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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Natuzzi S.p.A. First Quarter 2026 Financial Results. Interested people can also join this conference call live by telephone by dialing the following number 1 (201) 493-6703 and enter the passcode 39252103# in addition to the link already provided to join via video. [Operator Instructions] Joining us on today's call are, as usual, Pasquale Natuzzi, Executive Chairman and Chief Executive Officer; Pasquale Jr. Natuzzi, Chief Commercial Officer and Chief Product Division Officer; Carlo Silvestri, Chief Financial Officer; and then Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I would now like to turn the conference over to Piero. Please go ahead.

Thank you, Darryl, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2026 first quarter financial results. After a brief introduction, we will give room for the Q&A session. Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the United States securities laws. Obviously, actual results might differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial condition. Please refer to our most recent annual report on Form 20-F filed with the SEC for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. And now I would like to turn the call over to the company's Chief Executive Officer. Please, Mr. Natuzzi.

Thank you, Piero. Good morning, everyone, and thank you for joining us today. The results for this quarter '26 are clearly disappointing and reflect the combination of external and internal factors that had a significant impact on the group performance. On the external side, we continue to operate in a complex market environment, marked by geopolitical instability, added some sales in the United States and housing market at historically low levels and persistently weak consumer sentiment.

In addition, the transfer of Natuzzi Editions production from United States market -- for United States market from China to Italy negatively affected the margin profile of this production line. Therefore, this result confirm the need to take decisive action on certain structural elements of the group. In particular, our industrial footprint in Italy is currently oversized compared with the present sales volume and cost level that are no longer sustainable. For this reason, since the beginning of July, we have started executing a restructuring plan aimed at significantly reducing our fixed costs and improving overall efficiency.

The plan is based on a number of very concrete operational levers. First, we have initiated the transfer of Natuzzi diesel production for the United States market from Italy to Romania. This initiative is designed to improve the industrial margin of this product line and consequently reduces the losses associated with this production.

Second, we have rationalized our industrial operation in Italy, reducing the number of operating plants from 5 to 2 plants. This is a necessary step to eliminate the fixed costs and are no longer aligned with the current size of the business and to create the condition for economies of scale. Finally, we have already received expression of interest from 120 Natuzzi employees to participate in a voluntary exit program. We are fully aware of the complexity of this phase and of the impact that the decision currently underway have on our organization.

At the same time, we believe that acting now with the discipline and urgency is essential to strengthen the group economic sustainability, protect the competitiveness of the Natuzzi brand and lay the foundation for the progressing recovery in margin. That's the situation as of today. If there are any questions, I will be very pleased to answer to any kind of question. Thank you very much for listening.

[Operator Instructions].

So Darryl, if you don't mind, I can give some more color about the action that we are taking, so to have more clarity on that. So in -- while waiting for questions and then we can give you a bit of more color in what we are doing as a management to recover from the situation. So maybe this can help in understanding better how we are facing all the issues. As Mr. Natuzzi has rightly underlined, we are taking several actions on this. But I would like also to give you also what are the expectation of the action that we are taking.

For example, when we talk about the relocation from Italy to Romania of the Natuzzi Editions for the U.S. market, if the question will come out, so anticipate it, the total volume of business is in the ballpark between EUR 30 million and EUR 40 million, and that we give according to our preliminary analysis that, of course, will differ because by the actual product mix will give us a 25% of that portion of business. So this is the action that we are taking into action and will impact, of course, the results in the second part of the year and the figures that I did mention before refer to the full year impact.

When we were discussing about the reduction of the 120 employees that have voluntary for the moment, signed an intention to participate that has to be confirmed, that the 120 employees will be, let's say, not in our roster from January 2027 and all the cash flow of these exit costs will be in 2027. And in terms of cost advantages, a portion of our workforce cost today is already offset through social safety, net measures and wage support program. So the results of the savings achieved will depend on the level of and extent of the social support mechanism for next year.

So this is important. But the main point of this initiative is that it is our first step to a more structurally efficient cost base and will give not only immediate financial impact, but will improve operational flexibility, enhance productivity and better align our workforce with the current future needs. On the same side, we as a plan that is going through several years of dismissal of idle asset an offer for another plant that has also a potential rehiring of 40 people because the objective remains the disposal of noncore assets, but the process has also been designed with a strong focus on protecting employees.

So this is also something that the company is reevaluating. On the cost base, what I would like also to remind that the downsizing of the top managerial structure. So for the moment, we have had exit in U.S. and Italy of some executives that will bring savings in our cost structure base. And on a side note, I would like to underline that the company is actively working for actually discussing with . I would like maybe Pasquale Jr. to add some on the commercial side, so we will see the full picture of what's happening and then leave the floor to the question. Thanks.

I have had some issues hearing you some times. I hope you can hear me loud and clear. Do you hear me right?

Totally, perfect.

So good morning, gentlemen, ladies. Thank you for attending this call and giving me the chance to introduce myself. I'd like to take a few minutes to update you on our commercial transformation, I would say, since we've launched -- that we've launched over the past few months and the initiatives that are shaping Natuzzi's future growth. I have joined as a Chief Commercial Officer shortly before Milan Design Week in 2026 in April, where we already there back then introduced one of our most important strategic initiatives, which is the Natuzzi Studio. Natuzzi Studio is a new retail concept designed to capture the growing opportunities within the trade, projects and specification business, is clearly more than a traditional store.

