Good day everyone and welcome to the Natuzzi Fourth Quarter and Full Year 2017 Conference. 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 from Italy are Natuzzi's Chief Executive Officer, Mr. Pasquale Natuzzi; then Mr. Nazzario Pozzi, Chief Officer of Natuzzi Division; Mr. Gianni Tucci, Chief Officer of the Softaly Division; the Chief Financial Officer, Mr. Vittorio Notarpietro; and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Piero. Please go ahead.

Good morning to our listeners in the United States, and good afternoon to those of you connected from Europe. Welcome to the Natuzzi's fourth quarter and full year 2017 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 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 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 Executive Officer, Mr. Natuzzi, who together with officers of the Natuzzi Division, Nazzario Pozzi and Softaly Division, Gianni Tucci is now in the USA to take part in the High Point furniture market. Please, Mr. Natuzzi.

Thank you very much Piero. Good morning. I would like to emphasize that despite the disappointing financial result, we are encouraged by the first progresses we see from our investment in the huge transformation of our company from a pure manufacturer to a retailer company. 2017 net core sales were €421.6 million, down 2.3% as compared to 2016, but with different result within our main divisions. In fact, private label experiences declining sales, while the Natuzzi branded division showed positive results in particular in the directly operating stores. Our directly managed retailer division, which includes Natuzzi Italia, Natuzzi Editions and Divani&Divani continues to grow globally and in 2017 represented 13.4% of our core business compared to 10.4% 2016 and we are continuing to expand this network, having organized four new store ready in 2018 with 10 more planned during the year. US sales in 2017 increases by 26% to €53.1 million in 2017, within such numbers we’ve se Natuzzi Italia in United States growing the fastest. Total tickets in our retail division grew by almost 20% year-over-year and our average ticket size increases by almost 10% demonstrating the value of our investment in product merchandising and brands. Most of our new stores has been opened in North America and Europe. Last month we announced a joint venture with Jason Furniture, name as KUKA for the aggressive expansion of our distribution in China. One of the most exciting markets of our product and brand obviously. Together with our partners we will open significant number of store over the next year, which we expect that will accelerate our growth into furniture market in China. 2017 our wholesaler branded revenue declined its sales by 2.5%, but within the branded division our Natuzzi Italia wholesaler business grew by 8.4%. 2017 Softaly showed declining revenue,…

Good morning. Thank you, Mr. Natuzzi. 2017 full year net sales were €449.6, down 1.7% versus previous year. Under constant exchange rates, net sales would have been flat. It has been a very difficult year with disappointing results. But let's go deeper in those results. In 2016 the company displayed a small operating loss of €0.4 million, while in the full year 2017 we reported €29 1 million operating losses of which €9.3 million accrued for legal proceeding risks as a consequence of the Supreme Court judgment. €2 million extra costs for the re-employment of 168 workers which now are under the subsidized program called solitary deck, €2.6 million in one-time staff reduction costs which will give at regime an annual saving of about €3 million, €3.4 million of from foreign exchange fully recovered with hedging activity and accounted below the operating margin. 0.6 for bad debts deriving from financial problems of some of our client in USA and Italy. And finally 8.1 million increase in SG&A related to retail which grew at 25%. Reported numbers are what they are and we are not pleased with that of course. But excluding all such events, we would have had 3.1 million operating loss from continuing operations. As you can realize on this pro forma basis we are not far from breakeven at the operating level, which the company achieved already in 2016 fiscal year and again represent the management goal for 2018. Let's talk more of about SG&A which impacted operating margin for a total of €11 million in 2017. As you know the company has been building its growth plan mainly on the expansion of its mono brand Natuzzi stores network with a specific focus on those directly operated by the group. Let's say DOS. To better explore the potential…

