Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi Conference Call for the Third Quarter and First Nine Months 2024 Financial Results. As a reminder, interested parties can join the call live via telephone by pressing +1-412-717-9633, then passcode 39252103# in addition to the link already provided to join via the webcast. Once again, if you'd like to join via telephone, please press +1-412-717-9633, then passcode 39252103# in addition to the link already provided to join via the webcast. At this time, all participants are in a listen-only mode. 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 on today's call are Mr. Antonio Achille, Natuzzi's Chief Executive Officer, Mr. Pasquale Natuzzi, Founder and Executive Chairman of the Board of Directors; Mr. Carlo Silvestri, Chief Financial Officer; Mr. Diego Babbo, Chief Retail Officer; and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I'd now like to turn the conference call over to Piero. Please go ahead.

Thank you, Kevin. Good day to everyone and thank you for joining the Natuzzi's conference call for the 2024 third quarter and first nine months. After a brief introduction, we will give room for the Q&A 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 Securities 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 Annual Report on Form 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 company's Chief Executive Officer. Please, Antonio.

Thank you, Kevin, for opening the meeting, and thank you, Piero, for reminding our rule of conduit. Good morning for the one joining from Europe and good morning for the one joining from US and good afternoon for the one joining from Europe. As usually, I will provide some background to the number that we share with you. Then I will ask Carlo to provide some more specification on the financial performance and then I will have Diego Babbo to share with us the progress we are doing on the retail front. As you have seen, we closed the first nine months of the year with sales in line with the last year EUR243.9 million. As you know, the sector continues to be facing strong headwinds, and most of the companies which are listed in our sector reported negative sales versus the previous year. When we look at the performance of our branded business, this confirmed to be stronger than the average. In fact, it has been growing 6.3% versus 2023 and 20.8% from 2029 (sic) [2019]. This is really the growth of the DOS and the growth of branded sales confirmed our direction to become a branded retail company. When we look at the, let's say, P&L information, it's important that in reading them. We highlight that there's been, from a P&L perspective, in the first nine months of the year, EUR4.8 million of one-off severance restructuring cost. In reading the P&L correctly, you need to remember that according to IFRS rule, out of those EUR4.8 million, EUR4.1 million are in the cost of sales. So in reading the margin, you have to remember that they include this one-off restructuring and EUR0.7 million is accrued in selling and administration expenses because they refer to severance for a quarter people.…

Thank you, Antonio. Good morning, good afternoon to all the attendees. As Antonio was mentioning, as the corporate retail division at Natuzzi, we have spent the last months addressing key goals. We have focused on completing our guidelines, reflecting our model to elevate the customer experience, and most importantly, ensuring a high level of adoption of these guidelines. Our efforts have also included enhancing the performances of those stores through the implementation of the new store concept, as Antonio was mentioning. Let me share with you no more than three slides that could help me to describe better the scenario. As you can see on the left side, some image of the new store concept for Natuzzi Italia, which has been already adopted in nine out of 39 directly operated stores around the world, and was also committed to invest for future upgrade on the remaining stores. This has been done with the goal of creating a more engaging shopping environment to retain customers through a more environmentally sustainable and less expensive store concept, which is also aimed to highlight our brand heritage and root by reminding through materials and colors of our Apulian landscape where the company is based and ultimately to boost sales and revenues through layouts that encourage higher spending. On the left, we have done, you see the other image about Divani&Divani in Italy, where we have done -- we have been through the same journey of upgrading eight out of 10 directly operated stores in order to develop a cohesive and distinctive store design that not only reflect the brand values, but also set us apart from competitors considering that we are facing fierce competition in Italian land. And also we adopted all set of tools embedded in this concept aimed to increase the conversion…

Thank you, Diego. This again is intended to go beyond what is the, let's say, standard package, which is providing a press release, because we really want you to get to know our management. Diego has been a pillar of the retail transformation we are implementing, he overseas now the full retail business, which includes for us DOS and franchisee. As we mentioned, franchisee for us, our DOS managed by third-party in the sense that we really want the customer to fully have a consistent experience and we also want to help our partner with all the knowledge we have by managing 600 stores. So really want to integrate them. I will pass over now to Carlo, which will provide some commentary on the third quarter and nine month evolution of gross margin and profitability that, as you know, remained for us an absolute priority, which we will continue focusing on. So he will explain some of the dynamic reported more recently. Please, Carlo. Carlo, you're muted.