It was conceived and it is conceived as a urban design hub where architects, interior designers, developers, and clients can collaborate with our teams on residential and commercial projects. Clearly, the dimensions of these stores will allow us to be more capillar and be closer to these designers destinations, so definitely more city-centric. This evolution is fully aligned with our premium luxury and clearly design-oriented positioning. So from the very beginning, the organization experienced a renewed sense of energy and urgency since I started. The response of the Natuzzi Studio during Design Week exceeded our expectation and several dealers already expressed interest in opening this new format.

Speaking of retail expansion and retail formats, the expansion continues at a very healthy pace, I would say. During the first half of 2026, we opened already 26 new stores following the 49 opened during 2025. These investments confirm our commitment to strengthening our global retail network as well as the recognition from investors and dealers who see a great value in the Natuzzi brand. And in addition to that, with more modern and better production formats, we continue to optimize the distribution footprint by closing or relocating locations that no longer reflect the premium luxury positioning of the Natuzzi brand.

At the same time, retail itself is changing. Across most markets, store traffic continues to decline at a double-digit rate, making it increasingly clear that relying solely on walk-in customers is no longer enough. For this reason, we are transforming our retail model from a traffic-driven business into a clienteling outreach-driven organization. Our store manager and sales consultants are becoming design consultants and business people, business developers, capable of generating opportunities not only inside the 4 walls of a store, but throughout their local markets by building relationship with architects, designers, developers and of course, end consumers.

This transformation also extends to our headquarters, where we are evolving our commercial operation from a model primarily focused on organic order intake into one supported by targeted commercial initiatives and demand generation programs. Over the past weeks, we have introduced daily cross-functional meetings focused on commercial priorities, cash generation, and operational execution. Commercial operation and finance are now working as one integrated team with shared objectives on orders, revenue, deliveries and cash flow.

This new way of working has significantly increased alignment, speed of execution and accountability across the organization. We have also launched several initiatives to reduce raw material and finished goods inventories through our targeted commercial programs with selected key accounts. The feedback has been encouraging with customers recognizing not only the commercial initiative, but also the improved coordination, responsiveness and service level they are delivering.

In the United States, our retail organization is placing strong emphasis on commercial urgency while accelerating clienteling initiatives to generate B2B and B2C opportunities beyond traditional store traffic. In China, we recently completed another successful roadshow alongside the opening of our flagship store in Beijing, where Mr. Maestrolangalanga came as an ambassador and supporter of this opening as well as the ambassador of Italy and China. It was followed by a series of events with the local design community, the growing recognition and the confirmation that Natuzzi among architects and high-end consumers of China is becoming more and more a point of reference and an icon of the industry.

In the U.K., we're about to launch a major store refresh program across both Natuzzi Italia and Natuzzi Edition, which will upgrade not only visual merchandising and store display, but also will strengthen commercial momentum and store traffic conversion. Our contract business continues to build a strong international pipeline through relationship with developers, hospitality operators, architects, and specifiers.

While geopolitical tension in the Middle East and India, 2 markets where we invested significantly over the last years have delayed the closing and revenue recognition of some projects. But by the way, these opportunities remain largely intact. At the same time, other regions are generating new opportunities that I honestly feel will help diversify and strengthen our global pipeline.

So although the market environment remains challenging, the first months of transformation has confirmed that a stronger commercial discipline, closer cross-functional integration, and a sharper market focus are creating the foundation of a sustainable and profitable growth. We remain confident that these initiatives will strengthen Natuzzi's competitive positioning and support long-term value creation for our shareholders. Thank you, and I'm available for your questions if you have some.

[Operator Instructions].

This is Kirby Newburger. So PJ mentioned something about opening new stores. Where does the financing for the new stores come from?

I was merely referring to -- and I tried to be clear on that. So sorry if I wasn't fully. These are FOS, the so-called franchise store, which are stores opened by partners that are confirming how the Natuzzi brand through their investment is a brand with great value and strategic, I would say, alignment to their investment. So these are financed by third parties who are heavily investing on the expansion of our store network.

[Operator Instructions].

Of course if there is any other question in any other day, we will be available to answer any questions coming in the next days.

Thank you so much. I do appreciate all your time today. This does now conclude today's Natuzzi conference. As Mr. Silvestri said, if you do have any follow-up questions, please feel free to reach out offline and they will be able to answer any questions that you may have. We definitely appreciate your time today, and you now may disconnect.

Thank you.

Thank you very much.

Thank you. Bye-bye.

Thank you. Bye. Bye.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi S.p.A Fourth Quarter 2025 Financial Results Conference Call and Webcast. [Operator Instructions] Joining us on today's call as usual are Pasquale Natuzzi, Executive Chairman and Chief Executive Officer; Carlo Silvestri, Chief Financial Officer; and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded.

I will now turn the conference call over to Piero. Please go ahead.

Thank you, Kevin, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2025 fourth quarter financial results. After a brief introduction, we will give room for the Q&A session.

Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the United States securities laws. Obviously, actual results might differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial condition.

Please refer to our most recent annual report on Form 20-F filed with the SEC for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call.

And now I would like to turn the call over to the company's Chief Executive Officer. Please, Mr. Natuzzi.

Thank you. Good morning, everyone, and thank you for joining us in today's conference call. Our fourth quarter and full year 2025 results reflect a persistent and unfavorable macroeconomic environment. The market conditions we currently face require responsible, timely and structuring decision.

Consequently, we are working on a reorganization plan designed to restore the company to a stronger economic, capital and financial foundation over the medium term. A core pillar of this strategy involves the reallocation of our low-margin Italian production capacity because that is no longer sustainable under the current Italian cost structure.

