UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 20-F/A (Amendment No. 3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 2018 Commission file number: 001-11854 NATUZZI S.p.A. (Exact
name of Registrant as specified in its charter) Republic of Italy (Jurisdiction of incorporation or organization) Via Iazzitiello 47, 70029, Santeramo in Colle, Bari, Italy (Address of principal executive offices) Mr. Pietro Direnzo Tel.: +39 080 8820 812; pdirenzo@natuzzi.com; Via Iazzitiello 47, 70029 Santeramo in Colle, Bari, Italy (Name, telephone, e-mail and/or facsimile number and address of company contact person) Securities registered or to be registered pursuant to Section 12(b) of the Act:  Title of each class

Trading Symbol

Name of each exchange on which
registeredAmerican Depositary Shares, each representing
five Ordinary Shares

NTZ

New York Stock ExchangeOrdinary Shares, with a par value of 1.00 each*



New York Stock Exchange**Not for trading, but only in connection with registration of American Depositary Shares Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for
which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual
report: As of December 31, 2018 54,853,045 Ordinary Shares Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes  ☐    No  ☒ If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  ☒    No  ☐ Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).    Yes  ☒    No  ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer and emerging growth company in Rule 12b-2 of the Exchange Act.  Large accelerated filer

☐

Accelerated filer

☐Non-accelerated filer

☒

Emerging growth company

☐ If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐  
The term new or revised financial accounting standard refers to any update issued by the Financial
Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. Indicate by check mark which basis of
accounting the registrant has used to prepare the financial statements included in this filing:  U.S. GAAP    ☐

International Financial Reporting Standards as issued
by the International Accounting Standards Board    ☒

Other    ☐ If Other has been checked in response to the previous question, indicate by check mark which financial statement
item the registrant has elected to follow.    ☐  Item 17     ☐   Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes  ☐    No  ☒




---

EXPLANATORY NOTE This Amendment No. 3 on Form 20-F/A (the Amendment No. 3) is being filed by Natuzzi S.p.A. (the Company and
our) to amend the Companys Annual Report on Form 20-F for the fiscal year ended December 31, 2018, originally filed with the U.S. Securities Exchange Commission (SEC) on April 30, 2019 (the Original Filing),
as amended by Amendment No. 1 (the Amendment No. 1) and Amendment No. 2 (the Amendment No. 2), filed with the SEC on May 10, 2019 and May 29, 2019, respectively. The Company is filing this Amendment No. 3 solely to correct an
inadvertent omission in the Report of Independent Registered Public Accounting Firm included in the Original Filing (as amended by Amendment No. 1 and Amendment No. 2), to correctly state that KPMG S.p.A. also audited our consolidated statement of
financial position as of January 1, 2017. This Amendment No. 3 consists solely of the cover page, this explanatory note, the entirety of
Item 18, a signature page, and Exhibits 12.1, 12.2 and 13.1. Except as described above, this Amendment No. 3 does not amend any information set forth in the Original Filing, Amendment No. 1 or Amendment No. 2 or reflect any events that occurred
subsequent to the filing of the Original Filing on April 30, 2019. Accordingly, this Amendment No. 3 should be read in conjunction with the Original Filing, Amendment No. 1 and Amendment No. 2 and with our filings with the SEC subsequent to the
Original Filing.




---

PART III ITEM 17. FINANCIAL STATEMENTS Our financial statements have been prepared in accordance with Item 18 hereof. ITEM 18. FINANCIAL STATEMENTS Our audited consolidated financial statements are included in this Annual Report beginning at page F-1.  Index to Consolidated Financial Statements

PageReports of Independent Registered Public Accounting Firm


F-1Consolidated statements of financial position as at December 31, 2018, 2017 and
 January 1, 2017


F-2Consolidated statements of profit or loss for the years ended December 31, 2018
and 2017


F-3Consolidated statements of comprehensive income for the years ended December
 31, 2018 and 2017


F-4Consolidated statements of changes in equity for the years ended December 31,
 2018 and 2017


F-5Consolidated statements of cash flows for the years ended December 31, 2018 and
 2017


F-6Notes to consolidated financial statements


F-7




---

Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Natuzzi S.p.A. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial position of Natuzzi S.p.A. and subsidiaries (the Company) as of
December 31, 2018 and 2017, and January 1, 2017, the related consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2018, and the
related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and
January 1, 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting
Standards Board. Change in Basis of Accounting As
discussed in Note 1 to the consolidated financial statements, in 2018 the Company changed its basis of accounting from generally accepted accounting principles in the Republic of Italy to International Financial Reporting Standards as issued by
the International Accounting Standards Board. Basis for Opinion These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our
audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG S.p.A. We have served as the Companys auditor
since 2016. Bari, Italy April 30, 2019  F-1




---

Natuzzi S.p.A. and subsidiaries Consolidated statements of financial position as at December 31, 2018, 2017 and January 1, 2017 (Expressed in thousands of euros except as otherwise indicated)  December 31, 2018


December 31, 2017


January 1, 2017


NoteASSETSNon-current assetsProperty, plant and equipment


111,086



115,190



121,705



8Intangible assets and goodwill


5,892



5,837



3,927



9Equity-method investees


40,220



79



97



10Other non-current receivables


4,533



1,402



2,137



11Other non-current assets


3,359



2,851



1,323



12Deferred tax assets


475



626



1,146



36Total non current assets


165,565



125,985



130,335Current assetsInventories


84,227



91,077



91,014



13Trade receivables


40,967



37,549



40,138



14Other current receivables


9,507



12,910



18,237



15Other current assets


8,107



7,232



10,243



12Current income tax assets


1,986



2,413



1,254



36Gains on derivative financial instruments


218



339



223



27Cash and cash equivalents


62,131



55,035



64,981



16Total current assets


207,143



206,555



226,090TOTAL ASSETS


372,708



332,540



356,425EQUITYShare capital


54,853



54,853



54,853



17Reserves


17,198



16,398



24,065



17Retained earnings


64,496



31,244



61,636



17EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY


136,547



102,495



140,554Non-controlling interests


1,634



2,039



3,445TOTAL EQUITY


138,181



104,534



143,999LIABILITIESNon-current liabiltiesLong-term borrowings


10,361



20,877



6,329



18Employees leaving entitlement


17,181



18,820



19,426



19Non-current contract liabilities


9,934



2,560



1,652



20Provisions


14,502



16,715



13,253



21Deferred income for capital grants


13,002



13,771



14,760



22Other liabilities


1,119











23Deferred tax liabilities


42



320



1,763



36Total non current liabilities


66,141



73,063



57,183Current liabilitiesBank overdraft and short-term borrowings


35,148



25,967



24,427



24Current portion of long-term borrowings


10,582



4,840



11,632



18Trade payables


77,901



76,035



70,457



25Other payables


26,914



27,587



29,407



26Current contract liabilities


12,165



12,973



10,647



20Provisions


4,476



5,957



5,687



21Liabilities for current income tax


880



1,317



1,693



36Losses on derivative financial instruments


320



267



1,293



27Total current liabilities


168,386



154,943



155,243TOTAL LIABILITIES


234,527



228,006



212,426TOTAL EQUITY AND LIABILITIES


372,708



332,540



356,425  F-2




---

Natuzzi S.p.A. and subsidiaries Consolidated statements of profit or loss for the years ended December 31, 2018 and 2017 (Expressed in thousands of euros except as otherwise indicated)  2018


2017Restated (*)


NoteRevenue


428,539



448,880



29Cost of sales


(308,250
)


(318,401
)


30Gross Profit


120,289



130,479Other income


5,944



1,650



31Selling expenses


(114,997
)


(118,254
)


32Administrative expenses


(35,344
)


(36,105
)


33Impairment on trade receivables


(745
)


(1,475
)


14Other expenses


(605
)


(250
)


31Operating loss


(25,458
)


(23,955
)Finance income


379



1,252



34Finance costs


(5,580
)


(6,289
)


34Net exchange rate gains (losses)


(3,914
)


1,033



35Gain from disposal and loss of control of a subsidiary


75,411







10Net finance income / (costs)


66,296



(4,004
)Share of profit/(loss) of equity-method investees


(290
)






10Profit / (loss) before tax


40,548



(27,959
)Income tax expense


(7,429
)


(2,886
)


36Profit / (loss) for the year


33,119



(30,845
)Profit / (loss) attributable to:Owners of the Company


33,289



(30,392
)Non-controlling interests


(170
)


(453
)Profit / (loss) per shareBasic loss per share


0.61



(0.55
)


37Diluted loss per share


0.61



(0.55
)


37  (*)
The Group has initially applied IFRS 9 as at January 1, 2018. Under the transition method chosen,
comparative information has not been restated except for separately presenting impairment losses on trade receivables. See note 5.  F-3




---

Natuzzi S.p.A. and subsidiaries Consolidated statements of comprehensive income for the years ended December 31, 2018 and 2017 (Expressed in thousands of euros except as otherwise indicated)  2018


2017


NoteProfit / (loss) for the year


33,119



(30,845
)Other comprehensive incomeItems that will not be reclassified to profit or lossActuarial gains/(losses) on employees leaving entitlement


573



(108
)


19Tax impact






(8
)


36573



(116
)Total


573



(116
)Items that are or maybe reclassified subsequently to profit or lossExchange rate differences on translation of foreign operations


251



(7,778
)Tax impact






Total


251



(7,778
)Other comprehensive income/(loss) for the year, net of tax


824



(7,894
)


17Total comprehensive income/(loss) for the year


33,943



(38,739
)Total comprehensive income/(loss) attributable to:Owners of the Company


34,089



(38,059
)Non-controlling interests


(146
)


(680
)  F-4




---

Natuzzi S.p.A. and subsidiaries Consolidated statements of changes in equity for the years ended December 31, 2018 and 2017 (Expressed in thousands of euros except as otherwise indicated)  ShareCapitalamount


Translationreserve


IAS 19reserve


Otherreserves


Retainedearnings


Equityattributableto owners oftheCompany


Equityattributableto ownerNon-controllinginterests


TotalequityBalance as at January 1, 2017


54,853



12,606







11,459



61,636



140,554



3,445



143,999Dividends distribution


























(726
)


(726
)Loss for the year


















(30,392
)


(30,392
)


(453
)


(30,845
)Other comprehensive loss for the year






(7,551
)


(116
)










(7,667
)


(227
)


(7,894
)Balance as at December 31, 2017


54,853



5,055



(116
)


11,459



31,244



102,495



2,039



104,534Adjustment on initial application of IFRS 9, net of tax


















(37
)


(37
)






(37
)Adjusted balance as at January 1, 2018


54,853



5,055



(116
)


11,459



31,207



102,458



2,039



104,497Dividends distribution


























(453
)


(453
)Capital contribution


























194



194Profit for the year


















33,289



33,289



(170
)


33,119Other comprehensive income/(loss) for the year






227



573











800



24



824Balance as at December 31, 2018


54,853



5,282



457



11,459



64,496



136,547



1,634



138,181  F-5




---

Natuzzi S.p.A. and subsidiaries Consolidated statements of cash flows for the years ended December 31, 2018 and 2017 (Expressed in thousands of euros except as otherwise indicated)  2018


2017


NoteCash flows from operating activities:Profit / (loss) for the period


33,119



(30,845
)Adjustments for:Depreciation


10,154



10,861



8Amortization


910



1,569



9Interest expenses


3,796



4,639Share of (profit) loss of equity-method investees, net of tax


290



(18
)


10(Gain) from loss of control in a former subsidiary


(75,411
)






10(Gain) loss on sale of property, plant and equipment


(171
)


73Unrealized foreign exchange (gains) losses


174



(1,141
)Deferred income for capital grants


(769
)


(989
)Tax expense


7,429



2,886Total adjustment


(53,598
)


17,880Changes in:Inventories


5,999



(1,387
)Trade and other receivables


(3,678
)


5,723Other assets


(1,675
)


1,484Trade and other payables


7,365



11,854Contract liabilities


12,317



3,235Provisions


(3,694
)


3,732Other liabilities


1,119



One-time termination benefit payments


(1,411
)


(8,272
)Employees leaving entitlement


(1,066
)


(606
)Total changes


15,276



15,763Cash provided by (used in) operating activities


(5,203
)


2,798Interest paid


(3,033
)


(2,821
)Income taxes paid


(3,112
)


(4,878
)Net cash used in operating activities


(11,348
)


(4,901
)Cash flows from investing activities:Property, plant and equipment:Additions


(7,283
)


(6,708
)Disposals


572



760Intangible assets


(878
)


(845
)Purchase of business, net of cash acquired






(3,558
)Disposal of a business, net of cash disposed off


22,156







10Net cash provided by (used in) investing activities


14,567



(10,351
)Cash flows from financing activities:Long-term borrowings:Proceeds






12,500Repayments


(4,774
)


(4,744
)Short-term borrowings


7,419



5,956Dividends distribution to non-controlling
interests


(453
)


(1,349
)Net cash provided by financing activities


2,192



12,363Increase (decrease) in cash and cash equivalents


5,411



(2,889
)Cash and cash equivalents as at January 1 (*)


55,035



60,565Effect of movements in exchange rates on cash held


(77
)


(2,641
)Cash and cash equivalents as at December 31 (*)


60,369



55,035



16  (*)
As at December 31, 2018 and 2017 cash and cash equivalents includes bank overdrafts of 1,762 and nil,
respectively, that are repayable on demand and form an integral part of the Groups cash management.  F-6




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in thousands of euros except as otherwise indicated)  1
Introduction The consolidated financial statements of the Natuzzi S.p.A. as at December 31, 2018 and 2017, and the consolidated statement of financial
position as at January 1, 2017 have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS), including interpretations issued by the IFRS
Interpretations Committee (IFRS IC) applicable to companies reporting under IFRS. The consolidated financial statements as at December 31, 2018 are the Groups first set of consolidated financial statements prepared in accordance with IFRS
and IFRS 1 First-time Adoption of International Financial Reporting has been applied. Being a first-time adopter, the Group
restated the 2017 consolidated financial statements for comparative purposes, in order to present the effect of the adoption of the IFRS. Note 43 describes the effects of the transition from the generally accepted accounting principles in the
Republic of Italy (Italian GAAP) to the IFRS and presents the related reconciliation schedules. The Groups date of transition to the IFRS is January 1, 2017 and its first set of consolidated financial statements prepared in
accordance with the IFRS is that as at and for the year ended December 31, 2018. In order to present the effects of the transition to
the IFRS and meet the related disclosure requirements of IFRS 1, the Group adopted the example provided in IFRS 1.IG.63 and presented the following in note 43:  

the reconciliation of the consolidated statements of financial position prepared in accordance with Italian GAAP
with the consolidated statements of financial position prepared in accordance with IFRS as at January 1, 2017 and December 31, 2017;  

the reconciliation of the consolidated statement of profit or loss prepared in accordance with Italian GAAP with
the consolidated statement of profit or loss prepared in accordance with IFRS for the year ended December 31, 2017;  

the reconciliation of the consolidated statement of comprehensive income prepared in accordance with Italian GAAP
with the consolidated statement of comprehensive income prepared in accordance with IFRS for the year ended December 31, 2017;  

the reconciliation of equity as at January 1, 2017 and December 31, 2017, loss and other comprehensive
loss for the year ended December 31, 2017 between Italian GAAP and IFRS;  

the reconciliation of the consolidated statements of changes in equity as at January 1, 2017 and
December 31, 2017 between Italian GAAP and IFRS;  

the reconciliation of the consolidated statement of cash flows prepared in accordance with Italian GAAP with the
consolidated statement of cash flows prepared in accordance with IFRS for the year ended December 31, 2017;  

the accounting policies setting out the IFRS application rules and the selected standards;  

comments on the above reconciliation schedule. Natuzzi S.pA., as first time adopter, has not presented the consolidated statement of profit or loss, comprehensive income, changes in equity
and cash flows for the year ended December 31, 2016 restated under the IFRS based on the one time accommodation available for the first time IFRS implementers and included in the general instruction G(a) to Form 20-F.  F-7




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  During 2018 and 2017 no significant non-recurring
events or unusual transactions have occurred other than that described in note 10. All transactions performed by the Group during 2018 and 2017 are part of the Groups ordinary business.  2
Description of the business and Group composition Natuzzi S.p.A. (Natuzzi, the Company or the Parent) is domiciled in Italy. The Companys registered
office is at via Iazzitello 47, 70029 Santeramo in Colle (Bari). These consolidated financial statements include the accounts of Natuzzi S.p.A and of its subsidiaries (together with the Company, the Group). The Groups primary
activity is the design, manufacture and marketing of contemporary and traditional leather and fabric upholstered furniture (see note 6 on operating segment). The financial statements utilized for the consolidation are the financial statements of each Group company as at December 31, 2018, 2017
and January 1, 2017. The 2018 and 2017 financial statements have been adopted by the respective Boards of Directors of the relevant companies. The financial statements of subsidiaries are adjusted, where necessary, to conform to Natuzzis
accounting principles and policies (see note 4), which are consistent with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) applicable to companies reporting under IFRS
(see note 3(a)). The consolidated financial statements of the Group as at December 31, 2018 and 2017 and the related opening
consolidated financial statements as at January 1, 2017 (date of transition to IFRS) have been approved by the Companys Board of Directors (the Board) on April 10, 2019 and authorised on April 29, 2019. The subsidiaries included in the consolidation as at December 31, 2018, 2017 and January 1, 2017, together with the related
percentages of ownership and other information, are as follows:  Name

Percentage of31/12/2018


Percentage of31/12/2017


Percentage of01/01/2017


Share/quotacapital


Ownershipregistered office

ActivityItalsofa Nordeste S/A


100.00



100.00



100.00


BRL
157,654,283


Salvador de Bahia, Brazil


(1
)Natuzzi (China) Ltd


100.00



100.00



100.00


CNY
106,414,300


Shanghai, China


(1
)Italsofa Romania S.r.l.


100.00



100.00



100.00


RON
109,271,750


Baia Mare, Romania


(1
)Natco S.p.A.


99.99



99.99



99.99


EUR
4,420,000


Santeramo in Colle, Italy


(2
)I.M.P.E. S.p.A.


100.00



100.00



100.00


EUR
1,000,000


Bari, Italy


(3
)Nacon S.p.A.


100.00



100.00



100.00


EUR
2,800,000


Santeramo in Colle, Italy


(4
)Lagene S.r.l.


100.00



100.00



100.00


EUR
10,000


Santeramo in Colle, Italy


(4
)Natuzzi Americas Inc.


100.00



100.00



100.00


USD
89


High Point, N. Carolina, USA


(4
)Natuzzi Iberica S.A.


100.00



100.00



100.00


EUR
386,255


Madrid, Spain


(4
)Natuzzi Switzerland AG


100.00



100.00



100.00


CHF
2,000,000


Dietikon, Switzerland


(4
)Natuzzi Benelux S.A.






100.00



100.00


EUR
312,000


Herentals, Belgium


(4
)Natuzzi Germany Gmbh


100.00



100.00



100.00


EUR
25,000


Köln, Germany


(4
)Natuzzi Japan KK


100.00



100.00



100.00


JPY
28,000,000


Tokyo, Japan


(4
)Natuzzi Services Limited


100.00



100.00



100.00


GBP
25,349,353


London, UK


(4
)Natuzzi Trading (Shanghai) Co., Ltd






100.00



100.00


CNY
13,891,783


Shanghai, China


(4
)Natuzzi Russia OOO


100.00



100.00



100.00


RUB
109,138


Moscow, Russia


(4
)Natuzzi India Furniture PVT Ltd


100.00



100.00



100.00


INR
16,200,000


New Delhi, India


(4
)Natuzzi Florida LLC


51.00



51.00



51.00


USD
4,155,186


High Point, N. Carolina, USA


(4
)  F-8




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Natmex S.DE.R.L.DE.C.V


99.00



99.00






MXN
69,195,993


Mexico City, Mexico


(4
)Natuzzi France S.a.s.


100.00



100.00



100.00


EUR
200,100


Paris, France


(4
)Softaly (Furniture) Shanghai Co. Ltd


96.50



96.50



96.50


CNY
100,000


Shanghai, China


(4
)Natuzzi Netherlands Holding


100.00



100.00



100.00


EUR
34,605,000


Amsterdam, Holland


(5
)New Comfort S.r.l.


100.00



100.00



100.00


EUR
20,000


Santeramo in Colle, Italy


(6
)Italsofa Shanghai Ltd


96.50



96.50



96.50


CNY
124,154,580


Shanghai, China


(6
)Natuzzi Trade Service S.r.l.


100.00



100.00



100.00


EUR
14,000,000


Santeramo in Colle, Italy


(6
)Natuzzi Oceania PTI Ltd


100.00



100.00



100.00


AUD
320,002


Sydney, Australia


(6
)  (1)
Manufacture and distribution (2)
Intragroup leather dyeing and finishing (3)
Production and distribution of polyurethane foam (4)
Services and distribution (5)
Investment holding (6)
Dormant As at December 31, 2018 the consolidation area changed due to: (a) the deconsolidation of Natuzzi Trading (Shanghai) Co., Ltd
occurred on July 27, 2018 as a consequence of the loss of control (see note 10); (b) the sale of Natuzzi Benelux.  3
General principles for the preparation of the consolidated financial statements  (a)
Compliance with IFRS The consolidated financial statements of the Natuzzi Group have been prepared in accordance with International Financial Reporting Standards
(IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) applicable to companies reporting under IFRS. The consolidated financial statements comply with IFRS as issued by the International Accounting Standards Board (IASB). The consolidated financial statement as at December 31, 2018 is the Groups first consolidated financial statements prepared in
accordance with IFRS and IFRS 1 First-time Adoption of International Financial Reporting has been applied. An explanation of how the transition from Italian GAAP to IFRS has affected the reported financial position, financial performance
and cash flows of the Group is provided in note 43. Details of Groups accounting policies are included in note 4.  (b)
Historical cost convention The consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities
(including derivative instruments) measured at fair value.  (c)
Basis of preparation The consolidated financial statements consist of the consolidated statement of financial position, the consolidated statement of profit or
loss, the consolidated statement of comprehensive income or loss, consolidated statement of changes in equity, consolidated statement of cash flows and the notes to the consolidated financial statements.  F-9




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  The consolidated statement of financial position has been prepared based on the nature of the
transactions, distinguishing: (a) current assets from non-current assets, where current assets are intended as the assets that should be realised, sold or used during the normal operating cycle, or the
assets owned with the aim of being sold in the short term (within 12 months); (b) current liabilities from non-current liabilities, where current liabilities are intended as the liabilities that should be paid
during the normal operating cycle, or over the 12-month period subsequent to the reporting date. The consolidated statement of profit or loss has been prepared based on the function of the expenses. The consolidated statement of cash flows has been prepared using the indirect method. The consolidated financial statements are presented in Euro (the Groups presentation currency) and all amounts are rounded to the nearest
thousands of Euro, unless otherwise stated. They also present comparative information in respect to the previous period.  (d)
Functional and presentation currency These consolidated financial statements are presented in Euro, which is the Natuzzi S.p.As functional currency. All amounts have been
rounded to the nearest thousand, unless otherwise stated.  (e)
Use of estimates and judgement The preparation of consolidated financial statements requires the use of accounting estimates. Actual results may differ from these estimates.
Management also needs to exercise judgement in applying the Groups accounting policies. This note provides an overview of the areas
that involved a higher degree of judgement or complexity, and of items which are susceptible to adjustment in the event actual results are materially different than the estimates. Detailed information about each of these estimates and judgements is
included in other notes together with information about the basis of calculation for each affected line item in the consolidated financial statements. The areas involving significant estimates or judgements are:  (a)
impairment of property, plant and equipment, note 8;  (b)
estimated goodwill impairment, note 9;  (c)
estimation of fair value of the investment in a joint venture recorded as such after loss of control, note 10;  (d)
impairment of trade receivables, note 4;  (e)
estimation of provision for warranty claims, note 21;  (f)
estimation of fair values of contingent liabilities, notes 21 and 40;  (g)
estimated fair value of derivative financial instruments, notes 27 and 28;  (h)
recognition of deferred tax asset, note 36. Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future
events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.  F-10




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  4
Summary of significant accounting policies This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial statements. These
policies have been consistently applied to all the years presented and in preparing the opening IFRS statement of financial position as at January 1, 2017 for the purposes of the transition to IFRSs, unless otherwise indicated. The accounting
policies have been applied consistently by Group entities.  (a)
Basis of consolidation (i) Subsidiaries Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business
combinations by the Group. Intercompany transactions, balances and unrealised gains on transactions between Group companies are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies
adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are
shown separately in the consolidated statement of financial position, consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity, respectively.
Non-controlling interests are measured initially at their proportionate share of the fair value acquirees identifiable net assets at the date of acquisition. Changes in the Groups interest in a
subsidiary that do not result in a loss of control are accounted for as equity transactions. (ii) Associates Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where
the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting (see (v) below), after initially being recognised at cost. (iii) Joint arrangements Under IFRS 11 Joint Arrangements investments in joint arrangements are classified as either joint operations or joint ventures. The
classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. (iv) Joint ventures Interests in joint ventures are accounted for using the equity method (see (v)below), after initially being
recognised at cost in the consolidated statement of financial position. Natuzzi S.p.A. has only one joint venture as at December 31, 2018 (see Note 10).  F-11




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (v) Equity method Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Groups
share of the post-acquisition profits or losses of the investee in profit or loss, and the Groups share of movements in other comprehensive income of the investee. Dividends received or receivable from associates and joint ventures are
recognised as a reduction in the carrying amount of the investment. When the Groups share of losses in an equity-accounted
investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Groups
interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure
consistency with the policies adopted by the Group. The carrying amount of equity-accounted investments is tested for impairment in
accordance with the policy described in note 4 (i). (vi) Changes in ownership interests The Group treats transactions with non-controlling interests that do not result in a loss of control as
transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative
interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity
attributable to owners of Natuzzi S.p.A.. When the Group ceases to consolidate or equity account for an investment because of a loss of
control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of
subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had
directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in a joint venture or an associate is reduced but significant influence is retained, only a proportionate share of
the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.  (b)
Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.  F-12




