Natuzzi SpA (NTZ) 2008 Q1 法說會逐字稿

Good afternoon, and thank you for standing by. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question and answer session.

(OPERATOR INSTRUCTIONS)

I will now turn the meeting over to Mr. Nicola Dell'Edera. Your line is open. Please go ahead.

Okay. Thank you, Maria. Good morning to those connected from the United States. Good afternoon to those of you connected from Europe. This is Natuzzi's First Quarter 2008 Earnings Call. Today we will review the result of this first quarter and soon after, we will open the call to your questions.

You should have or received a copy of our Natuzzi Press Release. If not, you can find this information on our website at natuzzi.com, or please call our Investor Relations Department at 0039-080-8820812 to receive the result to mail. You can also e-mail information requests or questions to our e-mail address, investor_investorrelations@natuzzi.com and we will be very pleased to answer to you as soon as we can.

Before proceeding, let me recall that our discussion today could contain such statements that constitute forward-looking statements under the U.S. Securities laws. Obviously, actual results might differ materially from those forward-looking statements because of risks and uncertainties that can affect our results of operations and financial condition. We have discussed such risks and uncertainties, which have in the past affected and could continue to affect our result of operation and financial condition.

In our Annual Report on Form 20-F for the fiscal year ended December 31, 2006. The reports are readily available on our website at natuzzi.com or from us upon request. You may also [take complete] of our Form 20-F filing from US Securities and Exchange Commission and a Form 20-F for the fiscal year 2007 would be filed with the SEC by the end of June 2008 as requested by current legislation.

Regarding the currency conversions during 2008 first quarter, the average of the Euro/US Dollar exchange rate was 1.5007 versus an average of 1.3109 in the prior year first quarter. This means that the Euro strengthened by 12.6% against U.S. Dollar on a quarterly basis. But let me take opportunity also to say that just in the first quarter since the beginning of this year through March 31, but also in these days, the U.S. Dollar has furtherly devaluated against the Euro by another 7%, 8% and by another 4% against the Chinese Renminbi.

Regarding revenues, during the first three months of 2008 the Natuzzi Group reported an increase of [1.4%] and a 15.9% on a quarterly basis in terms of net sales and units sold respectively, mainly because of the accumulated backlog we had at the beginning of the year. As of today, the excess backlog has been used and the Company's working existing order flow, which is likely lower than the same period of last year.

To be highlighted -- by the way, the growth in terms of sales and orders in the so-called emerging markets. For example, in East Europe both sales and orders are growing at more than 20% year-to-date. In China, we have doubled sales and orders year-to-date and Middle East is growing at almost 50% -- is very good signals of the reaction of this markets to the Natuzzi proposal.

During the quarter ended March 31, 2008, operations generated a negative result, unfortunately, of EUR12.1 million, mainly due to the following reason. We're still resistant to inflationary pressure, which is particularly evident in the US market. For the furniture industry is still suffering from one of the worst periods of the last decade. This means, as you can imagine, prices under pressure, while U.S. Dollar continues to devaluate against the Euro, against China's yuan and Brazilian currency. All of these are currencies of countries in which we produce products that are sold in the United States, so you can imagine our difficulties to operate on the price in in certain conditions like this.

The disappointing performance was [also felt] by our Brazilian subsidiaries. As a matter of fact, we report unsatisfactory productivity levels of the plants and [unperpleasing] uncertainties and these incentives were exported to the United States that were initially granted by the local government when we opened the plants.

We are critically analyzing the situation so to make a decision in the next weeks. But in the meantime, we are already using one of the plants for domestic sales. We believe that Brazil is a great opportunity for Natuzzi.

In order to recover some margins in the meantime, we have been doing some actual concrete actions. For example, recently since, as I said before, we were under pressure from a currency point of view. At the beginning of March, the Group announced it business partners some price increases through its brands that should start producing positive effects in the following months that reactions to this increase have been quite a good acceptable because our customers understand it's not just related to a decision of the Company, but because the surrounding microeconomic and business environment is very difficult and we have to recover some margins from our sales. Besides, due to the persisting decline of the order flow for our Italian plants, we are discussing with the unions in excess of about 1,200 people in Italy, would that represent almost [50%] of total employees of the Group.