Therefore, we are shifting this volume to other manufacturing facility within the group, like Romania, for example, or could it be China, could it be Brazil or could it be Vietnam, where we still have our manufacturing company. This shift will involve rationalization of our Italian footprint factories, including our tannery and logistics center. So that's primarily the plan we are working on and to go forward.

So I ask Carlo, our CFO, eventually to comment something. And then I will say I'm available for any questions. Thank you.

Thank you, Mr. Natuzzi. Good morning, everybody. Allow me to give me a little bit of more color of the numbers we did present, and then I will give you also more information of our strategic plan and how we intend to face it.

First of all, we need to give a comment on our gross margin, specifically because like from 38.1% in the fourth quarter last year, we did achieve 30.2% this year. The main reason that we did analyze stays also within the production shift that of certain Natuzzi addition for the U.S. market from the Chinese factory to the Italian factories. As you may recall, last year, we did plan such shift with the goal of avoid the trade tariff imposed by the U.S. administration for products manufacturing in Asia.

The subsequent trade tariff imposition also to the EU production has offset the benefits. And on top of that, we were expecting government grants that did not materialize for that. So at the end, we were penalized from this shift. On top of that, in the fourth quarter, we did book a EUR 2.3 million impairment of machinery and equipment at certain Italian factories. The record of such impairment was the result of a prudent outlook of the current business environment in which we do operate, resulting in a more difficult recoverability of such nonfinancial assets.

If we do exclude this impairment, the gross margin would have been 33.2% always compared to 38.1% of last year. The difference between the 38% and the 33.2% apart the impact of the shift of Natuzzi Edition stays in the lower direct retail -- the sales coming from the retail channel compared to last year and unfavorable sales mix, we have seen less Natuzzi Italia and more Natuzzi Edition sold in the quarter.

So as Mr. Natuzzi was mentioning, we are in the middle of the restructuring plan that aim to create sustainability in the medium and long term. So what we are doing is on the top part, we are also continuous reviewing our price list to leverage and to recover from negative effect from U.S. trade duties and also from the strengthening of the euro.

On the industrial part, even in the fourth quarter, we are also trying to reduce the impact of our industrial labor cost. So in the EUR 17.1 million that you will find in our fourth quarter labor cost, we did book EUR 700,000 as accrual for cost reduction.

Now going back to the other impairment that we did book in our fourth quarter 2025 to have a more prudent view on our performances in the next future, we need to mention that we are continuously reviewing our DOS performances. And while we keep believing that our retail strategy will be the core of our business, we have booked a EUR 4.4 million impairment loss on our financial assets related to the retail operation, principally in Europe and in U.S.

At the same, we did book in the administrative expenses a EUR 1.9 million accrual for impairment of nonfinancial assets compared to EUR 500,000 booked last year. At the same time, the company remains fully committed in reducing the cost of the overall structure in Italy and in some selected commercial subsidiaries and the restructuring, let's say, strategies is keep going and will be a focus even for 2026.

From the cash flow perspective, the two points that I would like to highlight is that for the operating activities, we used EUR 4.5 million. But the most important thing is that we did -- we had a benefit from EUR 2.5 million of our improvement of our working capital change that is mainly given by EUR 13 million decrease in inventory level. So we're also focusing on this point to create value for the company, try to maximize our inventory and to decrease the stock, while we did decrease our trade payable and other liabilities.

On top of that, it's extremely important that in our investing activities, the main, let's say, contributor has been the EUR 9.9 million collected in connection with the completion of the sales of 2 nonstrategic assets, namely the land in Romania for EUR 2.4 million and the completion of the sales of EyePoint for EUR 7.5 million.

As Mr. Natuzzi was mentioning, the rationalization of our industrial process will bring us with some assets that we will be able to sell and contribute to our restructuring process. Now we have been discussing in our press release of the legal framework that we will operate to be more efficient in this restructuring process. I'm not a legal person, but I would like to give you more clarity and more, let's say, information about this process because it's important that we have all a clear information about this framework.

The Board of Directors has granted Mr. Natuzzi to initiate a specific procedure under the Italian corporate law framework called Composizione Negoziata della Crisi, CNC so-called. And this will be confirmed because our submission will be, let's say, official in the coming weeks. What is the CNC?'s a voluntary out-of-court restructuring procedure specific to Italian companies only and designated to facilitate an early and orderly management of the group position while preserving business continuity, industrial value and the interest of all the stakeholders.

It's extremely important to underline that under this procedure, the company is able to continue its normal daily operation under the guidance of the current management team and the shareholders continue to exercise their ordinary rights as equity holders of the company. So there will be no change. There will be the presence of an independent expert appointed by the company Chamber of Commerce, and these procedures aims to reach mutually agreed solution with all the stakeholders to facilitate the process of turnaround.

So to give you a brief summary, the target of this procedure that, as mentioned, is totally voluntary and out of the curt is to protect the group industrial and commercial value to strengthen the group financial structure, improve our operational efficiency and cash generation. And again, it's important to reiterate that the company will continue to operate normally. There will be full continuity in our industrial and commercial activity as well in our relationship with clients, suppliers and employees. So this was extremely important because like we did introduce in our press release.

So now I will leave the floor for questions.

[Operator Instructions] And if there are no questions at this time, I'd like to turn the floor back over for any further closing comments. There are no questions at this time. So do you have any further closing comments?

No. From our side, we don't have any. I don't know if Mr. Natuzzi want to have final comments, but I want just to underline that we are always available for questions, and you can reach us out and we can arrange phone calls so we can reply through e-mail. It's important that if there is any question, we are ready here to reply from our side.

