Rambler Media Limited
RAMBLER MEDIA LIMITED
PRELIMINARY FINANCIAL RESULTS
FOR THE 12 MONTHS ENDED 31 DECEMBER 2007
Revenue up 125% year-on-year to US$69.1 million (2006, US$30.6 million)
including US$14.9 million from Begun
Strong cash generation from operations of US$12.0 million (2006, US$5.7 million)
Rambler Media Limited (RMG.LN), ("Rambler" or the "Group"), operator of one of
Russia's most popular internet brands, today announces its financial results for
the year ended 31 December 2007, prepared in accordance with International
Financial Reporting Standards (IFRS).
FINANCIAL HIGHLIGHTS
FULL YEAR 2007
-- 125% year-on-year growth in Group revenue (including Begun from August
2007) to US$69.1 million (2006, US$30.6 million)
-- 77% year-on-year growth in like-for-like sales to US$54.2 million
(2006, US$30.6 million)
-- Consolidated revenue from Begun from August to December 2007 of US$14.9
million, after elimination of inter-company sales
-- Group EBITDA improving to US$7.6 million (2006, US$1.6 million), within
the range of the Group's guidance. During 2007, the Group incurred
management restructuring costs of US$0.8 million, consultancy fees
associated with new strategic initiatives of US$0.6 million and tax
provisions of US$2.8 million (2006, US$2.6 million)
-- Group net profit after interest and tax of US$5.7 million
(2006, net loss of US$3.0 million)
-- US$12.0 million cash generated from operations (2006, US$5.7 million)
-- Strong balance sheet with US$31.5 million of cash at 31 December 2007
(2006, US$18.5 million)
FINANCIAL HIGHLIGHTS
H2 2007
-- 175% year-on-year growth in Group revenue (including Begun from August
2007) to US$48.6 million (2006, US$17.7 million)
-- 90% year-on-year growth in like-for-like sales to US$33.6 million
(2006, US$17.7 million)
-- Consolidated revenue from Begun from August to December 2007 of US$14.9
million, after elimination of inter-company sales
-- Group EBITDA of US$7.1 million (H2 2006, US$0.8 million) driven by
revenue enhancements and cost rationalisation. This compares to H1 2007
EBITDA of US$0.6 million (H1 2006, US$0.8 million)
-- Group net loss after interest and tax of US$380,000 (H2 2006, net loss
of US$2.7 million)
-- US$11.4 million cash generated from operations (H2 2006, US$3.5 million)
Mark Opzoomer, Chief Executive Officer of Rambler Media, commented:
"2007 was all about implementing change at Rambler. Since I was appointed CEO 12
months ago, my key objectives have been to improve the Group's profitability,
accelerate sales growth, build a new team and reposition Rambler's brand and
products. We have a strong balance sheet and the right underlying business
fundamentals. Rambler is ready to become Russia's leading gateway to the
internet.
Together with Arthur, we have put in place an experienced and focused management
team to meet the aggressive growth targets we have set for the next 12 months.
We look forward to updating the market on our progress throughout the coming
year."
KEY 2007 EVENTS
-- The sale of the Group's TV business was completed in January 2007,
allowing the Group to focus on growing its core Internet business. The
TV operation was sold for US$23.0 million with a net gain on disposal of
US$7.1 million
-- Appointment of a new executive management team in March 2007: CEO Mark
Opzoomer and CFO Arthur Akopyan
-- Maximisation of advertising sales and leveraging Rambler's market
position:
-- On 8 August 2007, Rambler announced the acquisition of a further 25%
stake in contextual advertising company Begun for a cash
consideration of US$18 million, bringing the Group's total ownership
of Begun to 50.1% and providing Rambler with one of the leading
positions in the text-based advertising market.
-- On 5 October 2007, Rambler announced the formation of a strategic
partnership with IMHO VI, part of Video International, the largest
media sales group in Russia, to sell display advertising on
Rambler's pages from January 2008.
-- Creation of a new organisational structure, appointment of a new
leadership team and reorganisation of human resources to deliver product
changes in 2008 and reduce growth in labour costs
-- Continuing rationalisation of the Group's legal structure and product
portfolio
-- Product redevelopment started with focus on four profit-generating
areas: Search & Navigation, Communication Services, Homepage and Media &
Entertainment
-- Commenced repositioning of Rambler brand
PERFORMANCE
Rambler User Statistics
-- Over 35.1 million unique monthly users in December 2007, up 44%
year-on-year (December 2006, 24.4 million unique users) - reaching close
to 37.4 million unique monthly users in February 2008
-- 30 million unique monthly users of the main Rambler.ru portal on average
in 2007, an increase of more than 40% year-on-year - which is greater
than Russia's internet penetration growth of c. 12% from H2 2006 to H2
2007 (source: The Public Opinion Foundation)
-- 2.3 billion monthly page views on average in 2007, up 49% year-on-year
-- Total search queries amounted to 2.8 billion in 2007, up 27%
year-on-year
-- 30.4 million registered Rambler email accounts at the end of the period,
up 80% from December 2006
Russian Internet / Advertising Market
-- Russian internet penetration up 12% year-on-year in 2007, reaching 29.4
million internet users (source: The Public Opinion Foundation) or 26% of
Russia's adult population
-- Russian internet display advertising up 60% year-on-year in 2007 to
US$160 million including VAT (2006, US$100 million) (source: 2007 -
Video International, 2006 - Russian Association of Communication
Agencies / AKAR)
-- Russian contextual advertising up 105% year-on-year in 2007 to US$225
million including VAT (2006, US$110 million)
-- Internet text and display advertising accounted for 2.8% of the total
Russian advertising market in 2007 (2006, 1.6%)
FINANCIAL SUMMARY
-----------------------------------------------------------------------------------------
(US$ '000s) Jan - Dec Jan - Dec Jul - Dec Jul - Dec
2007 2006 2007 2006
Group revenue 69,083 30,646 48,571 17,683
Rambler Media excl. Begun 54,162 30,646 33,650 17,683
Impact of Begun (from Aug. to Dec. 2007) 14,921 - 14,921 -
EBITDA* 7,631 1,624 7,106 817
EBITDA* margin 11.1% 5.3% 14.6% 4.6%
Net profit / (loss) attributable to equity
holders of the group 6,080 (3,183) (380) (2,696)
Net gain from disposal of TV (included in net
profit above) 7,089 -
(Loss) / earnings per share from continuing
operations - basic (US$ per share) (0.066) 0.001
(Loss) / earnings per share from continuing
operations - diluted (US$ per share) (0.066) 0.001
Earnings / (loss) per share from discontinued
operations - basic
(US$ per share) 0.461 (0.202)
Earnings / (loss) per share from discontinued
operations - diluted
(US$ per share) 0.459 (0.202)
-----------------------------------------------------------------------------------------
* Earnings before interest, tax, depreciation and amortisation
The results for the 12 months ended 31 December 2007 are as follows:
(US$ '000s) Total Discontinued
continuing operations Total
operations
------------ --------------- -----------
Total revenue 69,083 - 69,083
Operating expenses and
overheads (67,524) - (67,524)
------------ --------------- -----------
1,559 - 1,559
Investment income 902 902
Depreciation and
amortisation 5,170 - 5,170
------------ --------------- -----------
EBITDA 7,631* - 7,631
============ =============== ===========
*EBITDA includes US$2,826,000 provision for potential tax related charges,
US$1,808,000 foreign currency translation loss and US$134,000 relating to share
options costs, and excludes non-recurring goodwill impairment charge of
US$1,521,000
The results for the 12 months ended 31 December 2006 are as follows:
(US$ '000s) Total Discontinued
continuing operations Total
operations
------------ --------------- -----------
Total revenue 30,646 5,435 36,081
Operating expenses and
overheads (32,086) (8,639) (40,725)
------------ --------------- -----------
(1,440) (3,204) (4,644)
Investment income 1,574 - 1,574
Depreciation and
amortisation 1,490 244 1,734
------------ --------------- -----------
EBITDA 1,624** (2,960) (1,336)
============ =============== ===========
**EBITDA includes US$2,557,000 provision for potential tax related charges and
US$260,000 relating to share options costs
OTHER INFORMATION
The Group's consolidated accounts have been prepared in accordance with
International Financial Reporting Standards (IFRS). The following preliminary
financial information has been approved for release by the Group's auditors.
