Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi S.p.A’s First Half 2015 Financial Results Conference Call. Today’s conference is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time for you to queue up for questions. Joining us on today's call from Italy are Natuzzi's Chairman and Chief Executive Officer, Mr. Pasquale Natuzzi; and the Chief Financial Officer, Mr. Vittorio Notarpietro; and Marco Saltalamacchia, Chief Commercial Officer. I would now like to turn the conference over to Francesca Cocco, Manager of Investor Relations. Please go ahead.

Good morning to our listeners in U.S. and good afternoon to those of you connected from Europe. Welcome to the Natuzzi first half 2015 conference call. After a brief introduction, we will give room for a Q&A session. Mr. Pasquale Natuzzi together with the management team will be glad to answer to your questions. By now you should have received an email copy of the Natuzzi earnings results. If not, you can find this information within our website at www.natuzzi.com under the Investor Relations section or please call our Investor Relations Department at +39 080 8820493 to receive the results by email. You can also email information requests or questions to our email address investor_relations@natuzzi.com. We will respond to you as soon as possible. Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the United States security law. Obviously, actual results may differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial condition. We have discussed such risks and uncertainties, which have in the past affected and may continue to affect our results of operations and financial condition in our Annual Report or Form 20-F for the fiscal year ended December 31, 2015. These reports are available within our website www.natuzzi.com or from us upon request. You may obtain a copy of our Form 20-F filing from the United States Securities and Exchange Commission. And now I would like to turn the call over to our Chairman and CEO, Mr. Pasquale Natuzzi. Please Mr. Natuzzi.

Thank you. Good morning to our listeners in the United States and good afternoon to those of you connected from Europe. I would like to make a recap of our main achievements. The actions to improve the quality of sales and to increase margins are progressing acting on better sales mix and margin. We reviewed our price list in those areas where previously the exchange rate was penalizing our margin, elimination of unprofitable products, closing of unprofitable DOS stores that were not profitable, rationalization of our SG&A cost at headquarter level and worldwide, 18 managers are out now, SAP implementation to support our new process. We are continuing the path of efficiency and process and product innovation with good results achieved in the second quarter of the year in our experimental Italian plant, the new asset of Italian plants is in the implementation phase, in line with our expectation and we are planning to act as a lean enterprise in all our plants worldwide. The agreement with Trade Unions signed in March 2015 aimed to recovery of competitiveness of the Italian plants was such serious, credible and taken in a positive way from our workers that gave us the opportunity to have a government fund to support our expected investment activity in Italy. To support our sales, in the first part of the year, we attended the main international fairs, Las Vegas Market in the United States. Imm Cologne, Germany, ID India Design, Salone del Mobile Milano in Italy, High Point Market during the spring in April. Our business developmental strategy continues since the beginning of 2015. Eleven new Natuzzi stores have been opened, principally in or mainly in Asia and in the United States. We highlight in particular those in Hong Kong, beautiful really; Colombo in Sri Lanka and…

Thank you, Mr. Natuzzi, and good morning and welcome to everybody to Natuzzi first half 2015 results conference call. As a result of the consequence of precise and multilevel action plans taken with the so-called transformation plan 2014-16 we announced in March 2014, as said before by our Chairman, we told investors we would have been focusing on multiple factors, sales quality, direct revamping of directly operating stores, transformation cost, SG&A cost. 2015 first half results demonstrate that we improved by 6% the mix of products sold and we displayed a reduction of 2.8% of seats sold, which derives from the selective sales policy explained before and we had a positive impact on top line by 11.3% from foreign exchange fluctuation. In this regard, let me underlying that while we had this positive effect on top line, at the same time, foreign exchange negatively affected our costs, I mean, label, raw materials, transportation and even SG&A. So the net positive impact on our EBIT is just EUR3 million. After the closing down of 11 stores in 2014, we have closed another four stores, one in Spain and three in Italy. In spite of such closings, the entire DOS chain increased sales by 4% and increased profitability more than proportionally. For example, Italian chain made a 13% increase in sales, 15% in terms of same-store sales, but even other countries are recovering their performance too. Let's continue to analyze results. We had a reduction of labor costs by 9.2%. As a result, cost of goods sold is constantly improving sales last year. Fixed SG&A, we reduced from EUR45 million to EUR42.7 million fixed SG&A. As a percentage of net sales, we recorded 3.6% on the profit and loss. One year ago, we told you that the first financial, the very first…

Thank you. [Operator Instructions] Now, we’ll take our first question from Budd Bugatch with Raymond James.