I agreed with you, Carlo. Thank you very much. And -- sorry, I mean, I would expect some question just to clarify what we are doing and why we are acting in that direction. But certainly, we are working here as always and more than ever really to address this situation in the best way possible. This company has 7 years history. We are planning to write down the next 67 years history. So that certainly is the intention and the determination that the management and myself, we have in this company.

Thank you very much for listening to us, and thank you again. And let's be confident because this horrible situation around the world, we all hope that will change and will really improve. Thank you again. Thanks a lot for everyone -- to everyone. Gracious.

Thank you. That does conclude today's webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Thank you.

Thank you.

Thank you for standing by. Welcome to the Natuzzi S.p.A Third Quarter 2025 Financial Results Webcast. As a reminder, anyone who would like to dial in please dial +4 -- I'm sorry, +1 (412) 717-9633, then Passcode 39252103#. Once again, if you'd like to be dialed in via the phone, in addition to the link already provided to join via video please dial +1 (412) 717-9633 then Passcode 39252103#. [Operator Instructions] Joining us on today's call are Pasquale Natuzzi, Executive Chairman, Chief Executive Officer, Ad Interim; Carlo Silvestri, Chief Financial Officer; and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. It's now my pleasure to turn the call over to Piero. Please go ahead.

Thank you very much, Kevin, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2025 3rd quarter financial results. After a brief introduction, we will give room for the Q&A session. Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the United States securities laws. Obviously, actual results might differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial condition. Please refer to our most recent annual report on Form 20-F filed with the SEC for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. And now I would like to turn the call over to the company's Chief Executive Officer. Please, Mr. Natuzzi.

Thank you very much. Good morning, everyone. And thank you for taking part in this quarterly call. To what already communicated in our press release, I would like to add some more details and remarks. While the geopolitical situation has not changed and in some respect, is worsening as a result, consumer confidence remain weak. Despite our investment in marketing, foot traffic in our stores, particularly in the United States and Europe continues to lag while in some cases, we are seeing improvement in conversion rates. These gains are not sufficient to offset the decline in overall traffic.

Despite the current challenging business environment, we have improved our gross margin this quarter, surpassing the levels recorded in the first 2 quarters of the year, this achievement was made possible by a more favorable sales mix. In fact, sales of Natuzzi Italia, which delivered higher margin than other product lines grew by 18% compared to the third quarter of last year. While sales of unbranded products, which are not core to our business decreased by 20%. We intended to continue in this direction, supporting the branded sales that offer higher margin. The closing of the Shanghai factory last year, which enabled us to realize the cost saving on industrial operations in China. However, it is important to note that the improvements in margin remain limited by labor cost in Italy, following the reshoring process from China to Italy, of the Natuzzi Edition production from the North America market, completed in the second half of 2024.

Commercial and administrative costs deserves a separate mention, while wages and transportation expenses decreased this quarter, overall SG&A costs remain higher relative to our current revenue base. Therefore, both myself and the management team remain committed to support the sales while reduced fixed cost at the group level. We certainly continue our discussion with the Italian government, which has recognized the company as an enterprise of strategic relevance for the country. I would like to inform you that next Monday, I will personally be Rome at the relevant Ministry to seek measure aimed to improve quality, reducing transformation costs at our Italian factory and thereby increasing production efficiency.

Lastly, we continue to invest the time and resources in participating in international trade events as well as the in-store visual merchandising and external architecture design in order to offer customers an engaging and compelling shopping experience. Recently, we were in India. And just yesterday, we completed a commercial road show in China, meeting with the leading architectural firms to develop a project similar to the Natuzzi Harmony resident presented in Dubai and Jerusalem. I'm sorry, we are really doing not our best, more than that really to satisfy the expectation of our shareholders and our stakeholders, and we will continue to do so. So if there are any questions, I would be pleased to answer together with Carlo, our CFO. Thank you very much for listening.

[Operator Instructions] Our first question today is coming from David Kanen.

Are you guys able to hear me?

Yes.

The first one pertains to your meeting next Monday in Rome with the government. And if you could give us some sense as to the outcome maybe -- sometimes we talk in terms of the bear case scenario, the moderate reasonable scenario and then the bull case. What do you expect to come of the meeting? And then on a go-forward basis, what our cost structure will look like given the concessions that we hope to get from labor and so forth?

We are working on restructuring plan and one of the main action that we need to do for that is to rationalize our factory here in Italy. In Italy, we have 6 factories and one logistic center. We plan to reduce the production in 3 factory instead of 6. In order to do that, we need to move people from one city to another city, but in the same region, we are not -- the city -- the plan are not so far one to the other. So -- but we need to move people from one factory to another factory. And that requires, let's say, an agreement from the government and the union also to let us do that, okay? That's one.

Number two, as everyone knows that we have today in Italy, 1,350 workers, but we need 750, 800 people. The other people, we need now to -- I don't know exactly the english word, but we need to use some help from the government that provide to use 800 people instead of 1,350. We call [Foreign Language] in Italian. Carlo can you help me with the appropriate word probably?

I start from here. So David, if I can add on top of Mr. Natuzzi, we have like we need to tool different level of measures, what is called a kind of furlough, right, to keep on going. But I will be, let's say, more strategic in this situation. Our target is to have, let's say, when you talk about time frame, it's to have a negotiation based on some terms that need to be deployed within next year and then a more medium-term plan to achieve what we discussed last time in terms of financial sustainability. So it's a double layer negotiation.

I see. And is your goal, assuming you can get these concessions and rightsize the workforce, do you anticipate at the current levels of revenue that we would actually be profitable and stop burning cash because obviously, it's unsustainable to continue burning cash.

