Natuzzi, S.p.A.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi fourth quarter and full year 2020 conference call. At this time, all participants are in a listen-only mode. Following the introduction, we will have 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 Natuzzi's Chief Executive Officer, Mr. Pasquale Natuzzi, then Mr. Pasquale Natuzzi, Jr., Chief Marketing and Digital Transformation Officer, the Chief Financial Officer, Mr. Vittorio Norpietro, then Mr. Jason Camp, President of Natuzzi Americas, and 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, sir, go ahead.

Good morning to our listeners in the United States and good afternoon to those of you connected from Europe and Asia. Welcome to Natuzzi's fourth quarter and full year 2020 conference call. After a brief introduction, we will give room for a 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 law. 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 conditions. Please refer to our most recent 20F file 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. I would like to turn the call over to the Chief Executive Officer. Please, Mr. Natuzzi.

Thanks, Piero. Good day and good afternoon to all, and thank you for being present at this conference. It is really a pleasure to be able to communicate and interact with you for an update on 2020 financial results and business trends in general. As you know, we are a global company with factories in Europe, Italy, Romania, in Asia, China and South America, and with distribution network and store at worldwide level. Therefore, we had to face the pandemic at the global level, starting from China in January 2020, until the current lockdown in many European nations unlikely. As a planet, in 2020, we completed the downsides of our factory in Shanghai, reduced the transformation costs, and started the outsourcing in Vietnam to improve margins. We reduced the selling, general and administrative expense, and in particular the cost of labor. In 2020 were 320 million euros. Minus 15.1% compared to 2019, EBITDA was positive for 12.3 million, significantly improving compared with the previous year. Sheds in fourth quarter are 99.9 meters, minus 0.6 compared to 2019, with a positive EBITDA of 7.6 meters, an EBIT of 2.4 meters, with an improvement in the cash generation, on which Vittorio Notarpietro, our CFO, will give you further details. We are satisfied with the 2020 order flow, which was only 2% less than 2019, if we consider the entire year of the pandemic, obviously. In the second half of the year, obviously, the order flow was higher than our production capacity. In fact, At the beginning of 2021, we had a backlog that was of €45 million, higher than the previous year. In the same way, the order flow during the first 13 weeks of 2021 reports an increase of 18% compared to 2020, with excellent performance in all markets. The only exception of South-West Europe, and in particular thanks to the excellent performance of the North American market, for which Jason Kant, our President of Latouche America, would be able to provide further details. It should be noted that as we have not been able to participate in the market fairs during the lockdown, We have used the new technologies to digitalize sales through virtual fairs and conferences, on which Pasquale Natuzzi Junior, our marketing director, will be able to provide further details. I will now turn the conference call over to Vittorio for further details on financials, and then I will be here available for any questions you may have. All right? Thank you. Vittorio, it's your turn.

Thank you very much, Mr. Natuzzi. Welcome and good health to everybody there. In early March of 2020, the international authority declared the pandemic. The business stopped almost in any part of the world and we were immediately forced to make a very difficult exercise for the new cash projection in order to understand under certain and supposed conditions which could have been the cash shortage, the cash needs for Natuzzi in that situation. The result of such exercise done in March was that we would have needed 55 million euros. Fifteen of those millions were immediately given available by our main shareholders. Thank you, Mr. Natuzzi. And then we had to find the rest. In comparison, at the end of the year, in comparison with that forecast made in March, we have been capable in 2020 to find 25 million euro in working capital. I mean trade receivables, inventories, payables, discount or suspension of rents, marketing and traveling expenses, taxis and so on. Twenty-five. 22 million with finance. In particular, in July 2020, Natuzzi renewed a five-year financial credit facility more flexible to be used, and we did. Plus, 8 million by suspending or delaying and partially cancelling capital expenditures for a total of 55 million euro. In fact, the company so far have used only 2.5 million from the credit facility from its main shareholders and have 12.5 still available. Looking ahead of us, what really matters is that the company is still facing the pandemic right now. In Europe, Italy included, the situation of contagion is still difficult. People are in a stringent lockdown regime and commercial activities are still limited. At the same time, Having accumulated sound orders backlog, the main goal in these days is to continue to produce and deliver to our customers worldwide, facing the difficulties deriving from shipping disruption and from a lower availability of certain raw materials. Our production facility in China is currently running well, while in Italy, Romania, and Brazil, we still have to face some pandemic difficulties. What do we do to face that? We are reinforcing at our own expenses the sanitary checks and actions to prevent the contagion and let people feel comfortable in doing their job. As you can imagine, manufacturing is, so far, the first item in our agenda, followed by the daily fighting for shipping and semi-finished goods availability. But, in spite of such pandemic difficulties, Natuzzi has been capable to produce during the first quarter of 2021 better than in the fourth quarter 2020, which in turn, as you know, was better than the third quarter 2020. So, assuming a positive evolution of the pandemic situation, We are working for an improvement of Natuzzi business performance this full year versus 2020. At the same time, we will definitely continue to manage the company, having in mind, first of all, to preserve cash enough to keep it safe. Cash is king more than ever. It's also true that the vaccination campaign has started and now is accelerating. giving all of us a better feeling or at least a better hope for the foreseeable future. Our weekly projection, cash projection, says that available cash will continue to increase also thanks to a new financial facility for additional 5 million euro we have just got a few weeks ago which have been used to finance the additional working capital needs deriving from the acceleration Thank you. Thank you. Thank you. We will hopefully start again this year investing in retail development with particular regard to the key markets and America first. And with regard to North American market, I'm pleased to let Natuzzi America's president, Jason Kemp, to give us more flavor on what's the business situation today in your country. Thank you, Jason, please.

