Natuzzi, S.p.A.

Thank you, Kevin. Good day to everyone. Thank you for joining the Natuzzi's third quarter and first nine months of 2021.

Financial Results 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 laws. Obviously, I might differ materially from those in the forward-looking statement because of risks and uncertainties that can affect our results of operations in financial conditions. Please refer to our most recent annual report on FON20F 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 company's chief executive officer. Please, Antonio.

Thank you so much, Piero, for your introduction. Good morning and good afternoon, depending on the time zone, to our analyst and investor and potential investor attending this call. I'm here today with, beyond Piero, other three people who are very relevant and will be involved in our conversation. The first person is clearly Pasquale Natuzzi, who is our chairman, beyond being the founder and the life history of the company. I'm working very closely with him on any strategy and organization matter, so I will definitely involve him when the subject pops up. The other person is Jason Camp. I believe most of you already know him. He's an executive with 25 years experience in the sector who leads our North America and Central and North America operation. And the third one is Vittorio Notarpietro, our CFO, long-standing CFO. So let me open the conversation along to the press release, which has been just released, to say that on one hand, we are very pleased to see the growth for our product continue. That has not always been the case in the past. We're now on a positive trajectory which lasts a few sequential quarter. Written orders are even stronger than invoices sales. Invoices sales were 20% above the third quarter of 2020 and 15% above the pre-pandemic level, so 2019. So the demand for our product continue to be strong across most geography. And if you double click, which is interesting, is that the branded product, so the product which are sold with our two brands, Natuzzi Italia and Natuzzi Edition, post very relevant growth rate. They are 40% above 2019. And currently they represent and nearly 90% of what we do. So the company, which has been going to different phase of history, now is clearly focusing on brand, increasing focusing on having direct access to consumer, and this seems to be paying off in terms of growth. When it comes to fulfilling the demand, we've been experimenting, and of course we're not being the only one, but today we should talk about Natuzzi, We're experimenting, especially in the third quarter, difficulty to keep up with increasing demand. And this, again, is a matter of availability of product, availability of workforce in our plant, and availability of third-party producer to keep the demand, which has been, again, posting very positive momentum. This basically bears two consequences. The spiking material has been really pressuring our P&L structure. I believe here the company has done a good work in mitigating that. In fact, if you see our gross margin has been actually increasing, arriving at 36% versus 32%. in 2020 and 28.7% in 2019. So despite the strong pressure in cost of material, which often has been in the space of double-digit increase on our main material, like leather, like wood, we've been able to contain and actually the gross margin has been improving. And this has been systematically by optimizing our purchases, but also by reflecting some of those price increases in our retail and selling prices. The other element in term of cost which has not been so easy for us to fully reflect and pass over to clients has been shipping cost. Shipping cost giving the global nature of our supply chain are a relevant part of our cost structure. We've been to be a fair party to our partners Vittorio, I think you should mute. I guess there is some noise coming. I'm sorry. Yeah, no worry. So I was saying we've been able to pass this in terms of additional freight cost, but not always in a timely manner. And as a result of that, we absorbed... between Canada one-off cost and some of this one-off freight cost additional 5 million this quarter. So the net result could have been clearly including that net negative impact and could have been higher. The second element which is a consequence of the disruption of the supply chain is that our backlog is increasing which in a sense could be also positive because we're going to start Next year was already some, you know, meat in the freezer. And it's been increasing by 20 million, arriving to 110 million. I'm talking euro here. So we have a significant backlog, which gave us a good kick for the next year. At the same time, we need to work carefully to make sure the level of service across geography remains consistent. So this is a bit what you can read in our number. So I would say a good continuation of our trajectory to regain growth and regain quality growth. At the same time, this could have been even higher if we managed the supply chain in a way to fully catch this growth momentum. We are working very much not only to do this for the short term, to kind of enhance the output of our supply chain, but also to sustain our midterm goals, which clearly are very significant in terms of top-line growth. What are we doing? Basically, we're working on three main areas. One is secure material availability, so we're working to Pre-book some of the material, especially the one which have a longer cycle. We're also trying to near-shoring, so get supplier closer to our factories for some material which have strategic relevance, but they don't bear a major implication in term of cost. So the first area is secure material availability. The second area is increase factory output. and later I will invite Pasquale to comment on that. As you know, one of our potential advantages is to have a very articulated supply chain. We have production in Italy, we have production in China, we have production in Romania. In each of those plants, we are very carefully working to increase the output. Each plan has its history. In Romania, we have added two lines. We hired 60 people. In Italy, we are piloting a factory pointeaux, which is an innovative way of producing, much integrated with the supplier through information systems. And in China, we continue adjusting the capacity to the output. This is the long-term perspective. In the short term, as I mentioned before, we are facing a series of complexity factors linked to the level of absenteeism, which was higher than we predicted due to COVID. It must also be remembered that in Italy, our factory shut down for two weeks during August, and this also affected the third quarter production capability. The