Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Natuzzi Second Quarter and First Half 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the introduction, we will conduct the question-and-answer session. 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 Chief Executive Officer, Mr. Pasquale Natuzzi; then the Chief Financial Officer, Mr. Vittorio Notarpietro; Mr. Ed Teplitz, President of Natuzzi Americas, second largest market in the world for our Group; Mr. Nazzario Pozzi, Chief Officer of the Natuzzi Division; Mr. Gianni Tucci, Chief Officer of the Softaly Division; and Mr. Piero Direnzo, Investor Relations. As a reminder today’s call is being recorded, I would now like to turn the call over to Piero. Please go ahead.

Thank you, Matt. Good morning to our listeners in the United States and good afternoon to those of you connecting from Europe. Welcome to the Natuzzi's second quarter and first half of 2018 financial results conference call. After a brief introduction, we will give room for a Q&A session. Mr. Pasquale Natuzzi, together with the top management team, will be glad to answer your questions. 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 laws. Obviously, actual results might differ materially from those in the forward-looking statements, because of risks and uncertainties that can affect our results of operations and financial condition. Please refer to our most recent 20-F filed with the SEC for a complete review of those risks. The Company assumes no obligation to update or revise any forward-looking matters discussed during this call. And now, I would like to turn the call over to the Chief Financial Officer. Please, Vittorio.

Thank you so much, Piero. Good morning everybody, and apologize for this delay. We hope that our technical problems have been solved. As announced that we have recently concluded the partnership with Kuka Group for the expansion of the Group retail presence in Greater China, mainly China and Hong Kong. The operations have just started but let me give you an update of these financial impacts that will be recognized in the third quarter 2018 financial statement deriving from the conclusion of this agreement. First, a recap of the transaction as foreseen by the partnership, you know the contract; one, the capital increase of €35 million in Natuzzi Trading Shanghai afterwards the Chinese legal entity subsided and paid by Kuka; two, the transfer of some Chinese legal entity shares from Natuzzi SpA to Kuka for a gross amount of €30 million; and three, the sale of the Natuzzi brand distribution license in Greater China by Natuzzi SpA to the Chinese legal entity for a gross amount of €50 million. At the end of the day, the capital increase and the share purchase led Kuka achieve the majority stake 51% in the partnership. The above mentioned steps generated for the Group, at total, extraordinary income of about €48 million that will be reported in the third quarter 2018. As a consequence, the Group has already collected a total amount of about €40 million already net of any taxes. In fact, during the third quarter 2018, Natuzzi already paid a total amount of taxes equal to almost €5 million. In executing the agreement, the parties had contributed to the Chinese partnership vehicle a total amount of €25 million in order to support the investments needed for the retail expansion in Greater China. This partnership has been enforced from August 1, 2018. And…

Thank you, Vittorio, and Good afternoon to everybody. Today, I would like just to give everyone an overview of the furniture business, primarily the upholstery business. The globe upholstery market according to the recent market research conducted by an independent company, total global upholstery sales are growing. Some markets are growing fastest than others with China and United States responsible together, considering for more than 50% of the total worldwide upholstery sales. China is the fastest growing market in the world and thus consistently growing by double-digit percentage over the last several years. United States is also growing but at a lower single-digit pace annually. Natuzzi has a strong presence in China, including the manufacturing, retail, marketing and commercial organization. More importantly, we have just, as Vittorio said, finalized the partnership with Kuka Group, which will allow us to expand at a much quicker pace. Prior to our partnership with Kuka, we had about 160 stores where in China of which 50 are in the Natuzzi Italia and 110 are in the Natuzzi Editions, which 20 are being opening the stores this year in China and we expect to open an additional 30 stores by the end of this year and hundreds of stores over the next several years that's the plan. United States is another key market for us. We have been in the marketplace for more than 30-years -- I would say 35-years. Furnishes the homes of several millions consumers have been publically traded on the New York Stock Exchange for 25 years and enjoyed strong awareness as the preferred brands. We currently had 12 directly owned stores that are performing well, both in terms of sales and profitability. We believe that growing this footprint of directly controlled retail is an important strategy moving forward. I want to…

[Operator Instructions] And our first question will come from David Kanen with Kanen Wealth Management.