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (c)
Group Companies (i) Foreign operations that have a functional currency different from the presentation currency The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional
currency different from the presentation currency (Euro) are translated into the presentation currency as follows: (a) assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of
that statement of financial position; (b) revenues and expenses for each statement of profit or loss and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case revenues and expenses are translated at the dates of the transactions); (c) and all resulting exchange differences are recognised in other comprehensive income. Since January 1, 2017, the Groups date of transition to IFRSs, such differences have been recognised in the translation reserve (see
note 43.4 (a)). When a foreign operation is sold, the associated exchange differences are reclassified to profit or loss, as part of the
gain or loss on sale. (ii) Foreign operations that have a functional currency that is the presentation currency Two foreign subsidiaries are considered to be an integral part of Natuzzi S.p.A. (the parent company) due to the primary and secondary
indicators reported in IAS 21 paragraph 9 and 10. Therefore, the functional currency for these foreign subsidiaries is the functional currency of the Parent, namely the Euro. As a result, all monetary assets and liabilities are remeasured, at the
end of each reporting period, using Euro and the resulting gain or loss is recognised in profit or loss. For all non monetary assets and liabilities, share capital, reserves and retained earnings historical exchange rates are used. The average
exchange rates during the year are used to translate non-Euro denominated revenues and expenses, except for those non-Euro denominated revenues and expenses related to
assets and liabilities which are translated at historical exchange rates. The resulting exchange differences on translation are recognised in profit or loss.  (d)
Foreign currency transactions Transactions in foreign currencies are translated into functional currency using the exchange rates at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary items that are measured based on historical cost in
a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency exchange gains and losses are recognised in profit or loss and presented within finance income and costs.  (e)
Property, plant and equipment Items of property, plant and equipment are measured at cost, which includes capitalised borrowing costs, less accumulated depreciation and any
accumulated impairment losses. The cost of certain buildings as at January 1, 2018, the Groups date of transition to IFRS, was determined with reference to its deemed cost at that date (see note 43.4 (a)).  F-13




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  If significant parts of an item of property, plant and equipment have different useful lives,
then they are accounted for as separate items (major components) of property, plant and equipment. Any gain or loss on disposal of an item
of property, plant and equipment is recognised in profit or loss. Subsequent expenditure is capitalised only if it is probable that the
future economic benefits associated with the expenditure will flow to the Group. Depreciation is calculated to write off the cost of items
of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is recognised in profit or loss. Land is not depreciated. The estimated useful lives of property, plant and equipment for current and comparative periods are as follows: (a) buildings 10-50 years; (b) plant and equipment, 410 years; (c) fixtures and fittings, 510 years (see note 8). Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.  (f)
Leases At inception of an arrangement, the Group determines whether the arrangement is or contains a lease. At inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required by the
arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are
recognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Groups incremental borrowing rate. Leases of property, plant and equipment that transfer to the Group substantially all of the risks and rewards of ownership are classified as
finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the
accounting policy applicable to that asset. Assets held under other leases are classified as operating leases and are not recognised in
the Groups statement of financial position. Payments made under operating leases are recognised in profit or loss on a straight-line
basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability.
The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.  F-14




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (g)
Business combinations (i) Acquisitions on or after January 1, 2017 The Group accounts for business combinations using the acquisition method when control is transferred to the Group (see 4(a)(i)). The
consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment (see 4 (i)). Any gain on a bargain purchase is recognised in
profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The
consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets
the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent
changes in the fair value of the contingent consideration are recognised in profit or loss. (ii) Acquisitions prior to January 1,
2017 As part of its transition to IFRS, the Group elected to restate only those business combinations that occurred on or after
January 1, 2017. In respect of acquisitions prior to January 1, 2017, goodwill represents the amount recognised under the Groups previous accounting framework, Italian GAAP. Such goodwill has been tested for impairment at the
transition date January 1, 2017.  (h)
Intangible assets and goodwill Expenditure on research activities is recognised in profit or loss as incurred. Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically and commercially
feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in profit or loss as incurred. Subsequent to initial recognition,
development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. Other intangible assets,
including software, trademarks and patents, that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses. Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. In respect of acquisitions prior to
January 1, 2017, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous GAAP (see note 43.4 (b)). Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific intangible asset to which it
relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.  F-15




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Amortisation is calculated to write off the cost of intangible assets less their estimated
residual values using the straight-line method over their estimated useful lives, and is recognised in profit or loss. Goodwill is not amortised. The estimated useful lives for current and comparative periods are as follows: software 3-5 years,
trademarks and patents 35 years, others 25 years. Amortisation methods, useful lives and residual values are reviewed at each
reporting date and adjusted if appropriate.  (i)
Impairment of non-financial assets At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than
inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated. Goodwill is tested annually for impairment. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or Cash Generating Units (hereinafter also CGUs). Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the
combination. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in
use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to
the asset or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the
CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill
is not reversed. For other assets, an impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment
loss had been recognised.  (j)
Interests in equity-accounted investees The Groups interests in equity accounted investees comprise interests in associates and a joint venture. Associates are those entities in
which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the
arrangement, rather than rights to its assets and obligations for its liabilities.  F-16




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Interests in associates and the joint venture are accounted for using the equity method. They
are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Groups share of the profit or loss and OCI of equity accounted investees, until the date
on which significant influence or joint control ceases.  (k)
Inventories Raw materials are stated at the lower of cost (determined under the specific cost method for leather hides and under the weighted-average
method for other raw materials) and net realizable value. Goods in process and finished goods are valued at the lower of production cost and net realizable value. Production cost includes direct production costs and production overhead costs. The
production overhead costs are allocated to inventory based on the manufacturing facilitys normal capacity. The provision for slow
moving and obsolete raw materials and finished goods is based on the estimated realizable value net of the costs of disposal.  (l)
Trade and other receivables Trade receivables and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method, less allowance. In particular, trade receivables are amounts due from customers for goods sold or services performed in
the ordinary course of business. They are generally due for settlement within 90 days and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain
significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective
interest method. Details about the Groups impairment policies and the calculation of the loss allowance are provided in note n(i). The Group derecognises trade receivables when the contractual rights to the cash flows from such financial asset expire, or it transfers the
rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of such financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks
and rewards of ownership and it does not retain control of such financial asset.  (m)
Cash and cash equivalents For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at
call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value,
and bank overdrafts. Bank overdrafts are shown within bank overdrafts and short-term borrowings in current liabilities in the statement of financial position.  F-17




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Cash and cash equivalents are recorded at their nominal amount as it substantially coincides
with the fair value. Cash and cash equivalents are subject to the impairment requirements of IFRS 9 and the identified impairment loss is
immaterial.  (n)
Impairment of financial assets The Group has the following types of financial assets that are subject to the expected credit loss model: (a) trade receivables for sales
of goods and services; (b) other receivables carried at amortised cost. (i) Trade receivables The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all
trade receivables.To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. In particular, the Group adopted the practical expedient to use a provision
matrix that it is based on its historical credit loss experience, adjusted for forward looking factors specific to the debtors and the economic environment. The expected loss rates are based on the payment profiles of sales over a period of 36 months before December 31, 2018 or January 1,
2018, respectively, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the
customers to settle the receivables. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators
that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for a period of greater than 120 days past due. Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts
previously written off are credited against the same line item. (ii) Previous accounting policy for impairment of trade receivables As at December 31 2017 and January 1, 2017, under the previous accounting policy Italian GAAP (see note 5) the impairment of
trade receivables was assessed based on the incurred loss model. The Group estimated the losses using consistent methods that took into consideration, in particular, insurance coverage in place, the creditworthiness of its customers, historical
trends and general economic conditions. Individual receivables which were known to be uncollectible were written off by reducing the
carrying amount directly. The other receivables were assessed collectively to determine whether there was objective evidence that an impairment had been incurred but not yet been identified. For these receivables, the estimated impairment losses
were recognised in a separate provision for impairment. The Group considered that there was evidence of impairment if any of the following indicators were present: (a) significant financial difficulties of the debtor; (b) probability that
the debtor will enter bankruptcy or financial reorganisation; and (c) default or late payments.  F-18




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Receivables for which an impairment provision was recognised were written off against the
provision when there was no expectation of recovering additional cash. (iii) Other receivables at amortised cost Other receivables at amortised cost are considered to have low credit risk, and the loss allowance recognised during the period was therefore
limited to 12 months expected losses. Management consider to be low credit risk the other receivables that have a low risk of default and the counterparty has a strong capacity to meet its contractual cash flow obligations in the near
term.  (o)
Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The
amounts are unsecured and are usually paid within 90 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their
fair value and subsequently measured at amortised cost using the effective interest method. The Group derecognises trade and other payables when its contractual obligations are discharged or cancelled or expired.  (p)
Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost.
Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are
recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or
expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or
liabilities assumed, is recognised in profit or loss as finance income or finance costs. Borrowings are classified as current liabilities
unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Further, general and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying
asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or
sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. Other borrowing costs are expensed in the period in which they are incurred.  F-19




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (q)
Employees leaving entitlement The Group provides its Italian employees with benefits on the termination of their employment. The benefits fall under the definition of
defined benefit plans whose existence and amount is certain but whose date is not. The liability is calculated as the present value of the obligation at the reporting date, in compliance with applicable regulations and adjusted to take into account
actuarial gains/losses. The amount of the obligation is calculated annually based on the projected unit credit method. Actuarial gains and losses are recorded in full during the relevant period. Actuarial gains/(losses) are stated under
Other comprehensive income in accordance with IAS 19.  (r)
Provisions Provisions for legal and tax claims, service warranties and one time termination benefits for certain employees are recognised when the Group
has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future
operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of managements best estimate of the expenditure required to settle the present obligation at
the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the
liability. The increase in the provision due to the passage of time is recognised as interest expense.  (s)
Derivative financial instruments and hedging activities Derivatives financial instruments are accounted for in accordance with IFRS 9, except for hedging activities that are treated in accordance
with IAS 39 (see note 5). Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being
hedged. The Group designates certain derivatives as hedges of a particular risk associated with the cash flows of recognised assets (trade receivables) and highly probable forecast transactions (sales orders) (cash flow hedges). At inception of the hedge relationship, the Group documents the economic relationship between hedging instruments and hedged items including
whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items (trade receivables and/or sales orders). The Group documents its risk management objective and strategy for undertaking its
hedge transactions. The full fair value of a hedging derivative is classified as a non-current
asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.  F-20




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (i) Cash flow hedges that qualify for hedge accounting The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the cash
flow hedge reserve within equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, within other gains/(losses). When forward contracts are used to hedge forecast transactions, the Group generally designates only the change in fair value of the forward
contract related to the spot component as the hedging instrument. Gains or losses relating to the effective portion of the change in the spot component of the forward contracts are recognised in the cash flow hedge reserve within equity. The change
in the forward element of the contract that relates to the hedged item (aligned forward element) is recognised within OCI in the costs of hedging reserve within equity. In some cases, the Group may designate the full change in fair value
of the forward contract (including forward points) as the hedging instrument. In such cases, the gains or losses relating to the effective portion of the change in fair value of the entire forward contract are recognised in the cash flow hedge
reserve within equity. Amounts accumulated in equity are reclassified in the periods when the hedged item affects profit or loss. When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative
deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction occurs, resulting in the recognition of a non-financial asset such as inventory. When
the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassified to profit or loss. (ii) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not
qualify for hedge accounting are recognised immediately in profit or loss and are included in net exchange rate gains (losses). The fair value of derivative instruments is disclosed in note 28. (iii) Derivative financial instruments and hedge accounting  Policy applicable before January 1, 2018 The policy applied in the comparative information presented as at December 31, 2017 and January 1, 2017 is in accordance with the
previous Italian GAAP. For additional details refers to note 5.  (t)
Revenues from contracts with customers The Group has adopted IFRS 15 Revenue from Contracts with Customers, effective for reporting periods starting from
January 1, 2018, using the full retrospective approach, without any of the practical expedients indicated by IFRS 15 C5. See note 43 for additional details. (i) Sale of upholstered furniture and home furnishings accessories  wholesale The Group sells a wide range of upholstered furniture (upholstered sofas and beds) and home furnishing accessories (for instance coffee tables,
lamps, rugs, wall units) in the wholesale market (Natuzzi branded products and private label products). The upholstered sofas (leather and fabric sofas) are manufactured in the plants located in Italy, Romania, China and Brazil. Sales are recognised
when control of the products has transferred, being when the products are delivered to the wholesaler, the wholesaler has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the
wholesalers acceptance of the products. Delivery occurs when the  F-21




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the wholesaler, and either the wholesaler has accepted the products in accordance
with the sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied. The goods are often sold with retrospective volume discounts based on aggregate sales over a 12 months period. Revenue from these sales is
recognised based on the price specified in the contract, net of the estimated volume discounts. Accumulated historical experience is used to estimate and provide for the discounts, using the expected value method, and revenue is only recognised to
the extent that it is highly probable that a significant reversal will not occur. A refund liability (included in other payables) is recognised for expected volume discounts payable to customers in relation to sales made until the end of the
reporting period. No element of financing is deemed present as the sales are made with a credit term of 60-90 days, which is consistent with market practice. The Groups obligation to repair or replace
faulty products under the standard assurance warranty terms is recognised as a provision, see note 21. A receivable is recognised when the
goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. It is the Groups policy not to sell its products to the wholesaler with a right of return. (ii) Sale of upholstered furniture and home furnishings accessories - retail The Group operates a chain of retail stores (Natuzzi Italia stores, Natuzzi Edition stores and Divani & Divani by Natuzzi stores)
selling a wide range of upholstered furniture (upholstered sofas and beds) and home furnishing accessories (for instance coffee tables, lamps, rugs, wall units). The upholstered sofas (leather and fabric sofas) are manufactured in the plants located
in Italy, Romania, China and Brazil. Revenue from the sale of the goods is recognised when the products are delivered and have been
accepted by the customer in store or at its premise. Payment of the transaction price is due immediately when the customer purchases the
furniture. The Groups obligation to repair or replace faulty products under the standard assurance warranty terms is recognised as a provision (see note 21). It is the Groups policy not to sell its products to the end customer with a right of return. (iii) Sale of polyurethane foam and leather by-products  wholesale The Group sells polyurethane foam, because the facilitys production is in excess of the Groups needs, and leather by-products in the wholesale market. Such sales are recognised when control of the products has transferred, being when the products are delivered to the wholesaler, the wholesaler has full discretion over the
channel and price to sell the products, and there is no unfulfilled obligation that could affect the wholesalers acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of
obsolescence and loss have been transferred to the wholesaler, and either the wholesaler has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria
for acceptance have been satisfied.  F-22




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Revenue from these sales is recognised based on the price specified in the contract. No
element of financing is deemed present as the sales are made with a credit term of 60-90 days, which is consistent with market practice. The Groups obligation to repair or replace faulty products under
the standard assurance warranty terms is recognised as a provision (see note 21). A receivable is recognised when the goods are delivered
as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. It is the Groups policy not to sell these products to the wholesaler with a right of return. (iv) Sale of Natuzzi Display System and related slotting fees The Group sells the Natuzzi Display System (NDS) to retailers, used to set up their stores. Revenue from such sales is recognised over time
based on the length of the distribution contract signed with the retailer. Revenue is accounted based on the price specified in the contract. No element of financing is deemed present as the sales are made with a credit term of 60-90 days, which is consistent with market practice. The deferred revenue for the sales of Natuzzi Display System is included under contract liability. The Group recognize to retailers slotting fees as contributions to prepare the retailers system to accept and sell the Groups
products. Slotting fees are recognised over time based on the length of the contract signed with the retailers and are treated as a reduction of revenue. Deferred slotting fees are included under other assets. (v) Service type warranty Customers who purchase the Groups upholstered furniture may require a service type warranty. The Group allocates a portion of the
consideration received to the service type warranty. This allocation is based on the relative stand-alone selling price. The amount allocated to the service type warranty is deferred, and is recognised as revenue over time based on the validity
period of such warranty. The deferred revenue is included in contract liabilities. (vi) Financing components The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and
payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money.  (u)
Cost of sales, selling expenses and administrative expenses Cost of sales consist of the following expenses: the change in opening and closing inventories, purchases of raw materials, labor costs
(included one time termination benefit accruals), third party manufacturing costs, depreciation expense of property, plant and equipment used in the production of finished goods, impairment of property, plant and equipment, energy and water expenses
(for instance light and power expenses), expenses for maintenance and repairs of production facilities, distribution network costs (including inbound freight charges, warehousing costs, internal transfer costs and other logistic costs involved in
the production cycle), rentals and security costs for production facilities, small-tools replacement costs, insurance costs and other minor expenses.  F-23




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Selling expenses consist of the following expenses: shipping and handling costs incurred for
transporting finished products to customers, advertising costs, labor costs for sales personnel, rental expense for stores, commissions to sales representatives and related costs, depreciation expense of property, plant and equipment used in the
selling activities, amortization of intangible assets that, based on their usage, are allocated to selling expenses, impairment of property, plant and equipment, sales catalogue and related expenses, exhibition and trade-fair costs, advisory fees
for sales and marketing of finished products, expenses for maintenance and repair of stores and other trade buildings, insurance costs for trade receivables and other miscellaneous expenses. Administrative expenses consist of the following expenses: costs for administrative personnel, advisory fees for accounting and
information-technology services, traveling expenses for management and other personnel, depreciation expense related to property, plant and equipment used in the administrative activities, amortization of intangible assets that, based on their
usage, are allocated to administrative expense, impairment of property, plant and equipment, postage and telephone costs, stationery and other office supplies costs, expenses for maintenance and repair of administrative facilities, statutory
auditors and external auditors fees and other miscellaneous expenses. As noted above, the costs of the Groups distributions network, which include inbound freight charges, warehousing costs, internal transfer costs and other logistic costs
involved in the production cycle, are classified under the cost of sales line item.  (v)
Shipping and handling costs Shipping and handling costs incurred to transport products to customers are expensed in the periods incurred and are included in selling
expenses. Under IFRS 15 shipping and handling costs related to activities before the customer obtains control of the finished goods, are accounted as fulfillment costs under the caption other assets of the consolidated statement of
financial position. Such costs are recognised in profit or loss consistent with the pattern of transfer of the finished goods. Shipping and handling expenses recorded for the years ended December 31, 2018 and 2017, were 40,765 and 40,952,
respectively (see note 32).  (w)
Advertising costs Advertising costs are expensed in the periods incurred and are included in selling expenses. Advertising expenses recorded for the years ended
December 31, 2018 and 2017 were 12,687 and 15,407, respectively (see note 32).  (x)
Commission expense Commissions payable to sales representatives and the related expenses are recorded at the time revenue from sale of products are recognised and
are included in selling expenses. Commissions are not paid until payment for the related sales invoice is remitted to the Group by the customer. Under IFRS 15 sale commissions are considered costs of obtaining a contract. Therefore, the Group
has elected to apply the practical expedient under which such costs are expensed as the amortisation period is less than one year.  F-24




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (y)
Government grants Grants from the government are recognised at their fair value when it is a virtually certain reasonable assurance that the grant will be
received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate.
Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the
expected lives of the related assets. The amortisation of the grant is treated as reduction of cost of sales (see note 30).  (z)
Finance income and finance costs The Groups finance income and finance costs include: interest income, interest expense, dividend income; the net gain or loss on
derivative financial instruments; the foreign currency gain or loss on financial assets and financial liabilities; the gain on the remeasurement to fair value of interest in an associate and a joint venture as a consequence of the lost of control;
hedge ineffectiveness recognised in profit or loss. Interest income or expense is recognised using the effective interest method. Dividend
income is recognised in profit or loss on the date on which the Groups right to receive payment is established. The effective
interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to the gross carrying amount of the financial asset or the amortised cost of the financial
liability. In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset
(when the asset is not credit-impaired) or to the amortised cost of the liability. However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest
rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.  (aa)
Income tax Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business
combination, or items recognised directly in equity or in other comprehensive income. The Group has determined that interest and penalties
related to income taxes, including uncertain tax treatments, do not meet the definition of income taxes, and therefore accounted for them under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. (i) Current tax Current
tax comprises the expected tax payable or receivable on the taxable income or loss for theyear and any adjustment to the tax payable or receivable in respect of previous years. The amountof current tax payable or receivable is the
best estimate of the tax amount expected to be paid orreceived that reflects uncertainty related to income taxes, if any. It is measured using tax ratesenacted or substantively enacted at the reporting date.  F-25




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (ii) Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts ofassets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.Deferred tax is not recognised for:(a) temporary differences on the initial recognition of assets or liabilities in a transaction that is not abusiness
combination and that affects neither accounting nor taxable profit or loss;(b) temporary differences related to investments in subsidiaries, associates and joint arrangements (mainly unremitted earnings and withholding taxes) to
the extent that the Group is able to control the timing of the reversal of the temporarydifferences and it is probable that they will not reverse in the foreseeable future; and(c) taxable temporary differences arising on
the initial recognition of goodwill. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary
differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of
taxable temporary differences is insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries
in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable
profits improves. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become
probable that future taxable profits will be available against which they can be used. Deferred tax is measured at the tax rates that are
expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting
date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is
a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to
offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.  (ab)
Operating profit Operating profit is the result generated from the continuing principal revenue-producing activities of the Group as well as other income and
expenses related to operating activities. Operating profit excludes net finance costs, share of profit of equity-accounted investees and income taxes.  (ac)
Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its
non-performance risk.  F-26




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  A number of the Groups accounting policies and disclosures require the measurement of
fair values, for both financial and non-financial assets and liabilities. When one is available,
the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume
to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Group uses valuation
techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a
bid price and liabilities and short positions at an ask price. The best evidence of the fair value of a financial instrument on initial
recognition is normally the transaction price  i.e. the fair value of the consideration given or received. If the Group determines that the fair value on initial recognition differs from the transaction price and the fair value is evidenced
neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique for which any unobservable inputs are judged to be insignificant in relation to the measurement, then the financial instrument is
initially measured at fair value, adjusted to defer the difference between the fair value on initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the
instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.  (ad)
Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to owners of the Company, excluding any costs of servicing equity
other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax
effect of interest and other financing costs associated with dilutive potential ordinary shares, andthe weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential
ordinary shares.  (ae)
Standards issued but not yet effective A number of new standards are effective for annual periods beginning after January 1, 2019 and earlier application is permitted; however,
the Group has not early adopted the new or amended standards in preparing these consolidated financial statements. Of those standards that
are not yet effective, IFRS 16 is expected to have a material impact on the Groups consolidated financial statements in the period of initial application.  F-27




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (A) IFRS 16 Leases The Group is required to adopt IFRS 16 Leases from January 1, 2019. The Group has assessed the estimated impact that initial
application of IFRS 16 will have on its consolidated financial statements, as described below. The Group has completed the implementation process as at the date of these consolidated financial statements, except for the finalisation of the testing
and assessment of controls over its new IT systems. IFRS 16 introduces a single, on-balance sheet
lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its
obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard  i.e. lessors continue
to classify leases as finance or operating leases. IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4
Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases  Incentives and SIC-27 Evaluating the Substance of
Transactions Involving the Legal Form of a Lease. (i) Leases in which the Group is a lessee The Group will recognise new assets and liabilities for its operating leases that mainly comprise factory facilities and stores. The nature of
expenses related to those leases will now change because the Group will recognise a depreciation charge for right-of-use assets and interest expense on lease
liabilities. Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised
assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised. In
addition, the Group will no longer recognise provisions for operating leases that it assesses to be onerous. Instead, the Group will include the payments due under the lease in its lease liability. No significant impact is expected for the Groups finance leases. Based on the information currently available, after considering the exemptions mentioned above, the Group has
non-cancellable operating lease commitments of approximately 80,000 as of January 1, 2019. Of these commitments, the Group expects to recognize right-of-use assets (after adjustments for prepayments and accrued lease payments recognised as at December 31, 2018) and related lease liabilities of approximately 62,000. The Group expects no significant impact from the application of the new standard on net profit and cash flows from operating activities, nor on
its ability to comply with loan covenants.  F-28




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (ii) Leases in which the Group is a lessor No significant impact is expected for leases in which the Group is a lessor. (iii) Transition The
Group plans to apply IFRS 16 initially on January 1, 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings as at
January 1, 2019, with no restatement of comparative information. The Group plans to apply the practical expedient to grandfather the
definition of a lease on transition. This means that it will apply IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4. In addition, the Group will elect to use the exemptions proposed by the standard for which the lease term ends within 12 months as of the date
of initial application, and lease contracts for which the underlying asset is of low value. The Group has leases of certain office equipment (e.g., personal computers, printing and photocopying machines) and company cars that are considered of low
value. (B) Other standards The Company is evaluating the provisions of the following standards, but it does not expect adoption to have a significant impact on the
Groups consolidated financial statements:  

IFRIC 23 Uncertainty over Tax Treatments;  

Plan Amendment, Curtailment or Settlement (Amendments to IAS 19);  

Annual Improvements to IFRS Standards 20152017 Cycle  various standards;  

Amendments to References to Conceptual Framework in IFRS Standards. Whereas, the Company is still evaluating the provisions of the following standards, but it does not expect the adoption will be applicable to
the Company:  

Prepayment Features with Negative Compensation (Amendments to IFRS 9);  

Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28);  