Thank you, Vittorio. Good morning everybody. So as Vittorio said it would like to give you some details about the key drivers of our growth and profitability, the direct retail but also our franchise business. In the first quarter of 2018 the like for like sales of Natuzzi Italia direct retail are up 6% against the same speed of the last year at constant exchange rate and this growth is being driven by United Kingdom first 17% up against last year at constant exchange rate by Switzerland 13.5% up against last year and Italy 9% up against year. The total sales of all Natuzzi Italia direct stores including the new openings are up 16.7% against last year at a constant exchange rate, whereas the total sales of all direct stores including all brands Natuzzi Editions are up 9% against the same period last year. And this is driven mostly by the United States which is up 26.2% against last year at constant exchange rate. With -- our Natuzzi Italia flagship stores are showing a continuous growth. The best performance stores which is our flagship store in London, Finchley Road, is up 39% against the same period last year at constant exchange rate. The second store in London, second flagship Tottenham Court Road is up 31% against last year. Our flagship store in Milan, Via Durini, in the fashion design district is up 20% against. Madrid is up 8% against last year and also the [Zurich is up 5% against last year. At the same time, the new Natuzzi Italia openings in the United States with the right locations in our -- in that merchandising concept are proving to be up to speed much faster than expected. In the month of March 2018, the latest openings, which are Philadelphia, King of…

Good morning. Thank you, Nazzario. Softaly out of private label business, which is distributed through Natuzzi’s worldwide network has grown in line with our forecast for EMEA and APAC during 2017, but they suffered from adversary sale conditions in North America. The positive experience during the October 2017 market at the High Point Furniture sale as well as the March pre-market 2018 confirms our that we have introduced the right product at the right price point to help recover position in this very important market. Solid business partnerships are continuing to grow with the existing accounts and bringing additional strategic partnerships already in progress with tangible results which would certainly be confirmed by the quick addition of other targeted key accounts in the next week. The party has had the main focus to realign our organization and appoint to the right people to manage all aspects of this globally. I need to reiterate the highlights given earlier by my colleague Vittorio, as we have reviewed our operations and market and have developed a specific strategy to rebuild these important business, in particular we are focused to the following actions confirming the competitive sustainability of the Softaly business through the rationalization of the collection, the range nearing of our dedicated industrial platform and the appropriate procedures to satisfy the key accounts needs and timing to create and deliver the deserved quality of product and service. The impact of those actions combined with the efficiency are realized in our Romanian factory will enable further efficiency for Softaly in EMEA, adding new strategic accounts has already happened during the past Cologne fair 2018. We are extending the same business approach to the Shanghai plants, serving both the North American and Asian Pacific market where we expect to grow double digit this year versus 2017. We are taking similar actions to focus on recapturing our position in North America. We have chosen to redesign our product, offering platform and not compete solely on price. This is in line with the Natuzzi's overall effort to return our company quickly to profitability, confirmed by encouraging results. ‘ Thank you for your attention And I now pass the word to Mr. Natuzzi, again. Pasquale

So, we hear altogether to listen to any kind of question.

Thank you. [Operator Instructions] And we'll first hear from David Kanen of Kanen Wealth Management.

Good morning. Can you make clear for me from the KUKA deal that you signed, what's the total amount of cash that you'll receive at closing?

Okay. This is Vittorio. They are investing €65 million in total. At the end €45 million out of €65 will be paid to Natuzzi S.p.A. and €20 million will stay in the JV vehicle in order to finance the development of the business.

Okay. And then in terms of the development of the business will there – what will be the effect on your operating expenses going forward. And will there be a transition period where initially your operating expenses will be higher and then in the future the revenues will start to flow? If you can just explain to me what will happen as it's rolled out?

Okay. Just to clarify. Today, the Natuzzi Shanghai vehicle is already profitable. So we don't have today any kind of SG&A problem over there to deleverage. But we are losing opportunities because the timing and capability to open -- to accelerate. the business plan. At the end of the deal KUKA will control 51% of the JV while Natuzzi will have 49% but Natuzzi will continue to provide the JV with its plan and production. So we will have the full impact of the wholesale level 100% in the hands Natuzzi S.p.A. and the consolidated numbers. And we will have a 49% at the equity level in the JV. So we will get 49% in our equity of the future results of the JV. They will consolidate integrally line by line, we will consolidate earnings at the equity level.

