Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi Fourth Quarter and Full-Year 2018 Conference Call. At this time, all participants are in a listen-only mode. Following the introduction, we will conduct a question-and-answer session. Introductions will be provided at that time for you to queue up for questions. Joining us on today's call from the Natuzzi store in Milan are Natuzzi's Chief Executive Officer, Mr. Pasquale Natuzzi; the Chief Financial Officer, Mr. Vittorio Notarpietro; Mr. Nazzario Pozzi, Chief Officer of the Natuzzi Division; Mr. Gianni Tucci, Chief Officer of the Softaly Division; and from the Natuzzi headquarters, Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I would now like to turn the conference over to Piero. Please go ahead.

Thank you, Arnam. Good morning to our listeners in the United States, and good afternoon, to those of you connected from Europe and Asia. Welcome to the Natuzzi's fourth quarter and full-year 2018 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 upgrade or revise any forward-looking matters discussed during this call. And now, I would like to turn the call over to the CEO. Please, Mr. Natuzzi.

Good morning, everyone, and thank you for participating in the Natuzzi conference call. As already communicated last November, the first nine months of 2018 were very difficult for us due to the important issues we faced in the supply chain. This explained most of the operating loss of €15.2 million we reported at that time. We have reacted to that and reinforced some key management position, particularly in the operation, with professional coming from primary industrial players. In particular, we had these new hirings, and they are, indeed, Mr. [Aldo Anarti] with an extensive experience in aerial space industry as the Chief Process, Innovation and Product Development Officers. The operation department is now led by Mr. Antonino Gambuzza with the 25 years of experience in manufacturing and engineering industry as the new Chief Operating Officer of the Group. And we have Mr. Umberto Longobardo with the deep experience in the fashion industry as the new Chief Quality and Customer Care Officer, and Mr. [Paolo DiMaggio] from the automotive industry as a new Global Procurement Director. We immediately started working together, checking a list of the KPIs on a daily basis, and the first improvement is scheduled to arrive almost immediately during the fourth quarter of 2018 and that confirmed in the first month 2019. This has lead to a better and efficient programming and quicker delivery of our products. So we didn't have delays in the production and the invoicing process, as occurred in the past. Furthermore, the strict collaboration among managers as also lead to finding a new solution to further improve the overall supply chain process. The senior management is in place. I am extremely confident about the contributions that can derive from the job and recovering efficiency. We also hired a new Human Resource Director from primary…

Thank you, Mr. Natuzzi. Let me give you, our listeners, some more numbers about this year and the last quarter. Let's start explaining the impact on the Natuzzi 2018 full-year profit and loss deriving from the joint venture agreement signed last year in China. On March last year, Natuzzi signed a joint venture and share purchase agreement with one of the leading players in the upholstered furniture in China, which is the KUKA Group. Such agreements aim to expand Natuzzi's retail network in China, Mainland, Hong Kong and Macau, providing for the contribution by Natuzzi of exclusive distribution right to perpetually use the Natuzzi Italia, Natuzzi Editions trademarks into one of Natuzzi's Chinese subsidiaries, whose name is Natuzzi Trading Shanghai. And our total investment of €65 million to sustain the expansion of the Natuzzi retail network in greater China by means of the acquisition of the stake in Natuzzi Trading Shanghai Limited. Following such agreements, finally executed on July 27, last year, Natuzzi has lost control of the formal wholly-owned subsidiary Natuzzi Trading Shanghai, in which each of Natuzzi and KUKA Group now owns a 49% and a 51% stake, respectively. In accordance with IFRS 10, at the date, when control over Natuzzi Trading Shanghai has been lost, which is July 27, 2018 Natuzzi has, one, [derecognized] [ph] assets and liabilities of Natuzzi Trading as the [carrying] [ph] amount – for total amount of net assets of €2.6 million; two, recognize the fair value of the consideration received from KUKA for a total amount of €65 million, out of which €30 million represented the consideration received by Natuzzi for the transfer of 23.5% stake in the subsidiary, while €35 million represented the subscription by KUKA Group of Natuzzi Trading Shanghai capital increase resulting in KUKA acquiring an additional 27.4% stake…

[Operator Instructions] We will take our first question from Garrett Larson from Kanen Wealth Management. Please go ahead.

