Natuzzi SpA (NTZ) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Natuzzi S.p.A. Fourth Quarter and 2006 Full Year Financial Results.

[OPERATOR INSTRUCTIONS]

At this time I would like to turn the conference over to Nicola Dell'Edera, Financial Director. Please go ahead, sir.

Okay. Thank you, Matthew, and thank you to the listeners connected from the United States, good afternoon to those connected from Europe. This is Natuzzi's fourth quarter and full year 2006 earnings call. Today, we will review our results for the fourth quarter and the full year 2006 and then, as usual, we will open the discussion -- we will open the call to your questions. You should already have received a copy of our Natuzzi earnings results but, if you don't, please go on our website, natuzzi.com, you will find a copy or call our Investor Relations department at 0039-080-8820.812.

Before proceeding we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the US Securities laws. Obviously, the actual results might differ materially from those in the forward-looking statements because of the risks and the uncertainties that can affect our results of operations and financial conditions. We have discussed such risks and uncertainties, which have in the past affected and may continue to affect our results of operations and financial conditions in our Annual Report and Form-20-F for the fiscal year ended December 31, 2005, reports that are readily available on our website or from us upon request. A copy can be obtained also from the United States Securities and Exchange Commission.

Regarding the currency conversions, during the fourth quarter of 2006 the euro appreciated, still appreciates with respect to the US dollar by 7.8% passing from an average of $1.1890 per euro in the fourth quarter 2005 to $1.2894 in fourth quarter '06. Whereas considering a 12-month period, the euro slightly appreciated by 0.9% in 2006 on a year-over-year basis, passing from an average of $1.2449 in 2005 to an average of $1.2565 in 2006.

Let's start from an overview of revenues. During the fourth quarter of 2006 total net sales increased by 1.3% at EUR193.1 million from EUR190.6 million reported for the fourth quarter of 2005, and over the same period, upholstery net sales by 0.7%, this was increased at EUR174.2 million from EUR173 million in 2005 fourth quarter. Considering the full financial year, in 2006 total net sales were at EUR735.5 million, up 9.8% from EUR669.9 million we reported for the full year 2005. Upholstery net sales increased by 11% at EUR660 million from EUR594.8 million we had in 2005.

The increase, the 0.7% increase reported in upholstery net sales in the fourth quarter 2006 was due to the following reasons. We had a 3% decrease determined by the average strengthening on a quarter-over-quarter basis of the euro against major currencies in which we export, a 2.9% decrease in units sold, and a 6.6% positive price mix effect. On a full year basis the 11% in upholstery net sales was due to the following. We had a 0.5% decrease determined by the slight strengthening on average on a year-over-year basis by the euro against major currencies, we had a 7.3% increase in units sold and a 4.2% positive change in the price mix. The positive performance in 2006 turnover on a year-over-year basis was mainly due to a higher utilization of our operations to lower the orders backlog. But because of the challenging business conditions, especially in the US, the company for the past few months has been experiencing a high single-digit reduction in order flow on a quarter-over-quarter basis. That has resulted in a double-digit decrease in trend in revenues so far.

Looking at the geographic breakdown of the upholstery sales, during the fourth quarter of 2006 net sales in the Americas decreased by 9.9% at EUR58.5 million whereas in Europe, upholstery net sales increased by 5.5% at EUR102.2 million. In the rest of the world increase was 20.5% EUR13.5 million. Our sales performance in the Americas was substantially in line with the market trend that still remains as reported also by other major players in the furnishing sector quite challenging. At the same time the group is focused more than before on the European and Far East markets. As far as this latter is concerned, we see China as a very interesting market. In fact, we have recently opened in Beijing a new Natuzzi store of about 1,800 square meters, quite a big store.

