Natuzzi SpA (NTZ) 2005 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to the Natuzzi SPA third quarter 2005 financial results conference call. (Operator Instructions). I would now like to turn the call over to the Chief Financial Officer Mr. Nicola Dell'Edera. Please go ahead.

Okay. Thank you, John, and good morning to our listeners in the United States, good afternoon to the listeners from Europe. Welcome to the Natuzzi's third quarter 2005 earnings call. We have today Pasquale Natuzzi, Chief Executive Officer and Chairman of the Board; Daniele Tranchi, Chief Sales & Marketing Officer; and Fred Starr, President and CEO of Natuzzi Americas.

So today we will review the results for the third quarter 2005 and then as usual we will have a Q&A session. By now you should have received a copy, by mail, of our results. If not you can find a copy of it on our Web site WWW.Natuzzi.com, or you can call our Investor Relations office at 0039-0808820812. Any questions please use our email address which is investor_relations@Natuzzi.com.

Before proceeding we would like to advise all of you that during the course of our discussion today we may make certain statements that constitute forward-looking statements under the United States securities law. Obviously actual results might differ materially from those in the forward looking statements because of risks, trends and uncertainties that can effect our results of operations and financial condition. We have discussed such risks and uncertainties which have in the past affected and may continue to affect our course of operations and financial condition in our annual report and Form 20-F for the fiscal year ended December 31st 2004. These reports are both readily available on our Web site, Natuzzi.com, or you can ask to us directly. You can have a copy of the 20-F from the United States Securities and Exchange Commission.

The current ways which always represent for us which are mainly exporters are very important to indicators say that in terms of currency conversion during the 3rd quarter 2005 the Euro slightly weakened against the United States dollar by 0.24% to $1.2996 per Euro as compared to $1.2226 dollar per Euro we posted in the same period in 2004. Looking at the first nine months, the Euro strengthened by 2.95% over the same period of last year, moving to 1.2628 per Euro versus 1.2255 for the same period in 2004.

During the 3rd quarter 2005 net revenues decreased by 11.1% to EUR147.2 million from EUR165.5 million that the company reported in the 3rd quarter 2004 while upholstery sales decreased by 11.3% to EUR130.5 million from EUR147.1 million we reported in 2004. The decrease in upholstery sales was due to the combination of the following factors. We had an increase of about 0.5% from the appreciation of the Euro against major currencies; 8.9% decrease in units sold; and a -2.9 price mix effect.

Looking at the geographic split of the sales, or which, in terms of the upholstery, in the 3rd quarter we had a decline of 14.2% in the Americas, which includes of course Northern America and South America and Central America, an 8.5% decrease in Europe and a 10% decrease in the rest of the world, which is Asia and Pacific, the Regional Pacific and other part of the world. So we had a 50 - in terms of seats sold we had a potential 50.3% decrease in the Americas, an increase of 1.7% in Europe while in the rest of the world we (audio skip) a decrease of 14.4%.

Looking at the reasons -- the main reasons for this decline are mainly attributable to the persistent high level of the Euro against the US dollar that effected the competitiveness of our Natuzzi branded products in particular which -- that would explain the fact that Natuzzi decreased in the period. By the way it's always a collateral which is not competitive for an exporters like we are for the Natuzzi brand from Europe to the main markets like United States.

We reported also rising energy costs and interest rates that negatively impacted consumer confidence and with the distribution of the consumer spending in the portfolio of the families. And there is a persistent, very competitive environment that lowered our product mix, as a consequence of the strong price pressure that we are reminded comes especially from the low cost level countries.

In terms of coverings, because the Natuzzi production is split into, basic coverings which are upholstery and fabric. Leather upholstery sales decreased by 8.5% to EUR110.5 million while fabric upholstery sales decreased by 24.2% to EUR20 million. As a consequence leather seats represented 80.7% of total seats sold and 84.7% of total sales, while fabric sales represent 19.3% and 15.3% respectively, a mix that is an historical mix of the company since the introduction of the fabric in the mid of the 90's.

Looking at the two brands, Italsofa and the Natuzzi Italsofa is the promotional one - excuse me, sorry -- one Natuzzi medium high end brand. In the 3rd quarter of 2005 Italsofa has represented 53.4% of total seats sold and 39.3% of total sales compared to 36.9% and 24.3% we posted in the previous year in comparable period. The Natuzzi brand which includes the sofa, the regular and the Pasquale Natuzzi collection that as I said before addresses the medium to high end, high segment of the furniture market accounted for 46.6% of total seats sold and 60.2% of total sales versus 63.1 % and a 75.7% recorded in the 3rd quarter 2004. 3rd quarter's figures keep on confirming that a downward price pressure still characterizes the upholstery market.