Can you hear me? Yes. Sorry. So I will give you some insights about the third quarter, starting from our sales. As Antonio did mentioned, it was -- the overall third quarter was affected by a weak business trend during the summer period. But overall, our sales were 0.5 over the third quarter 2023, and with the branded sales that slightly increased in proportion versus 2023. What did change was the mix among our brands with Natuzzi Editions and Divani&Divani that compensated the decrease of Natuzzi Italia. This, of course, had also an impact on our capability of absorption of fixed costs. Now let's talk about the gross profit of 2024 with the major impact. So, first of all, I would like to discuss in detail about the labor costs. If we talk about absolute number, we see an increase of EUR1.8 million compared to the same period of last year. But as already anticipated, the exit of 2,076 people in China due to the closure of a plant in Shanghai and the move to Quanjiao had an impact direct on our cost of labor because we did pay EUR2.9 million of severances. This of course impacted directly in our cost of goods sold. Then what happened in terms of trend. We did also some inventory exit to clear some stock. And in terms of decrease of stock since the beginning of the year, we had a positive impact on our cash of EUR4.8 million. And on top of that, of course, the moving of the production off from Shanghai to Quanjiao had some impact in terms of extra cost during the period. But if we exclude, as Antonio mentioned before, the impact of the severances also for the period, the gross margin would have been 35.7% versus the 31.8%…

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] We have a question coming from Kirby Newburger. Your line is now live.

Yes. I don't know if you can speculate on this, but there is talk that the next presidential administration in the United States is going to implement some tariffs. Do you all have a feel for how that might affect you?

Thank you for the question. I will take it. Of course, we have no way to predict what decision the new administration will take. What I can assure you that we are definitely preparing ourselves for dealing in an optimal way with potential evolution of logistics and tariff. Let me elaborate, because I believe this is an intrinsic plus that Natuzzi has, because it doesn't rely on just one source of production, but is establishing multiple areas really to navigate this circumstance. For instance, we are progressively using Vietnam. And we have a plan starting for first quarter 2025 to open in Vietnam really to make sure this is another platform where we can, let's say, serve geography like US, as we are already doing for large clients. As you know, Vietnam doesn't have any tariff compared to China, to US. Producing out of China, in term of net impact of tariff, we will have a disadvantage with the current duty of 14 percentage points. We'll have to remind that we also have Italy as a production where we might consider if tariff might become an issue to serve certain geography like North America. So I cannot say where eventually the administration will lead to. What I can say is that Natuzzi, given its footprint, is equipped to deal as we did in the past, for instance, where there's been spike in logistics to edge this negative phenomenon by moving production to one plant -- from one plant to the other.

Thank you.

Pleasure.

Thank you. Next question is coming from David Kanen. Your line is now live.

I'm afraid, Dave, you're at mute, Dave. I still see mute. Kevin, is there any way you can unmute Dave? Okay. Now you're on. Now you're on.

Thank you for taking my questions.

I apologize. Sir, it seems like you're having some connectivity issues, David. I do apologize, sir. Please rejoin, David. As you just gave me the message that you're having a little Wi-Fi issue on your end. [Operator Instructions] There you go, David. Please go ahead, sir.

You need to unmute, Dave.

Are you guys able to hear me?

Now, I can. Please go ahead, David.

Now, yes.

