Nebius Group NV (NBIS) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Yandex's fourth quarter and full-year 2014 financial results conference call. Today's call is being recorded.

I will now hand you over to Katya Zhukova, Yandex's IR Director, to begin. Thank you.

Hello, everyone, and welcome to Yandex's fourth quarter and full-year 2014 earnings call. We distributed our earnings release earlier today. You can find a copy of the press release on the Company's investor relations website, as well as on newswire services.

Today, we have on the call Arkady Volozh, our Chief Executive Officer; Alexander Shulgin, our Chief Operating Officer; and Greg Abovsky, our Chief Financial Officer.

Our call will be recorded. The recording will be available on Yandex's IR website in a few hours.

We have put together a few supplementary slides, which are currently available on our IR website.

And now, I will quickly take you through the Safe Harbor statement. Various remarks that we make during this call about our future expectations, plans, and prospects constitute forward-looking statements. Our actual results may differ materially from those indicated, or suggested by these forward-looking statements as a result of various important factors, including those discussed in the risk-factor section of our Annual Report on Form 20F, dated April 2014, which is on file with the SEC, and is available online.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.

Although we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

During this call, we will be referring to certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with US GAAP. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today.

Now, I will turn the call over to Arkady.

Hello, everyone, and thank you for joining our today's call. Yandex posted another year of strong results in 2014. Despite macroeconomic headwinds, we delivered revenue growth at the high end of our revenue guidance, and total revenue growth on like-for-like basis of 30%.

Our overall search share in Q4 averaged 59.7%.

Our market share on desktop remains largely stable, hovering around 64%.

On the mobile side, we improved our position on iOS with our search share on iOS increasing to 49% last quarter, compared to 43% at the end of 2013.

Our share on android devices declined to 44% in Q4, compared to 49% in the prior year.

Share of mobile in overall search traffic increased to 24%, compared to 23% a quarter earlier, with mobile generating 18% of our total search areas, compared to 16% a quarter earlier. And we saw improvements in mobile monetization, both on smartphones and on tablets.

Now turning to overall macroeconomic conditions. With currency [revaluation], inflation, and lower disposable incomes, it appears that 2015 will be a difficult year for offline advertising in Russia, in general. However, we believe that contextual advertising will continue to demonstrate healthy trends, and we expect our revenues to grow approximately 15% in Q1 of this year.

And now, let me turn it over to Sasha, who will go through the details of our core business.

Hello, everyone. Today, we have filed a request to the Russian Federal Antimonopoly Service to investigate Google's anti-competitive practices in Russia.

Google's Android dominates the Russian market for mobile operating systems, with more than 80% market share. Many believe that Android is an open platform; in reality, manufacturers of android powered devices are locked into the proprietary Google Play application store, and closed APIs.

In order to install Google Play on their devices, OEMs and mobile network operators are required to preinstall the entire suite of Google services and set Google as the default search.

In addition to that, OEMs and MNOs are increasingly prohibited from installing any service from Google's competitors on their devices. For example, in the last three months three platform smartphone vendors, Residual, Fly, and Xplay, who have been our long-term partners, have notified us that they are no longer able to preinstall Yandex services on their android devices.

We believe that Google is using its dominant market position in order to promote its core services, including search. Google Play should not be bundled with other Google services. OEMs and MNOs should have access to Google Play, with an ability to select which default search their device is shipped with.

Now, let me turn to the product side. The newly released Yandex.Transport in a great mobile application, which provides public transport schedules with real time information and live arrival times. This service was launched in certain Russian cities in (inaudible) last spring, and Moscow was added at the end of January.

Since then, the app was extremely well received with very positive reviews in the app stores. For one week, Transport held the coveted number one spot overall on iOS, and was in the top 20 overall on Android.

Yandex.Parking is another new app that helps drivers in Moscow find street parking, close and optimal routes to it, and pay for the parking right from their phones.

These service has allowed us to get even closer to our audience and facilitate services that [would only] be online to offline transition, and make Yandex even more essential to our users. We are very excited by all these possibilities.

Now, turning to advertising tools, in 2014, we rolled out the new Yandex.Metrica, our web analytics system, which allows webmasters to identify their traffic sources by platform; social demographics; geolocation; and subsequent user behavior. In 2015, we plan to enhance this service with new advertising tools, focusing on mobile advertising and cross-device linking.

