Please stand by. Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi Third Quarter and First Nine Months 2019 Conference Call. 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 on the call are Natuzzi's Chief Executive Officer, Mr. Pasquale Natuzzi; the Chief Financial Officer, Mr. Vittorio Notarpietro; and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. And now I would like to turn the conference over to Piero. Please go ahead.

Thank you, Kathie. In just a short notice, together with the Chief Financial Officer and the Chief Executive Officer, we also have today, Mrs. Italia Casalino, who is in charge of the Retail Channel and then we have also Mr. Cosimo Bardi, who is in charge of the wholesale branded channel and then, we have also Gianni Tucci, who is in charge of the wholesales unbranded channel. So, 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 Third Quarter and First Nine Months 2019 Conference Call. After a brief introduction by the Chief Executive Officer and the Chief Financial Officer, 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 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 Chief Executive Officer. Please, Mr. Natuzzi.

Thank you. Good morning to everyone. Despite the unpleasant number that we generated during the first nine months of 2019, which disappoints everyone. But caused primarily by the trade war between United States and China, like still without a solution. The management has taken initiatives aimed to overcome this difficult situation. In fact, I would like to emphasize that the retailer division represented by direct operating store and franchising one the percentage of volume has increased to 49% of the entire business compared to 44% of last year. Within the retailer business, the rollout of franchising store in China proceeds according to the plans. By the end of this year, we will have 240 stores in China, thanks to the 55 new Natuzzi store opened overall in 2019. We will continue to open store in China with this intensity and this will positively support our revenue in that region. In United Kingdom, we have recently reached an agreement with two historical partners for the aggressive development of the retailer business. Within end of this year, we plan to open five Natuzzi retail stores in United Kingdom. The Italian Divani & Divani by Natuzzi store network continues to deliver a positive sales performance and be a profitable. In consideration of the ambitious program, we have for the retail development, recently hired a new Corporate Retail Manager, Mrs. Italia Casalino, who will be responsible in supporting the regional manager for the achievement of their P&L early target and the execution of the retailer business model. The Wholesale branded channel consisting mainly of Natuzzi galleries represents 32% of the total business. The same percentage as last year, the strength of Natuzzi brand has allowed us to limit the volume and margin erosion in America caused by the U.S. This distribution channel is now…

Thank you, Mr. Natuzzi, and good day to everyone. By the end of 2016, we all remember that the company reached positive earnings before interest, taxes, depreciation, and amortization. Then, we experienced a slowdown in sales for reasons already explained many times. And we know all the consequences in terms of profitability. But at least, in the last three years, the company has been capable to improve its direct retail operations to improve its Brazilian operating results to reduce its workforce in Italy and lower its working capital needs. In fact, in spite of lowering sales for the first nine months of this year, earnings before interest, depreciation, and amortization was positive at €0.8 million, little but positive. Even with the poor sales of the third quarter 2019, EBTDA has been only a little negative. Having said that, let me first address two questions we have received from investors during the weekend. First our partnership in China, is consolidated at equity since we just own a minority stake of 49% in that company. So, the cash flow we display does not include any cash got by the JV legal entity of costs. We will start getting cash as soon as shareholders will be in the position and the company will be in the position to distribute dividends. In the meantime, our partners in China continue to grow the business, the Natuzzi retail business and we have got €1.4 million as our share of net profit of the equity method investees. Having said that, let me go through the cash flow in more detail. For the first nine months of 2019, net loss has been €26.8 million. Then we had €22.3 million of positive adjustments for non-monetary costs, mainly for depreciation and amortization plus the profit of the JV in China…

[Operator Instructions] And we'll go first to David Kanen of Kanen Wealth Management.

Good morning, gentlemen. My first question is in regard to Q4. The guidance that you gave for improved results. What do you expect adjusted EBITDA to be in Q4 if we take out one-time charges and so forth? And what do you expect cash flow from operations to be in Q4?

I am sorry that's my microphone. We cannot anticipate so many details, David. We know that the order flow will allow us to make a certain amount of sales, which again will be higher than Q3, but lower than Q4 last year, okay? We know that, we will have single-digits in terms of €1 million loss in Q4 which will be better than the Q3 just displayed. So EIBITDA should be a little bit positive. We don't expect any particular improvement of free cash flow. So, we should be more or less in line with the positive, I would say, results in terms of cash flow displayed in Q3.

Okay. And then, can you speak a little bit to your direct operated stores? At this point, how many new stores do you think you'll have in Q4 in the current quarter openings that you have in queue and then also in 2020? So my question is, ending the year, how many more DOS stores will we have by the end of 2020 versus currently?

Okay. Italia Casalino speaking. So, for the Q4, our expectation is to reach additional 30 shops. So 28 FOS and two new DOS in UK that we are going to open for the – at the Boxing Day. For the 2020, we are consolidating the figures. So we are going to open most FOS than DOS. But in the next quarter, we will give you more details about these new openings.

Can you just clarify for me, FOS versus DOS? What is FOS again?

Yes, sorry. FOS, talking about franchising and DOS we are talking about direct retailer. Our shop, our stores. Sorry.

Okay. So the FOS stores are these – where are these going to be located primarily?

Yes, the so 28 or 11 in China. We have six in South America. One in North America. Three in Italy and four in Europe.

Okay. So you're going to have 28 franchise stores open in Q4.

Correct.

Two FOS stores in England. And then, for 2020, how many FOS stores do you anticipate?

So, to be honest, we are going to consolidating during these days. So, I will give you an exactly number in the next call for the next quarter. I will be provide you exactly also by quarter what we are going to open.

Okay. Alright. Thank you. Good luck.

Thanks.

[Operator Instructions]

Hi, Kathie. This is Piero Direnzo. Okay. It seems that there aren’t further questions at the moment. So, this concludes today's conference call. So, please feel free to contact us if you need further information. Thank you. Have a good day. Bye.

And again, ladies and gentlemen, that does conclude today's call. We thank you again for your participation. You may now disconnect.