By breaking down the total upholstery net sales under the two basic coverings, leather and fabrics, leather upholstery net sales increased by 3.5% at EUR152.5 million whereas fabric upholstery net sales decreased by 15.2% at EUR21.7 million. Looking at the two brands which represent our turnover, Italsofa and Natuzzi, during the fourth quarter 2006 the former represented 48.9% of total sales sold and 37.5% of total upholstery sales as compared to 52.1% and 36.1% respectively in the previous year comparable period. The Natuzzi brand that currently addresses the medium-high segment of the furniture market accounted for 51.1% of total seats sold and 62.5% of total upholstery sales versus 47.9% and 63.9% respectively reported for the fourth quarter of 2005.

At the end of December 2006, the group had a total number of Divani & Divani by Natuzzi and the Natuzzi stores of 126 in Italy and 152 abroad, while one year before we had 136 stores in Italy and 154 outside of Italy. At the same date, there were 560 Natuzzi Galleries, the same number as three months earlier. During the fourth quarter 2006 other sales, which include polyurethane foam, raw materials, accessories and some fees from services, increased by 7.4% at EUR18.9 million.

For the last quarter of 2006, the company reported a gross profit of EUR58.5 million, which was up 6.4% from EUR55 million reported from the same comparable period of the previous year. This means that as a percentage of sales we had a gross margin of 30.3% in 2006 compared to 28.9% we had in 2005. For the full 2006, gross profit was at EUR244.9 million, up 16.3% from EUR210.5 million in 2005. Gross margin over the same yearly period passed from 31.4% to 33.3%.

On the manufacturing cost side, we report currently a strong pressure on the demand for leather coming in particular from the Far East. This means that prices are growing at a double-digit rate. More moderate pressure is reported on other materials such as chemicals and wood. Selling, generation and administrative expenses were EUR61.9 million, up 2.5% over the same period of the previous year and, as a percentage of sales, increased to 32.1% from 31.7% we had in the last quarter of 2005. Transportation costs in 2006 were substantially flat over the previous year at EUR69.4 million. Currently, regarding transportation costs we do not report a particular pressure on prices whose mix is substantially flat. During the fourth quarter 200, the company reported an operating loss of EUR3.4 million from an operating loss of EUR5.4 million and on a full year basis we had an operating income of EUR16.5 million versus an operating loss of EUR14.7 million.

During the last quarter of 2006, the company reported a net foreign income of EUR2.8 million from a net foreign income of EUR2.4 million reported in the fourth quarter 2005. Looking always to the fourth quarter 2006, we have also to report that the company accounted for provisions for contingent liabilities amounting at EUR5.6 million, while in the same period 2005 the company had, in particular, an extraordinary income represented by the government grant of EUR4.4 million. For the quarter, the company reported income taxes of EUR1 million as compared to EUR4 million the company had in fourth quarter 2005.

Looking at the whole 2006, income taxes were EUR7.1 million versus EUR3.1 million we had in 2005. During the last quarter 2006, the company reported net losses of EUR5.1 million, which means on a per ADR basis EUR0.09 on a per ADR basis as compared to net losses of EUR0.7 million for the fourth quarter 2005 that on a per ADR basis were EUR0.01. Considering the 12-month period the company returned to profitability by reporting EUR12.3 million, which means EUR0.22 on a per ADR basis, from net losses of EUR14.6 million or EUR0.27 per ADR in 2005.

The company still reports a good cash [projection]. In fact for the whole 2006 operations generated a cash flow of EUR66.9 million corresponding [audio gap] EUR23.2 million or EUR0.42 per ADR generated in 2005. In 2006 our total CapEx net was about EUR20 million and the net financial position at the end of the year was EUR121.6 million, quite a good increase from EUR78 million we reported at the end of 2005.

Okay, now myself, Mr. Pasquale Natuzzi, Chairman of the Board of Directors, Mr. Ernesto Greco, Chief Executive Officer of the company and Filippo Simonetti, Chief Financial Officer of the company are available for your questions please. Hello, Operator?

Yes sir. [OPERATOR INSTRUCTIONS] And our first question comes from [Edwin Flick] with Citadel Value Fund. Please go ahead.

