Natuzzi, S.p.A.

and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I will now turn the conference over to Piero.

Please go ahead.

Thank you, Kevin. Good day to everyone. Thank you for joining the Natuzzi's second quarter and half year 2021 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 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 annual report on Form 20-F filed with the SEC for a complete review of those risks. The company assumes an 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 executive chairman. Please, Mr. Natuzzi.

Thank you, Piero, and good morning to everyone. And thank you very much for attending this conference call. We're very pleased about that. So I'm very encouraged to see a change in the trajectory of our business. The numerous challenges that we are characterizing the supply chain in 2021. Probably one of the most complex years I have witnessed in my 60 years experience. It's really unbelievable. The supply chain disruption remains a challenge that is affecting our ability to properly serve the growing demand. The furniture market continues reporting a solid growth in most of the geography where we operate, and this is providing a positive tailwind to our business. More than by the positive result of the first part of this year, however, I'm encouraged to see how effectively the new governance is helping our group to accelerate its retailer and brand transformation. Antonio Achille, our CEO, had an incredible jump start in the business, and I'm now collaborating with him and our board of directors to further strengthen our organization by bringing new talents on board, such as Mario De Gennaro, who is joining us as new Chief Human Resource and Organization Officer and who brings more than 55 years of experience in people lead transformation. So we're very pleased to have sincerely our CEO and even our Chief Human Resource Manager. So I will allow Antonio, our CEO, to comment in detail the result of the second quarter and the first six months.

Thank you, Pasquale, and good morning, good afternoon to everyone. I joined the company last June, and this is my first analyst call. I'm working very closely with Pasquale in the new governance, and thank you for the very... There's a bit of echo. For your very kind word, Pasquale. Okay. Maybe, Kevin, can you mute the microphone of people who are not speaking, because I got a bit of... Okay, excellent. Thank you so much. So I was saying, very happy to be with you. Today for me is an important meeting, not only because in my first analyst call, because I interpret my mission in a sense as a simple mission. My mission is about creating value for the investor, which I believe today is well represented in this audience, as measured per share value increase. The other mission is, of course, to satisfy the other shareholders of the company, which I intend to be our final customer. So those are, let's say, my two priorities, equally important. And those are based on a set of our fundamentals, which we are very hardworking with Pasquale. In terms of numbers, I believe you have seen our second quarter numbers by this time. We continue reporting strong sales numbers. 76% versus the second quarter of 2020 and 17.7% versus the same period 2019. So growth is back. It's back, I would say, for the sector because, as Pasquale mentioned, the sector is enjoying positive growth, which we start believing can become structural. But it's also very good for us. We believe that in a lot of geography, including U.S., we are gaining market share, so we are growing faster than the market. It is not just about the absolute number of growth, but it's the quality of growth. As you might know, if you're following this stock from enough time, the company has taken the decision to growth on two main avenues. One is the branded business, so leveraging the strengths of Natuzzi Italia, which is 60 years of heritage, which is entirely manufactured in Italy, and Natuzzi Edition, which is designed in Italy. Its price point is more than a foldable price point, and the production takes place where it needs to be, so closer to the end market. So when I say I'm pleased to see the quality, of the growth is because the branded business represents now 87% versus the total. To me, that is quite an interesting achievement because, as you know, the company started six years ago but with a completely different scheme. It was producing great product at an affordable price point but which were mostly sold unbranded. So you can imagine how much effort and how much investment, we calculated roughly $1 billion of investment, went to move from being a manufacturer to being a brand. The second avenue, which for me is a symptom of improving quality, is that retail in the geography where we start having a right team and a right receipt is working well. For instance, if you look at the U.S., Where we have our manager, which is attending this call, Jason Kemp, that brings 25 years of experience in different company, including restoration hardware, who built a strong team around him, really with retail competencies. In this geography, we have our best store, basing at 4 million sales per year, reporting 669 sales like for like increase versus 2020 and 49% increase versus 2019. So I would say significant numbers of organic growth which did not happen by chance. It happened because we have a strong team. The strong team is implementing a very good merchandising retail strategy, has launched and I'm sure Jason could give more color along the way, what is called quick program. So based on advanced analytics, we read the data of the previous three seasons to understand which are the best products in terms of rotation. And on those products, we take a major risk in terms of stock. So to be able to serve the client with very short-term delivery time, which in this case, You know, turbulent time of supply chain is really a competitive advantage. So brand business is growing well. Retail is growing well in the geography where we have enough focus of the management team to start playing by the book what a good retailer should do. And we intend, of course, to deploy this winning receipt to the remaining geography. So I would say what I witnessed after three months of my joining is a team which has a very clear view of the strategy I had. The strategy I had is based on branded business, retail, and three priority geography, U.S., China, and Europe. I also see, and I'm encouraged by the fact that Pasquale said that this is true not only for me that I just joined since three months, but also for him who is in the business since 60 years. I also see an unprecedented level of supply chain disruption. And this happened on the three main elements of the entire supply chain. It happens to the raw material where we witness price increase of up 100% versus the beginning of the year. It happens in terms of manufacturing where we see demand Outpacing our ability to fulfill the demand for very different reason. And we see this in the shipping where is increasing complex to secure a timely shipping of our product with the proper cost of serving. So this is, I would say, keeping us very focused. We are centered on the reduction of backlog because, of course, We want in these days our final customer, which runs our brand, not to suffer from this contest. As you know, it's not just Natuzzi. As you know, it's not just the furniture business. It's the global economy which is facing this global challenge. So we are working very hard on this, but we cannot claim to have the full map to say will be sold for Natuzzi next week. and this is the other important aspect we want to share with you in a very transparent manner as always should be communication with our trusted advisor and investors. So let me stop here because I'm assuming you have seen the rest of the press release and would be a better use of your time to address your question rather than continuing on this introduction. The other element I might want to highlight is that I spent the first weeks with Pasquale, with whom I'm working a streaming closing, to align the full team on the future vision for growth. We have been investing a lot of time on creating alignment. We just ended up this weekend another off-site with the full management team. because we believe that this will be a people-led growth acceleration plan. And one of the elements beyond creating alignment of division and increasing communication within the team, another element which we want to actively use to create this alignment and to create a sense of ownership in the management is the incentive system. So we have in place since the beginning of the year an MBO, which is anchored on short-term results. Our board gave us just approval to define and fine-tune by the beginning of next year a stock option plan that will be extended to a limited number of managers, including myself. Thank you very much. Next analyst call, we will be able to provide more details on this element, which I believe will be very important to create ownership instinct in the top management. Okay, let me stop here. Maybe, Kevin, you want to, unless Pasquale has another remark, you want maybe to open for question. You're on mute, Pasquale. Kevin, can you unmute Pasquale?

