9th Apr 2008 07:00
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 BegunStrong 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 ofRussia's most popular internet brands, today announces its financial results forthe year ended 31 December 2007, prepared in accordance with InternationalFinancial 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 12months ago, my key objectives have been to improve the Group's profitability,accelerate sales growth, build a new team and reposition Rambler's brand andproducts. We have a strong balance sheet and the right underlying businessfundamentals. Rambler is ready to become Russia's leading gateway to theinternet. Together with Arthur, we have put in place an experienced and focused managementteam 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 comingyear." 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$110 million) -- Internet text and display advertising accounted for 2.8% of the total Russian advertising market in 2007 (2006, 1.6%) \* TFINANCIAL SUMMARY-----------------------------------------------------------------------------------------(US$ '000s) Jan - Dec Jan - Dec Jul - Dec Jul - Dec 2007 2006 2007 2006Group revenue 69,083 30,646 48,571 17,683Rambler Media excl. Begun 54,162 30,646 33,650 17,683Impact of Begun (from Aug. to Dec. 2007) 14,921 - 14,921 -EBITDA* 7,631 1,624 7,106 817EBITDA* 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) 0.001Earnings / (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)-----------------------------------------------------------------------------------------\* T * Earnings before interest, tax, depreciation and amortisation The results for the 12 months ended 31 December 2007 are as follows: \* T(US$ '000s) Total Discontinued continuing operations Total operations ------------ --------------- -----------Total revenue 69,083 - 69,083Operating expenses and overheads (67,524) - (67,524) ------------ --------------- ----------- 1,559 - 1,559Investment income 902 902Depreciation and amortisation 5,170 - 5,170 ------------ --------------- -----------EBITDA 7,631* - 7,631 ============ =============== ===========\* T *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 shareoptions costs, and excludes non-recurring goodwill impairment charge ofUS$1,521,000 The results for the 12 months ended 31 December 2006 are as follows: \* T(US$ '000s) Total Discontinued continuing operations Total operations ------------ --------------- -----------Total revenue 30,646 5,435 36,081Operating expenses and overheads (32,086) (8,639) (40,725) ------------ --------------- ----------- (1,440) (3,204) (4,644)Investment income 1,574 - 1,574Depreciation and amortisation 1,490 244 1,734 ------------ --------------- -----------EBITDA 1,624** (2,960) (1,336) ============ =============== ===========\* T **EBITDA includes US$2,557,000 provision for potential tax related charges andUS$260,000 relating to share options costs OTHER INFORMATION The Group's consolidated accounts have been prepared in accordance withInternational Financial Reporting Standards (IFRS). The following preliminaryfinancial 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 bythe auditors. The figures and financial information for the year ended 31December 2007 set out herein do not constitute the statutory financialstatements for that year. The statutory financial statements have not beendelivered 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 presentationare 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: \* TRambler Media Shared Value LimitedMark Opzoomer / Arthur Akopyan Nicolas DuperrierTel. +7 495 500 3826 Tel. +44 (0) 20 7321 5010 [email protected] ING Wholesale BankingDaniel Friedman / William MarleTel. +44 (0) 20 7767 1000\* T ABOUT RAMBLER MEDIA Rambler Media is an internet media and services group which operates or hasinterests in leading Russian language internet brands including its originalRussian internet homepage and search engine 'Rambler.ru', on-line newspaper'Lenta.ru', product comparison website 'Price.ru', internet catalogue andnavigation system 'Top 100', instant messaging service 'Rambler-ICQ', digitaladvertising agency 'Index20' and contextual advertising company 'Begun'. RamblerMedia's shares are traded on AIM, the junior market of the London Stock Exchangeunder the symbol 'RMG'. For more information on Rambler Media, visit ourcorporate website at www.ramblermedia.com. Certain statements within this announcement constitute forward-lookingstatements. Such forward-looking statements involve risks and other factorswhich may cause the actual results, achievements or performance of the Group tobe materially different from any future results, achievements or performanceexpressed or implied by such forward-looking statements. Such risks and otherfactors include, but are not limited to, general economic and businessconditions, changes in government regulations, and court interpretations of suchregulations, currency fluctuations (including the US$/Rbs rate), competition,and changes in development plans. There can be no assurance that the results andevents contemplated by the forward-looking statements contained in thisannouncement will, in fact, occur. Any forward-looking statements made in thisannouncement represent management's best judgment as to what may occur in thefuture and are correct only as at the date of this announcement. The Group willnot undertake any obligation to release publicly any revisions to theseforward-looking statements to reflect events or circumstances occurring afterthe date of this announcement except as required by applicable law or by anyapplicable regulatory authority. Rambler Media Limited, Preliminary results announcement for the Year Ended 31 December 2007 Contents \* T Page Business review 9-19Balance sheet 20Income statement 21Statement of changes in equity 22Cash flow statement 23Notes to financial information 24-27\* T Business review Rambler Media Limited (the "Group"), is a media and services group whichoperates or has interests in leading Russian language internet brands includingits original Russian internet homepage and search engine 'Rambler.ru', on-linenewspaper 'Lenta.ru', product comparison website 'Price.ru', internet catalogueand navigation system 'Rambler Top 100', instant