PricewaterhouseCoopers CI LLP was reappointed as the Group's auditor for 2007.
The final financial statements and auditors' report have not yet been signed by
the auditors. The figures and financial information for the year ended 31
December 2007 set out herein do not constitute the statutory financial
statements for that year. The statutory financial statements have not been
delivered to the Registrar, nor have the auditors reported on them.
The Group will host a conference call to present the results at 9 am London Time
(12 pm Moscow Time) today (9 April 2008). The results statement and presentation
are available on Rambler Media's website at www.ramblermedia.com.
To participate in the conference call, please register online at:
www.sharedvalue.net/ramblermedia/fy2007.
The number for the conference call will be made available upon registration.
For further information, please visit www.ramblermedia.com or contact:
Rambler Media Shared Value Limited
Mark Opzoomer / Arthur Akopyan Nicolas Duperrier
Tel. +7 495 500 3826 Tel. +44 (0) 20 7321 5010
rambler@sharedvalue.net
ING Wholesale Banking
Daniel Friedman / William Marle
Tel. +44 (0) 20 7767 1000
ABOUT RAMBLER MEDIA
Rambler Media is an internet media and services group which operates or has
interests in leading Russian language internet brands including its original
Russian internet homepage and search engine 'Rambler.ru', on-line newspaper
'Lenta.ru', product comparison website 'Price.ru', internet catalogue and
navigation system 'Top 100', instant messaging service 'Rambler-ICQ', digital
advertising agency 'Index20' and contextual advertising company 'Begun'. Rambler
Media's shares are traded on AIM, the junior market of the London Stock Exchange
under the symbol 'RMG'. For more information on Rambler Media, visit our
corporate website at www.ramblermedia.com.
Certain statements within this announcement constitute forward-looking
statements. Such forward-looking statements involve risks and other factors
which may cause the actual results, achievements or performance of the Group to
be materially different from any future results, achievements or performance
expressed or implied by such forward-looking statements. Such risks and other
factors include, but are not limited to, general economic and business
conditions, changes in government regulations, and court interpretations of such
regulations, currency fluctuations (including the US$/Rbs rate), competition,
and changes in development plans. There can be no assurance that the results and
events contemplated by the forward-looking statements contained in this
announcement will, in fact, occur. Any forward-looking statements made in this
announcement represent management's best judgment as to what may occur in the
future and are correct only as at the date of this announcement. The Group will
not undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances occurring after
the date of this announcement except as required by applicable law or by any
applicable regulatory authority.
Rambler Media Limited,
Preliminary results announcement
for the Year Ended 31 December 2007
Contents
Page
Business review 9-19
Balance sheet 20
Income statement 21
Statement of changes in equity 22
Cash flow statement 23
Notes to financial information 24-27
Business review
Rambler Media Limited (the "Group"), is a media and services group which
operates or has interests in leading Russian language internet brands including
its original Russian internet homepage and search engine 'Rambler.ru', on-line
newspaper 'Lenta.ru', product comparison website 'Price.ru', internet catalogue
and navigation system 'Rambler Top 100', instant messaging service
'Rambler-ICQ', digital advertising agency 'Index20' and contextual advertising
company 'Begun'. Rambler Media's shares are traded on AIM, the junior market of
the London Stock Exchange under the symbol 'RMG'.
1. Highlights
1.1. Full Year 2007 Highlights
-- 125% year-on-year growth in Group revenue (including Begun from August
2007) to US$69.1 million (2006, US$30.6 million)
-- 77% year-on-year growth in like-for-like sales to US$54.2 million
(2006, US$30.6 million)
-- Consolidated revenue from Begun from August to December 2007 of US$14.9
million, after elimination of inter-company sales
-- Group EBITDA improving to US$7.6 million (2006, US$1.6 million), within
the range of the Group's guidance. During 2007, the Group incurred
management restructuring costs of US$0.8 million, consultancy fees
associated with new strategic initiatives of US$0.6 million and tax
provisions of US$2.8 million (2006, US$2.6 million)
-- Group net profit after interest and tax of US$5.7 million
(2006, net loss of US$3.0 million)
-- US$12.0 million cash generated from operations (2006, US$5.7 million)
-- Strong balance sheet with US$31.5 million of cash at 31 December 2007
(2006, US$18.5 million)
1.2. H2 2007 Highlights
-- 175% year-on-year growth in Group revenue (including Begun from August
2007) to US$48.6 million (2006, US$17.7 million)
-- 90% year-on-year growth in like-for-like sales to US$33.6 million
(2006, US$17.7 million)
-- Consolidated revenue from Begun from August to December 2007 of US$14.9
million, after elimination of inter-company sales
-- Group EBITDA of US$7.1 million (H2 2006, US$0.8 million) driven by
revenue enhancements and cost rationalisation. This compares to H1 2007
EBITDA of US$0.6 million (H1 2006, US$0.8 million)
-- Group net loss after interest and tax of US$380,000 (H2 2006, net loss
of US$2.7 million)
-- US$11.4 million cash generated from operations (H2 2006, US$3.5 million)
2. Performance
2.1. Key Events
-- The sale of the Group's TV business was completed in January 2007,
allowing the Group to focus on growing its core Internet business. The
TV operation was sold for US$23.0 million with a net gain on disposal of
US$7.1 million
-- Appointment of a new executive management team in March 2007: CEO Mark
Opzoomer and CFO Arthur Akopyan
-- Maximisation of advertising sales and leveraging Rambler's market
position:
a. On 8 August 2007, Rambler announced the acquisition of a further 25% stake in
contextual advertising company Begun for a cash consideration of US$18 million,
bringing the Group's total ownership of Begun to 50.1% and providing Rambler
with one of the leading positions in the text-based advertising market
b. On 5 October 2007, Rambler announced the formation of a strategic partnership
with IMHO VI, part of Video International, the largest media sales group in
Russia, to sell display advertising on Rambler's pages from January 2008
-- Creation of a new organisational structure, appointment of a new
leadership team and reorganisation of human resources to deliver product
change in 2008 and reduce growth in labour costs
-- Continuing rationalisation of the Group's legal structure and product
portfolio
-- Product redevelopment started with focus on four profit-generating
areas: Search & Navigation, Communication Services, Homepage and Media &
Entertainment
-- Commenced repositioning of Rambler brand
2.2. Rambler User Statistics
-- Over 35.1 million unique monthly users in December 2007, up 44%
year-on-year (December 2006, 24.4 million unique users) - reaching close
to 37.4 million unique monthly users in February 2008
-- 30 million unique monthly users of the main Rambler.ru portal on average
in 2007, an increase of more than 40% year-on-year - which is greater
than Russia's internet penetration growth of c. 12% from H2 2006 to H2