So can you clarify on the Kuka deal; two things, number one, what would be the pro forma amount of cash that we have; I mean, the quarter is that most ended at the end of September. So where do you expect to be in terms of pro forma cash for September with Kuka? And then can you quantify for me the trajectory of the rollout of stores? Any detail that you can give on that front would be appreciated? Like how many stores you expect Kuka to open this year if any and then how many next year? Thank you.

So I mean some questions will be answered by Vittorio.

The first one, the cash position by beginning of September, the gross position is around €60 million positive of cash.

So then the second question was…

The second question is about our plan about the rollout and we are -- from the beginning of the year before we finalize the JV with Kuka, we already opened 20 stores in China, and we expected to open another 30 within end of the year. Then we have five years business plan but we are finalizing together with our total business plan, which the management and we all are working to present the business plan at Board of Directors within November. So that's our expectation. But then we have -- we are very much, I mean, enthusiastic about the potentiality of the growth. Obviously, we should consider that if the duty that has been rated and for January then the duty would be raised to 25% from the imports from China. I expect that even the economy in China will impact, but we have an ambitious plan for growing in China. Again, as you saw there has been opponent from the beginning of the year we expect we are at the end of September or most, so we should open the 10 stores per month in order to achieve 30 store new opening before the end of the year.

And will there be any cash contribution from Natuzzi to open those stores, or that's handled from the partnership that gets funded from the joint venture?

No, the plan so far is to develop the franchisee store. We have only planned to open very beautiful flagship store in the Shanghai, which are seeing -- the location, it's a really prime location, beautiful. So that will require some investment from the JV. But for the rest, I mean it's just franchising.

But in many case, the JV will use its all cash to do that.

Okay, certainly.

They have at least €25 million cash, the two shareholders provided the JV, let's say the JV, we're between €25 million as I said in my speech cash, in order to support any kind of investments and rollout in the foreseeable future.

Okay, that's what I was looking for. And then Vittorio, if you could clarify for me on the balance sheet you ended June with a category called other accounts payable that were $66 million, up from $29.8 million at the end of the year. Can you explain to me what that is?

I told in my speech if you remember that we were first and we sustained some additional cost in order to speed up the shipments by the end of June, because we needed -- because our customers needed to be served globally; so, we pushed our sales, our invoicing, our shipments. And as a consequence, trade receivables went up by the end more than normally, let's say, by the end of quarter.

And then I see also accounts receivable were up something like $9 million. Do you anticipate collecting that cash between now and the end of the year? Usually when companies' revenues are declining, there is cash generation from receivables but in this case there has been a consumption of cash. If you could just explain that and let me know if there's a normalization that's going to occur in the next couple of quarters?

I've already explained the reason why with the lower -- little bit lower sales we increased our receivables due to the timing of shipment. So, we pushed all the shipments by the end of June that’s why up 9 million in receivable. We hope to have more normal shipment period in the next quarter, because we were forced to speed up our shipments and to evolve to be transparent. And to avoid even some of the extraordinary costs we added in the Q1 and Q2 this year. As cash is concerned, it is -- we use cash in our balance sheet for account receivables but we use those receivables one month later with our factory, let's say financing program.

Okay, and then….

So, we translated in cash in a few weeks…

So really in the June quarter the majority of the weakness, if not all of it, came from really the wholesale, the low margin wholesale business. Is that correct? And if so, can you comment being that the third quarter is almost over at this point? What trends have you seen, in July, August, September versus the previous quarter?

The overall situation has been given by Mr. Natuzzi -- Natuzzi Division is doing well. Within the Natuzzi Division, retail division is doing better than the average, and we still have some problems with private label. That’s the situation at the 37th weeks and the picture as of today. For third quarter, we are working very hard in the last days of the quarter in order to achieve some dollars more than one year ago and achieve of course, a little bit buyback restock in terms of operating margin although, we continue to suffer and we will continue to suffer from exchange rates in the comparison between Q3 and Q2.