Okay. Well, first of all, thank you for taking the time to answer my questions. I have a few, and then I'll go back into queue to allow other people to post questions. The first one, Antonio, is you referenced order flow improvements in Q4 subsequent to quarter-end Q3. Could you just comment on that a little bit? We heard the same thing from RH in their call yesterday. So if you could just give us a little color of what you're seeing?

Sure. So since week, let's say 14, which means the last 13 week, we are reporting an interesting positive trend versus the previous weeks. I will not overspeculate on that, as we didn't do in our press release, because the situation outside still remain, let's say, at least volatile, not to say fragile. So but as a matter of fact, last 10 weeks systematically reported a better performance than the previous one. As you know, we still hoping we discuss about potential evolution of the new administration in terms of tariff. We're still waiting and hoping that there will be specific measure more referred to the real estate or furniture industry because clearly one of the trigger points that we are still hoping to see in 2025 is a steep inversion in the interest rate. Talking about China, China is implementing a stimulus package which has some specific facility also for the furniture and in fact in China as well we're reporting in the last weeks a better inflow of orders. So, Dave, I will not overspeculate, but I thought that was important, as we share very transparently headwinds to also share this initial green spoor that we are witnessing.

Okay, thank you for that. The second question is, you called out specifically the move from Shanghai South and that there was an approximate 30% savings. Can you just remind us of the timeframe, when was that done, and when we will see the impact of that in the P&L?

So the official closing of Shanghai was end of September. And that's the reason why we're discussing it during this conversation on the first nine months, which means that we close our factory. We let go the workers. The Quanjiao factory was already operational with few lines; now it’s ramping up capacity. The figures I was referring in terms of potential improvement, normally we see that a factory takes 12 months to reach a full efficiency. So we should see that materializing during 2025.

Okay. Do you expect -- so what is the impact that you expect on production from China in terms of cost of goods or gross margin? How many, if you could quantify for us, what is the improvement that you expect year-over-year, specifically on that geography to gross margin? Are we talking 100 basis points? 200 basis points? 300 basis points? If you can give us a little more color I'd appreciate that.

Yes. So I do understand that you want to model the different variables. I cannot be extremely precise because when we look to the transformation cost is not only the cost of labor and the rents, that of course are more in our control, but it's also the cost of material and other factors. But I believe, given the latest estimate we have done, we're talking about between 200 basis points and 300 basis points. 2%, 3% improvement.

Okay. Thank you. I appreciate that. And then you spoke again about this new commercial division in particular, Dubai. Could you extrapolate for us over the next year or two, what do you think the size of that opportunity is? This seems like it's potentially incremental to us. So if you could quantify on an annual basis what your internal goals are for this division?

So here I will directionally and transparently tell what we are doing. As you know, we don't provide specific guidelines going forward. We got along this part of our business. So the division has been very recently established. It's really reporting encouraging wins and I will maybe ask later to our president to share what has been his experience of being in Dubai in November. We have definitely a golden vision. We have developed a five-year business plan for the division, which is looking to, as you said, build incremental business on the contract. The trade which is another part of business, which would be developed by this division, this trade is already -- will be accounted in the -- Dave, there is a bit of rebound. If you -- Kevin, why I replay. Can you unmute, Dave?

Yes.

I was at the podium. I cannot control his microphone. I'm sorry. If you could self-mute David while Antonio speaking that'd be great.

Sorry. Just to make sure the answer is clear to you and to the other step by step. So we have established this new division. The business would be incremental. Absolutely, yes. We're looking at a different channel because here we are serving not final customer or architect or designer, but we're doing a material partnership with real estate developer, with hotel, potential with lender from airport hospital. So the space is really huge. We believe that we're bringing really differential capability because we don't only bring the brand. We don't only bring superior product. But I'm really amazed by the transformation to the architectural project that our team of designer has been able to achieve. So I'm very, very optimistic and confident. We develop a five-year business plan including top line cost to support this division. I will not be able to disclose number because we don't give, let's say, guidance, but at the end of the period is supposed to support quite significantly our business with incremental business. If we look at the other company that started this business, Italian company before us, I will name some, but just illustratively, like Molteni and others, they are doing a significant proportion of their business in content business. For us, it will not be the same percentage because here we're talking in the case of Molteni, with 30%, 40%, 50% of the business, almost the majority, because we have 680 stores. So the contract would be an overdrive on top. But I'm optimistic and we're really equipping this division to do a material contribution on our revenue.