Even there, we never marketed this tool outside Russia. It has become the second widely used analytics tool in the world, with a market share of 7%, surpassing [Stepcounter] and [Baye2 Analytics].

We continue to improve Auto.ru, expanding its mobile offering, and increasing monetization on this site. During Q4, search traffic on Auto.ru grew 30% year over year; while usage of auditory mobile apps, which we have recently re-launched for iOS and Android, more than doubled.

We have maintained our leadership position in Moscow, and have solid growth in St. Petes. I'm delighted with our progress on this important property.

Starting with December, 2014, Yandex became the default search in Mozilla Firefox in Russia.

And now, I will turn the call over to Greg, who will take you through our financials.

Thank you, Sasha; and thank you all for joining our call today.

In Q4 2014, our consolidated revenues grew 21% year over year, and reached RUB14.7 billion.

Our full-year revenues, excluding the impact from Yandex.Money, grew 30%, right at the top end of our guidance outlook.

Text-based advertising accounted for 90% of total revenues in Q4; an increase of 22% year on year.

Yandex's owned and operated websites constituted 68% of total revenues, and grew faster than total revenues, at a rate of 24% year on year.

Our advertising network grew 16% year on year. Contribution of ad network revenues to total revenues decreased by 110 basis points year over year, but grew 106 basis points sequentially to 22.3% in Q4 of 2014, primarily due to change in mix.

Share of display advertising was higher than previous quarters, which is typical for Q4. Display revenues contributed 8% of total revenues, and grew 3% year on year. The growth was driven by the increase of revenues from our display advertising network, which now supplies 16% of total display revenues overall.

Other revenues tripled, and comprised 1.7% of total revenues, consisting primarily of revenues from our Yandex.Taxi service.

Traffic acquisitions costs related to partner advertising network grew 4%, while partner TAC, as a percent of partner tax-based revenues, decreased to 64% in Q4, from 66% in Q3, 155 basis points, due to the change in our partner mix.

Just to remind you, once again, partner TAC includes both TAC from the display side, as well as from the tax-based side.

Distribution TAC increased 23% year on year, in line with revenue growth and Yandex's website. The growth-rate decelerated slightly compared to Q3 of 2014.

On a annual basis, distribution TAC was at 10% of tax-based revenues from Yandex websites.

Total TAC increased 9% year on year.

Paid clicks grew 18% year on year, while cost per click increased 3%.

Turning to our cost structure, our total operating costs and expenses, excluding TAC and G&A, grew 35% in Q4. Excluding stock-based comp, our expenses grew 34%. The growth was primarily driven by increase in our personnel costs, as well as increased rental costs for our headquarters.

Our rental expenses are driven by two factors: additional 18,000 square meters of office space that we took in Moscow in May of 2014; as well as the material depreciation of the ruble during Q4 of 2014, given that the rent of our headquarters is dollar-denominated.

Personnel costs still remain our largest cost item. During the quarter, we hired 102 full-time employees. In Q4, our personnel costs totaled 20% of revenues.

Our G&A expense for the quarter increased 22%.

Adjusted EBITDA grew 18% year on year.

And our adjusted EBITDA margin was 41.4%; 110 basis points lower than in Q4 2013.

Adjusted EBITDA margin contraction was mostly due to increase in personnel expenses and headquarters rent expense, impacted by significant FX effect, and by the new office space in Moscow that I just mentioned.

This quarter, the impact from ForEx was RUB4.7 billion gain related to dollar-denominated assets and liabilities on our balance sheet as the ruble weakened 30% from September 30, to December 31.

Our effective income tax rate was 23.6% in Q4, generally in line with effective income tax rate of 24.5% in Q3.

Our effective tax rate increased significantly compared with 2013, as a result of deferred tax accrual on half of the earnings in through (inaudible) Yandex N.V. from Yandex LLC.

Adjusted net income grew 13%; and adjusted net income margin was 27%.

Our CapEx was RUB3 billion, or 20% of Q4 revenues.

Our full-year capital expenditures came in at 19% of total revenues; in line with the outlook that we provided on our Q3 2014 earnings call.