But in addition to that, I'm -- this is, CEO, Pasquale. In addition to that, I would like to emphasize that division wide we are planning to test the opening of Natuzzi Edition store in America. It's because we have been investing a lot of money and the entire company and the management time to be consistent with the brand value and their positioning. If you consider, for example, the performance of restoration upgrade, at the range that they're growing is just unbelievable, even Williams-Sonoma or the Room & Board for example. So, there has been leanly updating their product proposition to the consumer. And today, consumer, they move much faster than the retailers, especially when you have a large retail chain before you review location, you review your product proposition, your advertising, your sales consulting, your store management, because while you have different positioning you need to be consistent and there everything must be aligned with. So while there are some brands that -- all those brands are growing -- very exciting the way they are growing. The traditional retailer community is suffering. We have been analyzing what’s going on in America. With the Natuzzi Edition, the future with the Natuzzi company in general, the future is to control the distribution. I mean, we've been able to show to the consumer the Italian lifestyle -- Apulia lifestyle with the Natuzzi Italia. But even with the Natuzzi Editions but we target different consumer. So I mean honestly region wide, our control of the distribution is performing well while also, let's say, is not performing where we have Natuzzi Edition in some markets, primarily in America, as we have also Softaly in America, all private label is suffering. And today we are here Ed Teplitz, our President just because we shared work together and understand how to address the issues in terms of business development that should be profitable and how we should focus and address the duty that's been rising. So that's -- I mean, it's not immediate time but we feel very much confident, because we have strong basis, we have the fundamental, okay. We are the manutailers, we know how to design products, how to manufacture product, how to retail the product today. And we are global with factory in Brazil, factory in China, factory in Italy, factory in Romania. We are confident and we are aware in the mean time, to be honest, I mean, we are not sleeping -- sleep dreaming certainly.

So are you saying that the weakness in Softaly, I mean, I'm trying to piece together what you are trying to say here and implement in terms of your strategy. So are you saying that due to weakness in Softaly for private label lower end furniture that was previously sold through large retailers, like Macy's and so forth that you're going to try and shift that business to where you control your own destiny to opening Natuzzi Edition stores in the U.S. Is that what you're saying that that's going to offset the declines overtime in Softaly?

It's Pasquale. That's partially correct, but if you want to hear, Gianni Tucci which is responsible for Softaly, can give you a better explanation. Just one second please. So Gianni Tucci is the -- responsible -- it’s his private label business…

Good afternoon, sir. Yes, the private label clearly has the challenging roll of running the industrial strategy of the Group. Therefore, we are in a situation where we have to go by priorities and we readdress the older strategy for Europe, which was our main priority, as I said in the past year and is now consistent. While it was more challenging for the North American market. And we are also in, as a consequence of the tariffs and the new American strategy, reviewing the channels of distribution. And therefore it’s for us extremely important in the next weeks towards -- to the business plans for wholes distribution in North America. That's the reason why also Mr. Ed Teplitz who together with Nazzario, we will review what's the best. What I can tell you is that as a private label, which is dedicated to specific accounts and Mr. Natuzzi was transferring to you this message is that the traditional retailers are facing completely different situation versus the new type of retailer, and we are readdressing in accordance our strategy.

So what the CapEx requirement be, let's say, in the next 12 months with the Natuzzi Editions stores that you plan on opening in North America? What do you expect the total capital expenditure to be?

We need to address that issue within couple of weeks. I mean that’s why Mr. Teplitz is here with us. We haven’t defined yet where to open a store -- Natuzzi Editions but certainly based on the success of China and the Brazil and all the investment we have made to make Natuzzi Editions store a great experience for the consumer. We should consider now where to start to test the stores, would be New York, New Jersey, Pennsylvania, Connecticut, New England somewhere because we need -- I mean, it's not just opening the store but also provide for supply chain, customer satisfaction, customer care, after sales. There are several issues to be analyzed in order to -- and even the management and even advertising, we need to maximize. So, it's important to understand where to open, why and how then implement the strategy. So next conference you will hear much clear answer.

