Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi Conference Call for 2023 Fourth Quarter and Full Year Financial Results. As a reminder, interested parties can join this conference call live also via telephone by dialing in the following number +1-412-717-9633 then Passcode 392-52103#. In addition to the link already provided to join the video. At this time, all participants are in a listen-only. Following the introduction, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. Joining us today are Mr. Antonio Achille, Natuzzi's Chief Executive Officer; Mr. Pasquale Natuzzi, Founder and Executive Chairman; Mr. Carlo Silvestri, Chief Financial Officer; and Mario de Gennaro, Chief HR, Organization and Legal Officer; Mr. Diego Babbo, Global Retail Division Officer; and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I'd now like to turn the conference over to Piero. Please go ahead.

Thank you, Kevin, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2023 fourth quarter and full year financial results. After a brief introduction, we will give room for a question-and-answer session. 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 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 last annual report on Form 20-F filing 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 today's call. And now I would like to turn the call over to the company's Chief Executive Officer. Please, Antonio.

Thank you, Piero, and good morning everyone and good afternoon for people which are connecting from Europe. Let me start to briefly discuss the figures of the last quarter of '23 and the full year of '23. Then, I will provide together with my colleague, an understanding of what we are doing in our long-term objective. So starting from the last quarter of the year, we reported a decline in sales. It's important to consider this decline in the perspective versus 2022, were throughout the year and especially in the last quarter of 2022, we had a stronger backlog. If we net the performance of 2023 last quarter from that effect, the decrease is still significant but is in line from what we observe in the industry in general, given a very tough market for the durable and furniture in 2023. Despite these, let's say, clearly tough market condition in 2023 last quarter, we work to accelerate our transition to becoming a brand retail company. In particular, in the last quarter, we have reported sales from branded goods in excess of 92%, which means that basically our entire sales is composed by branded sales either Natuzzi Italia or Natuzzi Editions. The percentage was 85% at the beginning of 2021, so a step acceleration. Equally for retail that if you wish is the natural consequence of becoming a brand company. Retailer on total sales has been nearly 60%. Diego, can you put that on silence, please from 52, which was the reported in 2021? I will discuss later, but I believe this is a very important element, because Natuzzi is completing a transformation as investor or other people interested in our story. Now we should really, in full, look at Natuzzi as a company which has been investing for more than…

Thank you, Antonio. Good day to everyone. Just briefly, let me introduce myself while I'm attending this call for the first time. On top of my previous experience in the retail downstream within the old company sector, I've been working for more than 20 years now in this company, embracing many roles within our retail environment from purchasing to construction and development. And I can witness the effort that Natuzzi put in place in order to sustain the transition from manufacturer to retailer and a lifestyle brand, which had to do with cultural and mindset evolution for the majority of us, supported through the adoption of new tools and routines. And this is exactly, as Antonio was saying, what retail division established last year is about. Our goal is to set up appropriate retail processes and guidelines in order to generate consistency within the brand experience and ultimately increase stores profitability. Our willingness is to partner with each regional manager in assisting him or her in achieving their retail network expected performances. But let me give you examples of the some recent achievements. We have recently launched the state-of-the-art 3D room configurator, which is allowing a more efficient interaction at store level within the local trade community. We have also revised the compensation scheme for the store manager and design assistance, which together with the launch for the first time here of a sales contest for the global DOS network is intended to boost performance and sense of belonging for our end. We are also cherishing our store staff by addressing their training needs through a brand new online platform boosted with the artificial intelligent driven multi language live translator, which will allow for the first time ever to reach all our network. On top of the classroom session with more than 300 attendees already set up. Leveraging our store staff has already proven to achieve very good results in some of our more representative stores with double-digit growth, for instance, in our ambassador store in New York and Madrid. Back to you, Antonio.