2007 (source: The Public Opinion Foundation
-- 2.3 billion monthly page views on average in 2007, up 49% year-on-year
-- Total search queries amounted to 2.8 billion in 2007, up 27%
year-on-year
-- 30.4 million registered Rambler email accounts at the end of the period,
up 80% from December 2006
2.3. Russian Internet / Advertising Market
-- Russian internet penetration up 12% year-on-year in 2007, reaching 29.4
million monthly internet users (source: The Public Opinion Foundation)
or 26% of Russia's adult population
-- Russian internet display advertising up 60% year-on-year in 2007 to
US$160 million including VAT (2006, US$100 million) (source: 2007 -
Video International, 2006 - Russian Association of Communication
Agencies / AKAR)
-- Russian contextual advertising up 105% year-on-year in 2007 to US$225
million including VAT (2006, US$110 million)
-- Internet accounted for 2.8% of the total Russian advertising market in
2007 (2006, 1.6%)
2.4. Financial and operating review
FINANCIAL SUMMARY
----------------------------------------------------------------------------------------------
(US$ '000s) Jan - Dec Jan - Dec Jul - Dec Jul - Dec
2007 2006 2007 2006
Group revenue
Rambler Media excl. Begun 69,083 30,646 48,571 17,683
Impact of Begun (from Aug. to Dec. 54,162 30,646 33,650 17,683
2007) 14,921 - 14,921 -
EBITDA* 7,631 1,624 7,106 817
EBITDA* margin 11.1% 5.3% 14.6% 4.6%
Net profit / (loss) attributable to
equity holders of the group 6,080 (3,183) (380) (2,696)
Net gain from disposal of TV
(included in net profit above) 7,089 -
(Loss) / earnings per share from
continuing operations - basic (US$
per share) (0.066) 0.001
(Loss) / earnings per share from
continuing operations - diluted (US$
per share) (0.066) 0.001
Earnings / (loss) per share from
discontinued operations - basic
(US$ per share) 0.461 (0.202)
Earnings / (loss) per share from
discontinued operations - diluted
(US$ per share) 0.459 (0.202)
----------------------------------------------------------------------------------------------
* Earnings before interest, tax, depreciation and amortisation
The results for the 12 months ended 31 December 2007 are as follows:
(US$ '000s) Total Discontinued
continuing operations Total
operations
------------ --------------- -----------
Total revenue 69,083 - 69,083
Operating expenses and
overheads (67,524) - (67,524)
------------ --------------- -----------
1,559 - 1,559
Investment income 902 902
Depreciation and
amortisation 5,170 - 5,170
------------ --------------- -----------
EBITDA 7,631* - 7,631
============ =============== ===========
*EBITDA includes US$2,826,000 provision for potential tax related charges,
US$1,808,000 foreign currency translation loss and US$134,000 relating to share
options costs, and excludes non-recurring goodwill impairment charge of
US$1,521,000
The segmental results for the 12 months ended 31 December 2006 are as follows:
(US$ '000s) Total Discontinued
continuing operations Total
operations
------------ --------------- -----------
Total revenue 30,646 5,435 36,081
Operating expenses and
overheads (32,086) (8,639) (40,725)
------------ --------------- -----------
(1,440) (3,204) (4,644)
Investment income 1,574 - 1,574
Depreciation and
amortisation 1,490 244 1,734
------------ --------------- -----------
EBITDA 1,624** (2,960) (1,336)
============ =============== ===========
**EBITDA includes US$2,557,000 provision for potential tax related charges and
US$260,000 relating to share options costs
2.5. The Group's financial review
2.5.1 Revenue and investment income
Group revenue increased by 125% year-on-year to reach US$69.1 million in 2007
(FY 2006, US$30.6 million), including US$14.9 million from Begun, thus
outperforming the Russian internet text and display advertising market, which
was estimated to have grown by 83% in the same period (source: Russian
Association of Communication Agencies / AKAR and Video International). Begun,
which is one of Russia's leading search and contextual text-based advertising
platforms, was consolidated since August 2007, and contributed US$14.9 million
to the Group's full year revenue, after the elimination of inter-company sales.
Excluding Begun's revenue contribution from text-based advertising, Rambler's
revenue grew by 77% year-on-year from US$30.6 million to US$54.2 million, again
ahead of the Russian display advertising market, which was estimated to have
grown by 60% in the same period (source: Russian Association of Communication
Agencies / AKAR and Video International). Begun's full year revenue was
approximately US$36.0 million in 2007, which represents around 20% of Russia's
fast growing internet text-based advertising market. Investment income from the
Group's stake in Begun, which was 25% during the first half of 2007, was US$0.9
million (FY 2006, US$1.5 million). The Group's Mobile operations have been
integrated with the Internet segment and are no longer reported separately;
during 2007 the Group recorded Mobile and VAS revenues of US$4.3 million (2006,
US$2.3 million). The growth of Mobile and VAS revenues, together with the cost
cutting measures, helped achieve an operational breakeven in Mobile operations
in 2007.
In 2007, 49% of the Group's revenue was generated by display advertising, which
is sold through the Group's agency Index20, and 36% of internet revenue came
from search related or text-based advertising, mainly through Begun's extended
advertising network. The remainder was attributable to price comparison, mobile
and other revenues. The proportion of search related advertising within total
revenue is expected to increase to 55% going forward as the Group will be able
to fully consolidate Begun's results.
2.5.2. EBITDA
The Group reported consolidated EBITDA of US$7.6 million in 2007. The sharp
increase in profitability in the second half of 2007 was driven mainly by
improved sales of banner advertising inventory, better monetisation of search
traffic, consolidation of profitable Begun operations and actions implemented in
the cost controls and processes area. The Group reported consolidated EBITDA of
US$7.1 million in the second half of 2007 (H2 2006, US$0.8 million). The Group's
EBITDA margin, which was at 3% in the first six months of 2007, increased to 15%
in the second half of the year despite some one-off charges.
2.5.3. Operating Expenses
The Group's consolidated operating expenses (including depreciation,
amortisation and a tax related provision) reached US$67.5 million in 2007
(including Begun's operating expenses from August 2007), compared to US$32.1
million for the same period the previous year. In the second half of 2007, the
Group's operating expenses (including depreciation, amortisation and a tax
related provision) were US$43.9 million, up 134% from US$23.1 million for the
second half of 2006. Of this increase Begun contributed US$16.5 million during
the period of consolidation in the last 5 months of 2007.
Direct costs, including commissions, content, traffic acquisition costs, data
centre costs and mobile costs rose by 176% from US$8.1 million in FY 2006 to
US$22.4 million in 2007, mainly as a result of increased revenues and
commissions paid to partners of Begun's advertising network. Without the impact
of Begun's commissions to its advertising network, the growth in direct costs
would have been limited to 82% year-on-year.
Margarita Kuzina was appointed Director of Human Resources in August 2007.
