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Edited Transcript of TAMN.S earnings conference call or presentation 10-Mar-20 11:00am GMT

Full Year 2019 TX Group AG Earnings Call

Zürich Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of TX Group AG earnings conference call or presentation Tuesday, March 10, 2020 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Christoph Tonini

TX Group AG - CEO & Chairman of the Management Board

* Sandro Macciacchini

TX Group AG - Head of the Finances, HR & IR Division and Member of the Management Board

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Conference Call Participants

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* Andy Schnyder

zCapital AG

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Tamedia Full Year Results 2019 Analyst Conference Call. I am Sandra, the Chorus Call operator. (Operator Instructions) and the conference is being recorded. (Operator Instructions). The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Christoph Tonini, CEO; and Mr. Sandro Macciacchini. You will now be joined.

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [2]

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Yes. Hello, everybody. In the name of Sandro and myself, we are happy to have the chance to lead you to the year-end results 2019. I will start reflecting on the business side, and then Sandro will give you some more detailed information about the financials.

Nevertheless, I start also in financials on Page #5, the overview of our 2019 results. You see that we have been able to increase the revenue by 7%. This fully driven by consolidation impact. Main impact was the acquisition of a majority stake in Zattoo, which was leading to this increase, but also the reflection that Goldbach and Neo, both acquisition of 2018, and also Berner Zeitung for the first year were now in for 12 months. You see that we had a difficult year, mainly driven by decreasing print revenue and investments, which we thought is needed and important for the future of our classified marketplace. So all the figures like EBITDA, EBIT and also net income saw a sharp decline. There are, as always, some extraordinary impacts, which I'll leave to Sandro then to explain in more details.

If I jump to Slide #6, you see the underlying driver in our core business. We are facing for the fifth time in a row, a sharp decline in print advertising. Sharp means also 2-digit in the daily press I, where most of our newspapers are. The decrease was, again, 13%. It's exactly also the figure we see in our paid media sector decline in print advertising, but also other press segments were hit, mainly consumer press and also Sunday press. So overall, very maintaining negative trends in print advertising, which was only partially compensated by a further increase in digital revenue.

You see on the following slide, #7, that, yes, we were able to show revenue growth. But if we look at it on an organic base, so excluding the acquisition impact, then, again, we had a decline of 5% or nearly CHF 50 million, and this shows that we are -- is still in the middle of transforming the business into a digital business where, finally, we can also achieve organic growth. The biggest gap between the organic and the consolidated development is CHF 3 million commercialization, where we have, as I explained, this impact of 12 months Goldbach and Neo. And on the marketplace and venture side, you see the impact of full consolidation Zattoo. Zattoo is fully consolidated from 1st of April 2019. So we're going to see another impact in 2020, where Zattoo is then, for the first time, in for 12 months.

Chart 8 always shows the development of the digital part of our business. For the first time in history, we have more than 50% of our revenue comes out of digital activities, an increase of nearly 8%. And also on the adjusted EBIT share, we have 84% clear increase in this share, although we have made significant investments in the classified marketplace segment.

I will jump now to Page #11, where we have a look on the Paid Media segment. Here, we have a decline of CHF 28 million in turnover, which is minus 5%, as I said, mainly driven by the print advertising. But also, we still have, on the turnover side, in the subscription business, a decline. We, at the same time, made several investments and initiatives to push the transformation to digital paid business. The main driver here was investment in the platforms and also in audio and video formats in order to further increase the usage of the digital part.

#12 shows that we are following on the positive trends in digital subscription. We have seen, over the year, an increase of nearly 20% in digital subscriptions. Even more important, the full year subscription increased even by 35%. And for the first time, we have been able to compensate, even overcompensate the contact to our clients because we lost only, in brackets, 3.4% in print. And as I said, we gained substantially on the digital side. So in total, we have 1% more customer relations in paid media than in the previous year. That's a positive sign. Obviously, the digital subscription in terms of turnover is still below the turnover in print. And we have, therefore, further increased base of our private customers in the subscription business.

In order to do that, we have also a plan to simplify our offers. Page #13 shows that in summer of this year, we will implement 1 single digital subscription type. You have 1 offer for CHF 15 a month in order to subscribe to your favorite title. And then there are 3 options to upgrade this subscription for more devices, for mainly ad-free and tracking-free subscription and for the e-paper. The goal is that with 2 clicks, our customers are able to conclude this subscription.