During the fourth quarter of 2008, the Company also had a net foreign exchange loss of EUR10 million, which can be explained according to the following issues. We had an actual gain of EUR0.5 million on forward contracts that did not completely offset the loss of EUR 1.3 million due to the difference between the invoice exchange rate and the exchange rate from the date of collection paid.

At this time, we report an unrealized loss of EUR9.2 million, of which a loss of EUR6.4 million related to the mark-to-market of receivables and payables, a net of mark-to-market of our hedging position, and the loss of EUR2.8 million related to the Group's available of foreign currency at the end of the quarter.

Let me say that at the end of the quarter, for example, the U.S. Dollar was at 1.5840, while at the beginning of the year it was 1.4721. So you can see how much was the spread between the two levels and why we incurred so much unrealized loss. As a consequence of the factors previously mentioned, we reported net losses of EUR23.4 million, or EUR0.43 net losses per share.

Let's give a look at the retail activities and starting from 2008, we've introduced a new classification of the point of sales to better represent our distribution network. In addition to the tradition on Natuzzi stores and Divani & Divani by Natuzzi store, the Group also operates what we call concessions, which are some kind of store-in-the-store concept.

That (inaudible) numbers that during first quarter 2008, 11 new Natuzzi stores were opened -- which two in Spain; two in Taiwan; and one each in Italy, France, Netherlands, China, Philippines, Israel, and Kuwait. Furthermore, five new concessions were open in UK, one in [aray]. Lastly, at the end of March there were four new Italsofa stores.

Therefore, the total number of points of sales at the end of first quarter 2008 were 323, of which 304 represented by Natuzzi stores and Divani & Divani by Natuzzi, 50 in concession, and 40 Italsofa stores. At the same date, there were 438 Natuzzi galleries worldwide.

Operation during the first three months of 2008 used about EUR4.4 million of cash flow. Principally because of the already national quarterly net loss, but we had, by the way, a good management of working capital. In the same period, the Group made investments in marketing and has opened other new stores and galleries worldwide, but they were quite minimal -- about EUR2 million.

Net CapEx, as a matter of fact, overall for the first three months of 2008 were EUR2.6 million. The financial position as of March 31, 2008 was EUR70.4 million from EUR77.5 million at the end of 2007. Thanks for your patience and now, Maria, we open the calls to the Q&A session.

Thank you. (OPERATOR INSTRUCTIONS). The first question comes from Seth Habich. Please, sir, go ahead.

Hello. I just had a question on, we were expecting a business plan. Is that eminent? Is that next couple of weeks, next couple of months? What's going on?

Yes. Your question is right. We announced in the last press release that we were working the business plan and it was supposed to be released in the first part of May, but we are reviewing, before releasing it, we are reviewing again and we are making new, more critical review of the business plan, also, considering the very different economic and currency conditions that have been raised in the last few weeks.

So I cannot anticipate at this time it will be ready next month or in two or three months, but we want to make -- and I hope you will appreciate the effort -- we want to make a good work, a safe work, and so as soon as we are ready we will announce and release information about the business plan.

Thank you.

You're welcome.

The next question comes from the line of Mr. Marty Henks. Your line is open. Please go ahead.

Good morning.

Good morning.

We have had discussions in the past regarding the opening of retail stores into what I have characterized as one of the worst economic downturns in the last several decades and it was interesting to read on page three of your release that you're not admitting this as well. So I'm wondering if you could just comment about your plans regarding further deployment of the cash on your balance sheet, open new stores in light of the fact that you're now kind of realizing or admitting that this has been a pretty severe downturn. And then I'd just also like to hear your comments regarding what I think are some pretty silly levels of the valuation of your stock, at 25% of liquidation value.

Let me see. One question at a time because -- let me see. The first question is regarding the opening of the stores in economic downturns and we are doing something that is not very different from what are doing other competitors in the furniture industry. We are doing something must be done in particular if we wanted to raise the brand awareness and the access of our Natuzzi brand in the market.

The performance of the store actually is not always the one that we were supposed to have. That's why Mr. Natuzzi in the press release said we are considering some closing of the stores and very probably we think about ten stores will be closed. But at the same time, another 20 will be open. It's quite, I would say, notwithstanding the cash constrain that I think you were mentioning, it's quite normal in a moment like this that we have to invest in the stores because we have to give continuity to the Natuzzi brand project.