Let's say that the target is always to have a -- to be profitable around, let's say, what we discussed also in the other call, EUR 28 million, EUR 29 million per month. So -- and it means that's the target. So always going through some different tools because like here, we are discussing about the measures that involve the workforce. Then we are talking about marginality. That means it implies a review of the price list when our strategic positioning allow this and then also to look into our retail network, rationalizing it. So with through all these different measures, David, with those numbers that I mentioned before in terms of monthly turnover, we will not burn cash, but we will create positive cash flow.

And as I indicated to you on a go-forward basis, if you can achieve these concessions and we can achieve profitability, we would certainly be interested in putting more money in perhaps through a pipe transaction to support the company and help you grow and thrive well into the future. We believe in the brand and we believe there's a lot of potential given the right conditions.

Consumer confidence will make the difference, David. I mean, because unlikely the traffic is -- I mean, it's reducing unbelievable. I mean, unlikely consumers are not getting in the store despite the marketing investment that we are doing and the new product, wonderful new product. Unlikely, I mean, so -- but our -- but anyway, despite that, despite of the consumer confidence, we cannot guarantee what will happen from the geopolitical situation and give, again, confidence to the consumer that the life will improve. We are certainly committed to work on cost reduction, no question about it. We should reduce cost, and we are very much -- and we should improve the margin also. So improve the margin by our price list because our brand has a good recognition. We should reduce the cost, improve the margin and improve the sales a little bit if then the consumer confidence. But we are confident that we can achieve better sales next year compared with 2025. And consequently, if we are -- I mean, if we are lucky and capable to achieve that, we will deliver good profit to our shareholders. So that's our challenge certainly.

[Operator Instructions] We do have a follow-up from David Kane.

So if you could give us an update on the commercial division that PJ has been spearheading. There are companies that exclusively in that sector, the commercial sector that is doing more revenues than us as a combined entity, meaning $0.5 billion. So I see this as a huge opportunity, and I think we have the right product and the brand to succeed there. Can you give me a sense as to the progress that we've made since last quarter and you know -- I'm sure you see the pipeline of opportunities that you're bidding on. How big of an opportunity do you think this could be next year 2026.

To be honest, it's not easy to forecast, but I can tell you that we are making huge investment in order to increase the trade contract business. Certainly, we signed -- I mean last November, no last November, November 2024, we did -- we launched the first Natuzzi Harmony residence. We designed the building with 50 apartments, we designed the furniture, everything. People are purchasing Natuzzi apartment in Dubai. As far -- we already are in the process to sign the second contract with the same dealer, the same developer in Dubai and we signed another contract already in Jerusalem, where -- and we designed the building, we designed the apartment, we designed common baths everything. Again, Natuzzi residence proves the value of the Natuzzi brand, okay?

They are paying just royalty, $1.2 million, $1.3 million, just to use the name. And then obviously, they are going to pay the furniture, the cost of the furniture. Now just because we believe in this new business to leverage our brand awareness. This year, we attended an exhibition in Riyadh, Saudi Arabia, an exhibition in Dubai this year, 2025, 2 times in Mumbai in India, September and November. December -- last December, a few weeks ago, we were in Miami, Miami Design Week another huge event to meet architect designers. And then we just finished last week. My son has done a roadshow in China for 1 week meeting the biggest firm architecture firm to engage them and do a project for them. There is a long list of projects that we are discussing.

So I mean I see that you're working very hard and I appreciate that. But if you can give us some sense as to the magnitude of the opportunity. I'm sure you have an internal goal for 2026. Again, kind of the bear case, the base case and the bull case. Can you give us a sense as to what that opportunity is?

David, I'll -- thank you very much for your question. First of all, because I'll allow us to give you more color about what we are doing. So we are treating the Contract Trade Division as a start-up, right? Because in this phase, as Mr. Natuzzi was mentioning, we are doing a lot of bidding, right? But we don't have yet statistics on the success rate, okay? Because we are, let's say, providing and exposing our capabilities in a lot of road show, and we are receiving a lot of positive feedback from the market. And now we are going into the bidding phase that is taking us some time to understand the real potential. In order to play conservative for 2026, we do not have a very aggressive plan because we don't want -- we want -- we are considering it as a cherry on the cake on our numbers.

So the magnitude of the business that we forecast for 2026 it will be between EUR 5 million and EUR 10 million. But then it's an exponential business once you start deploying all the projects. So just to be fair, is a cherry on the cake, we are not very aggressive on that, just to close the topic. I hope I do -- I did answer to your question.

Yes. No, I appreciate that. And then I guess one more question. You had indicated -- you had implied in the prepared remarks in the press release that you're in the final rounds of a CEO selection, if I'm interpreting correctly. Any additional color you can give there? How many candidates would you say it's been narrowed down to? Do you have -- is it 2? Is it 5? Is it 10? And what do you think the time frame is for a decision to be made?

The decision will be made based on the lack of meeting the appropriate person to cover the position. I'm using my weekend time because unlikely to interview people during the working day is very difficult. So I'm using Saturday and Sunday interviewing people. And it's my -- to be honest, absolutely, we are going forward. We hope to give a good news in a very short period of time.

That's really all I have. I'd like to wish you and your team, a wonderful holiday and Merry Christmas. I know that you have the real Saint Nicholas is right there in Bari. So I hope you bring some good gifts.

Thank you.

Thank you very much and happy holidays.

No other question?

At this time, it appears there are no further questions. I'm going to turn the floor back over to management for any further or closing comments.

[Foreign Language] So thank you very much. If there is no other further questions, we are always available to be reached out for any clarification you may need on our results and performance also in the next days. So thank you very much for your kind attention from all of us.

