Natuzzi, S.p.A.

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Hello everyone. Thank you for joining the Natuzis conference call for the 2025 third quarter financial results. After a brief introduction, we will give room for the 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, actual results might differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial condition. Please refer to our most recent annual report on Form 20-F filed with the SEC for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. And now I would like to turn the call over to the company's chief executive officer. Please, Mr. Rotuzzi.

Thank you very much. Good morning, everyone. And thank you for taking part in this quarterly call. To what was already communicated in our press release, I would like to add some more details and remarks. While the geopolitical situation has not changed, and in some respects is worsening as a result, consumer confidence remains weak. Despite our investment in marketing, food traffic in our stores, particularly in the United States and Europe, continues to lag. while in some cases we are seeing improvement in conversion rates these gains are not sufficient to offset the decline in overall traffic in spite of the current challenging business environment we have improved our gross margin this quarter surpassing the levels recorded in the first two quarters of the year this achievement was made possible by A more favorable sales mix. In fact, sales of Natuzzi Italia, which deliver higher margin than other product lines, grew by 18% compared to the third quarter of last year, while sales of unbranded products, which are not core to our business, decreased by 20%. we intend to continue in this direction, supporting the blended sales that then offer higher margin. The closing of the Shanghai factory last year, which enabled us to realize a cost saving on industrial operation in China. However, it is important to note that improvements in margin remain limited by labor costs in Italy. following the reshoring process from China to Italy of the Natuzzi edition production from the North American market, completed in the second half of 2024. Commercial and administrative costs deserve a separate mention. While wages and transportation expenses decrease this quarter, overall SG&A costs remain high relative to our current revenue base. Therefore, both myself and the management team remain committed to support ourselves while reducing fixed costs at the group level. We certainly continue our discussion with the Italian government, which has recognized the company as an enterprise of strategic relevance for the country. I would like to inform you that next Monday, I will personally be in Rome at the relevant ministry to seek to improve quality, reducing transformation costs at our Italian factory. and thereby increasing production efficiency lastly we continue to invest time and resources in participating in inter international trade events as well as the in-store visual merchandising and external architecture design in order to offer customer an engaging and compelling shopping experience Recently we were in India and just yesterday we completed a commercial roadshow in China meeting with the leading architecture firms to develop a project similar to the Natuzzi Harmony Residence presented in Dubai and Jerusalem. I'm sorry, you know, we are really doing not our best, more than that, really to satisfy the expectation of our shareholders and our stakeholders, and we will continue to do so. So if there are any questions, I would be pleased to answer together with Carlo, our CFO. Thank you. Thank you very much for listening.

So now we're conducting a question and answer session. If you'd like to be placed into question queue, please use the ask a question feature on your screen. Once again, if you'd like to ask a question at this time, please use the ask a question feature on your screen. One moment, please, while we poll for questions. Our first question today is coming from David Kane, and your line is now live. Please proceed, David.

Are you guys able to hear me? Yes, please. Oh, yes. Okay. Okay. Thank you for taking my questions. The first one pertains to your meeting next Monday in Rome with the government. And if you could give us some sense as to the outcome, maybe sometimes we talk in terms of the bear case scenario and the moderate, reasonable scenario and then the bull case. What do you expect to come of the meeting and then on a go-forward basis, what our cost structure will look like given the concessions that we hope to get from labor and so forth?

We are working on restructuring the plan And one of the main, you know, actions that we need to do for that is to rationalize our factory here in Italy. In Italy, we have six factories and one logistics center. We plan to reduce the production in three factories instead of six. In order to do that, we need to move people from one city to another city, but in the same region. We are not the city. The plans are not so far away from one to the other. But we need to move people from one factory to another factory, and that requires, let's say, an agreement from the government and the Union also to let us do that. That's one. Number two, as everyone knows, we have today in Italy 1,350 workers, but we need 800 750 800 people the other people we need you know to i don't know exactly the english word but we need to use some uh in some help from the government that provide to use 800 people instead of 1,550. We call in Italian. Carlo, can you help me with the appropriate word, probably?

I start from here. So, David, if I can add on top of Mr. Natuzzi, we need to tool different level of measures, what is called a kind of forelaw, Right. To keep on going. But I will be, let's say, more strategic in this situation. Our target is to have, let's say, a when you talk about time frame, it's to have a negotiation based on some terms that need to be deployed within next year. And there are more medium term plan to achieve what we discussed last time in terms of financial sustainability. So it's a double layer negotiation.

I see. And is your goal, you know, assuming you can get these concessions and right size the workforce. Do you anticipate at the current levels of revenue that we would actually be profitable and stop burning cash? Because, you know, obviously it's unsustainable to continue burning cash.

Let's say that the target is always to have a, to be profitable around, let's say what we discussed also in the other call, 28, 29 million per month. That's the target. Always going through some different tools. Here we are discussing about the measures that involve the workforce. Then we are talking about marginality. That implies review of the price list when our strategic positioning allows this. Then also to look into our retail network, rationalizing it. So we've through all these different measures, David, with those numbers that I mentioned before, in terms of monthly turnover, we will not bear cash, but we will, you know, create positive cashflow.

Okay. And as I indicated to you, on a go-forward basis, if you can achieve these concessions and we can achieve profitability, we would certainly be interested in putting more money in, perhaps through a pipe transaction to support the company. and help you grow and thrive well into the future. We believe in the brand and, you know, we believe there's a lot of potential given the right conditions. So thank you for that. I'll go back. I'll go back. Thank you.