As you know, a significant part of our capital expenditures is denominated in US dollars, therefore, adversely impacting the CapEx-to-revenue ratio.

Turning to the share repurchase program, to date, we repurchased 1 million shares of the 3 million share repurchase program that we've announced earlier.

We've also been active buying back the convertible bond that we issued in December of 2013. In addition to the 50 million that we repurchased in Q3, we bought back another 100 million of the bonds in Q4, at about $0.86.

We ended the quarter with RUB49 billion in cash, cash equivalents, and deposits.

At the exchange rate as of December 31, our cash equivalents and deposits are worth approximately $874 million. The currency split remains roughly 60% dollars and 40% rubles, held both in Russia and in the Netherlands.

And now turning to guidance, as the macroeconomic environment remains highly uncertain, at this point, we're expecting Q1 2015 revenue growth to come in at around 15%.

We're seeing slightly improving trends month over month, with February being slightly stronger than January. And we're hoping that, as things stabilize, we'll be able to provide you with a more clear picture of our business.

Now, I'll turn the call over to the operator for the Q&A session.

(Operator Instructions). Lloyd Walmsley, Deutsche Bank.

Wondering, looking at the [surf] grow that continues to decelerate, but some of that may be things like Yandex Islands, can you give us a sense for what query growth is like, and how that's breaking down between desktop and mobile, kind of where you see that growing, going forward?

And then second, if I may, on the mobile side, have you guys thought about doing more development using the open source portion of Android, perhaps with a partner, where you can develop funds with the full mobile -- Yandex mobile services, as a way of gaining share in mobile?

Lloyd, thank you for the question. On your first question about query growth, it was 9% in Q4. We see a low single-digit growth in desktop and much higher rate of growth on mobile phones and mobile devices. The trends are very similar to what we have seen in Q3 and previous quarters of this year, so nothing unusual in the query growth strength in the last quarter of 2014.

On mobile, our vision of how we should progress, first we need to invest in developing high quality applications, which will be appreciated and installed by users. And we have a number of those especially in the mapping and navigational areas; and also, our browser is gaining share on mobile devices.

Also, as you know, and as I mentioned in my call, this morning, we have filed a request to the Federal Antimonopoly Service in relation to Google's practice on Android, as we believe it uses its dominant market position in order to unfairly promote its search and other core services.

And we believe that Google Play should not be bundled with Google applications and services, and OEMs and mobile network operators should have access to Google Play with ability to select which service, which search service, to install on their device as default.

So, coming back to mobile, first one is developing high quality apps, high quality services. And also, we believe that we are looking for intervention from the Federal Antimonopoly Service. Also, this is not something unusual to happen; EU Commission is also investigating Google's practices with a complaint filed by FairSearch alliance, which includes Microsoft, Oracle, Nokia, and many others.

Maybe I would follow up on the Android, what our principles are. Again, we have our own version of Android, which is Yandex.Kit. The problem there is not with the software itself, but with the ecosystem.

And ecosystem on Android is a natural kind of natural monopoly; it's hard for developers to develop their applications twice, or three times, to port it from platform to platform. So, naturally, in the development world, everything tends to come to semi-monopoly ecosystem, which is fine. The problem is that if its -- monopolistic operating system is a closed one and precludes its competitors to be positioned equally.

But the best approach, we believe, is if an open -- actually, we have two principles here. One is that such an ecosystem should be based on open standard, so that any application written to these standards would work on any device supported by this platform. And the second principle is a common application store: one place where you can put your application and it should be available to all the vendors who use this platform.

So these two principles, unified standards and common application store, these are two principles of an open ecosystem. It shouldn't be bundled. Operating systems should not be -- should be open and not be bundled with applications.

Thanks, guys.

Alex Balakhnin, Goldman Sachs.

Two questions from me, if I may. First is, there was quite a big jump in the average wages in the fourth quarter. Can you probably provide some explanation what has happened? Do you front-loaded some of the bonuses, or there might have been, which I doubt, some FX element in it, or maybe something else?

And broadly speaking, what is your basically strategy for remuneration of your key employees, and employees in general, amid a growing inflation in the country, and the rising inflation expectations?

My second question is one on this complaint against Google. In your ideal scenario, how do you think the ideal mobile phone should look like? Is this like a selection of a default search provider on the launch, like on the first launch of the device? Or you want to pre-install Yandex.Kit at the premises of vendor, so basically the devices already come with Yandex instead of Google?