[Operator Instructions] Next, we will hear from [Timothy Stabosz] who is a Private Investor.

Could you discuss the nature of the Costco initiative in the United States? I am a bit surprised that there has been no discussion that I've seen in press releases. Costco is a very respected retailer in the United States, I saw your product in Costco. I think it only went in the last couple of months. And the price point is very competitive with IKEA and other types of merchandise. And I am wondering can you explain the nature of the Costco arrangement, if you anticipate how it's been going so far for the Company, if it will continue for how long it will continue? When the merchandise is in the store and if they are happy and you are happy, both Costco and Natuzzi with that relationship, are you in all of the stores? Can you explain that relationship please?

Okay, first of all, to do business with Costco it’s very challenging. They are so demanding that -- and we like challenge -- as a company, we like challenges. We like to do business even with very difficult customer or very demanding customer, because we learn from them. We learn how to be efficient and how can -- because if we succeed the supply customer like the Costco then it will be easy to supply all other retailers or satisfy all other consumers around the world. So this is just a matter of the principle -- I mean, Pasquale Natuzzi, this is my principle. But basically very eventually there is Gianni Tucci here that Gianni is responsible for Costco of business. But as far as I know, Costco two times the year they change one or two models they test in their store. If the test works then they roll out in other store in America, or in Canada, or Mexico, or in United Kingdom where they have a store. But the reality we give them the products that are not available anywhere in Natuzzi Editions or even in private label we do the product exclusively for them. And because they promote Natuzzi for $110,000 and they promote also sometimes watermelon for $0.50, but they promote $500 bottle of red wine. I mean, they are unbelievable. It’s very important window for the brand but it doesn’t impact on our business, certainly, I mean because our best selling model in Natuzzi Italia store, it’s a sofa that we retailer for $800,000. And in our store in Costa Mesa, California or in Kingdom of Russia, in Pennsylvania or in Chicago, our customer doesn’t open every day, but very often I would say every week or every two weeks, we have a customer that they get in our store and we decorate their entire house for $150,000, $140,000, $160,000. So that’s the power of the Natuzzi brand. So back to Costco, they’re good customer. We succeeded to supply them, they should be around between $2 million to $3 million -- they would be $5 million customer for us profitable then they have retailer policy where I mean their market cap it's very low but doesn’t affect our business. I don’t know if I -- if that was your concern and if I answered to your question…

Well, it’s a high value -- the Natuzzi products are in every store in United States or not?

This is Gianni Tucci. So we took the advantage of using their network in order to extend our brand awareness, but we did it in a very specific and -- well, within certain parameters. We gave them -- they are the only account at worldwide level using -- they're buying Natuzzi. And we have specific collection completely dedicated to them and they work by division. So, we present this very specific collection which is agreed with their merchandizing team. And they have the capability of choosing for one or more divisions at worldwide level. Clearly, we have exclusivity only for certain specific areas as for instance China where we cannot allow the use of the brand. And for us within North America, therefore, United States and Canada, has brought positive results once again with limited models, limited SKU and we did tax and rollout.

We don’t do special order -- I mean suggesting that model, that color, and that consideration, I mean, there’s no customer order, no special order. I mean that’s the nature of that business…

When did they start carrying our products -- the July, was it..?

We started -- no, we started to them in 2014 with the tax. As Mr. Natuzzi was saying, probably you only know -- that’s the reason to leave, because we have gone through few years of testing in order to better understand the channel. And finally, we have now built product that is rolling out so finally, we are projected on positive revenues with them.