Good morning, Pasquale, very good morning, Vittorio. I guess my question -- congratulations on starting to get back to breakeven. Looks like some progress on that. Despite the fact that units of seats were down nearly 10% in the quarter if I read it right, tell me what’s going on with demand? It looks like US seats are down nearly 14%. Should not you be receiving some benefit with the foreign exchange? Is that not a tailwind to you for demand? Can you hear me? Hello?

Hi, if you can’t hear, please check the mute function, we are unable to hear you, Francesca.

Yes, it’s fine. Mr. Natuzzi is ready to answer.

Okay. Go ahead, we can hear you.

Okay. The reduction in terms of seats, as it is to do with the decision that the management has made to drop models that were not profitable for us. We were doing business primarily in Brazil, for example, with let’s say the giant distributor there in Brazil, where they were asking price and product and quality that has nothing to do with our value. So, we decided to drop those models and this business and we focus on better product margin in other words. In fact, if you look our income per seats, it’s a way higher than the same period.

Pasquale, you and I’ve had that conversation about Brazil I can’t remember for how many years. So, are you telling me that you have discontinued sale in Brazil and are the two plants in Brazil are closed as well?

We are selling better products in Brazil and we dropped huge number of model and customers that were not profitable for us. [indiscernible] also because Canada exchange rate penalized heavily our margin a year ago. So, we decided at first quarter, the second quarter of this year to switch the pricelist from Canadian dollars to U.S. dollars and also apply a price increase. So, consequently, many retailers, they started to -- and that’s why we have been losing some business in Canada but we are making better quality business there now.

Okay. So, just to finish on Brazil, you still had -- you had two factories in Brazil as I recall, do you still produce in Brazil, do you still have those factories or have you decided to close those factories?

Yes, of course, yes. I mean, we use to have two factories. Now, we have just one and again, we are supplying a profitable customer with a profitable product.

Okay. So, if you -- I understand that the seats that show in America is down about 14%. If you looked at just the United States, to the extent that you can’t disclose or tell us, what was this year-over-year seat comparison in the second quarter?

I mean, I don’t have the figures with me, but I can -- Marco, do you have the numbers? Okay, let’s Marco Saltalamacchia answer to this question please, okay.

Thank you. Good morning to our listeners, this is Marco Saltalamacchia speaking. Well, concerning United States, we may say that the figures are grown both on -- in terms of average price per seat and volume. The reasons of reduction as being already mentioned by the President, they are mainly followed in South America and Brazil and in Canada, depending from the President just said the decision we’ve taken on the price and the currency price list.

Okay. So, then -- it looks like this decision was made during the second quarter because that’s the significant year-over-year difference in change, up 9% for the first half. So, I’m sorry, up -- well, that’s in dollars. So, has that decision been made in the second quarter, I’ve to go back and look? Yeah, it looks like it was a second quarter decision.

Possibly the effect are in the second quarter because we grant the deliveries according to our customers within three months from the order date. So, the new orders being delivered have been affected by the currency exchange as well as the pricelist has changed starting from basically January. So, it was considered two to three months delay in deliveries and clearly, they have affected mostly in the second quarter.

More than any other Company, at least most other companies and this in discrete, Natuzzi is global with operations on -- in Europe and at U.S., not production but South America and in Asia and we’ve had lots of upset now in the world in terms of currency. The Chinese yuan devaluation, the radical change in the euro to the dollar and the same for the Canadian dollar for the dollar. What impact do you see that having to own Natuzzi both revenues and earnings, now for the next visual period of time, let’s just look at the next year?

It’s a good example to start from the first semester numbers, while we had 11% positive effect on sales, at the end of the day due to the fact that we buy in US dollars mainly, leather, labor costs in some countries, transportation, commissions and other costs, the final positive result in terms -- at the EBIT level was just EUR3 million. So we are quite balanced between foreign exchange currency between sales and cost. And this is one of the result of the globalization of this Company. Just to give you an example, the increase of renminbi in China in the last week that has a negative impact obviously on the profit and loss of our you know Chinese company, it’s a mix, it’s combination but while we sell 40% of our face denominated in US dollar, we have a bulk of our cost denominated in US dollar. Just to give you the example of dollars, but then we have Japanese currency, we have renminbi and so on. But the most important impact deriving from dollar is that one.