And, hypothetically thinking, if Google decides not to unbundle Google Play from the consumer services, do you feel you have a capability to rebuild an ecosystem that would still be attractive so vendors put it -- put the whole solution on the devices? So your thoughts in this direction would be also appreciated. Thank you.

Hi, Sasha, let me address the first two parts of your question, and I think Arkady will pick up on the third. With respect to average wages, you're quite right in that there were some one-time bonus payments towards the end of Q4.

With respect to our thoughts on inflation and wages, clearly do have inflation in Russia. I think that if you read any publications from the Ministry of Finance, or the newspapers, you see that expectations for inflations are high, maybe as high as 15%, or so. Clearly, some of our wages will go up as a result of that as we attempt to preserve the purchasing power of our employees.

Certain employees that we think are valuable we will maybe do other things to maintain them. But overall, yes, clearly, there's some upward pressure on wages from inflation, and we expect that personnel will be one of the pressure points on margins in fiscal 2015.

As we think about our margin outlook for 2015, clearly, it's very uncertain where revenue will fall for the rest of the year, given the overall macro-economic uncertainty. But it appears that it's very possible that margins are to decline, that ForEx is the majority of that decline, but that things like personnel costs and advertising and marketing will be contributors to that as well.

And then, could you just repeat maybe the --?

Yes, if I -- probably, just a quick follow up on that. Historically, your wage increase was pretty much following CPI broadly, although the mix of the personnel was changing as well; you hired a lot. If you put your expectations for 2015, do you think it will be representative of what you've seen over the last several years, i.e., close to inflation? Or it should be somewhere in the middle between none and inflation? Or is too detailed?

I think, on average, it'll probably be in line with inflation. I think there'll clearly be people who will be above inflation, and I think there'll be some who are below inflation.

Right. So, thank you on that. My second question was how do you think the set up -- the ideal set -up for those Android devices will be?

Will you lobby that the device comes with the choice of the default search engine, or it will be installed with the Yandex set up and all the Yandex services from the very beginning and no choice will be provided to consumer? So that's the first part of that.

And second part, assuming Google decides not to unbundle Play from the consumer services, do you think you will be able to resemble the ecosystem by yourself? Basically, create a lot of applications or promote developers to write applications for what would be Yandex market, hypothetically, or it's quite a tough thing to do?

First of all, we do not lobby for anything; we just want the [operating] system to be unbundled from applications.

In our view, we think that ultimately it's up to users to choose the best application, and that's the only environment where applications may continuously be improving when competition are there. So, ultimately, it should be users' choice.

In the real world, we understand that it's up to vendors to configure their devices. But since there is -- there is a lot of vendors, there is no dominating player there, no monopoly, we believe that if vendors will be free to pre-install their devices as they believe the market would accept, this will ultimately lead to users' choice. And again, we believe that the user should be the king here.

On the ecosystem and Play, or app store, if all the -- an open platform should support open standards, which means that standardized APIs. If a platform supports standardized APIs, any application which is written to support those APIs will be compatible with all the devices supporting this platform. This is the first principle.

And second principle is that any application published for such an open platform should be available for all the stores, in any device.

Right. Okay, thanks so much.

Ulyana Lenvalskaya, UBS.

Thank you very much for the call. My first question will be a follow up on the profitability outlook for 2015. Could you please talk a bit about the lease expense outlook? What approach should we take? Do you expect it to stay in dollars? Or do you see any probability of potential negotiations with the landlord?

Ulyana, on margins, obviously, like I said, it very much depends on where the revenue comes in for the year, and it's uncertain. We think that margins could be down 9 percentage points from the previous year. About 60% of the decline is related to ForEx, and the rest is related to things like personnel expense and advertising and marketing spend. However, we are currently studying opportunities for increased efficiencies in our spend across the board.

With respect to the lease, the lease is dollar denominated. It is becoming a fairly significant portion, and it -- a large portion of the margin contraction is related to the lease itself. We are in conversations with our landlord, and obviously we would very much like to renegotiate our lease to a ruble-based lease with a cap on the foreign exchange rate, but there's nothing to report on that yet.