So part of this, we will continue to open concession, to open galleries, and we have begun to open also Italsofa stores. The retail project is a project that it's very important for the future of the Company and we will continue to open stores. I have, by the way, to tell you also this, which is very important. Of course, there is a cash incidence when we open the stores that are directly owned, which means we make the investment.

But it's important also to recall that this stores are open as franchise stores. So in this case, the risk for the Company is more a credit risk, not a direct investment risk. It's something, again, that must be done because it's very important for the establishment of the brand in the market.

Can you talk about the stock prices --?

Do you have another question, I'm sorry, that I missed?

Yes, I did. We just happened to notice that in the market your stock is trading at 25% of liquidation value, which is a pretty silly level, assuming the business is worthwhile. It's more worthwhile as an ongoing entity than it is in liquidation.

Are you asking for a comment on this 25% from myself, or you're just making a comment?

I'm just looking to continue the dialogue we have had with regard to my preference for seeing some response on the part of the Company management deploying some of the cash to buy back stock when it's trading at such a huge discount to book value, which would be incredibly accretive not only to Pasquale but to minority holders like ourselves as well.

Regarding the buyback or actions more expansive, the thoughts of the Company are that in this moment we are very focused on the business management and we believe that considering that 2008 will be a rather difficult year, we have to focus our financial (inaudible) our cash on business management. At the moment, by the way, the Company or the management has not make any decision regarding buyback.

If we will create value, but we are sure that we will create value once we go through this difficult moment, which is not a difficult moment only for Natuzzi, but let me recall that it's difficult moment for the furniture industry, for the Italian export, for everybody in this market. We will create value going through this difficult situation and delivering new [saxcess], new positive results, and we hope that the stock valuation will appreciate efforts that the management will implement in this period.

Then you'll please forgive the criticism that deployment of the cash in your balance sheet in any way related to your business and to the economic downturn that we're experience is definitely going to not create as much value as deploying that cash and buying back stock at 25% of book value. It's a mathematical truism. I'm growing quite tired, actually.

I understand. I understand your point, which is for sure a good shareholder point of view and a good financial point of view. But these are moment in which we believe that cash and any other usable asset in the balance sheet must be dedicated to the recovery of the business.

We have a legitimate difference point of view, but our point of view is the point of view of management, which is using every penny in this Company to create value through the business through creating service for the customers, through creating new products, through opening to helping our franchisee to have beautiful stores, to investing in all those activities that will help the Company to recover revenues and to recover profit. So, please be patient in this moment.

Trust what management is doing, starting from the CEO, Mr. Natuzzi, to the very last one, if I can use this word. But let's say in terms of numbers, just for number of a badge number of our employees. Everybody here is taking great care of the pennies we have in the piggy bank in our banks and we are using this money with great and careful attention. Any thought about buyback, building things, stuff like this, it's not a priority on our desk.

The priority for us every day we come into the Company is to help this Company to create new value to the business, to have our customers to have new products, to make our customers loyal customers because we are able to deliver value to them. If we create value for them, we create value for you and everybody will be happy in this story.

I think balance could be better struck.

Hello?

Thank you.

Okay.

The next question comes from the line of Mr. Mike Vertich. The line is open. Please go ahead.

Hello?

Mike? Hello?

Nicola?

It's me. Who is over there?

It's Budd Bugatch.

Hi, Budd. How are you?

Okay. I was not sure that it was me that you was talking about. A couple of questions.

Good. Go ahead.

One, you said the plan was supposed to be released, I think, in early May. Did I not hear a date for when the plan will be done?

You didn't hear a date.

I think, Nicola, we are due a date, and I asked, I think, last time not only when but how you would communicate it, so do you have any hope for us on those two questions?

Regarding the business plan, again, is not because we are postponing something that we don't know how to set up. We have the idea very clear, but we are fine-tuning these ideas, these strategies, the recovery strategies, the turnaround strategies in the market that is very volatile, and that's why we are taking some other time because we want to communicate goals, objectives that are not just related to the communication with the financial community that we respect at the maximum.

But these are commitments of the management with the market, with our customers, with our suppliers, with our employees. That's why we want to make a work very well done, very well [told], because once we have done this we want to pursue those goals. We don't want to do something like, we prepared a beautiful PowerPoint presentation just give to the financial community and in the three/four months go back and say, "I'm sorry, we made a difference assumption. Now we have to change." No.