IFRS 17 Insurance Contracts.  5
Changes in significant accounting policies IFRS 9 Financial Instruments sets out requirements for recognising and measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The Group has applied this new standard from January 1, 2018 (date of initial application), but has elected not to restate comparative
information, which continues to be reported under previous Italian GAAP (see note 43.2 (iii)(b)), and not to apply the new requirements for hedging accounting. Therefore, the cumulative effect of adopting IFRS 9 has been recognised as an adjustment
to the opening balance of retained earnings as at January 1, 2018. As a result of the adoption of IFRS 9, the Group has adopted
consequential amendments to IAS 1 Presentation of Financial Statements, which require impairment of financial assets to be presented in a separate line item in the statement of profit or loss and OCI. Previously, the Groups
approach was to include the impairment of trade receivables in selling expenses. Consequently, the Group reclassified impairment losses amounting to 1,475, recognised under previous Italian GAAP, from  F-29




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  selling expenses to impairment loss on trade receivables in the
consolidated statement of profit or loss for the year ended December 31, 2017. Further, as a result of the adoption of IFRS 9, the
Group has recognised additional impairment on the Groups trade receivables of 37, which resulted in a decrease for the same amount in trade receivables and retained earnings as at January 1, 2018 (tax effect has been considered and it is
nil). Additionally, the Group has adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that are
applied to disclosures about 2018 but have not been generally applied to comparative information. (i) Classification and measurement
of financial assets and financial liabilities IFRS 9 contains three principal classification categories for financial assets: measured
at amortised cost, fair value to other comprehensive income (FVOCI) and fair value to profit and loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its
contractual cash flow characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the
scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification. IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial
liabilities. The adoption of IFRS 9 has not had a significant effect on the Groups accounting policies related to financial
liabilities and derivative financial instruments. For an explanation of how the Group classifies and measures financial instruments and
accounts for related gains and losses under IFRS 9, see notes 4 (l), 4(m), 4(n), 4(o), 4(p) and 4(s). The following table shows the
original measurement categories under previous Italian GAAP and the new measurement categories under IFRS 9 for each class of the Groups financial assets and financial liabilities as at January 1, 2018.  Originalclassificationunder previsiousGAAP


Newclassificationunder
IFRS 9


Originalcarryingamount underprevious GAAP


New
carryingamount underIFRS 9Financial assetsOther non-current receivables


Amortised cost



Amortised cost



1,402



1,402Trade receivables


Amortised cost



Amortised cost



37,549



37,512Other current receivables


Amortised cost



Amortised cost



12,910



12,910Cash and cash equivalents


Amortised cost



Amortised cost



55,035



55,035Gains on derivative financial instruments


FVTPL



FVTPL



339



339Total financial assets










107,235



107,198  F-30




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Financial liabilitiesLong-term borrowings


Amortised cost



Amortised cost



25,717



25,717Bank overdraft and short-term borrowings


Amortised cost



Amortised cost



25,967



25,967Trade payables


Amortised cost



Amortised cost



76,035



76,035Other payables


Amortised cost



Amortised cost



27,587



27,587Losses on derivative financial instruments


FVTPL



FVTPL



267



267Total financial liabilities










155,573



155,573 As shown in the above table, the only effect of adopting IFRS 9 is on the carrying amount of trade receivables
as at January 1, 2018, due solely to the new impairment requirements. (ii) Impairment of financial assets IFRS 9 replaces the incurred loss model in IAS 39 with an expected credit loss (ECL) model. The new impairment model
applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39 (see note 4(n)). For assets in
the scope of the IFRS 9 impairment model, impairment losses are generally expected to increase and become more volatile. The Group has
determined that the application of IFRS 9s impairment requirements as at January 1, 2018 results in an additional accrual of 37 for impairment of the trade receivables. Therefore, the allowance for impairment of trade receivables has
changed from 10,775 to 10,812 as at January 1, 2018. (iii) Hedge accounting At the date of initial application, all of the Groups existing forward exchange contracts were not eligible to be treated as hedging
relationships, since hedge effectiveness is not constantly monitored (see note 27). This approach is consistent with previous Italian GAAP. Changes in the fair value of derivatives are therefore recognised in profit or loss.  6
Operating segment The Group operates in two operating segments, Natuzzi brand and Softaly/Private label. The Natuzzi brand segment
includes net sales from the Natuzzi Italia, Natuzzi Re-vive and Natuzzi Editions product lines. Segment disclosure is rendered by aggregating the operating segments into one
reporting segment, that is the design, manufacture and marketing of contemporary traditional leather and fabric upholstered furniture. It offers a wide range of upholstered furniture for sale, manufactured in production facilities located in Italy
and abroad (Romania, Brazil and China). Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision maker. Reference should be made to note 29 Revenue for details on revenue streams and disaggregation
of revenue from contracts with customer by types of finished goods, geographical markets, geographical location of customers, distribution channels, brands and timing of revenue recognisation.  F-31




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  7
Business combinations (i) Business combinations occurred in 2018 No business combinations have occurred in 2018. (ii) Business combinations occurred in 2017 In January 2017 Natmex S.DE.R.L.DE.C.V. acquired 100% of a business composed by the three Natuzzi stores and twelve
Natuzzi point of sales, located in Mexico, for a cash consideration of 4,123. This business was operating as a Natuzzi franchisee. At the date of the acquisition, the franchise agreements between Natuzzi and the original business were
terminated. The primary reason for this acquisition was the opportunity to maintain the market presence in Mexico. The main factor that contributed to the determination of the purchase price was the presence of the stores and point of sales in key
locations. The acquisition was accounted for using the acquisition method of accounting, in accordance with IFRS 3, and it resulted in the recognition of goodwill of Euro 2,041, which represents the excess of the purchase price over the fair value
of assets acquired and liabilities assumed. The following table summarizes the fair value of the assets acquired and liabilities assumed at date of acquisition.  Inventory


1,895Other assets


187Total identifiable net assets acquired


2,082Goodwill arising on acquisition


2,041Consideration transferred


4,123 The goodwill is attributable mainly to the presence of the stores and points of sale in key locations. The
results of this business acquisition have been included in the consolidated statement of profit or loss from the date of the acquisition.  8
Property, plant and equipment Changes in the carrying amount of property, plant and equipment and accumulated depreciation for the years ended December 31, 2018 and
2017 are analysed as follows:  Land
andindustrialbuildings


Machineryandequipment


Officefurnitureandequipment


Retailgalleryand storefurnishing


Leaseholdimprovements


Constr.inprogress


TotalCost as at January 1, 2017


174,134



131,759



15,519



33,490



18,596



336



373,834Additions


682



2,327



377



430



2,641







6,457Disposals


(1,595
)


(732
)


(233
)


(251
)


(1,973
)


(32
)


(4,816
)Effect of translation adj.


(3,948
)


(1,114
)


(251
)


(1,083
)


186



(32
)


(6,242
)Cost as at December 31, 2017


169,273



132,240



15,412



32,586



19,450



272



369,233Additions


646



2,320



365



881



2,288



660



7,160Disposals


(27
)


(7,905
)


(725
)


(20,329
)


(917
)






(29,903
)Effect of translation adj.


153



(301
)


27



356



(85
)


(20
)


130Cost as at December 31, 2018


170,045



126,354



15,079



13,494



20,736



912



346,620  F-32




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Accumulated depreciation as at January 1, 2017


(80,416
)


(111,659
)


(14,731
)


(33,032
)


(12,291
)






(252,129
)Depreciation


(3,570
)


(4,090
)


(478
)


(1,619
)


(1,104
)






(10,861
)Disposals


348



234



573



1,556



1,362







4,073Effect of traslation adj.


1,750



1,030



384



1,274



436







4,874Accumulated depreciation as at December 31, 2017


(81,888
)


(114,485
)


(14,252
)


(31,821
)


(11,597
)






(254,043
)Depreciation


(4,018
)


(3,381
)


(204
)


(140
)


(2,411
)






(10,154
)Disposals


23



7,588



369



20,060



501







28,541Effect of traslation adj.


(100
)


484



4



(357
)


91







122Accumulated depreciation as at December 31, 2018


(85,983
)


(109,794
)


(14,083
)


(12,258
)


(13,416
)






(235,534
)Net book value as at January 1, 2017


93,718



20,100



788



458



6,305



336



121,705Net book value as at December 31, 2017


87,385



17,755



1,160



765



7,853



272



115,190Net book value as at December 31, 2018


84,062



16,560



996



1,236



7,320



912



111,086Annual rate of depreciation for 2018 and 2017


0%-10%



10%-25%



10%-20%



25%-35%



10%-20%



 The following table shows property, plant and equipment by country:  31/12/18


31/12/17Italy


61,271



64,117Romania


23,406



24,157United States of America


17,830



16,440Brazil


4,552



5,009China


2,562



4,908Europe


1,463



555Other countries


2



4Total


111,086



115,190 As at December 31, 2018 and 2017, the carrying amount of property, plant and equipment not in use is of
16,011 and 14,914, respectively. The increase against last year is due to one additional Italian plant which was idled during 2018. The Company plans to sell such assets in the next years. In 2018 and 2017, the Company performed an impairment test in accordance with its accounting policy over those property, plant and equipment
for which events and changes in circumstances indicated that the carrying amount of certain assets or CGU may not be recoverable.  F-33




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  For property, plant and equipment in use, the Company determined the recoverable amount as
value in use using the discounted cash flow method, at the lowest level for which identifiable cash flows are independent of other cash flows, and compared it with the carrying value. Cash flow projections have been derived from the budget approved
by the Board of Directors . Forecasts have been developed taking into consideration the track records of actual results reported by the Company. For property, plant and equipment not in use, the fair value less costs to sell was estimated through independent third-party appraisals, which
assessed the fair value of land using the comparable market method and assessed the fair value of machinery and equipment using the depreciated replacement cost method, adjusted for an obsolescence rate and a marketability rate. As a result of the 2018 and 2017 impairment review of the Companys property, plant and equipment, no impairment losses have emerged.  9
Intangibles assets and goodwill Changes in the carrying amount of intangible assets, goodwill, and accumulated amortization for the years ended December 31, 2018 and 2017
are analysed as follows:  Trademarkspatents andother


Software


Goodwill


TotalCost as at January 1, 2017


13,715



27,687



1,921



43,323Additions






1,239



2,041



3,280Disposals


(8
)










(8
)Effect of traslation adj.


189







(116
)


73Cost as at December 31, 2017


13,896



28,926



3,846



46,668Additions


169



711







880Disposals


(3
)


(42
)






(45
)Effect of traslation adj.


(41
)


22



101



82Cost as at December 31, 2018


14,021



29,617



3,947



47,585Accumulated amortization as at January 1, 2017


(13,150
)


(26,246
)






(39,396
)Amortisation


(563
)


(1,006
)






(1,569
)Disposals


8











8Effect of traslation adj.


126











126Accumulated amortization as at December 31, 2017


(13,579
)


(27,252
)






(40,831
)Amortisation


(158
)


(752
)






(910
)Disposals


1



42







43Effect of traslation adj.


27



(22
)






4Accumulated amortization as at December 31, 2018


(13,709
)


(27,984
)






(41,693
)Net book value as at January 1, 2017


565



1,441



1,921



3,927Net book value as at December 31, 2017


317



1,674



3,846



5,837Net book value as at December 31, 2018


312



1,633



3,947



5,892  F-34




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Goodwill in the amount of 2,026 is related to the 2017 acquisition of a Natuzzi Mexico
franchisee by the subsidiary Natmex S.DE.R.L.DE.C.V., as previously commented, and additionally in the amount of 1,921 is related to the 2016 acquisition of four Divani&Divani by Natuzzi stores, located in the North East of Italy.
The latter acquisition was performed with a related party at arms length conditions. Impairment tests have been performed on
goodwill in 2018 and 2017. No impairment loss has been recorded as a result of the tests performed. The key inputs and assumptions that
were used in performing the 2018 and 2017 impairment tests for goodwill are as follows:  December, 2018
CGU

Net book valueafter impairment test


Growthrate


WACC


Sales CAGR2019-2022Italy  retail stores


1,921



0.5
%


11
%


6
%Mexico  retail stores


2,026



0.5
%


18
%


8.5
%Total goodwill


3,947December, 2017
CGU

Net book valueafter impairment test


Growthrate


WACC


Sales CAGR2018-2022Italy  retail stores


1,921



0.5
%


10
%


5
%Mexico  retail stores


1,925



0.5
%


17
%


8.5
%Total goodwill


3,846 Further, the cash flows included specific estimates for five years and a terminal growth rate thereafter. The
estimated recoverable amount of each CGU significantly exceeded its carrying amount.  10
Equity method investees Changes in the carrying amount of equity method investees for the years ended December 31, 2018 and 2017 are analysed as follows:  NatuzziTradingShanghai


NarsMiamiLLC


SelenaS.r.l.


Other


TotalBalance as at January 1, 2017






63







34



97Share of profit/(loss) for the year






(18
)










(18
)Balance as at December 31, 2017






45







34



79Acquisition of non-controlling interests


48,024















48,024Elimination of intercompany profit


(7,350
)














7,350Share of profit/(loss) for the year


(295
)


39







(34
)


(290
)Share of other comprehensive income


(246
)














(246
)Effect of translation adjustments






3











3Balance as at December 31, 2018


40,133



87











40,220 As at December 31, 2018 equity method investees mainly include: (a) the 49% remaining stake in
Natuzzi Trading Shanghai for 40,133; (b) the 49% interest in Salena S.r.l., whose carrying value was totally impaired in 2014 in consideration of some legal disputes among shareholders; (c) the 49% of Nars Miami LLCC for 87. All such investments are accounted for using the equity method.  F-35




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (i) Disclosures on Natuzzi Trading (Shanghai) Co. Ltd., Joint Venture of Natuzzi S.p.A. On March 22, 2018, the Company signed a Joint Venture Agreement and a Share Purchase Agreement with Kuka Group (Kuka), a leading
distributor of upholstered furniture in China. Such agreements, which aim to expand the Companys retail network on the Chinese market, provide for an investment by Kuka in the Group of 65,000, of which: (a) a 35,000 capital injection into
the subsidiary Natuzzi Trading (Shanghai) CO. Ltd. (Natuzzi Trading Shanghai), increasing the share capital of the latter, in exchange for a 27.46% interest; and (b) 30,000 for the purchase of an additional 23.54% interest in the subsidiary, Natuzzi
Trading Shanghai, which is owned by Natuzzi. Such agreements were finally completed on July 27, 2018, after obtaining the necessary
authorizations and approvals. Following such agreements, the Company and Kuka own, respectively, a 49% and a 51% interest in Natuzzi Trading Shanghai. Both the Joint Venture Agreement and the Share Purchase Agreement incorporated some conditions precedent, including: (a) the stipulation
of a license contract between Natuzzi and Kuka for the use of the exclusive and permanent rights to Natuzzi trademarks, for a total consideration of 15,000; (b) the stipulation of the distribution contracts between Natuzzi and Kuka, in accordance
with which Natuzzi Trading Shanghai is to exclusively distribute Natuzzi Italia and Natuzzi Editions branded products, to be purchased mainly by Natuzzi Group, through a network of directly-operated single-brand stores and franchises in China, as
well as through online stores. Such contract was signed on March 22, 2018 and became effective on July 27, 2018. Following the
transaction, Natuzzi lost control over its former subsidiary Natuzzi Trading Shanghai, reducing its shareholding to 49%. At the date of loss of control, July 27, 2018, based on IFRS 10 paragraph 25 and paragraph B98 of the Application Guidance,
the Company has:  

derecognised assets and liabilities of Natuzzi Trading Shanghai at their carrying amounts (net assets amounted to
2,613) at the date of loss of control;  

recognised the fair value of the consideration received from Kuka of 30,000 for the transfer of a 23.54% interest
in Natuzzi Trading Shanghai;  

recognised the 49% retained interest in Natuzzi Trading Shanghai at its fair value, amounting to 48,024, at the
date of the loss of control;  

reclassified to profit or loss all the amounts recognised in other comprehensive income of Natuzzi Trading
Shanghai;  

recognised the resulting difference as a gain in the consolidated statement of profit or loss, in the amount of
75,411. The fair value of the retained interest in Natuzzi Trading Shanghai, amounting to 48,024, has been estimated by
applying a discounted earnings technique, and is based on significant inputs that are not observable in the market (level 3). The fair value estimate is based on an assumed discount rate of 14.25% and a terminal value, calculated assuming a nil
growth rate. The cash consideration paid by Kuka Group, amounting to 65,000, for the acquisition of the 51% stake in Natuzzi Trading
Shanghai reflects the strategic factors associated with applicable synergies in relation to market, products and distribution for such counterparty. Since those factors were deemed to be specific to the counterparty, the Company has determined
appropriate to estimate the fair value of the retained investment in Natuzzi Trading Shanghai upon the results of a third-party independent appraisal. The fair value was estimated in the amount of 48,024 and has appropriately taken into
consideration the sensitivity factors included in the appraisal.  F-36




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  The fair values of the identifiable assets and liabilities of Natuzzi Trading Shanghai as at
the date control was lost are the following:  AssetsProperty, plant and equipment


541Intangible assets


9,397Other non-current assets


271Deferred tax assets


167Inventories


851Trade receivables


243Other current receivables


388Restricted cash for capital contribution


35,000Cash and cash equivalents


4,886Total assets (a)


51,744LiabilitiesDeferred tax liabilities


2,349Trade payables


992Other payables


3,710Liabilities for current income tax


31Total liabilities (b)


7,082Total identifiable net assets at fair value c
(a-b)


44,66249% interest measured at fair value (c x 49%)


21,884Goodwill arising on the transaction


26,140Fair value of the retained 49% interest


48,024 Details of the net cash flows deriving from the transaction are as follows:  Cash received for the disposal of the 23.54% interest


30,000Chinese withholding tax


(2,958
)Cash and cash equivalents of Natuzzi Trading Shanghai


(4,886
)Net cash flows as per cash flows statement


22,156 Until the date control was lost, Natuzzi Trading Shanghai contributed 13,500 of revenue and 1,603 to profit
before tax of the Group. As at December 31, 2018, the investment retained by Natuzzi in Natuzzi Trading Shanghai was therefore
accounted for using the equity method. The following table shows the reconciliation of the fair value of the retained interest in Trading
Shanghai at the date of loss of control with the carrying amount as at December 31, 2018 included in the consolidated statement of financial position.  Fair value at the date of loss of control






48,024Elimination of intercompany profit from licensing Natuzzi trademarks






(7,350
)Groups share of profit for the year


311Elimination of amortisation of Natuzzi trademark


153Elimination of intercompany profit on inventories


(597
)Amortisation of intangibles assets


(216
)Reversal of deferred tax liabilities


54Groups share of loss for the year, net of equity method adjustments


(295
)


(295
)Groups share of other comprehensive income






(246
)Carrying amount as at December 31, 2018






40,133  F-37




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  The elimination of the intercompany profit from licencing Natuzzi trademarks refers to
the stipulation of a license contract between the Company and Natuzzi Trading Shanghai for the use of the exclusive and perpetual rights to Natuzzi trademarks for a cash consideration of 15,000. The Company concluded that such revenue from licensing
its trademarks to Natuzzi Trading Shanghai has to be recognised over time as the transaction satisfies all the criteria in IFRS 15 B58 (license with the right to access) and to the extent of the unrelated investors (i.e.,
KUKAs) interest in Natuzzi Trading Shanghai. Therefore, the Company while applying the equity method has eliminated the 49% intercompany profit arising from this transaction, in the amount of 7,350. Further, the Company has recorded the deferred revenue of 7,650 under contract liabilities (see note 20) and such amount will be recognised in
profit or loss over the useful life of the licensed trademarks. Summarized financial information of the Joint Venture Natuzzi Trading
Shanghai, based on its IFRS financial statements, and reconciliation with the carrying amount of the investment in the consolidated financial statements are set out below. Summarized statement of financial position of Natuzzi Trading Shanghai as at December 31, 2018  Current assets


42,288Non-current assets


15,785Current liabilities


(20,328
)Non-current liabilities


Equity


37,745Groups share in equity  49%


18,495Intangible assets


4,389Goodwill


26,140Elimination of intercompany profit from licensing Natuzzi trademarks


(7,197
)Elimination of intercompany profit on inventories


(597
)Deferred tax liabilities


(1,097
)Groups carrying amount of the investment


40,133 As at December 31, 2018 cash and cash equivalents and non current financial liabilities (excluding trade
and other payables and provisions) amount to 32,845 and 360, respectively. Summarized statement of profit or loss of Natuzzi Trading
Shanghai for the period July 27, 2018  December 31, 2018  Revenue


13,836Cost of sale


(8,197
)Other income and expenses, net


919Selling expenses


(5,141
)Administrative expenses


(632
)Net finance income


350Profit before tax


1,135Income tax expense


(500
)Profit for the period


635Other comprehensive loss


(503
)Total comprehensive profit for the period


132  F-38




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Groups share of profit for the period  49%


311Elimination of amortisation of Natuzzi trademarks


153Elimination of intercompany profit on inventories


(597
)Amortisation of intangible assets


(216
)Deferred tax liabilities


54Groups share of loss for the period, net of equity method adj.


(295
)Groups share of other comprehensive loss for the period


(246
)Groups share of total comprehensive loss for the period


(541
) For the 5 months period ended as at December 31, 2018 depreciation and amortisation, interest income,
interest expense and income tax expense amount to 427, 356, 13 and 500, respectively.  11
Other non-current receivables Other non-current receivables consist of the following:  31/12/18


31/12/17


01/01/17Security deposits for lease contracts


3,984



641



852Receivable from extraordinary disposal


549



761



986Other










299Total


4,533



1,402



2,137 The receivable from extraordinary disposal is the long-term portion of receivables derived from the sale of
the security and doorkeeping services branch to a third-party which occurred in 2014.  12
Other assets (non-current and current) Other assets are analysed as follows:  31/12/18


31/12/17


01/01/17Advances to suppliers


3,471



3,369



6,132Deferred costs for Natuzzi Display System


2,617



2,031



1,229Deferred costs for slotting fees


1,922



1,399



204Delivery and commission costs for sales derecognised


1,839



1,730



2,230Deferred costs for Service-Type Warranty


452



519



330Prepaid expenses and accrued income


1,165



1,035



1,441Total other assets


11,466



10,083



11,566Less current portion


(8,107
)


(7,232
)


(10,243
)Non-current portion


3,359



2,851



1,323 Advances to suppliers represent advance payments for raw materials, services and general expenses. Deferred costs for Natuzzi Display System refers to the deferred costs incurred by the Company to purchase store fittings,
which are then sold to retailers and used to set up their stores (Natuzzi Display System  NDS). Such costs are recognised over the life of the distribution contract signed with the retailer (usually five years). Deferred costs for slotting fees refers to contributions made by the Company to retailers to prepare the retailers system to
accept and sell the Groups products. Such fees are recognised over the life of the contract signed with the retailers (usually five years).  F-39




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Delivery and commission costs for sales derecognised are related to the deferral
of shipping and handling costs and commission expenses for finished goods that had not been delivered as at year-end. Deferred costs for Service-Type Warranty refers to the deferral of costs incurred by the Company for the sale of a service-type
warranty to end customers, considering that this insurance is provided by a third-party. Such costs are recognised over the life of the contractual insurance period, which is five years. Prepaid expenses and accrued income primarily include advance rent payments on factory buildings.  13
Inventories Inventories are analysed as follows:  31/12/18


31/12/17


01/01/17Leather and other raw materials


34,735



45,105



45,151Goods in process


6,648



6,387



6,383Finished products


42,844



39,585



39,480Total


84,227



91,077



91,014 The following table summarises the changes to the provision for slow moving and obsolete raw materials and
finished products included in inventories for the years ended December 31, 2018 and 2017.  Balance as at January 1, 2017


9,172Additions


212Reductions


(920
)Balance as at December 31, 2017


8,464Additions


1,564Reductions


(687
)Balance as at December 31, 2018


9,341 There are no pledged inventories that could be limited in their availability.  14
Trade receivables Trade receivables are analysed as follows:  31/12/18


31/12/17


01/01/17Domestic customers


20,247



22,399



22,332European Customers


7,815



9,232



12,652Chinese customers


7,233



618



374North American customers


3,573



4,374



2,562Other foreign customers


11,726



11,701



11,762Total trade receivables


50,594



48,324



49,682Allowance for doubtful accounts


(9,627
)


(10,775
)


(9,544
)Total trade receivables


40,967



37,549



40,138 Trade receivables are due primarily from major retailers who sell directly to end customers.  F-40




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Trade receivables due from related parties amount to 9,333 as at December 31, 2018
(1,407 as at December 31, 2017 and 1,589 as at January 1, 2017). Transactions with related parties were conducted at arms length (see note 41). As at December 31, 2018 and 2017 and for each year of the two-year period ended December 31,
2018, the Company had customers who exceeded 5% of trade receivables as follows:  Trade receivables

No. of customers

% of trade receivables2018

2

21%2017

3

18% In 2018 and 2017 no customer has exceeded 5% of revenue. The Company insures the collections risk related to a significant portion of its trade receivables with a third party insurer. The Company
estimates an allowance for doubtful accounts based on the insurance in place, the credit worthiness of its customers, historical trends, as well as general economic conditions. The following table provides the movements in the allowance for doubtful accounts.  31/12/18


31/12/17Balance, beginning of year


10,775



9,544Effect of the adoption of IFRS 9 (see note 5)


37



Charges  bad debt expense


745



1,475Reductions  write off of uncollectible amounts


(1,930
)


(244
)Balance, end of year


9,627



10,775 Trade receivables denominated in foreign currencies as at December 31, 2018, 2017 and January 1,
2017 totaled 26,490, 16,991 and 18,145, respectively. These receivables consist of the following:  31/12/18


31/12/17


01/01/17Chinese Yuan


7,233



618



374Brasilian Reais


5,893



4,620



4,461British pounds


2,823



3,215



5,298U.S. dollars


2,183



3,736



5,694Canadian dollars


2,124



2,232



466Other currencies


6,234



2,570



1,852Balance, end of year


26,490



16,991



18,145  15
Other current receivables Other current receivables are analysed as follows:  31/12/18