Okay. I’ll let somebody else ask questions. Thank you very much, good luck on the remainder of 2015 and into 2016.

And we will take our next question from [indiscernible].

Hello, gentlemen, sounds to be a good quarter. Have couple of questions for you, one is being back in 2013, you guys have mentioned, you’re willing to become a champion in the reclining armchair industry. And what I’m curious to know is what is the percentage of sales contributed by Natuzi Re-Vive to the current revenue and if you can break it up country?

Okay. Well, Re-Vive, of course --

But I can answer this question. Okay, 40% of our total sales are recliner, recliner and motion, because we have sofa with mechanists, that recliners several style, several models and then we have sectional with recliner, we have recliner’s chair which were -- they’re older generation, while Re-Vive is new recliner generation. So, the sales are very satisfactory, we’re very happy with results.

Can you give us --

Most of our recliner business, but then we never said that we want to be the champion, probably somebody else is better than us, I don’t know that, I can mention for example, Manhwa [ph] is Chinese company, they just specialize in recliner, they do motion, recliner and they make also their own mechanism but I can tell you that recliner, it’s a product category that is very good one and represents 40% of our total sales.

Okay, and specifically for Natuzi Re-Vive chair, what would the percentage of sales be, do you have the figures?

But let’s could be -- if we relate Re-Vive just on the Natuzzi Italia business volume that we do, because we sell primarily the Re-Vive in our furniture stores, in our specialty store, Re-Vive represent between 7% to 8% something like that.

Okay, thank you. And my two last questions, with regards to the cash burn right, will you have enough cash to reach a full profitability by 2016? And in case you don’t and will run out of cash, did you have a chance to establish excited facility with any of the financial institution and which one?

For the question, this is Vittorio, first of all I have to tell you that the European, not only Italian but even in Romania for example, making system appreciated already the improvements done in recent quarters and are continued to get in support to the company. In the last 12 months, I should say we renewed all the existing credit lines and we got additional roughly 30 million new cash both for working capital and Capex. In the meantime, we are also discussing with Italian authorities an agreement for the financial support as said before by Mr. Natuzzi for the R&D investment for the lien enterprise. Since they really understood the importance of innovation, which is the only way to recover efficiency and competitiveness. So, no problem, we just wait more volumes as soon as more volumes will arrive, we have a program with most important Italian bank in order to finance those trade receivables and we will have cash in order to sustain the portion of Capex where in mind on this point we will be more precise in the coming months, as soon as the revision of this three year business plan will be ready.

Good. And my last question for you, can you give us the guidance until, I mean the Q3 is almost over right in a couple of days, can you give us guidance into Q3 and beyond? Are we sustaining the increase in revenue, are we truly going to come out as a breakeven or will there be any surprises for investors and I mean, if you can provide us much information as possible. Thank you.

So let me give you details about specifically on Q3, what I can say and do think that we are still focusing on the EBITDA breakeven, you know that in Q2 we are very close to, although we had lower volumes for example in Italy due to August occasions. So we don’t expect to increase double digit sales in the foreseeable future but because the plan is to be still focused, well focused on the restructuring cost, reduction of the cost basis and recovery of efficiency and this is the goal, still the goal. We announced this goal last year, we confirm that this is the goal for Q3 and Q4. It’s enough to you?

Okay, so you anticipate to come out breakeven on the EBITDA by the end of Q3 right?

We are close in Q2, we want to do better in Q3 and particularly in Q4.

Perfect, thank you.

In the quarter, okay.

Thank you.

Thank you.

We’ll take our next question from Parenti Gianluca with Intermonte.

Yes, good morning. You already maybe answered one of my questions, I was referring to the agreement with MSE, The Ministry of Economic Development about the agreement you reached in September, I suppose. I would like to know, if it’s possible the amount of money that the Minister of Economic would give you and which form, this is a credit line, this is -- how long it would be and how is it [indiscernible] if you can really say that because you speak about that a few seconds ago. The other question is about the break-up of your turnover, if I remember correctly, right now 70% Natuzzi Brand and 30% approximately Private Label. I mean, I would like to understand, if you can give an update about the target in the next couple of years for this breakdown?