messaging service'Rambler-ICQ', digital advertising agency 'Index20' and contextual advertisingcompany 'Begun'. Rambler Media's shares are traded on AIM, the junior market ofthe 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 incontextual advertising company Begun for a cash consideration of US$18 million,bringing the Group's total ownership of Begun to 50.1% and providing Ramblerwith one of the leading positions in the text-based advertising market b. On 5 October 2007, Rambler announced the formation of a strategic partnershipwith IMHO VI, part of Video International, the largest media sales group inRussia, 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$110 million) -- Internet accounted for 2.8% of the total Russian advertising market in 2007 (2006, 1.6%) 2.4. Financial and operating review \* TFINANCIAL SUMMARY----------------------------------------------------------------------------------------------(US$ '000s) Jan - Dec Jan - Dec Jul - Dec Jul - Dec 2007 2006 2007 2006Group revenueRambler Media excl. Begun 69,083 30,646 48,571 17,683Impact 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 817EBITDA* 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) 0.001Earnings / (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)----------------------------------------------------------------------------------------------\* T * Earnings before interest, tax, depreciation and amortisation The results for the 12 months ended 31 December 2007 are as follows: \* T(US$ '000s) Total Discontinued continuing operations Total operations ------------ --------------- -----------Total revenue 69,083 - 69,083Operating expenses and overheads (67,524) - (67,524) ------------ --------------- ----------- 1,559 - 1,559Investment income 902 902Depreciation and amortisation 5,170 - 5,170 ------------ --------------- -----------EBITDA 7,631* - 7,631 ============ =============== ===========\* T *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 shareoptions costs, and excludes non-recurring goodwill impairment charge ofUS$1,521,000 The segmental results for the 12 months ended 31 December 2006 are as follows: \* T(US$ '000s) Total Discontinued continuing operations Total operations ------------ --------------- -----------Total revenue 30,646 5,435 36,081Operating expenses and overheads (32,086) (8,639) (40,725) ------------ --------------- ----------- (1,440) (3,204) (4,644)Investment income 1,574 - 1,574Depreciation and amortisation 1,490 244 1,734 ------------ --------------- -----------EBITDA 1,624** (2,960) (1,336) ============ =============== ===========\* T **EBITDA includes US$2,557,000 provision for potential tax related charges andUS$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, thusoutperforming the Russian internet text and display advertising market, whichwas estimated to have grown by 83% in the same period (source: RussianAssociation of Communication Agencies / AKAR and Video International). Begun,which is one of Russia's leading search and contextual text-based advertisingplatforms, was consolidated since August 2007, and contributed US$14.9 millionto the Group's full year revenue, after the elimination of inter-company sales.Excluding Begun's revenue contribution from text-based advertising, Rambler'srevenue grew by 77% year-on-year from US$30.6 million to US$54.2 million, againahead of the Russian display advertising market, which was estimated to havegrown by 60% in the same period (source: Russian Association of CommunicationAgencies / AKAR and Video International). Begun's full year revenue wasapproximately US$36.0 million in 2007, which represents around 20% of Russia'sfast growing internet text-based advertising market. Investment income from theGroup's stake in Begun, which was 25% during the first half of 2007, was US$0.9million (FY 2006, US$1.5 million). The Group's Mobile operations have beenintegrated 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 costcutting measures, helped achieve an operational breakeven in Mobile operationsin 2007. In 2007, 49% of the Group's revenue was generated by display advertising, whichis sold through the Group's agency Index20, and 36% of internet revenue camefrom search related or text-based advertising, mainly through Begun's extendedadvertising network. The remainder was attributable to price comparison, mobileand other revenues. The proportion of search related advertising within totalrevenue is expected to increase to 55% going forward as the Group will be ableto fully consolidate Begun's results. 2.5.2. EBITDA The Group reported consolidated EBITDA of US$7.6 million in 2007. The sharpincrease in profitability in the second half of 2007 was driven mainly byimproved sales of banner advertising inventory, better monetisation of searchtraffic, consolidation of profitable Begun operations and actions implemented inthe cost controls and processes area. The Group reported consolidated EBITDA ofUS$7.1 million in the second half of 2007 (H2 2006, US$0.8 million). The Group'sEBITDA 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$32.1million for the same period the previous year. In the second half of 2007, theGroup's operating expenses (including depreciation, amortisation and a taxrelated provision) were US$43.9 million, up 134% from US$23.1 million for thesecond half of 2006. Of this increase Begun contributed US$16.5 million duringthe period of consolidation in the last 5 months of 2007. Direct costs, including commissions, content, traffic acquisition costs, datacentre costs and mobile costs rose by 176% from US$8.1 million in FY 2006 toUS$22.4 million in 2007, mainly as a result of increased revenues andcommissions paid to partners of Begun's advertising network. Without the impactof Begun's commissions to its advertising network, the growth in direct costswould 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, witha view to improving both retention and development. These also resulted inreduction of labour costs as a proportion of total costs and of total revenue in2007. The Group's labour costs accounted for 32% of total operating expenses in2007, compared to 38% in 2006. Labour costs including Begun rose by 78% in 2007to 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 humanresource structure. This