Natuzzi SpA (NTZ) 2011 Q1 法說會逐字稿

Please standby we're about to begin. Good day everyone and welcome to the Natuzzi First Quarter 2011 Earnings Conference Call. Today's call is being recorded. For opening remarks and introduction I'd like to turn the call over to Silvia Di Rosa of Investor Relations. Please go ahead ma'am.

Okay, good day and welcome to Natuzzi conference call. With us in our conference call today are Pasquale Natuzzi, Chairman and CEO, Vittorio Notarpietro, CFO, Giuseppe Clemente, Chief Operations Officer, Cosimo Cavallo, Chief Editions Brand Officer, and Simon Hughes, Chief Natuzzi Italsofa Brand Officer. The CFO will advise the first quarter 2011 and then we will open the floor to your questions. You should have received an emailed copy of the Natuzzi earning results. If not you can find information at the Natuzzi website www.natuzzi.com.

Before proceeding please be advised that the discussion today could contain certain statements that constitute forward looking statements under the United States securities laws. Obviously actual results may differ materially from those in the forward looking statements because of the risks and uncertainties that can affect our results of operation and financial condition.

We had the risks and uncertainties that we have in the past affected might continue to affect our results of operation and financial condition [in our] report on Form 20F for the effective full year ending December 31, 2009. This report will be available on our website at www.natuzzi.com or from us upon request. You may also obtain a copy of our 20F actually from United States Security and Exchange Commission. So, now I will pass the call on to Vittorio Notarpietro.

Good morning to everyone. Thank you for joining us today to comment on Natuzzi 2011 first quarter results. From a sales point of view in this quarter 2011 it is important to highlight three main events. US upholstery net sales were affected by a strike in the Chinese factories. Secondly after a difficult 2010 Natuzzi Brand showed some improvement. And then Europe started recovering the negative trend of last year thanks to some corrective actions implemented in the previous quarters.

Let's analyze the profit and loss. Total net sales decreased by 4.3% versus the first quarter of 2010. Upholstery net sales fall by 5.3% compared to the first quarter of 2010 due to a decrease of 8.8% in volumes and a positive mix. The upholstery sales decrease mainly comes from a strike in China that accounted for about EUR5 million which is the difference with Q1 2010. In the first quarter of 2011 there was a change of trend in the upholstery sales composition as a percentage of total sales. In fact the Natuzzi Brand recovered and went up to 50% from 47% in the first quarter of 2010 while all other brands went down from 53% to 50% in the first quarter of 2011.

In absolute terms the Natuzzi Brand upholstery sales of approximately EUR52 million were in line with the 2010 quarter while the other brands went down from about EUR59 million to EUR53 million in the first quarter of 2011. From a geographical point of view the rest of the world recorded the best performance of plus 16.1% versus the first quarter of 2010 in particular in China, Taiwan, Australia and Korea. The percentage of the rest of the world in total upholstery sales increased from 8.4% last year to 10.3% in the first quarter 2011.

In Europe we had a slight recovery reporting a growth of 3.6%. In particular we report on the Natuzzi Brand recovered in Germany with plus 11%, a significant increase in Switzerland and a good growth in Great Britain. In all other brands we had a good rise in Belgium, Holland and Spain. On the contrary in Italy we recorded a decrease of 4.5% versus the first quarter 2011.

In the Americas we had a significant decrease of 23.6% versus the first quarter 2010 mainly due to the above mentioned delays in China where problems have been already solved. Accessories sales increased by 16.2%, this positive result is linked to the better performance of the Natuzzi Made in Italy brand. Cost of goods sold went up from 61.5% in first quarter 2010 to 64.6% this year. Why? As a percentage our net sales consumption increased from 39.3% to 42.1% following the increase in raw material prices only partially offset by a more favorable mix of sales.

In particular, the dynamic of leather prices from October 29, 2009 to December 2010 has led the Natuzzi Group to take an increase in the region of 40%. Transformation which means labor and industrial costs worsened by 0.3% mainly due to the decline in sales. The relocation in the new factory of 88,000 square meters in the Minhang Export Processing Zone will be completed by May 31st as planned. But during first quarter 2011 and up to May 31st, 2011 we reduced the overlapping of the costs deriving from the existing plants and the new one.

