Solutions launched Private Cloud.

u In just 3 years after its launch Youla has made over RUR 1bn in annual revenue, which makes it the first classifieds in Russia reaching this milestone so fast.

u Delivery Club entered into partnerships with McDonald's and KFC and now is the only platform in Russia having all largest quick service restaurant franchises.

u Delivery Club mobile app was updated with new navigation, better access to Promotions and Search.

u MAPS.ME launched a UGC-platform for users to create and share travel routes.

u VK, BOOM and OK were the top-3 non-gaming apps by consumer spend in Russia in 2018.

u EPICENTER XL held by ESforce was the sixth most viewed esports tournament and the second most viewed Dota 2 tournament worldwide in 2018.

u VK held VK Hackathon 2018, one of the largest hackathons in Russia. More than 400 developers from 120 teams came to Saint Petersburg to develop prototypes of technology products from scratch in only 42 hours.

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

"2018 has been a transformational year for us. The core of the business of our communications and social platforms continued to grow strongly and hence its revenues exceeded guidance. Our gaming business is scaling internationally and we had a number of strong global launches.

Including UMA on a pro-forma basis Q4 2018 revenues grew 34% Y-o-Y to RUR 23,441m and FY 2018 revenues grew 33% to RUR 75,260m. UMA's FY 2018 revenues are about RUR 1.2bn and EBITDA is not material. While we continue to put significant resources behind a number of our new projects, especially our O2O initiatives where we see significant potential, none of these projects contributed to EBITDA but the proportional impact was smaller than in the first 9 months. As a result, Q4 2018 EBITDA on a pro-forma basis grew 42% Y-o-Y to RUR 8,724 and FY 2018 EBITDA grew 14% to RUR 22,222m, in line with our guidance.

Advertising revenue growth remained very strong in Q4. We believe that in Q4 the trends that we had seen previously strengthened with budgets shifting online. We also continued to increase user engagement, improve advertising technologies and grow ROIs for our clients.

There is no change to the ongoing shift towards mobile and social networks in particular and this is seen in both the large businesses and SMEs. As in previous periods, mobile promo posts across the social networks including video posts remained the fastest growing advertising area and we continue to see increasing adoption in both VK and OK with the effect that in FY 2018 OK mobile ads grew 80% Y-o-Y.

Our advertising revenues in Q4 continued to grow significantly ahead of the market with 38% Y-o-Y growth to RUR 10,371m. This was the record advertising revenue for the whole Group and for each of our key properties. Albeit now a small part of advertising revenues, search monetization remains under pressure, and as a result the ex-search ad revenues grew 43%. As in previous periods, we use part of our ad inventory to promote our new services and this is not accounted for in revenue. Even though we report today without Pandao, the ad inventory used by Pandao is not accounted for in revenue.

In 2019 we will remain focused on advertising solutions and technologies as well as driving content consumption. Growing effectiveness of our advertising through ongoing adtech development and innovative new ad products, attracting new types of advertisers, such as SMEs and offline retailers, on the platform and expanding our advertising network are the areas where we will center our efforts in 2019.

In September we hosted a VK strategy session where we laid out the ongoing strategy. At the core of this is further growth in all key engagement metrics. In Q4 we continued with the success seen in previous periods with further growth in total Russian users, both monthly and daily, in average daily reach and time spent per day. Despite the very high hurdle rate from Q4 2017, VK revenues in Q4 2018 grew 27% Y-o-Y to RUR 5,404m with FY 2018 VK revenues growing 45%.

Driving content consumption and user engagement remains key for VK. VK launched new user-friendly comment threads, which together with other improvements in the newsfeed during 2018 led to a 20% Y-o-Y increase in daily comments in Q4 2018. VK re-launched its bookmarks section allowing users to save content and come back to it later, as well as add tags to their bookmarks and receive reminders. VK updated its mobile live streaming service enabling users to stream right from the main VK mobile app and apply masks while streaming and introduced Narratives, a new story format for communities. As a result, in Q4 2018 the number of stories and video views increased by 92% and 40% Y-o-Y respectively. In 2019 we will continue to support authors on the platform by providing new content creation and sharing tools. We plan a series of product upgrades including new features in Newsfeed and Discover as well as in stories and video streaming.