increase in labour costs was primarily driven by wageinflation of approximately 30% in the Russian internet and media market, organicheadcount increases of approximately 10%, increased senior managementcompensation, management restructuring costs amounting to US$0.7 million and theUS$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 reducedsignificantly to 32% of total revenue in 2007 despite the increase in headcountassociated with the Begun acquisition. Consolidated headcount in December 2007was 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 forpotential tax related charges. These provisions relate to potential liabilitiesfor taxes other than income tax, which arise from the legal structure of theGroup and the jurisdictions in which various income and expense items arerecognized and assessed. For the full year 2007, the provision for potential taxrelated 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$3.0million in 2007 due to the greater need for advice on strategy and potentialtransactions in 2007. The Group changed functional currency in 2007 from US Dollar to Russian Roubleand recognised a foreign currency translation loss of US$1.8 million as a resultof exchange rate fluctuations (refer to Note 2 (b) in the notes to the financialinformation). Management is currently exploring hedging solutions and expectsthis to decrease exposure going forward. The Group's amortisation expense rose significantly, from US$0.6 million in 2006to US$3.7 million in 2007, due to amortisation of intangibles resulting from2006 and 2007 acquisitions (mainly Begun). The Group's depreciation expense wentup by 56% from US$0.9 million to US$1.4 million in line with the increase inunderlying depreciable fixed assets. The Group has recognised an impairment charge for goodwill of US$1.5 millionrelating to the Infoproject and Damochka acquisitions as a result of therationalisation of the Group's product portfolio. In addition to the goodwillcharge, the Group has classified its investment in Damochka / Bannerbank as anasset held for sale. The Group recorded a net gain of US$7.1 million on disposal of its TV operationin January 2007 (FY 2006, loss from the discontinued TV operation of US$3.1million). The Group's loss per share from continuing operations was US$0.066 (basic) andUS$0.066 (diluted) (FY 2006, profit per share US$ 0.001 (basic and diluted)). 2.6 Operating review 2007 was a year of strategic review in which the Group outlined its vision tomake Rambler.ru (www.rambler.ru) Russia's favourite homepage in number of dailyusers and the leading open gateway to the internet. The Group's mission is tobuild the largest daily engaged IP-based audience in Russia by providing thebest suite of search, communications, media and entertainment content in oneplace. The appointment of a new executive management team in March 2007, headed by CEOMark Opzoomer and CFO Arthur Akopyan, led to the implementation of a series ofinitiatives designed to take Rambler to the next stage of its development and tocapitalise on the accelerated growth in online advertising and increasinginternet penetration in Russia. Steps taken by the new management team to strengthen Rambler's position in theinternet advertising space include redevelopment of its online products, entryinto enhanced display and text sales partnerships, cost control initiatives, andextensive consumer research to rejuvenate its brand identity. New operatingmanagers were appointed during the course of 2007 to lead these efforts andRambler's results for the period to 31 December 2007 prove that theseinitiatives are already bearing fruit. 2.6.1. Products Arkady Moreynis, one of the founders of Russia's leading product comparisonwebsite Price.ru, which is part of Rambler, was appointed Chief Product Officerat the end of 2007. His focus has been on improving key products that supportthe Group's growth. His objectives have been to align the development ofproducts with the Group's overall strategy, prioritizing on user orientatedproducts and features that are clearly and immediately visible to Rambler'susers. In particular, his team's efforts allowed Rambler's search engine RamblerSearch, Russia's original search engine, to improve its results' response speedand relevance significantly in the second half of 2007. The Group continues toimprove its horizontal search capabilities and a new hybrid search will beintroduced in H1 2008. In 2007, Rambler Search processed a total ofapproximately 2.8 billion queries, 27% more than in 2006 - an average of 230million search queries per month. According to public tests carried out byAshmanov & Partners IT consultancy in December 2007, search relevance wasimproved by up to 30% following the launch of a new search interface in thesummer. In 2007, an average of 42% of Rambler's audience used Rambler Searcheach 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 servicededicated to providing financial news, information and tools to Rambler usersevery day. The site (http://finance.rambler.ru ) is aimed at meeting the dailyneeds of a varied audience ranging from students to affluent professionals,seeking information about personal finance and the financial markets. TheRambler Finance site also provides users with live financial news(http://finance.rambler.ru/news) and economic statistics as well as aninteractive, real time business directory with contact details. Users are giventhe opportunity to seek advice from experts on a comprehensive range of subjectsvia analyst blogs and on-line conferences. The site also provides tools such asfinancial calculators (http://finance.rambler.ru/calculators/osago) to enableusers to calculate insurance premiums, mortgage payments or daily exchangerates. Following several months of consultation with consumer focus groups throughoutRussia, 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 newhomepage will have a much more simplified and streamlined structure which willincrease the site's stickiness and provide users with a much more personalisedand customised experience to make Rambler.ru Russian internet users' favouritehomepage. The new site will become an open gateway to the Internet, with a clearseparation between Search, Communication features, Media & Entertainmentchannels, user generated content and 'recommended best of the web'. 