Selling expenses, transportation costs on net sales went from 9.1% to 9.3% in the first quarter 2011. This increase even if quite limited was due to an increase of shipping costs from China to USA. We have to say also that in Q1 2011 transportation costs were positively influenced also by the lower shipping from China to USA which is the expensive sea route. Advertising investment in the first quarter remained almost in line with the same period of last year, 4.9% in Q1 this year versus 5% last year. SG&A showed the overhead expenses as a percentage on net sales improved from 22.1% in Q1 2010 to 21.4% in Q1 2011 in spite of lower sales.

In absolute terms the reduction in SG&A amounted to EUR2 million mainly due to the reduced labor costs both for administrative and commercial employees, EUR1.1 million. And thanks to the shrinking on other expenses. EBITDA was still positive this quarter by EUR2.6 million against EUR6.8 million in the first quarter of 2010 in spite of a lower EBIT margin which ended with a loss of EUR2.5 million in the first quarter 2011 compared with a positive margin of EUR0.5 million in the same period last year. Taxes declined thanks to tax laws carry-forwards in Italy. Finally the net result of the first quarter 2011 the Group recorded a loss of EUR3 million compared to a loss of EUR1.3 million in the first quarter last year.

Let's now comment on the balance sheet figures. The Group registered a significant improvement on cash and cash equivalent which total EUR95.2 million in Q1 2011 versus EUR61.1 million as at December 2010 thanks to the payment by Chinese authorities of RMB420 million for the relocation of the Natuzzi factory in China. Net financial position boosted from EUR45.6 million as at December 2010 to EUR74.9 million in the first quarter 2010. Net working capital amounted to EUR109.1 million versus EUR102.9 million as at December 2010 which still is a reasonable 22.5% on net sales.

2011 outlook let's start from Natuzzi Brand. The order flow as of today in China is up. The partnership with our Chinese partner is running very well. The same in Germany where we cleaned the market in 2010. At the same time we are taking advantage of a better economy. We are focusing now on the Spanish, French, Ukraine, Italian markets to make the same cleaning and improving profitability. Action plan store by store such as, training and incentive sales staff, direct marketing promotion in catchment area. In the UK a new and updated concession format has been launched in Harrods during March with strong performances being seen in April.

In US the order flow is now improving in cities for Natuzzi Brand. In the US market we see a polarization of furniture market between premium and pricing. Natuzzi Brand will have a huge opportunity in the premium market and we'll take this opportunity aggressively. Main general actions on Natuzzi Brand are, getting traction on the furnishings business at retail which is already in the area of 20% of business in some key stores. Projects to define the fabric opportunity which runs at approximately 4% of sales but see a forward opportunity of significant additional sales considering that fabric represents almost 75% of the world wide furniture market. Define a core collection representing the core of sales with the aim to organize ADV campaign, stimulate sales, improve service and optimize supply chain.

And then main actions with Editions and unbranded business, dedicated sales force to cover the markets more effectively along with a dedicated management. The new Editions display concept will generate more sales and quicker turnover. The rollout is particularly aggressive in North America, positive response after the Milan and High Point sale for several new models. And finally specific programs for the [MARS] merger. We introduced the key account program also in the USA. It has been well received and next June we'll be hosting about 20 top retailers, top US retailers in High Point in our showroom.

Ikea made to stock with quick and dedicated production from Italsofa Romania Plant to get a more flexible product cycle and improve availability of sofas at Ikea Stores. Improvement of delivery performance from Italsofa Romania facility achievement of quality improvements which allows Natuzzi to hit Ikea's own quality ranking based on that Ikea launched promotional activities to stimulate business. We are confident that on the basis of these promotional activities and thanks to the launch of new models and coverings we can reasonably expect to achieve a significant improvement in the second half of this year.

All in all despite the fact that also in the second quarter 2011 order flow still does not show significant signs of recovery we continue to focus on recovering sales in Q3, in Q4 2011. We continue to see additional room for efficiency in order to allow further improvement in profitability. Also thanks to selective price increased that will take place in next month. Thanks to everybody now we'll be delighted to answer your questions.