third area where we're working on is increasing the strategic outsourcing. The company, as you must know if you've been following our story, has been always producing in-house everything. This will continue being the case for Natuzzi Italia, which we proudly produce in Italy and for which the Made in Italy is a dominant part of the value proposition. For Natuzzi Edition, To recognize that we want to have a more agile supply chain model, we are basing the production where it makes sense from a delivery standpoint. So we will have Romania and Europe for Europe. We will have our Shanghai and Vietnam for Asia and for some part of our North America demand. and we will build up Mexico for North America. This is something you will not see happening in one quarter, but it's something that progressively we believe will be delivering significant advantage to our ability to fulfill demand. So this is a bit of a very transparent view on our Thank you very much. The trend of written order keeps very, very robust, so we don't see any weakening in terms of written orders demand. I've been, hopefully, and I wish to be more specific in the Q&A, be very transparent of the hard work we are doing to evolve, modernize, and enhance our supply chain and production. During this month, we also did other interventions to solidify the fundamental of our business. One is the organization. We believe that the hour will be a people-led transformation. So in close symphony with the chairman and our HR responsible, we have been evolving our commercial organization. In coherence with what I said at the opening, the Natuzzi is almost entirely a brand company. We made the strategic decision to create two brand divisions. So now we have a chief brand officer for Natuzzi Italia and a chief brand officer for Natuzzi Edition. Each of them is in charge for setting up the strategy and for controlling the P&L of his own brand. clearly interact with the regional head like Jason and the other. So we introduced a matrix where the region have the full autonomy and accountability to grow the brand in the regions and the chief brand officer set up the destiny and the strategy of those brand. Beyond the organization, we continue working on increasing what I can call the access to the sea. where the C is our final customer, the clients. So in that direction, there have been a few, let's say, announcements in this quarter. The first one of which I'm quite proud of is the launch on our new global digital platform. We had before 46 individual platforms representing Natuzzi in the different markets. Starting for last Thursday, we sunset all those platforms and we introduce just one global new digital premises. This will represent a window for both Natuzzi Italia and Natuzzi Edition. They will be fully transactional toward 2022. We started from having e-commerce fully transactional in U.S. for Natuzzi Italia. So now the window in term of displaying the product is operational in all the geography. The e-commerce is fully operational in U.S. and we start recording the first sales during the Black Friday. And digital will be, of course, one of the major priority for the development of the company. In the new organization, digital will be reporting to me and I will be closely following this development. When I said I'm particularly proud, that means I'm not proud for the end result. This will be continuing evolving. It will be the result of an agile implementation approach. I'm proud because when we, four months ago, we set up the You know, the planned date for the new launch, which was last Thursday, it sounded a bit a challenging task. And I'm proud to report that our team exactly matched the data. So it gave me a good sense of delivery on that aspect. The other area where we are continuing expanding our access to the sea is North America retailer. Jason will be providing more color about that. But we are significantly higher, I would say, very double digit high, depending how you cut, sometimes almost triple digit high, versus 2019 and 2020 on our U.S. and North America. And this, again, will be a very important area of priority for investment for me going forward. Starting from this price, we provide a bit more color on our JV in China where we currently have more than 300 stores with 60 new openings also this year. The brand is positioned in a very strong way with Natuzzi Italia being really positioned as a luxury brand and Natuzzi Edition being more an aspirational furniture brand. So the combination of digital North America and China, in my view, are clear confirmation that we are a brand recognized by the consumer. The consumer is appreciating not only our brand, but the experience he can and she can receive of the brand in our retail. And this is again in full transparency to provide you with a visibility on what could be my agenda as CEO, but also the agenda the company is working on. The other point we flesh out in this press release is a bit a reflection on our trajectory. As you know, the company has been going through different phases. The phase we are in Potentially started some 10 years ago when Pasquale has this very visionary view of moving a producer, a manufacturer into a brand retailer. We are now accelerating the trajectory and looking at the last four years, I think it's encouraging to see some of those indicators confirming the viability of that strategy. Let me flesh out a few numbers. The revenue of the first nine months has been growing, as I mentioned, 36% versus 2020, interrupting a cycle of declining lasting four years and more. The branded sales on total sales are 86%. In 2018, we're 76%. So they are 10 percentage point more. Growth profit percentage moved from 28% in 2018 to 36%, so 8% more. In absolute number, we were posting a loss of, let's say, 70 million in 2018, 90 million, sorry, 70 million in 2018, 9.5 million loss in 2019, and 13 loss in 2020. We are now posting a profit of 4 million operating profit. The retailer, it was a new adventure for the company, even in U.S., which has been always one of the strongest market. He was posting negative results till this year where we are posting a positive operating result of 2.3 million. So the job, in my view, just started. There is a lot for us to do, but I want to share some indicators that in my view confirm that the direction is the right one. And of course, myself and my team are highly committed to confirm and accelerate that trajectory. Let me stop here. I might ask maybe Pasquale, since you've been named a few times in my summary, to comment with any comments. Antonio, you have been the best analyst that I have ever met in my life. So you have been able to analyze the company, understand the strength

