Piero Direnzo - IR Pasquale Natuzzi - Chairman and CEO Vittorio Notarpietro - CFO Marco Saltalamacchia - Chief Commercial Officer.

Yura Barabash - Primary Capital.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi Fourth Quarter 2014 Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

Joining us on today's call from Italy are Natuzzi's Chief Executive Officer, Mr. Pasquale Natuzzi; and the Chief Financial Officer, Vittorio Notarpietro; and the Chief Commercial Officer, Mr. Marco Saltalamacchia. As a reminder, today's conference is being recorded and I would now like to turn the conference over to Piero..

Good morning to our listeners in the United States and good afternoon to those of you connected from Europe. Welcome to the Natuzzi's fourth quarter 2014 conference call. After a brief introduction, we will give room for a Q&A session. Mr. Pasquale Natuzzi together with the Management Team will be glad to answer your questions.

By now you should have received an email copy of Natuzzi's earnings results. If not, you can find this information within our website at www.natuzzi.com, or please call our Investor Relations department at 0039-080-8820-812 to receive the results by email.

You can also email information requests or questions to our email address, investor_relations@natuzzi.com. We will respond to you as soon as possible. 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.

We have discussed that such risks and uncertainties, which have in the past affected and may continue to affect our results of operations and financial condition in our Annual Report on Form 20-F for the fiscal year ended December 31, 2013. These reports are available within our website or from us upon request.

You may also obtain a copy of our Form 20-F filing from the United States Securities and Exchange Commission. And now, I would like to turn the call over to the Chief Financial Officer, Mr. Vittorio Notarpietro. Please, Vittorio..

Welcome everybody. As already discussed in previous conference calls, 2014 was characterized by some events that have deeply affected the operating performance of the Group. Anyway, our improvement expectation for the future were and still are lien to our 2014-2016 transformation plan that was approved and announced in February 2014.

As a quick recap, following are the founding elements of the plan.

One, definition of a new brand and distribution strategy coupled with a new commercial organization; two, a fixed cost reduction plan, both in the Group's trading subsidiaries and headquarters; three, rationalization of our directly operated stores network; four, product innovation, that is reduction in complexity, product reengineering in order to get a positive impact on quality and production efficiency; and five, integrated production process innovation setting up of moving lines, then integration between internal processes and supply chain, overall review of planning logics, development of the IP system for better, more efficient production management.

With the first four just mentioned points of the plan have been and still continue to be substantially in line with the scheduled timing envisioned by the transformation plan, as for the fifth and last point that is production process innovation and more in general the efficiency recovery in our plans, we experienced in 2014 significant problems in its implementation.

Obviously, this had different effects if compared to our initial expectation as discussed and anticipated during the previous conference calls. Such events can be linked to the Chinese plants and the Italian plants. Let's see China.

During the first weeks of 2014, the Group made important investments aimed at starting the new moving line based industrial process, replacing the traditional ones.

Towards the real, let's say, industrial revolution for our Group that was however, executed with a very aggressive timing, which caused problems in labor organization, IP system and the necessary training.

The result was that during the first months of 2014, while we had a positive and growing order flow, the production output drastically reduced also following an higher than usual turnover among workers soon after the end of the Chinese New Year holiday period. It’s important to say that this event did not accrue in 2015.

In such an emergency situation, the Group's decision could only deactivating external manufactures, in order to provide for the reduced internal production capacity of our Chinese plants that required further cost significantly higher than internal standard costs in addition to sustain unusual cost, such as additional VIP and additional transportation costs.

These overall additional costs have impacted both significant goods cost namely wooden frames and transformation costs, for a total amount on a yearly basis of €5.2 million. Obviously a multi disciplinary taskforce was set up to tackle this emergency, analyzing and solving the inefficiency deduct arisen in the first part of 2014.

The actions that resulted from this taskforce had gradually generated month after month improvements in our industrial operations.

Such improvements started to arise during third quarter 2014 with a recovering turnover and industrial margins as set forth by the table included in the last Friday press release and that continuing in the first quarter this year. Let’s see Italy now, here the situation was different.

In first quarter 2014, negotiations for the restructuring of the Italian operations were still ongoing. During that period, the company was not able to start with the implementation of labor and industrial reorganization as foreseen by the transformation plan.

So the company in accordance with social criteria deriving from application of the October 2013 agreement had to call back workers, who had not worked in our company for many years.

The observance of such social criteria has manned the testing of workers within the Italian plants on rotational basis with negative impacts on industrial efficiency and operating cost. In other terms in Fed reading a stable workforce within the plants workers worked at intervals meaningful example, one week at work and one week at home.

So generally speaking, the uncertainty climate about the result of negotiations between the company, the union and governments have strongly de-motivated our workforce with evident effects on performances in terms of quality and productivity.

We have internally estimated such reviews performance generating additional €4.5 million costs as compared to the prior year performance. But then how to tackle Italian operation issue? As you may know, the agreement signed recently on March 3, 2015 goes exactly toward this direction.