As mentioned at the VK strategy presentation social commerce will form key element of VK going forward with the ability to empower users, key opinion leaders, communities and merchants with tools to sell and shop online. As such in 2019 VK will be launching a series of ecommerce integrations. Additionally there will be a drive to help SME's with QR codes and their integration into the wider platform.

When we acquired control of VK it had 2014 revenues of RUR 4.3bn. Revenues have subsequently grown 4x over a 4 year period. We see many further significant opportunities for VK and hence we also expect to double VK revenues again over the next 3-4 years.

Our games business continues to produce a very strong performance and in Q4 2018 MMO revenue growth was 37% Y-o-Y to RUR 7,104m and FY revenues grew 34% Y-o-Y to RUR 23,290m. We have continued our strategy to diversify games through having the fullest possible portfolio, distributing internationally and also being cross platform with major titles. In Q4 international revenues accounted for 63% of total MMO revenue with USA, Germany and Japan being the largest non-Russian markets. This now means that international gaming revenues make up about 20% of the Group total revenues.

As has been the case over the last 2 years, growth was driven by a broad base with ongoing success in both established and recently released titles. Hustle Castle is now the Company's most successful in-house developed gaming project. In Q4 2018, its total user numbers reached 30 million installs. In Google Play the game has around 950,000 reviews with an average score of 4.7/5 and in AppStore it has a rating of 4.6/5. There are further updates to the game expected in 2019 and we now expect that Hustle Castle will be a bigger revenue generator through its life than War Robots.

War Robots has also had another successful period where it continues to see solid growth and remains our second largest game. In 2019 there will be a series of further updates including new robots and modules and an updated monetization system to be released in summer 2019. The Warface franchise continues to perform well and remains our number three revenue generating game. In late Q3 the franchise was expanded to consoles with PS4 and Xbox versions launched. Since then they gathered over 6.5m registrations with 95% of these international players. In January 2019, Warface became #3 free-to-play game on PS4 in the US in terms of downloads. We expect to see further growth of the Warface game franchise through the release of the Warface mobile game in 2019, as well as effective continued support for the console versions of the game. As such we continue to see Warface as a key ongoing franchise.

We have a full pipeline of further releases for 2019. We have already launched Space Justice, which is a mobile game based on the proved Hawk game mechanic and the monetization model from ITT Studio, and are releasing, among others, two licensed MMORPG titles Conqueror's Blade and Lost Ark. We believe that our games portfolio, both existing and new releases, is well positioned.

As ever, the margin of our gaming business is a function of mix between different platforms and timing of marketing spend for the new titles. As we previously stated Q3 2018 margins were particularly affected by the accelerated spend on Hustle Castle. As forecasted, this effect was largely reversed in Q4, and hence Q4 2018 games margins were 33% and FY games margins were 17%. The focus for 2019, as it was in 2018, will be on continued expansion of international user base allowing the building of a sustainable model.

Having closed the transaction to buy ESforce in late March 2018 we have seen the business make considerable progress. In Q4 we hosted a number of successful tournaments including the Dota 2 Winter Clash in December. For the FY 2018 the business hit its forecast targets both in revenues and profitability.

Including UMA on a pro-forma basis FY 2018 IVAS revenues grew 9% Y-o-Y. As in previous periods the OK desktop IVAS continues to decline. However, we are pleased with the growth of the new mobile IVAS products and also the music subscriptions, where the number of active paid and trial subscriptions on our platforms and in an integrated BOOM app by UMA reached 2.1m in December 2018. We believe this is currently the largest content subscription service in Russia. We see good ongoing growth in subscriptions and will continue to add additional features to the music offering. Music, and increasingly content, is an important driver of user retention building loyalty and creating an important element of our eco-system for users. We will be putting additional investment of around RUR 0.5bn into our content offering in 2019 (this investment is included into FY 2019 EBITDA guidance below). Consolidation of UMA (closing of transaction is scheduled for today) now enables further development of the music offering across the board. We expect further growth in the subscriptions to offset desktop IVAS decline.

Since its launch in October 2015, our location-based mobile marketplace Youla has built significant and sustained user and listing bases. In February 2019 monthly active users on all platforms exceeded 27m, the number of active listings reached 32m and both metrics continue to grow. Our team remained focused on user experience and content quality introducing automated moderation tools to delete duplicate listings and personalize the feed. Another impressive milestone was reached in monetization as Youla became the fastest classifieds in Russia to reach over RUR 1bn in annual revenues with the bulk of this from C2C.