'Top100'will remain an integral part of the navigation services, with a modernized lookand feel. The Group intends to consolidate its offering by investing in areaswhere there is high user interest through partnerships or other developmentprograms. Improvements are also being made to Rambler.ru's Communications tools so thatusers can more easily interact with each other. "My Rambler" will be introducedto enable users to embrace all of the site's personal services andcommunications tools such as email, instant messaging, blogs, video, audio andmobile 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 significanttechnical improvements and more user friendly interfaces. Additional featuresallow users to transform their communication into an even more personalised andintuitive experience. The new version includes voice capabilities and supportsgroup conversations and a gaming platform. ICQ is the leading instant messagingprovider in Russia attracting more than 6 million users each month. One in everythree ICQ users in Russia uses Rambler-ICQ's co-branded service, which combinesthe benefits of ICQ's robust application with Rambler's search, content, emailand other services. A very clear product strategy has therefore been implemented in 2007 to deliverbetter results faster and also to strengthen Rambler's reputation for offeringdifferentiated and user orientated products. 2.6.2. Sales & partnerships Anna Znamenskaya was appointed Chief Sales & Partnership Officer in October 2007to 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 further25% stake in contextual advertising company ZAO Begun ("Begun"), in August 2007,through Rambler's wholly owned subsidiary, Vieli Enterprises Ltd, for a cashconsideration of US$18 million. This brought the Group's total ownership inBegun 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 advertisingplatforms with a network of 35,000 individual advertisers and over 50,000partner distribution sites. This deal is significant for Rambler as it enablesthe Group to leverage its position in the text-based advertising market inRussia which approximately doubled in size in 2007. Rambler expects the textbased advertising market to grow faster than traditional display advertising inthe next few years as more and more small businesses go online. Before 2008, Display Advertising on Rambler's pages was sold exclusively byRambler's interactive agency Index20, directly and through key advertisingagencies, such as Mindshare Interaction, Optimum Media, Adwatch, Advert.ru,Media Net and Maxima. Rambler's top 20 advertising clients comprise many of thebiggest internet advertisers in Russia - Russian and multinational brands alike;however, Rambler intends to capture a larger number of advertisers going forwardand believes it has the right audience and products to capture an even greaterproportion of each advertiser's budget. The Group's strategy is to maintaincompetitive pricing in order to successfully build a large network ofadvertisers, particularly in what is considered as the early phase in thedevelopment of internet advertising in Russia. Rambler's Display Advertising capabilities have been strengthened through theGroup's partnership with Video International's IMHO VI, announced in October2007, to sell display advertising on Rambler's pages from January 2008. Ramblerrecently announced that it further reinforced this relationship with IMHO VIthrough 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 onRambler's web pages in partnership with each other to further optimise Rambler'sadvertising revenues. In addition to contextual and display advertising sales, Anna Znamenskaya's teamis 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 brandperception and to increase daily traffic. These will be achieved by broadeningRambler's audience to attract more sophisticated internet users while alsorespecting the parameters set by less experienced users whose confidence andcomfort levels may be lower. Rambler intends to reach this more sophisticatedaudience by implementing a new brand identity, new visual language andintroducing new versions of its key products, such as Search and its homepage,in 2008. This is being reinforced by public relations campaigns, such as therecent 'Hero Campaigns' using Sports, Music and Video content to promoteRambler's new features and improved services. Rambler is also increasinglyactive at industry initiatives, press conferences and round tables to positionthe 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 realitytelevision show. The show is broadcast on "Channel One" ("Pervyi Kanal"),Russia's largest TV channel by audience share, with an international audience ofmore than 200 million viewers. As part of this partnership, a unique weeklycompetition opened to users of Rambler's internet homepage was launched to giveusers 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 Russianinternet market is growing fast and the Group expects this to continue over thecourse of 2008. www.Rambler.ru reached 35.1 million unique users in December 2007, up more than43% from the 24.4 million users in the same period in 2006. Rambler users viewedan 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 userswas 8 million, up 50% from December 2006 and representing 27% of Rambler'saverage total monthly users. Rambler's total number of registered email accountsis now 30.4 million, 80% higher than in December 2006. In June, Rambler launcheda new SMS alert service notifying users of new mail received. This service waslaunched jointly with leading Russian mobile operator Mobile TeleSystems OSJC(MTS). During 2007, Rambler News' audience grew by approximately 36% to reach 5 millionusers in December, representing 14% of Rambler's average monthly audience.Rambler News (http://www.rambler.ru/news/) was enriched with video and audiocontent, as well as new links enabling easier access to sports, finance,regional news, real estate and other sections. Rambler News also launchedsuccessful special weekly online supplements for auto, style, home and personalfinance. Lenta.ru (www.lenta.ru), one of the Group's most frequented news sitesand the leading online newspaper in Russia, grew its online readership by 26%from December 2006 to December 2007, with 3.9 