Thank you very much, Greg. And my second question would be about the number of advertisers. In my view, the trend was still healthy in the fourth quarter. But could you talk a bit about the trends you see in the beginning of 2015, because there were some data -- there was some data about number of small enterprises in Russia is declining?

Yes, look, I think it's too early for me to comment on the number of advertisers. In Q1, we'll see where that comes out. Clearly, the advertising market overall is under pressure. I think if you read a number of sources, you'll see that television is down 20% to 30%, outdoor is down a similar amount year over year.

The fact that text-based advertising remains somewhat healthy obviously speaks to the fact that it delivers superior ROI to our clients, and it still represents an area of growth for budgets to continue to shift from offline to online. So we are optimistic about that. But clearly, the overall macroeconomic backdrop is not favorable.

Got that, thanks.

Thank you.

David Ferguson, Renaissance Capital.

A couple of questions, please. Firstly, I guess there's been some talk about reaching agreements with retailers to put in store the Yandex products, so where you are in that process. When could it start? Have you signed off [in] any one? So that's the first question.

The second question would be how should we think about distribution tack over the year, as the handset manufacturers that were pre-installing Yandex stop?

And then the third, could you talk a little bit about, or clarify, what the cost base is in Turkey? That's it, thank you.

David, with respect to installing our services at a point of sale, that does take place. It's contributing a small amount of overall share on Android currently, but we're hoping that it's going to continue to ramp up.

On the distribution front, as you could tell from the comments that we made to the press with respect to the case to the Federal Antimonopoly Service, clearly, there's fewer places for us to spend our distribution dollars, given that our long-term partners on Android, Fly, Prestigio, and Xplay, are no longer able to play with us.

Distribution is a kind of an unknown at this point, so I'm not going to comment too much on it. We'll see kind of where it all shakes out, it's still uncertain.

And what was the second part of the question?

Thanks. The second part of the question was on can you clarify what the cost base is in Turkey at the moment, please?

Cost base in Turkey, historically, Turkey was, I think, 200 to 300 basis points of revenue. Clearly, some of the costs for Turkey are more closely linked to USD than they are to the ruble; and as a result of that, there total drag on the P&L does increase year over year. But some of the costs are, obviously, here in headquarters and are ruble denominated.

Okay, great. Thank you.

Cesar Tiron, Merrill Lynch.

Just on the OpEx, if we can come back to that, I just have two questions. On the salaries outlook, are you saying that basically, unless you're hiring more people, the personnel expense won't grow by more than inflation?

And then, can you please just repeat what you said on the lease for the building and whether you think you can renegotiate the rent, as it seems that we're hearing that some people are already able to renegotiate the leases of AAA office space in Moscow? Thank you.

Cesar, on personnel spend, so there's a couple of things that contribute to personnel spend: one is obviously wages, and the other one is personnel growth.

We did, in total, I think, add something like 800 people over the course of 2014, which clearly increases our base for 2015. So the combination of increase in the base and wage increases contribute to negative variance to margins in an environment where in Q1 we expect our revenues to grow only 15%. So, as a result of that, personnel does end up being a negative contributor to margins.

On the lease front, you are quite correct; there are certainly stories of even class A office space being renegotiated by landlords in Moscow. However, we do have a very large office here with a long-term rent, so it's not as easy as it is if we were a company of 50 people who could just get up and leave.

We are in negotiations with our landlord, but it's certainly not as easy as some outlets, media outlets, make it sound.

But should we then assume that -- if the rent was in US dollars, should we just assume that it's going to double in 2015, in rubles?

Well, so the ruble, the average rate for the ruble in 2014 was about RUB39, so RUB39 to $1; today, it's about RUB62.

On top of that, we did take on considerably more space in May of last year, so the entire base has grown. In 2014, we will have had five months of a smaller office footprint, and seven months of the enlarged office footprint. So the overall rent expense probably, conservatively, doubles in ruble terms year over year.

And again, like I said, we do expect margins to contract year over year, primarily driven by ForEx; and the building itself is a very large portion of that.

Thanks. And just a very last follow up on the personnel. It seems that you've actually slowed down the number of people you've hired in Q4, is that a good indication for 2015?

Yes, I think that given the overall environment out there, I think our pace of hiring will be much slower in 2015 than it was historically.