Thank you, Pasquale. And again, we don't want to sound

to nice each other before Quizmat, but I can confirm that all the management and especially with the chairman, we are really working in a close symphony on the strategic agenda, which I know was a question coming from also you guys. Okay, maybe let's stop us here and let's open for question unless again Jason or Vittorio, you feel you want to comment anything on what I just said.

Ready for questions, team.

Me too.

Thank you. Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please use the request to talk feature on your screen. Once again, please use the request to talk feature on your screen. One moment, please, while we poll for questions. Our first question today is coming from George. Actually, he just dropped off.

I'm not sure I understood the name of the gentleman posing the question. They did drop off before I called their name. I do apologize.

So please use the request to talk feature to ask a question. Once again, please use the request to talk feature. Our first question is coming from David Canaan. Please go ahead.

David, we don't hear you. Take off the mule.

Once again, ladies and gentlemen, please use the Request a Talk feature in order to ask a question. Please stand by one moment, please.

Dave, you are muted on your computer One moment please

Charles McDoolin, your line is now live.

Good morning. It's Dave Kamen. I'm working on Charles's laptop. Can you guys hear me? Yeah, please go ahead. Okay. So first question is I see that backlog was up $21 million sequentially from Q2 to Q3. Can you approximate or quantify how much of that backlog is high margin branded product?

You know, the branded business is growing, as said by Antonio before. So according to that, also the quality of the backlog is improving.