million unique visitors inDecember 2007. In April 2007, Rambler Sport (http://sport.rambler.ru/) sponsored and launched aspecial project dedicated to the 2007 International Ice Hockey WorldChampionships hosted in Moscow. The site attracted 1.1 million users in just twoweeks and confirmed Rambler Sport as the leading Russian speaking sports newssite. Rambler Games (http://games.rambler.ru/), which was launched in 2005, continuedto be very popular in 2007 and became the number one gaming portal for casualgames by both number of unique users and page views since May 2007 according todata collected by Top100. In 2007, 3 million users played Rambler games onaverage each month, representing 10% of Rambler's average monthly audience. In May 2007, Rambler Audio was re-launched with a new interface and fasterstream downloads, resulting in an increased number of visitors. In December2007, Rambler Audio attracted 1.85 million monthly users, which is 168% morethan in December 2006. Rambler Audio also started selling MP3 songs. In March 2008, Maxim Konovalov was appointed as the Group's Chief TechnicalOfficer with the view to optimise the performance of Rambler's internet sitesand further improve Rambler's IT architecture/infrastructure. 3. Position The Group ended the period with a cash balance of US$31.5 million. This includesthe US$23.0 million proceeds from the sale of Rambler TV received at thebeginning of 2007. Consolidated free cash flow before cash used for acquisitionsof subsidiary undertakings was US$6.8 million for the year 2007 (2006, US$0.6million). Russia has rapidly become one of Europe's largest online communities, thirdafter Germany and the UK, with 29.4 million Russians online in December 2007,representing about 26% of the Russian adult population (source: The PublicOpinion Foundation). This percentage is forecast to more than double by 2010,according to the Russian Ministry of Communications, which could make Russia thelargest online market in Europe. The overall Russian advertising market isgrowing very strongly, and internet advertising is the fastest growing segment.Online display advertising was estimated to have increased by 60% year-on-yearin 2007 to US$160 million including VAT (2006, US$100 million) (source: RussianAssociation of Communication Agencies / AKAR and Video International). Inaddition, text-based advertising on Russian-language internet sites soared toUS$225 million in 2007 from US$110 million in 2006. In 2007, revenue fromInternet advertising accounted for 2.8% of the total advertising market but thesegment 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 orfaster than that of the online advertising market, due to its establishedbrands, large market share, and focused internet media and services. The Groupintends to generate sales between US$100 million and US$110 million in 2008, andto 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 orinvolves transactions with Russian entities. As a result the Group hassignificant exposure to the Russian taxation and currency control regimes. Russian tax and customs legislation is subject to varying interpretations, andchanges, which can occur frequently. Management's interpretation of suchlegislation as applied to the transactions and activity of the Group may bechallenged by the relevant authorities. The Russian tax authorities may be taking a more assertive position in theirinterpretation of the legislation and assessments, and it is possible thattransactions and activities that have not been challenged in the past may bechallenged. The Supreme Arbitration Court issued guidance to lower courts onreviewing tax cases providing a systemic roadmap for anti-avoidance claims, andit is possible that this will significantly increase the level and frequency oftax authorities' scrutiny. As a result, significant additional taxes, penalties and interest may beincurred. Fiscal periods remain open to review by the authorities in respect oftaxes for three calendar years preceding the year of review. Under certaincircumstances reviews may cover longer periods. Russian transfer pricing legislation introduced on 1 January 1999 provides thepossibility for tax authorities to make transfer pricing adjustments and imposeadditional tax liabilities in respect of all controllable transactions, providedthat the transaction price differs from the market price by more than 20%. Controllable transactions include transactions with interdependent parties, asdetermined 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% fromthe price applied in similar transactions by the same taxpayer within a shortperiod of time, and barter transactions. There is no formal guidance as to howthese rules should be applied in practice. In the past, the arbitration courtpractice with this respect has been contradictory. Tax liabilities arising from intercompany transactions are determined usingactual transaction prices. It is possible with the evolution of theinterpretation of the transfer pricing rules in the Russian Federation and thechanges in the approach of the Russian tax authorities, that such transferprices could potentially be challenged in the future. Given the relativelyrecent introduction of the current Russian transfer pricing rules, the impact ofany such challenge cannot be reliably estimated; however, it may be significantto the financial condition and/or the overall operations of the Group. The Group includes companies incorporated outside of Russia. Russian tax laws donot provide detailed rules on taxation of foreign companies. It is possible thatwith the evolution of the interpretation of these rules and the changes in theapproach of the Russian tax authorities, the non-taxable status of some or allof the foreign companies of the Group in Russia may be challenged. Where theGroup believes that it is probable that its position cannot be sustained, therelated tax and associated balances have been accrued. However, it is possiblethat additional challenges may occur and the impact of such challenges, if any,cannot be reliably estimated; such impact may be significant to the financialcondition 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 amanner that reduces the overall tax rate of the Group. As noted above, such taxpositions may come under heightened