Antonio, you listed complete issues. So we can certainly listen to our shareholders for their questions. Thank you.

We'll now be conducting a question and answer session. If you'd like to ask a question, please use the raise your hand function on your STEAM meeting platform. Once again, to verbally ask a question, please use the raise your hand function. Please hold while we pose for questions. Once again, ladies and gentlemen, I'll be conducting a question and answer session. If you'd like to verbally ask a question, please use the raise your hand function on your C-meeting platform. One moment, please, while we pause for questions.

I guess David is trying to connect and to ask...

Yes, give me one moment, please. Once again, ladies and gentlemen, please use the raise your hand function on your screen at this point if you'd like to ask a question. One moment, please, while we poll for questions. Our first question today is coming from Kyle Travers. Your line is now live. Actually, I do apologize. One second. Mr. Kena, you were first. Please go ahead, Mr. Kena.

Your line is now live.

Mr. Kena, perhaps your phone is on mute on your end. I do believe I hear you now, Mr. Kane. Can you hear me? Mr. Kane, I'm just going to move forward. Would you mind just re-raising your hand, please? One moment, please. Travis, your line is now live. Please unmute yourself.

I am unmuted. Can you guys hear me? Yep, I can hear you. Please proceed. Hey, good morning, guys. I appreciate you taking the time. Had some time over the weekend to go through your press release and appreciate it. One question I had in particular was about your U.S. stores that I think that I think you said are trending at around $4 million, you know, at over 70%, I guess, contribution margins. And I was curious, you know, how many of your stores, you know, headed in that direction? And if you could also remind me just of your total U.S. store count. Jason, I guess that's for you.