Actions were taken to introduce more active management of human resources, with
a view to improving both retention and development. These also resulted in
reduction of labour costs as a proportion of total costs and of total revenue in
2007. The Group's labour costs accounted for 32% of total operating expenses in
2007, compared to 38% in 2006. Labour costs including Begun rose by 78% in 2007
to US$21.9 million which is less than the 85% rise recorded in 2006 (2006,
US$12.3 million). Labour costs excluding Begun rose by 60% to US$19.7 million,
which further demonstrates the favourable impact of the Group's new human
resource structure. This increase in labour costs was primarily driven by wage
inflation of approximately 30% in the Russian internet and media market, organic
headcount increases of approximately 10%, increased senior management
compensation, management restructuring costs amounting to US$0.7 million and the
US$2.2 million impact of Begun consolidation in the last 5 months of 2007.
Labour costs, which accounted for 40% of total revenue in 2006, have reduced
significantly to 32% of total revenue in 2007 despite the increase in headcount
associated with the Begun acquisition. Consolidated headcount in December 2007
was 687 (December 2006, 495), of which 143 staff were attributable to Begun.
As stated in the 2006 annual report, the Group's results include provisions for
potential tax related charges. These provisions relate to potential liabilities
for taxes other than income tax, which arise from the legal structure of the
Group and the jurisdictions in which various income and expense items are
recognized and assessed. For the full year 2007, the provision for potential tax
related charges amounted to approximately US$2.8 million (2006, US$2.6 million).
If appropriate, the provisions may be released at some point in the future.
Legal and professional fees also increased from US$1.6 million in 2006 to US$3.0
million in 2007 due to the greater need for advice on strategy and potential
transactions in 2007.
The Group changed functional currency in 2007 from US Dollar to Russian Rouble
and recognised a foreign currency translation loss of US$1.8 million as a result
of exchange rate fluctuations (refer to Note 2 (b) in the notes to the financial
information). Management is currently exploring hedging solutions and expects
this to decrease exposure going forward.
The Group's amortisation expense rose significantly, from US$0.6 million in 2006
to US$3.7 million in 2007, due to amortisation of intangibles resulting from
2006 and 2007 acquisitions (mainly Begun). The Group's depreciation expense went
up by 56% from US$0.9 million to US$1.4 million in line with the increase in
underlying depreciable fixed assets.
The Group has recognised an impairment charge for goodwill of US$1.5 million
relating to the Infoproject and Damochka acquisitions as a result of the
rationalisation of the Group's product portfolio. In addition to the goodwill
charge, the Group has classified its investment in Damochka / Bannerbank as an
asset held for sale.
The Group recorded a net gain of US$7.1 million on disposal of its TV operation
in January 2007 (FY 2006, loss from the discontinued TV operation of US$3.1
million).
The Group's loss per share from continuing operations was US$0.066 (basic) and
US$0.066 (diluted) (FY 2006, profit per share US$ 0.001 (basic and diluted)).
2.6 Operating review
2007 was a year of strategic review in which the Group outlined its vision to
make Rambler.ru (www.rambler.ru) Russia's favourite homepage in number of daily
users and the leading open gateway to the internet. The Group's mission is to
build the largest daily engaged IP-based audience in Russia by providing the
best suite of search, communications, media and entertainment content in one
place.
The appointment of a new executive management team in March 2007, headed by CEO
Mark Opzoomer and CFO Arthur Akopyan, led to the implementation of a series of
initiatives designed to take Rambler to the next stage of its development and to
capitalise on the accelerated growth in online advertising and increasing
internet penetration in Russia.
Steps taken by the new management team to strengthen Rambler's position in the
internet advertising space include redevelopment of its online products, entry
into enhanced display and text sales partnerships, cost control initiatives, and
extensive consumer research to rejuvenate its brand identity. New operating
managers were appointed during the course of 2007 to lead these efforts and
Rambler's results for the period to 31 December 2007 prove that these
initiatives are already bearing fruit.
2.6.1. Products
Arkady Moreynis, one of the founders of Russia's leading product comparison
website Price.ru, which is part of Rambler, was appointed Chief Product Officer
at the end of 2007. His focus has been on improving key products that support
the Group's growth. His objectives have been to align the development of
products with the Group's overall strategy, prioritizing on user orientated
products and features that are clearly and immediately visible to Rambler's
users.
In particular, his team's efforts allowed Rambler's search engine Rambler
Search, Russia's original search engine, to improve its results' response speed
and relevance significantly in the second half of 2007. The Group continues to
improve its horizontal search capabilities and a new hybrid search will be
introduced in H1 2008. In 2007, Rambler Search processed a total of
approximately 2.8 billion queries, 27% more than in 2006 - an average of 230
million search queries per month. According to public tests carried out by
Ashmanov & Partners IT consultancy in December 2007, search relevance was
improved by up to 30% following the launch of a new search interface in the
summer. In 2007, an average of 42% of Rambler's audience used Rambler Search
each month.
The Group is also investing in key search Verticals (such as product comparison,
jobs, auto, classifieds, etc.) where strong revenue and user traffic upside lie.
In October 2007, the Group launched Rambler Finance, a new online service
dedicated to providing financial news, information and tools to Rambler users
every day. The site (http://finance.rambler.ru ) is aimed at meeting the daily
needs of a varied audience ranging from students to affluent professionals,
seeking information about personal finance and the financial markets. The
Rambler Finance site also provides users with live financial news
(http://finance.rambler.ru/news) and economic statistics as well as an
interactive, real time business directory with contact details. Users are given
the opportunity to seek advice from experts on a comprehensive range of subjects
via analyst blogs and on-line conferences. The site also provides tools such as
financial calculators (http://finance.rambler.ru/calculators/osago) to enable
users to calculate insurance premiums, mortgage payments or daily exchange
rates.
Following several months of consultation with consumer focus groups throughout
Russia, Rambler has designed significant changes to its Homepage www.rambler.ru,
and is preparing to launch a new version in the first half of 2008. The new
homepage will have a much more simplified and streamlined structure which will
increase the site's stickiness and provide users with a much more personalised
and customised experience to make Rambler.ru Russian internet users' favourite
homepage. The new site will become an open gateway to the Internet, with a clear
separation between Search, Communication features, Media & Entertainment
channels, user generated content and 'recommended best of the web'. 'Top100'
will remain an integral part of the navigation services, with a modernized look
and feel. The Group intends to consolidate its offering by investing in areas
where there is high user interest through partnerships or other development
programs.
Improvements are also being made to Rambler.ru's Communications tools so that
users can more easily interact with each other. "My Rambler" will be introduced
to enable users to embrace all of the site's personal services and
communications tools such as email, instant messaging, blogs, video, audio and
mobile communications, creating an open communications platform.
A new version of Rambler's instant messaging service Rambler-ICQ 6
(http://icq.rambler.ru/) was introduced on 1 November 2007, with significant
technical improvements and more user friendly interfaces. Additional features
allow users to transform their communication into an even more personalised and
intuitive experience. The new version includes voice capabilities and supports
group conversations and a gaming platform. ICQ is the leading instant messaging
provider in Russia attracting more than 6 million users each month. One in every
three ICQ users in Russia uses Rambler-ICQ's co-branded service, which combines
the benefits of ICQ's robust application with Rambler's search, content, email
and other services.
A very clear product strategy has therefore been implemented in 2007 to deliver
better results faster and also to strengthen Rambler's reputation for offering
differentiated and user orientated products.
2.6.2. Sales & partnerships
Anna Znamenskaya was appointed Chief Sales & Partnership Officer in October 2007
to increase Rambler's revenue streams across its two main sales channels:
Contextual Advertising and Display Advertising.