Okay, let me start from the MSE agreement and let me give you some more details. This is a long journey that we started two years ago, started from a very difficult position here in Italy. So we had to discuss not only with MSE, but with Minister of Labor and then union, first of all, trying to convince them that we have a good plan in order to reach more efficiency in Italy. So at the end, the agreement we reached with Italian Authorities, generally speaking in a nutshell, is based on very few, but very important items. First of all, reduction of 4% in the labor cost so far. Agreement based on productivity, not only on cost of labor, but productivity, because it’s the only way in order to think to the future for the production Italian system and then financial support for the transformation of the company toward a lean enterprise, result. Although, we had a workforce reduction, we managed in the last 12 months and we are still managing a reduction of approximately 500 people between 2014 and 2015 where we invested something like EUR15 million in terms of financial incentives. We avoided complete strikes avoiding damages to the company, reputation and profit and loss too, is another enormous result achieved with this agreement and management. And increasing productivity in Italian plant, which was maybe you remember 2015 [ph], one of the major factors for the first half improvement of the profit and loss compared with 2014. The program that we are discussing is an investment program on toward the next three years. There are CapEx in the region of 25 – is still under discussion in the detail, but it’s very clear structure, is about EUR25 million, EUR27 million in terms of CapEx and EUR20 million, EUR22 million in terms of R&D costs. From a financial point of view, we will have a portion of – first of all, the 25% of those 49 three-year investment plan will be financed by ourselves. It is one of the condition and we have cash in hand to do that. Remaining 75% will be given in two ways. The first one, subsidized loans with a very low interest rates to be clear and for the remaining portion will be grants. Okay?

Thank you, yeah, I understand. Regarding the mix of the sales, today, I mean, we do one-third Private Label and two-thirds with Natuzzi Brand. The mix in the future, the company now is focusing on a Private Label because it’s very difficult to get business with those big customer, but we can get volume there, and we need volume. So that’s why we are focusing at least for the next fair, an High Point in [indiscernible] on Private Label in United States. So we see for the first quarter or the second quarter of next year, just increasing Private Label against Natuzzi Brand, but obviously because in Natuzzi Brand, to open your start, to make the start works, takes a little bit longer, and so that’s why. But then we are talking about, yesterday, we have, let’s say, 68% or 70% Natuzzi and 30% Private Label, let’s say probably in the first quarter of next year, we will have 32% or 33% and 67%, I mean, so not huge difference.

Okay. Thank you very much.

You’re welcome, sir.

[Operator Instructions] We’ll take our next questions from Stefano Rossi from Edmond de Rothschild.

Good afternoon, Mr. Natuzzi. I am kind of new to your company, so forgive me if I ask very simple questions. Regarding your future commercial strategy, if I look at the different product lines you have, I mean, Natuzzi Italia and Natuzzi Editions, if we leave aside for a moment the Private Label business, which we understand is going pretty well, what is your strategy, meaning, developing your network or continue to develop your network, which by the way is impressive because you cover the world and you’re probably one of the few companies to do that. How do you want to proceed if you were looking at your company in three to four years from now? Where do you see the rationalization coming? And where do you want to put your resources in the future, if I may ask? And the second question I have is regarding the Italian situation. If you see improvement in sales this year just like we’ve seen from other companies, in other sectors, which are related to consumer spending, we have a feeling that Italy is going better this year and if you can confirm that.

Okay. The last 15 years, we have been investing on Natuzzi Brand. I’d like to remind all the listeners that Natuzzi was a manufacture company, manufacturing and selling leather upholstery for a good price. That was the strategy of the company is the 70s, the 80s, and part of the 90s. Then because of the democratization, it’s much, much more easy to be made in China instead of Italy, so we decided to reposition the Natuzzi Brand product and also invest in marketing in order to switch the company from a manufacture company to a consumer brand company and that’s what we did. We opened – we repositioned the product. We have done a huge product extension. I mean, if you have a chance to visit, for example, if you are in Milan or if you in London, if you are in Hong Kong or New York, wherever in Paris, wherever you will find the Natuzzi Italia store, you will see that we have living room department, we have bedroom department and we have dining room department. So we have done product extension, retailer development and we’re investing huge money to switch the company from a manufacture company to a consumer brand company. Our strategy, my vision and the management vision and the board vision is that in five years from now, we will be a retailer company. This is the future where we want to invest.