We want to do a work very well done and shake the hands with the oldest stakeholders and take a commitment as a management. That's why we ask you a little bit of patience and we are working on the business plan and it will be ready as soon as possible, but not talking at the end of the year. I'm just talking about weeks, a few months, but it will be ready.

We want you to have a plan that's comprehensive and affects all of the stakeholders. We don't want one that is just pretty gussied-up for the financial community. We want one that has a high likelihood of success as well. One of the areas I noticed was not in the release, that I thought you discussed last time, was to sell into Brazil, which has been the source of significant pain -- both operationally and from an exchange point of view. Is that not part of the plan now?

Sorry, Budd. Just to elaborate that other question. Are you asking if we are still planning to sell in Brazil?

That's correct. That would obviously, if you could to any significant degree mitigate some of the foreign currency exposure you have as the Real is strengthened.

Good morning. This is Pasquale Natuzzi.

Good morning, Pasquale.

Good morning. So regarding Brazil, I must say that we're very happy because we received the first order for one big customers, which has a chain of a store. We are directly managing from Italy the relationship with five very big, big account in Brazil. We started to research the management since October of last year. Not easy to find management in Brazil.

But again, yes, the plan is to organize the distribution in Brazil and probably in all Latin America while we have the production plans in Brazil, where today we are unbelievable suffering because of the exchange rate. So today, it's so far we manufacture and ship from Brazil to United States, we lose 20%, 25%. It's just crazy what happening over there. So now our immediate plan to reduce the production by 50%, 60%, 70%, move that production to China because we have a commitment with retailer in the United States and in meantime get distribution organized in Brazil.

Okay. Nicola, is there any chance that we can get some indication of profitability by geography, by large geographical segments, in the quarter and versus last year?

At this time, I can immediately take a commitment with you and all the guys that are connected in the financial community. We have today finally a way to examine the profitability in a different coordinate and we will be able, starting very probably from the next conference call or at least two conference call, also to give a little bit of more indication regarding the profitability, at least on the geographic region and possibly regarding also the brands.

Okay. That'd be helpful. My last two questions. One, foreign exchange was a significant loss this quarter for the change of -- larger than I've seen before, I think. Is there any other way to mitigate that? I think under Italian GAAP you were required to take it right to the P&L as opposed to go through a comprehensive income versus a U.S. GAAP. Is there any way to offset with some liabilities that particular exchange exposure?

Okay. The question is, of course as you said, more an accounting issue than an actual and business issue. We have to report unrealized, most unrealized, losses because of the application of the Italian accounting principles, that instead of U.S. GAAP, I suppose because they are quite similar to the international accounting standard, have to report completely in the income statement any volatility in the currency exposures, why according to U.S. and IAS accounting principles they can be put on hold until they are realized.

That's why applying this principles we see this kind of volatility in that line quarter-by-quarter according to the volatility especially of the U.S. dollar. But let me take the opportunity also to say that in that line, which I agree with you is a significant one of the worst in the quarters since our listing on the New York Stock Exchange, there are also some issues that must be said. One is related to some, 50% of those unrealized losses are connected to receivables -- inter-company receivables -- with subsidiaries that we have decided to close. So this currency effect is related to all the receivables and will be cleaned up starting from the second quarter and we will not see anymore volatility on those receivables.

Other volatility is related and so unrealized losses to the cash in U.S. dollar, in particular, we had in the Company until March 31 when the dollar went up to 1.5840 against euro and those were unrealized loss. And there many parts are related to receivables and payables, only partially mitigated by the hedging activity that we make.

If the question is how we can hedge this volatility in the income statement, the answer is that the way we make hedge is related to the determination of the exchange rate we put into the list price is not related directly to [zmoo] to the volatility in the income statement. Is more related to a business issue to establish the best exchange range to put into the price list, that to hedge the income statement.

So, there is not a relation immediately seeable in the income statement between the unrealized losses and the hedge we make. The hedge we make is a 12-month horizon and while the credits, the receivables and the payables, are two months, so they are not completely matchable, the two things.