31/12/17


01/01/17VAT


4,217



4,987



2,876Receivable from National Institute for Social Security


1,533



1,048



8,701Other


3,757



6,875



6,660Total


9,507



12,910



18,237  F-41




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  The VAT receivables include value added taxes and related interest reimbursable
to the various companies of the Group. While currently due as of the balance sheet date, the collection of the VAT receivable may extend over a maximum period of up to two years. The receivable from National Institute for Social Security represents the amount anticipated by the Company on behalf the
governmental institute related to salaries for those employees subject to temporary work force reduction. The Other caption
primarily includes certain receivables related to green incentives for photovoltaic investment.  16
Cash and cash equivalents Cash and cash equivalents are analysed as follows:  31/12/18


31/12/17


01/01/17Cash on hand


439



219



100Bank accounts


61,692



54,816



64,881Total


62,131



55,035



64,981 The following table shows the Groups cash and cash equivalents broken-down by country/region:  31/12/18


31/12/17


01/01/17Europe


40,479



30,984



21,635China


18,290



20,724



40,174North America


2,857



2,703



2,608South America


318



551



374Others


187



73



190Total


62,131



55,035



64,981 For the purpose of the statement of cash flows, cash and cash equivalents comprise the following:  31/12/18


31/12/17


01/01/17Cash and cash equivalents in the statement of financial position


62,131



55,035



64,981Bank overdrafts repayable on demand


(1,762
)






(4,416
)Cash and cash equivalents in the statement of cash flows


60,369



55,035



60,565 Bank overdrafts repayable on demand form an integral part of the Groups cash management.  17
Share Capital and reserves As at December 31, 2018, 2017 and January 1, 2017 the equity attributable to owners of the Company is analysed as follows:  31/12/18


31/12/17


01/01/17Share capital


54,853



54,853



54,853Reserves


17,198



16,398



24,065Retained earnings


64,496



31,244



61,636Total


136,547



102,495



140,554  F-42




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  As at December 31, 2018 and 2017, the Companys share capital, which is totally
authorized and issued, is composed of 54,853,045 ordinary shares with par value of Euro 1 each, for a total of 54,853. Ordinary
shareholders have the right to receive dividends, as approved by shareholders meetings, and to express one vote per each share owned. Share capital is owned, as at December 31, 2018 and 2017, as follows:  31/12/18


31/12/17


01/01/17Mr. Pasquale Natuzzi


56.5
%


56.5
%


56.5
%Mrs. Anna Maria Natuzzi


2.6
%


2.6
%


2.6
%Mrs. Annunziata Natuzzi


2.5
%


2.5
%


2.5
%Other investors


38.4
%


38.4
%


38.4
%Total


100.0
%


100.0
%


100.0
% An analysis of Reserves is as follows:  31/12/18


31/12/17


01/01/17Legal reserve


10,971



10,971



10,971Majority shareholder capital contribution


488



488



488Foreign operations translation reserve


5,282



5,055



12,606Remeasurement of defined benefit plan


457



(116
)


Total


17,198



16,398



24,065 The Legal reserve is connected to the requirements of the Italian law, which provide that 5% of
net income of the parent company is retained as a legal reserve, until such reserve is 20% of the issued share capital of each respective company. The legal reserve may be utilized to offset losses; any portion which exceeds 20% of the issued share
capital is distributable as dividends. The legal reserve totaled 10,971 as at December 31, 2018, 2017 and January 1, 2017. The
Majority shareholder capital contribution is one of the parent companys reserves, which is restricted for capital grants received. The Foreign operations translation reserve relates to the translation of foreign subsidiaries financial statements for those
subsidiaries which have assessed their functional currency being different from Euro. The remeasurement of defined benefit
plan refers to the calculation of the present value of the employees leaving entitlement at each reporting date, in compliance with applicable regulations and adjusted to take into account actuarial gains or losses. In particular, such
actuarial gains or losses are reported in OCI (see note 4 (q)). The disaggregation of changes of OCI by each type of reserve in equity is
shown in the tables below.  F-43




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Year ended December 31, 2018  Foreign operationstranslation reserve


Remeasurement ofdefined benefit plan


TotalExchange difference on translation of foreign operations


497







497Share of OCI of equity-method investees


(246
)






(246
)Actuarial gains on employees leaving entitlement






573



573Total


251



573



824 Year ended December 31, 2017  Foreign operationstranslation reserve


Remeasurement ofdefined benefit plan


TotalExchange difference on translation of foreign operations


(7,778
)






(7,778
)Actuarial gains on employees leaving entitlement






(116
)


(116
)Total


(7,778
)


(116
)


(7,894
)  18
Long-term borrowings Long-term borrowings as at December 31, 2018, 2017 and January 1, 2017 consist of the following:  31/12/18


31/12/17


01/01/170.74% long-term debt payable in annual installments with final payment due April 2018






520



1,0356-months Euribor (360) plus a 2.5% spread long-term
debt with final payment due August 2019


6,631



7,533



8,8386-months Euribor (360) plus a 3.9% spread long-term
debt with final payment due August 2019


893



2,186



3,4263-months Euribor (360) plus a 4% spread long-term
debt with final payment due August 2019


2,500



3,500



4,5006-months Euribor (360) plus a 2.9% spread long-term
debt with final payment due December 2020


83



123



1623-months Euribor (360) plus a 3,5% spread long-term
debt with final payment due March 2022


1,625



2,063



3-months Euribor (360) plus a 2.2% spread long-term
debt with final payment due February 2022


628



824



3-months Euribor (360) plus a 1.9% spread long-term
debt with final payment due November 2022


1,583



1,968



2.3% long-term debt with final payment due June 2025


7,000



7,000



Total long-term debt


20,943



25,717



17,961Less current installments


(10,582
)


(4,840
)


(11,632
)Long-term borrowings, excluding current installments


10,361



20,877



6,329  F-44




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  A loan of nominal 10,000 was incurred in 2015 by the Romanian subsidiary. The loan was
payable on a monthly basis starting from August 2015 and ending in August 2017. In August 2017, the subsidiary negotiated a rescheduling of the loans repayment with the bank. In particular, the loan, remaining at
year-end in the amount of 6,631 is due by August 2019, and the new amortization schedule provides for 11 monthly installments of 225 and a lump sum repayment of 5,050, due on maturity. The loan is guaranteed
by a mortgage on the Romanian plant for an amount of 16,628, and is subject to the following covenants:  

Cash receipts >= 60% turnover  

Earnings before interest, taxes, depreciation and amortization (EBITDA) >= 4.5%  

Net debt/EBITDA <= 3  

Debt Service Cover Ratio >= 1.35 In August 2014, the Company incurred long-term debt for a 5,000 nominal amount with installments payable on a monthly basis and with final
payments due August 2019. This loan, of which 893 remains at year-end, is collateralized by a mortgage on the plants located in Matera, for an amount of 10,000. In 2015 the Company incurred long-term debt for nominal amount of 5,000 with installments payable on a monthly basis and with final payments
due August 2019. This long-term floating-rate debt, of which 2,500 remains at year-end, is collateralised by a mortgage on some Italian buildings for an amount of 10,000 and provides variable installments
depending on the 3-months Euribor (360) plus a 4% spread. This loan is subject to financial covenants, which were measured at year-end as follows:  

Earnings before interest, taxes, depreciation and amortization (EBITDA) >= 3,000  

Net Financial Position / Net Equity <= 0.25 In 2015, one of the Italian subsidiaries incurred long-term debt for a 200 nominal amount with installments payable on a monthly basis and with
final payments due December 2020. The interest rate is based on the 6-month Euribor (360) plus a 2.9% spread. This loan, of which 83 remains at year-end, is
guaranteed by a mortgage on some Italian plants for a total amount of 300. In January 2017, the Company incurred long-term debt for a
2,500 nominal amount with installments payable on a quarterly basis and with final payments due March 2022. This long-term floating-rate debt, of which 1,625 remains at year-end, provides variable installments
depending on the 3-months Euribor (360) plus a 3.5% spread, and is assisted by a third party warranty by 750. In 2017, one of the Italian subsidiaries incurred long-term debt for a 1,000 nominal amount, with installments payable on a monthly basis and
with final payments due February 2022. This long-term floating-rate debt, of which 628 remains at year-end, provides variable installments depending on the 3-months
Euribor (360) plus a 2.2% spread. In November 2017 the Company incurred long-term debt for a 2,000 nominal amount with installments
payable on a quarterly basis and with final payments due November 2022. This long-term floating-rate debt, of which 1,583 remains at year-end, provides variable installments depending on the 3-months Euribor (360) plus a 1.9% spread. In July 2017 the Company incurred long-term fixed rate
debt for a 7,000 nominal amount with installments payable on a monthly basis and with final payments due June 2025. This loan, of which 7,000 remains at year-end, is assisted by a mortgage on the plants
located in Matera, for an amount of 14,000.  F-45




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  During 2018 and 2017, the Company made all installment payments related to the aforementioned
long-term borrowings. As at December 31, 2018 long-term borrowings denominated in foreign currency amounted to 6,631 and pertained
entirely to the Romanian subsidiary. Interest expense related to long-term borrowings for the years ended December 31, 2018 and 2017
was 636 and 738, respectively. Interest due is paid with the related installment (quarterly, semi-annual or annual).  19
Employees leaving entitlement Changes to employees leaving entitlement occurring during 2018 and 2017 are analysed as follows:  Balance as at January 1, 2017


19,426Current service cost


119Interest expense


247Benefits paid


(1,080
)Actuarial losses


108Balance as at December 31, 2017


18,820Current service cost


148Interest expense


235Benefits paid


(1,449
)Actuarial gains


(573
)Balance as at December 31, 2018


17,181 The employees leaving entitlement refers to a defined benefit plan provided for by the Italian
legislation due and payable upon termination of employment, assuming immediate separation (see note 4 (q)). The principal assumptions used
in determining the present value of such defined benefit obligation (DBO) related to the employee benefit obligation are reported as follows:  31/12/18


31/12/17


01/01/17Annual discount rate


1.57%



1.30%



1.31%Annual future salary increase rate


0.00%



0.00%



0.00%Annual inflation rate


1.50%



1.50%



1.50%Annual DBO increase rate


2.625%



2.625%



2.625%Mortality


RG48 mortality tables published by the General State AccountingInability


National Institute for Social Security tables, by age and sexRetirement


100% upon achievement of AGO requisitesAnnual frequency of turnover


4.00%



4.00%



4.00%Annual frequency of DBO advances


2.00%



2.00%



2.00%  F-46




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  A quantitative sensitivity analysis for significant assumptions impacting the DBO as at
December 31, 2018 and 2017 is reported as follows:  31/12/18


31/12/17+1% on turnover rate


(68
)


(118
)-1% on turnover rate


75



132+0.25% on annual inflation rate


259



298-0.25% on annual inflation rate


(256
)


(292
)+0.25% on annual discount rate


(402
)


(461
)-0.25% on annual discount rate


417



479 The sensitivity analysis above has been determined based on a method that extrapolates the impact on the
defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity analysis is based on a change in a significant assumption, keeping all other assumptions constant. Such
analysis may not be representative of an actual change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation from one another. The following are the expected payments or contributions to the defined benefit plan in future years:  31/12/18


31/12/17Within 1 year


1,065



1,199Between 2 and 5 years


4,181



4,441 The average duration of the defined benefit plan as at December 31, 2018 and 2017 is 10.63 years and
11.19 years, respectively.  20
Contract liabilities (non-current and current) Contract liabilities as at December 31, 2018, 2017 and January 1, 2017 consisted of the following:  31/12/18


31/12/17


01/01/17Advance payments from customers


10,312



11,937



10,096Deferred income from licencing of Natuzzi trademarks


7,491







Deferred revenue for Natuzzi Display System


3,399



2,636



1,594Deferred revenue for Service-Type Warranty


897



960



609Total contract liabilities


22,099



15,533



12,299Less non-current portion


(9,934
)


(2,560
)


(1,652
)Current portion


12,165



12,973



10,647 Advance payments from customers are related to considerations received by the Group upon sale of
the Groups products, and before their delivery to end customers. Deferred income from licensing Natuzzi trademarks
refers to the deferral of revenue deriving from Natuzzi Trademarks to the former subsidiary Natuzzi Trading Shanghai, as part of the transaction with Kuka previously described in note 10. Such revenue, in the amount of 7,491 (net of the elimination
of intercompany profit on the transaction), has been deferred over the useful life (20 years) of the licensed trademarks (see note 10).  F-47




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Deferred revenue for the Natuzzi Display System refers to the deferral of revenue
deriving from the sale of store fittings to retailers, which are used to set up their stores (Natuzzi Display System  NDS). Such revenue is recognised over time based on the length of the distribution contract signed with the
retailer (usually five years). Deferred revenue for Service-Type Warranty refers to the deferral of revenue deriving from the
sale of a service-type warranty to end customers, which is recognised over time based on the contractual length of the insurance period (five years). The amount of revenue recognised for the years ended December 31, 2018 and 2017 that was included in the opening contract liabilities
balance amounts to 12,973 and 10,647, respectively.  21
Provisions (non-current and current) Provisions at December 31, 2018 and 2017 and January 1, 2017 consist of the following:  31/12/18


31/12/17


01/01/17Provision for legal claims


10,926



13,008



8,062Provision for tax claims


1,098



1,912



3,123Provision for warranties


4,476



5,957



5,687Termination indemnities for sales agents


1,141



1,196



1,132Other provisions


1,337



599



936Total provisions


18,978



22,672



18,940Less current portion


(4,476
)


(5,957
)


(5,687
)Non-current portion


14,502



16,715



13,253 The provision for legal claims include the amounts accrued by the Company for the probable contingent
liability related to legal procedures initiated by several third parties as result of past events. The provision for tax claims refers to
the amounts accrued by the Company for the probable liability that will be paid to settle some tax claims. As at December 31, 2018 such provision includes an amount related to income taxes for 439 (476 as at December 31, 2017) and an
amount related to other taxes for 659 (1,436 as at December 31, 2017). The provision for warranties includes the estimated
liabilities for the Groups obligation to repair or replace faulty products under the standard assurance warranty terms (see note 4(t)). The warranty claims for the finished product sold are estimated based on past experience of the level of
repairs, faulty products and disputes with customers. The Company expects that these costs will be incurred mainly in the next financial year. Main assumptions used to calculate the provision for such assurance type warranty are the warranty period
for all products sold, current sales levels and current information available about repairs, faulty products and dispute with customers. The termination indemnities for sales agents refers to termination indemnities, provided for by Italian law, due to the Groups agents
upon termination of their agreement with the Company or relevant subsidiary.  F-48




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Changes in the above provisions for the years ended December 31, 2018 and 2017 analysed
as follows.  Provisionfor legalclaims


Provisionfor taxclaims


Provisionforwarranties


Terminationindmennitiesfor salesagents


OtherProvisions


TotalBalance as at January 1, 2017


8,062



3,123



5,687



1,132



936



18,940Increase


9,980







2,630



203







12,813Reductions


(5,034
)


(1,211
)


(2,360
)


(139
)


(337
)


(9,081
)Balance as at December 31, 2017


13,008



1,912



5,957



1,196



599



22,672Increase


1,225







1,180



177



1,792



4,374Reductions


(3,307
)


(814
)


(2,661
)


(232
)


(1,054
)


(8,068
)Balance as at December 31, 2018


10,926



1,098



4,476



1,141



1,337



18,978 As at December 31, 2018, the provision for legal claims refers for 9,287 (9,300 as at December 31,
2017) to the probable contingent legal liability related to legal procedures initiated by 141 workers against the Company for the misapplication of the social security procedure CIGSCassa Integrazione Guadagni Straordinaria.
According to the CIGS procedure, the Company pays a reduced salary to the worker for a certain period of time based on formal agreements signed with the Trade Unions and other Public Social parties. In particular, these 141 workers are
claiming in the legal procedures that the Company applied the CIGS during the period from 2004 to 2016 without foreseeing any time rotation. In May 2017, the Company received from the Italian Supreme Court of Justice (Corte di
Cassazione) an adverse verdict for the above litigation related only to two workers. Based on this unfavorable verdict, the Company, with the support of its legal counsel, has assessed that the liability for legal procedures initiated by all
the 141 workers is 9,287.  22
Deferred income for capital grants Capital grants are related to benefits the Group obtained in previous years from the Italian government connected to incentive programs for
under-industrialized regions in Southern Italy. They have been received for the purchase of certain items of property, plant and equipment. There are no unfulfilled conditions or contingencies attached to these grants. Deferred income for such
capital grants are credited to profit or loss on a straight-line basis over the expected lives of the related assets. Changes in the
carrying amount of deferred income for capital grants for the years ended December 31, 2018 and 2017 are analised as follows:  Balance as at January 1, 2017


14,760Additions


79Charges to profit or loss


(1,068
)Balance as at December 31, 2017


13,771Additions


292Charges to profit or loss


(1,061
)Balance as at December 31, 2018


13,002  F-49




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  23
Other liabilities Other liabilities as at December 31, 2018 are analysed as follows:  31/12/18Landlords contributions


1,119Total


1,119 Other liabilities are represented by landlords contributions obtained by one of the Groups
subsidiaries for the maintenance of leased buildings, which are credited to profit or loss on a straight-line basis over the length of the lease contracts.  24
Bank overdraft and short-term borrowings Bank overdraft and short-term borrowings as at December 31, 2018 and 2017 are analysed as follows:  31/12/18


31/12/17


01/01/17Bank overdraft


1,762







4,416Borrowings secured over trade receivables


29,992



23,791



17,311Borrowings unsecured


3,394



2,176



2,700Total


35,148



25,967



24,427 The weighted average interest rates on the bank overdraft and short-term borrowings for the years ended
December 31, 2018, 2017 are as follows:  2018


2017Bank overdraft


4.35
%


3.48
%Borrowings


2.69
%


3.28
% As at December 31, 2018, 2017 and January 1, 2017 credit facilities available to the Group amounted
to 138,220, 147,720 and 117,773, respectively. The unused portion of these facilities, for which no commitment fees are due, amounted to 24,010, 33,103 and 34,451, as at December 31, 2018, 2017 and January 1, 2017.  25
Trade payables Trade payables as at December 31, 2018, 2017 and January 1, 2017 are analysed as follows:  31/12/18


31/12/17


01/01/17Invoices received


57,325



63,165



61,282Invoices to be received


20,576



12,870



9,175Total


77,901



76,035



70,457 Trade payables mainly represent amounts payable for purchases of goods and services in Italy and abroad, and
include 27,443 as at December 31, 2018 denominated in foreign currencies (21,197 as at December 31, 2017 and 22,151 as at January 1, 2017). Trade payables include amounts due to related parties amounting to 1,004, 8 and nil, respectively as at December 31, 2018, 2017 and
January 1, 2017 (see note 41).  F-50




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  26
Other payables Other payables as at December 31, 2018, 2017 and January 1, 2017 are analysed as follows:  31/12/18


31/12/17


01/01/17Salaries and wages


5,085



3,864



10,989Social security contributions


6,901



5,826



4,081Vacation accrual


6,408



6,036



4,350Withholding taxes on payroll and on others


2,379



2,557



2,747Other accounts payable


6,141



9,304



7,240Total


26,914



27,587



29,407  27
Derivative financial instruments A significant portion of the Groups net sales and costs are denominated in currencies other than the euro, in particular the U.S. dollar.
The remaining costs of the Group are denominated principally in euros. Consequently, a significant portion of the Groups revenue is exposed to fluctuations in the exchange rates between the euro and other currencies. The Group uses forward
exchange contracts (known in Italy as domestic currency swaps) to reduce its exposure to the risks of short-term declines in the value of its foreign currency denominated revenue. The Group uses such derivative instruments to protect the value of
its foreign currency denominated revenue, and not for speculative or trading purposes. Despite being entered into such domestic currency swaps with the intent to reduce the foreign currency exposure risk for trade receivables and expected sales, the
Groups derivative financial instruments do not qualify for being accounted for as hedging instruments according to IAS 39 and, also, to former applicable Italian GAAP. Therefore, the Company reflects the positive or negative changes in the
fair value of those derivatives through profit or loss in the captions Net exchange rate gains (losses). The table below
summarizes in euro equivalent the contractual amounts of forward exchange contracts used to hedge principally future cash flows from trade receivables and sale orders as at December 31, 2018, 2017 and January 1, 2017.  31/12/18


31/12/17


01/01/17U.S. dollars


14,528



21,979



26,670Euro


11,407



10,226



13,925British pounds


10,612



11,137



15,860Japanese yen


2,318



1,692



2,117Australian dollars


2,129



2,294



2,964Canadian dollars


1,300



1,338



4,965Danish kroner


1,086



713



618Swedish kroner


265



248



421Total


43,645



49,627



67,540 The following table presents information regarding the contract amount in euro equivalent amounts and the
estimated fair value of all of the Groups forward exchange contracts. Contracts with net unrealized gains are presented as assets and contracts with net unrealized losses are presented as liabilities.  F-51




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  31/12/18


31/12/17


01/01/17Contractamount


Unrealisedgains (losses)


Contractamount


Unrealisedgains (losses)


Contractamount


Unrealisedgains (losses)Assets


27,459



218



31,089



339



25,698



223Liabilities


16,186



(320
)


18,538



(267
)


41,842



(1,293
)Total


43,645



(102
)


49,627



72



67,540



(1,070
) At December 31, 2018 and 2017, the exchange derivative instruments contracts had a net unrealized expense
of 102 and a net unrealized gain of 72, respectively. These amounts are recorded in net exchange rate gains (losses), in the consolidated statements of profit or loss (see note 35).  28
Financial Instruments  Fair values and risk management The effect of initially applying IFRS 9 on the Groups financial instruments is described in note 5. Due to the transition method chosen,
comparative information has not been restated to reflect the new requirements. A. Accounting classification The following table shows the classification and carrying amounts of Groups financial assets and financial liabilities as at
December 31, 2018, 2017 and January 1, 2017.  Financial assets

31/12/18


31/12/17


01/01/17Financial assets at amortised costOther non-current receivables


4,533



1,402



2,137Trade receivables


40,967



37,549



40,138Other current receivables


9,507



12,910



18,237Cash and cash equivalents


62,131



55,035



64,981Total (a)


117,138



106,896



125,493Financial assets at fair valueForward exchange contracts


218



339



223Total (b)


218



339



223Total financial assets (a+b)


117,356



107,235



125,716 Financial assets at amortised cost include trade receivables, other receivables and cash and cash equivalent.
Financial assets at fair value reflect the positive change in fair value of foreign exchange forward contracts that are not designated as hedge relationships, but are, nevertheless, intended to reduce the level of foreign currency risk for future
cash flows from accounts receivables and sale orders.  Financial liabilities

31/12/18


31/12/17


01/01/17Financial liabilities at amortised costLong-term borrowings


20,943



25,717



17,961Bank overdraft and short-term borrowings


35,148



25,967



24,427Trade payables


77,901



76,035



70,457Other payables


26,914



27,587



29,407Total (a)


160,906



155,306



142,252  F-52




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Financial liabilities at fair valueForward exchange contracts


320



267



1,293Total (b)


320



267



1,293Total financial liabilities (a+b)


161,226



155,573



143,545 For the details on Long-term borrowings and Bank overdraft and short-term borrowings,
reference should be made to note 18 and 24. Financial liabilities reflect the negative change in fair value of foreign exchange forward
contracts that are not designated as hedge relationships, but are, nevertheless, intended to reduce the level of foreign currency risk for expected future cash flows from trade receivables and sale orders. B. Fair value and measurement of fair values Management has assessed that the fair values of cash and cash equivalents, trade and other receivables, trade and other payables, bank
overdraft and short-term borrowings approximate their carrying amounts largely due to the short-term maturities of these instruments. The
following table shows the carrying amount and fair value of Groups financial assets and financial liabilities as at December 31, 2018, 2017 and January 1, 2017, other than those with carrying amount that are reasonable approximation
of fair value.  Financial assets

31/12/18


31/12/17


01/01/17Carryingamount


Fairvalue


Carryingamount


Fairvalue


Carryingamount


FairvalueForward exchange contracts


218



218



339



339



223



223Financial liabilitiesFloating-rate borrowings


13,943



13,943



18,197



18,197



16,926



16,926Fixed rate borrowings


7,000



7,000



7,520



7.520



1,035



1,035Total long-term borrowings


20,943



20,943



25,717



25,717



17,961



17,961Forward exchange contracts


320



320



267



267



1,293



1,293 As at December 31, 2018, 2017 and January 1, 2017, the fair value measurement hierarchy of the
forward exchange contracts and long-term borrowings is significant observable inputs (level 2). There were no transfers
between level 1 (quoted prices in active markets) and level 2 during 2018 and 2017. There were no level 3 (significant unobservable inputs) fair values estimated as at December 31, 2018, 2017 and January 1, 2017. The following methods and assumptions are used to estimate the fair values. Foreign exchange forward contracts are valued using valuation techniques, which employ the use of market observable inputs. The most frequently
applied valuation techniques include forward pricing using present value calculations. The models incorporate various inputs, including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective
currencies, currency basis spreads between the respective currencies, interest rate curves and forward rate curves of the underlying commodity.  F-53