Okay. Thank you. So material means at least an eight-figure number, which would be?

It's measured in not 1 million, but it's measured in the next unit.

Understood.

10 million, 20 million, it's kind of a ballpark measure at steady state. Okay?

Okay. Excellent. That's exciting. And then just one more question before I go back.

I'm sorry. The other element I want to mention, one of the parameter we set ourselves is that this division will be margin accretive. So given the bar or what we're doing, the bar for division is to be margin accretive. Also because we have a direct channel of the leadership with the developers. So there's no intermediary. There's no real estate to be paid for those. So the target for this division is to be margin accretive versus the average.

Okay. Thank you for sharing that. That's helpful and exciting. And then last question before I go back into queue. You called out in the prepared remarks that without the restructuring charge on an operating basis, we were profitable, I believe EUR1.3 million on EUR75 million in revenue, which is incredible. And I appreciate you guys, your hard work in terms of rightsizing the business and taking costs out. So on a go forward basis, is it safe to say with the cost savings that we have, that above EUR75 million, EUR80 million, EUR85 million, et cetera that on an operating basis we should sustain profitability?

I mean, you have done the math correctly. We significantly lower our breakeven. We used to be north of EUR100 million. When we started, the breakeven was in the range of EUR100 million, 110 million per quarter. Now the breakeven is ballpark where you correctly mentioned. So of course once you pay the fixed cost, the incremental business will have a much higher EBITDA and cash conversion. So everything which is on top of the figure you mentioned, you should consider with a higher contribution in terms of cash generation and marginality. So I don't want to overpromise anything. I'll just say if we achieve, as I'm confident at one point we will achieve the revenue per quarter that we were using together and that our retail and combo division will deserve the conversion to cash would be very noticeable.

Okay. Well, we look forward to you getting back to 100 million a quarter because it looks like the profitability will be profound. So good luck to you guys. Have a wonderful holiday season and I look forward to our next conversation.

Thank you so much, Dave. Kevin, any other question in the queue?

There are no further questions at this time. [Operator Instructions] It appears there are no further questions at this time.

Thank you, everyone. I will leave the final remark to Pasquale, which is a fantastic partner in this venture because he really is supporting the integrity of the business of the brand while really supporting us to evolve it. So I will leave the final remark to Pasquale. Also, I'm sure he will be happy to share his festivity greeting to all of you. I personally thank you for being committed to us. We're working very seriously, be confident that everyone personally on our team is really highly committed to achieve the results that this company deserve and our investors deserve. Please, Pasquale.

Thanks, Antonio. First of all, thanks to you and Diego and Carlo for the presentation, which has been very, very, very clear. Obviously, I'm always together with you guys, together with you facing all the challenges. I'm very much confident obviously about the future of the company. Despite the challenged situation, economic situation that is around the world, we have been really investing a lot of money and time this year in improving our retailer system division. Our wholesale division, digitalizing, I mean, all the system with the CRM. We created a new product, a new marketing plan that is achieving a very good result wherever the product has been delivered. So again, I can just say, I'm confident that despite the challenging environment everywhere in the world, we are confident that considering our plan, our program, we will improve our business, no question about it. I want to just, obviously, I'm lucky to have a good management team. This is very, very important. And obviously, I also take the opportunity to say thank you very much to our shareholders that still give us confidence for what we are doing and we will do our best to satisfy their expectation. Thanks to everyone and Happy Season, Merry Christmas and wonderful New Year for everyone. Grazie.

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

Thank you, everybody.