My estimate, David, is that roughly resemble, I mean, if I look at the vintage of that backlog, is between second part of last year and this year. So during this period, the percentage of branded product has been from 80 to 85. So my assumption, which needs to be verified, but I would be surprised if not the case, is and at that percentage apply also to the vintage, to the backlog. So I expect the backlog to be significantly represented by branded company, by branded product. And for you to know, if I look at the area of our business where we experimented most difficulties in fulfilling quantity in the third quarter was Italy, Fornatus Italia. As I mentioned earlier, I don't know if you followed that, but most European countries, and Italy was one of those, made compulsory to have the green pass to re-enter factory during August. So a good quota of our workers were not ready to do so, and we experimented some 20-25% of absentees. and Natuzzi Italia, factory chiefly produced Natuzzi Italia brand product. So on the new additional backlog, the 21 million, I'm pretty sure the percentage of Natuzzi Italia product is significant.

Okay, that makes sense. And then when I look at the quarter on the surface, it looks like Revenues were down versus the second quarter, but then when I look at written orders, they actually accelerated from Q2 to Q3, and then the backlog had a huge jump by 21 million. So my question is, how much revenue do you think was lost due to the two-week shutdown for the factory during August? I guess the two issues would be supply chain and then the two-week holiday in Europe. How much of that was supply chain? How much of it was two-week holiday?

So before maybe passing to Vittorio, if he has specific data on that specific question, I think you're pointing out something very relevant for the framing of this discussion. In the sense that depending, the result of this quarter can be a picture or can be a part of a movie. If you look at the picture, of course, we could have higher revenues, even though they've been higher than both 2020-2019, because we could have been fulfilling additional quantity order we already booked for this quarter. If you look at it in a sequence as a movie, it's clear the trajectory is moving north in my view. I mean, the data speak clearly. So, I mean, backlog in a sense are postponed revenue. So are not lost revenue. So all the order we received would be delivered. So that is a bit more high level answer. Vittorio, I know we did some of the, you know, analysis earlier. David is asking for. I don't know if you have the precise figure on what could be in the revenue.

Not much more precise, but for sure, David mentioned the 21 million backlog increase. We didn't have any plan to increase that backlog. We did have the intention to lower the backlog we had at the beginning of the year. So the sales, the delivered sales that we, you know, in the nine months, if we compare the nine months that we have lost compared our previous plan is higher than 21, at least is 30 million, if not more. Because we had about 105 million backlog by the beginning of this year. We had in mind to recover a portion of that. by delivering more sales, by producing more sales during 2021, which was not supposed to be another pandemic year. And instead of lowering that 105, we are 110. So it's more than between 20 and 30 million, at least, you know, the loss in terms of delivered sales.

OK, so I mean, I'm going to look at it in a simplistic way. I'm not sure where you're completely understanding what I'm saying. We lost in the quarter at least 14 production days from the shutdown in Europe for the holiday. If I look at your total revenue and I just divide it by the number of days in the quarter, it's about $20 million. However, to be fair, not all of your production is in Europe. So it's somewhere, my guess is $10 to $20 million for the 14 lost days of production. Is there a way that you could quantify that for me or give me a little more detail?

If I may, I mean, while we are a global company and while the pandemic is still there, is still in Brazil, is still certainly in Vietnam, is still in Europe, As our CEO said, now despite the two weeks vacation, okay, but the absenteeism in the last three, four months has been as rich as in one of our biggest factories, 25%. It's just unbelievable. So we had a problem based on the pandemic in Romania, in our factory. In Brazil, we had a production reduction. In Vietnam, there was a lockdown for a long, long time. But then one of the main problems It's the transportation. I mean, it's very difficult to find the space on the vessel to ship the product. And the price, it's just unbelievable. While we used to pay $3,000 from China to America, or from Vietnam to America, now the shipping company, they are asking 15,000, five times more expensive. And so we cannot ship just easily because we should manage cost and shipment. But also, because we import a lot of components from Asia, Even the cost of transportation and the availability of the component and transportation from Asia to Brazil, from Asia to Romania, from Asia to Italy, very complicated, seems to be in a war. You know, if we don't get the component, we are not capable to smooth the production. I mean, there are so many, many really problems. that we are managing, okay? And we are, I must say, we are managing very well. I mean, so that's my personal feeling.