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  The fair values of the Groups interest-bearing borrowings are determined using the
discounted cash flow method. The discount rate used reflects the issuers borrowing rate as at the end of the reporting period. The own non-performance risk as at December 31, 2018, 2017 and
January 1, 2017 was determined to be insignificant. C. Financial risk management The main financial risks which the Group is exposed to are reported in the following. The Groups principal financial liabilities, other than derivatives, comprise of long-term borrowings, bank overdraft and short-term
borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the Groups operations. The Groups principal financial assets include trade and other receivables, cash and cash equivalents that derive
directly from operations. The Group also enters into derivative transactions, namely forward exchange contracts, to protect the value of its foreign currency denominated revenue, not for speculative or trading purposes. (i) Risk management framework The Group is exposed to credit risk, liquidity risk and market risk. The management of these risks is performed on the basis of guidelines set
by the Groups senior management. The main purpose of these guidelines is to balance the Groups liabilities and assets, in order to ensure an adequate capital viability. The main financial sources of the Group are represented by a mix of
equity and financial liabilities, including long-term borrowings used to finance investments, bank overdrafts, short-term borrowings and a non-recourse factoring agreement used to finance the Groups
working capital. (ii) Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a
financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables). The Groups
customers are mainly represented by small and large distributors, small retailers and end customers. Customer credit risk is managed on the basis of the Groups established policies, procedures and controls relating to customer credit risk
management. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored to prevent losses. The Company insures the collections risk related to a significant
portion of trade receivables (about 80%), with a third party insurer and, in case of insolvency, the insurance company has to refund 85% of uncollected outstanding balances. The insolvency risk was assessed by the insurance company as remote. The allowance for doubtful accounts is, therefore, estimated by the Company based on the insurance in place, the credit worthiness of its
customers, historical trends, as well as general economic conditions. An impairment analysis is performed at each reporting date, starting
from year-end 2018, using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e., by
customer type and rating, and coverage by credit insurance). The calculation reflects the probability-weighted outcome based on reasonable and supportable information available at the reporting date about past events, current conditions and
forecasts of future economic conditions.  F-54




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  The maximum exposure to credit risk at the reporting date is the carrying value of each class
of financial assets disclosed in this note. The Group evaluates the concentration of risk with respect to trade receivables as low, as its
customers are located in several jurisdictions and industries and operate in largely independent markets (see note 14). In addition, in
July 2015 the Company signed a non-recourse factoring agreement with a major Italian bank. Under this agreement, the Company assigns certain customer receivables to the bank in exchange for short-term credit,
for a maximum amount of 35,000, extended to 55,000 in June 2016. Given the considerations above, the credit risk is full for non-insured trade receivables, in the limit of 15% for insured receivables and nil for receivables included in the non-recourse factoring agreement. Set out below is the information about the credit risk exposure on the Groups trade receivables using a provision matrix as at
December 31, 2018 and January 1, 2018, further to the adoption of IFRS 9. December 31, 2018  Trade receivables

Days past due<30 days


30-60 days


61-90 days


> 91 days


TotalOutstanding trade receivables


9,288



1,323



88



669



11,368Trade receivables subject to specific valuation


















39,226Total gross carrying amount


















50,594Default rate


0.10
%


0,99
%


2.90
%


5.80
%Expected credit loss


9



13



3



39



64 January 1, 2018  Trade receivables

Days past due<30 days


30-60 days


61-90 days


> 91 days


TotalOutstanding trade receivables


11,661



651



254



173



12,739Trade receivables subject to specific valuation


















35,585Total gross carrying amount


















48,324Default rate


0.11
%


1.04
%


2.99
%


5.33
%Expected credit loss


13



7



8



9



37 Up to December 31, 2017, before the adoption of IFRS 9, the impairment of trade receivables was assessed
based on the incurred loss model. Individual receivables which were known to be uncollectible were written off by reducing the carrying amount directly. The other receivables were assessed collectively to determine whether there was objective
evidence that an impairment had been incurred but not yet been identified. For these receivables, the estimated impairment losses were recognised in a separate provision for impairment. The Group considered that there was evidence of impairment if
any of the following indicators were present: (a) significant financial difficulties of the debtor; (b) probability that the debtor entered bankruptcy or financial reorganization; and (c) default or late payments.  F-55




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (iii) Liquidity risk The Groups objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts,
short-term borrowings, long-term borrowings and a non-recourse factoring agreement of export-related financial receivables. In particular, the latter agreement provides for a maximum amount of receivables to
sell (on a revolving basis and with a non-recourse clause) of 55,000 performing receivables. The
table below summarizes the maturity profile of the Groups financial liabilities based on contractual undiscounted payments as at December 31, 2018 and 2017.  December 31, 2018

Less than2 months


2 to 12months


1 to 2years


2 to 5years


More than5 years


TotalLong-term borrowings


860



9,722



3,177



5,381



1,803



20,943Bank overdraft and short-term borrowings


35,148



















35,148Trade and other payables


26,914



77,901















104,815Losses on derivative financial instruments


320



















320Total financial liabilities


63,242



87,623



3,177



5,381



1,803



161,226December 31, 2017

Less than2 months


2 to 12months


1 to 2years


2 to 5years


More than5 years


TotalLong-term borrowings


314



4,526



10,576



7,455



2,846



25,717Bank overdraft and short-term borrowings


25,967



















25,967Trade and other payables


27,587



76,035















103,622Losses on derivative financial instruments


267



















267Total financial liabilities


54,135



80,561



10,576



7,455



2,846



155,573January 1, 2017

Less than2 months


2 to 12months


1 to 2years


2 to 5years


More than5 years


TotalLong-term borrowings


659



10,973



2,853



3,476







17,961Bank overdraft and short-term borrowings


24,427



















24,427Trade and other payables


29,407



70,457















99,864Losses on derivative financial instruments


1,293



















1,293Total financial liabilities


55,786



81,430



2,853



3,476







143,545 In addition, the following is to be considered.  

As at December 31, 2018, the Group had unused credit lines of 24,010 (33,103 and 34,451 as at
December 31, 2017 and January 1 2017, respectively), see note 24.  

The Group holds cash at foreign subsidiaries, that can be withdrawn by the Company subject to the approval of a
dividend distribution. Some of these dividends are subject to withholding taxes.  

The Company can use the credit facilities of its subsidiaries adhering to the cash pooling contract in place.
From time to time, the Company evaluates the adequacy of such credit facilities, requesting additional facilities as needed.  

The Company can apply for long-term borrowings to sustain long-term investments.  F-56




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  

In 2015, the Company signed a non-recourse factoring agreement that
provides for the sale of performing receivables up to an amount of 55,000.  

There are no significant liquidity risk concentrations, both on financial assets and on financial liabilities. (iv) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.
Market risk, mainly, depends on the trend of the demand for furniture and other finished products, the trend in raw materials and energy prices, the fluctuation of interest rates and foreign currencies. The market demand risk is managed by way of a constant monitoring of markets, performed by the commercial division of the Group, and a product
diversification in the different brands. In order to manage the raw materials and energy price risk, the Group constantly monitors
procurement policies and attempts to diversify suppliers while respecting the quality standards expected by the market. Interest rate risk
is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Groups exposure to the risk of changes in market interest rates relates primarily to the
Groups long-term borrowings obligations with floating interest rates. The Group manages its interest rate risk by having a portfolio of fixed and variable rate borrowings. As at December 31, 2018, approximately 33% of the Groups
borrowings were at a fixed rate of interest (2017: 29%). No derivative financial instruments were entered into by the Group to manage the cash flow risk on floating interest-rate borrowings. The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings
affected. With all other variables held constant, the Groups profit before tax is affected through the impact on floating rate borrowings as follows:  Increase/decreasein basis points


Effect on profitbefore tax2018


+ 45



(71
)2018


- 45



712017


- 45



(90
)2017


- 45



78 Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate
because of changes in foreign exchange rates. The Groups exposure to the risk of changes in foreign exchange rates relates primarily to the Groups operating activities (when revenue or expense is denominated in a foreign currency) and
the Groups net investments in foreign subsidiaries. In particular, the Group purchases raw materials and goods in U.S. Dollars, and sells a significant amount of finished products in Euro. As a consequence, the Group is exposed to a foreign
currency risk, which is managed by forward exchange contracts.  F-57




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  When a derivative is entered into for the purpose of being a hedge, the Group negotiates the
terms of the derivative to match the terms of the hedged exposure. For hedges of forecast transactions, the derivative covers the period of exposure from the point the cash flows of the transactions are forecasted up to the point of settlement of
the resulting receivable that is denominated in the foreign currency. The following tables demonstrate the sensitivity to a reasonably
possible change in foreign exchange rates, with all other variables held constant.  Change inforeign exchange rates


Effect on profitbefore tax2018


+5
%


2,7762018


-5
%


(3,183
)2017


+5
%


3,0232017


-5
%


(3,449
) As at December 31, 2018 the Groups financial assets and financial liabilities denominated in foreign
currency (Groups exposure to currency risk) are as follows: trade receivables 26,490 (16,991 as at December 31, 2017), cash and cash equivalents 23,822 (26,711 as at December 31, 2017), gains on derivative financial instruments 143 (339 as at
December 31, 2017), long-term borrowings 6,631 (7,533 as at December 31, 2017), short-term borrowings 7,184 (6,770 as at December 31, 2017), trade payables 27,443 (21,197 as at December 31, 2017), losses on derivative financial instruments 320 (142
as at December 31, 2017). (v) Changes in liabilities arising from financing activities The following tables show the changes in liabilities arising from financing activities for the two years ended as at December 31, 2018.  December 31, 2018

Jan 1, 2018


Cash flows


Changes infair value


Dec 31, 2018Long-term borrowings


25,717



(4,774
)






20,943Bank overdraft and short term borrowings


25,967



9,181







35,148Losses on derivative financial instruments


267







53



320Total liabilities from financing activities


51,951



4,407



53



56,411December 31, 2017

Jan 1, 2017


Cash flows


Changes infair value


Dec 31, 2017Long-term borrowings


17,961



7,756







25,717Bank overdraft and short term borrowings


24,427



1,540







25,967Losses on derivative financial instruments


1,293







(1,026
)


267Total liabilities from financing activities


43,681



9,296



(1,026
)


51,951  29
Revenue (i) Revenue streams The
Group generates revenue primarily from the sale of contemporary traditional leather and fabric upholstered furniture and home furnishing accessories to its customers. Other sources of revenue include sale of polyurethane foam, sale of leather-by products, sale of Natuzzi Display System and sale of Service Type Warranty. Therefore, all
the Groups revenue is related to revenue from contracts with customers.  F-58




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (ii) Disaggregation of revenue from contracts with customers In the following table, revenue from contracts with customers is disaggregated by types of goods, primary geographical markets, geographical
location of customers, distribution channels, brands and timing of revenue recognition.  2018


2017Types of goodsSale of upholstery furniture


365,346



389,528Sale of home furnishing accessories


41,733



33,560Sale of polyurethane foam


14,958



15,501Sale of other goods


6,502



10,291428,539



448,880 The sale of upholstery furniture includes the following categories: stationary furniture (sofas, loveseats and
armchairs), sectional furniture, motion furniture, sofa beds and occasional chairs, including recliners and massage chairs.  2018


2017Geographical marketsEurope, Middle East and Africa


212,481



218,896Americas


137,452



153,647Asia-Pacific


78,606



76,337428,539



448,8802018


2017Geographical location of customersUnited States of America


94,393



107,262Italy


53,261



55,379China


47,099



41,369United Kingdom


43,501



48,266Canada


17,371



20,030Spain


17,334



17,077Brazil


16,332



16,182Germany


11,455



12,462France


11,179



9,999Australia


9,903



9,738Belgium


8,682



8,214Korea


8,232



9,847Other countries (none greater than 5%)


89,797



93,055Total


428,539



448,8802018


2017Distribution channelsWholesale


365,499



392,332Retail


63,040



56,548428,539



448,880  F-59




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  2018


2017BrandsNatuzzi Editions


167,925



183,838Natuzzi Italia


144,953



134,740Softaly


94,201



104,509Unbranded


21,460



25,793428,539



448,8802018


2017Timing of revenue recognitionGoods transferred at a point in time


427,493



448,206Goods and services transferred over time


1,046



674Subtotal


428,539



448,880 (iii) Contract balances The following table provides information about receivables and contract liabilities from contracts with customers.  31/12/18


31/12/17Trade receivables


40,967



37,549Contract liabilities


22,099



15,533 Reference should be made to note 14 Trade receivables and note 20 Contract liabilities (non
current and current) for details about such contract balances. (iv) Performance obligations and revenue recognition policies Revenue is measured based on the consideration specified in the customer contract. The Group recognizes revenue when it transfers control over
a good or service to a customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for goods or services. The Group has generally concluded that it is the principal in its revenue arrangements, because
it controls the goods or services before transferring them to the customer. In determining the transaction price for its contracts with
customers, the Group considers the effects of variable consideration and the existence of significant financing components. The Group
considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. The allocation of the transaction price to the Groups performance
obligation is performed using the relative stand-alone selling price method. For information about the nature and timing of the
satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies see note 4(t). The transaction price allocated to the remaining performance obligations (partially unsatisfied) as at December 31, 2018 and 2017 as
follows:  F-60




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  31/12/18


31/12/17Sale of Natuzzi Display SystemWithin a year


1,138



758More than a year


2,261



1,878Total


3,399



2,636Sale of Service-Type WarrantiesWithin a year


332



278More than a year


565



682Total


897



960Sale of the licence-for Natuzzi trademarksWithin a year


383



More than a year


7,108



Total


7,491



 (v) Variable considerations If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in
exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will
not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the sale of furniture provide customers with volume rebates, which give rise to variable consideration. In particular, the Group provides retrospective volume rebates to certain customers once the quantity of products purchased during the period
exceeds a threshold specified in the contract. Rebates are offset against amounts payable by the customer. Accumulated experience is used to estimate and provide for the rebates, using the expected value method. A refund liability (included in other
payables) is recognised for expected volume discounts payable to customers in relation to sales made until the end of the reporting period. (vi) Financing components For information about financing components, reference should be made to note 4(r). (vii) Warranty obligations The Group typically provides warranties for general repairs of defects that existed at the time of sale, as required by law. These
assurance-type warranties are accounted for under IAS 37. Refer to the accounting policy on warranty provisions in note 4(r). Customers
who purchase the Groups upholstered furniture may require a service type warranty. As disclosed in note 4(r), the Group allocates a portion of the consideration received to the service type warranty, based on the relative stand-alone selling
price. The amount allocated to the service type warranty is deferred, and is recognised as revenue over the time based on the validity period of such warranty.  F-61




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (viii) Cost to obtain a contract The Group pays sales commission to its agents for each contract that they obtain. For information about the accounting policy elected by the
Group on sales commissions, reference should be made to note 4(x).  30
Cost of sales Cost of sales is analysed as follows:  2018


2017Opening inventories


91,077



91,014Purchases


177,591



180,872Labor


89,827



92,330Third party manufacturers


6,039



8,725Other manufacturing costs


29,004



37,605Amortization charge of capital grants


(1,061
)


(1,068
)Closing inventoires


(84,227
)


(91,077
)Total


308,250



318,401 The line item Other manufacturing costs includes the depreciation expenses of property plant and
equipment used in the production of finished goods. The depreciation expense amounted to 7,489 and 8,638 for the years ended December 31, 2018 and 2017, respectively.  31
Other income and other expenses Other income is analysed as follows:  2018


2017Release of provisions for contingent liabilities


1,700



VAT relief


1,392



Extraordinary contingent assets


609



Extraordinary reimbursement






1,650Other


2,243



Total


5,944



1,650 During 2018, the Company released provisions for legal claims by 1,700, further to the positive settlement of
some legal disputes with suppliers. Also, during 2018 the Brazilian subsidiary obtained a VAT relief of 1,392 connected to local provisions on VAT payments. During 2017, the Company recorded a refund of 1,650 related to the positive outcome of litigation started in previous years and fully settled
in 2017. Other expenses include some minor costs incurred by the Group and not related to cost of sales, selling an administrative
expenses.  F-62




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  32
Selling expenses Selling expenses are analysed as follows:  2018


2017Shipping and handling costs


40,765



40,952Salaries


24,772



26,210Advertising


12,687



15,407Rent


12,553



11,946Commissions


10,225



9,512Utilities


2,394



2,301Fairs


2,308



2,896Depreciation and amortization


2,274



2,124Samples


995



1,295Promotion


920



1,252Consultancy


630



1,020Credit insurance cost


579



563Other commercial insurance cost


532



496Other


3,363



2,280Total


114,997



118,254  33
Administrative expenses Administrative expenses are analysed as follows:  2018


2017Salaries


20,023



19,364Consultancy


4,076



4,089Travel expenses


2,712



3,210Non deductibles and indirect taxes


2,022



2,331Depreciation and amortization


1,301



1,668Mail & Phone


675



745Directors and auditorsfees


801



734Cars cost


487



507Printing & Stationery


457



500Electronic data processing


96



118Other


2,694



2,83935,344



36,105  34
Finance income and costs Finance income Finance income is analysed as follows:  2018


2017Interest income from financial institutions


191



325Other interest income


188



927Total


379



1,252  F-63




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Finance costs Finance costs is analysed as follows:  2018


2017Interest expenses due to financial institutions


3,298



3,140Other interest expenses


498



1,499Financial institution commissions


1,784



1,650Total


5,580



6,289  35
Net exchange rate gains (losses) Net exchange rate gains (losses) are analysed as follows:  2018


2017Net realised gains (losses) on derivative instruments


(906
)


1,912Net realised gains (losses) on accounts receivable and payable


3,353



445Total net realised gains (a)


2,447



2,357Net unrealised gains (losses) on derivative instruments


(57
)


943Net unrealised gains (losses) on accounts receivable and payable


(5,437
)


(48
)Net unrealised gains (losses) on non-monetary
assets


(867
)


(2,219
)Total net unrealised losses (b)


(6,361
)


(1,324
)Total realised and unrealised exchange rate gains (losses) (a+b)


(3,914
)


1,033 Net unrealised gains (losses) on non-monetary assets
refers to the remeasurement of non-monetary assets of the subsidiaries Italsofa Romania and Natuzzi China, since such entities have the same functional currency of the Parent, namely the Euro (see note 43.4
(a) (ii)).  36
Income tax expense Italian companies are subject to two enacted income taxes at the following rates:  2018


2017IRES (state tax)


24.00
%


24.00
%IRAP (regional tax)


4.82
%


4.82
% IRES is a state tax and is calculated on the taxable income determined on the income before taxes modified to
reflect all temporary and permanent differences regulated by the tax law. The 2016 budget law (Law n. 208 of 28 December 2015) was passed by the Italian Parliament on December 22, 2015 with significant changes relating to Italys
corporate income tax. In fact, the Italian tax rate has been reduced from 27.5% to 24.0% starting from fiscal year 2017. IRAP is a
regional tax and each Italian region has the power to increase the current rate of 3.90% by a maximum of 0.92%. In general, the taxable base of IRAP is a form of gross profit determined as the difference between gross revenues (excluding interest
and dividend income) and direct production costs (excluding interest expense and other financial costs). The enacted IRAP tax rate due in Puglia region for 2018 and 2017 is 4.82% (3.90% plus 0.92%).  F-64




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Total income taxes for the years ended December 31, 2018 and 2017 are allocated as
follows:  2018


2017Current:- Domestic


(4,504
)


(40
)- Foreign


(3,052
)


(3,777
)Total (a)


(7,556
)


(3,817
)Deferred:- Domestic


270



(310
)- Foreign


(143
)


1,241Total (b)


127



931Total (a + b)


(7,429
)


(2,886
) Consolidated profit (loss) before income taxes and non-controlling
interest of the consolidated statement of profit or loss for the years ended December 31, 2018 and 2017, is analysed as follows:  2018


2017Domestic


40,822



(28,358
)Foreign


(274
)


399Total


40,548



(27,959
) The effective income taxes differ from the expected income tax expense (computed by applying the IRES state
tax, which is 24% for 2018 and 2017, to income before income taxes and non-controlling interest) as follows:  2018


2017Expected tax benefit (expense) at statutory tax rates


(9,732
)


6,710Effect of:- Tax exempt income


1,665



952- Aggregate effect of different tax rates in foreign jurisdictions


208



25- Italian regional tax


(46
)


(39
)- Non-deductible expenses


(2,667
)


(1,972
)- Tax effect on unremitted earnings


(1,252
)


(1,998
)- Non taxable gain from disposal and loss of control of a subsidiary


17,193



- Chinese withholding tax on income not recoverable


(4,458
)


- Tax audit settlement for other taxes






930- Effect of net change in deferred tax assets unrecognised


(8,340
)


(7,494
)Actual tax charge


(7,429
)


(2,886
) The effective income tax rates for the years ended December 31, 2018 and 2017 were 18.32% and 10.32%,
respectively. The income tax payable recorded for the years ended December 31, 2018 and 2017 is 880 and 1,317, respectively. Whereas,
the current income tax receivable recorded for the years ended December 31, 2018 and 2017 is 1,986 and 2,413, respectively.  F-65




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  The tax effects of temporary differences that give rise to deferred tax assets and deferred
tax liabilities as at December 31, 2018, 2017 and January 1, 2017 are presented below:  31/12/18


31/12/17


01/01/17Deferred tax assetsIntercompany profit on inventories


1,162



885



344Provision for contingent liabilities


621



314



506Inventories obsolescence


152



166



Deferred revenues and costs (IFRS 15)






759



459Tax loss carry-forwards






172



852Other temporary differences


92



360



396Total deferred tax assets


2,027



2,656



2,55731/12/18


31/12/17


01/01/17Deferred tax liabilitiesUnrealised net gains on foreign exchange rate


(735
)


(1,271
)


(998
)Deferred revenues and costs (IFRS 15)


(716
)


(989
)


(413
)Withholding tax on unremitted earnings of subsidiaries










(1,720
)Other temporary differences


(143
)


(90
)


(43
)Total deferred tax liabilities


(1,594
)


(2,350
)


(3,174
) The following table shows the reconciliation of deferred tax assets and deferred tax liabilities with the
balances included in the consolidated statements of financial position as at December 31, 2018, 2017 and January 1, 2017.  31/12/18


31/12/17


01/01/17Deferred tax assets


2,027



2,656



2,557Deferred tax liabilities compensated


(1,552
)


(2,030
)


(1,411
)Net deferred tax assets


475



626



1,146Deferred tax liabilities


(42
)


(320
)


(1,763
) Movements in deferred tax balances occurred during 2018 and 2017 are analysed as follows:  Def. tax assets


Def. tax liabilities


TotalBalance as at January 1, 2017


2,557



(3,174
)


(617
)Recognised in profit or loss


99



832



931Recognised in OCI






(8
)


(8
)Balance as at December 31, 2017


2,656



(2,350
)


306Recognised in profit or loss


(629
)


756



127Recognised in OCI










Balance as at December 31, 2018


2,027



(1,594
)


433 The deferred taxes reported above have been calculated considering the tax rate reduction from 27.5% to 24.0%
approved by the Italian Parliament and starting from 2017. Therefore, the tax rate applied to calculate each of the Italian deferred tax assets and liabilities has been set considering the estimated period in which each of the related temporary
differences will be reversed. Deferred tax assets recognized are mainly related to intercompany profit on inventories recorded by the
Company and provisions for contingent liabilities and inventories obsolescence recorded by Natuzzi China Ltd. In assessing the
realisability of deferred tax assets, management considers whether it is probable that some portion or all of the deferred tax assets will not be realised. The ultimate realisation of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible and the tax loss carry-forwards are utilised.  F-66




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Given the cumulative loss position of the domestic companies and of some of foreign
subsidiaries as at December 31, 2018 and 2017, management has considered the scheduled reversal of deferred tax liabilities and tax planning strategies, in making their assessment. After an analysis as at December 31, 2018 and 2017, management has
not identified any relevant tax planning strategies prudent and feasible available to increase the recognition of the deferred tax assets. Therefore, as at December 31, 2018 and 2017 the realisation of the deferred tax assets is primarily based on
the scheduled reversal of deferred tax liabilities, except in certain historically profitable jurisdictions. Based upon this analysis,
management believes that the Natuzzi Group will realise the benefits related to these deductible differences and net operating losses carry-forwards as at December 31, 2018 and 2017. Deferred tax assets have not been recognised in respect of the following items, because it is not probable that future taxable profit will be
available against which the Group can use the benefits therefrom.  31/12/18


31/12/17


01/01/17Unrecognised deferred tax assetsTax loss carry-forwards


99,133



95,912



94,556Provision for contingent liabilities


3,234



4,085



2,223Inventories obsolescence


2,055



1,924



2,078Intercompany profit on inventories


1,040



817



947Allowance for doubtful accounts


2,145



2,434



2,121Provision for warranties


1,343



1,757



1,649Impairment of property, plant and equipment


1,228



1,425



1,521Goodwill and intangible assets


569



912



981Deferred revenues and costs (IFRS 15)


541







IAS 19 adjustment - employees leaving entitlement


470



357



392Other temporary differences


1,304



1,836



2,699Total unrecognised deferred tax assets


113,062



111,459



109,167 As at December 31, 2018, 2017 and January 1, 2017, taxes that will be due on the distribution of the
portion of shareholders equity equal to unremitted earnings of some subsidiaries are 1,708, 3,812 and 5,603, respectively. The Group has not provided for such taxes as at likelihood of distribution is not probable. As at December 31, 2018 the tax losses carried-forward of the Group total 393,630 and expire as follows:  2019


2,8332020


5,3682021


6,5862022


4,0512023


6,809Thereafter


39,333No expiration


328,650Total


393,630 Starting from 2014, in Italy, all tax losses carried-forward no longer expire, with the only limitation being
that such tax losses carried-forward can be utilised to off-set a maximum of 80% of the taxable income in each following year. The new tax rule is applicable also to tax losses carried-forward from previous
periods. The Company operates in many foreign jurisdictions. The Company and its major subsidiaries located in Romania and China are no
longer subject to examination by tax authorities for years prior to 2014.  F-67




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  37
Earnings (losses) per share Basic and diluted earnings (losses) per share is following analysed:  2018


2017Weighted average number of ordinary shares


54,853,045



54,853,045Basic earnings (losses) per share


0.61



(0.55
)Diluted earnings (losses) per share


0.61



(0.55
) Basic earnings (losses) per share is calculated by dividing earnings (losses) for the year attributable to
ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding during the year. The
weighted-average number of ordinary shares equals the number of ordinary shares issued as at December 31, 2018 and 2017 since there have been no transactions involving ordinary shares both in 2018 and 2017. Diluted earnings (losses) per share as at December 31, 2018 and 2017 equals the basic losses per share since the Parent Company has not
issued any financial instruments convertible to ordinary shares, and there are therefore no dilutive impacts. On February 8, 2019 the
Company has announced a change in the ratio of its American Depositary Receipts (ADRs) to ordinary shares, from 1 ADR representing 1 share to 1 ADR representing 5 shares. The effective date of the ratio change is February 21, 2019. No new
shares have been issued in connection with the ratio change.  38
Expenses by nature The following table shows the expenses by nature as required by IAS 1.104.  2018