If we may now jump to Page 15 showing free media and commercialization, here, we have the highest increase with CHF 60 million revenue, 25%. As I said, it's the 12 months view of Goldbach and Neo Advertising. We also had an increase of CHF 10 million or 17% on the adjusted EBIT. However, also, this segment was hit by a decrease in advertising, overall advertising, 20 Minutes, mainly hit by decrease of print advertising by 10%. And for the first time also, the TV section, which is important for Goldbach, was hit by a decrease of nearly 6%.

Here, again, main investments in audio and video formats for 20 Minutes, also with the launch of 20 Minutes Radio and the video-first strategy of 20 Minutes. The concept of 20 Minutes still working perfectly. You see on page #16, usage of 20 Minutes on a very high level is further increasing. We have been able to even widen the gap to the following competitors, 6% in unique users per day increase and also on the visit. 20 Minutes had a great performance. This is all before we saw now the new situation with this corona crisis.

Goldbach, Page #17. A very important year, 2019, because Goldbach was able to gain the entire television portfolio of Tamedia, Tamedia, which acquired the 3-plus group from Dominik Kaiser, and therefore is now behind RTL and ProSiebenSat. 1, the main client in the TV section for Goldbach. In Austria, Goldbach acquired the digital portfolio of heute.at, and we integrated under the roof of Goldbach Group the activity of Neo Advertising and of former Tamedia advertising. And now Goldbach is, organizational-wise, offering towards the clients cross-media packages on all the media, which is offered in Switzerland. So TV, radio, digital, print and other form.

Now going to Marketplaces and Ventures, Page 19. It looks, on a first view, good on the revenue side, plus 13%. But you have seen it in the former slide, the organic development was -- we put only 1% plus. Not sufficient. That's the main reason why we have decided to invest into the platforms to make them more attractive towards our users and our clients to further drive growth and also to be able to adapt in the changing revenue models, which we see in these different platforms. All these investments was leading to a sharp decline of 24% on the adjusted EBIT. Herein also included is, on the 1 side, the launch of CAR FOR YOU together with AXA. This is a joint venture, but we have here full consolidated the loss or the investment in CAR FOR YOU and also the sale of the stake in Localsearch, but had an impact in these results because it contributed in the previous year to the good margin of the classified and ventures.

You see on Page 20 that classified is still very profitable with nearly 49% margin. Although CAR FOR YOU, as I've said, is a heavy investment in 2019. And what is also important is that we have in the ventures now with Doodle, with Zattoo, 2 main drivers of our business, which we want to further push in their growth strategy. All these investments, fortunately, we're leading last year also to higher operational KPIs.

You see on the following slides, that, for example, Homegate was able to increase the number of listed properties by nearly 20% because they have now implemented a much faster going live of new houses and flats. JobCloud was even increasing their leads by 37%, with much better usability for the -- our private clients. Then also ricardo, for me, a little highlight for the first time since peers was able to increase number of transactions per month by 8%, and this is highly related then to the revenue model of ricardo. So in the second half 2019, ricardo was coming back to growth also in terms of turnover. And tutti, which is fighting against Facebook Marketplace, was also able to increase the number of listed items or peer properties per month. Then last but not least, Doodle, we have invested in sales crew also overseas in order to increase the usage of premium Doodle. And we have now 47 customers. This might seem little, but they're in -- there are some important key customers like, for example, Salesforce or Slack. So we have a very good base to then -- with these clients show the proof-of-concept and to gain further declines overseas. And Zattoo, finally, was able to increase also their business customers and to consolidate the German market of premium users. And both were growing by 47%, respectively, 57%.

Nevertheless, these operational KPIs, the financial result is not sufficient, which we have shown in 2019. Therefore, we have also to work on the cost side in the new setting as TX Group. We make the first step to show that this is also an important part of the business, and we have set the goal in the service departments to work until June on the plan how to reduce over a 3-year period the cost base by at least 20%. This will be done very closely together with Sandro, and with, obviously, the CEOs of subgroups because these are the main clients of these services. On the other hand, also, the 4 subgroups, they know they have also to start their efficiency measure planning, and we leave this process and then finally, also, the decision to them. That's part of the new structure, that they have the responsibility and also the freedom to work on this. And we will -- in the half year, 2020, we will inform more about their plans in the different segments -- in the different departments, their plans to reduce the cost base. With all this, I think the investment we made and the cost efficiency program we are launching now, I'm pretty convinced that at least '21, we're going to see strong results coming back in the TX Group.