You are much more adept at hedging transactions than I am or would ever be, but it would seem to me that for the balance sheet items, there might be a natural hedge with liabilities as opposed to a transactional hedge in the foreign currency markets. Am I incorrect in that presupposition?

No. It's not incorrect. Is that the way we hedge is more a cash flow hedging. We don't make transaction hedging. That's why we cannot put into our balance sheet in the liability side a liability that can match the assets which are denominated in the same currency. Is not related to matching receivables and payables, because again, we make cash flow hedging and this hedging is related to the determination of the price list and it's 12-month horizon and so the volatility of our hedging is different from the volatility we have in the receivables. That's why it cannot match. If you --.

My last question is, did you mention anything about orders and backlog right now? Where were orders in the quarter in terms of either [receipts] or currency and whatever in euro, and where does the backlog stand now at the end of the quarter?

It's slightly lower than the same period of last year.

And have you ever disclosed what that number is?

No. We have not disclosed, but it's about 2%, 3% lower than 2007.

Okay. All right. Good luck on this. We'll be very curious and obviously interested in your plan when you prepare the disclosure.

Thank you, Budd, because I know that your good luck is very sincere and it's very important for us.

Hello?

The next question comes from the line of Mr. Seth Habich. Your line is open. Please go ahead.

Hi, thanks for my follow-up here. I just want to confirm. Pasquale bought 3 million shares in April. Am I correct?

Yes.

Okay. Do we know who --

Something like that.

3.2.

Okay. That was a negotiated transaction with one seller?

For what I know and what we had been referred by the majority shareholders, there was a private transaction. Let me ask confirmation to -- yes.

Okay, so that was a private transaction. I guess my concern is that those shares were offered originally to the Company and I guess I support the earlier gentleman's concept that the Company should be buying back shares at a 25% of the liquidation value. And the reason we do this is not because we don't believe in the future of the Company, but more specifically because there's lack of a -- there's a certainty when we buyback our shares, where there's not a certainty when we reinvest in the Company.

One of the reasons I'm an investor and a supporter of the firm is that we've done a massive amount of investment over the past three or four years around the globe. If anything, we have enough investment going into the Company. Maybe it's time for some disinvestment in the Company. So, I would guess that -- I'm just pointing out that if a large shareholder is offering shares to the Company, that should be an opportunity for the firm, not just for the principles of the firm. You don't have to respond to this. This is just my concerns. Thanks.

Okay. Thank you. We appreciate your comments because they are comments that we have to take into consideration in any case. And [buy the] shares, by the way, would not offer it to the Company, but it's a private transaction. Mr. Natuzzi's here and I suppose he will confirm this, but again, we must stay still on the comments we make before. We are investing money in the recovery of the Company.

May I -- this is Pasquale Natuzzi. Good morning. Do you hear me? Hello?

I think he can hear you. Probably has been switched off by the switchboard, but probably can hear you.

But I want to make sure that he listen to me. Hello?

Maria, is it possible to get back?

Yes. Mr. Habich, please press star one.

He is not back.

I am back.

He is -- .

He's back. He's back.

I am back. I apologize. The technology is a little antiquated.

It's okay, okay. The way that the situation happened is the investor [relator] receive a call from this investor who declared -- .

I think that what we are saying here, what we are talking about, is that of course we receive time-by-time some request by shareholders and so on and they ask, "Do you want to buy? Do you know anyone that wants to buy?" But we always say that we are not interested unless the reason is termination by our shareholders that we can buyback these shares.

Okay, this is Natuzzi. I'd like to emphasize that the reason probably I have made a mistake and if I did that, I apologize, but my intention was to give sign to the shareholder, to the management, that Natuzzi family believes in what we are doing and that was the intention. But if we made the mistake, I mean, I don't know, I mean, I apologize.

It is not a -- I'm not trying to make a formal claim here. What I am trying to point out -- .

You understand -- .

I appreciate tremendously what you're saying. What I'm pointing out, though, is it's time to get through the plan and attack the market, not just by reinvesting in the business, by whatever's necessary to ensure that all of our shares rise the same in value. So I really was hoping to hear from the plan and I'm sure you're going to expedite matters as best you can and we're all looking forward to that. I think that will govern how we act in the future on these matters.

Okay. All right. Thank you.

Thank you.

We have one more question on the line. Your line is open. Please go ahead.

Hello?

