##### Table of Contents

LOGO Natuzzi S.p.A Annual Report on Form 20-F 2018




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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 20-F 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

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

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  ☒




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##### Table of Contents

TABLE OF CONTENTS PagePART I


2ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS


2ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE


2ITEM 3. KEY INFORMATION


2Selected Financial Data


2Exchange Rates


4Risk Factors


4ITEM 4. INFORMATION ON THE COMPANY


11Introduction


11Organizational Structure


13Strategy


13Manufacturing


16Supply-Chain Management


20Products


21Innovation


22Advertising


24Retail Development


25Markets


26Customer Credit Management


30Incentive Programs and Tax Benefits


30Management of Exchange Rate Risk


31Trademarks and Patents


31Regulation


31Environmental Regulatory Compliance


32Insurance


32Description of Properties


32Capital Expenditures


33ITEM 4A. UNRESOLVED STAFF COMMENTS


33ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS


33Critical Accounting Policies and estimates


33Non-GAAP Financial
Measures


36Results of Operations


382018 Compared to 2017


38Liquidity and Capital Resources


42Contractual Obligations and Commitments


44Trend information


45Off-Balance Sheet
Arrangements


47Related Party Transactions


47New Accounting Standards under IFRS


47ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES


49Compensation of Directors and Officers


52Statutory Auditors


52  i




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PageEmployees


53Share Ownership


55ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS


56Major Shareholders


56Related Party Transactions


57ITEM 8. FINANCIAL INFORMATION


57Consolidated Financial Statements


57Export Sales


57Legal and Governmental Proceedings


57Dividends


57ITEM 9. THE OFFER AND LISTING


58Trading Markets and Share Prices


58ITEM 10. ADDITIONAL INFORMATION


59By-laws


59Material Contracts


64Exchange Controls


65Taxation


66Documents on Display


70ITEM 
11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


70ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES


72ITEM 12A. DEBT SECURITIES


72ITEM 12B. WARRANTS AND RIGHTS


72ITEM 12C. OTHER SECURITIES


72ITEM 12D. AMERICAN DEPOSITARY SHARES


72PART II


74ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND
DELINQUENCIES


74ITEM 
14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS


74ITEM 15. CONTROLS AND PROCEDURES


74ITEM16. [RESERVED]



75ITEM16A. AUDIT COMMITTEE FINANCIAL EXPERT


75ITEM16B. CODE OF ETHICS


75ITEM16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES


75ITEM16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.


75ITEM16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS


76ITEM16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT


76ITEM16G. CORPORATE GOVERNANCE


76ITEM16H. MINE SAFETY DISCLOSURE.