Yes, good afternoon, gentlemen. My first question is about Italsofa, what struck me in the fourth quarter is a volume decline of 9% and I wondered if you could elaborate on what happened there.

Hello? Good afternoon, this is Pasquale Natuzzi. The decline on -- I mean Italsofa should compete with the Chinese market, no question about it. There is no brand value on Italsofa because it's a new brand, just was developed in early 2000. And because we manufacturer in China and in Brazil, it's almost 50/50, the total Italsofa volume is manufactured 50% in Brazil and 50% in China. The Brazilian currency has been penalized by the exchange rate against the dollar so that's one of the reasons which our Italsofa prices are not so competitive compared with the Chinese benchmark that has been established in the marketplace.

Okay. But on the other hand, I mean sales were up 4.5%. I was a little bit confused what happened there, especially since it seems like the past was quite successful [in growth], even that first nine months it seems like a bridge was [passed] I would almost say. Is this indicative of --?

No, I understand your confusion. We sell Italsofa to the mass merchant, big distributor around the world, especially in the United States. So when we lose two or three frames on the floor with two or three big guys, it's easy to lose [$5 million] of business, that reduce your percentage in it.

Oh, okay.

So [inaudible - background noise] a suggestion of could happen, let's say it could happen. But the reality is that Italsofa should face the Chinese competition which is very, very, very difficult.

Okay. But does this basically mean that it has changed compared to a couple of quarters ago when Italsofa was --?

It's changing every week.

Okay. I remember from --.

It's getting worse - put it that way.

Okay it's getting worse, okay. Because I remember also, I don't know what quarter it was, but you seemed to have a very high growth quarter last year one of the quarters and it was exceptional you said at that time because there was one major retailer in Europe that booked a very large order. Or was it really in 2005? I can't remember anymore.

[multiple speakers]

Okay. And the fact that leather is growing and fabrics is in decline in the first quarter, I mean you said basically the same --?

[multiple speakers]

Yes, okay, the same effect.

[multiple speakers] same question again. We created a microfiber market, especially in the United States. And so when we introduced the microfiber I mean we sold to the major dealers, Federated, all of the big dealers in the United States we sold the microfiber product. Again, microfiber knocked off by China price, not 50%, 10 times less the price, I mean it's just impossible what's going on in that country.

And if you talk about --.

They destroyed that product category also and consequently our fabric percentage has been dropped.

If you talk about such a fierce competition from China, are you in particular referring to Decora?

No, I mean Decora is not the only one, Decora. They come up like mushrooms the factories here, like mushrooms every day. I mean they start to manufacture in the garage, to hire little kids and our ethics is very much different. I mean we are a company with values and we like to compete in fairness.

Sure. What I always understood from Italsofa that part of its success was that it was still connected to a big Italian furniture company. It was designed by an Italian furniture company. I mean --

We need to readdress our Italsofa lineup. I mean while Italsofa was developed to target the medium-low price, today we should target Italsofa and we should develop a new design where the price benchmark should disappear. Otherwise we are lost in the beginning.

Okay. And before I give the floor to somebody else, do you know why Mr. Tranchini left?

Mr. Tranchini left because he wants to go back to the advertising business, which he has been involved for more than 20 years. So he acquired experience with Natuzzi and then he wants to go back to his own and previous job.

Okay, so I can't expect to see him at a competitor of yours anytime soon?

No, we are absolutely good friends and has been --

Okay. Okay, thank you.

You're very welcome, sir.

Thank you, sir. Your next question comes from Mario Montagnani with Bank Julius Baer. Please go ahead.

Yes good afternoon, gentlemen, a couple questions for you probably starting with your net cash position. Is there any intention to buy back, to pay a special dividend? It seems to me you are sitting on a pretty much high level of cash, that would be the first one. The second one targets restructuring of your facility to achieve or to improve profitability within the company. Is there any measure, could you be a little bit specific there, is there any target you want to discuss to share with us in terms of gross margin, EBIT margin or a split between the two, Italsofa and Natuzzi brand?