We commented with the Q3 2018 results that we would see a further acceleration in growth of our food delivery. We are pleased that this has been achieved with Q4 Delivery Club revenues growing 71% Y-o-Y to RUR 646m with H2 and FY 2018 growth of 56% and 48% respectively. The average number of mobile monthly active users grew 67% Y-o-Y and the number of restaurants reaching about 8,300 in Q4 2018. The service is now available in 107 cities in Russia.

During Q4 we launched a significant upgrade to the apps, with new navigation, resulting in materially increased traffic in search and the promotions center, with offers made by partners. We also started to test new AI based software to schedule couriers leading to significant improvements in efficiency and timing of deliveries. We also launched partnerships with KFC and McDonald's. This means we are the only service in Russia which has all of the major quick service restaurant franchises on the platform. We expect that fast food will form a large part of the business going forward and we have already seen significant demand in 2019 for these services.

Q1 2019 will see further product innovations including courier tracking for orders placed on 1P delivery, and integration of a new chat in the app and courier ratings. Combined with the significant increase in the number of own couriers since mid-2018 this ensures we aim to achieve the fastest delivery in Russia. As a result we believe that the platform can continue to exercise a leading position in the market. We continue to see the underlying market growing at very good rates and believe that Delivery Club now has unique reach in terms of both user offering and features for vendors.

We believe that by providing a big variety of affordable inventory and fast delivery not only we enhance the lifestyle of our users, but also unlock a tremendous market opportunity. We had a very strong start in 2019 with Jan-Feb revenue doubling Y-o-Y and would expect to see FY 2019 revenue grow faster than FY 2018.

As was announced in September 2018, along with Alibaba, RDIF and MegaFon we had formed a new strategic partnership to launch a social commerce alliance in Russia and the CIS. Since then negotiations have continued to progress well and we continue to see the transaction closing within the next few months. With the unrivalled distribution capacity, merchant numbers and e-commerce knowledge combined with a strong balance sheet we believe that the new JV will extend its lead as the largest player in Russian/CIS e-commerce and see significant positive developments in 2019. The new platform will be the leading cross-border marketplace and will be further expanding into domestic e-commerce. We will use the distribution capacity of our wider network to drive users to the platform. We will also look to integrate the new platform into the social networks. As a first step in this direction AliExpress is launching VK mini-app to provide VK users with access to full base of goods directly inside VK.

Starting from 2019, we have adopted the new IFRS 16 Leases, which is a mandatory replacement of IAS 17 Leases. In accordance with the new standard, most of our office rent and server hosting agreements will be treated as finance leases. As a result, we will recognise the lease-related assets and liabilities on our balance sheet and the respective amortisation and interest expense in our income statement below EBITDA. The assets will be amortised and the interest will be recognised over time based on the expected life of the agreements. Under IAS 17, those were treated as operating leases, with the expense recognised above EBITDA under Office rent and maintenance and Server hosting expenses. For segment reporting purposes, we will make a pro-forma adjustment to the 2018 numbers and will present them based on IFRS 16 for comparability purposes. The effect of IFRS 16 on 2018 EBITDA will be about RUR 3.5bn positive.

In 2019 we plan to put more resources behind our initiatives in new technologies especially in areas of artificial intelligence, speech and visual recognition, including implementation of those for voice powered features and products, as well as behind development of new experimental communication products. For this we create MRG Tech Lab that will include teams from various units inside the Group. We always focused on delivering best user experience for our users and being on the edge of technological trends. MRG Tech Lab is accumulating expertise to develop technologies and come up with product solutions that will be paramount for our eco-system in the years to come. In 2019 we don't expect these projects to have any material revenues and MRG Tech Lab will have a cost of between RUR 1.0-1.5bn (this cost is included into FY 2019 EBITDA guidance below). Depending on the success of these projects, it is not anticipated that the scale of these investments will be repeated.

In Q4, the cash generating capacity of our business remained unchanged and cash conversion was as expected. As a result, net cash position, post M&A costs, at the end of FY 2018 was RUR 11.7bn. With the M&A related investment in AER, UMA and performance related payments on ESforce we may utilize bank lines for near term cash management. In order to meet its ongoing commitments the Employee Benefit Trust will acquire in the market up to 1.8m GDRs over the next 18 months.