79PART III


80ITEM17. FINANCIAL STATEMENTS


80ITEM18. FINANCIAL STATEMENTS


80ITEM19.
EXHIBITS   ii




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PRESENTATION OF FINANCIAL AND OTHER INFORMATION In this annual report on Form 20-F (the Annual Report), references to 
or Euro are to the Euro and references to U.S. dollars, dollars, U.S.$ or $ are to United States dollars. Amounts stated in U.S. dollars, unless otherwise indicated, have been translated from the Euro amount by converting the Euro amounts into U.S.
dollars at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the Noon Buying Rate) for euros on December 31, 2018 of
U.S.$ 1.1456. The foreign currency conversions in this Annual Report should not be taken as representations that the foreign currency amounts actually represent the equivalent U.S. dollar amounts or could be converted into U.S. dollars at the
rates indicated. 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. The annual audited
consolidated financial statements contained in this annual report are the Companys first consolidated financial statements prepared in accordance with IFRS. Historical financial results as of and for the year ended December 31, 2017 have
been adjusted based on IFRS, which differs from the results included in our annual reports on Form 20-F for the year ended December 31, 2017. In addition, no consolidated financial statements and no financial information prepared in accordance
with IFRS for the year ended December 31, 2016 have been included in this annual report. See Notes 1 and 43 to the Consolidated Financial Statements included in Item 18 of this Annual Report. All discussions in this Annual Report are in relation to IFRS, unless otherwise indicated. In this Annual Report, the term seat is used as a unit of measurement. A sofa consists of three seats; an armchair consists of one
seat. The terms Natuzzi, Natuzzi Group, Company, Group, we, us,
and our, unless otherwise indicated or as the context may otherwise require, mean Natuzzi S.p.A. and its consolidated subsidiaries. None of the websites referred to in this Annual Report, including where a link is provided, nor any of the information contained on such
websites is incorporated by reference in this Annual Report. FORWARD-LOOKING INFORMATION The Company makes forward-looking statements in this Annual Report. Statements that are not historical facts, including statements about the
Groups beliefs and expectations, are forward-looking statements. Words such as believe, expect, intend, plan and anticipate and similar expressions are intended to identify
forward-looking statements but are not exclusive means of identifying such statements. These statements are based on managements current plans, estimates and projections, and therefore readers should not place undue reliance on them.
Forward-looking statements speak only as of the dates they were made, and the Company undertakes no obligation to update or revise any of them, whether as a result of new information, future events or otherwise. Projections and targets included in this Annual Report are intended to describe our current targets and goals, and not as a prediction of
future performance or results. The attainment of such projections and targets is subject to a number of risks and uncertainties described in the paragraph below and elsewhere in this Annual Report. See Item 3. Key InformationRisk
Factors. Forward-looking statements involve inherent risks and uncertainties, as well as other factors that may be beyond our
control. The Company cautions readers that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to: effects on the Group from
competition with other furniture producers, material changes in consumer demand or preferences, significant economic developments in the Groups primary markets, the Groups execution of its reorganization plans for its manufacturing
facilities, significant changes in labor, material and other costs affecting the construction of new plants, significant changes in the costs of principal raw materials, significant exchange rate movements or changes in the Groups legal and
regulatory environment, including developments related to the Italian Governments investment incentive or similar programs. The Company cautions readers that the foregoing list of important factors is not exhaustive. When relying on
forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and events.  1




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PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3. KEY INFORMATION Selected Financial Data The following table sets forth selected consolidated financial data for the periods indicated and is qualified by reference to, and should be
read in conjunction with, the Consolidated Financial Statements and the notes thereto included in Item 18 of this Annual Report and the information presented under Operating and Financial Review and Prospects included in Item 5
of this Annual Report. The statements of profit or loss and statements of financial position data presented below have been derived from the Consolidated Financial Statements. The consolidated financial statements of 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. Historical financial results as of and for the year ended December 31, 2017 have also been
adjusted based on IFRS, which differs from the results included in our annual reports on Form 20-F for the year ended December 31, 2017. 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. Note 43 to the Consolidated Financial Statements included in Item 18 of this Annual Report 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. Since these are our first audited consolidated financial statements prepared in accordance with IFRS, pursuant to the transitional relief
granted by the U.S. Securities and Exchange Commission in respect of the first-time adoption of IFRS, we have only provided financial statements and financial information for the financial years ended December 31, 2018, 2017 and January 1,
2017. Financial data as of and for the years ended December 31, 2014, 2015 and 2016 derived from our consolidated financial statements prepared in accordance with the generally accepted accounting principles in the Republic of Italy
(Italian GAAP) have not been included below, and no consolidated financial statements and no financial information prepared in accordance with IFRS for the year ended December 31, 2016 have been included in this annual report. See
Notes 1 and 43 to the Consolidated Financial Statements included in Item 18 of this Annual Report.  2




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2018


2018


2017(millions ofdollars,
except perOrdinaryShare)(1)


(millions of euro, except per Ordinary Share)Consolidated Statement of Profit or Loss data:Revenue


505.0



428.5



448.9Cost of sales


(363.2
)


(308.2
)


(318.4
)Gross profit


141.8



120.3



130.5Other income


7.0



5.9



1.6Selling expenses


(135.5
)