The third question will be on your CapEx expense, could you share with us your CapEx for the current fiscal year? Finally, if you could be a little bit more precise on these exceptionals that you have in 2006, is there any exceptional foreseen for the current fiscal year? And last but not least, if you could be a little bit more precise on this declining sales growth that you had in the first three trailing months of fiscal 2007? Thanks. Can you hear me?

Yes. This is Ernesto Greco speaking, good afternoon and good morning to everybody.

Hi, Ernesto.

Hello, how are you?

Fine, thanks.

Let's start from the first question, excess of cash. As we said, in a couple of times in the past, we believe that at least a big portion of this cash for the time being will remain in the company in order to support the expansion of the business and to upgrade the Natuzzi brand. Which means, that at least in the short to medium time, we do not have any formal plan of buyback or similar activities.

The second question was related to the manufacturing restructuring. I believe that this process, which has started more or less in the last three or four months of fiscal year 2006, is already showing some good signs. As a matter of fact the gross margin, the production margin went up by almost 190 basis points on a yearly basis, which is of course quite an encouraging sign of recovery and in efficiencies. We believe that this trend will continue also in year 2007. Of course, and unfortunately the raw material price increase, especially the one expected in the leather, could affect the profitability. So if we will be able to manage the recovering efficiencies with the extra prices we have to pay in buying the raw materials, I believe that already it could be a good success.

As far as the exceptional [multiple speakers] --.

Sorry to interrupt you but any targets you want to share with us in terms of margins or --?

At the end I will give you some indication, yes.

Okay, sure.

Okay. As far as the exceptional charges, the situation is -- was very negative this year because, while in the fourth quarter of 2005 the group posted almost EUR4.5 million as income, this amount was related to some income related to the so-called Natuzzi 2000 projects. This year we reserved for some items, mainly legal tax claims, a material amount, which was in excess of I believe EUR5.5 million, so quite a material amount of money. Of course 2007, I don't know if in 2007 we will be forced to put some extra additional extraordinary items, but for the time being we do not see any of these reasons.

Regarding the CapEx expenditure level, we believe that in year 2007 we should invest almost the same amount, so EUR20 million, we spent, we invested in year 2006.

As far as the guidelines, as Pasquale Natuzzi was commenting before, the environment is very, very uncertain. The visibility we have is very, very limited. I'm sure you are familiar with the press releases that other competitors made in the last 30, 45 days. Especially in the US the market is really hard. Even in Europe there is some softness, much better is the situation in the Far East and in some other markets. All that brings us today to be, if you want, a little bit conservative. Probably also because our order backlog level is very, very limited, we could see a sort of revenues level for 2007 very close to the one we achieved in 2006. So this is our indication.

In terms of profitability, given this level of revenues, it is realistic to expect a sort of breakeven at the net result level. So the indication we give today with, as I said, a limited visibility is revenues level in balance more or less similar to the one we had in 2006. And following this indication the net result of the company should be very close to the breakeven.

Yes.

I believe that I have answered to all your questions.

Yes. So you mean from this EUR12 million we saw in 2006, you should be more or less at breakeven in 2007?

Yes, this is our best estimation right now, but of course, the environment is very, very changing, variable and probably in the coming months, we will have a better vision. What for Natuzzi is a big problem is the fact that the first semester, especially, the first semester has a very challenging base. Because in the first portion of 2006, our growth in terms of revenues as well as in terms of increasing the profitability was very, very good, just for your reference.

In Q1 '06 we had almost 14, 15% increase as well as 22% in the second quarter. So very big variance, positive variance. Of course Q1 2007 as well as Q2 2007 will have a very difficult comparison and certainly the initial portion of 2007 wasn't very good. As we said in the press release, the Q1 has started with a decrease in the order flow of almost, let's say, high single-digits. High single-digits. Even worse, the situation of the revenues, which went -- was down two digits.

Yes. Yes. And --.

And I would summarize, from one side, operationally wise, I believe that in Natuzzi we are improving the efficiencies, we are reorganizing the operations, we are better defining our positioning, the Natuzzi brand certainly is today better -- has a better visibility in the market. But certainly the business environment is really negative.