Thank you so much.

(Operator Instructions). Boris Vilidnitsky, Barclays.

A couple of questions from me. First, could you comment, please, on the increase in mobile monetization? I noticed that there's a percentage that increased faster than surcharge, just curious, what's the result of that? Is that change in mix, or what it was?

Second, perhaps you could expand on the Yandex Data Factory, and what are the first signs that you've seen since you've officially launched it? Thank you.

I'll take the first question on mobile monetization; Arkady will jump in on the YDF front.

On mobile monetization, it did increase; it actually increased both on tablet and on phones. So that's a good sign, as we are getting better at targeting our ads, and as we look to show more ads, especially in the tablet version. And we're looking to see if we can take that further.

On YDF, Arkady will comment.

Sorry, if you don't mind, Greg, just one follow up on that, since we're already on the topic, and then we'll go to the Yandex Data Factor. How do you guys look at conversions across devices, and how easy it -- easy for you guys to implement that?

It's doable. It's not as easy as it would be for somebody who owned a social network. But we are looking for ways to tie conversions, both across Yandex search to other websites, as well as mobile websites to mobile apps. And we're trying to connect that entire chain, so that's something that's currently being worked on.

I see. Thank you.

On the Data Factory, which we officially launched in December, we see it on a world-class technology. We have one of the best specialists in big data machine learning here. Currently, we apply it only to one industry and one geographical market, which is consumer Internet in -- the Russian-speaking Internet.

So if we could apply the assets we have to other geographies, or to other industries, it would not cost us too much and would just add to our revenues. That's the basic idea.

With Yandex Factory, we tried to reutilize our server farms, our knowledge of big data handling, our machine learning capabilities, which we already developed for our tools, online web tools, and tried to apply it to other industries.

We had a series of pilots, of prototypes, run in many, many different industries last year, going from finance and telecom operators to industrial manufacturers, or infrastructure services. Some of those pilots were even paid pilots; people paid us for research. And that showed us that our methods and our technology is applicable in many, many areas, and we can improve businesses in many industries. And that improvement may be quite big. And, of course, we can have a share of that improvement.

So that's why Yandex Data Factory was officially launched. It's an internal startup, that's how we treat it internally. It's not -- it's a small investment, because it's based on already existed asset. And we hope we're going to see this year how many real contracts the guys would have, how many added value we can provide, and then maybe later this year we decide where it could go.

I see. Thank you so much.

[Miriam Adesa], Morgan Stanley.

I was just wondering if you could give us a bit more detail on the revenue guidance in terms of contextual versus display. What have been the trends that you've seen in each of these categories, and would you expect this to continue in the second quarter as well? Thank you.

So, display has been kind of weak, as you can tell. It remains weak, no real changes there. We expect display to probably be flat to down, I think is a reasonable estimation. I think most of the growth will come on the contextual side, as well as the smaller initiatives, such as Yandex.Taxi.

Market seems to be doing a little bit better and has improved sequentially from its performance in January to February. Like I said, overall, there seems to be sequential improvement from the January pacings to February pacings, although we do expect display to be weak for pretty much the whole year.

I think display will likely mirror the type of contraction you're seeing in (inaudible) side, which, as I mentioned earlier, is down 25%, I think, in January.

Right, thank you.

Alex Balakhnin, Goldman Sachs.

Two more questions from me. One is how should we think about your CapEx in 2015, given the FX volatility is probably be hard to give a percentage number on revenues? But in terms of the capacity you would like to add to deliver on your expectations on the customer satisfaction, and so on, how much server capacity do you need to add probably in -- maybe using last year capacity addition as a base?

And my second question, you mention, well, that was the case for couple of quarters, that you achieve some spending -- some saving on the margin and advertising. How sustainable are those savings in 2015? They're clearly discretionary, but do those savings need to be restored at some point in 2015, or you think you will be able to live without them for a year quite easily? So your thoughts on -- in those direction would be also helpful. Thanks.

Sasha, on CapEx, our view is that crisis come and crisis go, and the crisis will not last forever and at some point things will return to normalcy. And in that kind of environment, it is important to keep investing. It's a question of investing in your infrastructure; a question of improving your index size; of query response times; and so on.