(115.0
)


(118.2
)Administrative expenses


(41.6
)


(35.3
)


(36.1
)Impairment on trade receivables


(0.8
)


(0.7
)


(1.5
)Other expenses


(0.7
)


(0.6
)


(0.2
)Operating loss


(29.9
)


(25.4
)


(23.9
)Finance income


0.5



0.4



1.2Finance costs


(6.6
)


(5.6
)


(6.3
)Net exchange rate gains / (losses)


(4.6
)


(3.9
)


1.1Gains from disposal and loss of control of a subsidiary


88.9



75.4



0.0Net finance income/(costs)


78.1



66.3



(4.0
)Share of profit/(loss) of equity-method investees


(0.4
)


(0.3
)


0.0Profit/(loss) before tax


47.8



40.6



(27.9
)Income tax expense


(8.8
)


(7.5
)


(2.9
)Profit/(Loss) before non-controlling
interests


39.0



33.1



(30.8
)Non-controlling interests


(0.2
)


(0.2
)


(0.4
)Profit/(Loss) for the year


39.2



33.3



(30.4
)Profit/(Loss) per ordinary share (basic and diluted)


0.72



0.61



(0.55
)Weighted average number of Ordinary Shares Outstanding


54,853,045



54,853,045



54,853,045Consolidated Statement of Financial Position Data(3):Current assets

$
180.8



207.1



206.6Total assets


325.3



372.7



332.5Current liabilities


147.0



168.4



154.9Long-term borrowings


9.1



10.4



20.9Non-controlling interests


1.4



1.6



2.0Shareholders equity attributable to Natuzzi S.p.A. and Subsidiaries(2)


119.2



136.5



102.5Net Assets


120.6



138.2



104.5  1)
Consolidated Statement of Profit or Loss amounts are converted from euros into U.S. dollars by using the
average Federal Reserve Bank of New York Euro exchange rate for 2018 of U.S.$ 1.1785 per 1 Euro. Consolidated Statement of financial position amounts are converted from euros into U.S. dollars using the Noon Buying Rate of U.S.$ 1.1456 per 1 Euro as
of December 31, 2018. Source: Bloomberg (USCFEURO Index). 2)
Share capital as of December 31, 2018 and 2017 amounted to 54.9 million and
54.9 million, respectively. Shareholders Equity represents the Total Equity attributable to Natuzzi S.p.A. and its subsidiaries. 3)
Consolidated Statement of Financial Position data as of January 1, 2017 were as follows: Current assets:
226.1 million; Total assets: 356.4 million; Current liabilities: 155.2 million; Long-term borrowings: 6.3 million; Non-controlling interests: 3.4 million; Shareholders equity attributable to Natuzzi S.p.A. and
Subsidiaries: 140.6 million; Net Assets: 144.0 million.  3




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Exchange Rates The following table sets forth, for each of the periods indicated, the Noon Buying Rate for the Euro expressed in U.S. dollars per Euro.  Year:

Average(1)


At Period End2014


1.3210



1.21012015


1.1032



1.08592016


1.1029



1.05522017


1.1396



1.20222018


1.1785



1.1456Month ending on:

High


Low31-Oct-2018


1.1594



1.133230-Nov-2018


1.1459



1.128131-Dec-2018


1.1456



1.130031-Jan-2019


1.1524



1.132228-Feb-2019


1.1474



1.126831-Mar-2019


1.1376



1.1214Through April 19, 2019


1.1304



1.1186  (1)
The average of the Noon Buying Rates for the relevant period, calculated using the average of the Noon Buying
Rates on the last business day of each month during the period. Source: Federal Reserve Statistical Release on Foreign Exchange RatesHistorical Rates for Euro Area; Bloomberg (USCFEURO Index). The effective Noon Buying Rate on April 19, 2019 was U.S.$ 1.1246 to 1 Euro. Risk Factors Investing in the Companys ADSs involves certain risks. You should carefully consider each of the following risks and all of the
information included in this Annual Report. The Group has a recent history of losses; the Groups future profitability, financial
condition and ability to maintain adequate levels of liquidity depend, to a large extent, on its ability to overcome macroeconomic and operational challenges  In 2018, the Group reported a profit of 33.1 million, mainly as a result
of a 75.4 million gain following the finalization of the joint venture in China which occurred in July 2018. See Note 10 to the Consolidated Financial Statements included in Item 18 of this Annual Report. During the same year, the Group
reported an operating loss of 25.5 million. In 2017, the Group reported a loss of 30.8 million and an operating loss of 24.0 million, mainly resulting from both external factors and new operational challenges. See
Item 5. Operating and Financial Review and Prospects. During the 2013-2016 period, the Company implemented an intensive restructuring of its operations that led to an improving trend in its results. In 2017 and 2018, the Group concentrated its efforts on the expansion of the Groups retail network of monobrand stores, both directly
operated and franchised. This activity required significant upfront costs at both the regional and HQ level. Most of the newly opened mono-brand stores were not fully productive during the first months of their openings in 2017 and 2018 and,
therefore, investments in the retail and marketing organization were, at the beginning, not adequately returned by sales. While the Group expects the new directly-operated stores will progressively improve in productivity to absorb such up-front costs, there is a chance that these investments will not be recouped. As in previous years,
the Group continues to operate in a persistently difficult macroeconomic environment affecting the furniture industry (particularly evident in some mature markets, such as Europe), which includes weak economic activity in certain Euro-zone
countries.  4




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In response to this difficult macroeconomic environment, in 2014, the Group launched a
transformation plan which was aimed at restructuring the Groups operations, by reducing our Italian workforce. In 2017 and 2018, the Company faced redundant workforce related challenges. See Item 5. Operating and Financial Review and
Prospects. The Group may continue to be affected by difficult macroeconomic conditions and may face operational challenges going forward. In addition, during the last seven years, pursuant to our obligations under the Italian Reorganization Agreements (as defined in Item
10. Additional InformationMaterial Contracts below), the Group incurred aggregate financial obligations in the amount of  42.8 million (1.4 million, 16.9 million, 4.5 million,
4.5 million, 13.5 million, 1.4 million and 0.6 million for years 2018, 2017, 2016, 2015, 2014, 2013 and 2012, respectively) in connection with an incentive program aimed at reducing redundant employees. Despite these incentive payments, the Group increased its cash and cash equivalents from 52.5 million at the end of 2015 to
65.0 million at the end of 2016. This positive result was due to benefits deriving from the Transformation Plan and improvements in efficiency, trade receivables securitizations and other improvements in net working capital, despite