2017Changes in inventories


6,850



(63
)Raw materials and consumables


177,905



181,574Services


107,074



118,681Employee benefits expense


137,425



141,433Depreciation and amortization, net of government grants


10,003



11,361Other


19,334



19,774Total cost of sales, selling and administrative expenses


458,591



472,760 The following table shows in which caption is included the depreciation and amortization.  2018


2017Included in cost of salesDepreciation


7,455



8,564Amortisation


34



74Government grants


(1,061
)


(1,068
)Total (a)


6,428



7,570Included in selling expensesDepreciation


2,274



1,818Amortisation






306Total (b)


2,274



2,124  F-68




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Included in administrative expensesDepreciation


425



478Amortisation


876



1,190Total (c)


1,301



1,668Total depreciation and amortization (a+b+c)


10,003



11,362 The following table shows in which caption is included the employee benefits expense.  2018


2017Included in cost of salesSalary and wages


62,815



57,401Social security costs


18,310



18,854Employees leaving entitlement


3,827



3,710Other costs


4,881



12,342Total (a)


89,833



92,307Included in selling expensesSalary and wages


19,754



20,475Social security costs


4,019



4,376Employees leaving entitlement


350



660Other costs


3,472



1,064Total (b)


27,595



26,575Included in admnistrative expensesSalary and wages


14,585



13,843Social security costs


3,638



3,570Employees leaving entitlement


635



831Other costs


1,139



4,307Total (c)


19,997



22,551Total (a+b+c)


137,425



141,433  39
Adjusted earnings before interest, tax, depreciation and amortisation (Adjusted EBITDA) Management has supplementally presented the performance measure Adjusted EBITDA because it monitors this performance
measure at a consolidated level and it believes that this measure is relevant to an understanding of the Groups financial performance. Adjusted EBITDA is calculated by adjusting profit from continuing operations to exclude the impact of
taxation, net finance costs, depreciation, amortisation, government grants related to depreciation and share of profit of equity method investees. Adjusted EBITDA is not a defined performance measure in IFRS. The Groups definition of Adjusted EBITDA may not be comparable with
similarly titled performance measures and disclosures by other entities.  F-69




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  The following table shows the reconciliation of Adjusted EBITDA to profit (loss) for the
years ended December 31, 2018 and 2017.  2018


2017Profit (Loss) for the year


33,119



(30,845
)Income tax expense


7,429



2,886Profit (Loss) before tax


40,548



(27,959
)Adjustments for:- Net finance income (costs)


(66,296
)


4,004- Share of profit (loss) of equity-method investees


290



- Depreciation


10,154



10,861- Amortisation


910



1,569- Government grants


(1,061
)


(1,068
)Adjusted EBITDA


(15,455
)


(12,593
)  40
Commitments and contingent liabilities Several companies of the Group lease manufacturing facilities and stores under non-cancellable
operating lease agreements with expiry dates through 2023. Rental expense recorded for the years ended December 31, 2018 and 2017 was 17,218 and 16,707, respectively. As at December 31, 2018, the minimum annual rental commitments are as
follows:  2019


13,5032020


12,8232021


11,6732022


11,0902023


9,848Thereafter


21,803Total


80,740 Certain banks have provided guarantees as at December 31, 2018 to secure payments to third parties
amounting to 1,620 (1,737 as at December 31, 2017). These guarantees are unsecured and have various maturities extending through December 31, 2019. The Group is involved in a number of certain and probable claims (including tax claims) and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters, after the provision accrued, will not have a material adverse effect on the Groups consolidated financial position or results of operations (see note 21).  41
Related parties Related parties of the Group are considered to be associates and joint ventures of the Group and the Groups key management personnel. The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial
year.  F-70




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (i) Compensation of key management personnel of the Group The compensation of key management personnel of the Group is analysed as follows:  2018


2017Directors fee


387



270Short-term employee benefits


1,875



1,853Social security contributions and defined contribution plans


500



500Employee Benefit Obligations


110



133Total


2,872



2,756 The amounts disclosed in the table are the amounts recognised as an expense during the reporting period
related to key management personnel. No loans and/or guarantees have been provided for or agreed to with key management personnel. (ii) Transactions with associates, joint ventures and other related parties The following table provides the total amount of transactions that have been entered into with such related parties for the relevant financial
year. Such transactions have been conducted at arms length.  December 31, 2018

Sales


Expenses


Amounts owed byrelated parties


Amounts due torelated partiesNatuzzi Trading Shanghai Co, Ltd.


12,589



1,001



7,383



1,001Nars Miami LLCC


776







191



Natuzzi Design S.a.s.


1,750







1,338



Natuzzi Arredamenti S.r.l.


1,010







343



Natuzzi Sofa S.r.l.


291







78



NA.FO. S.r.l.














3Natuzzi Store S.r.l.














Total


16,416



1,001



9,333



1,004December 31, 2017

Sales


Expenses


Amounts owed byrelated parties


Amounts due torelated partiesNars Miami LLCC


742







70



Natuzzi Design S.a.s.


1,591







930



Natuzzi Arredamenti S.r.l.


946







329



Natuzzi Sofa S.r.l.


310







78



NA.FO. S.r.l.


4











8Natuzzi Store S.r.l.














Total


3,593







1,407



8  42
Subsequents events Between the reporting date and the date of authorization of the financial statements the following events have occurred.  F-71




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (i) American Depositary Receipts (ADR)-to-share ratio change On February 8, 2019 the Company has announced a change in
the ratio of its ADRs to ordinary shares, from 1 ADR representing 1 share to 1 ADR representing 5 shares. The effective date of the ratio change is February 21, 2019. Pursuant to the ratio change, as of the effective date record holders of ADRs
have been required to exchange their existing ADRs for new ADRs on the basis of 1 new ADR for every five 5 existing ADRs surrendered. No new shares have been issued in connection with the ratio change. (ii) ADR/share buyback program On February 8, 2019, the Board of Directors announced its intention to propose an ADR/Share buyback program at the Companys next
shareholders meeting, which is expected to be held by the end of April 2019. If approved by the Companys shareholders, the Company will engage a financial institution to act as an agent for the Company and establish a written plan for
repurchases of the Companys ADRs and/or Shares. The Company would conduct any ADR and/or Share repurchases pursuant to the buyback program in compliance with the safe harbor provisions of Rule 10b-18 under the Securities Exchange Act of 1934,
as amended (Rule 10b-18), and in accordance with Italian corporate law. The Company
would hold any ADRs or shares repurchased pursuant to the Buyback Program in treasury stock for general corporate purposes, including to service any incentive or retention plans that the Company might adopt for certain employees and directors. (iii) Share-based incentive plan On February 8, 2019, the Board of Directors announced its intention to propose a new multi-year share-based incentive plan for certain
employees and directors of the Company and subsidiaries within the Natuzzi Group at the Companys next shareholders meeting. As
of the date of the aforementioned announcement, the Board intended to propose a capital increase (reserved for employees and directors) and/or the aforementioned buyback program in order to fund the Incentive Plan. As described in the aforementioned announcement, the Incentive Plan would intend to serve as an important tool in retaining the Natuzzi
Groups senior management over the coming years and as a means of linking the performance of senior management with the goals set out from time to time by the Natuzzi Group.  43
Explanation of the effects of transition to International Financial Reporting Standards  43.1
Premises As stated in notes 1 and 3(a), the consolidated financial statements as at December 31, 2018 are the Groups first consolidated
financial statements prepared in accordance with IFRS. The accounting policies set out in note 4 have been applied in preparing the
consolidated financial statements as at December 31, 2018, the comparative information as at December 31, 2017 presented in these consolidated financial statements and the opening IFRS consolidated statement of financial position as at
January 1, 2017 (the Groups date of transition), unless otherwise indicated.  F-72




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  In preparing its opening IFRS consolidated statement of financial position as at
January 1, 2017, the Group has adjusted amounts reported previously in its consolidated financial statements prepared in accordance with Italian GAAP (previous GAAP). An explanation of how the transition from previous GAAP to IFRS has affected
the Groups financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables. Further, in order to present the effects of the transition to IFRS and meet the related disclosure requirements of IFRS 1 First-time
Adoption of International Financial Reporting Standards (IFRS 1), the Group adopted the example provided in IFRS 1.IG.63. Therefore, this note shows the reconciliation between figures previously prepared in accordance with Italian GAAP and
figures restated in accordance with IFRS, both at the transition date (January 1, 2017) and as at and for the year ended December 31, 2017, together with illustrative notes explaining the adjustments made. In particular, the following is
presented in this note:  

the reconciliation of the consolidated statements of financial position prepared in accordance with Italian GAAP
with the consolidated statements of financial position prepared in accordance with IFRS as at January 1, 2017 and December 31, 2017;  

the reconciliation of the consolidated statement of profit or loss prepared in accordance with Italian GAAP with
the consolidated statement of profit or loss prepared in accordance with IFRS for the year ended December 31, 2017;  

the reconciliation of the consolidated statement of comprehensive income prepared in accordance with Italian GAAP
with the consolidated statement of comprehensive income prepared in accordance with IFRS for the year ended December 31, 2017;  

the reconciliation of equity as at January 1, 2017 and December 31, 2017, loss and other comprehensive
loss for the year ended December 31, 2017 between Italian GAAP and IFRS;  

the reconciliation of the consolidated statements of changes in equity as at January 1, 2017 and
December 31, 2017 between Italian GAAP and IFRS;  

the reconciliation of the consolidated statement of cash flows prepared in accordance with Italian GAAP with the
consolidated statement of cash flows prepared in accordance with IFRS for the year ended December 31, 2017;  

the accounting policies setting out the IFRS application rules and the selected standards;  

comments on the above reconciliation schedules. Such reconciliations have been prepared only for inclusion in the IFRS first consolidated financial statements of the Group as at
December 31, 2018 and, therefore, do not present comparative figures.  43.2
Basis of preparation of consolidated financial statements restated in accordance with IFRS (i) Introduction The restated consolidated financial statements of the Group, prepared in accordance with IFRS, have been derived from consolidated financial
statements prepared in accordance with generally accepted accounting principles in the Republic of Italy (Italian GAAP), by making the appropriate IFRS adjustments and reclassifications to reflect the changes in the presentation, recognition and
valuation required by IFRS.  F-73




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  In particular, adjustments have been made to conform with IFRS that are effective as at
December 31, 2018 (end of first annual reporting period) and which have been used for the preparation of the opening consolidated statement of financial position as at January 1, 2017 (date of transition) and the consolidated financial
statements prepared in accordance with IFRS as at December 31, 2017 (comparative period), unless otherwise indicated. The effects of
the transition to IFRS are the result of changes in accounting principles and, consequently, as required by IFRS 1 are reflected in the opening equity at the date of transition (January 1, 2017). In the transition to IFRS, the estimates previously
formulated in accordance with Italian GAAP have been maintained, unless the estimate and related information under previous GAAP are no longer relevant because the Group elected a different accounting policy upon adoption of IFRS. The Group did not depart from any IFRS in the preparation of these consolidated financial statements. (ii) First Time Adoption application rules The Group prepared its consolidated statement of financial position at the date of transition (January 1, 2017), except for the mandatory and
optional exemptions provided for by IFRS 1 and detailed below, based on the following (IFRS 1, 10):  

recognizing all assets and liabilities whose recognition is required by IFRS;  

derecognizing all assets and liabilities whose recognition is not allowed by IFRS;  

reclassifying assets, liabilities and components of equity as required by IFRS;  

applying IFRS in measuring all recognized assets and liabilities. When restating the opening consolidated statement of financial position as at January 1, 2017 and the consolidated financial statements as
at December 31, 2017, the Group made the following elections: (a) assets and liabilities are presented and classified as current and non-current in the consolidated statement of financial position;
(b) expense is presented on the basis of its function in the consolidated statement of profit or loss; (c) the consolidated statement of comprehensive income is presented as a separate statement from the consolidated statement of profit or
loss; (d) cash flows are presented with the indirect method. The consolidated statements of financial position as at January 1,
2017 and December 31, 2017 have been prepared on a historical cost basis, except for certain financial assets and liabilities (including derivative instruments) measured at fair value. (iii) Application of mandatory exceptions The Group has considered all mandatory exceptions of IFRS 1, as reported below. (a) Estimates (IFRS 1, 14-17) Estimates made by the Group in preparing the consolidated statement of financial position as at January 1, 2017 and December 31, 2017
are consistent with estimates made under previous Italian GAAP, unless the estimate and related information under previous GAAP are no longer relevant because the Group elected a different accounting policy upon adoption of IFRS. Therefore,
estimates have not been updated for information received at a later date. If changes in estimates are appropriate, then they have been accounted for prospectively.  F-74




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (b) Classification and measurement of financial instruments (IFRS 1, B8-B8C), derecognition of financial assets and financial liabilities (IFRS 1, B2 and B3), impairment of financial assets (IFRS 1, B8D-B8G) In order to ease the implementation of IFRS 9 Financial Instruments (IFRS 9), effective for annual periods beginning on or after
January 1, 2018, IFRS 1 has introduced a short-term exemption for comparative information of entities whose first IFRS reporting period begins before January 1, 2019 (IFRS 1, E1 and E2). In particular, such exemption requires not to
restate comparative information in accordance with IFRS 9, therefore applying the requirements of previous applicable GAAP in place of the requirements of IFRS 9 and recognizing any adjustments at the beginning of the first IFRS annual reporting
period. The Group has applied such mandatory exemption and thus has applied IFRS 9 prospectively starting from January 1, 2018.
Therefore, the Groups consolidated statement of financial position as at January 1, 2017 and December 31, 2017 prepared in accordance with IFRS disclose items within the scope of IFRS 9 in accordance with previous Italian GAAP. The
effect of the application of IFRS 9 on opening balances as at January 1, 2018 is reflected in Retained earnings. For
details on the application of IFRS 9, refer to information disclosed in note 5. (c) Embedded derivatives (IFRS 1, B9) The Group assessed whether an embedded derivative is required to be separated from its host contract and accounted for as a derivative on the
basis of the conditions that existed at the later of the date when the Group first became a party to the contract and the date of any change in the terms of the contract that significantly modified the cash flows required under the contract. Based
on such assessment, the Group concluded that there are no embedded derivatives that are required to be separated from its host contracts as at January 1, 2017 and December 31, 2017. (d) Government loan (IFRS 1, B10-B12) As at January 1 2017 and December 31, 2017 the Group does not have any government loans. Therefore, such mandatory exemption is not
applicable. (e) Hedge accounting (IFRS 1, B4-B6) The Group applied hedge accounting prospectively from the date of transition where the conditions for hedge accounting in IFRS were met. (f) Non-controlling interests (IFRS 1, B7) The Group has elected not to restate all the business combinations before January 1, 2017 (date of first time adoption). Therefore, the
balance of Non-controlling interests (NCI) under previous GAAP has not been changed other than for adjustments made as part of the transition to IFRS. This means that the following specific requirements of
IFRS in relation to NCI are applied prospectively from the date of transition: (a) the attribution of total comprehensive income between NCI and the owners of the Parent; (b) the accounting for changes in ownership interests without the
loss of control; (c) and the accounting for the loss of control in a subsidiary.  F-75




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (g) Assets and liabilities of subsidiaries, associates and joint ventures and assets and
liabilities of a Parent (IFRS 1, D16 and D17) None of the Groups subsidiaries, associates and joint ventures adopts IFRS in
their statutory financial statements. The Parent, Natuzzi S.p.A., has adopted the IFRS in its separate financial statements as at January 1, 2017. Therefore, based on these reasons, such mandatory exemption is not applicable to the
Group. (h) Investment entities (IFRS 1, 39AD) The Group is not an investment entity and, therefore, such mandatory exemption is not applicable. (iv) Application of optional exemptions The Group has considered all optional exemptions provided by IFRS 1, as reported below. (a) Business combinations (IFRS 1, C1-C5) The Group elected not to apply IFRS 3 retrospectively to business combinations that occurred before the date of transition of January 1,
2017. This led to the termination of amortization of goodwill as from that date. Further, the Group accounted for all business combinations occurring on or after the date of transition in accordance with IFRS 3. (b) Deemed cost (IFRS 1, D5-D8B) IFRS 1 permits the carrying amount of an item of property, plant and equipment to be measured at the date of transition based on deemed cost.
In its consolidated statement of financial position as at January 1, 2017, the Group only applied the deemed cost for certain buildings that were revalued under Italian GAAP as this revaluation was broadly comparable to their fair value. The
carrying amount of such revaluation as at January 1, 2017 and December 31, 2017 is of 312 and 287, respectively. (c) Revenue
(IFRS 1, D34 and D35) The Group has adopted IFRS 15 Revenue from Contracts with Customers (IFRS 15), effective for
reporting periods starting from January 1, 2018, using the full retrospective approach, without any of the practical expedients indicated by IFRS 15 C5. Therefore, the cumulative effect of the initial application of this standard is reflected
in the consolidated statement of financial position as at January 1, 2017 (the date of transition). (d) Arrangements containing a
lease (IFRS 1, D9-D9A) The Group has assessed whether an arrangement contains a lease at its
inception retrospectively on the basis of all facts and circumstances at that date. Arrangements are reassessed only if certain criteria are met. Any reassessment is based on the facts and circumstances at the date of reassessment. Therefore, the
Group concluded that, as at January 1, 2017 and December 31, 2017, all its leases are accounted for in compliance with IAS 17 and are operating in nature.  F-76




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (e) Cumulative translation differences (IFRS 1, D12 and D13) The Group applied IAS 21 The Effects of Changes in Foreign Exchange Rates (IAS 21) retrospectively to determine the cumulative
foreign exchange differences for each foreign operation that is recognised as a separate component of equity at the date of transition. (f) Other optional exemptions After considering the other optional exemption reported in IFRS 1 the Group has concluded that such other optional exemptions are not
applicable to the consolidated statement of financial position as at January 1, 2017 and December 31, 2017. In particularly, such optional exemptions are as follows:  

Share-Based Transactions (IFRS 1, D2 and D3);  

Insurance contracts (IFRS 1, D4);  

Deemed cost for oil and gas assets (IFRS 1, D5-D8B);  

Deemed cost for rate regulated operations (IFRS 1, D5-D8B);  

Compound financial instruments (IFRS 1, D18);  

Extinguishing financial liabilities with equity instruments (IFRS 1, D19);  

Decommissioning liabilities included in the cost of property, plant and equipment (IFRS 1, D21);  

Decommissioning liabilities related to oil and gas assets (IFRS 1, D21);  

Service concessions arrangements (IFRS 1, D22);  

Borrowing costs (IFRS 1, D23);  

Moving from severe hyperinflation (IFRS 1, D26-D30);  

Joint arrangements (IFRS 1, D31);  

Stripping costs in the production phase of a surface mine (IFRS 1, D32);  

Foreign currency transactions and advance consideration (IFRS 1, D36).  43.3
IFRS impact on the Groups consolidated statements of financial position as at January 1, 2017
and December 31, 2017 and consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for the year ended December 31, 2017 As a result of the differences between IFRS and Italian GAAP and the decisions made by the Group as part of the accounting options provided for
by IFRS described above in note 43.2, the Group has restated the Italian GAAP financial figures, leading to the effects on its equity, loss and comprehensive loss summarized in the tables set out below. The IFRS adjustments are detailed later on in
note 43.4. The consolidated statements of financial position as at January 1, 2017 and December 31, 2017
and consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for the year ended December 31, 2017 presented below show the following for each caption:  

the Italian GAAP carrying amount reclassified under IFRS;  

the IFRS adjustments;  

the IFRS carrying amount.  F-77




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (i) Reconciliation of the consolidated statement of financial position prepared in
accordance with Italian GAAP with the consolidated statement of financial position prepared in accordance with IFRS as at January 1, 2017  January 1, 2017Italian GAAP (*)


IFRS adjustments


January 1, 2017IFRS


NoteASSETSNon-current assetsProperty, plant and equipment


115,924



5,781



121,705



43.4
(a)Intangible assets and goodwill


4,233



(306
)


3,927



43.4
(b)Equity-accounted investees


97







97Other non-current receivables


2,137







2,137Other non-current assets






1,323



1,323



43.4
(f)Deferred tax assets


1,100



46



1,146



43.4
(c)Total non current assets


123,491



6,844



130,335Current assetsInventories


78,384



12,630



91,014



43.4
(d)Trade receivables


53,087



(12,949
)


40,138



43.4
(e)Other current receivables


18,237







18,237Other current assets


7,573



2,670



10,243



43.4
(f)Current income tax assets


1,254







1,254Gains on derivative financial instruments


223







223Cash and cash equivalents


64,981







64,981Total current assets


223,739



2,351



226,090TOTAL ASSETS


347,230



9,195



356,425EQUITYShare capital


54,853







54,853Reserves


16,439



7,626



24,065Retained earnings


77,745



(16,109
)


61,636EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY


149,037



(8,483
)


140,554Non-controlling interests


3,445







3,445TOTAL EQUITY


152,482



(8,483
)


143,999



43.4
(g)LIABILITIESNon-current liabilitiesLong-term borrowings


6,329







6,329Employees leaving entitlement


17,791



1,635



19,426



43.4
(h)Non-current contract liabilities






1,652



1,652



43.4
(j)Provisions


13,253







13,253Deferred income for capital grants


7,195



7,565



14,760



43.4
(i)Deferred tax liabilities


1,763







1,763



43.4
(c)Total non current liabilities


46,331



10,852



57,183Current liabilitiesBank overdraft and short-term borrowings


18,152



6,275



24,427



43.4
(d)Current portion of long-term borrowings


11,632







11,632Trade payables


70,457







70,457Other payables


29,407







29,407Current contract liabilities


10,096



551



10,647



43.4
(j)Provisions


5,687







5,687Liabilities for current income tax


1,693







1,693Losses on derivative financial instruments


1,293







1,293Total current liabilities


148,417



6,826



155,243TOTAL LIABILITIES


194,748



17,678



212,426TOTAL EQUITY AND LIABILITIES


347,230



9,195



356,425  (*)
Figures reported reflect some IFRS reclassifications. For details see note 43.4 (k)  F-78




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (ii) Reconciliation of the consolidated statement of financial position prepared in
accordance with Italian GAAP with the consolidated statement of financial position prepared in accordance with IFRS as at December 31, 2017  December 31, 2017Italian GAAP (*)


IFRS adjustments


December 31, 2017IFRS


NoteASSETSNon-current assetsProperty, plant and equipment


107,917



7,273



115,190



43.4
(a)Intangible assets and goodwill


5,514



323



5,837



43.4
(b)Equity-accounted investees


79







79Other non-current receivables


1,402







1,402Other non-current assets






2,851



2,851



43.4
(f)Deferred tax assets


626







626



43.4
(c)Total non current assets


115,538



10,447



125,985Current assetsInventories


80,273



10,804



91,077



43.4
(d)Trade receivables


46,852



(9,303
)


37,549



43.4
(e)Other current receivables


12,910







12,910Other current assets


4,404



2,828



7,232



43.4
(f)Current income tax assets


2,413







2,413Gains on derivative financial instruments


339







339Cash and cash equivalents


55,035







55,035Total current assets


202,226



4,329



206,555TOTAL ASSETS


317,764



14,776



332,540EQUITYShare capital


54,853







54,853Reserves


5,247



11,151



16,398Retained earnings


46,346



(15,102
)


31,244EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY


106,446



(3,951
)


102,495Non-controlling interests


2,039







2,039TOTAL EQUITY


108,485



(3,951
)


104,534



43.4
(g)LIABILITIESNon-current liabilitiesLong-term borrowings


20,877







20,877Employees leaving entitlement


17,210



1,610



18,820



43.4
(h)Non-current contract liabilities






2,560



2,560



43.4
(j)Provisions


16,715







16,715Deferred income for capital grants


6,809



6,962



13,771



43.4
(i)Deferred tax liabilities


48



272



320



43.4
(c)Total non current liabilities


61,659



11,404



73,063Current liabilitiesBank overdraft and short-term borrowings


19,680



6,287



25,967



43.4
(d)Current portion of long-term borrowings


4,840







4,840Trade payables


76,035







76,035Other payables


27,587







27,587Current contract liabilities


11,937



1,036



12,973



43.4
(j)Provisions


5,957







5,957Liabilities for current income tax


1,317







1,317Losses on derivative financial instruments


267







267Total current liabilities


147,620



7,323



154,943TOTAL LIABILITIES


209,279



18,727



228,006TOTAL EQUITY AND LIABILITIES


317,764



14,776



332,540  (*)
Figures reported reflect some IFRS reclassifications. For details see note 43.4 (k)  F-79




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (iii) Reconciliation of the consolidated statement of profit or loss prepared in
accordance with Italian GAAP with the consolidated statement of profit or loss prepared in accordance with IFRS for the year ended December 31, 2017  2017Italian GAAP (*)


IFRS adjustments


2017IFRS


NoteRevenue


445,444



3,436



448,880



43.4
(l)Cost of sales


(318,472
)


71



(318,401
)


43.4
(m)Gross Profit


126,972



3,507



130,479Other income


1,650







1,650Selling expenses


(120,005
)


276



(119,729
)


43.4
(n)Administrative expenses


(36,105
)






(36,105
)Other expenses


(250
)






(250
)Operating loss


(27,738
)


3,783



(23,955
)Finance income


1,252







1,252Finance costs


(6,042
)


(247
)


(6,289
)


43.4
(o)Net exchange rate gains (losses)


3,252



(2,219
)


1,033



43.4
(p)Net finance costs


(1,538
)


(2,466
)


(4,004
)Loss before tax


(29,276
)