Thank you. [Foreign Language] Thank you very much again.

That does conclude today's webcast. You may disconnect your lines, and have a wonderful day. We thank you for your participation today.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi S.p.A Second Quarter 2025 Financial Results. [Operator Instructions] Joining us on today's call, as usual, are Pasquale Natuzzi, Executive Chairman and Chief Executive Officer, Ad Interim; Carlo Silvestri, Chief Financial Officer; Mario De Gennaro, Chief HR Organization and Legal Officer. Furthermore, also joining us on today's call are Ms. Marilena Scaramuzzo, Treasury Vice President; Domenico Ricchiuti, Chief Operations Officer; and then Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I will now turn the conference over to Piero. Please go ahead.

Okay. Thank you, Donna, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2025 2nd quarter financial results. After a brief introduction, we will give room for the Q&A session. Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the United States securities laws. Obviously, actual results might differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial condition. Please refer to our most recent annual report on Form 20-F filed with the SEC for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. And now I would like to turn the call over to the company's Chief Executive Officer. Please, Mr. Natuzzi.

Thank you. Good morning, everyone, and thank you for attending this conference call. While all the information regarding the performance of the first 6 months have been available on the press release, which we sent to all of you. I believe that for all stakeholder information, I would like to add also some additional information, which I believe are very important for everyone. What has caused the result, which everyone is lumpy, okay, starting by me, by the shareholder, by all the stakeholders and by the management has been caused primarily from the Chinese market and the American market. And I like to explain that, which I believe is very important.

In China, China is an important market for us. So that's why like [Technical Difficulty] in china regarding the tariff. And that has caused in China a crisis, which has impacted on our business. The volume that were forecasted for China were very much higher, much, much higher than what we are doing today. To give you an idea, just in 2025, we closed 77 stores in China. But -- and we opened 30 new stores. So while we closed 77 stores between Natuzzi Italia and Natuzzi Editions, we opened 30 new Natuzzi store in China. So there is really a situation, let's say, complicated situation. But the fact that we are closing the store and opening a new store, 30 stores with the partners that are investing on our brand, this is something that needs to be told, needs to be understood from everyone.

Now in many time, the tariff and the uncertainty between how much it would cost to import the product from China. In China, China has been always an important market for us, not only for distribution, but also for production. So our production for the United States for the second line and Natuzzi Edition has been always manufactured in China. But since the tariff war started in 2019 where was announced tariff of first 15% and then an additional 10% that caused decline in sales from China to America and was affected on our volume and consequently on balance sheet. Recently -- and that was last year, October when, again, tariff uncertainty and the relation between United States of America and China were arguing every morning. We decided to shut down our factory in Shanghai and open a small factory -- new small factory in Quanjiao is a province where the cost would be much lower than Shanghai.

And we moved the production from Shanghai to Italy to supply the American market and cut down the fixed cost of obviously, the factory in China and improving production and cost efficiency in the Italian plants. That was last year -- October last year. Obviously, a few weeks later, start again tariff between Europe and China. So -- but when we decided to move the production from China to Italy, there was no idea that one day, the United States of America would ask a tariff also from Europe. And obviously, that has been also impacting negatively on our margin.

Back to China. So again, we shut down 77 stores. We closed 77 stores in China and we opened 30 new stores in China, while also in the rest of the world, we opened also 12 new stores, and we shut down 17 stores. So I mean, the -- to improve our retail division by eliminating stores that are not qualified for the brand position. And to substitute with a new store in the appropriate location with update consumer experience, it's a process that we are pursuing, investing continually. And that's because of that for the all stakeholder interest, I would like just to show a little bit -- I mean, we don't give up as a company. We have been continuing to invest on our brand in terms of new product, new merchandising, I mean, exhibition. I'd like just to show you a little bit, okay? It's something very interesting for all stakeholders to understand.

Piero, can you help me please to show the -- let's start from beginning. Want to start from here? No, no. I mean we go after, please, Piero. So in order to support the commercial development, we implemented several initiatives in 2025, trade fairs, client congress and design shows. Can we look that, please? Go ahead. Go ahead. I don't need to read all those things. Just show image. So last April, in Milano, the picture that you will see here that you see on this slide is our participation to Milano Fair last April. The reason why we -- and since the COVID, we haven't participated to fairs because unlikely retailer, they were not traveling. So after 6 years, we decided to attend again this fair in Milano and was really a success. Then you can see -- have all the information regarding the visitors, the number of company, the number of country, whatsoever. You will find all the information on the website, and we will provide also to send as we do with the press release, okay?

Go to the next, please, Piero. So consequently, even in High Point, that building that you will see on green is our Natuzzi America headquarter in High Point, North Carolina. We attended 2 fairs this year, one in April and one in October, where obviously, we meet the customer, we show new project, we show new marketing plan. So these are all efforts that the company has made in 2025.

Go to the next, Piero. Then we also organized the headquarter congress here in our -- in Italy where we invite the customer from emerging market primarily. Invite the customer from Italy, from Europe. They come in to our congress and they spend 1 to 2 days here in our headquarter to choose new project, new product, new marketing plan, update their store. It's really a very important activity that we do. For example, we have the summer edition, 80 clients from Europe and Far East and our Divani&Divani partners. So all the customers. This is another huge investment to organize those 2 congress in Italy, in our headquarter.