Yes. Yes. Ernesto, on the restructuring, you mentioned brand repositioning. To what extent is the plan that we saw in this fabric, even if it's a small part of your total business, is -- in connection or can be attributed to a focusing on probably Natuzzi together with leather? Natuzzi, I think, is leather sofas by definition. So it's basically the trend that you had in the market or is there any strategy to reduce the share of probably -- I know you do not disclose profitability by your leather and fabric business unit and even by your two brands, Natuzzi and Italsofa. But is there any strategy you are putting in place to focus on the most profitable part of your business? Or is it basically the trend that we saw in the market?

Okay. First of all, right now, I don't think really there is a strong link between the current performance and the slowdown of the fabric business. Maybe in the future, if we talk about Natuzzi and we put Natuzzi in an upgraded segment, probably we will get some more freedom there through the usage of the coverings.

I mean, the Natuzzi will become much more a brand than a product, which means that probably the importance of the covering will go down. So it probably is different, if you want, would be secondary, would be secondary.

Yes. Yes.

One thing is just to touch the Italsofa, slowdown in units. We commented before, together with Pasquale Natuzzi and one of your colleagues, a financial analyst. I believe that certainly in the fourth quarter, Italsofa suffered and actually we lost 9% quarter-on-quarter in units terms. But -- and I believe this is a good sign, in dollars, in euro terms, the variance was positive because we increased our sales turnover of Italsofa about 4%, which means that the average unit price, even in the Italsofa, which was and of course remains the promotional brand for Natuzzi is gaining some price benefits, which is of course very, very important.

Yes. Yes. Absolutely.

Hopefully, this trend should continue and certainly the product development team and some ideas that we have to expand the Italsofa presence will go, all these activities towards this direction.

Yes. Yes. Ernesto, finally, before I hand over to one of my colleagues, but could you say a word on your distribution networks. Is there any -- you pretty much satisfied, didn't you dramatically from last year, this retail network that you had. The direct [inaudible] stores and your shop-in-shop concept. Is there any loss making parts of the shop that you haven't cut in this distribution network, you want to [oppress] or are you pretty much satisfied with this outlet network?

First of all, I believe that in terms of a number of point of sales, in-network is quite balanced. We do not see a very huge amount of additional point of sales. Rather we believe that in terms of location, appearance, certainly there is room for improvement, especially in some countries.

[Progress], I -- we believe that in some markets, basically the Far Eastern market, in the text we mentioned specifically China, we have really huge opportunities. We mentioned the Beijing opening but probably even more important was the opening in Hangzhou and you know that the Shanghai is becoming a very important market. Of course this means investment, that's why we need some cash to put in these markets. It means to invest in advertising and of course it means also the timing of these actions, because there is no possibility to transform a product offer into a brand offer just in one night. This is probably the most rigid -- rigidity -- the larger rigidity we have.

Before talking about expansion, I think your focus would be in restructuring internally. We should prefer you talk about this EUR20 million CapEx and not higher and higher amounts of CapEx. Is that correct to assume that?

Yes, actually these two activities have to go in a parallel way. And we believe that we want to go exactly working on one side, the existing network while we are developing also the other side. You are familiar with our model and you know that only a limited number of stores, Natuzzi stores, are owned by us. So our US point of sales. The far away majority actually is run by our partners. And we started with some of these partners, discussing how to increase the quality of the point of sales and so on.

Yes. Okay. Thanks a lot, gentlemen.

Thank you to you.

Thank you, sir.

Next.

[OPERATOR INSTRUCTIONS] Our next question is a follow-up from Edwin Flick. Please go ahead.

Yes. I am -- I just heard a rather interesting comment about Italsofa that indeed sales were up due to price increases. But I have a bit of difficulty reconciling that with your previous remarks about Italsofa. I understood that now Italsofa is seriously suffering from Far East, especially Chinese competition and sales prices are, from a competitive point of view, too high in the market and especially when you consider that part of the Italsofa's sales are in the US and there's a negative currency effect. It seems like prices are up very much in US dollar terms and so what is going with Italsofa? I don't really understand it.