Thank you sir. (Operator Instructions). And we'll go first to [Bart van den Wijngaard] from Geneva

Yes hello good morning or good afternoon gentlemen. Could you give us an update on Brazil because I remember that in the last conference call you were talking about that you hired a new COO over there and you thought with a lot of potential clients. Should we expect anything firm from this in the coming quarters?

I'm sorry I'm missing some parts of the question. (inaudible - multiple speakers) about Brazil, right?

Okay and the (inaudible). About Brazil.

Yes so what's the question?

The question is you hired a new COO over there and you talked with a lot of potential customers. Should we expect anything firm in order flow in the coming quarters from that side?

Okay, so after two months that we hired [Pablo Vlat] is the name of the COO I must say that we've been lucky. He's a very good manager and so that's the first very positive thing. We contacted last February when we were in Sao Paulo for the Abimad Furniture Exhibition.

We met Mrs. Luiza. Mrs. Luiza she's the owner of Magazine Luiza in Brazil. And they are $5 billion Company and they have 600 stores in all Brazil. So I personally met Mrs. Luiza and we spoke about a program that we would be able to develop specifically for them with also a display system where we would offer to the consumer more than new products. We would offer an experience where we explain where the product has been designed, about the quality, about the size and whatsoever.

So, we have done that program. We shipped two weeks ago and we should make a presentation to the press on April, on May, on June -- I'm sorry on June 15, 2011 I will fly to Sao Paulo. And so the agreement is that we should test this program of four models in 20 stores as the beginning. So we're very much confident about the potential of this huge chain in Brazil. We already contacted Casa Bahia. It's another huge chain more than almost another $5 billion Company. I met the General Manager. They came to Milan. We are working on that program.

So far we have six agents and they cover six areas of Brazil but the new COO is meeting new reps in order to cover the entire territory in Brazil. In the meantime we are building in our factory in Salvador da Bahia showroom for Italsofa, showroom for Editions and showroom for Softaly. That Softaly is in the program for the key accounts, for big customers. It is getting us a very very much confidence about the possibility of Italsofa -- of Softaly, I'm sorry.

So within August, within three months from now we will have all the showrooms ready in order to achieve a training program for the agents and in September we will organize a congress and we will invite all the major retailers from Brazil. The customers that we are doing business now in Brazil are very much enthusiastic about Natuzzi Group products and brand portfolio and so again very very much confident. Will take a little while obviously but again the potential is there.

Okay, good to hear. And could you also give an update on the progress you've made in winning back several key accounts, especially in North America.

Okay regarding key account program, okay let's have Cosimo Cavallo the Brand Director will answer to you alright.

Okay, good morning.

Good morning

Let me give to you the opportunity to express the best results we got in last High Point market. The goal was to recover through this not only Editions -- Natuzzi Editions programs but also what is called the label Softaly but is a program for key accounts.

We got very good feedback with Rooms to Go. Okay Rooms to Go is going to place an order for new models in all their stores along with a lot of excitement about participation with other mass merchants like [Heartland], like City Furniture and like Slumberland, are all the players that we are contacting. Of course after the fair in High Point we expect the placement of the orders between May and June. I take the opportunity also to inform you that there is a fashion event in High Point and we are going to display again models of the Softaly Program to finalize some negotiations that are ongoing. So the answer is that we are going in this direction. There is a lot of interest. That interest is translating into orders between May and June.

Yes, yes. And should we also agree that the current order flow for the second quarter is still yet not developing very positively but you have a better feeling bout the second half of the year.

Yes sir, yes sir that's exactly the situation.

And can you talk about the order flow in the different regions. Is it developing very differently in North America compared to Europe also in the second quarter?

Order flow in Europe it's satisfactory. It's okay. The order flow in Europe except Spain which is very low and management Simon Hughes our Brand Director next Wednesday will go in Spain and spend almost ten days to visit all the area with our Country Manager in order to define an appropriate action plan to recover the business. So, Europe, it's okay, while we are a little bit concerned about for the order flow about North America but with the key account program that we introduced as Mr. Cavallo said before the Brand Director for Editions and for program Softaly. We are very much confident that we recover the business in the second half of the year.

Yes, okay thanks.

You're very welcome sir.

(Operator Instructions). And we do have one from Dmitri Duffeleer of Quaeroz.

Hello good morning or good afternoon. Could you discuss the evolution of the key account program in Europe?