declining sales. 2016 was also characterized by an increase in financial credit lines that were initially granted by financial institutions in 2015 on both a short and long-term basis. In 2017, for the reasons highlighted above, cash and cash
equivalents decreased to 55.0 million from 65.0 million at the end of 2016. Groups Net Financial Position was equal to 3.3 million at the end of 2017, from 28.9 million in 2016. Groups Net
Financial Position was equal to 6.0 million at the end of 2018, from 3.3 million in 2017. In 2018, cash and cash equivalents were 62.1 million, mainly as a result of the joint venture signed in July 2018. See Item 5.
Operating and Financial Review and Prospects. Despite the challenges arising from the restructuring of our Italian operations,
management believes that the Group has a sufficient source of liquidity to fund working capital expenditures and other contractual obligations for the next 12 months. See Item 5. Operating and Financial Review and Prospects. The Group
has also faced increased labor costs for some of its manufacturing plants operating abroad. See Item 4. Information on the CompanyManufacturing for further information. Our results of operations and ability to maintain adequate levels of liquidity in the future will depend on our ability to overcome these and
other challenges. Our failure to achieve profitability in the future could adversely affect the trading price of our shares and our ability to raise additional capital and, accordingly, our ability to grow our business. There can be no assurance
that we will succeed in addressing any or all of these risks, and the failure to do so could have a material adverse effect on our business, financial condition and operating results. The Group has redundant workers at its Italian operations. This remains an unresolved issue and the management of such redundant workers
may not be successful and therefore, could significantly impact our operations, earnings and liquidity in the foreseeable future  In May 2017, the Italian Supreme Court rejected the Companys appeal of a lawsuit brought by two former
employees of the Company relating to the implementation of the Cassa Integrazione Guadagni Straordinaria (CIGS), an Italian temporary lay-off program, ruling in favor of the plaintiffs. As a result
of this decision, the Company accrued 9.3 million in the Provision for legal claims included in the Provisions (non current) caption of the Companys Statement of financial position. In addition, in October
2016 the Company laid off 176 workers as part of an organization restructuring, 166 of which were then re-employed in the second half of 2017 as the Bari Labor Court deemed the dismissals to have been carried
out improperly. In this regard, in December 2017, the Company reached an agreement with the Italian institutions representing these workers to extend the scope of the Solidarity Agreement (as defined below) in order to reduce the impact of the re-employments in 2018. In December 2018, subject to obtaining any applicable authorizations, the
Company, along with the Trade Unions and relevant Italian authorities, agreed to extend the current Solidarity Agreement (reduced-work schedules) for a one-year period ending in December 2019. In addition,
parties signed an agreement to allow the Company to benefit from a temporary workforce reduction program, involving up to 491 employees, for a period of 24 months, called CIGS Cassa Integrazione Guadagni Straordinaria, in order to
support the reorganization process. Furthermore, the parties involved agreed upon setting up an Incentive Plan for staff who would voluntarily terminate their employment relationship in 2019. For further information, please see Note 21 of the
Consolidated Financial Statements included in Item 18 of this Annual Report for 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.  5