From 2019 we plan to change the composition of the reporting segments in order to better reflect our strategy, the way the business is managed and units' interconnection within our eco-system. From the first quarter of 2019 we will be reporting three segments: 1) Communications and Social, including all of our social networks, e-mail, portal & search and our content related products distributed on our communication and social products; 2) Games; 3) New initiatives including Youla, Delivery Club, ESforce, MRG Tech Lab and others. We will provide like-for-like year-over-year comparison on the same basis.

We have spoken in the past about our ongoing strategy. 2018 saw significant progress to achieving this. We continue to see the social networks and the communications tools at the heart of the eco-system where we will hold the users for significant, and rising, periods of time. At the same time there will be a number of businesses which sit around the core being parts of the eco-system around every user. Some of these units we will own 100%, others with partners. Such partnerships will combine the resources and expertise while providing investment capabilities to lead the digital transformation on various markets. These partnerships will benefit from synergies with Mail.Ru Group and will also allow us to offer the widest possible number of products to the user.

As we previously commented we are looking at various funding options for both Delivery Club and Youla. Therefore, we provide FY 2019 revenue and EBITDA guidance excluding these businesses. On a pro-forma basis we expect FY 2019 revenue growth of between 18-22% or RUR 85-88bn.

Even taking into account the effect on the margin of the mix shift in games, MRG Tech Lab and content related investments FY 2019 EBITDA under IFRS 16 is expected to be between RUR 32-34bn."

Conference call

The management team will host an analyst and investor conference call at 9.00 UK time (12.00 Moscow time), on Friday 1st March 2019, including a Question and Answer session.

To participate in this conference call, please use the following access details:

For further information please contact:

Investors

Matthew Hammond

Phone: +971 505 56 1315

E-mail: [email protected]

Press

Olga Zyryaeva

Phone: +7 909 974 5996

E-mail: [email protected]

Cautionary Statement regarding Forward Looking Statements and Disclaimers

This press release contains statements of expectation and other forward-looking statements regarding future events or the future financial performance of the Group. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "forecast", "intend", "will", "could", "may" or "might", the negative of such terms or other similar expressions including "outlook" or "guidance". The forward-looking statements in this release are based upon various assumptions that are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and may be beyond the Group's control. Actual results could differ materially from those discussed in the forward looking statements herein. Many factors could cause actual results to differ materially from those discussed in the forward looking statements included herein, including competition in the marketplace, changes in consumer preferences, the degree of Internet penetration and online advertising in Russia, concerns about data security, claims of intellectual property infringement, adverse media speculation, changes in political, social, legal or economic conditions in Russia, exchange rate fluctuations, and the Group's success in identifying and responding to these and other risks involved in its business, including those referenced under "Risk Factors" in the Group's public filings. The forward-looking statements contained herein speak only as of the date they were made, and the Group does not intend to amend or update these statements except to the extent required by law to reflect events and circumstances occurring after the date hereof.

About Mail.Ru Group

Mail.Ru Group, international brand My.com (MAIL.IL, listed since November 5, 2010) is the largest internet business in Russia in terms of total daily audience (Mediascope Web Index, Russia, population aged 12-64 in the cities 100,000+, December 2018).

In line with the communitainment strategy, the Group is developing an integrated communications and entertainment platform. The Group owns Russia's leading email service and one of Russia's largest internet portals, Mail.Ru; the two largest Russian language social networks, VKontakte (VK) and Odnoklassniki (OK); Russia's largest MMO games, such as Warface, Skyforge and Perfect World, and global mobile games, such as War Robots and Hustle Castle; and instant messaging services ICQ, Agent Mail.Ru and TamTam.

The Group operates two largest food delivery businesses in Russia, Delivery Club and ZakaZaka, and a location-based mobile marketplace Youla.

The Group owns Pixonic, a mobile games developer, and ESforce, one of the largest esports businesses globally. The Group's portfolio also includes a leading OpenStreetMap-based offline mobile maps and navigation service MAPS.ME and a controlling stake in GeekBrains, an online education platform for developers. In addition, Mail.Ru Group holds equity stakes in a number of small venture capital investments in various Internet companies in Russia, other CIS countries and Israel.

Mail.Ru Group is actively involved in IT education in Russia and has a number of education centers in partnership with major Russian universities. Mail.Ru Group also holds Russia's most important programming contests.