scrutiny as a result of recent developmentsin administrative and court practices; the impact of any challenge by the taxauthorities cannot be reliably estimated; however, it may be significant to thefinancial condition and/or the overall operations of the entity. Business risks The Group's business risk is difficult to evaluate because the Group has alimited operating history in an emerging and rapidly evolving market. The Groupderives nearly all of its net revenue from online advertising, which is arelatively new advertising medium. The Group's ability to succeed in this marketmay be restrained by limited resources, expenses, risks, and complicationsfrequently encountered by similar companies in emerging and changing markets. Toaddress 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 someof them are largely beyond its control. If the Group is unable to do so, itsbusiness, financial condition, and results of operations would be materially andadversely affected. 5. Forward-looking statements Certain statements in this preliminary announcement are forward-looking.Although the Group believes that the expectations reflected in theseforward-looking statements are reasonable, it can give no assurance that theseexpectations will prove to be correct. Because these statements involve risksand uncertainties, actual results may differ materially from those expressed orimplied by these forward-looking statements. The Group will not undertake any obligation to update any forward-lookingstatements whether as a result of new information, future events or otherwiseoccurring after the date of this announcement except as required by applicablelaw or by any applicable regulatory authority. \* T Rambler Media Limited Company and Consolidated Balance Sheet as at 31 December 2007 (expressed in US$'000s) Company Consolidated---------------------------------------------------------------------- 2007 2006 2007 2006----------------------------------------------------------------------AssetsNon-current assetsProperty, plant and equipment - - 7,865 3,731Intangible assets - - 42,189 13,741Investments in subsidiaries 51,756 45,402 - -Financial assets - - - 864Deferred income tax asset - - 1,503 1,657---------------------------------------------------------------------- 51,756 45,402 51,557 19,993 Current assetsTrade debtors - - 11,628 5,529Prepayments 2 6 2,143 1,217VAT receivable - - 559 612Other receivables - 1,727 842 1,172Bank and cash balances 15,784 12,822 31,462 18,461---------------------------------------------------------------------- 15,786 14,555 46,634 26,991Non-current assets held for sale - - 5,231 18,718---------------------------------------------------------------------- Total assets 67,542 59,957 103,422 65,702---------------------------------------------------------------------- LiabilitiesCurrent liabilitiesTrade creditors 1,235 34 11,613 4,379Current income tax payable - - 8,193 2,536VAT payable - - 1,813 303Other provisions for liabilities and charges - - 10,887 3,757Deferred 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 liabilitiesDeferred income tax liability - - 6,149 4,124---------------------------------------------------------------------- Total liabilities 1,235 2,034 45,228 21,973---------------------------------------------------------------------- Shareholders' equityIssued capital 165 153 165 153Share premium 64,053 57,208 64,053 57,208Options reserve 148 601 148 601Assets 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----------------------------------------------------------------------\* T The accompanying notes are an integral part of this condensed financialinformation. \* T Rambler Media Limited Consolidated Income Statement for the Year Ended 31 December 2007 (expressed in US$'000s) 2007 2006----------------------------------------------------------------------Continuing operations:Revenue 69,083 30,646 Investment income 902 1,574 Operating expenses (67,524) (32,086) Impairment expense (1,521) ----------------------------------------------------------------------- Net profit before interest and taxation 940 134 Interest income 1,449 940Interest expense - (5)---------------------------------------------------------------------- Net profit before taxation 2,389 1,069 Taxation (3,814) (1,048)---------------------------------------------------------------------- Net profit/(loss) from continuing operations (1,425) 21 Discontinued operations:Gain / (Loss) from discontinued operations 7,089 (3,056)---------------------------------------------------------------------- Profit / (loss) for the year 5,664 (3,035)---------------------------------------------------------------------- Profit / (Loss) attributable to:Profit /(Loss) attributable to equity holders of parent 6,080 (3,183) Minority interest (416) 148---------------------------------------------------------------------- Profit / (loss) for the year 5,664 (3,035)---------------------------------------------------------------------- (Loss)/earnings per share from continuing operations - basic and diluted (expressed in US$ 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)----------------------------------------------------------------------\* T \* T Rambler Media Limited Consolidated Statement of Changes in Shareholders' Equity for the Year Ended 31 December 2007 (expressed in US$'000s) Issued Share Options Assets Merger Accumulated Translation Total MI directly Minority Total capital premium Reserve Valuation reserve losses Reserve associated interest equity Reserve with AHS------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------31 December 2005 150 55,902 341 - 51 (14,663) - 41,781 - 23 41,804 Share capital issued 3 1,306 - - - - - 1,309 - - 1,309 Cost of share options - - - 260 - - - - 260 - - 260 Loss for the year - - - - (51) (3,183) - (3,234) - 148 (3,086) Minority interest arising on acquisitions - - - - - - - - - 3,442 3,44231 December 2006 153 57,208 601 - - (17,846) - 40,116 - 3,613 43,729Share capital issued 1 2,503 - - - - - 2,504 - - 2,504 -Exercise of share options - (601) - - - - (601) - - (601) Cost of share options - - 134 - - - - 134 - - 134 Valuation of acquired interest in subsidiary, net of tax 936 - - - 936 - - 936 Classified as directly attributable to asset held for sale - - - - - - - - 