To strengthen its Contextual Advertising offering, the Group acquired a further
25% stake in contextual advertising company ZAO Begun ("Begun"), in August 2007,
through Rambler's wholly owned subsidiary, Vieli Enterprises Ltd, for a cash
consideration of US$18 million. This brought the Group's total ownership in
Begun to 50.1% and thus Begun became a fully consolidated subsidiary of Rambler.
Begun is one of Russia's leading search and contextual text-based advertising
platforms with a network of 35,000 individual advertisers and over 50,000
partner distribution sites. This deal is significant for Rambler as it enables
the Group to leverage its position in the text-based advertising market in
Russia which approximately doubled in size in 2007. Rambler expects the text
based advertising market to grow faster than traditional display advertising in
the next few years as more and more small businesses go online.
Before 2008, Display Advertising on Rambler's pages was sold exclusively by
Rambler's interactive agency Index20, directly and through key advertising
agencies, such as Mindshare Interaction, Optimum Media, Adwatch, Advert.ru,
Media Net and Maxima. Rambler's top 20 advertising clients comprise many of the
biggest internet advertisers in Russia - Russian and multinational brands alike;
however, Rambler intends to capture a larger number of advertisers going forward
and believes it has the right audience and products to capture an even greater
proportion of each advertiser's budget. The Group's strategy is to maintain
competitive pricing in order to successfully build a large network of
advertisers, particularly in what is considered as the early phase in the
development of internet advertising in Russia.
Rambler's Display Advertising capabilities have been strengthened through the
Group's partnership with Video International's IMHO VI, announced in October
2007, to sell display advertising on Rambler's pages from January 2008. Rambler
recently announced that it further reinforced this relationship with IMHO VI
through the sale of a 51% stake in Index20 to IMHO VI. As a result of this,
Index20 and IMHO VI have successfully started selling banner advertisements on
Rambler's web pages in partnership with each other to further optimise Rambler's
advertising revenues.
In addition to contextual and display advertising sales, Anna Znamenskaya's team
is also working on increasing revenues from direct sales and partnerships.
2.6.3. Marketing
Rambler's marketing and branding is now being led by Chief Marketing Officer,
Zhanna Beletskaya. The two main objectives of this effort are to improve brand
perception and to increase daily traffic. These will be achieved by broadening
Rambler's audience to attract more sophisticated internet users while also
respecting the parameters set by less experienced users whose confidence and
comfort levels may be lower. Rambler intends to reach this more sophisticated
audience by implementing a new brand identity, new visual language and
introducing new versions of its key products, such as Search and its homepage,
in 2008. This is being reinforced by public relations campaigns, such as the
recent 'Hero Campaigns' using Sports, Music and Video content to promote
Rambler's new features and improved services. Rambler is also increasingly
active at industry initiatives, press conferences and round tables to position
the Group as a leader and industry expert.
In September 2007, Rambler was named as the official internet partner of the
"Star Factory" ("Fabrika Zvezd"), a very popular talent contest and reality
television show. The show is broadcast on "Channel One" ("Pervyi Kanal"),
Russia's largest TV channel by audience share, with an international audience of
more than 200 million viewers. As part of this partnership, a unique weekly
competition opened to users of Rambler's internet homepage was launched to give
users the opportunity to enter the "Star Factory".
2.6.4. Rambler User statistics
As a preliminary result of these changes, Rambler's position in the Russian
internet market is growing fast and the Group expects this to continue over the
course of 2008.
www.Rambler.ru reached 35.1 million unique users in December 2007, up more than
43% from the 24.4 million users in the same period in 2006. Rambler users viewed
an average of 2.3 billion pages per month on Rambler's sites during 2007, up 49%
from 1.6 billion pages in the same period last year.
As of December 2007, the number of monthly active Rambler email account users
was 8 million, up 50% from December 2006 and representing 27% of Rambler's
average total monthly users. Rambler's total number of registered email accounts
is now 30.4 million, 80% higher than in December 2006. In June, Rambler launched
a new SMS alert service notifying users of new mail received. This service was
launched jointly with leading Russian mobile operator Mobile TeleSystems OSJC
(MTS).
During 2007, Rambler News' audience grew by approximately 36% to reach 5 million
users in December, representing 14% of Rambler's average monthly audience.
Rambler News (http://www.rambler.ru/news/) was enriched with video and audio
content, as well as new links enabling easier access to sports, finance,
regional news, real estate and other sections. Rambler News also launched
successful special weekly online supplements for auto, style, home and personal
finance. Lenta.ru (www.lenta.ru), one of the Group's most frequented news sites
and the leading online newspaper in Russia, grew its online readership by 26%
from December 2006 to December 2007, with 3.9 million unique visitors in
December 2007.
In April 2007, Rambler Sport (http://sport.rambler.ru/) sponsored and launched a
special project dedicated to the 2007 International Ice Hockey World
Championships hosted in Moscow. The site attracted 1.1 million users in just two
weeks and confirmed Rambler Sport as the leading Russian speaking sports news
site.
Rambler Games (http://games.rambler.ru/), which was launched in 2005, continued
to be very popular in 2007 and became the number one gaming portal for casual
games by both number of unique users and page views since May 2007 according to
data collected by Top100. In 2007, 3 million users played Rambler games on
average each month, representing 10% of Rambler's average monthly audience.
In May 2007, Rambler Audio was re-launched with a new interface and faster
stream downloads, resulting in an increased number of visitors. In December
2007, Rambler Audio attracted 1.85 million monthly users, which is 168% more
than in December 2006. Rambler Audio also started selling MP3 songs.
In March 2008, Maxim Konovalov was appointed as the Group's Chief Technical
Officer with the view to optimise the performance of Rambler's internet sites
and further improve Rambler's IT architecture/infrastructure.
3. Position
The Group ended the period with a cash balance of US$31.5 million. This includes
the US$23.0 million proceeds from the sale of Rambler TV received at the
beginning of 2007. Consolidated free cash flow before cash used for acquisitions
of subsidiary undertakings was US$6.8 million for the year 2007 (2006, US$0.6
million).
Russia has rapidly become one of Europe's largest online communities, third
after Germany and the UK, with 29.4 million Russians online in December 2007,
representing about 26% of the Russian adult population (source: The Public
Opinion Foundation). This percentage is forecast to more than double by 2010,
according to the Russian Ministry of Communications, which could make Russia the
largest online market in Europe. The overall Russian advertising market is
growing very strongly, and internet advertising is the fastest growing segment.
Online display advertising was estimated to have increased by 60% year-on-year
in 2007 to US$160 million including VAT (2006, US$100 million) (source: Russian
Association of Communication Agencies / AKAR and Video International). In
addition, text-based advertising on Russian-language internet sites soared to
US$225 million in 2007 from US$110 million in 2006. In 2007, revenue from
Internet advertising accounted for 2.8% of the total advertising market but the
segment is growing faster than any other media and is forecast to attract 6-7%
of total advertising by 2010 (source: Zenith Optimedia).
The Group is well positioned to continue its rapid growth, in line with or
faster than that of the online advertising market, due to its established
brands, large market share, and focused internet media and services. The Group
intends to generate sales between US$100 million and US$110 million in 2008, and
to further increase its profitability.
4. Principal risks
Russian taxation and currency control regulations
A substantial part of the operations of the Group is conducted in Russia or
involves transactions with Russian entities. As a result the Group has
significant exposure to the Russian taxation and currency control regimes.
Russian tax 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 authorities.