Thank you, Diego. Just in synthesis, I mean to make a long story short, the Global Retail Division has the objective to improve organic performance because they have to fix that with 600 stores, and then we'll discuss the all of the stores in China is quite terrific, the upside potential that we have by simply working on organic growth. Then I mentioned branded wholesales. So, as anticipated, 40% is still distributed within wholesales branded product. That for us is still a very important strategic part of the business. So for that, we developed what we call Natuzzi commercial excellence program. What it's about? Basically, two things: One is standardizing the format. So we define a new brand gallery format. So, basically, it's a kind of business card of the Natuzzi in a multi brand environment. I know most of you -- a lot of you come from U.S., so you need to think about the large furniture retailer where you find different provider maybe on the same floor. Given the confidence we have in our in our brand, we want to have a special role in positioning on the floor, which means that the shopping environment and the brand presentation need to fully express the potential of the brand like it happened in our stores. So in the wholesale, we really invested on these topics again with organizational people appointed. Secondly, the commercial excellent program aims at daily improving the performance of our commercial team. We have 304 people, a different role in the organization, some direct employees, some other agents, which are dealing with clients, with dealers. So we are standardizing the methodology they should approach this dealer, but also, we're setting very clear productivity target and budget by dealer that can be managed centrally, again, because Natuzzi…

Thank you, Antonio. Good day to everybody. Just a few words before introducing myself because it's the first time I'm joining this event. I have more than 30 years of experience in different cost tests like big corporation such as Unilever or other listed company and I am quite used to manage in particular situation in which is needed a deep experience in heavy industrialization contest like in Italy but not only in Italy. In all my experience, I have always managed restructuring, change management and transformation project. Antonio has already highlighted the most important figure of our transformation journey. So I don't want to repeat them. What is important for me is to underline that this is not just a reduction plan because honestly, we are managing in the meantime a fair approach for the redundancy, but also an important transformation for the rest of our colleagues. In particular, we are managing an important training program for all our people up-skilling and re-skilling for the digital challenges that we will have in the next future. And just for giving you an example, in Italy during 2023, we have done more than 100,000 hours of training for our colleague for realign their competencies, not only in the commercial side but also in the factories because we have invested a lot of money for creating a future way of managing our production in terms of 4.0 transformation program. The other important point is as already said by Antonio that we have to deal with different legislation. In some cases, it's simpler, it's easier to manage the reduction of people, in some other cases a bit more complex and obviously, we have to approach everything with the usual ethical cultural approach Natuzzi has. Indeed, this is also the reason for which you can see an acceleration in 2023 for the number of people that we, let me say, supported in their exit. This is due to the fact that we spent several months to find a good agreement with the Italian government, with the local government in the other countries with the union for having a very, very, let me say agreed way of managing this redundancy without any claim, without any strike and this is also the reason for which we will continue to do that in the next couple of years. In Italy, in particular, we are using a specific measure that could be considered a sort of early retirement and this is also the reason for which as Carlo will better explain in the following minutes, you see that we have accrued the entire cost of redundancy of those people but the cash out will be in the next five years. Thank you, Antonio. I think that, you can. Antonio, you are on mute.

I said thank you, Mario. I'm sure there might be question later on. I suggest Carlo that you briefly double click on some of the figure we mentioned and then we open up for the question that I'm sure our audience has.

Good morning, everyone. Thank Antonio and Mario and Diego for your notes. I will go very quickly through some of the numbers. As Mario was mentioning, we're talking about the EUR74 million of restructuring costs, it has to be noted that the application related accounting principle imposes us to accrue such laboratory restructuring as soon as the corresponding liability arises towards our employees and the majority of such liabilities arose in the fourth quarter. So in short, it was planned but we cannot prove in the previous quarter. From the financial perspective, we have paid almost half of it and the other half will be paid in the next five years. This, of course, impacted the way we need to look at our gross margin. Antonio did provide a homogeneous comparison deducting all the impact of this restructuring cost in the people's year for the last quarter. I will provide it for the full year. If we then neutralize this effect, 2023 close with a gross margin of 36.3% versus 2022 at 35.6%, 2021 at 36.2% and 2019 at 31%. So confirming the improvement and cost improvement that we have been having in the gross margin in the previous year. How we did achieve that? Not only because we were able to align the level of purchase as a consumption to the new sales volume but because we did achieve a better inventory management, a continuous renegotiation of the condition of the supplier. And this goes also for all the industrial cost that will manage according to better control -- cost controlling activity. Briefly talking about operating expenses and in details about the selling expenses, administrative expenses, we can see in our numbers that from the selling expenses that did include in expansion in terms of retail network and hiring…

[Operator Instructions] Our first question today is coming from Dave Kanen from Kanen Wealth Management.