Yes, we are here. Please go ahead.

Yes. Good afternoon. [Antoine Flick] from Citadel Value Fund. I have four questions. One of the previous guys asked something about Brazil and then you mentioned that you were going to move production from Brazil to China due to the problems in Brazil. But what I understood previously is that China was basically going at 100% production capacity because of the successful exports to especially the United States. So I wondered, how are you planning or are you planning any expansions in China?

We have management in place and we are obviously, when I said we should move the production -- I mean, we needed to organize the production and move it from Brazil to China and we should that very soon because again, from Brazil because of the exchange rate and because of the productivity, it's very inconvenient today to manufacture in Brazil.

I fully understand this, but I thought that China was basically running at 100% production capacity, so I -- obviously there's -- .

We lease another building and we are increasing the hire of more people and get organized in this production.

Okay. Okay. My second and third question basically anticipates your coming business plan, I guess. But I wondered whether the sale of surplus assets will be part of your business plan. I'm particularly referring to maybe real estate in Italy and secondly, maybe the company jet. I was just wondering what's going to happen with that.

And secondly, the cost base. If I look at the cost base in the current quarter and compare it to one year ago, obviously labor costs have increased again and manufacturing costs have increased probably due to Brazil, I guess. Is there any shorter measures that you can take to bring down your costs? And I'm particularly thinking about [disgaza interconteon] plan, which you have implemented in the past in Italy. But I'm a little bit surprised that your costs are just growing and growing, whereas there's clearly problems on the EBIT line. So maybe you can elaborate a little bit on that and maybe more specifically, the current quarter where you are in right now, where you're seeing some cost savings?

Okay, okay. Good afternoon. This is Gaipa speaking. I would like to answer this question directly. Cost of personnel has increased, especially overseas operations, not in Italy, especially in other plants. So now, we are talking about reduction of cost of personnel in Italy because the production capacity in Italy is too big compare with real export capability we have. So this is the [patronalization] we want to do in the next weeks for -- coming -- before some application anyway. I don't know if this is enough to answer your question.

Well, I mean, where particularly have the labor costs increased, then? In Brazil, I presume?

A part in Brazil, a part in China.

Okay.

Because we have increased production in China.

Okay. And your manufacturing costs, does that correlate with Brazil as well? The increase in manufacturing costs?

Oh yes, absolutely. In Brazil, manufacturing costs are -- yes.

Okay.

The manufacturing costs in Brazil is increasing.

Okay. Can we expect clear measures over in Brazil, then, flowing from the business plan that you are going to present in a couple of weeks or months now?

Absolutely. In the next few weeks, you will get information about the plan in Brazil that we are making.

Okay. I believe you have two separate manufacturing plants in Brazil. Is that correct?

Yes, that's correct.

Okay. And would closing one of them possibly -- ?

We don't know yet. We are working and analyzing what would be more convenient for the Company.

Okay. The first question on surplus assets. Are you identifying any surplus assets that could be ready for sale?

Yes, of course. When you have a situation like this in which for sure there is an order flow and a level of production which is under the level of which were established and the build-up assets -- three, four, five years ago -- everybody has to think about taking off assets and selling assets that are not worthwhile for the recovery of the business.

We have already identified some assets related to the production in Italy and we are selling this asset. I'm talking about something in the range between EUR40 million and EUR50 million of assets, which mostly are nearby in Southern Italy. And we, as Mr. Natuzzi said, we are thinking about Brazil and we cannot anticipate in this case what we will decide to do and if there is any asset. But there are assets that must be put out of the Company and we wanted to -- we can sell this asset. Absolutely.

And just adding what Mr. Gaipa said that on the manufacturing costs and the labor costs, we have to act quickly and this is why we have identified the surplus of 1,200 people, which would mean a savings of about EUR4 million for the Company. This is an action that must be done as soon as possible and we expect a sense of responsibility from our unions on this sense because it's not possible anymore to continue to have this kind of level of employment in Southern Italy considering the current level of orders.

Okay. If you're talking about -- excuse me.

No, no, just on the SG&A, it's true that they are higher than last year, same period, but it's also true that if we look at the fourth quarter of the last year, 2007, there are first signals of improvement, which are about EUR3 million, EUR4 million that shows how the Company is trying to put under control all the overhead and we are very sensitive on this issue.