A little bit, if we have to qualify... The shortage in deliverance sales. We had problems everywhere for the reasons explained. But the first one has been in Vietnam, where the lockdown has been concluded by the end of October. So most of that shortage comes from our Vietnam subcontractor.

And we have a Finnish product. I mean in the warehouse that we cannot ship because there are no space on the vessel available so production is there as soon as you know we find the space on the vessel and reasonable price we will ship and invoice and consequently will help the total revenue.

Okay, let me move on to my next question. Do you see starting in Q4 you guys working down backlog and revenues increasing, assuming written orders remain at the same robust pace? Are you going to start working down that backlog and delivering product output at a faster pace in Q4 and in 2022?

Let me answer. First of all, we have a luxury problem in a sense that we are trying to empty the backlog, but demand is always accelerating. So first, it is important to put in that frame because, of course, it is a problem, but it's better to be in the situation that having, you know, empty plant and not demand. So our demand, four quarters for what I was seeing. There's no sign of weaknesses, rather the opposite. Sorry, at the beginning of quarter three will be fully impacting in quarter four, both in terms of marginality and in terms of some of the production announcement. Then the broader transformation I mentioned before. So opening up Mexico, increasing our productivity in Italy with a 4.0 production. bringing additional capacity to Romania. Those are typically actions which have impact for the mid-longer term. It's something we don't do tactically from one quarter. We do because our, let's say, mid-term objective at 2026 forecast a major growth across our brands. So some of the, let's say, more tactical action, Okay, and then...

In terms of the strategy for growth in North America that you've articulated previously to open approximately 10 stores per year for branded product, which will positively affect overall margin, do you believe that with the changes and plans you've put into effect in Q3 that you'll be able to meet that additional demand with output?

Do you want me to comment or I should comment?

Yes. It sounds like a supply chain question more than a retail question.

So to point to your question, absolutely North America is a top priority. I feel one of my, let's say, mission of my job, I don't have a complex job in a sense, but one of my key mission is to allocate investment and prioritize investment. and North America. Retail and North America are both highly priority and they cross each other. So when you talk about retail in North America is top priority, especially for Natuzzi Italia. So we plan to accelerate that. When it comes to timing for executing, it's less a supply chain issue constraint, it's more the fact of identifying the proper location. We are very, let's say, Thank you very much. Thank you very much. At the same time, we want each opening to be successful, and we're very careful examining new locations. And this, I mean, I mentioned New York, but it'd be in Texas, again, with Jason looking at potential location. So we define a process where any new location will be considered as a major decision for the company, not just because of its size, but because it's a very important decision. And we want to be, all of us involved in taking this decision.

My question is, with the changes that you've put into effect, let's say each store contributes approximately another $4 million in revenue. Can you meet that demand right now?

I mean, certainly we have a production capacity. I mean, we have, especially in Italy, we have a production. We have a factory, we have people, we have a production capacity. The issue, again, has been... Transportation, material shortage, and high absenteeism in the last three, four months. So, unlikely, the pandemic is still there. It didn't disappear. But again, yes, if we open the store, we have a production capacity. We have well-skilled people here in Italy. We have a factory. We have everything ready to go.

Okay, and then my last question.

That was your question, right?

Yes, in general, can you meet that capacity?

I confirm that. What I said is we're not going to be slowing anything because of production. If anything, it's because we don't find the perfect location. But production is not an issue for our stores.

Okay, and then just last question, and then I'll turn it over to any of the other callers. I don't want to monopolize, but your KUKA.JV from your original monetization event where you sold a little over 50% for 65 million euros, it's grown considerably. Could you give us an update on that? As a shareholder, I would love to see you monetize that and help unlock the value for Natuzzi shareholders. Can you give us an update on how it's doing and if you're open to exploring alternatives or if you've already engaged?