We go to the next. Then we also organized this year 3 congress in China. One was in March with the launching of Feelwell concept, is a concept of comfort, which is very innovative, and we introduced it to 200 journalists, VIP and institutional guests and 320 dealers. That was March this year, 2025. In July, also in Wuxi was launched the new Natuzzi Italia store concept, 7 media interview, 40 articles published, 143 architects designed, 21 VIP dealers were there. Natuzzi Editions, another event, very important in last October in China with 150 dealers, 100 VIP and 5 media. So in other words, China, which is a very important market, which is unlikely is facing a crisis that we never would imagine before, we are closing stores that are not performing. We are opening 30 new stores, but we have been attending exhibition, congress and meeting the customer and promote the business.

Go to the next, please, Piero. And then we have the design show. We had 10 design show. In February, we were in Riyadh Downtown Design. In April, Milano Design Week. In May, ICFF, New York, we were present there. June, Design Show Melbourne in Australia. July [ Casa Decor ] in Madrid. September, we were Dubai -- Mumbai Design Week. In November, we will attend again Mumbai -- no, Dubai, we were last week in Dubai with Design Week, and we will be next week in Mumbai again in India. And then the first week of December in Miami Art Basel. All those exhibition where we show our novelty, our new project are very, very important to get -- to be in touch with the market, with the customer, with the designer architect. And we were also in Osaka last April, the Expo Osaka. We were there 791 events organizing in Italian pavilion. 1,300 official delegation were there, 7,500 company representative.

Okay. Next, please, Piero. Highlights, Trade and Contract. Those building that we show you we launched last November in Dubai, the first Natuzzi Harmony Residences. Then because the building is under construction, we already sold several apartment, Natuzzi apartment, all furnishing by Natuzzi. And so we already signed the second contract in -- always in Dubai with the same developer for another 80 apartments. And we signed another contract with an entrepreneur developer in Jerusalem in Israel, where we designed already the building, and we have the contract in our hands to develop this tower. Many other projects are in the pipeline.

So that's all those information I gave to you just to show that despite the headwind we are facing in terms of business, we strongly believe that all those initiatives, all those, I mean, initiatives that we have made and we developed more than 30 new projects because obviously, when we attend the fairs and congress and those events specialized for architect, we show a new project, new project in order to stimulate interest in our brand, in our company. So again, we don't give up. We strongly believe in the future and all the investment made in 2025 makes me personally and makes the company confident about the potential growth of the business. So I can stop here for now, and I can -- I'm ready for any stakeholder to ask a question. Thank you very much for listening.

[Operator Instructions] Our first question today is coming from David Kanen.

The first one is I see that you've extended personally a credit line to the company of $15 million. What are the terms of that in terms of the interest rate and then also, you've referenced noncore assets that you can dispose of. Could you quantify for us some of those assets, what they're worth, tannery other property that you can potentially dispose of while we're transitioning the company to profitability?

So as anticipated in the press release, the Board of Directors has just approved the guidelines of a multiyear restructuring plan basis and optimizing the cost structure, increasing the flexibility and developing the retailer business. To implement these activities in the plan targeted investments are likely to be required such as marketing, retailer, the managing and redundant workers and et cetera. Therefore, the board will be evaluating measures aimed to strengthen the capital structure to support the restructuring plan. Once the restructuring plan is finalized and approval by the competent corporate body, we will provide further information on the capital strengthening measures required.

I have granted credit line to the company because as the majority shareholder, I'm firmly convinced that the effective implementation of the restructuring plan guidelines, particularly those relating to the Italian production hub and the general optimization of fixed cost together with our commercial initiatives can help the group to relaunch its activities and pursue sustainable profitability. This credit line will provide the resources needed to address the short-term needs and ensure the financial stability required to achieve the group strategic objectives set out in the restructuring plan. However, as I previously mentioned, together with the Board of Directors, we are evaluating a measure to strengthen the company's capital structure. In the current year, we -- that's it. So that's the story.

David to further add is a 0 interest loan. And as you know, we are looking always for opportunity to, let's say, monetize some of our noncore assets. In specific for the tannery, we don't have any news so far, but we are actively looking for other opportunities to offset some of our noncore assets. And this would be also one of the point of our strategy for the near future regarding also the rightsizing of our industry operations facilities.

Okay. That's helpful. Carlo, could you quantify for us 2 things. First, on the assets, give us a sense as to the value of some of these noncore assets as well as the tannery. How many millions are these assets worth? And then if you could give us some sense of the restructuring, once we move past it right now, our gross margins are last quarter at these volumes was only 34%. After the restructuring let's assume similar revenues, what type of gross margin do you think we can achieve. And then in terms of operating expenses, what kind of a reduction do you think we can get in operating expenses? And will we be positioned to be profitable as a $320 million company?

Thank you very much for all the questions, David. Let me elaborate a little bit because it's a bit long. I will try to summarize it to be effective. First of all, in terms of assets. Okay. Our total net asset value is around EUR 70 million, okay. To specify which is core and noncore, for the moment, I cannot give you the precise figures because all the investigation and internal analysis and discussion with the Board are ongoing. So this will be, let's say, quantified in a way once the final setup of our operations is done. But as I said before, this is one of our strategic point.

If talking about the tannery, the tannery had a value of EUR 5 million specifically, that was the last evaluation we had. But of course, David, we need to be aware that then we need to go on the market. And these are the latest valuation and specifically for tannery is not an easy market to find a buyer in this moment. For the other assets, when I talk about EUR 70 million is composed by the plants and the machinery. So also on this, we need to play careful. It's not a value that we can totally monetize because like for the machinery, it's a different way of evaluating. So this is for the assets.