Good morning, Kyle. It's Jason. So we have 13 stores in the U.S., and when we look at our top six to seven stores, those are the locations that are pacing in the $4 million range. And generally, those stores were pacing at about $2.5 million in 2019, so they're up in the 70s, plus $70 million. or so percent to 2019. Those top six or seven.

Okay. And I think the other, I guess, other six stores, I guess, you know, dream big with me for a second. How long do you think it would take for the other six stores to, you know, to get to the $4 million one, right? When do you see the soonest that that could be achieved?

Sure. Well, the average pace of the 13 stores is $3 million just to give you some ability to do the math. And in general, I think we definitely see a lot of growth beyond this $3 to $4 million pace. and we expect and hope that our work in the area of talent, merchandising, marketing, lead time improvement, all that work will lift all boats. Generally, it's my experience that your best locations grow faster than the average and I hope that generally answers your question, Kyle.

It does. I appreciate it. And I guess just one other question. This is a little bit broader, and I don't know if you guys might be able to point me in the right direction, but there's some things that are off balance. You have some land, and you have a JV here in China. And I guess I was wondering where I could find, one, the China – The KUKA information about their operations and how those are trending. Maybe you guys could just summarize sort of the land opportunity and some of the stuff that maybe is not particularly strategic to the longer-term vision and how much you guys think you could be able to monetize by selling real estate and some things that... Antonio, would you like me or would you like you to answer?

Vittorio, I think you're in the best position. You should do it. Then I'll do a bit more general comment on capital employment, capital efficiency. But please comment on Landen and Kuka.

Okay, you know, the program to sell our non-core assets is going ahead, you know, correctly, as anticipated one and a half year ago. In July this year, in the first quarter we sold, between the first and second quarter, we sold a company, the phone company, and then we sold two lands in Italy, and in July we just finished, completed a sale of a land in High Point. So we're moving ahead in the right direction so far. As far as KUKA.JV is concerned, you find in the profit and loss, a share, the so-called share of profit of equity method investees. It is below the net finance income. Today, for the first half, they contributed with 2 million euro profit to the Natuzzi consolidated profit and loss compared with 0.9 in the first semester 2020. So this morning I just had a look to the August results. I do confirm they are moving ahead with both brands with retail rollout. I'm sure that Antonio will elaborate a little bit better than me from a qualitative point of view.

No, you did a perfect answer. Just a bit elaborating and linking this back to my opening. If, as I said, the whole company is working, to increase value of the share, the purchase of the share. Of course, capital efficiency is an important matter. So we are continuing to explore a way to get light our balance sheet in terms of capital. And of course, non-strategic assets are a focus of that effort. We are in advanced discussion to continue that journey. Of course, we want to do it in a proper manner to maximize the current value. JV China is a bit different matter. It's more strategic, more structural, but equally we're exploring and it's more midterm way to make sure that the Natuzzi investor get the full value of what's happening there, which is very encouraging because we are growing significantly in terms of numbers of stores. We are roughly 300 stores there among the two brands and the performance are doing very well. And our partner is and in close collaboration with us is really establishing the dual brand strategy with Natuzzi Italia being a top luxury brand positioned very high and Natuzzi Edition being more affordable. So if you think about the potential value of this story, China, luxury, fast growth clearly can be significant and we will continue looking at ways to capture more of this value going forward.

you know just you know from somebody who's who's new to your story I think uh you know you guys can for what you will but I think uh it would be you know incredibly helpful for somebody on my side to you know to have a little bit more granularity on what's going on with KUKA and you know even you know the metrics we always look at are sort of sales and EBITDA and We're going to plop a multiple on there and just understand what your 49% is worth, just so it's a little bit clearer, because people that are new to your story, there's obviously no self-coverage here. So it's a little harder to do a full sort of sum of parts here and understand what's completely under there. I will leave it at that, and I appreciate the details, and I appreciate you guys taking my questions, so thank you very much.

Mr. Kennedy, the line is now live. Hello, Mr. Kennedy, you are now at the podium. Please unmute yourself. David. Please proceed. Mr. Kane, I believe you're having an audio issue on your end. I do apologize. I cannot hear you. If you could hear me, I cannot hear you. You're unmuted, but I still cannot hear you. I do apologize. Our next question is coming from Greg Cohen. Your line is now live.

Hi, guys. Can you hear me?

Yes, please proceed.