We are open, we engage. Tomorrow we have a board with our colleagues of the JV and some of the points for discussion are really about how collectively extract the maximum value for that. The company, the JV, continues to be on a positive trajectory, both in terms of growth and in terms of cash accumulation in the JV. And in terms of profit, which has been distributed to us, I pass it over to Vittorio to share the progression of the profit. but the short answer to your question is we're absolutely is absolutely in our agenda and we are engaged actively engaged so we're not just considering we are actually engaged with our partner of course we sit in a board so it's a matter of discussing considering alternative and taking common choices but we are actively engaged the partner on that topic Thank you. Vittorio, maybe you want to share some number of the progression of the profit which has been distributed by...

In 2000, let me have, you know, a longer perspective about that. When we started, you know, by the year end, 2018, they had a full year revenues of about 27 million euro. By the end of 2021, they will triple Their sales when they started in 2018, the JV had a single digit EBIT. Now they are in the area of 12% EBIT and EBITDA is around 13%. When in 1st of August 2018, they started with 25 million euro cash. and as of September, they have already doubled their available cash. So the company is well-managed, is growing, is improving margins and cash. Antonio has already said about the cooperation with them and maybe in the future, this part will be, you know, analyzed by the JV board in terms of, you know, Thank you. You're welcome. Thank you.

Thank you. Our next question today is coming in from George Meles Curiazzi from MKH. Your line is now live.

Good afternoon. Thank you for taking my question. Two quick questions. One of them is, can you give us a progress on the Mexico plants and your plan to have production there? And then the other one is for Jason, just an update on revenues and Thank you.

So let me take the one on Mexico. And again, maybe Pasquale can provide more color. So first, when we talk about Mexico is primarily Natuzzi edition North America. OK, just to qualify what we're talking about. There are two options we are going to be implementing in parallel. One is a producer, which is a very established company, which is a listed company. We will be producing a specific number of products, which are today making what we call quick program. So quick program means that are made to stock. which are products that the consumers in our stores and if they buy are immediately delivered to them. So we identified a subset of those models to be produced. We've been costing them. We've been looking at all the aspects and I believe that can be ramped up beginning of 2022. And this is for made-to-order program. This will be having the benefit of Fast Delivery and Reducing Our Working Capital in U.S. I'm particularly sensitive on anything which is related to capital absorption of the company. So the program of Quick Program is very successful commercially and it requires some selective working capital inventor in North America. This production in Mexico will lowering this requirement of working capital to fulfill the Quick Program. The second partnership we are exploring is a production JV, similar to what we've been successfully implementing in Vietnam, where with, let's say, S.p.A., Pasquale Junior Natuzzi, Piero Direnzo, Mario De Gennaro, Daniele Tranchini, Richard Tan, Cosimo Bardi Thank you, Pasquale, for correcting me because, again, it gave me the opportunity to reinforce the fact that for the brand positioning of Natuzzi Italia, all production will stay always in Italy. At least for what is upholstery concerned. Then for accessory, there may be some tactical adjustment, but for upholstery will always be in Italy. We are taking this very seriously in the sense that our director of operation, Ottavio Milano, is now entirely focusing on Mexico, working very closely also with Jason because, of course, he's of interest of the North American market, but is entirely focused on that region. to the point that to let him, Otadio, focusing on that opportunity, we are trying to understand how to reinforce his current position of director of operation. But he will be in charge primarily and almost solely of this opportunity to elevate our execution capability. I don't know, Pasquale, I know you are followed even before I joined the discussion on Mexico. I don't know if you want to comment anything here.