Okay. Consumer confidence will make the difference, David. I mean, because, you know, unlikely the traffic is, I mean, is reducing. Unbelievable. I mean, unlikely consumers are not getting in the store despite the marketing investment that we are doing and the new product, wonderful new product. Unlikely, I mean, so, but our, but anyway, despite that, Despite the consumer confidence, we cannot guarantee what will happen from the geopolitical situation and give, again, the confidence of the consumer that the life will improve. We are certainly committed to work on cost reduction, no question about it. We should reduce costs. and we should improve the margin also. So improve the margin by our price list because our brand has a good recognition. We should reduce the cost, improve the margin, and improve the sales a little bit if the consumer is confident. But we are confident that we can achieve better sales next year compared with 2025. And consequently, if we are, I mean, if we are lucky and capable to achieve that, we will deliver a good, good profit to our shareholder. So that's our challenge. Certainly.

As a reminder, if you'd like to ask a question today, please use the ask a question feature on your screen. Once again, if you have any questions today, please use the ask a question feature on your screen. One moment, please, while we poll for further questions. We're just standing by to see if anybody has any questions. We do have a follow-up from David. Your line is now live, sir. David Cannon, your line is now live.

Okay, thank you again. So if you could give us an update on the commercial division that PJ has been spearheading. You know, there are companies that... exclusively in that sector, you know, the, the commercial sector that are doing more revenues than us as a combined entity, meaning half a billion dollars. So I see this as a huge opportunity and I think we have the right product and the brand to succeed there. Can you give me a sense as to the progress that we've made since last quarter and, uh, I'm sure you see the pipeline of opportunities that you're bidding on. How big of an opportunity do you think this could be next year, 2026?

To be honest, it's not easy to forecast, but I can tell you that we are making a huge investment in order to increase the the trade contract business. Certainly, we signed, I mean, last November, no, last November, November 2024, we did, you know, we launched the first Natuzzi harmony residence. We designed the building with 50 apartments. We designed the furniture, everything. People are purchasing Natuzzi apartment in Dubai. as far as we already are in the process to sign the second contract with the same dealer the same developer in dubai and we sign another contract in already in jerusalem where and we design the building we design the apartment we design a common part everything again a natucci residence proves the value of the Natuzzi brand. They are paying just royalty, 1.2, 1.3 million dollars, just to use the name. And then, obviously, they are going to pay the cost of the furniture. Now, just because we believe in this new business to leverage our brand awareness, This year we attended an exhibition in Riyadh, Saudi Arabia, an exhibition in Dubai, this year, 2025. Two times in Mumbai, in India, September and November. December, last December, a few weeks ago we were in Miami. Miami Design Week, another huge event to meet architects and designers. And then we just finished last week. My son has done a roadshow in China for one week, meeting the biggest firm, architectural firm, you know, to engage them and do a project for them. There is a long list of, you know, projects that we are discussing. Okay.

I mean, I see that you're working very hard, and I appreciate that. But if you can give us some sense as to the magnitude of the opportunity, I'm sure you have an internal goal for 2026. Again, kind of the bear case, the base case, and the bull case, you know. Can you give us a sense as to what that opportunity is?

Davey? Al, thank you very much for your question, first of all, because I'll allow us to give you a more, you know, color about what we are doing. So, we are treating the continent trade division as a startup, right? Because in this phase, as Mr. Natsututsi was mentioning, we are doing a lot of bidding, right? but we don't have yet the statistics on the success rate. Okay. Because we are, let's say, providing and exposing our capabilities in a lot of roadshow. And we are receiving a lot of positive feedbacks from the market. And now we are going into the bidding phase that is taking us sometimes to understand the real potential in order to to play conservative for 2026, we do not have a very aggressive plan because we are considering it as a cherry on the cake on our numbers. So the magnitude of the business that we forecast for 2026, it will be between 5 and 10 million. But then it's an exponential business. once you start deploying all the project. So just to be fair, it's a cherry on the cake. We are not very aggressive on that. Just to close the topic. I hope I did answer to your question.

Yeah. No, I appreciate that. I guess one more question. You had implied in the prepared remarks in the press release that you're in the final rounds of a CEO selection, if I'm interpreting correctly. Any additional color you can give there? How many candidates would you say it's been narrowed down to? Is it two? Is it five? Is it 10? And what do you think the timeframe is for A decision to be made.

The decision will be made based on the lack of meeting the appropriate person to cover the position. I'm using my weekend time because I'm likely to interview people. during the working day, it's very difficult. So I'm using Saturday and Sunday interviewing people. And, you know, it's my, to be honest, it's absolutely, we are going forward. You know, we hope to give a good news in a very short period of time.

Okay. Okay. That's really all I have. I'd like to wish you and your team a wonderful holiday and Merry Christmas. I know that you have the real San Nicola is right there in Barry. So I hope he brings you good gifts.

Thank you very much. Happy holidays. Thank you very much.

Thank you. No other question?

At this time, it appears there are no further questions.

I'm going to turn the floor back over to management for any further closing comments.

Thank you very much.

If there is no other further question, we are always available to reach out for any clarification you may need. on our results and performance also in the next days. So thank you very much for your kind attention from all of us.

Thank you.

Grazie tante. Grazie mille.

Thank you. Thank you very much again to everyone. Thank you. Bye.

Thank you, Ryan. That does conclude today's webcast. Let me just connect your lines and have a wonderful day. We thank you for your participation today.