The first one is in regards to China. I know the government has been working on different stimulus measures, including lowering interest rates. Have you started to see an inflection there where things have bottomed and they're starting to turn up?

So let me comment on China because I feel equipped. Dave I spend, I believe, three months out of six in China. And some of those actually we were really visiting stores. So I visited the 70 stores. Our fair share of those are in what we call furniture mall. So you have to imagine, what in U.S. can be a department store, but floor by floor it contain all the different category of furniture. The traffic is still very low. So China is still a market that need to find its way to full recovery. I believe you are very deep in a global, let's say, insight. You have witnessed what happened to Evergrande. You're witnessing what's happening to other firm much larger than us, carrying reported 30% loss of Gucci in China. So for durable, you can imagine it's even more sensitive, the lost in spending versus fashion. So long story to say what for Natuzzi Editions, which is more our affordable brand, we see a kind of initial symptom of rebounds. For Natuzzi Italia not yet. And we're working really to use the best of this Milano Design Week as a way to reengage with our key dealer. So as we are confident that the strength of Natuzzi in China will definitely pay off, because we are by far the largest distributor company. Our competitors have few dozen stores. We have 350 stores. So we're highly confident China would be a strong upside. The exact timing when this will become strongly visible on our P&L is still uncertain in term of weeks and months, because really of the macroeconomic and consumer environment in China.

And then, in the rest of the world, especially North America, have you started to see stabilization or with written orders a little bit of an improvement to start 2024?

So on North America, we do see definitely sign of improvement when it comes to performing area of the business. They are performing stronger in 2024. We are still dealing with a tail of overstocking of the channel. But let's say compared to China, I think it's legitimate to expect a faster rebound of business in U.S. than in China. We also, as we speak Mario is in U.S. Again, we are really having a close eyes on what we can do to better support our team. Basically starting from today, but with a peak in the rest of the week, it will be the high point market for the wholesale branded business, where again, we believe we have a very strong and compelling offer that we're bringing to the market. On the retailer, we're working one-by-one to bring quickly at regime the new opening on the historical stores, performance are definitely improved. For instance, I didn't mention it. But if we take the first three stores in term of productivity, but the same can be to the first 10 stores in terms of productivity in North America. And you compare it to 2019, the like-for-like improvement in the range of 50% if we take the top 10 store and 70% if we take the top three stores. So means that in three, four years, we've done a huge step in them of being able to managing stores in U.S. The first three stores now they were pacing at EUR4 million and above per year. So definitely, there is a -- if you look at across cycle a very, very strong trend of improvement that we did in North America.

Yes, I'm a big believer in you guys expanding your North American footprint and becoming vertically integrated. So to that point, I know that you have some non-core real estate up for sale in specifically in High Point and in Italy. Assuming that those assets are liquidated or that capital comes back to you, will you be redeploying that capital into expanding your North American footprint? Because it seems like you get the most bang for the buck there.

The answer is absolutely yes. So, I think it's important to share with the broader audience. We discuss the sales of non-strategic assets which include High Point, which include a tannery in north of Italy and some other minor asset that the company has in the board for approval. And in the board it has been agreed that in currency with our long-term strategy the priority for potential disinvestment will be reinvesting in North America retail. The other priority will be supporting our long-term transformation. So in our mind, the way to create value for our shareholders is very clear. The board is absolutely aligned with us, and we are not deviating for one by the year for from that journey. The way in which to create value is retail, especially in North America and to reduce the cost base of our factory in Italy. So, Dave, if we have additional funding, those are the only way we're going to be redeploying those funding.