I have one other question. Pasquale, as you know it’s been very difficult for the company for 10 years. I have been following the company for at least 10 years. And I remember as recently as almost 10 years ago now, the Company publicly set a goal, which it had to quickly pull back on of earning 15% operating margin. Then more recently, we talked about how the moving line and the institution of moving line for production, while regrettable to the traditions of Natuzzi’s handcrafting, was necessary and would dramatically reduced costs. Your credibility on Wall Street, you pointed out that you listed on the New York Stock Exchange and yet your stock is probably down 90%, I am guessing from what it was trading at shortly after you went public. How -- can you speak to investors when you keep talking about how you're going to turnaround the Company and 10 years has gone by now almost, and it hasn't worked. And while China looks exciting with what you're doing, and I commend you and congratulate you on that effort to earn profits through China. What happened with the moving line? And it didn't nearly reduced cost like we thought it was going to, because investors believe in you when you say that certain things are going to be dramatic and changing the Company and then nothing happens. What's wrong with the Natuzzi business model? And are you the one who should be fixing it? Or should we be bringing in someone else to run the Company? And have you considered that question, because you do have a public shareholder base?

Certainly, I've been considering -- I consider that almost every day in my life, okay. So let's say that -- I needed to remind you and as all the shareholders, I mean what you're saying it's right. It depends. If you look from your perspective, your questions are absolutely right. But I would like you please to consider that we were a manufacturing company, okay. We were manufacturing company based primarily in Italy. Then the globalization manufacturing -- I mean, China became the worldwide factory. They manage the production in America they've done in all western country, all the western countries have been damaged by the worldwide competition. So for us to move from manufacture to a consumer brand has been not in this exercise. We have been investing the fortune -- the entire company has been dedicated to repositioning the product, to do the product extension for your information. You should know that in our Natuzzi Italia store, we have living room, we have dinning and we have bedding and so we have a furnisher. While our background, our tradition we were leather upholstery manufacturing company. Today, we are an Italian lifestyle consumer brand recognizing and well appreciated. We invested a fortune to create brand awareness towards the level and to experience also -- not to experience to create the retailer model, which is not initially an exercise to identify you are the consumer that we want to target. Where those consumers are located? Where we should open the store? How we should change the sales consulting or the store manager? How we should define the merchandizing in order to satisfy the expectation of the consumer? How to deliver the product in the consumer home? How to do after sales? How to retarget and then close them back to…

Yes, the stock was at $1.50 or maybe little bit less than March of 2009, and here it is about 10 years later and it's where it is. I guess what's interesting to sum up like shareholders as you point out just how valuable the Chinese license was for the joint venture purchaser and some of us who own shares looking at if the Company was sold maybe $1.50 a share for the U.S. trading price is $6. And so, I take it with you're having only 60% of the Company that a sale of the company is not going to happen. Correct?

No, would you please repeat…

Tim was saying -- what you're asking is that is the Company entertaining the possibility of selling the Company?

Yes, so I am asking Pasquale with him owing 60% roughly of the Company that a sale of the Company even if it would earn a multiple of the current stock price is not something that he's willing to entertain at this time, correct?

Pasquale, are you over the Board willing to entertain the thought of selling the Company?

No, I mean there is -- absolutely, I mean, no. There is no intention from my side and my family side as a major shareholder to sell the Company. Our commitment is to make this company successful, that’s our goal.

Is that yes or no then you're not willing to entertain to sale currently?

That is a no, and it's not being entertained at this time.

And would it be entertained, or they are not interested in that?

The answer is no.

So the final question that I asked earlier I would like an explanation on the moving lines, and why the cost reductions that we're looking for didn’t happen in the way we would have liked? Or they did happen but there are other things that offset those cost reductions to keep us in overall loss position, the moving line…