Yes, please. Hi. So congrats on the strong growth in Q2. Particularly in the U.S., my first question is, Are you seeing these strong trends in written orders continue into Q3? We're almost at the end of Q3 here, so just was wondering if you could give some color on the trends in sales, whether they're accelerating or staying the same or what you're seeing, if you can provide some guidance on that.

Yeah, sure. I refer back to the press release. because in the intent of providing transparency, as suggested by SSE, we also share the information on first 36 weeks written orders. Currently we are starting week 38, so basically we're talking about two weeks before now, so mid-September. And written orders are plus 36 versus 2020 and plus 14.5 versus 2019. The positive momentum continues. Now we are in the ninth month of the year. The consolidated written order two weeks ago was still very positive versus both 2020 and 2019. I hope this addresses your question. You see this information in our press release, in the first page.

That's helpful. I guess my question is in the U.S. in particular. because, you know, from my perspective, that's our key growth market. So is there any more detail you can give on how the U.S. is doing in particular over the past couple months or so?

Good morning, Greg. I would generally confirm, you know, what Antonio shared is that, you know, the pace of business that, that we're seeing into Q3 in a pure dollars perspective is holding true to what we're seeing in the first half. And for the first half of the year, when you kind of double click down onto just the USA in the branded wholesale business or the retail business, our growth numbers are somewhere between plus 50 and plus 70. Got it. Exactly what you're looking on.

Yeah, that's helpful. And I guess as we look forward, can you just kind of give a little bit more color on our store opening plans? You know, I know in previous calls we had discussed, I think there were six or seven that were going to be open in sort of a near term. Thank you. Thank you. Thank you.

When we look at a total number of openings in the region, we expect to have opened four stores between independently owned and stores we operate this year and 10 stores in 22. That's sort of our, you know, let's call it a, you know, Got it. And just one last question for me, and then I'll hand it over to the next caller.

but could you give an update on some of the other strategies in the U.S. and globally that we're pursuing such as e-commerce and kind of the second ancillary to that would be where we are in the opening of the Mexico plant to service the North American and South American markets?

So maybe I'll start taking those two questions. And maybe, Greg, a further clarification to what Jason said. Again, in term, with the spirit of being capital efficient, some of the opening will be done in partnership. In the sense that we will be majority partner, we will be fully running the show, the operation, the store, but we will also involve a partner to lower the capital need of those openings. so e-commerce in Mexico e-commerce is on track so it will start it will be a global new platform merging the existing 46 digital platforms that are present in the brand so it will be a global platform for all geography for Natuzzi Italia and Natuzzi Edition it will start being operational the current plan is to start being operational for the brand Natuzzi Italia and for Natuzzi for Natuzzi Italia and for Geograph US by the end of this year. So this is the plan. As you can know by e-commerce, we're pursuing a kind of agile implementation, which means there's going to be a first release, which is going to be progressively enriched, and we're targeting this year. Mexico is absolute priority. The working is going ahead. We are now moving a senior team from Natuzzi Italia for Natuzzi Quarter in Mexico to secure a better pace of our implementation. But this is among the three or four major priorities for next year. So also there, the objective is to progressively ramp up the production in 2022. And that objective, for the time being, is confirmed.

Thank you. That's incredibly helpful. I know you've only been here for three months, but the work you've done so far is very impressive and energizing. I think shareholders really appreciate your focus on return on invested capital and a new focus on profitability as well, obviously, as high-quality product. Personally, I'm very much looking forward to Thank you for your encouragement and I can share back the consideration that Pasquale and I did that is that

Clearly, the company had a very strong instinct for growth. We want to preserve that but include a more systematic instinct from profit generation and value generation. We increasingly use, as a matter of discussion among our team, metrics which are really focused on incremental cash generation. I think it's good to start with a company which has a strong growth instinct. We now need to take benefit of this moment to reset a bit the machine and the KPI and the culture to be equally focused on value creation.

Thank you. As a reminder, if you'd like to ask a question today, please use the raise your hand function on the CME platform. Our next question today is coming from Charles McDoolin. Your line is now live.

Good morning. Dave Kanin on Charles McDoolin's line. Are you guys able to hear me?

Yes, please go ahead.