Okay. You were telling about 1,200 people that are basically, where you're looking to solve the over-employment in Italy. If you're talking about plans, is this permanent release or this is again, in this disgaza interconteon idea, which is kind of temporary solution. What lines are you thinking right now?

This is something that is under negotiations with the unions.

Okay. But I mean, given the order flow, which is significantly down on last year, would the -- ?

Is not significantly, it's only 3%.

We said slightly -- 3%,4%.

Okay. But would disgaza interconteon be an immediate, be a temporary solution for over-employment in Italy right now, in the second quarter, for example?

Nothing is ever immediately [amen]. This is something that we act today and we will see the result probably three or six months from now.

Okay. So it takes some time to arrange it.

Exactly.

Okay. My last question would be on pricing, especially in the U.S. I can see from the results that probably there is pricing pressure, although it's a bit difficult to say given the mix effects, but there seem to be pricing pressure in the U.S. as well. And I noticed that you were talking about increasing your prices in the U.S. and I wondered how do you see that in the current environment? Do you expect these price increases to stick? I think it's a very difficult environment to increase your prices right now in the U.S.

In January, we announced 10% price increase on Natuzzi product made in Italy and 3% on Italsofa and I mean 98% of the customer in the United States accepted the price increase. And likely that the 3% for Italsofa and 10% from Italy is not (inaudible) --

Antoine Flick & Nicola Dell'Edera: Starting from -- .

-- starting from April 1, so we announced the price increase, but will start from April 1. But the price -- .

Okay -- .

-- due to the additional devaluation of U.S. dollars is not enough. But in meantime to ask another price increase in America with this business climate environment, it's really not easy. It's unbelievable.

That's what I was referring to because the competition is also heating up in the U.S. from -- .

It's not matter of competition, to be honest. It's just a matter of consumer confidence. The customer, they don't get in the store. I talk with my major account in America. And by the way, is not only in America, the same in Italy. The citizens, they don't arrive at the end of the month (inaudible). There is really an economic climb in Europe and in America, which is a little bit scary, really scary. Consumer confidence is very, very low.

Thank God, at the least in Eastern Europe and in China where we have 20 stores and we are growing with the distribution in China and Middle East and Russia and Eastern Europe. Those markets are growing, but again, it's not enough. We all expect more confidence from the European and American's consumer confidence.

Basically, one of the reasons that you are increasing your prices in the U.S. is also to offset the detrimental effects of the exchange rate and I wanted -- for other producers, for example, China where a lot of furniture is made these days, aren't you putting yourself in a difficult position compared to them? I know that the positioning often is difficult, but especially in this [compartment] where customers are more inclined to trade [back home] I would expect that price increase -- .

We follow -- okay, I understand your question. We are today, 90% of the business that we do in America, it's made from China and Brazil. From Brazil, we are accumulating big losses. Just last year, the Brazilian company, the loss was about EUR14 million losses. In dollars, probably was $18 million or some $20 million, so the Brazilian company.

Today, as I said, we are moving the production from Brazil to China, but even in China, the Renminbi, the Chinese currency, is getting stronger and the labor cost is going up and the cost for transportation, the raw material. It's like an earthquake that is happening. But anyway, we are in China and we follow on daily basis what's going on with other manufacturing, what's going on with our plants, and what's going on on the U.S. market and try to -- [violence] the profit, which we are looking to make a profit, but in meantime keep market share on marketplace. We don't want to say goodbye to America, which is big market for us.

I understand that. By the way, some clarification. You just said 90% of demand from the U.S. is fulfilled by Brazil and China, but I thought quite a major part still came from Italy in the U.S. Is that true?

No, sir, no, sir, no, sir. The total volume that we are making, we make in America comes from Brazil and China and only 10% from Italy.

Okay.

But again, today Italy and Brazil are penalized at the same level. Why even China now is starting to get penalized because of the exchange rate. We are all hoping to see the U.S. dollars going up, I mean, that's the --.

Okay. Thank you very much for this discussion.

You're very welcome, sir.

At this time, we're showing no further questions.

Okay. So thanks, everybody, for participating and hello from Natuzzi, Mr. Gaipa and myself. Thank you.

Thank you for participating in today's conference call. At this time, you may disconnect your line. Thank you.