The Russian tax authorities may be taking a more assertive position in their
interpretation of the legislation and assessments, and it is possible that
transactions and activities that have not been challenged in the past may be
challenged. The Supreme Arbitration Court issued guidance to lower courts on
reviewing tax cases providing a systemic roadmap for anti-avoidance claims, and
it is possible that this will significantly increase the level and frequency of
tax authorities' scrutiny.
As a result, significant additional taxes, penalties and interest may be
incurred. 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.
Russian transfer pricing legislation introduced on 1 January 1999 provides the
possibility for tax authorities to make transfer pricing adjustments and impose
additional tax liabilities in respect of all controllable transactions, provided
that the transaction price differs from the market price by more than 20%.
Controllable transactions include transactions with interdependent parties, as
determined under the Russian Tax Code, all cross-border transactions
(irrespective of whether performed between related or unrelated parties),
transactions where the price applied by a taxpayer differs by more than 20% from
the price applied in similar transactions by the same taxpayer within a short
period of time, and barter transactions. There is no formal guidance as to how
these rules should be applied in practice. In the past, the arbitration court
practice with this respect has been contradictory.
Tax liabilities arising from intercompany transactions are determined using
actual transaction prices. It is possible with the evolution of the
interpretation of the transfer pricing rules in the Russian Federation and the
changes in the approach of the Russian tax authorities, that such transfer
prices could potentially be challenged in the future. Given the relatively
recent introduction of the current Russian transfer pricing rules, the impact of
any such challenge cannot be reliably estimated; however, it may be significant
to the financial condition and/or the overall operations of the Group.
The Group includes companies incorporated outside of Russia. Russian tax laws do
not provide detailed rules on taxation of foreign companies. It is possible that
with the evolution of the interpretation of these rules and the changes in the
approach of the Russian tax authorities, the non-taxable status of some or all
of the foreign companies of the Group in Russia may be challenged. Where the
Group believes that it is probable that its position cannot be sustained, the
related tax and associated balances have been accrued. However, it is possible
that additional challenges may occur and the impact of such challenges, if any,
cannot be reliably estimated; such impact may be significant to the financial
condition and/or the overall operations of the Group.
Russian tax legislation does not provide definitive guidance in certain areas.
From time to time, the Group adopts interpretations of such uncertain areas in a
manner that reduces the overall tax rate of the Group. As noted above, such tax
positions may come under heightened scrutiny as a result of recent developments
in administrative and court practices; the impact of any challenge by the tax
authorities cannot be reliably estimated; however, it may be significant to the
financial condition and/or the overall operations of the entity.
Business risks
The Group's business risk is difficult to evaluate because the Group has a
limited operating history in an emerging and rapidly evolving market. The Group
derives nearly all of its net revenue from online advertising, which is a
relatively new advertising medium. The Group's ability to succeed in this market
may be restrained by limited resources, expenses, risks, and complications
frequently encountered by similar companies in emerging and changing markets. To
address these risks, the Group must, amongst other things:
-- maintain and increase the size of its audience;
-- maintain and increase its advertisers' base;
-- implement and successfully execute its business and marketing strategy;
-- continue to develop and upgrade its technology;
-- continually update and improve its service offerings and features;
-- find and integrate strategic transactions;
-- respond to industry and competitive developments; and
-- attract, retain, and motivate qualified personnel.
The Group may not be successful in addressing these risks, particularly as some
of them are largely beyond its control. If the Group is unable to do so, its
business, financial condition, and results of operations would be materially and
adversely affected.
5. Forward-looking statements
Certain statements in this preliminary announcement are forward-looking.
Although the Group believes that the expectations reflected in these
forward-looking statements are reasonable, it can give no assurance that these
expectations will prove to be correct. Because these statements involve risks
and uncertainties, actual results may differ materially from those expressed or
implied by these forward-looking statements.
The Group will not undertake any obligation to update any forward-looking
statements whether as a result of new information, future events or otherwise
occurring after the date of this announcement except as required by applicable
law or by any applicable regulatory authority.
Rambler Media Limited
Company and Consolidated Balance Sheet as at 31 December 2007
(expressed in US$'000s)
Company Consolidated
----------------------------------------------------------------------
2007 2006 2007 2006
----------------------------------------------------------------------
Assets
Non-current assets
Property, plant and equipment - - 7,865 3,731
Intangible assets - - 42,189 13,741
Investments in subsidiaries 51,756 45,402 - -
Financial assets - - - 864
Deferred income tax asset - - 1,503 1,657
----------------------------------------------------------------------
51,756 45,402 51,557 19,993
Current assets
Trade debtors - - 11,628 5,529
Prepayments 2 6 2,143 1,217
VAT receivable - - 559 612
Other receivables - 1,727 842 1,172
Bank and cash balances 15,784 12,822 31,462 18,461
----------------------------------------------------------------------
15,786 14,555 46,634 26,991
Non-current assets held for sale - - 5,231 18,718
----------------------------------------------------------------------
Total assets 67,542 59,957 103,422 65,702
----------------------------------------------------------------------
Liabilities
Current liabilities
Trade creditors 1,235 34 11,613 4,379
Current income tax payable - - 8,193 2,536
VAT payable - - 1,813 303
Other provisions for liabilities and
charges - - 10,887 3,757
Deferred income - - 5,242 2,067
----------------------------------------------------------------------
1,235 34 37,748 13,042
Liabilities directly associated with
assets held for sale - 2,000 1,331 4,807
----------------------------------------------------------------------
Non-current liabilities
Deferred income tax liability - - 6,149 4,124
----------------------------------------------------------------------
Total liabilities 1,235 2,034 45,228 21,973
----------------------------------------------------------------------
Shareholders' equity
Issued capital 165 153 165 153
Share premium 64,053 57,208 64,053 57,208
Options reserve 148 601 148 601
Assets valuation reserve - - 966 -
Retained earnings / (accumulated
losses) 2,991 (39) (13,315) (17,846)
Currency translation reserve (1,050) (446)
----------------------------------------------------------------------
Total shareholders' equity 66,307 57,923 51,571 40,116
----------------------------------------------------------------------
Minority interests directly
associated with assets held for
sale - - 1,876 -
Minority interests - - 4,747 3,613
----------------------------------------------------------------------
Total liabilities and shareholders'
equity 67,542 59,957 103,422 65,702
----------------------------------------------------------------------
The accompanying notes are an integral part of this condensed financial
information.