Hi guys. Thanks for taking my question. My first one is you mentioned a $6.9 million cost in OpEx. So on a go-forward basis, what should we expect OpEx to be? Number two, it looks like you had a one-time expense impacting gross margin. I think it was €5.6 million. Can you just quantify that? And then going forward, should we expect gross margin to get back into the low 30 percentage range? And then I just had one follow-up after that. Thanks.

Okay. Let me be more precise. The €6.9 million restructuring cost is the sum of €5.6 million in the operations are in the cost of goods sold plus €1.3 million in SG&A. The total is €6.9 million. This was linked to a set of you know that was closed in December 2018 in order to incentive people to lay the company, to lay off the company. We incentivated about 60 people by the end of last year, and we accrued another €1 million that we want to spend this year in order to reduce the cost in the – in our structure [indiscernible]. Going forward, I have to come back to the plan that Mr. Natuzzi has claimed to the agreement that Mr. Natuzzi claimed a few minutes ago. We have one third of our workers in Italy that are redundant versus the Natuzzi Italia today overflow. With this agreement for the next foreseeable future, we will reduce this redundancy by the sustain of the Italian government. So that's the plan for the redundancy cost. As far as the gross margin is concerned, of course, we are aggressive this year in terms of improvement of our gross margin. Let's say this way. If you can see the Q4 2018 net of those, let me say, restructuring cost, the gross margin is already in the area of 32% instead of the reported 28%. That's more or less the goal we have in mind for the full-year in 2019.

Thank you. And then one more on KUKA. Do you expect KUKA – the KUKA deals are contributed to revenue this year? Or when do you anticipate that? And then, what are the anticipated increase in China store count for KUKA year-over-year?

That’s a great question. This year, obviously that we are starting with them, but they are of course 2019 we are still fine tuning some of the operational steps in order to let the JV, joint venture work, but we planned that the – of this company approved which is the basis of the agreement is very aggressive for the next year. So just in 2019, they have a goal to open in China additional 60 stores and they are – normally they are quite on time with their plans.

Great. All right. Thank you. That’s all for me. I’ll jump back in the queue.

You are welcome.

We take our next question from Giovanni Danisi from Seeking Alpha. Please go ahead.

Hello, guys. Good afternoon. First of all, correct me if I'm wrong, but I think that this quarter and the quarter to come, the two, three quarters to come probably, will be quite challenging in [indiscernible], so last year, you sold to China directly and China accounts for I think around 10%, 15% of your net sales. And this year, you are selling to China – through your joint venture – you are actually selling to your joint venture with a markdown probably. So dependingly from the markdowns from discount to which you sell to the joint venture, you all say China should be – more than last year, so this could be quite difficult to compare the quarter. So because we are – we don't have kind of apple-to-apple comparison. So I think that basically it should be a little bit more of what they appear in sales. Correct me if I'm wrong. And also I would like to know if I got it good. So you have signed a fair value of around €48 million to the joint venture you said, or I didn't get it good. So – and another one is about this 60 stores that KUKA is planning to open. And these 60 stores will be directly operated stores or just franchisee? Thank you.

Regarding the opening of the store, approximately, we expect in China to open 50 franchisees and 10 would be operating directly from the company. Okay.

Thank you.

Giovanni, hi. Yes, €48 million is the entire fair value of the 49% of the company in China. Yes, you got precisely. About China, apple with apple, you're right because price is different in the two years. So this year, we will exercise in order to explain better to give the best representation. But let me say something about the structure. While they consolidating the business, we also they consolidated the cost of the structure. So don’t see just sales but also the impact of minor cost on the structure of the company. One, as far as the Natuzzi Italia is concerned, yes, there is a different calculation in the agreement I mean the price. But as far as contribution margin is concerned, we are still there with very positive contribution margin of Natuzzi Italia, [indiscernible], shifted to the JV and partnership also. So yes, we obviously – we have reduced a little bit in the company price. But at the end, the name of the game is the 60 stores that this year and the other stores that kind of people in China, we’ll be able to open in the next years, so volume is what we need in order to leverage the Company. And that's why Mr. Natuzzi agreed to this joint venture agreement because we understood the need to have a Chinese partner in order to accelerate volumes in the midterm.

Thank you very much guys.

Thank you.

[Operator Instructions] We take our next question from [indiscernible]. Please go ahead.

Yes, thank you. [Indiscernible] questions have been answered. Thank you.