And with this, I hand over to Sandro.

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Sandro Macciacchini, TX Group AG - Head of the Finances, HR & IR Division and Member of the Management Board [3]

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Thank you, Christoph. I would like to start with a closer look at the development of the EBIT, as shown on Chart 29. On the left, you can see that operating expenses were up by CHF 73 million. Here included are higher IT costs and investments in several new activities, especially in CAR FOR YOU, as mentioned by Christoph. On top of that, we faced higher paid prices in the reporting period. Net income of associates went down by CHF 5 million due to the disposal of search, local. Below EBITDA, depreciation and amortization now contains around CHF 11 million of amortization on leases, which were reported under operating expenses last year. Amortization resulting from business combinations went up by CHF 40 million due to the new acquisitions, mainly Goldbach. And in addition, we report the write-down in paid media in the amount of CHF 25 million.

Below EBIT, as shown on the next chart, the year-on-year changes were positive as financial result rose due to the disposals of search, local and Starticket by CHF 18 million, and on top of that, tax expenses declined steeply and were, in fact, positive at CHF 3 million. Once again, there were tax effects on investments due to write-downs on the carrying amounts. And furthermore, several contents reduced their tax rates, resulting in a one-off reduction of deferred taxes of CHF 14 million. For 2020, the expected average tax rate remains practically unchanged at around 22%. From 2021, the expected tax rate will be around 20%, mainly due to the lower tax rate here in the Kanton Zurich. Still, we expect that the effective tax rate will also in the future will be substantially lower than the expected tax rate. Still, it is difficult to give you a clear guidance on that due to the many variables that impact this figure. Among others, we expect that further book depreciation and amortization on our previous acquisitions will have, again, a positive impact as it was the case in 2019 and the previous years.

The next chart shows normalized profit, excluding special effect. Here excluded are the aforementioned impairment, the financial gains on our disposals and the special effects on taxes. As you can see, normalized profit is with CHF 77 million, considerably lower than published profit. And this CHF 77 million compares to the CHF 120 million of normalized income in the previous year.

The next chart shows you the cash flow statement. Cash flow from operating activities before net financial income and tax, as shown on the left side, was down to CHF 198 million. Net working capital was, at the end of the year, equal to that in the beginning. Whereas in the previous year, this effect contributed negatively to the cash flow in the amount of CHF 5 million. When comparing with the previous year, it is furthermore important to bear in mind that 2018 includes around CHF 12 million of repayments of lease obligations in the operational cash flow as in contrast to that in 2019. These are reported on the cash flow from financial activity.

In other words, the effect of decline in operating cash flow was above or around CHF 40 million, and around half of it, half of the decline relates to lower dividends from associates as a result of the sale of search, local. Cash flow from investing activities rose sharply to over CHF 200 million due to the sales of search, local and Starticket. In contrast, cash flow from financing activities was strongly negative. This is the result of the repayment of our loan, which we financed the acquisition of Goldbach. Cash and cash equivalents at the end were around CHF 290 million due to the repayment of our loan net financial liabilities at a comparable level.

In the reporting period, as shown on the next chart, CapEx was again relatively low at 2.2% of revenues, and we also foresee, in the future, a comparable, an average of CapEx of around 2% of operating revenues consisting mainly of further investments in the spending plans and in IT.

A short look at the balance sheet shown on Page 34, you can see the equity ratio rose from 71% to 74%, thanks to the aforementioned loan repayment.

To conclude, I would like to comment on 2 changes in the reporting methodology from this year on. As shown on Chart 35, we will report a new segmentation, and each subgroups will be reported in a separate segment and that these segments will be reported as the TX Group Services, consisting corporate and also ventures. Furthermore, as explained on the next chart, we decided that the useful life of the Paid Media brands rights can no longer be classified as indefinite, therefore, the expected useful life was defined for each brand in the light of the expected decline in revenues. And in consequence, amortization resulting from business combinations will rise from 2021 on by around CHF 11 million.

That's all from my side. Thank you for your attention.