Thank you, Victorio, very much, and Mr. Natuzzi, good morning and good afternoon to everyone in the U.S. and around the world. It's a pleasure to be with you today. I think as many of you know, I joined our passionate team about 18 months ago. I've spent the last 25 years helping home furnishings companies build and rebuild their businesses and and before I share maybe more recent and relevant results, I just thought it would be helpful to maybe give you some perspective and context. You know, again, I joined in Q4 of 2019 and I really spent that quarter listening, learning and mining for opportunities, right? Kind of, you know, going to school on the situation, if you will. The other thing I really wanted to do when I first joined was to set a new cultural tone in the region. And I really have focused my time culturally on six things. One, for us to be curious in the region. You know, study, study hard, think freshly. Two, architect a competitive and compelling vision for who we want to be and how we will compete. Three, build a formidable team. Four, recapture the soul and spirit of the Natuzzi brand in our region. Five, focus on fewer, bigger ideas. And six, but maybe most importantly, play to win. I think in many ways in our region we had been too comfortable losing. and we have recommitted ourselves to playing to win. In the first quarter of 2020, my second quarter, we spent all of our time and energy rebuilding and reorganizing the leadership team, marketing, merchandising, wholesale sales, retail stores and store development. And then, of course, very quickly in Q2, we experienced a very hard shutdown and with no e-commerce and no real way to sell digitally, the shutdown for us was much harder than maybe one of our other U.S. retail competitors. Immediately, furloughs, salary cuts and maybe more importantly, time to think. I think in retrospect, maybe this time to think was a blessing for our team We are on dozens of video calls, essentially laying the groundwork for our turnaround. Spent hours and hours on talent, merchandising, stocking programs, marketing, and store growth strategies. That kind of takes us to Q4 and maybe even this quarter of Q1. I'll share a few results. All of them will be in U.S. dollars because that's what I live in, all focused on order flow, not net sales, just for clarity's sake. Today, and year to date, our region represents about a third of the company's business. As most of you know, we have about 20 retail stores in the region across both brands and both company-owned and independently-owned stores. My comments will focus on the 13 Natuzzi Italia stores we operate ourselves. So in Q4, after a few months of being open, we really began to see signs of increased momentum in both the wholesale and retail channel. Order flow for the branded wholesale side of our business was up 39% in the fourth quarter. And our Natuzzi Italia Retail Stores, those 13 I mentioned were up 28% over last year. So we ended the fourth quarter very pleased with ourselves. And what surprised us honestly was what began to happen in the first quarter. And our further momentum really has been confirmed. Branded wholesale growth grew 67%. Although not completely fairly comparable, it gives you some indication of an accelerated pace of growth and at least continued growth. And maybe even more importantly, our 13 retail stores grew 124% over the prior year. Again, not completely fairly comparable based on last year's but you get a general sense that our growth is accelerating, not in decline right now. And maybe even more helpful, in our retail stores, our Q1-21 volumes grew 29% over Q4. So our sequential growth quarter over quarter grew 29% in our retail group, which we're incredibly proud of. When I look into our history for our retail group, in 2018 and 2019, our best five to seven stores were averaging about 2.5 million. Today, as we sit here in Q1, if we annualize our Q1 volumes, our best stores are pacing at 4 million. We, you know, as I mentioned before, we have about 20 stores in the region across both brands and company and independently owned. We're working on opening six to seven new stores across both brands and all types of ownership this year. And we are working very closely with our HQ partners to get e-commerce live in the back half of 2021 in the United States. It'll take time to be financially significant but it's still an important symbolic advancement for our group to be able to begin to sell online and have stronger digital tools at our fingertips. I'm sure many of you have questions kind of about our multi-year growth plans and growth strategies, and we're really not prepared to answer those on this call, but we are looking forward to sharing those in probably a more purposeful communication later this year. And with that, thank you again for allowing me to join you guys today.