[Operator Instructions] And we just have a question. We take our next question from Michael Feder from Feder Group. Please go ahead.

Michael?

Good afternoon, gentlemen.

Good afternoon to you.

I don’t actually have a question. I just want to make an observation. As you know, I follow the company very closely and I continue to believe that your transformation to a lifestyle brand, your focus on mono-brand retail, which you can control, your focus on only those private label customers that will be profitable is exactly the direction that you should be going. I remain very hopeful, as do we all, that the economy will help us all see the results of those actions in the near future. But I commend you all on your strength and conviction to move forward during these tough times. So thank you.

We appreciate that you share our strategy. Thank you, Michael.

[Operator Instructions] We take our next question from Giovanni Danisi from Seeking Alpha. Please go ahead. Your line is open.

Yes, just one follow-up, if I can. Maybe you would like to speak about to add some color of the – about the performance of your Natuzzi Editions wholesale operation in the fourth quarter. That came in, I think, worse than expected. There was some particular challenge there maybe or it was a problem of difficult comparison or maybe, I don't know, other environmental problem for the fourth quarter that have been difficult all over the world for all companies, actually. And because actually, for what I can see, both sales operations of Natuzzi Editions, the performance even worse than Softaly in the fourth quarter. So this is kind of surprising. So maybe you could add some information about it. Thank you.

Let’s take the opportunity to update all the shareholders and the listener regarding an updated way of interpreting our business. Before we need to have Natuzzi Italia and Natuzzi Editions, in Italy we have Divani&Divani, it’s a chain of store Divani&Divani by Natuzzi and then Softaly which was pure retailer, no, pure wholesaler, I’m sorry – pure wholesaler for I mean big guys, big distribution, okay. Today, because retailer represents almost 50% of the business, so we dropped Softaly. We have just retailer division and retailer collection which is separated from the wholesaler collection. We have two collection. Natuzzi Italia is made in Italy. Then we have wholesaler collection is made in China, Brazil and Romania. And in wholesaler, we have multi-branded store that we supply product and they have gallery inside, there is a space brand for Natuzzi, and then we’ve also – we distribute the products to pure wholesaler. Again, the division retailer, which includes Divani&Divani which is comparable with Natuzzi Editions is performing well, the store, the mono-brand store. The wholesaler, because of the competition, the price pressure and the margin, we are intentionally refocusing a little bit in order to focus our – and dedicate our energy primarily on the retailer, which is what really gives us – is giving us a good response, good result. So do we have Vittorio here, the numbers? I mean so it would – the last quarter, Natuzzi Editions, let's say, which is primarily wholesaler, except for China and Brazil where we have a store and now we’re just started to open the smaller very successful store in United Kingdom of Natuzzi Editions. A big part of the business in the Natuzzi Editions is wholesaler, and probably – not probably, I'm sure that our wholesale business is not performing well, but that's because we don’t want to accelerate - to reduce our margin. I mean, we are not willing to work with low margin, with the price pressure. Did I answer your question?

Yes. So just to – for a better clarify, so is it kind of intentional, intentionally choice like to reduce the volume of the wholesale part. No matter if it is Softaly or Natuzzi Editions or Divani&Divani?

Divani&Divani and Natuzzi Editions retailer are the same, just the logo – just, I mean the name of the distribution is different. But again we have the two – we have a factory and collection dedicated for the retailer and the wholesaler. Within retailer, we have Natuzzi Italia and we have Natuzzi Editions, which is the equivalent of Divani&Divani. We are trying to simplify the understanding of our business. We are retailer and wholesaler. We used to be 100% Wholesaler Company. And 50 years ago, we transformed, as I said in my speech, from a manufacturer company to a large size brand. New investment also in the retail division, and today we realize that the future of the company is just retailer in order to get the return on the investment that we've done on the brand and on the learning curve of the retailer.

Okay. Thank you, Mr. Natuzzi.

Welcome.

That concludes today's question-and-answer session. I would like to turn the conference back to our host for any closing remarks.

Yes. Thank you, Arnam. So it seems that there are no further questions. Therefore, this concludes our conference call today. Please, as usual feel free to contact us should you need further information. Thank you and have a nice day. Good bye.

This concludes today’s conference call. Ladies and gentlemen, thank you for your participation. You may now disconnect.