1,317



(27,959
)Income tax expense


(2,576
)


(310
)


(2,886
)


43.4
(q)Loss for the year


(31,852
)


1,007



(30,845
)Loss attributable to:Owners of the Company


(31,399
)


1,007



(30,392
)Non-controlling interests


(453
)






(453
)Loss per shareBasic loss per share


(0.57
)






(0.55
)Diluted loss per share


(0.57
)






(0.55
)  (*)
Figures reported reflect some IFRS reclassifications. For details see note 43.4
(r)  F-80




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (iv) Reconciliation of the consolidated statement of comprehensive income prepared in
accordance with Italian GAAP with the consolidated statement of comprehensive income prepared in accordance with IFRS for the year ended December 31, 2018  2017Italian GAAP


IFRSadjustments


2017IFRS


NoteLoss for the year


(31,852
)


1,007



(30,845
)Other comprehensive incomeItems that will not be reclassified to profit or lossActuarial losses on employees leaving entitlement






(108
)


(108
)


43.4
(s)Tax impact






(8
)


(8
)



(116
)


(116
)Total






(116
)


(116
)Items that are or maybe reclassified subsequently to profit or lossExchange rate differences on translation of foreign operations


(11,419
)


3,641



(7,778
)


43.4
(t)Tax impact










Total


(11,419
)


3,641



(7,778
)Other comprehensive loss for the year, net of tax


(11,419
)


3,525



(7,894
)Total comprehensive loss for the year


(43,271
)


4,532



(38,739
)Total comprehensive loss attributable to:Owners of the Company


(42,591
)






(38,059
)Non-controlling interests


(680
)






(680
)  F-81




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (v) Reconciliation of equity as at January 1, 2017 and December 31, 2017, loss
and other comprehensive loss for the year ended December 31, 2017 between Italian GAAP and IFRS  EquityJanuary 1, 2017


Loss2017


Othercomprehensiveloss 2017


EquityDecember 31,2017


NoteBalance in accordance with Italian Gaap


152,482



(31,852
)






108,485Attributable to Owners of the Company


149,037



(31,399
)






106,446Attributable to Non-controlling interests


3,445



(453
)






2,039IFRS AdjustmentsFunctional currency adjustment


6,180



(2,219
)


3,641



7,602



43.4
(a)Costs not eligible for capitalization included in property, plant and equipment


(399
)


70







(329
)


43.4
(a)Costs not eligible for capitalization included in intagible assets


(306
)


306











43.4
(b)Write-off of amortization of goodwill






323







323



43.4
(b)Revenue of finished goods derecognised


(4,364
)


1,308







(3,056
)


43.4
(d)Deferred costs for slotting fees


204



1,195







1,399



43.4
(f)Deferred revenues for Natuzzi Display System


(1,594
)


(1,042
)






(2,636
)


43.4
(j)Deferred costs for Natuzzi Display System


1,229



802







2,031



43.4
(f)Deferred revenues for Service Type Warranty


(609
)


(351
)






(960
)


43.4
(j)Deferred costs for Service Type Warranty


330



189







519



43.4
(f)IAS 19 adjustment - employees leaving entitlement


(1,635
)


133



(108
)


(1,610
)


43.4
(h)Government Grants


(7,565
)


603







(6,962
)


43.4
(i)Tax effects of IFRS adjustments


46



(310
)


(8
)


(272
)


43.4
(c)Total IFRS adjustments


(8,483
)


1,007



3,525



(3,951
)Balance in accordance with IFRS


143,999



(30,845
)


3,525



104,534Attributable to Owners of the Company


140,554



(30,392
)






102,495Attributable to Non-controlling interests


3,445



(453
)






2,039 (vi) Consolidated statement of changes in equity for the year ended December 31, 2017  ShareCapitalamount


Translationreserve


IAS 19reserve


Otherreserves


Retainedearnings


Equity attributableto owners of theCompany


Equity attributableto owner Non-
controlling interests


TotalequityBalance as at January 1, 2017 as per Italian Gaap


54,853



4,980







11,459



77,745



149,037



3,445



152,482IFRS adjustments for First Time Adoption






7,626











(16,109
)


(8,483
)






(8,483
)Balance as at January 1, 2017 as per IFRS


54,853



12,606







11,459



61,636



140,554



3,445



143,999Dividends Distribution


























(726
)


(726
)Loss for the period


















(30,392
)


(30,392
)


(453
)


(30,845
)Other comprehensive loss for the period






(7,551
)


(116
)










(7,667
)


(227
)


(7,894
)Balance as at December 31, 2017 as per IFRS


54,853



5,055



(116
)


11,459



31,244



102,495



2,039



104,534  F-82




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (vii) Reconciliation of the consolidated statement of cash flows prepared in accordance
with Italian GAAP with the consolidated statement of cash flows prepared in accordance with IFRS for the year ended December 31, 2017  2017Italian GAAP


IFRSadjustments


2017IFRS


NoteCash flows from operating activities:Loss for the period


(31,852
)


1,007



(30,845
)Adjustments for:Depreciation


12,823



(1,962
)


10,861



43.4
(u)Amortization






1,569



1,569



43.4
(u)Interest expenses






4,639



4,639



43.4
(u)Share of profit (loss) of equity-accounted investees, net
of tax






(18
)


(18
)(Gain) loss on sale of property, plant and equipment


73







73Deferred income taxes


(1,241
)


1,241







43.4
(u)Unrealized foreign exchange gains (losses)


(1,141
)






(1,141
)


43.4
(u)Deferred income for capital grants


(386
)


(603
)


(989
)


43.4
(u)Tax expense






2,886



2,886



43.4
(u)Total adjustment


10,128



7,752



17,880Changes in:Inventories


(3,213
)


1,826



(1,387
)


43.4
(u)Trade and other receivables


10,386



(4,663
)


5,723



43.4
(u)Other assets


407



1,077



1,484



43.4
(u)Trade and other payables


10,643



1,211



11,854Contract liabilities






3,235



3,235



43.4
(u)Provisions






3,732



3,732



43.4
(u)Liabilities for current income taxes


(377
)


377



Salaries, wages and related liabilities


4,578



(4,578
)






43.4
(u)Other liabilities net


3,264



(3,264
)






43.4
(u)One-time termination benefit payments


(8,272
)






(8,272
)Employees leaving entitlement


(581
)


(25
)


(606
)Total changes


16,835



(1,072
)


15,763Cash provided by (used in) operating activities


(4,889
)


7,687



2,798Interest paid






(2,821
)


(2,821
)


43.4
(u)Income taxes paid






(4,878
)


(4,878
)


43.4
(u)Net cash used in operating activities


(4,889
)


(12
)


(4,901
)Cash flows from investing activities:Property, plant and equipment:Additions


(6,708
)






(6,708
)Disposals


760







760Intangible assets


(845
)






(845
)Purchase of business, net of cash acquired


(3,558
)






(3,558
)Dividends distribution to Non-controlling
interests


(1,349
)


1,349







43.4
(u)Net cash used in investing activities


(11,700
)


1,349



(10,351
)Cash flows from financing activities:Long-term borrowings:Proceeds


12,500







12,500Repayments


(4,744
)






(4,744
)Short-term borrowings


1,528



4,428



5,956



43.4
(u)Dividends distribution to Non-controlling
interests






(1,349
)


(1,349
)


43.4
(u)Net cash provided by financing activities


9,284



3,079



12,363Increase (decrease) in cash and cash equivalents


(7,305
)


4,416



(2,889
)Cash and cash equivalents as at January 1, 2017 (*)


64,981



(4,416
)


60,565



43.4
(u)Effect of movements in excahnge rates on cash held


(2,641
)






(2,641
)Cash and cash equivalents as at December 31 (*)


55,035







55,035  (*)
As at January 1, 2017 and December 31, 2017, cash and cash equivalents includes bank overdrafts of 4,416 and
nil, respectively, that are repayble on demand and from an integral part of the Groups cash management.  F-83




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  43.4
Illustrative notes to the reconciliation schedules Comments on the IFRS adjustments are provided in the following notes, together with the reference to the adjustments to equity, loss and other
comprehensive loss included in the reconciliation schedules presented above in note 43.3. The Group has also reclassified certain captions
of its consolidated statements of financial position as at January 1, 2017 and December 31, 2017 and of its consolidated statement of profit or loss for the year ended December 31, 2017. For details on these reclassifications see
notes (k) and (r) below. (i) Consolidated statements of financial position as at January 1, 2017 and December 31, 2017 (a) Property, plant and equipment The following tables show the impacts of the IFRS adjustments for property, plant and equipment:  01/01/2017


31/12/17Balance as per Italian GAAP


115,924



107,917Deemed cost for certain buildings






Functional currency adjustment


6,180



7,602Costs not eligible for capitalization


(399
)


(329
)Balance as per IFRS


121,705



115,190 (i) Deemed cost Under Italian GAAP, property, plant and equipment is stated at historical cost, net of accumulated depreciation and impairment losses, except
for certain buildings which were revalued in 1983, 1991 and 2000 in accordance with Italian revaluation laws. Maintenance and repairs are expensed; significant improvements are capitalized and depreciated over the useful life of the related assets.
The cost or valuation of property, plant and equipment is depreciated using the straight-line method over the estimated useful lives of the assets. The related depreciation expense is allocated to cost of sales, selling expenses and administrative
expenses based on the usage of the assets. Depreciation is also calculated for assets not in use. As reported in note 43.2 (iv(b)), while
transitioning to IFRS in its consolidated statements of financial position as at January 1, 2017 and December 31, 2017 the Group applied the deemed cost for certain buildings that were revalued under Italian GAAP as this revaluation was
broadly comparable to their fair value. As at January, 1 2017 and December 31, 2017 the amount of property, plant and equipment includes such revaluation amounting to 312 and 287, respectively. (ii) Functional currency adjustment Under Italian GAAP, the financial statements of foreign subsidiaries expressed in a foreign currency are translated directly into Euro as
follows: (i) year-end exchange rate for assets, liabilities, share capital, reserves and retained earnings and (ii) average exchange rates during the year for revenues and expenses. The resulting
exchange rate differences are recorded as a direct adjustment to equity.  F-84




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  IAS 21 requires each individual entity to determine its functional currency and measure its
results and financial position in that currency. In consolidated accounts, the functional currency is determined at the level of each entity within a group. IAS 21 provides guidance on how to determine an entitys functional currency, because judgement might be required. An entitys
functional currency is the currency of the primary economic environment in which the entity operates. The primary economic environment is normally the economic environment in which the entity primarily generates and expends cash. IAS 21 requires entities to consider primary and secondary indicators to determine functional currency. Primary indicators are closely linked
to the primary economic environment in which the entity operates and are given more weight. Secondary indicators provide supporting evidence to determine an entitys functional currency. IAS 21 states that when the primary indicators are mixed and the functional currency is not obvious, management uses its judgement to determine
the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. As part of this approach, management gives priority to the primary indicators in paragraph 9 of IAS 21 before
considering the additional indicators in paragraphs 10 and 11 of IAS 21, which are designed to provide additional supporting evidence to determine an entitys functional currency. The primary indicators reported in paragraph 9 of IAS 21 are as follows: (a) the currency that mainly influences sales prices for goods
and services (this will often be the currency in which sales prices for its goods and services are denominated and settled); (b) the currency of the country whose competitive forces and regulations mainly determine the sales prices of its goods and
services; (c) the currency that mainly influences labor, material and other costs of providing goods or services (this will often be the currency in which such costs are denominated and settled). The additional indicators reported in paragraph 10 and 11 of IAS 21 are: (a) the currency in which funds from financing activities are
generated; (b) the currency in which receipts from operating activities are usually retained; (c) whether the activities of the foreign operation are carried out as an extension of the reporting entity, rather than being carried out with a
significant degree of autonomy; (d) whether transactions with the reporting entity are a high or a low proportion of the foreign operations activities; (e) whether cash flows from the activities of the foreign operation directly
affect the cash flows of the reporting entity and are readily available for remittance to it; (f) whether cash flows from the activities of the foreign operation are sufficient to service existing and normally expected debt obligations without
funds being made available by the reporting entity. Considering that the Groups presentation currency is Euro, the Company performed
an assessment to determine the functional currency of each foreign subsidiary. Following such assessment, the Company concluded that: (a) the foreign subsidiaries Italsofa Romania and Natuzzi China, engaged in the manufacturing the Groups
products, have the same functional currency of the Parent, namely the Euro, since there is a strong evidence obtained from the results of the analysis of the primary and additional indicators that the functional currency is the Euro; (b) the
other foreign subsidiaries of the Group have as their functional currency the local currency based only on the strong evidence obtained from the results of the analysis of the primary indicators.  F-85




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Therefore, for Italsofa Romania and Natuzzi China, all monetary assets and liabilities are
remeasured, at the end of each reporting period, using the Euro and the resulting gain or loss is recognised in profit or loss. For all non-monetary assets and liabilities, share capital, reserves and retained
earnings, historical exchange rates are used. The average exchange rates during the year are used to translate non-Euro denominated revenues and expenses, except for those
non-Euro denominated revenues and expenses related to assets and liabilities which are translated at historical exchange rates. The resulting exchange differences on translation are recognised in profit or
loss. For the other entities the financial statements are translated as follows: (a) assets and liabilities of statement of financial
position are translated at the closing rate at the date of that statement of financial position; (b) revenues and expenses of statement of profit or loss and statement of comprehensive income are translated at average exchange rates of the year
(unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case revenues and expenses are translated at the dates of the transactions); (c) and all resulting exchange
differences are recognised in other comprehensive income. Based on the above discussion, as at January 1, 2017 and December 31,
2017, the IFRS difference arises due to the requirement to use the local currency as the functional currency under Italian GAAP as compared to IFRS, which requires that the functional currency be determined based on certain indicators which may or
may not result in the local currency being determined to be the functional currency. As already mentioned, the Euro is the functional currency of Italsofa Romania and Natuzzi China, while that of the Groups other foreign subsidiaries is the
local currency. Consequently, the Company recorded for IFRS: (a) as at January, 1 2007 and December 31, 2017 an increase in property, plant and equipment and equity of 6,180 and 7,602, respectively; (b) an exchange rate loss of 2,219
in profit or loss for the year ended December 31, 2017; (c) an exchange rate gain of 3,641 in other comprehensive income for the year ended December 31, 2017. (iii) Costs not eligible for capitalization Under Italian GAAP, in certain circumstances start-up costs and advertising costs are recorded with the
consent of the board of statutory auditors, and are stated at cost, net of accumulated amortization calculated on the straight-line method over a period of five years. Under IFRS, costs for starting new operations or launching new products or
processes are not eligible for capitalization. Therefore, the Group has written off the carrying amount of the advisory costs connected to
the launch of the new Re-vive armchair and included under property, plant and equipment. Consequently, this difference between Italian GAAP and IFRS has determined: (a) a decrease in property, plant and equipment and equity as
at January 1, 2017 and December 31, 2017 of 399 and 329, respectively; (b) a decrease of 70 for amortization included in selling expenses for the year ended December 31, 2017; (c) a decrease of 70 in the loss for the year ended
December 31, 2017.  F-86




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (b) Intangible assets and goodwill The following tables show the effects of the IFRS adjustments for intangible assets and goodwill:  Intangible assets


Goodwill


TotalBalance as at January 1, 2017 as per Italian GAAP


2,312



1,921



4,233Write-off of depreciation of goodwill










Costs not eligible for capitalization


(306
)






(306
)Balance as at January 1, 2017 as per IFRS


2,006



1,921



3,927Balance as at December 31, 2017 as per Italian GAAP


1,991



3,523



5,514Write-off of depreciation of goodwill






323



323Costs not eligible for capitalization










Balance as at December 31, 2017 as per IFRS


1,991



3,846



5,837 (i) Costs not eligible for capitalization Under Italian GAAP, in certain circumstances start-up costs and advertising costs are recorded with the
consent of the board of statutory auditors, and are stated at cost, net of accumulated amortization calculated on the straight-line method over a period of five years. Under IFRS, costs for starting new operations or launching new products or
processes are not eligible for capitalization. Therefore, the Group has written off the carrying amount of the advertising costs connected
to the launch of the new Re-vive armchair and included under intangible assets. Consequently, the above difference between Italian GAAP and IFRS has determined: (a) a decrease in intangible
assets and equity of 306 and nil, respectively as at January 1, 2017 and December 31, 2017; (b) a decrease of 306 in the amortization included in selling expenses for the year ended December 31, 2017, as the carrying amount of such
advertising costs were fully amortized in 2017 under Italian GAAP; (c) a decrease of 306 in the loss for the year ended December 31, 2017. (ii) Write-off of amortization of goodwill Under Italian GAAP, goodwill arising from business combinations is amortized on a straight-line basis over a period of ten years. Under IFRS,
goodwill is not amortized but tested for impairment at least annually. An impairment loss is recorded when the value in use of goodwill is lower than its carrying amount. The value in use is calculated by applying the discounted cash flow (DCF)
method, determining therefore the expected cash flows of the cash-generating unit to which goodwill pertains. The goodwill recorded by the
Group is related to acquisition of business finalized in 2016 and 2017. As reported in note 43.2 (iv(a)), while transitioning to IFRS, the
Group has elected to apply IFRS 3 prospectively, without restating business combinations occurred before the date of transition to IFRS. Consequently, the above difference between Italian GAAP and IFRS as at December 31, 2017 has determined: (a) an increase of 323 in
goodwill and equity as at December 31, 2017; (b) a decrease of 323 in the amortization included in selling expenses for the year ended December 31, 2017; (c) a decrease of 323 in the loss for the year ended December 31, 2017.  F-87




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (c) Deferred tax assets and liabilities The following tables show the impacts of the IFRS adjustments for deferred assets and liabilities.  January 1, 2017

Italian
GAAP (a)


IFRS
adjustments
(b)


IFRS
(a+b)Deferred tax assets


2,098



459



2,557Deferred tax liabilities compensated


(998
)


(413
)


(1,411
)Net deferred tax assets


1,100



46



1,146Deferred tax liabilities


(1,763
)






(1,763
)December 31, 2017

Italian
GAAP (a)


IFRS
adjustments
(b)


IFRS
(a+b)Deferred tax assets


1,897



759



2,656Deferred tax liabilities compensated


(1,271
)


(759
)


(2,030
)Net deferred tax assets


626







626Deferred tax liabilities


(48
)


(272
)


(320
) Income tax rate applied are disclosed in note 36. The IFRS adjustments that give rise to deferred tax assets and deferred tax liabilities as at January 1, 2017 and December 31, 2017
are presented below.  Deferred tax assets

01/01/17


31/12/17Deferred revenues and costs for Natuzzi Display System


459



759Net deferred tax assets (a)


459



759Deferred tax liabilitiesWrite-off of amortization of goodwill






(33
)Deferred revenues and costs for Natuzzi Display System


(354
)


(585
)Deferred costs for slotting fees


(59
)


(404
)IAS 19 adjustmentemployees leaving entitlement






(9
)Total deferred tax liabilities (b)


(413
)


(1,031
)Net deferred tax assets (liabilities) (a+b)


46



(272
)  F-88




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  In assessing the realisability of deferred tax assets, management considers whether it is
probable that some portion or all of the deferred tax assets will not be realised. The ultimate realisation of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences
become deductible and the tax loss carry-forwards are utilised. Given the cumulative loss position of the domestic companies and of some
of foreign subsidiaries as at January 1, 2017 and December 31, 2017 management has considered the scheduled reversal of deferred tax liabilities and tax planning strategies, in making their assessment. The management after a reasonable
analysis as at January 1, 2017 and December 31, 2017 has not identified any relevant tax planning strategies prudent and feasible available to increase the carrying value of the deferred tax assets recognised. Therefore, at January 1,
2017 and December 31, 2017 the realisation of the deferred tax assets is primarily based on the scheduled reversal of deferred tax liabilities, except in certain historically profitable jurisdictions. Based upon this analysis, management believes it is probable that Natuzzi Group will realise the benefits of these deductible differences and
net operating losses carry-forwards, as at January 1, 2017 and December 31, 2017. Deferred tax assets on IFRS adjustments have
not been recognised in respect of the following items, because it is not probable that future taxable profit will be available against which the Group can use the benefits therefrom.  Unrecognised deferred tax assets

01/01/17


31/12/17Revenue of finished goods derecognised


1,258



881Government Grants


476



403IAS 19 adjustment - employees leaving entitlement


392



357Costs not eligible for capitalization included in property, plant and equipment


115



95Costs not eligible for capitalization included in intangible assets


88



Deferred revenues and costs for Service Type Warranty


81



129Total unrecognised deferred tax assets


2,410



1,865 (d) Inventories The following tables show the impacts of the IFRS adjustments for inventories:  01/01/2017


31/12/17Balance as per Italian GAAP


78,384



80,273Revenue of finished goods derecognised


12,630



10,804Balance as per IFRS


91,014



91,077 Under Italian GAAP, the Group recognizes revenues and accrued costs associated with the sales revenue, at the
time finished goods are shipped from its manufacturing facilities located in Italy and abroad. Most of the finished goods are shipped from factories directly to customers under terms that transfer the risks and ownership to the customer when the
customer takes possession of the goods. These terms are delivered duty paid, delivered at place and delivered at terminal. Delivery to the customer generally occurs within one to six weeks from the time of
shipment. Under IFRS, an entity shall recognize revenue when (or as) the entity satisfies a performance obligation by transferring a
promised good or service to a customer. An asset is transferred when (or as) the customer obtains control of that asset. Indicators of the transfer of control include: (a) the existence of a present right to payment for the asset in favor of
the entity; (b) the customers legal title to the asset; (c) the transfer of the physical possession of the asset to customer; (d) the customer bearing the significant risks and rewards of ownership of the asset; (e) the
customers acceptance of the asset.  F-89




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  The Groups overall assessment on the application of IFRS 15 for the accounting of
revenue from contracts with customers has resulted in considering performance obligations related to finished goods (furniture, home furnishing accessories, polyurethane foam and leather by products) satisfied at the time delivery to the customer
occurs (see note 4(t)). Consequently, the above difference between Italian GAAP and IFRS as at January 1, 2017 and December 31,
2017 has determined the following impacts:  

Consolidated statement of financial position as at January 1, 2017: (a) increase in inventories of 12,630
and decrease in trade receivables of 19,224 following the derecognition of revenues for finished goods that had not been delivered as at January 1, 2017; (b) increase in other assets of 2,230 following the derecognition of shipping and handling
costs and commission expenses for finished goods that had not been delivered as at January 1, 2017; (c) decrease in equity of 4,364.  

Consolidated statement of financial position as at December 31, 2017: (a) increase in inventories of 10,804
and decrease in trade receivables of 15,590 following the derecognition of revenues for finished goods that had not been delivered as at December 31, 2017; (b) increase in other assets of 1,730 following the derecognition of shipping and
handling costs and commission expenses for finished goods that had not been delivered as at December 31, 2017; (c) decrease in equity of 3,056.  