Okay. Sorry about the earlier problems. So in terms of the new store openings, you know, it's encouraging to hear there are 10. Your goal is about 10 for next year. Looking out three, four years, how many stores do you think you can have in North America now? And the reason I'm asking for more color there is, you know, your statement that branded and DOS stores contribute 74% gross margin. You know, obviously, we'd like for that ramp to occur as soon as possible. So if you can give us a longer term goal, is that 10 stores per year sustainable? Where are we going to be in three or four years?

Just why don't you take that one? Then maybe Pasquale and I, we can give more color.

Sure. In general, Dave, when we look at the combined opportunity of both brands, both Italia and Editions, the truth is on a long-term saturation in the United States and the region, honestly, we could probably have almost 10 times the number of stores that we do today. So there's a really long runway. We're not going to achieve that over three to four years, but there's a really long runway from a retail growth standpoint.

And Dave, another comment on that. Everyone, including, as you can imagine, the shareholder Pasquale and myself, are looking with great excitement to what we are achieving in terms of retail performance in the U.S. And we will prioritize any dollar to continue the journey. at the same time we need to recognize that opening a store is an investment and it needs to happen in the proper manner so if you look at what luxury brands do let's say personal luxury and you know and Fashion Luxury Brand do. For them, it's like a major investment opening a store. So they take consideration of the agency, they take consideration of the long-term potential, they want to structure very well the lease. So we're looking with great excitement at the opportunity, but also in a very informed way. So we will not let, let's say, the... The will of building up a presence prevailing on rigor of choosing that location. Example being New York. We want to do a location reopening in New York, which of course will be important because it's where the company listed, where before Pasquale set up the success of this company. personally starting the relationship with Macy. So it has many meanings and we want to do it in the proper manner so we're not rushing in doing things which may be good for being reported in an analytics school but not be as good in three, four years down the road. Okay.

And then a question about...

Right, Dave, if I could just build on that for a moment. You know, I think... You know, one of the most costly mistakes, right, a company can make is rushing into locations and leases that are not A locations at A level economics and and so often when companies get into a very accelerated rollout, I think the wheels come off. I've actually watched that happen at RH where they're opening 20 stores a year and then two years later they were nearly in bankruptcy and they've obviously found their way through that and become a very successful organization but I think making sure that in our early years we're negotiating A locations for each brand at A level, you know, financials is honestly one of the most important things we can do, right? What's the biggest difference between, you know, our top six or seven stores and our least successful stores is location. And once you sign a lease, you're generally locked in for 10 years, you know, so we want to make sure that we do our Ask enough questions before we get married in all of these. So we know we're happily married.

Okay. I appreciate that.

I'm sorry, go ahead.

No, the other element which I realize we are not ready to do today, but maybe we'll do it next time. We continue investing in elevating the store experience, especially With recent events for Natuzzi Italia, we just defined and fine-tuned a very exciting new retail format for Natuzzi Italia, which has been rolled out in Shanghai, in China, with very great, well, let's say, comments from customers and partners. Maybe next time we're going to make virtually touring the new store, as being developed by an Archistar designer. Fabio Novembre. It speaks about the DNA of the brand. It speaks about our soul. It's very bright, very innovative. So for us, as we develop the retail, it's also elevating the retail experience. That will happen through the infrastructure. And I'm talking about the retail new store. It will happen through the experience. So we are investing in new training for our sales floor. with the proper clienteling and proper storytelling, both for final customer and for the architect and designer team. So for us, retail will proceed in two ways, more opening and better opening.

Okay. Yeah, I appreciate the thoughtful approach to the expansion. That completely makes sense and sounds like you're learning from other people's errors. In terms of gross margin, I know that you've seen inflation in raw materials. You passed through about a 15% price increase. Can you give me the timeline on that? What I'm kind of wondering about is on a go-forward basis, Are we going to see an expansion in gross profit on a consolidated basis from these cost increases? For example, if they were passed through in May or June, you did not have the full quarterly benefit. So that's what I'm trying to ascertain, if you could speak to that. Again, the timing, and if on a go-forward basis the price increases are going to help improve gross margin.