Turning to our retail activities. During the 3rd quarter 2005 we added seven new stores -- two in France, one each in Italy, Arab Emirates, Australia, China and Singapore. Therefore the total number of stores as of September 30, 2005 was 284 to which 138 in Italy and 146 outside of Italy. The third quarter sales to Divani & Divani by Natuzzi, which is the name of the chain here in Italy, Natuzzi stores and Kingdom of Leather stores total Europe 24.4 million, a 9% decrease from 26.8 million we reported in the same period of 2004. During the same quarter we opened 80 new galleries, thus bringing the total number of galleries at 583 as of September 30, 2005.

In the 3rd quarter 2005 in terms of other sales in which we include the polyraven form, raw material accessories, fees from services, were U.S.16.7 million, 9.2% down on a quarterly basis. In the 3rd quarter 2005 gross profit decreased by 15.6% to EUR48.6 million while the gross margin, and the gross margin was at 33 % decreasing from 34.8 % we reported in 2004 in the same period. Although we have achieved some good results in our operations as a consequence of our restructuring plan we announced last May the gross margin was mainly due to manufacturing expenses consequent to, among the others, rising energy prices as well as the start up cost of the new manufacturing operations.

In terms of SG&A, selling, general and administrative expenses, they were 48.6 million, so they decreased by 4.85% as compared to last year's 3rd quarter. So in terms of percentage of sales increased to 33 from 30.8% we reported in the same quarter last year.

Operating income -- while we have to report a decrease quarter over quarter 2005, 2004, we reported, by the way, after two quarters in a row in 2004 a break even in terms of operating income, it was due mainly to the improved efficiency achieved by the implementation of the bow(ph) manufacturing plant. In the third quarter 2004, by the way the company reported a profit of EUR6.7 million. For third quarter 2004 we had a net loss of EUR900,000 so while we had EUR1.8 million of gain in the same period of last year.

In terms of tax expenses we had EUR500,000 of tax expenses compared to EUR1.8 million in 3rd quarter 2004. So net income for the quarter ended September 30, 2005 the company reported a net loss of EUR2.0 million or in US dollars $2.4 million, while in the same period of last year we had EUR5.6 million of earnings. On an ADR basis, one ADR is one share of the company, the company reported net loss of $0.04 of Euro or $0.05 of dollar as compared to $0.10 of Euro or $0.12 of dollar of earnings per ADR reported in the same period of last year.

During the first nine months of 2005 net losses, especially because of the losses reported in the second quarter, were EUR15.9 million or $17.6 million versus net earnings of EUR27.7 million or $33.9 million dollars accounted for one year earlier. In the first nine months of 2004 net cash flow from operation decreased to EUR16.9 million from the 17 generated during the first three quarters of 2004. On a per ADR basis net operating cash flow was at EUR31cents decreasing from1.28 for the first nine months of 2004. Net CapEx in the first three quarters was EUR19.2 million which shows that the company must keep on investing in its manufacturing operation with about EUR15 million of gross investments in the manufacturing operation and another about EUR6 million of investment in retail, or lets say, distribution investments.

So for the full year we planned to invest about EUR25 million so we are not so far from this EUR25 million so we should be between EUR20 and 25 million in terms of total CapEx for full year 2005. The financial position of the company is still strong, solid and we reported a EUR17.8 million of net financial position driven by the cash the company has in the bank, plus marketable securities minus financial debt. So thank you, thanks for your patience. And now, John, we can open to the questions from our guests.

Thank you. (Operator Instructions). And we do have a question from the line of Budd Bugatch with Raymond James. Please go ahead.

Well good morning, Nicola, can you hear me?

Good Morning Budd. I can hear you.

Okay. Sorry, I did join the call a little bit late so I apologize for that. But I did want to ask a couple of questions about the difference in gross margin if you could or would give it to us by the geographies. What do you see in terms of either gross margin or operating profit by the production geographies and also the sales geographies if you could?

Okay, as you can imagine our gross profit and as a consequence our operating profit is affected by the behavior by the trend in the currency rates. And if we look at the operating profits a lot of the production in Italy of course are lower than the operating profits we are able to report in countries like Brazil, China and Romania. Together with this currency effect I would add also the fact that those are countries in which we are able to have costs that are lower than in Italy.