The agreement in fact provides among others that workers will work on a review shift basis for about five six hours per day as opposed to the current eight hour shift per day depending on the expected order flow that the company foresee for its Italian production.

Therefore this will contribute, I’ll say is already contributing to stabilize workforce motivate people, improve productivity and get some labor cost reduction.

Coming back to our press release, fourth quarter 2014 shows that the [user forth] [ph] made so far continued to generate positive effects on the growing output capacity and internal efficiency.

It’s also important to highlight that this gradual improvement does not factorize yet those further positive contributions in terms of cost reduction, cost of goods sold reduction, deriving from our experimental activities. In this regard let me briefly explain, what we had done during 2014.

One, we had just reduced by 25% number of models and versions potentially losing only 2% of the overall turnover, and two we have just reduced by 38% the number of coverings in order to reduce complexity and working capital needs.

All this has been already done and starting from April 1 this year 2015, those models can be important, those SKUs cannot be important anymore and therefore, we should start to see the first real benefit deriving from the reduction of the overall complexity.

By the end of 2014, we completed the reengineering of all the generation existing models into new moving line based models. As of today these 80% of the models can be now manufactured through new moving lines. We have set up a 5,000 square meter experimental laboratory with 45 specialized workers and managers working in it.

In this experimental laboratory, we have developed and tested all the internal production processes for farther industrial integration as we improve productivity and quality of our output.

All the industrial process innovation that we have developed in this laboratory have been then tested -- already tested within a specific industrial plant located in Matera. Fresh test have generated the following results; an improvement in efficiency as compared to 2014 with a significant reduction in the cost per minute.

A reduction in the number of workers not directly involved in production and improvements in the industrial cost, thanks to the new Industrial Labor Organizations.

The top management commitment for the next month is the implementation of all these innovations already developed and tested within our experimental plant into the Group’s remaining plants worldwide. As for raw materials, in 2014 we experienced an upward trend in leather price in particular.

Such inflationary pressure in leather has started toward the end of last year and indeed has started to likely decrease during the first month of 2015. We should get some positive benefits from this trend reversal in the following months.

In any case, the management of raw materials should benefit also from the action such as the reduction in complexity, more accurate forecasting and synergies in purchasing deriving from platform-based production.

Let’s come back to 2014 results, we carried on with the implementation of those measures aimed at reducing fixed selling, general and administrative cost SG&A. In fact, we were able to reduce by €3.5 million of fixed SG&A passing from 21.8% in Q1 2014 to 17.7% in Q4 2014, through the following activities.

The closure of direct operating stores 12 to be precise, with an improvement of EBIT performance of the DOS channel by 40%. The creation of a centralized structure to oversee the back office activities, thus reducing and rightsizing our trading subsidiaries abroad. For 2015 we plan to close six more directly operated stores.

Finally, we have already completed a substantial reduction in the managerial structure of headquarters. Now an update about on Brazilian operations, we recently signed an agreement for the sale of one of the two Brazilian plants. We have already received a first partial payment. The remaining part of it is expected to paid in the following months.

We're talking about an overall €5 million payment for plants and then we received -- we just received few days ago a formal communication from the Brazilian local tax authority that the Natuzzi Group is entitled now to get paid for its [performance] [ph] credit, which are export incentives.

We're talking about other €5 million we will collect in the following months. Lastly, I would like to conclude with just a consideration on the recent weakening of the Euro currency towards both U.S. dollar and Chinese Renminbi. This trend in currencies has recently made Asian exporters in the European market.

Taking into consideration the fact that the Group has a big plant in Romania, the Natuzzi Group could better exploit this opportunity with big retailers in Europe. So this new scenario could strengthen our business in Europe.

It is very, very important to underline that Group’s actual financial result of the first two months of 2015, are confirming the gradual improvement we started in Q3 of last year. So to recap, we first have reduced our pricing to support margins. Second, have worked to improve efficiency in our operations.

Third, we have reduced our fixed G&A and right sized our VOS network. And finally, we could benefit from the new currency scenario. The combination of all the above puts us in the position to confirm that the goal is to achieve a breakeven at the [EBTDA] [ph] level starting from the fourth quarter 2015. Thank you so much.

Now we’re ready for your questions..

[Operator Instructions].

Good morning to the European listener -- good afternoon to the American one and good afternoon to the European one. This is Pasquale Natuzzi, the CEO of the company. I really would like to interact with you people, you guys, you shareholders, you potential shareholders. We have really a lot of things to share together. So please don't hesitate.

If you like to ask a question we'll be very pleased to answer to you. [Operator Instructions] We'll take our first question from Yura Barabash with Primary Capital..

Mr. Natuzzi. Hello. A -.

Hello this is Piero Direnzo speaking. So it feels that there no further questions and of course ladies and gentlemen, should you have any further information you would like to ask us, please don't hesitate to contact us or email me and we will reply exhaustively as soon as possible.

We have so many things to communicate to you and would like to share our plans and goals with you in a short time. Okay. Thank you all and have a nice day..

And this does conclude today's conference. Thank you for your participation..