Okay, so for the last two weeks we had Ottavio Milano, one of our top managers, with another two managers. They spent two weeks' time in Mexico. In Mexico, The cost of material is two times more expensive than in China. Because, you know, let's make clear, we are going to make, so far, we manufacture Natuzzi edition for the North American market in China. But because, but our strategy is to move the production in Mexico because we downsized the factory in China in order to meet the demand from domestic market for the next five years and for the rest of Asia, while we believe that we need to manufacture for North America the brand of Natuzzi edition in Mexico. The cost of material in Mexico so far is much much much more higher than in China. The result we got so far in the last two weeks is that the cost of a final product in Mexico It's the same as in China included the duty that we pay which impact about 12-13%. So in other words, but we have also today the transportation cost is just unbelievable, very, very, very, very high. Certainly, let's say that On total cost, today Mexico seems to be convenient. We should have a meeting in the next few days with our management to finalize and understand if it really is convenient and when we should move forward with our production to meet the special order business. While, as Antonio said, our CEO, we believe that we should start the production of a five top seller model that we warehouse in America for immediate delivery. I mean, Mexico is still, you know, in the process. But it seems that all the Americans are trying to move to Mexico from China because the transportation cost is just prohibitive. And probably the feeling between Americans and China is not the best one. It's just a matter of feeling, certainly.

Maybe just to summarize that, So the made-to-stock is definitely happening, and that should be roughly around the beginning of 2022. And the special orders, you are working hard on that, trying to see whether to start the process.

Within two, three weeks, we should have a really much, much clearer idea how to do it and what to do it.

On the special order, on the made-to-stock, your summary is very correct. We are launching it in 2022.

The second question was for Jason about, you know, updating.

Yeah, in fact, the other question, I think, Jason, you should take the one on retail, you know, or U.S. retail.

You bet. Thank you. Listen, the results we're seeing in Q3 and now that we're almost two full months into Q4 continue to be encouraging. We've been already saying that our best stores are performing at and around $4 million, which we're continuing to see. and that our network average is closer to $3 million. I think it's also relevant to share that as we have been watching some U.S. retailers report written order results in the fall, some of those retailers are having a hard time comping against their 2020 orders. and we're very pleased on the retail side to confirm that our results in Q3 and into Q4 are at a double-digit increase over what we saw in 2020 in Q3 and Q4. So we're quite pleased to feel that continued momentum. I hope that answers your question, George.

Yes, it does. Thank you.

Thank you. Our next question today is coming from Kyle Travers, a private investor. Your line is now live. Please unmute your phone. Kyle Travers, your line is now live. Perhaps your phone is on mute. Please unmute your phone line. The next question, your line is now live. Please proceed.

Hello, gentlemen. Robert Marston from Penn Capital. Congratulations on navigating a very difficult period through COVID and this explosive recovery. I'm looking at a lot of talent on this screen right now. And yet, and I'm looking at a great product with a phenomenal brand name. and yet the only thing consistent has been the lack of profitability at the business. It's been good times or bad, high rates or low rates, good economy or bad, the company's been consistently unprofitable. So we hope things are going to change and could you potentially give us a set of revenue and margin targets for the intermediate term that management would be held accountable for and that shareholders can use as a benchmark to set a price target on the business should these be achieved.

Thank you. Thank you very much for the positive notes on our business, which is very appreciated. I completely understand and sympathize with your question. The marginality is really our focus. In transparency, the company, as many producers, has more an attitude to focus on growth and top line rather than margin and capital utilization. We have been now having a full set of KPI supported by SAP, which allow us to track for any micro cell of our business the EBIT produced. and going forward also the cash flow produced for every microcells. That is just part of the story. There's also a bit of cultural change because, again, all the company, you say something right, which I appreciate because it was very straight. In any time, the company did not great margin, I mean, last 10, 15 years, but also need to be recognized that also growth was not there. So I think the company secured growth. and hopefully in a substantial way within double-digit growth or whatever you cut to the business. I think now definitely it's time for margin. And this is going to be a top priority for us. It's going to be what to really look at in reading the business. It's really what's going to drive our decision of investment. It's what's going to drive our decision of MBO and promotion of people, our implication for my compensation. So this is really central. I understand your question. I must delude you in the sense we don't provide guidance. We have internal target breakdown by geography, by line of business, but we don't provide the standard targets, not because we don't want to help investors, but I think because there are so many parts moving. that we want to be cautious in the way we create expectation around our company. We want to deliver first and then to create expectation. So I can reassure this is very central. I'm sorry to disappoint you because we don't provide guidance on where the margin or the EBIT or the cash flow will be in one year or one year and a half. That's something we don't do.