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Global economic conditions may affect the Groups business and could significantly
impact our operations, sales, earnings and liquidity in the foreseeable future  Our sales volumes and revenues may be affected by overall general economic conditions. For example, a significant decline in the global economy, or in
consumers confidence could have a material adverse effect on our business. Deteriorating general economic conditions may affect disposable incomes and reduce consumer wealth, thus affecting client demand, which may negatively impact our
profitability and put downward pressure on our prices and volumes. Many factors, all of which are generally beyond our control, affect the level of consumer spending in the home furnishing industry, including the state of the economy as a whole,
stock market performance, interest and exchange rates, inflation, political uncertainty, the availability of consumer credit, tax rates, unemployment levels and other matters that influence consumer confidence. In general, sales of home furnishing
goods tend to decline during recessionary periods when the level of disposable income tends to be lower or when consumer confidence is low. We distribute our products internationally and we may be affected by downturns in general economic conditions
or uncertainties regarding future economic prospects that may affect the Countries in which we sell a significant portion of our products. In particular, the majority of our current sales are in the EU and in the United States; if we are unable to
expand in emerging markets, a downturn in mature economies, such as the EU and the United States, may negatively affect our results of operations and financial performance. More generally, there are many risks to the global macro-economic outlook in 2019, including (among other things) monetary policy uncertainty;
geopolitical tensions globally; political tensions in Europe; unsolved sovereign debt issues in many southern European countries; threats to globalization by renewed protectionism, including rising trade tensions stemming from between the U.S. and
China regarding trade relations and tariffs; the lack of progress in Brexit negotiations raising the risk of a disruptive exit with potential far-reaching consequences including the imposition of potential trade barriers, custom duties, logistic
issues and restrictions to the free movement of goods and people; high levels of government, corporate and consumer indebtedness in various countries (including high levels of indebtedness in emerging markets) and a potentially significant slowdown
in Chinese growth. In the EU, in particular, despite measures taken by several governments and monetary authorities to provide financial
assistance to certain Eurozone countries and to avoid default on sovereign debt obligations, concerns persist regarding the debt burden of several countries. These concerns, along with the significant fiscal adjustments carried out in several
countries, intended to manage sovereign credit risk, have led to further pressure on economic growth and may lead to new periods of recession. Furthermore, a resurgence of the sovereign debt crisis in Europe could diminish the banking
industrys ability to lend to the real economy, thus creating a negative spiral of declining production, higher unemployment and a weakening financial sector. In addition, uncertainties regarding future trade arrangements and industrial policies in various countries, such as in the United Kingdom
following the referendum to leave the European Union and in the United States under the current administration, create additional macroeconomic risk. In the United States, any policy to discourage import into the United States of home furnishings
manufactured elsewhere could adversely affect our operations. Any new policies and any steps we may take to address such new policies may have an adverse effect on our business, financial condition and results of operations. These difficult and uncertain conditions could continue to affect our sales and earnings in the future. Sales of residential furniture are
impacted by downturns in the general economy primarily due to decreased discretionary spending by consumers. Adverse economic conditions
may also affect the financial health and performance of our dealers in a manner that will affect sales of our products or their ability to meet their commitments to us. Economic downturn may also affect retailers, our primary customers, and may
result in the inability of our customers to pay the amounts owed to us. In addition, if our retail customers are unable to sell our products or are unable to access credit, they may experience financial difficulties leading to bankruptcies,
liquidations, and other unfavorable events. If any of these events occur, or if unfavorable economic conditions continue to challenge the consumer environment, our future sales, earnings, and liquidity would likely be adversely impacted. The Groups ability to generate the significant amount of cash needed to service our debt obligations and comply with our other
financial obligations, and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on multiple factors, many of which may be beyond our control  Our ability to make scheduled payments due on our
existing and anticipated debt obligations and on our other financial obligations, and to refinance and to fund planned capital expenditure and development efforts will depend on our ability to generate cash. See  The Group has a
recent history of losses; the Groups future profitability, financial condition and ability to maintain adequate levels of liquidity depend to a large extent on its ability to overcome macroeconomic and operational challenges. We will
need to generate sufficient operating cash flow from our operations to service our current and future projected indebtedness. Our ability to obtain cash to service our existing and projected debts is subject to a range of economic, financial,
competitive, legislative, regulatory, business and other factors, many of which are beyond our control. We may not be able to generate sufficient cash flow from our operations to satisfy our existing and projected debt and other financial
obligations, in which case, we may have to undertake alternative financing plans, sell assets, reduce or delay capital investments, or seek to raise additional capital on terms that may be onerous or highly dilutive. Our ability to refinance our
indebtedness will depend on the financial markets and our financial condition at such time. To the extent we have borrowings under bank overdrafts and short-term borrowings that are payable upon demand or which have short maturities to repay or
refinance such amounts on short notice, which may be difficult to do on acceptable financial terms or at all.  6