[It's a big one.] Let's first describe clearly I hope what's the key account program is. What the program is. So because do business -- first of all we analyzed the loss of business in the last seven/eight years because you know in 2002 we did EUR810 million business while 2010 we did EUR520 million. So, we lost EUR290 million business due to the currency obviously. Now we haven't lost 30% or 35% market share but because the euro the strong euro against the dollar has already affected some losses of the business while with Italsofa and Editions manufactured in China, Brazil and Romania the prices of ForEx has been lowering.

And then consequently even the last crisis 2009 has completed the overall loss in terms of euro from EUR810 million to EUR520 million. Anyway based on those detailed analyses we tried to understand where and with whom we lost the business. And primarily we lost business with big customers, with the key accounts. I don't know if you're familiar, but in United Kingdom there is DFS, there is [Harveys], in France there is Conforama or [Voute], or in Germany Begros a huge group. All those big guys they went to China. We lost business with them.

But so then we said, if we are successful with the most demanding retailer in the world where we do -- which is Ikea and we do business with Ikea since 18 years, successfully. So let's analyze what we do with Ikea in order to keep doing a growing business. And the formula is simple, few models, few colors, good price, quick delivery and quality. That's what those big guys they ask for. So now obviously the big retailer they don't need complexity. They need a few models, few colors. Now we have a dedicated factory in Romania which is [new]. We supply Ikea in Europe from our factory in Romania.

And we did an analyses which has been very good to convince all the big retailers that we [met] since January until a week ago where we tell them that last year we supplied Ikea final consumers there were 100,000 final consumer of Ikea that they went into each individual store, in Zurich, in Paris, in Barcelona, or Madrid or in London, or Frankfurt, or Helsinki.

They purchased their goods, their sofa, we manufactured it and we delivered to them in an average time of two weeks. This is a miracle what we have done. So it's just a matter of addressing the business in the appropriate way. And claim rate 0.8%, wonderful quality, wonderful service level in terms of delivery time. Ikea is very, very, very happy with us. So we creat very small but [winning] the forecast. The retailer must be in the position to tell us how much merchandise they are going to sell. That obliges them to be accurate in displaying the product in the appropriate position, in investing money in advertising and doing an accurate forecast that allows us to keep inventory for the covering.

Because we keep inventory for the level for example for Ikea, inventory for components, mechanisms, metal mechanisms, things like that. And then the production time it's only three days. So we manufacturing because we have full integrated production process in our factory in Romania, as in China, as in Brazil. We control the entire process.

So, we went and met with very big, big customers in Europe, [Begros], Conforama, Voute, DFS, Harveys, [Mobel Fixtures] last week on Monday. And we tell them just simple things. We tell them yes (inaudible) Ikea and what's the Softaly program is about which is innovative products. We know how to make innovative products because we are the trend setter in our industry, one. So we have design center here in Italy. We know how to design products, very innovative products.

And consumers today they are looking for innovative products. Consumers today are looking for instant gratification. They get in the store and they want the product tomorrow, very fast, very quickly. And with Softaly program where we keep inventory we are in the position to deliver the product in two weeks anywhere in Europe, manufactured from our Romanian factory.

So, we have innovative products, adding a few models, a few colors, and using very efficient production process we are in the position with the low level cost in Romania and with the raw materials that we buy locally, we are in the position to have even aggressive price so in other words, innovative products, aggressive price, excellent service, excellent quality.

By doing that our Softaly program became so attractive that we are getting very, very, very good response and that will allow us to gain growth which we need. We need to grow because we have done already a wonderful job on cost, in restructuring costs.

There is still something to do but we've already done a good job. Now what we need is just to grow and gain economy of scale and reduce fixed costs for our factories for our headquarter costs, offices and things like that. So that's the program.

Again, we very much -- we got good response in Europe but we are getting better response and better results in the next few days and weeks because we are flying, traveling and meeting customers. Customers are coming here in our headquarters where we have showrooms. So that's the situation so far.

Okay could you as well give an update on the rollout of the Italsofa Stores?

Yes, Simon Hughes, who is the brand director, will answer to you.