Yes. And in this respect, do you see, I mean, a net -- say, do you see any of the lapping between Natuzzi Italia and Natuzzi Editions, I mean, is there -- what is the rationale right now in terms of new openings? Do you want to open with which brand?

Okay. The answer to your previous question, the Italian situation, I mean, this year, I mean 2015 has been so far -- at least for the first six months, good for our company in Italy. And so we expect to improve, despite the local Italian situation. Everybody knows that we’re doing well in Italy. Now, regarding overlapping, Natuzzi Italia and the Natuzzi Edition, there is no overlap. Last year and the year before, we did marketing research in Florida, in China. For example, in China, we have the distribution, the furniture distribution in China is organized by furniture malls. In China, we have 42 Natuzzi Italia stores and we have about 70 Natuzzi Edition stores. In the 42 furniture malls where Natuzzi Italia has the store, we have also, if not 42, at least 38 or 37 Natuzzi Edition stores. So in other words, in the same furniture mall, we have Natuzzi Italia and we have Natuzzi Edition. We target different customer. I mean, the product is different. The price is different, the advertising is different. The store design and communication, everything is different. In other words, the Natuzzi Edition is more appropriate for 90% of the American consumer. It’s more appropriate for 90% of the English consumer, which is more transitional and traditional. While the Natuzzi Italia, it’s a pure Italian style. So that’s the difference. And we are, I mean, certainly, for the future, we are targeting countries where we should grow primarily with the Natuzzi Edition. At other countries, where we should privilege just the Natuzzi Italia, it depends, because the markets are all different or primarily there is huge difference between one market to another market. No question about that. The United States is different from Germany.

And right now, are you experiencing better margins in Natuzzi Italia or Natuzzi Editions?

If we talk about gross margin, Natuzzi Italia has a higher margin than Natuzzi Edition. If we talk about the gross margin, but certainly on Natuzzi Italia, we invest more money on advertising, on marketing. Gross margins are Natuzzi Italia the highest one, then we have little bit reduction on Edition and little bit lower on private label, but with huge numbers. So that’s different.

Okay. Thank you.

You’re welcome.

We’ll take our next question from Budd Bugatch with Raymond James.

Pasquale, did I hear you properly what you say, that you in five years, you will be a retailer, that’s the vision?

Yes.

Okay. So a couple of questions that raises. One, will you -- are you going to start to segment your business now for disclosure purpose on the Natuzzi retail business versus the manufacturing business? And two, you’re doing business with Ikea, which you’ve done a long time and I believe you said, Costco as well. Can you give us an idea of what their annual turnover is?

Yes, of course. I have a great idea.

Yes. The question is we will display numbers according to the new strategy, right.

That was the question I think, Vittorio.

Exactly. Mr. Natuzzi anticipated that his vision -- his long term vision is to turn the company toward the retail and as a consequence of that, whatever will be the gap, as we will use, we will focus more our financial communication to where the strategy of cost. If the strategy is that to parallel pass Natuzzi retail from one side…

We will have a completely different organization and that’s what we’re doing already, completely different organization. I mean to develop and manage a brand; it’s completely different business than manufacturing products and sell the big distribution, the big retailer. It’s different business and we separate the organization. We have a factory dedicated for Ikea, for Costco, for rooms to go, for the big retailer. We have a factory dedicated while Natuzzi Italia product is made in Italy. So, but even the organizations are separate.

Okay. I understand. Alright. Thank you very much.

You’re welcome.

I don’t believe, I did ask what the annual turnover was for Ikea, and for… I thought Ikea was your largest customer if I remember right.

I already answered the question regarding the private label. Based on total sales, we do one-third with private label and two-thirds with Natuzzi brands.

Okay. Thank you.

You’re welcome.

And we have no further questions in queue at this time. I would now like to turn the conference back over to our speakers for any additional or closing remarks.

Thank you very much to all the listeners. And we hope we will release better numbers in the next press release, okay, next quarter. Thank you very much and have a good afternoon and good evening.

This does conclude today’s conference call. Thank you all for your participation. You may now disconnect.