Actually there is, I don't think, there is any confusion. From one side, the Chinese competition is very strong. On the other side, Natuzzi, with the Italsofa brand, is trying to put some premium price on its product. You know that Italsofa actually is produced outside of Italy, but --

Yes.

-- maintaining, keeping very high quality standards as well as the Italian side.

Yes, sure.

We believe that in doing that, we could get from the market a premium price. And apparently the numbers confirm this statement because in the fourth quarter 2006, while the unit number was down by 9% in the euro terms -- and I'm saying euro, not dollar terms -- went up by 5%, 4.5% actually, while on the -- for the full year the sales unit amount was up by 11 and 22% again in euro terms. So clearly there was a unit price increase. [inaudible - background noise] much higher.

Okay. But will you continue this policy or how will you react to the further Asian competitive products and start to lower price points at Italsofa?

Competing on a price basis, there is no bottom line. There is no bottom line. This is certainly no part of the Natuzzi culture.

You mentioned some names before, but I don't know if you heard that some manufacturers, they treat their employees, I mean, not really in the best way possible. We have our culture, we have our value, we don't knock off models, I mean, and you can make upholstery. Upholstery, it's a closed box. You don't know what goes inside. We've been at this for 48 years, we want to stay in business for the next 480 years and I mean our values are much, much more important than a quarter result. I mean that's our culture.

Okay. Given the -- .

But I mean, certainly the business climate, it's really tough. So it's very, very tough. A lot of retailers in the United States are going out of business. Because the big guys in America, they are purchasing directly from China, the small one, even 20, 30, $50 million company, they cannot allow to have their head office in China and purchase products, so they are penalized, they are going out of business. This is the evolution of the marketplace. I mean that's the reality.

Yes. But given the fact that price points in the low-end of the market will continue to go down due to Asian competition, you will continue to, let's say, to make a tradeoff between volume and price?

[multiple speakers] the other direction. We will go in a different direction. While the price is going down, I mean, today you can buy a leather sofa for much less price than a fabric upholstery I mean. Fabric sofa. It's just unbelievable.

It's crazy. Yes. I know.

Absolutely. And I am sure you know that.

Yes. But -- so you will continue on the same road that you did? So you are prepared to make this tradeoff between lower volumes and slightly higher prices and continue on this -- .

We would like continue to make high volume and high price, but it takes time.

No, but I mean given that the market circumstances are clearly not realistic, I mean, you either sell big volumes against really crazy discount prices or you try to, even in your entry brand, to create some franchise, some Ital -- designed in Italy franchise I would say.

No. Now we are focusing on Natuzzi, on the Natuzzi brand.

No, no, no. Italsofa still. I mean clearly, I mean I was a bit shocked about the volume decline in the first quarter, but I understand that the competition is heating up tremendously.

Not only the competition. I mean the retailer business is down everywhere. There is no -- I was in the United States last week for the exhibition in North Carolina. I didn't meet one single dealer or retailer that said I'm happy with the sales. Everybody's below 10 to 15, 20%. And many, many there are going out of business. That's the reality.

Yes. Yes. So it's also a consumer spending thing in the US actually.

Exactly. Exactly.

Yes. Yes. Okay. Okay. Thank you.

You are welcome, sir.

Thank you, sir. The next question comes from Matthew Haynes with Lazard Capital. Please go ahead.

Good afternoon, gentlemen and thanks for the opportunity to ask questions. I'd like to start by continuing that vein of thought that I've just been listening to, and obviously the trends for 2007 as far as -- seem very worrisome. And I wondered if you could just share with me your rationale for continuing to remain independent, firstly, secondly, as a publicly listed company. And then thirdly, as a publicly listed company only in New York, not in Milan or London?