We're getting traction on Italsofa. Sears have committed to galleries or points of 65 stores in the US. We've got a big player from Mexico, called Liverpool, who are here in Santeramo at the moment, who are looking at maybe 30 points or galleries. We've done an initial test with British Home Stores in the UK, which has turned out very positive and they're wanting to extend it. David Jones, in Australia, are looking at converting 17 galleries, or points. So the definition between gallery and point is simply one of size. So at these early stages of the Italsofa program, the big accounts on the global scale are looking quite positive.

And when do you expect to see some first results trickling down in the sales numbers? Would that be Q3, Q4, or?

Absolutely. We can say that with most of the new programs will be going out at the end of Q2, with the new retail concepts. We've had a good -- we've done a test with five stores on a couple of models in British Home Stores. And they, in one month, have already repeated on that. So a little bit too early to be too enthusiastic, but moving in the right direction.

Okay. Thank you very much.

Thank you.

(Operator Instructions). And we do have a few more questions that queued up. Andrea Bonfa of Aletti Bank.

Hello. Good afternoon to everybody. I would like just to expand on a couple of points. One is, Germany. I do apologize, I missed some of your previous questions. Or maybe you already answered these. And I was wondering what are these -- what are your actions on that market, which has been suffering for awhile, despite the economic performance. And as far as cost is concerned, what's the recent trend in both leather and transportation [ready] containers, which we've seen with some -- at least for the containers, some indication that they are declining? Thank you very much.

It's Simon here, responding to the Natuzzi in Germany. Not -- in 2009 and 2010, the Company did a good job on cleaning up distribution, which has largely been done at the end of last year. We have a better distribution with around about 60 galleries or points at the moment. And currently we're 10% up on order flow and over 20% up against last year. I think it's a mixture of timing, both when we clean the market and the fact that Germany is -- economy is pretty positive at the moment. So we have a good case there, which we want to replicate in the other challenging European markets.

It's me [Magarro] speaking, for the Editions and subsidy brands, at the same count, with an excellent perception for the Editions program, okay, with an opening of galleries through the key account of the market and already orders placed for the key account program subsidy, through the involvement of chains like Begros, like [Lutz] and we are getting in touch with other important chains like [Low Crawler]. All of these are, let's say, key accounts, represent clearly the major players of the market and they represent, also, an important number of stores in terms of coverage. Okay? The same count, we have a [success group] program that has been established through those customers.

Hi, Andrea. As far as costs are concerned, starting from January 2011, transportation costs, as averaged, decreased a bit versus the maximum levels we reached during July, October 2010. And now they are stable on this new level. So the situation is better. As far as leather is concerned, prices are still high, but a bit more stable than in recent months. You know already that we are speaking about a commodity.

Okay. Grazie, Vittorio. Thank you very much.

Now --

So --

And we do have a -- and we do have a follow-up question from Bart van den Wijngaard.

A follow-up question on the strike in China. How did you solve that situation? I assume there are still people who are not willing to move to the new location? Or what is the current status?

Yes. We had to face this unexpected strike in China, because of the moving of the existing factory in a different area. So we had a strike and as a result of this strike, we lost roughly 200 people in our Italsofa factory. The total of that is 1,000. So we are replacing, the -- those 200 people. The situation today is already restored. First of all, we moved production from China to Romania, in order to phase customer service for the US market and then we are starting hiring the new guys in order to recover the maximum efficiency in China. We had to pay some money to send out the guys, but this was in our budget.

Yes. Yes. Okay. And so can you elaborate a bit on that amount, that is maybe EUR1 million or --

Is in the area of EUR2 million.

EUR2 million. And that was in the first quarter numbers?

No, it will be accounted in second quarter.

In the second quarter. Okay. Okay. Thanks. And a final question, on your fabric strategy, it's currently 4% of sales, I understand. It has been much more in the past. Why is Natuzzi now going to be, again, successful in this area?

It's a very good question. I can't answer what it was in the past. There are two --

May I say -- so, I'm sorry, I'm Pasquale Natuzzi. Regarding the past, let's say five, six, seven years ago, microfiber was very successful. Then -- like [Al Contara], I don't know if you're familiar with this kind of a material. Al Contara has a microfiber that, today -- it was a very successful material and that microfiber was clustered in a fabric, let's say, a product category. But the real fabric business has been all -- we never pay attention. We've been focused, primarily, on leather. And then regarding fabric, again, we used to more, but it was primarily because of the microfiber. But now I will pass the -- too Simon Hughes. He will explain about the strategy, how we are going to move in the next -- the near future.