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At December 31, 2018, we had 35.1 million of bank overdraft and short-term
borrowings outstanding. In addition, while we had 62.1 million of cash and cash equivalents at December 31, 2018, 29.4% of this amount was held by our Chinese subsidiaries, which can be paid to us incurring withholding taxes. We
cannot assure you that any refinancing or restructuring would be possible, that any assets could be sold, or, if sold, of the timing of the sales or the amount of proceeds that would be realized from those sales. We cannot assure you that additional
financing could be obtained on acceptable terms, if at all, or would be permitted under the terms of our various debt instruments then in effect. Our failure to generate sufficient cash flow to satisfy our existing and projected debt obligations, or
to refinance our obligations on commercially reasonable terms, would have an adverse effect on our business, financial condition and results of operations. The Company uses a securitization program to manage liquidity risk. Should such program be terminated, the Companys ability to manage
such risk will be impaired  As a means to manage liquidity risk, in July 2015, the Company entered into a non-recourse securitization agreement (the Securitization Agreement) with an
affiliate of Banca Intesa (the Assignee). Under the Securitization Agreement, the Company assigns certain customer receivables to the Assignee in exchange for short-term credit, thereby providing the Company with an important and stable
source of short-term funding. The Companys ability to continue using this tool to mitigate liquidity risk depends on the assigned receivables meeting certain credit criteria, one such criterion being the continued solvency of the customers
owing such receivables. If these criteria are not met, including, for example, because the credit quality of the Companys customers deteriorates, the Securitization Agreement may be terminated, thereby depriving the Company of an important
tool for managing liquidity risk. The Groups operations have benefited in 2018 and in previous years from
temporary work force reduction programs that, if not continued, may have an impact on the Groups future performance  Due to the persistently difficult business environment that has negatively affected the Groups
sales performance over the years, the Company has in recent years entered into a series of agreements with Italian trade unions and the relevant Italian Ministry pursuant to which government funds have been used to pay a substantial portion of the
salaries of redundant workers who are subject to either layoffs (as in the case of Cassa Integrazione Guadagni Straordinaria, or CIGS, an Italian temporary lay-off program) or reduced work
schedules (as in the case of the Solidarity Agreement, as defined below). The agreements signed in recent years have been important.
Between October 2013 and October 2015, 500 blue collar workers voluntarily terminated their employment with Company, which led to a gradual reduction of redundant structural staff. On March 3, 2015, the Minister of Labour and Social Politics signed new agreements in order to reduce the redundant staff by reducing the
working hours per day (the Solidarity Agreement). Pursuant to the Solidarity Agreement, a higher number of workers, as compared to the Companys current need, may continue to work at the Company, though with a salary reduction that
is less than proportional to the reduction in working hours (as a result of government financial support). On March 22, 2016, the Solidarity Agreement was extended for a one-year period, expiring on
May 1, 2017. On March 27, 2017, the Company and the trade unions involved agreed to extend the Solidarity Agreement until December 2018. In 2017, the Company had to reintegrate 166 workers by carrying out the reinstatement measures of the Bari Labour Court that canceled the
October 2016 dismissals. The impact of the reintegration of these 166 workers was managed by the Company through the signing of a new
Solidarity Agreement, with the Minister of Labor and Social Politics and trade unions, which extends to all employees, including reintegrated workers. In December 2018, subject to obtaining any applicable authorizations, the Company, along with the Trade Unions and Italian relevant
authorities agreed to extend the Solidarity Agreement (reduced-work schedules) in force for a one-year period ending in December 2019. In addition, parties signed an agreement to allow the Company to benefit
from a temporary workforce reduction program, called CIGS, involving up to 491 employees, for a period of 24 months in order to support the reorganization process. For further information, please see Item 5. Operating and Financial Review and
Prospects. The Companys inability to continue reducing redundant structural staff could have an adverse effect on our
financial condition, results of operations, and cash flows. The Groups operations may be adversely impacted by
strikes, slowdowns and other labor relations matters Many of our employees, including many of the laborers at our Italian plants, are unionized and covered by collective bargaining agreements. As a result, we are subject to the risk
of strikes, work stoppages or slowdowns and other labor relations matters, particularly in our Italian plants.  7