Filing of Consolidated Financial Statements for FY 2018

The Group's audited consolidated financial statements for the year ended 31 December 2018 prepared in accordance with IFRS and accompanied by an independent auditor's review report have been filed on the National Storage Mechanism appointed by the Financial Services Authority and can be accessed at http://corp.mail.ru/media/files/mail.rugroupifrsfy2018.pdf.

Group Aggregate Segment Financial Information^*

Note 1: Group aggregate segment financial information for the three and twelve months ended December 31, 2017 has been retrospectively adjusted to account for pro-forma consolidation of ESforce from January 1, 2017.

Note 2: Group aggregate segment financial information for the three and twelve months ended December 31, 2017 and for the six months ended June 30, 2018 has been retrospectively adjusted to account for pro-forma deconsolidation of Pandao from January 1, 2017.

 (*) 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 Armored Warfare in the amount of RUR 1,698 million recognized in Q2 2018.

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

(2)        Group aggregate segment EBITDA is calculated by subtracting Group aggregate segment operating expenses from Group aggregate segment revenue. Group aggregate segment operating expenses are calculated by aggregating the segment operating expenses (excluding the depreciation and amortisation) of the Group's operating segments including allocated Group's corporate expenses, and eliminating intra-segment and inter-segment expenses. See "Presentation of Aggregate Segment Financial Information".

(3)        Group aggregate depreciation, amortisation and impairment expense is calculated by aggregating the depreciation, amortisation and impairment expense of the subsidiaries consolidated as of the date hereof, excluding amortisation and impairment of fair value adjustments to intangible assets acquired in business combinations.

(4)        Profit before tax is calculated by deducting from Group aggregate segment EBITDA Group aggregate depreciation, amortisation and impairment expense and adding/deducting Group aggregate other non-operating incomes/expenses primarily consisting of interest income on cash deposits, interest expenses, dividends from financial investments measured at fair value and other non-operating items.

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

(6)        Group aggregate net profit is the (i) Group aggregate segment EBITDA; less (ii) Group aggregate depreciation, amortisation and impairment expense; less (iii) Group aggregate other non-operating expense; plus (iv) Group aggregate other non-operating income; less (v) Group aggregate income tax expense. Group aggregate net profit differs in significant respects from IFRS consolidated net profit. See "Presentation of Aggregate Segment Financial Information".

Operating Segments

We identify our operating segments based on the types of products and services we offer. We have identified the following reportable segments on this basis:

•     Email, Portal and IM;

•     VK (VKontakte);

•     Social Networks (excluding VK);

•     Online Games; and

•     E-Commerce, Search and Other Services.

The Email, Portal and IM segment includes email, instant messaging and portal (main page and media projects). It earns substantially all revenues from display and context advertising.

The VK segment includes the Group's social network VKontakte (VK.com) and earns revenues from (i) 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.

The Social Networks (excluding VK) segment includes the Group's two other social networks (OK and My World) and earns revenues from (i) user payments for virtual gifts and music subscriptions, (ii) commission from application developers based on the respective applications' revenue, and (iii) online advertising, including display and context advertising.

The Online Games segment includes online gaming services, including MMO, social and mobile games. It earns substantially all revenues from (i) sale of virtual in-game items to users and (ii) royalties for games licensed to third-party online game operators.

The E-commerce, Search and Other Services reportable segment primarily consists of search engine services earning substantially all revenues from context advertising, food delivery services earning substantially all revenue from restaurant's commission and our ESforce eSports business earning substantially all revenues from sponsorship and other advertising. This segment also includes the Group's Youla classifieds business and a variety of other services, which are considered insignificant by the CODM for the purposes of performance review and resource allocation.

We measure the performance of our operating segments through a measure of earnings before interest, tax, depreciation and amortisation (EBITDA). Each segment's EBITDA is calculated as the respective segment's revenue less operating expenses (excluding depreciation and amortisation and impairment of intangible assets), including our corporate expenses allocated to the respective segment.

Operating Segments Performance - Q4 2018

Operating Segments Performance - Q4 2017

Operating Segments Performance - FY 2018

Operating Segments Performance - FY 2017

Note 1: Group aggregate segment financial information for the three and twelve months ended December 31, 2017 has been retrospectively adjusted to include pro-forma consolidation ESforce from January 1, 2017.