There are two reasons why we're focusing on fabric. The first is, we definitely see a volume opportunity there and our plan is looking at introducing it mid-2012. We're currently already looking at the fabrics and the models. It does require a significant investment. It may be up to 200 fabrics. So there is a volume opportunity. Actually, there's a bigger opportunity and that is we can attract people into our stores who otherwise would only get the leather consumer. We can now get the fabric consumer in, that could be as much as 75% of the market. So it should introduce more people into the Natuzzi brand. At that point, if they choose to buy fabric or leather, it's up to them. But at least we've got them in the store.

Yes. And can you already comment on what we might expect in terms of CapEx for this plan, for the roll-out of fabric?

A very good question. And at this point, no.

No. Okay. And you might be willing to give an update on that in the coming months? Or --

On the next call, we'll certainly be in a better position to give you some idea of that, for sure.

Okay. Perfect. Thank you.

And it does appear that there are no further questions over the phone at this time. So, Ms. Di Rosa, I'd like to turn the conference back over to you for any additional or closing remarks. And I do apologize, it does look like we have some other people who queued up. Dmitri Duffeleer has a follow-up.

Yes, hello ago. Just three small follow-ups. The first one, you use the expression cleaning the market a few times. What do you exactly mean, or what is the real process behind that?

It's Simon again. You might be getting bored of me. Cleaning the market up has different connotations. What we'll really be looking at is relooking at the distribution matrix in each country, the mixture of galleries versus our own stores, versus third-party wholesalers. So in some cases, some cannibalization or overlap. So that's one look at it.

The second is to check whether today's distribution meets where we're going forward with the brands. Because as we've articulated before, our brand strategy is a lot clearer as we go forward. So it's a fairly broad term, but underneath it there's quite a lot of specifics we have to look at.

So finally, is this -- it's really -- it's affecting the distribution channel?

Absolutely.

To the current -- I would say, to the current product and services portfolio?

Moving forward, absolutely.

Okay. And then as a second question, could you give a brief update, I would say, on the improvements on SAP and the further production efficiency improvements down the road?

Hi, Dmitri. You know, SAP is something that started some years ago. We have already implemented the Chinese new factory, so we are implementing in these days. Last year, we had, at the beginning, some normal difficulties in Romania, but at the end of the day, we were successful and Romania is running very well. China, and we are working on that in these days, and we'll see in the next month. 2011 will be the year for Italian plants because we will implement the final step for Italian plants. The situation is improving month-by-month. We are working on that, a lot of efforts, but the implementation -- but we are seeing some improvements month-by-month.

Okay. And then product, productivity, I would say the production process in general, I understood that there was -- are still some improvements to be made by changing the way of assembling the sofas?

The system is in place. Now we need to improve the sales in order to get advantage in our production system.

Okay. And then just a last follow-up. I understand that there are some sources or some investment choices that are being made, like Brazil, which is, I think, Brazil is still loss making for now. And could you give a flavor of, I would say, what are today the -- I would say the loss-making business or -- and the ones that are okay, that are loss making because we are -- because the company is really deciding to invest in those markets?

Brazil, it's strategic for our company. Everybody, all the management knows that Brazil is a strategic for us. We see a huge potential there in Brazil, but it will not happen overnight. It will take time before we get organized. So we will continue to invest money. Because personally I consider the money that we are -- we -- the loss that we see on the balance sheet, I consider those losses as an investment for the future business that we can get in Brazil.

Okay. And outside of Brazil, I would say, looking at the -- well, if you will dissect or try to detail the results, what would you say, what are today the profitable businesses and the loss-making businesses?

No, I don't understand the question. What --

Well, the -- I would say the overall consolidated result is not too far from break even. So I would estimate that underlying, there were some businesses, which are producing good profits and there are some businesses, which are still losing money or still suffering?

So let's make a little bit more clear about Brazil. We have two factories in Brazil and we have a potentiality to probably, I could be a little bit wrong, but approximately we can deliver -- we can manufacture, in our two factories, EUR50 million, 5-0, EUR50 million business. So far we have a potential for EUR5 million. So -- but the -- potential -- the potentiality of the marketplace, we can reach to EUR100 million. Because the market is there. It is growing like crazy. There is no competition. There are thousands and thousands small manufacturing with -- from five to 10 employees. There is no production capacity. There is no product innovation.