Thanks, Jason. Good speech. Very clear division and strategy. Thank you.

Question? And at this point, if you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Again, that is star 1 if you'd like to ask a question. We'll take our first question from David Kanin with Kanin Wealth Management.

Good morning. Good afternoon. Thank you for taking my questions, and congratulations. I know that Europe has been affected. has continued to be affected and is behind North America in terms of the vaccine distribution and things starting to return to an opening state. Could you give me color specifically in your largest European market in the UK? Have you guys looked at data when they have not been in lockdown, when things have briefly reopened for a period of two, three weeks? Can you tell me Give me some color indication of how the sales have done during that period so I can potentially apply that to the future when things reopen in the near future in Europe.

Okay. Pasquale speaking. So, talking United Kingdom, the sales are down, I mean, not sales, the order flow because it's different, order flow from the sense, because as I mentioned before, we had a good backlog at the beginning of the year, so we've been manufacturing, delivering the product to the consumer, despite the lockdown of the country. But regarding the order flow, United Kingdom, within European country, or let's say Europe, has been the most penalized one because it's 90 days that the stores are closed. And so we are down with order flow 64% in the United Kingdom. But, you know, we are hoping, not hoping, it seems that, you know, they will reopen the store within next week. So that's the information we have.

Okay, I'm not sure if you totally understood my question. I'm aware that they're going to be reopening shortly, but my question is specifically, during the pandemic, there have been windows where the U.K. has somewhat opened and people have gone out to the stores and so forth. During those periods, could you give us, you know... Oh yes, last year, okay, let me see if I'm still aware of the question.

Okay, I mean, last year the business in United Kingdom, in Europe in general, was great, I mean, it was up. Talking about order flow, last year Europe was performing very, very, very well. It's suggesting those, in the first three months of 2021, that, you know, almost all Europe has been locked down, primarily United Kingdom, Germany, Austria, those countries. And our lockdown is almost since 90 days.

Okay. And I've got a couple more questions. As sales, you know, as you start to ship backlog, some of these written orders and sales start to ramp up, When Europe comes back line, assuming North America can continue at this robust pace, hypothetically, this is more a question for Vittorio, hypothetically, at $120 million in quarterly revenues, where would gross profit settle in based on your projected mix? Would we get back to mid-30% level at $120 million? or what level do we need to get at to get back to a 34%, 35% gross profit? Hi, David.

You know, the 120 is too high, you know, compared with the actual, you know, improvements we have done, we have already got in our industrial platform. We'll be lower than that, but higher than Q4. and the comparison with Q1 2020 will be a double digit positive comparison. I cannot anticipate the gross margin. Sorry for that.

Okay. I'm trying to get an understanding of what I would call fixed cost overhead and as you drive higher revenue, you know, what kind of leverage would you get in gross profit? Can you provide any commentary or indication directionally as to at higher levels what the gross profit potential is?

The higher will be the portion of direct retail, the higher will be the gross margin in consolidated financial statements, as you know very well. So as soon as practicable We have to start again opening stores, managing like the way Jason is capable to do, and we also did some improvements worldwide. For this year we have, although we have significant increases in raw material prices and transportation costs so far, we have given to the market some price increase in order to offset This is what we can afford so far. Then it will be a function of the DOS portion on total sales, as you know very well.

Okay. And then if I may ask a question to Jason. I believe Restoration has around 65 or so locations in the U.S. and North America. In the future, over the next several years, what number do you think is an opportunity for Natuzzi in terms of total store count in the U.S.? Can you get to that level? Should you get to that level or a little bit under, over? What's your opinion on that?