Hi David, this is Vittorio. Let me focus on North and Central America first. We did the first price increase by November 2020. Then following, you know, the trend in raw materials and transportation costs from China, we did a second one in February, but recently we just adopted another, you know, surcharge for transportation costs in September. This means that in Q4 we will have, you know, the full impact of, you know, price increases on our profit and loss. And this is just the example for North America editions. More or less the same in terms of timing for Softaly, for the unbranded. For Natuzzi Italia we had December 2020, July 21, October 21.

Okay, so the price increases that we've taken recently are going to have a favorable impact on gross profit going forward.

So, David, yes, but again, I think for the time being it's a game of running faster than a bullet because we don't see yet a decrease in this crisis time. So, please, in doing your maths, considering also that. I believe that at one point, but it's my personal expectation, so it's not any guidance, at least on raw material, we should see a normalization. And when that happens, that will be constituting a major advantage for us because we have increased prices in some geography and some brands up to 30% in nine months, which I think testifies the resilience and the strength of our brand. so if and when raw material price will go down then we're going to get a very strong uplift because of course we will not lower down our price again but in the short term the combination of us increasing price and raw material you know Spike is still a battle. That is important to mention. I don't know, Pasquale, if you want to comment. Again, I mentioned you've been 60 years in the market. I'm sure you have more experience than me in judging these trends.

Listen, you learn very, very fast. All the statements you have made are the good ones. Otherwise, I would stop you.

I hope it means stop me from talking, not stopping in the sense of firing me, but of course I might be the worst way.

Dave, I will add to the other comments that, you know, on a global basis, you know, cost of materials has been significant in the North America region, specifically freight. is really the most volatile. And when Antonio speaks of outrunning the bullet, freight is really the one we're chasing right now, and we're living in historic times. This relates to access to containers, access to rail cars, access to trucks, and all the prices related.

Right. And maybe... Just to add some color, which I believe could be relevant for you if you intend to follow this talk and this company for the midterm. When we look at supply chain disruption, I believe there will be some effects which are short-term, on which we need to defend, and others which are more midterm opportunities, on which we need to readjust. So, raw price increase, for me, is more important. Let's say for medium-short term in the sense I don't expect that the reservation for this to continue forever. And this we are trying to defend by a better raw material sourcing and, of course, the price increase that everyone is introducing in the industry. When it comes to shipping, just to quote you, we're reporting another cargo shipping from Vietnam going in six months from $2,000 to $16,000, $7,000. I personally believe this will be more structural, which means that, let's say, the global economy, which in a sense was using Far East as a factory and selling product with a markup in the rest of the world, For me, it's something we don't want to bet on anymore. So we're going to have Natuzzi Italia, which is our luxury brand, which is going to continue being manufactured in Italy, where we can leverage an experience of 60 years with some of our more experienced workers having 36 years of experience in their hands on how to craft a luxury product. When it comes to Natuzzi Edition, the design will still be full in Italy with an internal design team. The production need to be in a logical place, also for a sustainability standpoint. We don't want to contribute to unsustainable practice. So we'll have Mexico for North and Central America. We'll have our Romanian plant and somewhat selective production in Europe for Europe. And then we have Shanghai, our own plant, and Vietnam for China and Asia-Pacific. That, for me, makes more sense. It's more sustainable. It will support reducing shipping costs and getting a better service. So, in synthesis, raw material, strategies defending. Shipping, strategies optimizing long-term supply chain.

Okay, so you guys kind of beat me to the punch on transportation. That was really my next question. Transportation costs were up 420 basis points. And if you look at the history of that, you know, shipping, shipping containers, it's somewhat cyclical and historically when they've had S.p.A. Most likely reclaim some of that 420 basis point increase in transportation. You start to get the benefit of price and declining raw material prices. Being that operating income adjusted for the one-time Canadian issue was about almost $3 million, is it possible that we can get to Antonio, I mean,

Just because of my experience, I can answer one of the questions.

Absolutely.

Please, please, Pasquale, please. Yeah, regarding the transportation cost increase. I mean, we export in America, from Italy, for example, since 40 years. And, I mean, never Never anything like what happened today. I mean, I remember 40 years. Okay, the price increase could be 10%, 20%, more or less. But here we are talking about... We used to pay $2,500, now $10,000, $12,000. This is a speculation situation. It's something that there is no way to understand why is happening anything like that. So, and it cannot continue to be like that, but that's just my feeling, all right? So never happened before. In 40 years, I can guarantee you. That's the cost of transportation. Regarding supply chain, we are certainly suffering by purchasing, importing components from China. and also on importing from China. We are penalizing, you know, because the cost of a component never can justify transportation costs like that. So we are going to review, as Antonio explained, the supply chain. Whatever we manufacture in Italy, we should try to have a component, raw material, everything as close as we can and then the same would be in Romania, the same would be in Shanghai and the same would be in Brazil. So we are going to review the supply chain, the complete supply chain, in order to avoid transportation costs and make our company sustainable, as Antonio said. Okay, so that's what I can say.