Even though we have to add and we said, as I said in my introductory comments that because of the start up of some manufacturing operations, for example in Brazil, for example in China, where we moved from one plant to another one, so we are having in 2005 some kind of a low --- I would say -- inefficiencies coming from this kind of start up or relocation effect. But general terms I should say, we should say, that operating profits and gross profits as of today they come mainly from up road than from Italy.

And can you kind of quantify the differential?

We do not release this information Budd, I'm sorry.

Okay. All right, thank you, Nicola.

Thanks to you.

(Operator Instructions). And we'll go to the line of Darryl Duffy with Citadel, please go ahead.

Yes, good afternoon, Aston Flick from Citadel, can you hear me?

Yes, I can hear you.

I have a couple of questions, first of all your cost base and I am looking now at my months figures, what surprises me is that costs are going down relatively slowly despite the fact that you're implementing a fairly large restructuring program since the beginning of the year. For example I see a party, third party manufacturing cost going down but at the same time your own manufacturing costs are going up quite substantially. First of all, maybe you can comment on that a little.

Okay, comments here are the following. In terms of -- first of all we are looking at a nine-month period and our restructuring plan was implemented we began to implement it in June. And so the benefits of this extraordinary plan is reflected mainly in the third quarter, while on the nine month basis we have of course to dilute this effect. The effect of the restructuring plan, which it's important to say, is implemented in its main part in Italy is really due to the benefit coming from what is called (inaudible - Italian) in Italy, which is difficult to translate in United States -- in English, but I would say a kind of a temporary lay-off the workers that are moved from the books of the company in terms of retribution (ph) and they are paid by the government partially.

And this effect has been in the third quarter where we reported benefit of a reduction of labor costs of EUR5.5 million while on a full year basis the benefit was EUR6.8 million. And so this is in terms of labor. On the nine-month basis, of course you see that there is not a big change in the labor cost line because while we were doing this kind of temporary lay-off in Italy, we had to hire new people abroad in our plants.

But, as I said before answering to Budd, in the foreign plants we had some kind of start-up inefficiencies deriving from the fact that these are new plants, new people to qualify and this is mainly handcraft product so we have to explain them how to make upholstery. And other than this, we moved part of the production from one side to another side. That's why we had that kind of productivity that we expect to have also from this plant and we should have in the following year in 2006.

In terms of third party manufacturers, yes, there is a decrease and this is due to the fact that we have reduced utilization of third party manufacturers. In terms of manufacturing cost, here we have these inefficiencies I was talking about and also the consequence of the increase of the fuel -- of the oil costs. And I believe you were looking at the gross profit line, aren't you?

Yes or EBIT. I mean --

EBIT --

-- I'm looking at, for example, selling expenses go down a little but not really spectacular. By the way, you mentioned 5.5 million decreasing labor costs. I didn't understand that completely. Could you elaborate on that because I see it went down from 23.8 to 22.1 in the third quarter?

Yes. Again, we are using in Italy -- we've been using especially in the third quarter, a kind of help from the government that is activated when a company is in a particular situation. And other terms when the company is not able to guarantee to its manufacturing operation a constant and sufficient level of orders, the company can ask to the government, just to put this thing very easily, can ask to the government support in the remuneration that the company pays to the workers when these workers are -- the company's not able to use these workers in the manufacturing operations.

That's why I said they move the workers that we do not use because there are not enough orders for them, we move this cost from our books to the books of the state that provide for the salary of these people. And we put on temporary lay-off about 900 people and their cost that the company was able to save in the period was for EUR5.5 million. This is the mechanics of the system that is typically Italian system that we had to use because of the reduction in the order flow we reported in the third quarter 2005.

Okay. I remember a press release that you rehired part of those people that you put in this Casa Integracion(ph) program. What was that about? Because you had some kind of order backlog after the summer stop? Is that correct?

Yes, we announced some weeks ago that because of the backlog that we accumulated after the summer stop and because of the decrease in the production -- and the consequent decrease in production, we called back about 90% of the people that were temporarily put on lay-off. Now they are back in production because the backlog and the order flow is improving. As a matter of fact, today we are about at 5% decrease in terms of order flow compared to the same period of last year when before during the period was higher in terms of decrease. Actually, in order to -- going back to produce the manufacturer of upholstery so to keep our customer satisfied in terms of delivery time, we called back these people.