So we do expect to continue to invest in CapEx this year, as well. I think in dollar terms, it'll be roughly on par with 2014. But, as you correctly pointed out, given the ruble depreciation, in ruble terms it'll be substantially more; and from a CapEx-to-sales perspective, it will look worse than 2014. But we think that's an important decision meant to expand the size of our index, and keep investing in the quality of our search.

With respect to sales and marketing, we, as I mentioned earlier, do expect there to be a negative variance to margins this year. So we do intend to invest in important areas of sales and marketing where we do have products that we are big fans of, whether that's Yandex.Taxi, or Auto.ru., and so there will be investment in those areas.

That's very clear. Thank you.

I was going to say, and we tend to tend to invest in sales and marketing when we have products that we think are potential candidates to be winners; and when we don't, we try not to put marketing dollars behind them.

Thanks so much. And probably, just a very quick follow up. Is it fair to say that Turkey was not much in focus during the fourth quarter on the spending side, or --

Yes, Turkey, we did not spend as much in Turkey in Q4 as I think we did in the previous year. But generally, I think in terms of our budget in 2014, it didn't vary too much versus our early expectations of the year. So we did not achieve Q4 savings; it's just that, from a year-over-year perspective, Q4 was lighter in Turkey.

Okay, thanks so much.

Alexander Vengranovich.

First, I have a question, a follow-up question actually, on salary inflation. Whether you actually started to increase the salaries already in the first quarter, or should we wait a salary increase somewhere close to the end of the first quarter, or maybe even in the second quarter of this year?

The second question is regarding potential cost optimizations, because we are now heading into the crisis, and probably there are some areas where you can save costs this year and improve efficiency. Can you please tell me whether there are any sort of initiatives which you see where you can actually improve your efficiency on the cost side? Thank you.

Alexander, on your first question on salaries, basically, we have software engineers, especially the more talented and geographically mobile people, who could be employed by our international competitors, and for those people we are more keen to do salary increases. And we did some tactical increases already, which will have some impact on our personnel expenses.

But we are trying now to be looking at the current situation, see what happens on the market, both from the revenue perspective, and also from the employment market, and react in line with what industry does. So I wouldn't say we will be aggressive on salary increase.

On costs, on the second part on cost optimization, clearly, current economic cost situation is a good opportunity to reduce costs and remove activities which are ineffective, or are not [aiding] appropriately in the business. And this is one of the projects that we're working on now, I guess, as many other companies in Russia.

Can you please name these activities which you think you can actually cut? Or can you share potential impact, positive impact, on that initiatives which you expect?

Yes, I don't think it will be appropriate for me to name those projects right now. But basically, our cost structure is relatively simple: personnel is number one item, and then advertising, rent, and data center operations. So, as you can see, the room for potential projects is not that wide.

Okay, thank you.

Vladimir Bespalov, VTB Capital.

I have a question on your application to the Federal Antimonopoly watchdog. Could you provide any timeline on when a decision could be taken on this issue?

As I said, we filed just this morning, and it's now up to FAS to launch an investigation, and then the process will be controlled by the FAS and the official schedule as it should develop.

At this stage, we are definitely not in a position to comment either about timeline, or the decision that we, or anyone, would expect. And, of course, we will be updating you on our quarterly calls on the progress of this process.

Thank you. And one more question. As I look into your presentation and at your changes in personnel in the last reporting quarter, it looks like you hired SG&A personnel a little bit faster than the rest, because the share of it increased a little bit. Was it a one-off? What was behind this? Could you explain?

I think that was mostly a one-off, which could also be related to an acquisition that we did which had slightly more sales headcount than engineering headcount.

Okay, thank you.

Mitch Mitchell, BCS.

Thank you for the call. I just wondered if you could give us a little bit more color on Turkey. What's the outlook? What are your plans for this year? Thanks.

As you can see, Turkey spending were suspended a little bit last year. We actually -- we did not advertise in Turkey since June last year. And we're working on the quality of our products there, and we have achieved a lot. I think you should expect more news later this year.

Thanks.

Thank you. There are no further questions in the queue at this time, so I would like to turn the call back to the speaker for any final and closing remarks.

Thank you all, again, for joining us on our Q4 earnings call. And we look forward to speaking with you on the Q1 2015 earnings call in April. Bye-bye.