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [4]

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Thank you, Sandro. You see that we obviously were not happy with the result 2019. Nevertheless, the balance sheet of our group is still very solid. And we think also that the investment we made is a good pace for further growth. But now we are ready to take first your questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Andy Schnyder from zCapital.

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Andy Schnyder, zCapital AG [2]

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I have a few questions. Can you tell us what percentage of the CHF 550 million revenues in Paid Media are revenues from subscription, and what from -- percentage from advertising? That would be the first one.

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [3]

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Sandro is saying you can already ask the second one because then we are looking on the exact figure.

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Andy Schnyder, zCapital AG [4]

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The second one is related to that. Did I get that correctly that subscription revenues were slightly down, so 1%, 2% down. Is that correct?

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [5]

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That's correct. Yes.

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Andy Schnyder, zCapital AG [6]

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And probably a third one, so that you can look up the first one. Can you give us some insights in how the combined marketing of all media channels is working today? Are packaged deals, say, TV, radio, print out are already a thing? Is that already a substantial part of the business? Or isn't it mainly still booked by category? So asked the other way around, do you have already tangible results that -- which gives you confidence that you can gain some extra volume or extra margin thanks to being able to offer all categories at the same time?

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [7]

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Yes. This I can simply answer. It's very clear. It's 99% of the business is still by category. We also have maintained the category sales crew. So there is still -- under the roof of Goldbach, there is the TV crew, the radio crew, also the publishing crew. And we will, this year, because now only since 1st of January 2020, we have all these organizations under 1 roof. It's a new organization with a new executive committee, and they have as a goal to establish this year these first cases where we can show to our clients that instead of single channel bookings, so we're mainly going to focus first on those clients, which we see there doing 95% in TV, they are doing 95% in performance online, to show them with cases that a split in different medias is finally delivering better results with the same investment. So this is now the -- we have the organizational setting in 2020. We have to bring the proof that with this knowledge and concepts, we can bring to our clients also better results.

And I think, Sandro, meanwhile, found the right figure for your first question.

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Sandro Macciacchini, TX Group AG - Head of the Finances, HR & IR Division and Member of the Management Board [8]

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Yes. Coming back to your question regarding the CHF 550 million revenues of Paid Media, around 45% is coming out from user market, and around 25% of this is digital revenue.

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Andy Schnyder, zCapital AG [9]

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Okay. Perfect. And back to the package deal, to the new sales organization. I think to show them all the benefits of advertising in all channels, a lot of data are needed. Do you have all these data yet to show them what they are able to do? Or do you need a lot of investments in this category, in the data category to gather all these data?

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [10]

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Well, the data we have will be -- don't have yet, and this needs not only investment but also further, I would say, collaboration. We have different measurements and key indicator in the different segments. So what we -- in order to be able to compete against the GAFAs, we need to make measurements between the different media types comparable. Otherwise, it's difficult to show to our clients then performance results on these campaigns, which are cross media. So this is 1 main trigger. So we have to bring 1 measurement, 1 impact measurement for the different media types, whether it's TV, video, out-of-home and also print.

But finally, what we have made, for example, in Christmas, a campaign for 1 client, which we were able to play across media. And it's clear that not all clients are able to run a campaign over different media channels. So we're going to concentrate, as I said, on bigger clients, which are also not sure whether their split of media spend is bringing the best return on their investments.

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Andy Schnyder, zCapital AG [11]

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So -- and ultimately, will it -- is the goal to have just more volume? Or is it more that you think you can get a better margin over time, thanks to being able to offer all categories?

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [12]

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It's primarily more volume because, I'll give you an example, 1 traditional car client, a big one, they are giving 85% of their online spend is with the GAFAs. So we have to be able to show them that in a combination with our media, it makes sense for them to also make a new split of their ad spendings in order that we get more volume out of it.

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Andy Schnyder, zCapital AG [13]

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Okay. And then another question, the -- on JobCloud. You did some changes there, which obviously sparked growth over the past year. Is it just because you published more content? Or are there other measures, which led to this increase in job listings and traffic? And how was the profitability developed for top JobCloud?