These people mainly concern the production of the Natuzzi brand, which is out of Italy. And if I look at the volume numbers, I wouldn't expect factories to be on near full capacity or something. So I really don't -- I would expect that the people that you released earlier would be off your payroll structurally because volumes are down so heavily that -- I understand that there's a cyclical component after the summer, but wouldn't you rather move these people off your payroll entirely?

No, we were not going to -- we didn't say when we announced that the Casa Integracion program, we didn't say that we were going to fire these people. We said this is a moment in which the order flow cannot allow the company to have the same number of people in the factories because of the decrease in the order flow. Now, we stopped the production in summer, we accumulated some backlog also as consequence of this initiative. But when the backlog achieved a level that is considered an unsatisfactory level from our customers and when the flow get back to a more comfortable level, we went back to these people and we got back these people in the factories so to have the production going back at the level that can decrease the backlog and so to have our customers receiving upholstery with a lead time that is more acceptable than before. But what we expect is that in the fourth quarter of course there will be an increase in production --

Yes.

-- and with an increase in production we should be able, we will be able to recover the cost of these people that we called back in the factories because we have to consider that using the Casa Integracion Iguadande(ph), we have the kind of flexibility for which the cost of the people working in the factory is flexible. So if we sell upholstery, we get the money to pay these people. If we don't sell, we don't need these people. And so the fact that we called back these people is not a fixed cost that we are putting back in our income statement. It's still a flexible cost.

Is this program open for future use? I mean isn't there some kind of EC problem with using it?

Of course it's not a tool that you can use -- it's an extraordinary, as we said, it's Casa Integracion Iguadande extraordinary and we were authorized for two years for this program. So during these two years, we have this very important flexibility that allowed the company to move the people in the factories according to the order flow.

Okay. Maybe I can ask a little bit more about the Natuzzi brand, then, because notwithstanding the big success that you're obviously having with the Italsofa brand and I think you will -- you might reach maybe a 50/50 split between your two brands rather sooner than later, but what I was wondering about the Natuzzi brand. I mean you've introduced obviously very successfully the Italsofa brand.

There are probably also from Italy sofa brands which are positioned a little higher than the Natuzzi brand, yourself called it a mid-positioning I think in Natuzzi. Given the high cost -- the manufacturing cost base in Italy and also the very high selling and marketing cost of the Natuzzi brands and given the tremendous declines in volumes of the Natuzzi brand product, I mean aren't you a little bit squeezed on this one and isn't it better to more focus the whole company on the Italsofa brand? Or alternatively, maybe move some of the Natuzzi production to Italofa production -- low cost production facilities?

It's Daniele Tranchini, good afternoon. I'll try to take that for starters because I'm sure that Mr. Natuzzi will jump in when he feels appropriate to do so.

Okay.

The brand development is indeed working, even though the numbers belie some lagging in terms of growth of revenues and profit. Do not forget that our controlled distribution is -- the controlled distribution is what we're basing our development on. And in most markets where we have developed controlled distribution, we are still pretty much in a startup phase.

We have two exceptions which beginning to prove the point that the brand positioning that Natuzzi has undertaken, which is medium to medium high, are working. Italy, where we are generating a healthy profit but undoubtedly it's a very much more consolidated market, and Spain, where we at this point are beginning to reach critical mass, and, therefore, we are beginning to see that the retail operation, at least in those stores that are open for 18 to 24 months, are beginning to be in the black. So there is plenty of evidence in Europe that the retail approach and the branded approach through controlled distribution is working.

The U.S. is a slightly different case because there we have the hit of the dollar, which has always been one of the crosses that we've had to bear in terms of -- in terms of competitiveness of the Natuzzi line across the Atlantic. Perhaps Mr. Natuzzi would like to add a few things on some of the -- ?

Certainly. Natuzzi is a brand with 46 years history. We have, I should say, quite good brand awareness in every stage. They much better brand awareness obviously in Italy and to, I mean to just try to forget to put aside 46 years history, together with many decades of Ital(ph) know-how that we have here in Italy in our region where we manufacture, where we manage of the business around, together with all the investment that we are here in Italy would be -- I don't think would be appropriate or I mean, in favor of our shareholder interest. So that's why we are focusing on two different brands. Italsofa is a Natuzzi, it's a prize(ph) and it's grow for the future of our world corporation, and the Natuzzi we are capitalizing the history of our brand. So that's why we are focusing on two different, I mean, businesses.