The company became public in '93. At that time, of course, the American market for Natuzzi was probably representing something like 85%, 90%. And it was a natural choice to be listed in New York. At that time, I should say that also the Italian stock market wasn't very, very efficient. It was very, very limited. So I believe that the group made a good move in becoming public in the NYSE.

Maybe today the situation has changed, but for the time being, no decision has been taken. You know that to be de-listed and de-registered from the NYSE market is not really easy, even if the rules now have been changed a little bit, but still there are some problems. I'm sure that this is a topic, which is handled much more by the shareholders than by the company itself. As you know, this is a shareholding decision. We as a company actually do not manage these kinds of matters.

Next?

My third question, I'd like to continue on that if you don't mind.

Yes.

I think your share, and obviously speaking from the standpoint of a minority shareholder, I would assume that our interests are aligned, despite the fact that our size of our holding is obviously different and you exert control. But in the interest of maximizing our respective -- value of our respective stakes, I think your stock price and the valuation of your company suffers from lack of awareness and investor coverage by virtue of the fact that you're an Italian company listed in New York. So US analysts aren't aware and don't cover the stock because you're an Italian company and -- whereas Italian analysts or London-based analysts don't cover the stock because they can't buy it for their clients in their local home market.

So the stock has drifted to this egregiously low valuation despite my extreme respect for your great business and your great competitive position and the -- and the products of extreme high quality and uncompromising quality. So I would assume that it would be in the best interests of all shareholders to seek a very easy kind of listing in multiple markets, including your own home market. I'm wondering if you can tell me what the appetite for such a consideration would be for calendar 2007?

As I said, I can take your point and your suggestion because certainly there is a strong rationale behind and certainly I'm sure that the -- your point of view, which is probably shared by other minority shareholders will be very carefully evaluated.

Thank you.

Thank you to you.

Thank you.

Excuse me, may I continue?

Sure.

On the same point of the first two points of my question, number one, business conditions are deteriorating, I would suspect, especially here in the US. I think it's -- I'd like to understand the rationale for remaining completely independent and the question --?

I'm sorry, I forgot your -- you are right. Sorry. I forgot to answer to your first question.

I believe that from one side, Natuzzi was and is a family company. And of course as usually happens, before -- to I think to extraordinary operations, there is the family decision first of all. But I want, as manager of this company, to point also another point. In the furniture business, especially in Europe and especially in the medium high segment, the majority is not almost the totality of the furniture business. It is in the hands of small players.

In Italy, I'm sure you are familiar with some Italian [brigades] brands. The majority of the very high-end brands have a very limited amount of revenues. Something like, EUR100 million to EUR100 million. In this business, the economy of the scale are not really huge. In this business, I believe that it is much more important the commercial strategy, the distribution strategy and the style. I believe that Natuzzi has a all these ingredients to be really a leader.

What is important that you are mentioning the US market, no doubt the US market in the last couple of years at least was really tough, is still suffering, but the answer is I believe not put all our eggs in the US market because as I was recalling before, there are very important markets. And being Italian, I believe that it gives us certain advantages.

Excuse me, but I would like also to help in that. Our brand awareness in the United States is very, very high. The reality is that we are suffering on the US markets because the exchange rate, we shouldn't forget that. I mean in the last four years, the euro, I mean, has been evaluated in the area of 30, 35%. I mean, many people, they went really out of business. We are still keeping our position. We hope that something will change.

Now it's four years that the dollar is getting to be so low, and again, we are still doing significant business just because the brand awareness. Retailer, consumer, they ask for Natuzzi products. I mean, obviously we hope that the situation will change.

I appreciate that and I think -- I don't think that many people would argue that you are the leader in your category. And --.

I mean and we aim to be. And we aim to be. We aim to remain to be.

Right and --.

We work with passion more than before and with a lot of --

And that's part of the reason why I am a very big fan of the company and the products.

I appreciate that, sir. I appreciate that. I hope I will meet you one day and you are welcome to visit us here and talk with our and touch with your hand what we do here for our shareholders.