Rambler Media Limited
Consolidated Income Statement
for the Year Ended 31 December 2007
(expressed in US$'000s)
2007 2006
----------------------------------------------------------------------
Continuing operations:
Revenue 69,083 30,646
Investment income 902 1,574
Operating expenses (67,524) (32,086)
Impairment expense (1,521) -
----------------------------------------------------------------------
Net profit before interest and
taxation 940 134
Interest income 1,449 940
Interest expense - (5)
----------------------------------------------------------------------
Net profit before taxation 2,389 1,069
Taxation (3,814) (1,048)
----------------------------------------------------------------------
Net profit/(loss) from
continuing operations (1,425) 21
Discontinued operations:
Gain / (Loss) from
discontinued operations 7,089 (3,056)
----------------------------------------------------------------------
Profit / (loss) for the year 5,664 (3,035)
----------------------------------------------------------------------
Profit / (Loss) attributable
to:
Profit /(Loss) attributable to
equity holders of parent 6,080 (3,183)
Minority interest (416) 148
----------------------------------------------------------------------
Profit / (loss) for the year 5,664 (3,035)
----------------------------------------------------------------------
(Loss)/earnings per share from
continuing operations - basic
and diluted (expressed in US$
per share) (0.066) 0.001
Earnings/(loss) per share from
discontinued operations -
basic (expressed in US$ per
share) 0.461 (0.202)
----------------------------------------------------------------------
Earnings/(loss) per share from
discontinued operations -
diluted (expressed in US$ per
share) 0.459 (0.202)
----------------------------------------------------------------------
Rambler Media Limited
Consolidated Statement of Changes in Shareholders' Equity
for the Year Ended 31 December 2007
(expressed in US$'000s)
Issued Share Options Assets Merger Accumulated Translation Total MI directly Minority Total
capital premium Reserve Valuation reserve losses Reserve associated interest equity
Reserve with AHS
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
31 December
2005 150 55,902 341 - 51 (14,663) - 41,781 - 23 41,804
Share capital
issued 3 1,306 - - - - - 1,309 - - 1,309
Cost of share
options - - - 260 - - - - 260 - - 260
Loss for the
year - - - - (51) (3,183) - (3,234) - 148 (3,086)
Minority
interest
arising on
acquisitions - - - - - - - - - 3,442 3,442
31 December
2006 153 57,208 601 - - (17,846) - 40,116 - 3,613 43,729
Share capital
issued 1 2,503 - - - - - 2,504 - - 2,504
-
Exercise of
share options - (601) - - - - (601) - - (601)
Cost of share
options - - 134 - - - - 134 - - 134
Valuation of
acquired
interest in
subsidiary,
net of tax 936 - - - 936 - - 936
Classified as
directly
attributable
to asset held
for sale - - - - - - - - 1,876 (1,876) -
Profit for the
year - - - - - 6,080 - 6,080 - (416) 5,664
Minority
interest
arising on
acquisitions - - - - - - - - - 3,395 3,395
Dividends paid - - - - - - - - - (334) (334)
Currency
translation 11 4,342 14 30 - (1,549) (446) 2,402 - 365 2,767
31 December
2007 165 64,053 148 966 - (13,315) (446) 51,571 1,876 4,747 58,194
------------------------------------------------------------------------------------------------------------------------
Rambler Media Limited
Consolidated Cash Flow Statement
for the Year Ended 31 December 2007
(expressed in US$'000s)
2007 2006
----------------------------------------------------------------------
Cash flows from operating activities
Net profit/(loss) for the year 6,080 (3,183)
Adjusted for:
(Gain)/loss attributable to discontinued operations (7,089) 3,056
Minority interest (416) 148
Interest received (1,449) (940)
Interest charged - 5
Dividend income (902) (1,574)
Taxation charge 3,814 1,208
Cost of share options exercised 134 260
Foreign Exchange translation loss 1,809 -
Impairment 1,521 -
Depreciation and amortisation 5,170 1,490
Increase in other provisions for liabilities and
charges 2,826 2,557
Overhead costs attributable to discontinued
operations paid by continuing operations 57 1,047
Loss on disposal of fixed assets - 143
----------------------------------------------------------------------
Operating cash flows before working capital changes 11,555 4,217
Increase in trade and other receivables (4,776) (2,492)
Increase in prepayments (48) (349)
Increase in creditors and other payables 2,991 2,944
Increase in deferred revenue 2,290 1,367
----------------------------------------------------------------------
Cash generated from operations 12,011 5,687
Income taxes paid (1,598) (129)
Interest paid - (5)
----------------------------------------------------------------------
Net cash from operating activities - continuing
operations 10,414 5,553
----------------------------------------------------------------------
Net cash used in operating activities - discontinued
operations - (2,145)
----------------------------------------------------------------------
Net cash from operating activities 10,414 3,408
----------------------------------------------------------------------
Cash flows from investing activities
Acquisition of subsidiary undertakings (18,131) (5,004)
Acquisition of investments - -
Dividend income 1,345 1,199
Purchase of property, plant and equipment (4,583) (2,664)
Proceeds on disposal of property, plant and equipment - -
Purchase of intangible assets (396) (1,297)
----------------------------------------------------------------------
Net cash used in investing activities - continuing
operations (21,765) (7,766)
----------------------------------------------------------------------
Net cash from / (used in) investing activities -
discontinued operations 20,523 (383)
----------------------------------------------------------------------
Net cash used in investing activities (1,241) (8,149)
----------------------------------------------------------------------
Cash flows from financing activities
Proceeds from equity financing 1,904 1,310
Repayment of borrowings - (54)
Interest received 1,449 940
----------------------------------------------------------------------
Net cash from financing activities 3,353 2,196
----------------------------------------------------------------------
Net increase/(decrease) in cash 12,525 (2,545)
Cash at the beginning of the year - continuing
operations 18,461 21,482
Cash at the beginning of the year classified as
discontinued operations 476 -
Cash at the end of the year - continuing operations 31,462 18,461
Cash at the end of the year classified as
discontinued operations (asset held for sale) 1 476
----------------------------------------------------------------------
Material non-cash transactions:
Purchases on barter terms (917) (1,319)
Sales on barter terms 917 1,319
1. Rambler Companies and Principal Activities
Rambler Media Limited (the "Company" or "Rambler Media") was incorporated in
Jersey on 10 June 2004 as a private limited company. The Company has its
registered office at First Island House, Peter Street, St. Helier, Jersey JE2
4SP. The consolidated financial statements presented herein include the
financial statements of the Company, its wholly owned subsidiaries and investees
in which the parent company has control (together the "Group").
The Company was formed to act as a holding vehicle for the media interests
controlled by First Mercantile Net Ventures Fund Ltd ("FMNVF Ltd").
On 31 October 2006, Prof-Media, a Russian media holding company, acquired 48.8%
of shares in Rambler Media from funds managed by FM Asset Management Limited. In
December 2006, following anti-monopoly approval, Prof-Media obtained control of,
and later increased its stake in Rambler Media to 54.84%.
The Group's principal place of business is the Russian Federation and CIS.
Rambler Media is a diversified Russian language media, entertainment, services
and content delivery company which operates various internet properties
including the leading Russian language internet portal and search engine
'Rambler.ru', contextual advertising company Begun, Top100 rating system, free
email service, on-line newspaper 'Lenta.ru', price comparison website
'Price.ru', data centre operator 'Rambler Telecom', digital advertising agency
'Index20' and mobile content service provider 'Rambler Mobile'. During 2006 the
Company decided to divest its television business, which formerly consisted of
TVK Rambler and NBN. This segment was reported as a discontinued operation.
Rambler Media's shares are traded on the AIM market of the London Stock Exchange
under the symbol 'RMG' since its Initial Public Offering which took place on 15
June 2005.
At the end of 2007, Rambler Media had 687 employees in continuing operations
(2006, 495 and 96 in discontinued TV operations).
2. Significant Accounting Policies
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below:
a) Basis of preparation
These consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") under the historical cost
convention. The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below. These policies have
been consistently applied to all the periods presented, unless otherwise stated.
b) Functional Currency and Currency Conversion
Management has determined that, for the purposes of the 2007 IFRS financial
statements, the Russian Rouble most fairly represents the financial condition of
the Company due to the following factors:
- the majority of Rambler's clients, representing more than 95% of its revenue,
are invoiced by its Russian operating entities.
- the majority (95%) of Rambler's operating expenses are fixed in Rouble gross
terms.
For the prior periods, Rambler's functional currency was the United States
Dollar.