I mean to a certain point that's logical. The only thing I was referring to, it seems like with the lower volumes in America, and I would argue that some of the factors underlying these lower volumes are structural like fairly high price competition in the U.S. and competition from Asia. I mean given this, I just see a kind of cost problem for the Natuzzi brand, although it's not split at the profit level, I suspect that the Natuzzi branded products really have a kind of structural cost problem.

You made a good point. If you refer just to United States or the American market, you are perfectly right. In fact, we are moving -- we already moved especially the sofas program production in Brazil and China and we agreed with the customer who carries those lines that we should manufacture overseas because we will -- and we introduce it. The sofas program which we call Natuzzi A, which is Natuzzi America program, manufacturing in China and Brazil where we get back and be competitive and make a profit while shipping the product from Italy to United States under Natuzzi brand, with the Natuzzi brand, we will almost losing money. So you're perfectly right, the collection that we introduced last October in High Point (ph) has been sincerely well accepted and we expect to grow with the Natuzzi brand business in America and making profit.

If I could just add to that --

Sir, you need to introduce yourself.

This is Fred Starr. And to just add to what Mr. Natuzzi was saying, as well as Daniele, we completed the October market and had -- we had some challenges. We were taking the branded Natuzzi product, which had been produced basically entirely in Italy, and moving it to Brazil and China, we had two uncertainties here. First of all, just the complexity of moving not only product models but also covers to these different countries and how the retailers would accept it. And then also behind that was just the change in terms of manufacturing from a very Italian Natuzzi brand to China and Brazil. And we were --

(inaudible - microphone inaccessible).

-- designed, always designed in Italy and made in Italy as well. So this was a big change and, as Mr. Natuzzi has indicated, it was extremely well received. Our representatives and sales organization is out writing orders today.

We had two successes. One was with large retailers. We saw many of the large retailers in the States and this was just great because they're looking for step-up opportunities and this -- we were solid in opening price points in the middle part of the market. And then the second is galleries. We have 215 galleries in the U.S. and Canada now, as well as three stores, and we were able now to make these really established areas of retail operations much more competitive and that was well received too. So as we look ahead, we've got a different picture in the United States and in North America in general and it started this market.

Just one thing if I might add, while the percentages you see on the results for the third quarter and for the nine months are there, our earlier flow is better than that. And so we look forward to steady improvement in the periods ahead.

If I can add a couple of words on this issue, we don't have to forget one important thing is the currency, that even though we can consider it a fact that the Natuzzi brand -- they manufacture it in Italy -- has some kind of cost competitiveness. Over the past two years at this point, we have been strongly penalized by the strengthening of the Euro against the U.S. dollar that made our product much less competitive than competitors coming from, example, let me think, China, can we say China? China, yes, because China had the pact (ph) with the U.S. dollar that before was at the 8.27 and now it's at 8.11. So they don't have any kind of currency competitiveness effect while we had this.

We don't try to forget that the Euro against U.S. dollar went up to $1.36 per Euro at a certain point of time and today it's still at 1.20, and which is far from a currency conversion rate that can make a company like Natuzzi, but I would say a European company, competitive on a market like United States.

Okay, thank you very much, gentlemen.

You have a follow-up from Budd Bugatch. Please go ahead.

Yes, I had a couple of other questions if I could. Nicola, on the balance sheet you've got the employees' termination indemnity. Is that likely to get paid out over any time soon? What's the length of the tail of that?

I think you are talking about the new law in Italy that, as you know, in Italy what is called the TFAR(ph) is an indemnity termination for the workers is -- remains into the company and is used by the company as some kind of financing, internal financing. There are no news on this. There is only one news that the government in Italy is still working on this issue and probably in 2006 there will be a new law that will allow to the people more -- to the workers more flexibility than today. In other terms, they will be able to choose if they want to keep the money into the company for the termination indemnity or to move the money in the financial market. But this would be only for the new, how can I say, new accruals -- new accruals, not for the money that are already into the company. So we don't see a potential risk in terms of liquidity crunch coming from this issue.

In terms of Casa Intregacion Iguadande, let me take the opportunity to specify also that it's true that we don't pay the salary for these people, but it's the same time true that we pay the termination indemnity for them.

So that money will likely stay in the company and at least at some level close to where it is on the balance sheet now and you still are accruing for that?