Okay, so in other words, you have other initiatives to mitigate cost inflation and transportation and raw materials. You're controlling the things that you have control over. That's good to hear. And then I have a question for you, Mr. Natuzzi, on product development. Today, it seems like you're moving more towards... training your sales force in store where they're more designing a room for a customer as opposed to just taking an order for a product where I come in looking for a sofa but taking a more holistic view. Are you going to be increasing the number of SKUs in product development to further increase the penetration that you have with that customer in, quote, designing a room as opposed to just selling them a product? And if you can give any color there of some of the, if you are, what would some of those product categories and SKUs be?

I believe we have a product and color enough, okay? We need just now to focus on settings. I mean, our total merchandising today, the merchandising we have today for Natuzzi Italia, but even for Natuzzi Edition, but talking about Natuzzi Italia can, I mean, support the lifestyle brand. So in other words, we are in the position to decorate an entire home for very demanding people in terms of style, coordination, No, I mean, investment on product development must be reduced because we need more to training people in the store and work on retailer merchandising. So that's the next 12 months of the challenge of the management.

I see. So you have enough SKUs to meet the customer, which is what you're saying. And then this last question, I don't want to monopolize. In terms of e-commerce, when is your launch? And if you can provide any color around that and expectations of shareholders that we should have.

I think, David, maybe you had some problem with the camera and the audio. Don't mind. I'm sorry. No problem, but I don't mind to summarize. So we're targeting end of the year for a global launch of a new information and branding platform for Natuzzi Edition and Natuzzi Italia globally. They will be substituting the existing 46 platforms that exist in each different market. The platform will be also transactional for U.S., Natuzzi, Italia, which will be the first market we will be launching the e-commerce. So we are targeting end of the year. Of course, you know, we are rushing a bit, so we will not release the e-commerce unless it's reasonably stabilized and solid. But for the time being, the plan of U.S., Natuzzi, Italia by the end of the year is confirmed. and sorry, maybe I consider it obvious, but maybe it's not obvious. One of the areas where we're going to have a discontinuity is the marketing, which will be moving radically to digital. And we will be mostly about customer activation rather than brand building. And Natuzzi enjoy a terrific brand awareness in most of the geography where we want to grow, including U.S., where it's number one in terms of European market. and Furniture Brand. So the communication will be predominantly in the form of customer activation. It will be mostly digital. On average, a consumer search for 23 days a product before buying it in furniture. We want to be very visible in that journey, which happens a lot also on digital. On average, there are in U.S. eight digital touch points, being social media or being the site of the comment. Thank you, Dave.

Thank you. Thank you.

As a reminder, if you'd like to ask a question today, please use the raise your hand feature on your C meeting platform. One moment, please, while we poll for questions. Our next question today is coming from Stanford Wyatt. Your line is now live.

Hi, guys. Thanks for taking my question. I appreciate it, and I'll echo what one of the previous callers said, all and some of the other changes you made have been great. So thank you. And just to circle back on one of the previous questions, I'd love to hear, I know you're not giving guidance, but just on the long-term EBITDA margin potential in this quarter, I thought the EBITDA margins were pretty strong considering the Maybe a more strategic consideration where I use the word strategic not to be blurry, but to refer more to the midterm.