That's a great question. As you... know in the branded business we are going to market with two brands and we expect to open retail stores across both brands. And we believe between both brands of stores we can open at least 150 stores in The U.S. over the next, you know, 10 years or so. And, you know, when you study RH at 65 stores or an Ethan Allen at 200 stores or even a Lazy Boy at north of 300 stores, for me, those numbers are pretty easy to get to. And, of course, in our case, we've built some Really strong and excellent wholesale partnerships that have become very productive and successful for us. And we'll generally build our store network around those best partnerships, meaning be careful to not create conflict.

Okay. And then just... Yes, and then I guess this would apply to North America, but could you articulate your digital or e-com strategy and potentially is this incremental? How should we look at it in terms of the opportunity?

Yes. E-commerce in, let's just call it the large ticket business. Even more so in special order upholstery. I believe the anchor of our business will always be through our stores. I almost think of this opportunity more as as one where we'll focus on having a stronger connection between our website and our retail stores and the ability to sell through e-commerce. But we'll just try to build more of sort of an omni-channel business where we're channel agnostic. And if they spend three hours in the store but want to go buy a sofa at home because they left town or they're on vacation, we can make that easy for them. This is a heavily researched category, and so it's important for us to compete successfully in that research process. And I think, honestly, it's too early for us to be making projections about the and the financial impact of having an e-commerce engine in the U.S. We're in so much of the early innings here. I think it's probably yet to be understood.

If I may, can I ask Pasquale Junior to give us more flavor about what we are doing, what we plan to do for the future in terms of digitalization? Pasquale, are you there?

Yes, I'm here. Hello, everyone. Well, allow me to give you a briefly overview of where do we stand today and what we've done in the last 13 months. So, in principle, while pursuing our path into the design and implementation of our omnichannel strategy, as Jason was saying, over the last year, we strive to set up Thank you very much. in order to maximize the sale conversion rate, but also, thanks to this gamification, allowing consumers to enhance their customer experience within our stores. But this year, COVID had to make us more smart, let's say, and tactical, and forced us to change strategy, getting closer to our consumers digitally. So, basically, we integrated different technologies in one, S.p.A. They can either visit the store, that means that the store will be open, but in the latest month, we also allowed them to have a virtual conference in which they could have seen the value proposition on Natuzzi available in the store. So, of course, this experience can happen both physically and virtually, but as we have our e-commerce up and running in UK, Spain, and Italy, We started to integrate our store 3D virtual tour with some e-commerce availability in order to display our store design, in order to give an idea of our harmony, but also highlighting some of the specific items that we eventually selected for our stock program. So by doing so, we were able in the UK to deliver in 48 hours Product that we had stocked in the UK that we were displaying online in our virtual stores of the five stores that we have in London, for instance. So all the above technology were designed for both our directly operated stores and our franchise store. Last but not least, in the latest months, we had to think about how to overcome the enrollment of trade shows and trade events and fairs. Until we launched our first B-Show, which is an interactive yet virtual event in which we displayed new products through high-definition videos, 3D renders, and customization features that allowed our dealership to see and consequently buy our latest collection. For your information, by the early days of May, we will also launch our new website that will come with a fully new design user experience and user interface and with a fully working e-commerce engine that will also be available in the U.S.

Okay, Pasquale Junior, thank you so much. That was very helpful. It sounds like you guys are doing a great job on the digital side, and I appreciate how you articulated that. It gives us a good picture. I'm going to just step back and allow other listeners to pose questions. I do want to hear about the partnership in Southeast Asia, but I'm going to go back into queue and potentially ask a follow-up. Thank you again. Congratulations, and looking forward to the future.

Thanks, David.

All right, and once again, that is star one if you'd like to enter the queue. We'll go next to Greg Cohen with Ramble Science.

Hi, everyone. Thank you for taking my question. I guess just following up on what David just alluded to, but it would be great to get some more color on the nature of the partnership in Southeast Asia, if you can give some specificity around the valuation of that business, the cash that we're going to receive, and then Also, if you could talk about kind of the commercial strategy in terms of number of stores going to be open, galleries, et cetera, in those markets in Vietnam, Singapore, and broader Southeast Asia, that would be helpful.