Consolidated statement of profit and loss for the year ended December 31, 2017: (a) increase in revenues of
3,634 following the derecognition of sales of finished goods that had not been delivered as at January 1, 2017 and as at December 31, 2017; (b) increase in cost of sales of 1,826 following the recognition of inventories in the opening and
closing balances; (c) increase in selling expenses of 500 following the derecognition of shipping and handling costs and commission expenses for finished goods that had not been delivered as at January 1, 2017 and as at December 31,
2017; (d) decrease of 1,308 in the loss for the year ended December 31, 2017. (e) Trade receivables The following tables show the impacts of the IFRS adjustments for trade receivables:  01/01/2017


31/12/17Balance as per Italian GAAP


53,087



46,852Recognition of trade receivables


6,275



6,287Revenue of finished goods derecognised


(19,224
)


(15,590
)Balance as per IFRS


40,138



37,549 (i) Recognition of trade receivables Under Italian GAAP the Company derecognised some trade receivables, connected to the non-recourse
securitization agreement signed in July 2015, under which it retains substantially all the risks and rewards of ownership. Under IFRS, an
entity derecognises trade receivables when the contractual rights to the cash flows from such financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and
rewards of ownership of such financial asset are transferred or in which the entity neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of such financial asset.  F-90




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Therefore, under IFRS the Group recognized in the consolidated statement of financial
position all trade receivables for which it retains substantially all the risks and rewards of ownership. Consequently, such IFRS adjustment as at January 1, 2017 and December 31, 2017 resulted in an increase in trade receivables and
short-term borrowings of 6,275 and 6,287, respectively. (ii) Revenue of finished goods derecognised For details on such IFRS adjustments, refer to the comments reported in the note (d) Inventories. (f) Other assets (current and non-current)  01/01/2017


31/12/17Balance as per Italian GAAP


7,573



4,404Delivery costs and commission expenses for sales derecognized


2,230



1,730Deferred costs for Natuzzi Display System


1,229



2,031Deferred costs for Service Type Warranty


330



519Deferred costs for slotting fees


204



1,399Balance as per IFRS


11,566



10,083Less non-current portion as per IFRS


(1,323
)


(2,851
)Current portion as per IFRS


10,243



7,232 Reference should be made to note (d) Inventories for details about the adjustments to delivery
costs and commission expenses related to derecognised sales. For details of the adjustments to deferred costs for the Natuzzi Display System and the Service Type Warranty, reference should be made to note (j) Contract liabilities. For
details of the adjustment to deferred costs for slotting fees, please refer to the following comment. The Group recognises to retailers
slotting fees as contributions to prepare the retailers system to accept and sell the Groups products. Under Italian GAAP, slotting fees are expensed as incurred and are included in selling expenses. Under IFRS, slotting fees are
recognised over time based on the length of the contract signed with the retailers and are treated as a reduction of revenue. Deferred costs for slotting fees are included under other assets. Consequently, the effects arising from such variance between Italian GAAP and IFRS are summarized as follows: (a) as at January 1,
2017 and December 31, 2017 increase in other assets and equity for deferral of slotting fees of 204 and 1,399, respectively; (b) for the year ended December 31, 2017 increase in revenue of 1,195 and decrease of the same amount in the
loss for the year. (g) Equity The details of IFRS adjustments on the Groups equity are disclosed in notes from (a) to (j) and are summarized in the schedule
reported in 43.3 (v) that shows a reconciliation of equity as at January 1, 2017 and December 31, 2017, the loss and other comprehensive loss for the year ended December 31, 2017 under Italian GAAP and IFRS. Further, the schedule
reported in 43.3 (vi) sets out the consolidated statement of changes in equity for the year ended December 31, 2017 restated under IFRS.  F-91




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (h) Employees leaving entitlement The following tables show the effects of the IFRS adjustments for the employees leaving entitlement:  01/01/2017


31/12/17Balance as per Italian GAAP


17,791



17,210IAS 19 adjustment - employees leaving entitlement


1,635



1,610Balance as per IFRS


19,426



18,820 Leaving entitlements represent amounts accrued for each Italian employee that are due and payable upon
termination of employment, assuming immediate separation, determined in accordance with applicable Italian labor laws. Under Italian GAAP,
the Group accrues the full amount of the employees vested benefit obligation as determined by such laws for leaving entitlements. Under IFRS, such benefits on the termination of the employment fall under the definition of defined benefit plans whose existence and amount is
certain but whose date is not. The liability is calculated as the present value of the obligation at the reporting date, in compliance with applicable regulations and adjusted to take into account actuarial gains or losses. The amount of the
obligation is calculated annually based on the projected unit credit method. Actuarial gains or losses are recorded in full during the relevant period without applying the corridor method. Actuarial gains or losses are stated
under Other comprehensive income in accordance with IAS 19. Consequently, the above difference between Italian GAAP and IFRS
has resulted in: (a) an increase in employees leaving entitlement and a decrease in equity of 1,635 and 1,610, respectively, as at January 1, 2017 and December 31, 2017; (b) a decrease in cost of sales and selling expenses of
303 and 77, respectively, for the year ended December 31, 2017; (c) an increase of finance costs of 247 for the year ended December 31, 2017; (d) a decrease of 133 in the loss for the year ended December 31, 2017; (e) an increase of
108 in comprehensive loss for the year ended December 31, 2017. (i) Deferred income for capital grants The following tables show the effects of the IFRS adjustments for deferred income for capital grants:  01/01/2017


31/12/17Balance as per Italian GAAP


7,195



6,809Government Grants


7,565



6,962Balance as per IFRS


14,760



13,771 Under Italian GAAP, up to December 31, 2000 government grants related to capital expenditures were
recorded, net of tax, under equity reserves. Subsequent to that date such grants have been recorded as deferred income and recognised in the consolidated statement of profit or loss as revenue on a systematic basis over the useful life of the asset. Under IFRS, such grants, when received, are classified as deferred credit and amortized over the estimated remaining useful lives of the
property, plant and equipment to which the grants relates. The amortization is treated as a reduction of depreciation.  F-92




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Therefore, under IFRS, the Group has recognised as deferred income all the capital grants
recorded under equity reserves up to December 31, 2000. Consequently, such IFRS adjustment has determined: (a) an increase in deferred income for capital grants and a decrease in equity of 7,565 and 6,962, respectively, as at
January 1, 2017 and December 31, 2017; (b) a decrease of 603 in the amortization charge in cost of sales for the year ended December 31, 2017; (c) a decrease of 603 in the loss for the year ended December 31, 2017. (j) Contract liabilities (current and non-current) The following tables show the effects of the IFRS adjustments for contract liabilities:  01/01/2017


31/12/17Balance as per Italian GAAP


10,096



11,937Deferred revenue for Natuzzi Display System


1,594



2,636Deferred revenue for Service Type Warranty


609



960Balance as per IFRS


12,299



15,533Less non-current portion as per IFRS


(1,652
)


(2,560
)Current portion as per IFRS


10,647



12,973 Under Italian GAAP, as mentioned earlier, the Group recognizes revenues and accrued costs associated with the
sales revenue at the time finished goods are shipped from its manufacturing facilities located in Italy and abroad. This accounting policy also applies for the revenue deriving from the sale of the Natuzzi Display System (NDS) to retailers and for
the sale of a service type warranty to the end customers. Revenue from the sale of NDS to retailers, used to set up their stores, is fully
recognised at the time such products are shipped, disregarding the length of the contracts with retailers (usually five years). At the same time, costs incurred by the Group to purchase such store fittings are expensed as occurred. The insurance is provided by a third party and, therefore, the Group recognizes both costs for the service rendered by the third party and
revenue deriving from the sale of the service type warranty to customers. In both instances, costs and revenue are fully recognised as they occur (i.e. costs are recognized as the third party performs the services and revenue when the products are
shipped), regardless of the contractual length of the insurance period, which is five years. Under IFRS 15, the entity shall identify all
distinct performance obligations included in contracts with customers and shall determine whether such performance obligations are satisfied over time or at a point in time. Based on the IFRS 15 assessment, the Group has concluded that the revenue from the sale of NDS and the service type warranty is a distinct
performance obligation to be recognised over time. The same considerations apply for costs incurred by the Group for NDS and service type warranties. Under IFRS 15, revenue from the sale of the NDS is recognised over time based on the length of the distribution contract signed with the
retailer. Revenue from such sale is recognised based on the price specified in the contract. The deferred revenue is included under contract liabilities.  F-93




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  Under IFRS 15, the Group allocates a portion of the consideration received to the service
type warranty. This allocation is based on the relative stand-alone selling price. The amount allocated to the service type warranty is deferred and is recognised as revenue over time based on the validity period of such warranty. The deferred
revenue is included under contract liabilities. Consequently, the above differences between Italian GAAP and IFRS as at January, 1 2017
and December 31, 2017 has determined the following effects:  

Consolidated statement of financial position as at January 1, 2017: (a) increase in contract liabilities of
2,203 for the deferral of revenues for NDS products, amounting to 1,594, and for service type warranties, amounting to 609; (b) increase in other assets of 1,559 for the deferral of costs related to NDS products, amounting to 1,229, and to service
type warranties, amounting to 330; (c) decrease in equity of 644.  

Consolidated statement of financial position as at December 31, 2017: (a) increase in contract liabilities
of 3,596 for the deferral of revenues related to NDS products, amounting to 2,636, and to service type warranties, amounting to 960; (b) increase in other assets of 2,550 for the deferral of costs related to NDS products, amounting to 2,031, and to
service type warranties, amounting to 519; (c) decrease in equity of 1,046.  

Consolidated statement of profit and loss for the year ended December 31, 2017: (a) decrease in revenues of
1,042 for NDS and of 351 for service type warranties; (b) decrease in cost of sales of 802 for NDS and of 189 for service type warranties; (c) increase in the loss of the year of 402. (k) Reclassifications Under IFRS the Group has also reclassified certain captions and accounts of its consolidated statements of financial position as at
January 1, 2017 and December 31, 2017. Such reclassifications are detailed as follows:  

as at January 1, 2017 and December 31, 2017, goodwill amounting to 1,921 and 3,523, respectively,
included as non-current assets under Italian GAAP has been reclassified to Intangible assets and goodwill under IFRS;  

as at January 1, 2017 and December 31, 2017, Deferred tax assets amounting to 1,100 and
626, respectively, reported as current assets under Italian GAAP have been reclassified to non-current assets under IFRS;  

as at January 1 2017 and December 31, 2017, Deferred tax liabilities amounting to 1,763 and
48, respectively, reported as current liabilities under Italian GAAP have been reclassified to non-current liabilities under IFRS;  

as at January 1, 2017 and December 31, 2017, receivables from tax authorities amounting to 1,254 and
2,413, respectively, included in Other receivables  and reported as current assets under Italian GAAP have been reclassified to Current income tax assets under IFRS;  

as at January 1, 2017 and December 31, 2017, the entire caption prepaid expenses and accrued
income amounting to 1,441 and 1,035, respectively, reported as current assets under Italian GAAP have been reclassified to Other current assets of current assets under IFRS;  

as at January 1, 2017 and December 31, 2017, advances to suppliers amounting to 6,132 and 3,369,
respectively, included in Other receivables and reported as current assets under Italian GAAP have been reclassified to Other current assets of current assets under IFRS;  F-94




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  

as at January 1, 2017 and December 31, 2017, provisions amounting to 13,253 and 16,715, respectively,
included in Other liabilities of non-current liabilities under Italian GAAP have been reclassified to Provisions of non-current liabilities under
IFRS;  

as at January 1, 2017 and December 31, 2017, the entire caption salaries, wages and related
liabilities amounting to 19,420 and 15,726, respectively, reported as current liabilities under Italian GAAP has been reclassified to Other payables of current liabilities under IFRS;  

as at January 1, 2017 and December 31, 2017, advances received from customers amounting to 10,096 and
11,938, respectively, included in Accounts payable-other reported as current liabilities under Italian GAAP have been reclassified to Contract liabilities of current liabilities under IFRS;  

as at January 1, 2017 and December 31, 2017, provision for assurance type warranty amounting to 5,687
and 5,957, respectively, included in Accounts payable-other of current liabilities under Italian GAAP has been reclassified to Provisions of current liabilities under IFRS;  

as at January 1, 2017 and December 31, 2017, translation adjustment reserve amounting to a credit of
4,980 and a debit of 6,212, respectively, included in retained earnings under Italian GAAP have been reclassified to translation reserve under IFRS. (ii) Consolidated statement of profit or loss for the year ended December 31, 2017 (l) Revenue The
effects of the IFRS adjustments on revenue are indicated below:  Balance for the year ended December 31, 2017 as per Italian GAAP


445,444Effects of revenue of finished goods derecognised


3,634Effects of deferred costs for slotting fees


1,195Effects of deferred revenue for Natuzzi Display System


(1,042
)Effects of deferred revenue for Service Type Warranty


(351
)Balance for the year ended December 31, 2017 as per IFRS


448,880 Revenue shows a positive adjustment of 3,436 arising from:  

increase of 3,634 due to the effects of derecognition of sales for which delivery of finished goods has not yet
occurred as at January 1, 2017 and December 31, 2017 (refer to comments reported in note (d) Inventories);  

increase of 1,195 for the deferred slotting fees (refer to comments reported in note (f) Other
assets);  

decrease of 1,042 due to the effects of the deferral of revenue for NDS products (refer to comments reported in
note (j) Contract liabilities);  

decrease of 351 due to the effects of the deferral of revenue for the service type warranties (refer to comments
reported in note (j) Contract liabilities).  F-95




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (m) Cost of sales The effects of the IFRS adjustments on cost of sales are illustrated below:  Balance for the year ended December 31, 2017 as per Italian GAAP


(318,472
)Effects on inventories for revenue derecognised


(1,826
)Effects of deferred costs for Natuzzi Display System


802Effects of deferred costs for Service Type Warranty


189Amortization charge of capital grants


603IAS 19 adjustment - employees leaving entitlement


303Balance for the year ended December 31, 2017 as per IFRS


(318,401
) As reported above, the cost of sales shows a negative adjustment of 71 due to:  

increase of 1,826 due to the effects on the opening and closing balances of inventories related to the
derecognition of sales for which delivery of finished goods has not yet occurred as at January 1, 2017 and December 31, 2017 (refer to comments reported in note (d) Inventories);  

decrease of 802 due to the effects of deferred costs related to NDS store fitting products (refer to comments
reported note (j) Contract liabilities);  

decrease of 189 due to the effects of deferred costs related to service type warranties (refer to comments
reported in note (j) Contract liabilities);  

decrease of 603 due to the amortization charge of the deferred income for capital grants (refer to comments
reported in note (i) Deferred income for capital grants;  

decrease of 303 due to the employees leaving entitlement (refer to comments reported in note (h)
Employees leaving entitlement). (n) Selling expenses The effects of the IFRS adjustments on the selling expenses are indicated below:  Balance for the year ended December 31, 2017 as per Italian GAAP


(120,005
)Derecognition of shipping and handling costs


(500
)Elimination of amortization of goodwill


323Elimination of amortization of advertising costs


306Elimination of amortization of advisory costs


70IAS 19 adjustment - employees leaving entitlement


77Balance for the year ended December 31, 2017 as per IFRS


(119,729
) As shown above, selling and distribution expenses show a positive adjustment of 276 due to:  

increase of 500 due to the effects of the derecognition of shipping and handling costs for undelivered finished
goods as at January 1, 2017 and December 31, 2017 (refer to comments reported in note (d) Inventories);  

decrease of 323 due to the elimination of amortization of goodwill recorded for Italian GAAP (refer to comments
reported in note (b) Intangible assets and goodwill);  

decrease of 306 due to the elimination of amortization of advertising costs that are not eligible for
capitalization under IFRS (refer to comments reported in note (b) Intangible assets and goodwill);  

decrease of 70 due to the elimination of amortization of advisory costs not eligible for capitalization under
property, plant and equipment (refer to comments reported in note (a) Property, plant and equipment);  F-96




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  

decrease of 77 due to the employees leaving entitlement (refer to comments reported in note (h)
Employees leaving entitlement). (o) Finance costs The effects of the IFRS adjustments on finance costs are indicated below:  Balance for the year ended December 31, 2017 as per Italian GAAP


(6,042
)IAS 19 adjustment - employees leaving entitlement


(247
)Balance for the year ended December 31, 2017 as per IFRS


(6,289
) As reported above, finance costs show a negative adjustment of 247 due to interest expenses arisen from the
application of IAS 19 to the employees leaving entitlement (refer to comments reported in note (h) Employees leaving entitlement). (p) Net exchange rate gains (losses) The effects of the IFRS adjustments on net exchange rate gains (losses) are indicated below:  Balance for the year ended December 31, 2017 as per Italian GAAP


3,252Functional currency adjustment


(2,219
)Balance for the year ended December 31, 2017 as per IFRS


1,033 For comments on such functional currency adjustment, refer to note (a) Property, plant and
equipment. (q) Income tax expense The IFRS adjustments have determined an increase of 310 in the income tax expense (see also note (c) Deferred tax assets and
liabilities). Further, total income taxes for the year ended December 31, 2017 are allocated as follows:  ItalianGAAP(a)


IFRSadjustments(b)


IFRS(a+b)Current:- Domestic


(40
)






(40
)- Foreign


(3,777
)






(3,777
)Total (a)


(3,817
)






(3,817
)ItalianGAAP(a)


IFRSadjustments(b)


IFRS(a+b)Deferred:- Domestic






(310
)


(310
)- Foreign


1,241







1,241Total (b)


1,241



(310
)


931Total (a+b)


(2,576
)


(310
)


(2,886
)  F-97




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  (r) Reclassifications Under IFRS the Group has also reclassified certain captions and accounts of its consolidated statement of profit or loss for the year ended
December 31, 2017. Such reclassifications are as follows:  

advertising contributions to resellers of 2,119 recognized as selling expenses under Italian GAAP have been
reclassified to revenue under IFRS;  

slotting fees to retailers of 1,557 recognized as selling expenses under Italian GAAP have been reclassified to
revenue under IFRS;  

amortization of deferred income related to grants of 466 recognized as revenue under Italian GAAP has been
reclassified to cost of sales under IFRS;  

warranty costs of 7,453 included as components of selling expenses under Italian GAAP have been reclassified to
cost of sales under IFRS;  

the Italian GAAP caption other income (expense), net of (138) has been reclassified under IFRS
to finance income for 1,252, finance costs for 6,042, net exchange rate gains for 3,252, other income for 1,650 and other expenses for 250. (iii) Consolidated statement of comprehensive income for the year ended December 31, 2017 (s) Actuarial losses on employees leaving entitlement For comments on actuarial losses reported under other comprehensive income, refer to comments reported in note (h) Employees
leaving entitlement. (t) Exchange rate differences on translation of foreign operations The impact of the IFRS adjustments on the exchange rate differences on translation of the foreign operations is as follows:  Balance for the year ended December 31, 2017 as per Italian GAAP


(11,419
)Functional currency adjustment


3,641Balance for the year ended December 31, 2017 as per IFRS


(7,778
) For comments on such functional currency adjustment, refer to note (a) Property, plant and
equipment. (iv) Consolidated statement of cash flows for the year ended December 31, 2017 (u) Explanation of material IFRS adjustments to the consolidated statement of cash flows The consolidated statement of cash flows for the year ended December 31, 2017 reflects: (a) the IFRS adjustments with an impact on
the consolidated statement of financial positions captions and equity as at January 1, 2017 and December 31, 2017, disclosed in notes from a to j; (b) the IFRS reclassifications that affected the consolidated
statement of financial position prepared in accordance with Italian GAAP as at January 1, 2017 and December 31, 2017, disclosed in note k.  F-98




---

Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  In particular, the material IFRS adjustments to the consolidated statement of cash flows for
the year ended December 31, 2017 are detailed as follows:  

as at January 1, 2017 and December 31, 2017, bank overdrafts of 4,416 and nil, respectively, that are
repayable on demand, form an integral part of the Groups cash management and which were classified as cash flows from financing activities under Italian GAAP, have been reclassified to cash and cash equivalents under
IFRS;  

dividends distribution to Non-controlling interests amounting
to 1,349 for the year ended December 31, 2017 included in cash flows from investing activities under Italian GAAP have been reclassified to cash flows from financing activities under IFRS;  

interest paid amounting to 2,821 for the year ended December 31, 2017 recognised as other disclosures
on cash flows under Italian GAAP has been recognized as cash flows used in operating activities;  

income taxes paid amounting to 4,878 for the year ended December 31, 2017 recognised as other
disclosures on cash flows under Italian GAAP have been recognised as cash flows used in operating activities;  

the entire caption deferred income taxes amounting to 1,241 for the year ended December 31, 2017
recognised in cash flows from operating activities under Italian GAAP have been reclassified to tax expense recognized in cash flows from operating activities under IFRS;  

the entire caption salaries, wages and related liabilities amounting to 4,578 for the year ended
December 31, 2017 recognised in cash flows from operating activities under Italian GAAP have been reclassified to trade and other payables recognised in cash flows from operating activities under IFRS;  

the entire caption other liabilities, net amounting to 3,264 for the year ended December 31,
2017 recognised in cash flows from operating activities under Italian GAAP have been reclassified to provisions recognised in cash flows from operating activities under IFRS.  

amortization of intangibles assets of 1,892 recognised in the caption Depreciation and amortization
under Italian GAAP has been reclassified to Amortization under IFRS;  

the caption Depreciation of 10,861 under IFRS reflects the IFRS adjustment of 70 for the elimination
of amortization of advisory costs not eligible for capitalization under property, plant and equipment (see note (a) Property, plant and equipment and note (n) Selling expenses);  

the caption Amortization of 1,569 under IFRS reflects the IFRS adjustment for the elimination of
amortization of goodwill of 323 recorded under Italian GAAP (see note (b) Intangible assets and goodwill and note (n) Selling expenses);  

the captions Interest expenses of 4,639 and Tax expense of 2,886 have been disclosed in
the cash flows from operating activities under IFRS;  

the caption Deferred income for capital grants shows an increase of 603 due to the effects of the
amortization of capital grants recorded under IFRS (see note (i) Deferred income for capital grants and note (m) Cost of sales);  

the caption Inventories shows an increase of 1,826 due to the derecognition of sales of finished
goods which had not been delivered as at January 1, 2017 and December 31, 2017 (see note (d) Inventories and note (m) Cost of sales);  F-99




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Natuzzi S.p.A. and subsidiaries Notes to consolidated financial statements (Expressed in
thousands of euros except as otherwise indicated)  

the caption Trade and other receivables shows a negative adjustment of 4,663 mainly due to:
(a) decrease of 3,634 for the derecognition of sales of finished goods which had not been delivered as at January 1, 2017 and December 31, 2017 (see note (e) Trade receivables and note (l) Revenue); (b)
decrease of 2,763 for the reclassification of advances from suppliers from Other receivables under Italian GAAP to Other assets under IFRS (see note (k) Reclassifications); (c) increase of 1,159 for the
reclassification of receivables from tax authorities from Other receivables under Italian GAAP to Current income tax assets under IFRS (see note (k) Reclassifications);  

the caption Other assets shows a positive adjustment of 1,077 arising from: (a) decrease of
1,686 for deferred costs recognized under IFRS (see note (f) Other assets); (b) increase of 2,763 due to the reclassification of advance paid to suppliers (see note (k) Reclassification);  

the caption Contract liabilities shows a positive adjustment of 3,235 arising from: (a) 1,393
increase in deferred income for NDS products and service type warranties (see note (j) Contract liabilities and note (l) Revenue); (b) 1,842 increase due to the reclassification of advances received from customers from
Account-payables other under Italian GAAP to Contract liabilities under IFRS (see note (k) Reclassifications;  

the caption Short-term borrowings shows an increase of 4,428 due to: (a) an increase of 4,416
for bank overdraft reclassified from cash flows from financing activities under Italian GAAP to cash and cash equivalents under IFRS (see first comment above); (b) an increase of 12 for borrowings recognised following the
recognition of some trade receivables under IFRS (see note (e) Trade receivables). There are no other
material differences between the consolidated statement of cash flows presented in accordance with IFRS and the consolidated statement of cash flows presented in accordance with Italian GAAP.  F-100




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ITEM 19. EXHIBITS 1.1 English translation of the by-laws (Statuto) of the Company, as amended and restated as of January 
24, 2008 (incorporated by reference to Exhibit 1.1 to the Form 20-F filed by Natuzzi S.p.A. with the Securities Exchange Commission on June 
30, 2008, file number 001-11854). 2.1 Deposit
 Agreement dated as of May 15, 1993, as amended and restated as of December 23, 1996 and as of December 
31, 2001, among the Company, The Bank of New York, as Depositary, and owners and beneficial owners of ADRs (incorporated by reference to Exhibit 2.1 to the Form 
20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on April 
30, 2019, file number 001-11854). 4.1 Agreement
 among the Ministry of Economic Development, Ministry of Labour and Social Policy, INVITALIA, the Region of Puglia, the Region of Basilicata, Natuzzi S.p.A., Confindustria and the Italian trade union and other entities named therein, dated as of
October 10, 2013 (incorporated by reference to Exhibit 4.1 to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on April 30, 2014, file number 001-11854). 4.2 Addendum
 among the Ministry of Economic Development, Confindustria of Bari, Natuzzi S.p.A. and the trade unions named therein dated as of March 3, 2015, to the agreement dated as of October 10, 2013 (incorporated by reference to
Exhibit 4.2 to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on April 30, 2015, file number 001-11854). 4.3 Two separate agreements, each among the Ministry
 of Labor, the Ministry of Economic Development, the Puglia Region, the Basilicata Region, Natuzzi S.p.A., Confindustria Bari and the Italian trade unions and other entities named therein, each dated as of March 3, 2015 (incorporated by
reference to Exhibit 4.3 to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on April 30, 2015, file number 001-11854). 4.4 English translation of the Memorandum of Understanding
 between the Ministry of Labor and Social Policy, Natuzzi S.p.A. and the Italian trade unions (incorporated by reference to Exhibit 4.4 to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange
Commission on May 
23, 2016, file number 001-11854). 4.5 English
 translation of the Framework Agreement for Assignment of Receivables between Natuzzi S.p.A. and Muttley S.r.l., dated July 9, 2015 (incorporated by reference to Exhibit 4.5 to the Form 20-F filed
by Natuzzi S.p.A. with the Securities and Exchange Commission on May 23, 2016, file number 001-11854). 4.6 English translation of the agreement among the individuals
named therein, dated as of March 27, 2017 (incorporated by reference to Exhibit 4.6 to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on May 1, 2017,
file number 001-11854). 4.7 English
 translation of the agreement among the individuals named therein, dated as of March 27, 2017 (incorporated by reference to Exhibit 4.7 to the Form 20-F filed by Natuzzi S.p.A. with the Securities
and Exchange Commission on May 1, 2017, file number 001-11854).




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4.8 English
 translation of the Joint Venture Contract between Natuzzi S.p.A. and Jason Furniture (Hangzhou) CO., Ltd., dated March 
22, 2018, portions of which have been omitted pursuant to a request for confidential treatment. Such omitted portions have been filed separately with the Securities and Exchange Commission (incorporated by reference to Exhibit 4.8 to the Form 20-F filed
 by Natuzzi S.p.A. with the Securities and Exchange Commission on April 30, 2018, file number 001-11854). 4.9 English
 translation of the Agreement for the Sale and Purchase and Subscription of Shares in Natuzzi Trading (Shanghai) Co, Ltd., dated March 
22, 2018 (incorporated by reference to Exhibit 4.9 to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on April 30, 2018, file number 001-11854). 4.10 English translation of the agreement among
 the Company, certain trade unions, Italian authorities and the individuals therein, dated December 18, 2018 (incorporated by reference to Exhibit 4.10 to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on April 30,
2019, file number 001-11854). 8.1  
List of Significant Subsidiaries (incorporated by reference to Exhibit 8.1 to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on
 April 30, 2019, file number 001-11854). 12.1*  
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 12.2*  Certification of the Chief Financial Officer pursuant to Section 
302 of the Sarbanes-Oxley Act of 2002. 13.1*  Certifications pursuant to Section 
906 of the Sarbanes-Oxley Act of 2002. 101** XBRL Instance Document and related items.  *
Filed herewith.  **
Previously filed as an exhibit to Amendment No. 2 on Form 20-F/A filed by Natuzzi S.p.A with the Securities and
Exchange Commission on May 29, 2019, file number 001-11854.  
Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Regulation S-K, Item
601(b)(10). Such omitted information is not material and would likely cause competitive harm to the registrant if publicly disclosed.




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SIGNATURE The registrant, Natuzzi S.p.A., hereby certifies that it meets all of the requirements for filing on Form
20-F/A and that it has duly caused and authorized the undersigned to sign this Amendment No. 3 to the annual report on its behalf.  NATUZZI S.p.A.By

/s/ Pasquale NatuzziName: Pasquale NatuzziTitle: Chief Executive Officer
 Date: July 2, 2019