A change in functional currency from US dollar to the Russian Rouble was
accounted for by establishing new functional currency bases for non-monetary
items. Those bases were computed by translating the historical reporting
currency amounts of assets and liabilities into Russian Roubles at the exchange
rate as at 1 January 2007. After the change of functional currency to the
Russian Rouble, Rambler Group's revenues, costs, property and equipment
purchased which are either priced, incurred, payable, or otherwise measured in
foreign currencies are being converted into Russian Roubles at the relevant
exchange rates prevailing on the date the transactions occurred. Debt and trade
liabilities are measured at the exchange rate prevailing on the balance sheet
date. Resulting exchange differences are being charged or credited to the income
statement.
Monetary assets and liabilities are translated into each entity's functional
currency at the official exchange rate of the Central Bank of the Russian
Federation on the respective balance sheet dates. The CBR exchange rate at 31
December 2007 was US$1 = RUR25.54 (31 December 2006, US$1 = RUR26.33). Foreign
exchange gains and losses resulting from the settlement of the transactions and
from the translation of monetary assets and liabilities into each entity's
functional currency at year-end official exchange rates of the Central Bank of
the Russian Federation are recognised as profit or loss. Translation at year-end
rates does not apply to non-monetary items, including equity investments.
Effects of exchange rate changes on the fair value of equity securities are
recorded as part of the fair value gain or loss.
The Russian Rouble is not a fully convertible currency outside the Russian
Federation and, accordingly, any translation of RUR denominated assets and
liabilities into US$ for the purpose of these consolidated annual financial
statements does not imply that Group could or will in the future realise or
settle in US$ the translated values of these assets and liabilities.
c) Presentation currency
All amounts in these financial statements are presented in thousands of US
dollars ("US$ thousands"), unless otherwise stated. It is a common practice for
Russian companies operating in the media industry to use US$ as a presentation
currency.
3. Acquisition of Begun
In December 2004 the Company entered into an agreement with the then
shareholders of Begun to purchase 25% plus 1 share of Begun for US$750,000. The
purchase was completed in March 2005. The Company spent an additional US$21,000
on transaction fees.
Begun was treated as an investment carried at cost and not equity as the Company
had no significant financial or operational influence over the company. It was
not practical to determine the fair value of this investment. The investee has
not published recent financial information about its operations, its shares are
not quoted and recent trade prices are not publicly accessible.
On 6 August 2007, Rambler completed the acquisition of a 25% stake in Begun for
a cash consideration of US$18.6 million, which brought the Group a controlling
stake in Begun of 50.1%. Also, the seller committed to indemnify the Group
against specific contingent liabilities outstanding at the date of the business
combination, therefore a negative contingent consideration exists at 31 December
2007 that, when received, will reduce the amount of goodwill recorded in the
Group's consolidated balance sheet.
Although the Company had an option to purchase 25% of the shares (with further
option to purchase 50% of the shares) of Begun the above acquisition was not a
realization of the option, as the previous purchase agreement was terminated by
the new set of acquisition documents.
The Company engaged an independent consultant to perform the purchase price
allocation procedures for this acquisition. Details of the assets and
liabilities acquired and intangible assets arising are as follows:
Acquisitions
Note IFRS carrying Attributed fair
amount value
immediately
before
acquisition
----------------------------------------------------------------------
Cash and cash equivalents 490 490
Other intangible assets 3 19,137
Fixed assets 596 680
Deferred tax asset 1,098 1,098
Trade and other receivables 1,843 1,843
Creditors, payables and provisions (6,702) (11,838)
Deferred tax liability - (4,607)
----------------------------------------------------------------------
Fair value of net assets of
subsidiary (2,672) 6,803
----------------------------------------------------------------------
Fair value of acquired interest in
net assets of subsidiary 1,701
Goodwill arising on acquisition 16,920
----------------------------------------------------------------------
Total purchase consideration 18,621
Less: cash and cash equivalents of
subsidiary acquired (490)
----------------------------------------------------------------------
Outflow of cash and cash
equivalents on acquisition 18,131
----------------------------------------------------------------------
The goodwill is attributable to the Group's ability to improve its presence in
an important segment of contextual advertising, as well as anticipated
profitability of the acquired business. Part of goodwill arises due to an
identifiable internally generated intangible asset (Partner's relations with
Rambler) that cannot be recognised in these consolidated financial statements.
Management assesses the fair value of a 25.1% ownership acquired in March 2005
to approximate the cost of investment of US$750,000.
The operations of Begun have been included in the Company's consolidated
financial statements since 1 August 2007. Begun contributed US$14.9 million to
Revenue and US$785,000 to profit before income tax for the period from 1 August
2007 to 31 December 2007.
If the acquisition of Begun had been completed on 1 January 2007, the Group's
revenue for the reporting period would have been approximately US$84.9 million
and the Group's profit before tax for the reporting period would have been
US$10.5 million.
4. Issued Capital
The share capital of the Company at the balance sheet date expressed in US$ (not
thousands) is comprised as follows:
2007 2006
-----------------------------------------------------------------------
Authorised ordinary shares of US$ 0.01 each (20 million
shares) 200,000 200,000
-----------------------------------------------------------------------
Issued and fully paid share capital 15,397,649 ordinary
shares of US$ 0.01 each 153,976 152,717
-----------------------------------------------------------------------
The Company listed on the AIM market of the London Stock Exchange (LSE) on 15
June 2005. On listing, the Company issued 3,000,000 ordinary shares of US$ 0.01
each to bring the issued share capital to 14,975,731 (2004, 11,975,731) ordinary
shares of US$ 0.01 each. During 2007, options were exercised hence 125,945
shares were issued, bringing the issued share capital to 15,397,649 ordinary
shares of US$ 0.01 each (2006, 15,271,704).
5. Revenue and Investment income
2007 2006
----------------------------------------------------------------------
Display / Banner advertising 33,297 16,136
Paid Search / Contextual advertising 24,864 7,575
Listing fees, other advertising 4,781 3,710
Mobile and Value Added Services 4,283 2,341
Other revenue 1,858 884
----------------------------------------------------------------------
69,083 30,646
----------------------------------------------------------------------
2007 2006
----------------------------------------------------------------------
Investment income - dividends from Begun 902 1,574
Interest income - short term investments (deposit
accounts) 1,449 940
----------------------------------------------------------------------
6. Operating expenses
2007 2006
----------------------------------------------------------------------
Commissions - banner sales 3,725 1,576
Content costs 1,573 521
Traffic acquisition cost - banner and revenue sharing 5,272 2,190
Traffic acquisition cost - contextual 7,188 1,001
Data centre costs 1,122 851
Mobile COS 3,493 1,980
Subtotal Direct Costs 22,373 8,119
Labour 21,992 12,293
Share options 134 260
Marketing and advertising 5,879 3,196
Provisions for taxes other than on income 2,826 2,557
Legal and professional 2,969 1,586
General expenses 2,687 1,223
Office rent 1,335 830
Other 351 401
Foreign currency exchange loss 1,808 131
Depreciation 1,415 893
Amortisation 3,755 597
Subtotal Labour and Selling, General & Administrative
expenses 45,151 23,967
----------------------------------------------------------------------
Total 67,524 32,086
----------------------------------------------------------------------
The Company incurs expenses throughout the year on maintaining existing products
and developing new products; staff members are involved in both activities. It
is therefore not practical to estimate with any accuracy the amount of
expenditure incurred on development expenditure in any given year.
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