Mr. Natuzzi, I think you are the best person in order to give a flavor with regard to the initiative in Singapore and the fact that we recently joined that preliminary agreement with that guy in Singapore, the Vietnamese guy from Singapore entity. So, in order to give our shareholders the idea of the potential we have in mind in that region.

Okay. So, In, let's say, we were managing the business until two, three years ago, until 1998 exactly, no, 2018. Until 2018, business in China and all Asia was managed by our company in Shanghai, Natuzzi Crates. Then, because we did the joint venture with KUKA in China to just develop and manage the business in China, since then we separate, I mean, let's say, We decided to incorporate the company in Singapore in order to manage the business in all Southeast Asia and even Australia and New Zealand. The company has been recently incorporated and we did a joint venture with Mr. Tan, Richard Tan, which is one of our best managers, been working with us for 20 years. So again, but primarily, the reason why I incorporate the company in Singapore is to be close to the market and develop the business in that area, which represents a huge opportunity for our company. That's the question, Vittorio.

Yes, if you can give more flavor about, you know, the gentleman that has intention to join us, Mr. Pin from Vietnam, and if you can give us more flavor about 2021 plans for that company. I know, like you, that we intend to open two, three stores of the Tuzzi edition in Australia, if I remember well.

Vittorio, are we talking about, you said, again,

Joint Venture in Singapore is the matter, is the question, yes. You talked about Mr. Tan, which is already in the venture with us, but we just announced also the intention of Mr. Tin from Vietnam to enter... Oh, I'm sorry.

Okay, okay, okay. So, Mr. Tin, I mean, first of all, this is a potential partnership, okay? Mr. Tin, I know this gentleman... Since almost three years, he's a good business person, I mean, he's a healthy person, he's well-known in Vietnam, and he operates in the contract business. So, and he has an interest to become our partner, and we have an interest to become a partner with Mr. Thien, because... We can enter in the contract business, which is something that we are very much interested in. But we are still exploring this potential, this possibility.

Thank you. Thank you, Mr. Natuzzi. Just to follow up. Regarding the partnership that we already have, the company we already have incorporated in Singapore, I think Vittorio alluded to a certain number of store openings, and I'm curious if you can give more detail on the number of stores that are going to be open in Southeast Asia over the next few years.

Let me say about this here. We have just planned to open in Q3 and Q4 two, maximum three stores in Australia for Natuzzi editions, which will be served, of course, from Natuzzi China, which is our producer in that area. So Mr. Tan will provide, you know, merchandise for Australia to open in that. We have already selected the locations. We have A very good retail manager over there, Jo Francis. She's a lady. She's with us since two years, maybe, Mr. Natuzzi. I don't remember exactly. And since we have that lady over there, we started from Australia, where the awareness of Natuzzi is really, really very high. Mr. Natuzzi started business in Australia, I think, 30 years ago, if I'm not wrong. Then we are planning for the medium-long term. For sure we are not building up a new company and finding new people in order to stay with two, three DOS in that area. But as said by Jason, let us do, you know, the medium and long-term job while we face the day-by-day, you know, difficulties and, you know, goals, short-term goals, which is to produce and deliver in 2021. But we have a plan for that, for sure.

Okay, that's helpful. And just one other question I have. I know that over the past nine months or so there had been discussion about getting a loan guaranteed by the government of Italy. Is that still something that we're working on or just given the fact that we have a lot of cash on the balance sheet right now and we're generating a lot of cash and Are we fully funded or are we still considering pursuing that loan?

Thank you for the question. The program is still there. So the Italian government gave another six months in order to get some, let's say, guaranteed loan. The discussions we had this year, they allowed us to get some financing, but the overall conditions Not only cost, but the overall conditions were not in line with the flexibility the company needs in order to react to the market. So, like governance or other legal things that we did not accept, but we were in the position, we were capable to do this and to keep flexible the company. because of the Natuzzi shareholder contribution and because of the $55 million that I described at the beginning of this meeting. So we are happy to say that we are in some financial positions so far. It's increasing this year. It will continue to increase, hopefully, according with our plan and with our weekly projections until mid-July, very detailed. If in the meantime, since in the meantime, you know, the program from the Italian government is still there, we are working for some, you know, other facilities bank by bank. I mentioned 5 million we got recently from Romania. We are and we will continue to work to have some other facilities available in the next weeks. Of course, they are waiting, you know, the full year financial results in order to get, you know, a decision. So it was our decision to avoid that kind of loan, but we have time enough to get some additional credit facilities with an Italian bank.