1,876 (1,876) -Profit for the year - - - - - 6,080 - 6,080 - (416) 5,664 Minority interest arising on acquisitions - - - - - - - - - 3,395 3,395 Dividends paid - - - - - - - - - (334) (334) Currency translation 11 4,342 14 30 - (1,549) (446) 2,402 - 365 2,76731 December 2007 165 64,053 148 966 - (13,315) (446) 51,571 1,876 4,747 58,194------------------------------------------------------------------------------------------------------------------------\* T \* T Rambler Media Limited Consolidated Cash Flow Statement for the Year Ended 31 December 2007 (expressed in US$'000s) 2007 2006----------------------------------------------------------------------Cash flows from operating activitiesNet profit/(loss) for the year 6,080 (3,183)Adjusted for:(Gain)/loss attributable to discontinued operations (7,089) 3,056Minority interest (416) 148Interest received (1,449) (940)Interest charged - 5Dividend income (902) (1,574)Taxation charge 3,814 1,208Cost of share options exercised 134 260Foreign Exchange translation loss 1,809 -Impairment 1,521 -Depreciation and amortisation 5,170 1,490Increase in other provisions for liabilities and charges 2,826 2,557Overhead costs attributable to discontinued operations paid by continuing operations 57 1,047Loss on disposal of fixed assets - 143----------------------------------------------------------------------Operating cash flows before working capital changes 11,555 4,217Increase in trade and other receivables (4,776) (2,492)Increase in prepayments (48) (349)Increase in creditors and other payables 2,991 2,944Increase in deferred revenue 2,290 1,367----------------------------------------------------------------------Cash generated from operations 12,011 5,687Income 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 activitiesAcquisition of subsidiary undertakings (18,131) (5,004)Acquisition of investments - -Dividend income 1,345 1,199Purchase 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 activitiesProceeds from equity financing 1,904 1,310Repayment 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 21,482Cash at the beginning of the year classified as discontinued operations 476 - Cash at the end of the year - continuing operations 31,462 18,461Cash 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\* T 1. Rambler Companies and Principal Activities Rambler Media Limited (the "Company" or "Rambler Media") was incorporated inJersey on 10 June 2004 as a private limited company. The Company has itsregistered office at First Island House, Peter Street, St. Helier, Jersey JE24SP. The consolidated financial statements presented herein include thefinancial statements of the Company, its wholly owned subsidiaries and investeesin which the parent company has control (together the "Group"). The Company was formed to act as a holding vehicle for the media interestscontrolled 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. InDecember 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, servicesand content delivery company which operates various internet propertiesincluding the leading Russian language internet portal and search engine'Rambler.ru', contextual advertising company Begun, Top100 rating system, freeemail 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 theCompany decided to divest its television business, which formerly consisted ofTVK 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 Exchangeunder the symbol 'RMG' since its Initial Public Offering which took place on 15June 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 theseconsolidated financial statements are set out below: a) Basis of preparation These consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards ("IFRS") under the historical costconvention. The principal accounting policies applied in the preparation ofthese consolidated financial statements are set out below. These policies havebeen 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 financialstatements, the Russian Rouble most fairly represents the financial condition ofthe 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 grossterms. For the prior periods, Rambler's functional currency was the United StatesDollar. A change in functional currency from US dollar to the Russian Rouble wasaccounted for by establishing new functional currency bases for non-monetaryitems. Those bases were computed by translating the historical reportingcurrency amounts of assets and liabilities into Russian Roubles at the exchangerate as at 1 January 2007. After the change of functional currency to theRussian Rouble, Rambler Group's revenues, costs, property and equipmentpurchased which are either priced, incurred, payable, or otherwise measured inforeign currencies are being converted into Russian Roubles at the relevantexchange rates prevailing on the date the transactions occurred. Debt and tradeliabilities are measured at the exchange rate prevailing on the balance sheetdate. Resulting exchange differences are being charged or credited to the incomestatement. Monetary assets and liabilities are translated into each entity's functionalcurrency at the official exchange rate of the Central Bank of the RussianFederation on the respective balance sheet dates. The CBR exchange rate at 31December 2007 was US$1 = RUR25.54 (31 December 2006, US$1 = RUR26.33). Foreignexchange gains and losses resulting from the settlement of the transactions andfrom the translation of monetary assets and liabilities into each entity'sfunctional currency at year-end official exchange rates of the Central Bank ofthe Russian Federation are recognised as profit or loss. Translation at year-endrates does not apply to non-monetary items, including equity investments.Effects of exchange rate changes on the fair value of equity securities arerecorded as part of the fair value gain or loss. The Russian Rouble is not a fully convertible currency outside the RussianFederation and, accordingly, any translation of RUR denominated assets andliabilities into US$ for the purpose of these consolidated annual financialstatements does not imply that Group could or will in the future realise orsettle in US$ the translated values of these assets and liabilities. c) Presentation currency All amounts in these financial statements are presented in thousands of USdollars ("US$ thousands"), unless otherwise stated. It is a common practice forRussian companies operating in the media industry to use US$ as a presentationcurrency. 