I have something else to say also, Antonio, that it's true that in the last 15 years the company has been negatively performing. But please understand that 15 years ago Natuzzi was an Italian leather upholstery manufacturing company. Today Natuzzi is a lifestyle brand. And to create a lifestyle brand requires just investment, investment and investment. And then to create a retailer model that should be profitable, again, requires investment, investment, investment. So today, I mean, so that's the way we should Interpreter, the result, the balance sheet result over the last 10, 15 years. So, I mean, we have done huge investment. Today, we are lifestyle brands. The wholesaler business represents 15%, 85% is branded, where we make a better margin. And now we have also good management to manage the retailer and the brand around the world. So that's something to be considered.

Thank you very much. I will interject, Antonio, That one quarter or one year outlook is guidance, and many companies do not provide short-term guidance because of the moving parts, but they do on their website put a presentation with financial intermediate or longer-term financial targets. There are two very different things, sir.

I think it's a very fair comment. I appreciate you making that. I think here you have a combination of us being on movement internally and the outside being on movement. But again, I appreciate your question. We would reflect if at one point we're going to feel Thank you. We heard you. Thank you so much. Is there any other question?

Thank you. Our next question is coming from Kyle Travers. Travers, your line is now live. Please proceed. Mr. Travers, your line is now live on my end. Please unmute on your end, and please direct your question at this time. Travers, once again, please unmute your phone line. You are unmuted on my end. Moving on to the next questioner, your line is now live. Next questioner, your line is now live. Hello, next questioner, was that Mr. Marson? Are you there? Greg Cohen with Rambleside, your line is now live.

Hey, guys, can you hear me? Yep. Hi. My question is around e-commerce. It looks like it was recently launched. Can you guys give some color on how large that opportunity can be and what, if anything, we're doing to promote it? Thank you.

Thank you for your question. I might take this and, of course, I would say Jason, but everybody else. and everybody else on our site is very welcome to provide color. So let's triangulate on a few sources to see how big can be the opportunity. If you look at other players in, let's say, the furniture and accessories, they do a significant part of business online. So if you take, you know, William Sonoma, Restoration Hardware, percentage are significant. I mean, I think you have the data, but we're talking about 40, 50, 60%. Of course, that includes also accessory. When you look at more just furniture, steel is very significant, maybe 20, 30. Those are players which are focused on geography where digital and e-commerce are predominant, are very well accepted in North America and Anglo-Saxon market. So I think we'll be on the high end of what we can give us as a target. But this is just to say that for us is a significant opportunity. We are doing till last Thursday, we were doing zero. We record some sales already this weekend. So it's all on upside. All on upside also because in my view will allow us to tap into new segment of customers also with partially different demographic. Then the way in which we are doing it is to be channel neutrals. That means that we are setting incentive system for the customer and for our team not to make one channel prevailing on the others. So it will be always an environment where the customer can buy either online or search online and then buy in our store without any barrier. But we believe this can be one of our major upside opportunities together with retail. In terms of driving traffic, as you know, you need to be on the organic growth, which I think we're going to be benefiting a lot because our brand is very, very popular across geography. Beyond organic growth, we want to boost traffic by working with the usual suspect in terms of buying traffic. There, one source of financing for me will come also from the sector practice of doing sales and discounts across the year. S.p.A., Pasquale Junior Natuzzi,

Thank you. Ladies and gentlemen, that does conclude today's question and answer session, and that does conclude today's webinar. You may disconnect your lines at this time and have a wonderful day.

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