Okay, that's helpful. And just one last thing before I hand it back over to you guys. I think that This is an incredible company and the transformation that's going on is quite amazing. The growth story, especially in the U.S., run by Mr. Camp, is a very, very exciting story with six stores opening this year and hopefully many more in the years to come. and certainly the e-commerce strategy layer on top of that presents a very compelling story for investors. I know that Mr. Natuzzi owns quite a lot of the company and is certainly aligned with us, but I would be remiss if I didn't point out that this is maybe one of the most undervalued publicly listed companies in the world, especially listed on the New York Stock Exchange. and I would think we're at the point where we have a very good story to tell to Wall Street to make sure that the valuation of our company is appropriately reflected in the stock price and you guys know better than me that years and years ago this stock was trading for hundreds if not a thousand dollars a share and now we're at much, much less and it seems like There's a great opportunity to get out and speak to investors and potentially put an investor presentation on our website and get equity research and et cetera, et cetera, because, you know, the stock is just way, way, way too cheap and the company is doing extraordinarily well. And it's time that you guys get out there and tell the story because I think it will be especially well received. You know, if you look at RH and other companies in the space, This is a very hot sector, and we would do very well. So I would just leave it at that, and thank you, Mr. Natuzzi, and I'll hand it back over to you guys.

I'm sorry. Are you Mr. Cohen? Because to be honest, the connection is not working very well. I'm having a hard time.

Yes, I'm Mr. Cohen.

Are you Mr. Cohen?

Yes, that's me. Hello.

Hello? Yes, Mr. Natuzzi, Greg Cohen.

Mr. Cohen, I'm sorry, you know, again, the connection is not working very well, but I understood that, you know, can you repeat, please, in a few words? Because, you know, I'm very sorry, I'm unable really to understand what you are saying, and consequently I...

I'm sorry, can you hear me now?

Yes, if you higher the voice a little bit, because I'm having a hard time, as I told you.

I'm sorry, I'll speak louder and concisely. So what I was just saying was that you're doing an amazing job transforming the company, and it seems like Natuzzi is firing on all cylinders in sales and drawings.

S.p.A., Pasquale Junior Natuzzi, Carlo Silvestri, Domenico Ricchiuti, Piero Direnzo, Mario De Gennaro, Daniele Tranchini, Richard Tan, Cosimo Bardi

Okay, but the question is quite simple. You are doing a great job. You are transforming this company. But, you know, the market cap is still what it is.

No, I cannot.

I'm sorry, sir. We have to organize a call. The connection doesn't work at all, even with us. Okay, Greg.

Okay, and we do have another follow-up question from David Cannon with Cannon Wealth Management.

Yes, one second, please.

One second, please.

S.p.A.: Signora Natuzzi, Greg dice che lei sta facendo un grande lavoro per trasformare questa azienda. Primi risultati si vedono. Adesso però la capitalizzazione, che pur è cresciuta, ma è ancora una... Hi everyone, please stand by for just one moment.

I'm sorry, we should be capable to answer. Mr. Cohen, I'm talking with you connected by my own, because I'm working in a smart working way to make sure that we don't get infected by this horrible virus. But anyway, Vittorio told me the, let's say, the essence, the content of what you said, and I totally agreed with you. That's why we are working, putting our total passion, work, and commitment to achieve exactly what you are asking for. I can promise you, that's our, the goal that we are following. Thank you, sir.

And your next question comes from David Kanin with Kanin Wealth Management.

Yes. Vittorio, thanks for taking my follow-up. So in regards to raw material price increases, are you starting to see that flatten out or come down? What is your prediction over the next year for raw materials if they've peaked and if there's the potential for margin improvement if we can keep these price increases.