3. Acquisition of Begun In December 2004 the Company entered into an agreement with the thenshareholders of Begun to purchase 25% plus 1 share of Begun for US$750,000. Thepurchase was completed in March 2005. The Company spent an additional US$21,000on transaction fees. Begun was treated as an investment carried at cost and not equity as the Companyhad no significant financial or operational influence over the company. It wasnot practical to determine the fair value of this investment. The investee hasnot published recent financial information about its operations, its shares arenot quoted and recent trade prices are not publicly accessible. On 6 August 2007, Rambler completed the acquisition of a 25% stake in Begun fora cash consideration of US$18.6 million, which brought the Group a controllingstake in Begun of 50.1%. Also, the seller committed to indemnify the Groupagainst specific contingent liabilities outstanding at the date of the businesscombination, therefore a negative contingent consideration exists at 31 December2007 that, when received, will reduce the amount of goodwill recorded in theGroup's consolidated balance sheet. Although the Company had an option to purchase 25% of the shares (with furtheroption to purchase 50% of the shares) of Begun the above acquisition was not arealization of the option, as the previous purchase agreement was terminated bythe new set of acquisition documents. The Company engaged an independent consultant to perform the purchase priceallocation procedures for this acquisition. Details of the assets andliabilities acquired and intangible assets arising are as follows: \* TAcquisitions Note IFRS carrying Attributed fair amount value immediately before acquisition---------------------------------------------------------------------- Cash and cash equivalents 490 490Other intangible assets 3 19,137Fixed assets 596 680Deferred tax asset 1,098 1,098Trade and other receivables 1,843 1,843Creditors, 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 1,701Goodwill arising on acquisition 16,920---------------------------------------------------------------------- Total purchase consideration 18,621Less: cash and cash equivalents of subsidiary acquired (490)---------------------------------------------------------------------- Outflow of cash and cash equivalents on acquisition 18,131----------------------------------------------------------------------\* T The goodwill is attributable to the Group's ability to improve its presence inan important segment of contextual advertising, as well as anticipatedprofitability of the acquired business. Part of goodwill arises due to anidentifiable internally generated intangible asset (Partner's relations withRambler) that cannot be recognised in these consolidated financial statements. Management assesses the fair value of a 25.1% ownership acquired in March 2005to approximate the cost of investment of US$750,000. The operations of Begun have been included in the Company's consolidatedfinancial statements since 1 August 2007. Begun contributed US$14.9 million toRevenue and US$785,000 to profit before income tax for the period from 1 August2007 to 31 December 2007. If the acquisition of Begun had been completed on 1 January 2007, the Group'srevenue for the reporting period would have been approximately US$84.9 millionand the Group's profit before tax for the reporting period would have beenUS$10.5 million. 4. Issued Capital The share capital of the Company at the balance sheet date expressed in US$ (notthousands) is comprised as follows: \* T 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-----------------------------------------------------------------------\* T The Company listed on the AIM market of the London Stock Exchange (LSE) on 15June 2005. On listing, the Company issued 3,000,000 ordinary shares of US$ 0.01each to bring the issued share capital to 14,975,731 (2004, 11,975,731) ordinaryshares of US$ 0.01 each. During 2007, options were exercised hence 125,945shares were issued, bringing the issued share capital to 15,397,649 ordinaryshares of US$ 0.01 each (2006, 15,271,704). 5. Revenue and Investment income \* T 2007 2006----------------------------------------------------------------------Display / Banner advertising 33,297 16,136Paid Search / Contextual advertising 24,864 7,575Listing fees, other advertising 4,781 3,710Mobile and Value Added Services 4,283 2,341Other revenue 1,858 884---------------------------------------------------------------------- 69,083 30,646----------------------------------------------------------------------\* T \* T 2007 2006----------------------------------------------------------------------Investment income - dividends from Begun 902 1,574Interest income - short term investments (deposit accounts) 1,449 940----------------------------------------------------------------------\* T 6. Operating expenses \* T 2007 2006---------------------------------------------------------------------- Commissions - banner sales 3,725 1,576Content costs 1,573 521Traffic acquisition cost - banner and revenue sharing 5,272 2,190Traffic acquisition cost - contextual 7,188 1,001Data centre costs 1,122 851Mobile COS 3,493 1,980Subtotal Direct Costs 22,373 8,119 Labour 21,992 12,293Share options 134 260Marketing and advertising 5,879 3,196Provisions for taxes other than on income 2,826 2,557Legal and professional 2,969 1,586General expenses 2,687 1,223Office rent 1,335 830Other 351 401Foreign currency exchange loss 1,808 131Depreciation 1,415 893Amortisation 3,755 597Subtotal Labour and Selling, General & Administrative expenses 45,151 23,967 ----------------------------------------------------------------------Total 67,524 32,086----------------------------------------------------------------------\* T The Company incurs expenses throughout the year on maintaining existing productsand developing new products; staff members are involved in both activities. Itis therefore not practical to estimate with any accuracy the amount ofexpenditure incurred on development expenditure in any given year. Copyright Business Wire 2008Related Shares:
RMG.L