Allow now to discuss a bit about the gross margin. And as far I can give you indication on what we are working because, of course, the work is on process and so I can't disclose any further detailed information, but allow me to give you the sense of what we are doing. With Mr. Natuzzi and all the team, we are working to be sustainable, especially from the financial point of view. So when we talk about increasing marginality, this is one of the main points. The 34% has some factors that need to be specifically addressed. The first one is the impact -- direct impact on the lower retail sales that, as you know, has a higher margin. And this, we are working with Mr. Natuzzi and the commercial team to bring back the sales that will grant us a higher marginality.

On the other topics, we are working on both operational efficiencies that they will increase the margin and will decrease as one of the reply to your question, all the industrial costs in a permanent way and working on the price list to adopt the profitability to the changing environment of business. So all of these activities together with other actions that are aimed to be more efficient from the cost point of view, targeting of decreasing and increasing the speed of that activity to the economic environment will improve our marginality. Therefore, we will go back to the trajectory with increasing margin and decreasing the sales to be breakeven. I hope being clear and replied to all your questions, David?

Yes, that's very helpful. I appreciate the clarity and the detail. So are you saying at these levels, these depressed levels we're running at after the restructuring, your objective is to be breakeven. Did I hear that correctly?

Yes, the trajectory of the plan is to be profitable. Yes, the trajectory of the plan is to be profitable, David, absolutely.

Okay. Okay. And then in the past, I guess this would be a question for Pasquale Jr. I don't know if he's on the call, but if you can speak to the commercial initiatives, Mr. Natuzzi highlighted some of these large projects in Jerusalem and Dubai, et cetera. For next year, could you give us a sense as to your internal goal for annual run rate in commercial revenue? Is it $10 million a year, is it $20 million, $40 million? What is a realistic internal goal in terms of run rate? Because this is incremental, and I know there are companies that are doing hundreds of millions of dollars in this business. It seems like there's enormous upside to it. So if you can give us a sense as to the magnitude that would be really helpful.

Okay. I can answer, David. Certainly, you're right. But to be honest, I mean, we want to communicate the real contract that we have in our hand. So we started with one contract in Dubai. Then we -- because it's been successful, now we have the second contract. And because it has been successful we have also contract in Israel. There are already 3 towers that we should develop. I mean, and we have other very important, very exciting project in the pipeline. But I mean, we are not ready now to tell you how much volume we are going to develop with the Trade and Contract business. Certainly, the fact that we've been attending two events in Mumbai and then in Dubai, in Riyadh, then even in New York, where we invest money and we need the architect, where a developer just -- I mean, we are promoting the business. And certainly, we are expecting to get good return, to be honest, okay?

Yes. May I add also on this Mr. Natuzzi, David, to give you a magnitude, it is a start-up. So the number will be low in the beginning, but then there will be a multiply effect. The more projects we do, the more they know, the more we have. And specifically, when we talk about revenues on a yearly basis, there are 2 sides of the contract. The first one is design fees that we will get in the first phase of the contract. The second one is when we realize the project and we deliver all the merchandise that has a time line that we don't know and we cannot predict. So as a total ballpark, we are in a start-up phase and then on top of that, it's difficult for us as of today to understand the phasing of the delivery of the product.

Okay. That's very helpful. And then is there a way that perhaps I can extrapolate if you can give me a sense maybe per unit, let's say there's a building that has 150 units in it, okay? What do you think the spend is, on average, what is the normal spend per unit? Is it, 4,000, 7,000? If you can give me some sense...

It really depends on the project, David. It really depends on the kind of project.

No. I mean if I understood well the question, David, I mean, we promote the Natuzzi Harmony Residences, and we promote apartment of different size. Then we give the liberty to the consumer to choose the Natuzzi product. So it depends. We can -- I mean so the amount of cost to furnishing each apartment could be very much different. It depends. Because as you know, each project we make is available in leather or is made in fabric. Could be -- the configuration could be a big one or a small one. It depends from the customer needs, the consumer needs. So I mean the price could be different. We believe that next year, while after we furnishing, we decorate several apartments. We should make -- we must be in the position to average them, and we can give you this information.

Okay. And then let me move on to my last question, and then I'll go back into queue if there's anyone else that would like to pose questions is, could you give us an update on the permanent CEO search. Do you have candidates that you feel you're close to deciding on? And is that something that you expect perhaps by early next year will be finished?

We engaged a head hunter company and started to propose some candidates. I already made one, I tell you one and I spent 2 hours time. Certainly, we need to find a CEO that should understand how to develop and manage high-end brand. One, we need to -- the same CEO needs to have experience also in managing a retailer. And the last and not the least, should also experience in operation because we are a company which we design a product, we manufacture product, we sell the product through the retailer. We are a global company so I mean it's not easy, but certainly, we will continue to do the search. There are certainly some people capable to manage our company. But that's -- we are going forward, be sure about that because I like to be the president of the company. I cannot be everything. I'm here to add to the company, obviously, because I feel responsibility for that.

I'm going to try and squeeze one more question in there. My apologies. So the last quarter you reported was second, the June quarter. Clearly, the third quarter is over, are we basically maintaining the levels that we saw in Q2? Or have things gotten worse? Or are they slightly better in terms of the written orders?

I mean I already declared on the press release, David, okay? I mean it's -- I mean, I hope I have been clear. I'm sure that I have been clear because I wrote, I read, I re-read again the press release. So do the same please, all right, and you will then understand the company direction.

[Operator Instructions] We're showing no additional questions at this time. I'd like to turn the floor back over to management for closing comments.

So no further questions.

That is correct.

Okay. So thank you very much to everyone, to every listener. And I really appreciate your attendance. Thank you. Thank you very much.

Bye-bye.