Okay. So in terms of your SG&A there really will not be any impact it will – as on the manufacturing level whatever revenues there are in the joint venture you'll capture that, is that correct?

We have – no, no, its not. We have more than 100 fixed costs in our company. The fact that our plans both in Italy and China will be able to produce more products, this will leverage the existing fixed cost, including SG&A of the entire group.

Right. What I am saying though is in your consolidated results, forget about the joint - the 49% JV line on your income statement - on your income statement. Will there be an increase in SG&A related to the KUKA rollout?

I understand your question, we will not consolidate the retail sales, okay, the delta sell out.

Okay. So it will benefit your income statement in that whatever sofas and furniture that you produce for the JV will show up there on the industrial level correct?

Yes, correct. And also you know the general expenses of the - other general expenses including the fixed cost in our industrial platform which is huge.

Okay, understood. And you made reference to some savings, in particular I guess the settlement of the labor agreement, it looks like you took back those employees, but there's some kind of - there was some kind of negotiation. Can you quantify for me in 2018 what the savings is going to be in particular from labor? And then if there's any savings in any other line items within SG&A for 2018?

We mentioned in accrual of 2.6 million labor costs and we mentioned that at regime the full impact will be around 3 million, it would be 3.2, this year we will have a portion of that in the region of 2.7, 2.8. And this is for labor costs that we have already restructured in the company. But then at the same time we transformed some of our fixed cost in some commercial companies within the group from fixed to variable cost and this will lead the company to leverage you know on a smaller basis of fixed cost.

Okay….

I have also - I’ve also added that a portion of those savings will be reinvested in those markets in specific managerial position that we know we need to be reinforced in the coming months.

Okay. I'll go back into queue. Thank you, guys. Good luck. Sounds like you're going to have a very good balance sheet by the middle of the summer. Thank you.

Thank you, David.

[Operator Instructions] Sophia Lee of Mus Asset Management [ph].

Hi. I just have two questions regarding the JV. First of all could you explain how the – how the products are going to be sold with KUKA, like are there going to be - is this going to be a store within a store concept or is KUKA going to be selling your products on their website? And then my second question is just - do you have any long-term plans for this JV in terms of number of stores or revenue and margin?

Okay. This is Natuzzi. So as already Nazzario and Vittorio explained it, in China we have two companies, okay, in Shanghai – based in Shanghai, we have Natuzzi China which is a manufacturing company owned by a company by Natuzzi. It's almost 1 million square foot factory and we employ 1200 people. That factory manufacture product for the Natuzzi Edition domestically for China and even for Asia Pacific and for North America. While the factory manufacture also Softaly for Asia-Pacific and for North America. Then we have Natuzzi Trade, it’s a company where we have been - we made that the joint venture with KUKA. We sold to the KUKA 51% of the Natuzzi Trade [ph] that employ approximately 120, 130 people to manage the domestic business and even Asia Pacific business. Today Natuzzi Trade in China we have 10 DOS Natuzzi Edition and we have 90 franchise store that Natuzzi Edition and then we have 50 Natuzzi Italia store franchisee. So the DOS and given the franchised store goes together with the Natuzzi Trade management in the end the company. We have a plan to have in China really represents a huge opportunity. We are there since now almost 20 years. We have a very good brand, very high brand awareness. We expect to open many, many, many stores, okay. I mean, we have a significant growth plan for China.

Okay. So – right so I think just to clarify to make sure I really understood, so what you're saying is that you're still going to be producing but you basically all of the management of the sales is going to KUKA, is that correct?

Yes. 61% goes to KUKA.

Okay. Thank you.

You’re welcome.

[Operator Instructions] And it appears, there are no further questions at this time. I'll turn the call back over to our presenters for any additional or closing comments.

Sure. Thank you very much to the attendees of this conference call and for any further requests we will be always available at our headquarters office. Thank you again. Good day to everyone. Thank you.

That does conclude today's conference. Thank you all for your participation. You may now disconnect.