Yes. At least this is based on what is the law that is under discussion in the government and in the Parliament. If something changes, of course, we are in the hands of our -- of the Parliament and the government. But as of today, there will not be a potential disruption in the liquidity of the company. So this could be really a nightmare for the Italian companies. Can you imagine all the Italian companies losing suddenly all their moneys in the internal bank coming also from the money of the workers? It's not possible.

Understood. So with the cash on the balance sheet that you have looking reasonably secure, even with the tough operating climate, remind me if you have an authorization to repurchase shares and what the mechanics are for your company? I know you're New York Stock Exchange stock but an Italian law company, so I'm nut sure I fully recall that.

Okay. As of today we do not have a buyback program. The last one was, if I recall properly, three, four years ago. In 2001, I remember we bought back the last shares of the company -- I remember about 2.8 million shares at that time. They were cancelled last year and that's why we decreased common shares to 44.7%. If we decide -- if the company should decide to make a buyback, we have to follow the Civil Code here in Italy that says that there is a limit to buyback share, which is 10% on total shares, in terms of this must be authorized by the shareholders meeting. And in terms of New York Stock Exchange, there is no particular limitation or requirement, if I understood properly your question.

I was trying to understand what the Italian --

Especially in the (inaudible - cross talk).

(inaudible - cross talk) has any issues; I just wanted to know whether you had them?

No, there is a limit in Italy.

Unlimited, okay. So basically, of the shares outstanding or of the capitalization base? Is it of the $47 million of shareholder's equity or is it of the number of shares outstanding 10%?

Yes. No, no, 10% of shares outstanding.

Numbers on the shares, okay.

Yes.

And my next question is -- goes to that currency issue you addressed a few minutes ago. I think the currency is like $1.16 or $1.17, is it not? And if you were operating at that rate for this full year as opposed to where you were operating, do you see much impact on the (a) your competitiveness; and (b) the earnings picture? What would be the pro forma?

Any figure of decrease and the decrease of figure in the commercial rate, it's a recovery in terms of profitability for the company. U.S. dollars, they represent 40, 50% of our sales. So while we fix the U.S. dollar prices for a certain period of time, of course we are exposed to this risk. 1.16 it's already at more affordable level of conversion. Of course, we hope that your Federal Reserve Bank, which I suppose is the main reason for this recovery of U.S. dollar, will keep on continuing in increasing the interest rates so to have the dollar more appealing in terms of investments and so to move from the Euro to the U.S. dollar. I understand at the same time that the interest rates cannot go too much higher because there is negative impact on sales on the top line, as you explained a lot of times to me. But we have to mix these two effect and as of today, is much more to have U.S. dollar lower than it is today than run the risk of higher interest rates.

Okay. And my final area of inquiry to Daniele would be on these controlled distribution costs, which has changed a bit of the character of your income statement, I would think, could you kind of give us -- tell us how we should think about the stores' operation as a change of cost basis? And you told us that is -- did I hear you correctly now that the retail operation is now profitable or just about at profitability?

The retail operation is beginning to inch towards profitability. I would be -- I would be too optimistic to say it is profitable. But if I look at the consolidated realities that I have around the world, and there are two today and they are basically Italy and Spain, Italy is a, if you wish, is a separate story. It's got 15 years under its belt and it's turning a healthy margin, thank you very much. Spain, which is now into its fourth year of operation and has just about now completed the geographical footprint around the country, is beginning to show black. So we are still bearing a lot of the startup costs, but the stores that were opened earlier in the process are now definitely into profit.

Good. And of the $479 million of revenues in this quarter, did you disclose, I don't think so, at least if you did I missed it, what part of that is company-owned retail?

Nicola, help me on this one?

Yes, we do not disclose.

We do not disclose.

Will you not have to soon? I mean you should be at a point I guess -- or when will you be at a point where it'll be material enough to have to disclose that?

I'm sorry, was not holding the microphone. No no. We will be able to disclose soon this information. It's just a matter of understanding which kind of information -- we have to make some kind of fine-tuning on the revenues we have to report correctly under the distribution, the controlled distribution.

Sure, I understand, and the elimination side of that as well.

Yes, as you know. And also, if we are to talk in terms of consolidating the income, revenues and stuff like this.

I understand. Thank you, Nicola, thank you Daniele and Pasquale, nice talking to you. Fred too.

Thanks to you.

And to the presenters, no further questions.

Okay, so if there is no further question, thanks to everybody participating to this conference call. And the next one will be for the full year 2005 and will happen in March. Thanks again.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and you may now disconnect.