Moving the line probably was the wrong term to explain -- it's not just moving line. Moving line it's a production system that should make the production leaner than used to be. But the issue is not just the moving line, but the issue is to make -- leaner to move entire company. So that’s the challenge that we are facing and we are progressing in a way. In fact, talking about private label, okay, talking about private label, last year as Gianni Tucci said before, we started from Europe, because to do business with the -- let's say, the big box, the guy that runs today in Europe like in America, the big retailers are getting the bigger and bigger and the smaller are going out of the business. And an exception of a lifestyle brand like Restoration Hardware, Room & Board, Natuzzi Italia, why not, I mean. But for the rest, their mom-and-pop store, the provision store traditional ones are going out of the business. As happened already in region America, it’s happening also in Europe, so the big box are becoming bigger and bigger. So to do business with them and make the profit is not an easy exercise. Last year, we faced this issue with the European distributor of the big box. We’re been on working on project, on product and then on -- even on production process in our factory in Romania, because remember that we have a factory in Romania, we have a factory in Italy, we have a factory in China, we have a factory in Brazil, it’s huge effort to review the entire operation system. We are very much committed to improve the production operation, let’s say, the entire operation that has to do with product design, production process, supply chain in order to improve productivity, improve margin and improve the quality. It’s a huge, huge effort that we are facing. If you join us to visit us, we will be very pleased to have you in our Company and show you what we are doing in terms of operation improvement, in general.

I want to congratulate you for building a tremendous lifestyle brand with a very impressive reputation globally. I would just encourage you as someone who owns 300,000 shares to entertain the notion of a new CEO and/or selling the Company, because I believe the lifestyle brand that you have very impressively created has a lot of value if it were sold and that it's time for either someone else to run the Company…

I may see that this is and listen, okay. [Multiple Speakers] I mean, whatever I’ve done in my life, okay, I’ve been first of all, for -- I mean not for making money but I am a person with responsibility. I’ve responsibility to run this company. I am not looking to make money. I am looking to give satisfaction to the shareholders. I mean, that’s my goal. You’re insisting, I mean I don’t have any intention to sell the Company or to sell my shares.

Okay, just wanted to clarify…

And let me provide you some numbers about strategy execution, as you said. So some numbers which are updated to last week, so [Multiple Speakers] I am Nazzario Pozzi, the Chief Officer of the Division, Natuzzi Division. So, on a year-to-date basis, until last week, the brand as you said the brand which we have described as a strong asset, which the Company has built over the past decade. So the Natuzzi brand is delivering a consistent growth against last year. Natuzzi Italia is growing 30% at constant exchange rate against last year in direct stores and is growing 8% at constant exchange rate against last year in the entire wholesale business worldwide, which is mostly made by mono-brand stores. So Natuzzi Italia, as a brand combined with a direct-to-consumer strategy, which is more than 2,000 stores worldwide -- 200 stores worldwide, is delivering double digit -- high single digit growth in franchise stores and double digit growth in DOS. Natuzzi Editions as a brand is growing 6% in Asia-Pacific against last year at constant exchange rates and 8% against last year at constant exchange rate in South America, which means that the brand, Natuzzi Edition, is delivering high single digit growth in those markets in which we have a direct-to-consumer business model. Where we are decreasing against last year is Natuzzi Editions business with third-party's traditional retailers. So in terms of strategy execution, we see clearly that the brand and assets that has been built up over the past are delivering growth and profitability wherever we have built a direct-to-consumer business model, which is already delivering growth and profitability. And that's why we are now moving to the next page, staring with mono-brand direct-to-consumer, prepaid business for Natuzzi Editions also in U.S. and in Europe, which is the next stage of an accelerated growth for the brand in key markets.

Well, we need to see cost control along with growth in order to have a profitable company. And is it accurate to say that we're not -- put a Chinese joint venture investment from Kuka that we might have liquidity problems in 2019 -- we might have had liquidity problems in 2019, the situation is very serious. Is it not?

Tim, we're not sure we got the point. For sure, you're right because the rollout must be followed and sustained by a very fast cost control. We completely agree with you. What about the JV and the risk we undertake in 2019 -- we didn’t get the point…

[Technical Difficulty] talking about, thank you for answering my questions. And thank you for being accountable to the shareholders including me, but you know how I feel. And thank you for your time.

Thank you for your time, sir. I appreciate it.

[Operator Instructions] And with no further questions, I'd like to turn the call back over to management for any additional or closing remarks.

Okay, so see you again. So it seems that there are no further questions so therefore, we conclude the conference call today. Please feel free to contact us if you need further information. Thank you all and have a nice day. Good bye.

And once again that does conclude our call for today. Thank you for your participation. You may now disconnect.