Well, I spent seven hours down in --.

We're sorry, we're sorry, I mean for the business conditions, but I mean there is nothing else we can do, more than working seven days a week.

No, I'm not asking for an apology for business conditions. If I may make one more point before I pass this on.

Why not? Yes, sir..

And I have spent seven hours there last August with your -- down in Bari, Italy with your company.

Oh, good.

But if I may make one more point. One of the things that --.

Don't come again in August, please, because August is the only month we take one week of vacation.

I think I was very lucky to find so many people there. I was going to make the point that I think you have a tremendous opportunity at present to create a tremendous amount of shareholder value, irrespective of the deteriorating business fundamentals, especially in the US. And the source of that is obviously the tremendous cash on the balance sheet and the fact that your stock trades at a big discount to tangible book value. And to me it's a very simple kind of problem of the mathematics. And it's easy to solve and if some of that cash was deployed in buying back stock and shrinking the float so that all of us enjoy a greater proportionate ownership equity interest in the assets of the company, that would be very accretive on a per share basis and I think very accretive to valuation in its entirety. And I think it would communicate to the investment community that you're willing to consider deployment of cash in ways that not only will enhance your strategic, competitive position, but also in ways that will be in the best interests of creating value, permanent value, for the shareholder. I'm not talking about a 3-month or 6-month or 12-month pop. I'm talking about creating permanent value, underlying value for shareholders.

Absolutely. We appreciate your comment and a good one. No question about it.

Thank you, sir.

You're welcome.

[OPERATOR INSTRUCTIONS] And our next question is a follow-up from Edwin Flick. Please go ahead.

Hi again. I'm -- I would like to spend a couple of minutes on the repositioning of the Natuzzi brand in the US. I mean it is the split in the Pasquale Natuzzi correction and the Natuzzi products that are sourced maybe from Brazil for example. I mean how far are you in the process? How is it received by retailers? How are consumers reacting to it? Could you give some flavor for that?

Yes. We just last week announced it to the sales force. The brand segmentation, the sales force is very enthusiastic about that. It has been explained to the retailers that we made during the sale. They are also very, very happy. Now it's a matter of implementation and before that it's a matter of organization because to implement the retail concept in the United States or the sales of high-end products from Italy require a new and different management to be -- to manage the situations. So we are working now on the -- the strategy has been defined. Now we should work on the organization. We feel with the people, the appropriate management and then we should go forward.

Okay. What is your time schedule on this? I mean, when do you want to have a nationwide rollout of this program?

We need first to test the market. I mean it's not easy to -- we need to test the market. But again --.

But you did that.

No, no, no, no. We just opened it, I mean, a flagship store, the retail store in SoHo to show the brand as a kind of billboard, let's say. And then it's just one single store in Dallas so far. Again, recently, last market, we announced the brand segmentation because we cannot sell under the same name to everyone and rolling out even the store. So segmentation has been announced, well-received by the retailers and by the sales force. Now we need to work on the organization and it takes time. It's not that could happen in the next few months.

And your initial feedback from the test marketing activities is positive as I understand.

I mean -- we cannot say that it is a positive because the store in Dallas has been opened less than two years ago. There was some big work in the area where the store has been positioned and there's been penalized also for six months business. We don't have enough, I mean, response to say that the test has been positive.

And in New York? In SoHo?

In SoHo, again, it's only 3,500 square feet store on two levels, including the basement. The rent is very, very high. That one is considered the flagship store. It's to show the high-end Natuzzi brand on the marketplace. And we do quite well there.

Okay. As you look at it now, when do you expect to have -- to -- I mean I understand you're still in a testing phase, but when is the point that you will say go or no go with this program?

We hope that within this year, within this year we should open some other stores somewhere else. And make more -- I mean, a try on the marketplace.

Okay. Thank you.

You're welcome.

Thank you sir. And there are no further questions at this time. Please continue with any closing comments.

Okay. So thanks, everybody, for participating in today's call and good morning and good afternoon.

Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for participating. You may now disconnect.