Note 2: Group aggregate segment financial information for the three and twelve months ended December 31, 2017 and for the six months ended June 30, 2018 has been retrospectively adjusted to account for pro-forma deconsolidation of Pandao from January 1, 2017.

Note 3: Group aggregate net profit for FY 2018 includes the impairment of Armored Warfare in the amount of RUR 1,698 million recognized in Q2 2018.

Liquidity

As of 31 December 2018, the Group had a net cash position of RUR 11,723 million.

Presentation of Aggregate Segment Financial Information

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

•     The Group's segment financial information excludes certain IFRS adjustments which are not analysed by management in assessing the core operating performance of the business. Such adjustments affect such major areas as revenue recognition, deferred tax on unremitted earnings of subsidiaries, share-based payment transactions, disposal of and impairment of investments, business combinations, fair value adjustments, amortisation and impairment thereof, net foreign exchange gains and losses, share in financial results of associates, as well as irregular non-recurring items that occur from time to time and are evaluated for adjustment as and when they occur. The tax effect of these adjustments is also excluded from segment reporting.

•     The segment financial information is presented for each period on the basis of an ownership interest as of the date hereof and consolidation of each of the Group's subsidiaries, including for periods prior to the acquisition of control of the entities in question. The financial information of subsidiaries disposed of 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.

•     Segment revenues do not reflect certain other adjustments required when presenting consolidated revenues under IFRS. For example, segment revenue excludes barter revenues and adjustments to defer online gaming and social network revenues under IFRS.

A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue of the Group for the three months ended 31 December 2018 and 2017 is presented below:

A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit/(loss) before income tax expense of the Group for the three months ended 31 December 2018 and 2017 is presented below:

A reconciliation of Group aggregate net profit to IFRS consolidated net loss of the Group for the three months ended 31 December 2018 and 2017 is presented below:

A reconciliation of Group aggregate segment revenue to IFRS consolidated revenue of the Group for the year ended 31 December 2018 and 2017 is presented below:

A reconciliation of Group aggregate segment EBITDA to IFRS consolidated profit/(loss) before income tax expense of the Group for the year ended 31 December 2018 and 2017 is presented below:

A reconciliation of Group aggregate net profit to IFRS consolidated net profit/(loss) of the Group for the year ended 31 December 2018 and 2017 is presented below:

Selected Operating Statistics

u Mail.Ru Group is holding the lead in Russian internet in terms of total daily active users (Mediascope, Russia, cities 100k+, age 12-64, December 2018).

u MMO average monthly payers amounted to 987 and 1,109 thousand users in H1 and H2 2018 respectively (the numbers combine paying users of individual MMO and mobile games and may include overlap).

u Community IVAS average monthly payers amounted to 6,943 and 6,677 thousand users in H1 and H2 2018 respectively (the numbers combine paying users of VK, OK, BOOM, My World, love.mail.ru and our own social games on third-party networks and may include overlap).

Adoption of IFRS 16 Leases

IFRS 16 was issued in January 2016 and it replaces 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. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees - leases of 'low-value' assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. IFRS 16 also requires to make more extensive disclosures than under IAS 17.

The Group plans to adopt the new standard using a modified retrospective approach with transition options reliefs. In IFRS financial statements assets and liabilities under IFRS 16 will be recognized as at 01.01.2019. For segment reporting purposes, financial data for 2018 will be adjusted using simplifications in order to achieve comparability. The Group will apply a simplified approach reclassifying relevant expenses accounted for under IAS 17 to amortization expense.

The application of IFRS 16 requires the Group to make judgments that affect the valuation of the lease liabilities and the valuation of right-of-use assets. These include: determining contracts in scope of IFRS 16, determining the lease terms and determining the interest rate used for discounting of future cash flows.

Consolidated IFRS Statement of Financial Position

* Certain amounts shown here do not correspond to the 2017 financial statements and reflect adjustments made, refer to Note 6.1 of the FY 2018 financial statements.

Consolidated IFRS Statement of Comprehensive Income

* Certain amounts shown here do not correspond to the interim condensed financial statements for the year ended December 31, 2017 and reflect full retrospective application of IFRS 15, refer to Note 2.3 of the FY 2018 financial statements.

Consolidated IFRS Statement of Cash Flows