One hundred million dollars considering the market today. Anyhow, this is a day-by-day check. We have built up a committee that is working on a weekly basis in order to check prices and availability as far as shipping are concerned. So we are following day by day because the situation is really a crazy situation. I know you follow other peers in America and we are all in the same situation. So far, so far, you know, prices seems to be stable in the very last, you know, days or a few weeks. But the problem is the volatility on that. The today transportation costs are quite crazy. I would hope that, you know, this crazy will start sometimes in the future as soon as the economy will start to run again in, you know, a more normal situation. These are consequences of pandemic and these are consequences of someone which is doing some business on that, you know, especially on shipping costs. Assuming the today cost of raw materials and on the basis of the price increase we did, the leverage for us is obviously volumes versus fixed assets. We mentioned, Mr. Natuzzi mentioned at the beginning the fact that we cut by 50% in China our fixed costs. It's not something You know, just that is very, very important. We are speaking about, you know, a double-digit reduction in transformation costs in China, 21 versus 20. So far, thanks to the backlog and other flow, Italian plants are working, and old plants are working almost at capacity, full capacity considering the absentees that we have to face because of pandemic. But, you know, We are running. We have already closed our shipping for Q1, so we are confident about the fact that we did better because we are improving day by day, facing everyday new problems, but the company is progressing anyhow. So it will be just a matter, Dave, in terms of revenue recognition, you know, financial statements, but we know exactly the production, how much, How high was the production in Q1 versus Q4 last year?

Okay. And then in regards to the KUKA joint venture, what's your outlook for the next one to three years in terms of contribution and profits from that joint venture?

I can answer. Again, the Southeast Asia, together with Australia where we have a very, I mean it's not just Australia, but we have very high brand awareness. We are planning now to open in this year two stores and then to focus on Australia in order to maximize our supply chain, to maximize the cost of the organization. So, Australia will be our priority. But also, we are exploring possibility to partner with another gentleman in Vietnam. He operated the contract.

I'm sorry, Mr. Natuzzi. I'm sorry to interrupt you, but I have a better connection. The question is about KUKA partnership. Can you hear me?

But again, I mean, the connection is absolutely...

I understand that, I understand that. The question is about, you know, the... KUKA. KUKA. KUKA, you know, joint venture for Chinese market.

Business in China is doing well. We are... Our growth is double-digit. I mean, since we did the joint venture in 2018... 2019, the growth was double-digit compared with the previous year. 2020, we had another growth, and 2021, we are planning to open also several new stores. I mean, the business in China is doing very well with us. We did also something which will help to grow, because before we had only an organization that was developing and managing Natuzzi Italia and Natuzzi Edition. Now we separated the organization just in order to allow the management to focus one division for Natuzzi Italia and the other division for Natuzzi Edition. So we are very, very much optimistic about the growth and the opportunity we have in China.

Okay, did you say several hundred new stores in China?

No, no, several thousand.

So far we have in total approximately 250 stores, something like that, okay? between Natuzzi Caria and Natuzzi Edizia. We are planning, you know, to open certainly in the next three, four years another 100 stores. It's possible to forecast something like that.

Okay. And then if I could ask a question for Mr. Camp. specifically about the wholesale business in the U.S. Could you give us some color there if that business is coming back?

I would say 100%, Dave. I think there's generally tailwinds in the furniture business at every price level. We are definitely seeing it come back. You know, hopefully my earlier comments resonated, but we have been, you know, for the fourth quarter, the branded wholesale business grew by almost 40%. And in Q1, again, although not fairly comparable, grew by approximately 70%. So we've definitely seen that business come back. I mean, today the profile of the region I lead is still predominantly wholesale, and I am as passionate about building the branded wholesale side as I am about building retail.

Okay. That's helpful. I appreciate it. I guess what's so exciting is here in North America, the business is so strong. When they flip the switch, so to speak, in Europe and we're clicking on all cylinders, it's exciting to imagine what the full potential of the company will be. Guys, thank you so much.

Dave, if I may add just a quick comment. We all wake up to seeing sales by region every day. What I can tell you is that what I see when I wake up is that in the regions and countries where we are not in lockdown and stores are not closed, the business is broadly very, very healthy. and obviously when the U.K. is on lockdown, it's very hard to do a normal level of business. But in general, around the world, the order flow is growing at strong double-digit pace when, you know, where things are open for business. If that helps.

Yeah, that's very helpful. That's actually a follow-on to it. Thank you. Thank you, Dave.

Okay, and one more opportunity. If you'd like to ask a question at this time, again, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. We'll pause just one more time. That is star one if you'd like to ask a question. We'll pause for one more moment. Okay, and it looks like we have no further questions at this time, so I'd like to turn it back to our speakers for any additional or closing remarks.

Thank you for joining us today. Have a nice day ahead.

Thank you.