No good service levels -- level of service. So we spoke with several customers. We made several big accounts in [Belo Horizonte], in Portalegre, in San Paolo, in [Savalone Baea], in many, many cities, they are all waiting. But to develop a business, to gain [gross basis], to organize the supply chain, marketing, advertising, integrate sales from manufacturing with the new COO, we are very much confident that we will achieve our target, but it will take a little while.

Okay. And then just outside of Brazil, I would like to maybe better understand both which are the brands, which are the [posts]?

I'll tell you, we do business in 123 countries. Tell me where you want me to talk about it. Let me talk about regions. We have already said that Europe is doing well. Latin America is doing well. Mexico and Latin America is doing well for us. Middle East is still doing very well. India. India is a good market, but you don't develop a market overnight.

Sales -- India, we opened, already, three Natuzzi stores, beautiful ones. They are performing very well. We opened three Natuzzi -- three Italsofa stores and some Edition galleries and some Italsofa galleries. We have a good management there and very talented and they are developing good business in India. China, certainly, we have a huge potentiality, but we are getting better organized to develop the business in China. In America, so far, the United States is challenging. We are -- in the order flow, it's very weak. We are concerning about that. And we are working to make an action plan.

Okay. As well, from a production point of view, I would say, is it possible today to reach profitability or underlying profitability in the Italian plants?

From -- we can improve profitability if we improve sales. We are moving forward with a Softaly program will certainly help. Edition in Europe will certainly help. The way we are moving now, for example, with Editions, we are organizing better the market. Because today, to give you an idea, in France, we are one -- two people and they follow Natuzzi Italia business when we have 27 Natuzzi stores. They follow Italsofa. They follow Edition. And they follow it's difficult to change four times the hubs in one day. They follow Softaly.

Now, it's difficult to change four times the hubs in one day. So we are reviewing the organization, hiring more people in order to have dedicated people for each brand.

So we got very well organized, let's say, in -- at the headquarter level. The brands are there, the products are there, the strategies are clear, the organization at corporate level is okay. Now we are declining, adapting the organization at the regional and account level. Where we have the people there following up and developing the business, the Natuzzi airplane will take off.

Okay. How much are you investing in Brazil, exactly, this year?

Investment is not too much to be honest. The investment is the -- the loss that we will accumulate this year, again in Brazil --

But that's not my question. What would be the amount of loss that you expect from Brazil this year?

I don't have the figures now. I don't have those figures.

We'll call you later.

Okay.

Because the facilities are too big for the amount of business that we can develop this year. But we are preparing everything for next year and for the following one.

Okay. But I'm just looking for an indication of how much -- well, how much is invested there by staying in the market or by --?

Dmitri, I'm sorry, this is Silvia. Just because in this moment, we don't have the figures, I will try to find out, if I could, with the Controller, and I will call you back and I will [tell you and make], so I can explain and tell you later, in the next -- .

Okay. Well, bene, grazie mille so.

Thank you.

Okay. Thanks a lot.

You're welcome.

And we do have another follow-up question from Andrea Bonfa.

Hey. Good evening again. Is it possible to remind us, again, the, let's say, refund from the Chinese authorities, the overall amount? And much of this will be capital gain. And what will be the taxation, if any?

We have received a 95% of the total amount of RMB420 million. In the level of existing plants, in the area of RMB170 million. Then we have to account all the remaining costs that we are experiencing for the relocation and this is a calculation that we are doing day-by-day and at the end of this process, in June, we will have the final number of the difference between the gross and the net amount, let's say.

Okay. And if any, whatever will be left is that subject to taxation or is it normal Chinese taxation? Or how does it work? Or --

No, we got, from local authorities, net amount. So the tax charge will be on that side.

Okay. Fantastic. Thank you very much.

Thank you.

And that does conclude the question-and-answer session for today. I would like to turn the conference back over to Ms. Di Rosa for any additional or closing remarks.

So thank you very much for listening to us and for other explanations, of course we will be available and at your disposal, to the -- my [entirely] colleagues. Thank you very much and good evening to everyone.

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