So we claim and we aspire that we want to be a brand company and at least for Natuzzi Italia to be a luxury vertical integrated company. So if you look at the benchmark in those industries, they all clearly have double-digit ABTDA. That's for sure. So when we say we aspire to that sector, it doesn't mean that we aspire to the sector just because we use that word, we will use that word in our press release, but because we aspire to the economics and the multiples of that industry. That is the kind of midterm strategic answer. More short term, when I say we want to rebalance our supply chain, I firmly believe the only sustainable company will succeed, also for an investor perspective, but there is terrific value to do so. If you think that currently the production from China and U.S. is paying 25% of tariff, if you think that that production needs to pay the shipping costs we mentioned, you can imagine if we move it to where there is zero tariff, so from 25% to zero, and where production can travel on wheels rather than shipping, what could be the impact on margin? So by doing logical things, like Pasquale said, reducing the complexity of our collection, by reviewing our supply chain, by increasing the efficiency of retail as we demonstrated to be able to do in U.S., We expect that our journey towards becoming a brand and luxury company will not just be a statement, will be reflected in the EBITDA, EBIT, and return on capital employee matrix.

Yeah, that's great. Yeah, thank you. And just to follow up on that, I saw you guys also looked like you spent $800,000 this quarter to reduce the redundancy of your Italian factories. And just kind of curious along those lines if there's more opportunity there and what the potential is.

This is, I will call maybe Pasquale to comment. That is, of course, a legacy from our past. The company used to be completely dependent and relying on Italian production for every part of its business. Of course, going forward, as Natuzzi Italia will continue growing, there will be still a logic for that because Natuzzi Italia needs to be produced in Italy because Thank you very much. Sustainable because that is part of the philosophy of the company and Pasquale. Sustainable also because you cannot proceed unilaterally. In Italy, the workforce environment is quite rigid, so you need to find a solution which encounters the sustain of the workers, the trade unions, and the government. We are quite advanced on that front. If that happens, we'll be I would say an additional significant step in term of having the supply chain how we want to have it and also in term of releasing marginality. But I'm sure, Pasquale, you want to add color because I know this has been a battle you fight over time. And by the way, interesting to know because we did it in a silent way, or at least now we did it, the company did it. But over the last decade already, more than 1,500 workers left the company in a very, let's say, not traumatic way, not traumatic way. But please, Pasquale, maybe you want to comment on the topic of restructuring.

Antonio, help me to understand a little bit more. I mean, you describe the fact that, you know, we manufacture Natuzzi Italia in Italy and the reason why. And then, I mean, in order to make sustainable production and delivery and supply chain, we already have a plant in Brazil, we have a plant in China, we have a plant in Romania, and we are going now to Organized Reduction in Mexico. I mean, you describe it very well. I don't know. Okay.

Okay, then it should be fine. Okay, if you don't have nothing to add, that's fine. That's fine, Pasquale.

Okay.

Thank you. And then just my second question, also great to see the alignment and the mention of your stock compensation plan or stock option plan that starts next year. And I think at the end of your prepared remarks, you mentioned NBO or some, it sounds like you might already Thank you for also that

Let me take it maybe one step back. So when I joined Natuzzi, it's because I believe this company, and this is my belief, again, no guidance, my belief, this company has a terrific upside potential. And I believe they are the condition to achieve it, and I hope that working hard, we're going to achieve it. So, and I think at one point we'll share detailed information, my best company, my best salary is roughly one-third of my last employment as senior partner and global leader of luxury, McKinsey, or the potential upside will happen only if there will be an upside for you as shareholders, and it will happen in the form of a stock option plan. There won't be the idea we're discussing with the S.p.A., Pasquale Junior Natuzzi, Piero Direnzo, Mario De Gennaro, Daniele Tranchini, Richard Tan, Cosimo Bardi Incremental Value Creation. So I need really to double and triple the company value to make this me, I would say, first of all, a successful journey personally and professionally, but also financially. So that is a bit the economics of the stock option plan for me. But again, we are finalizing this. It will be in place, we believe, by the end of the year, beginning of next year for myself and the key management team.

Thank you. Thank you. As a reminder, if you'd like to ask a question today, please use the Raise Your Hand feature on your C-Meeting platform.

One moment, please, while we poll for further questions. Once again, if you'd like to ask a question today, please use the raise your hand feature. If there are no further questions at this time, I'd like to turn the floor back over for Piero.

Thank you, Jason. Thank you, Kevin. We have no further questions, so therefore this concludes the conference call today. Thank you all for participating in the event and do not hesitate to reach out to me for any questions you may have. Have a nice day. Thank you.

Thank you. That does conclude today's webinar. I may now disconnect and have a wonderful day. We thank you for your participation today.

Thank you. Bye-bye.

Bye-bye.