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [14]

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Profitability is still very good. We have -- I would say, we see in JobCloud, we have to split the traditional business, which is still the listing business. We see clearly that this part of the business is not growing as fast anymore. Partly, we have, and we will see this also now with corona, as we have seen it traditionally, has also a direct link to the economy, to the overall economy situation, but partly also because we see clients looking also to new ways of their recruiting. And that's why we have invested also at JobCloud in new ways of making performance offers. So it's not the client paying for just the leasing, but really investing in platform and in teams for actually digital hiring alternatives offered by JobCloud. And this part is gaining traction. It's still a small part of the overall turnover, but we will see that this part is growing now fast compared to the listing part, where we're probably going to see maybe in 2, 3 years from now, first, decrease in volume and turnover.

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Andy Schnyder, zCapital AG [15]

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But why was the number of free transactions per month up 30%, almost 40%? Maybe the economy wasn't so much better than in 2018.

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [16]

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That's true. Different measures on the platforms, which we brought more of our private users, which we're looking on an ad by improving the usability for them. We were bringing more of these ad views, job ad views at the end to a real contact of the business customer by giving more information about the company, not only the ad, by also facilitating the way how they can get in contact with the company, improving also the bare bones process.

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Andy Schnyder, zCapital AG [17]

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Okay. And the last question on the classifieds. The -- so the margin -- or the margin, which declined last year, this was then really mainly because of CAR FOR YOU? And we should expect the margin to again increase in 2020 for classified?

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [18]

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Yes. We still are going to see, in 2020, a heavy investment in CAR FOR YOU, so I wouldn't expect in '20 a sharp improvement. But the rest of the business is still at margins, which you were used closely to 60%. It's not that the margins of all the other businesses is coming down.

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Andy Schnyder, zCapital AG [19]

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Okay. And last question from my side on marketplaces and service and ventures. When should we expect profits here? So far, we always have been breakeven or slightly below, but around that. But when do you expect these to become sustainably profitable businesses?

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [20]

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I expect that we will, as I mentioned, try to sell trend sales in this year. And as I said, ricardo is profitable. It's also growing again. And the tutti case is, I mean, here, we clearly see, on the one hand, we have to be willing to invest in the attractiveness of the marketplace business. Otherwise, there is a real danger from Facebook Marketplace, which is gaining traction fast in Switzerland. So it's important that we maintain a very attractive position. So tutti is also a kind of a protection shield for our verticals because we see it also in other international markets. Once Facebook establish themselves as the marketplace, it's for them much more easy to enter into the verticals.

And so let's put it this way. I'd rather going to see a loss, which is calculable than having a situation where, finally, we're going to see Facebook attacking our Homegate real estate field. But to make it short, once we have solid trend sales this year, keeping growth of ricardo, we should see even 2020, a slight profitability. And then from then on, this should be a profitable segment in itself.

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Andy Schnyder, zCapital AG [21]

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Okay. Perfect. And just one quick remark. It would be great to have the 2020 segmentation, all the numbers for the 5 divisions you have published in H1 already for 2019. And not only with the H1 results, but it would be great if you can publish these numbers for 2019 on your Investor Relations page anytime soon so that we can model going forward under the new segmentation. That would be really helpful.

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [22]

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Sandro, maybe you can -- because I understand this wish. You can be sure we have -- with this new structure, our finance department has a lot of other work. And so I'm looking at you. Will we be able to deliver this before half year?

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Sandro Macciacchini, TX Group AG - Head of the Finances, HR & IR Division and Member of the Management Board [23]

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Frankly, it's not the plan. Of course, you will have a restatement with the first half year figures. I understand that you would like to have it for the full year and earlier than half year. I can't comment on that, but I understand your wish.

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [24]

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We got your wish, and we will see whether we can deliver. But latest on half year, you're going to have the restatement of 2019.

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Andy Schnyder, zCapital AG [25]

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I understand. It can be on distant numbers of sales and EBIT line, rough numbers would already help. But I understand, yes.

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Operator [26]

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(Operator Instructions) Gentlemen, so far, there are no more questions.

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Christoph Tonini, TX Group AG - CEO & Chairman of the Management Board [27]

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Okay. Thank you very much for your interest in TX Group. And we wish you all a good day and good health in this corona time. Thanks a lot. Bye-bye.

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Sandro Macciacchini, TX Group AG - Head of the Finances, HR & IR Division and Member of the Management Board [28]

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Bye.

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Operator [29]

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Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.