Thank you for that clarification. And then in regards to the 514 person headcount reduction and the $22.5 million savings, does that number primarily show up in cost of goods sold going forward or is some of it in selling expense?

It's a combination, but I'll let Mario and Carlo comment more precisely. In particular, workers getting the cost of goods sold where account goes in service. But I will let Mario and Carlo, I believe each of you can be precise in answering.

Now as you said, Antonio, obviously, we are improving our contribution margin -- first contribution margin being more efficient in the factory. Obviously, we are also reducing our central staff and that will have an impact -- positive impact also in our G&A in the next few years.

But just to tell you, the investment the company did over the last 20 years and this restructuring really change the ability of doing EBIT and cash conversion. We just need as a precise comparison versus different tier that have the same top line that we report in 2021, 2022, and the company lowered its breakeven of about EUR150 million to EUR100 million, really because there's a better mixer because it's selling brand instead of unbranding, but also because of all these tough work of reducing the cost base and the accounts. So now we need really to focus on sales. If we reach, the sale we aspire or Alpha the sale we aspire, there will be huge, huge upside from an economic standpoint, a return standpoint from the investment.

Antonio, just to be more precise, we have only EUR1.1 million that we are impacting on administrative expenses and selling expenses, all the rest in the cost of goods sold.

One more question before I go back into the queue. Carlo, if I could ask, let's say over the next two years we add 15 or 20 new direct operated stores here in North America. In theory that would give us about $15 million to $20 million incrementally per quarter of revenue. That would give us about roughly $65 million to $80 million a year at $4 million average unit volume. At $90 million to $100 million in revenue with the headcount reduction, some of the investments in automation at the factories at $90 million, $100 million a quarter in revenue, would we achieve a 40% gross margin or better?

May I Antonio or you?

The question was with you. But David addressed directly with to you and your capacity of CFO. Then I'm very happy to comment.

Yes. Let's say that we are going in this direction in terms of improvement of margin, of course, adding more how to absorb better the fixed cost. So, of course, 40 is where we are going towards. If we add those sales and even more if we.

And again, Dave, we don't provide guidance but at this point, I think it's fair to do some high-level modeling. On our integrated sales for Natuzzi Italia, we have a contribution margin -- integrated contribution margin, which means the producer plus the retailer of 65, 68 with the current sales productivity. So if you, of course, build a $100 million with that productivity and that marginality, by definition, it would be north of 40, because we're already targeting 40, let's say, in a sense, let me say, organically, which means with the same structure of business.

So it sounds like we're well positioned during the next upturn. Hopefully, the Federal Reserve here in the U.S. cuts interest rates and we're starting to see somewhat of a bounce in housing, there's more inventory. So we'll keep our fingers crossed that this spring things start to improve.

[Operator Instructions] And if there are no further questions at this time, I'd like to turn the floor back over for any further or closing comments.

I do my closing comment and then, of course, I invite Pasquale, who is the person who creates the company. Who is the person who's going to celebrating 65 years with it for potential final remark. Listen guys, for me the story is very clear. Tough year but we know what we are doing. We're very committed and very confident on the upside. This company is very different. You're investing in a brand retail company. The awareness of this company is really strong and terrific. I don't do any valuation on our, let's say, market evaluation but I believe there is significant upside in it. And thank you for being with us as investor. Thank you for being with us today as a participant in this call. I'll let Mr. Pasquale, our Chairman to do any final remarks if you wish.

Okay. Antonio, thank you very much for the way we have been explaining, you know, what we are facing. The same Diego Babbo and also Carlo, our CFO and our Human Resource Manager. I feel very much confident about the management today. And even in this difficult business environment, war in Ukraine, war in the Middle East, consumer confidence is very low. I mean, we believe very much in what we are doing and we are very much confident, obviously, about the future. I thank you very much, everyone, for attending this conference call. And we hope we will, obviously, we are very much committed to delivering to all of you but dear shareholder, the better result certainly. Thank you again.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Thank you.

Thank you.