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Any strikes, threats of strikes, slowdowns or other resistance in connection with our
reorganization plan, the negotiation of new labor agreements or otherwise could adversely affect our business as well as impair our ability to implement further measures to reduce structural costs and improve production efficiencies. A lengthy
strike that involves a significant portion of our manufacturing facilities could have an adverse effect on our financial condition, results of operations, and cash flows. We may not execute our Budget, successfully or in a timely manner, which could have a material adverse effect on our results of operations
or on our ability to achieve the objectives set forth in our plans On February 8, 2019, the Board of Directors adopted a budget for 2019. As set out in this Budget, we expect a slight return to profitability, by consolidating
investments made in the retail business through the expansion of our mono-brand stores (either directly or franchised operated) as well as focusing primarily on a few selected primary customers with reference to our unbranded business, while
continuing to implement efficiency recovery actions in manufacturing and supply chain and a general cost control activity. The profitability of our operations depends on the successful and timely execution of the Budget. The failure to successfully
and timely achieve these objectives could result in a failure to reduce costs and improve sales and, hence, generate losses for the Group. A failure to offer a wide range of products that appeal to consumers in the markets we target and at different price-points could result in
a decrease in our future profitability  The Groups sales depend on our ability to anticipate and reflect consumer tastes and trends in the products we sell in various markets around the world, as well as our ability to offer our
products at various price points that reflect the spending levels of our target consumers. While we have broadened the offering of our products in terms of styles and price points over the past several years in order to attract a wider base of
consumers, our results of operations are highly dependent on our continued ability to properly anticipate and predict these trends. The potential inability of the Group to anticipate consumer tastes and preferences in the various markets in which we
operate, and to offer these products at prices that are competitive to consumers, may negatively affect the Groups ability to generate future earnings. In addition, with the vast majority of our revenue deriving from the sale of leather-upholstered furniture, consumers have the choice of
purchasing upholstered furniture in a wide variety of styles and materials, and consumer preferences may change. There can be no assurance that the current market for leather-upholstered furniture will grow consistent with our internal projections
or that it will not decline. Demand for furniture is cyclical and may fall in the future Historically, the furniture
industry has been cyclical, fluctuating with economic cycles, and sensitive to general economic conditions, housing starts, interest rate levels, credit availability and other factors that affect consumer spending habits. Due to the discretionary
nature of most furniture purchases and the fact that they often represent a significant expenditure to the average consumer, such purchases may be deferred during times of economic uncertainty such as those being recently experienced in some of our
markets, such as Europe, or the United States some years ago. The furniture market is highly competitive The Group operates
in a highly competitive industry that includes a large number of manufacturers. No single company has a dominant position in the industry. Competition is generally based on product quality, brand name recognition, price and service. The Group principally competes in the upholstered furniture sub-segment of the furniture market. In
Europe, the upholstered furniture market is highly fragmented. In the United States, the upholstered furniture market includes a number of relatively large companies, some of which are larger and have greater financial resources than the Group. Some
of the Groups competitors offer extensively advertised, well-recognized branded products. Competition has increased significantly
in recent years as foreign producers from countries with lower manufacturing costs have begun to play an important role in the upholstered furniture market. Such manufacturers are often able to offer their products at lower prices, which increases
price competition in the industry. In particular, manufacturers in Asia and Eastern Europe have increased competition in the lower-priced segment of the market. As a result of the actions and strength of the Groups competitors and the inherent
fragmentation in some markets in which it competes, the Group is continually subject to the risk of losing market share, which may lower its sales and profits. Market competition may also force the Group to reduce prices and margins, thereby negatively affecting its cash flows. The highly competitive nature of the industry means that we are constantly at risk of losing market share, which would likely result in a loss
of future sales and earnings. In addition, due to high levels of competition, it may not be possible for us to raise the prices of our products in response to inflationary pressures or increasing costs, which could result in a decrease in our profit
margins.  8




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We have identified a material weakness in our internal control over financial reporting
which, if not remediated, could have a material adverse effect on our reputation, business or ADS price In reviewing the accounting for the significant unusual transaction (SUT) we completed in 2018 as part of a joint venture
agreement with Kuka Furniture (Ningbo) Co., Ltd. (Kuka) (see Note 10 to our consolidated financial statements included in Item 18 of this Annual Report on Form 20-F), our management identified a deficiency in the effectiveness of our
internal control over financial reporting. The deficient internal control was intended to properly document and review (i) the appropriate accounting under IFRS of the recognition of revenue from the licensing of Natuzzis trademarks to the
joint venture Natuzzi Trading Shanghai (IFRS 15, B58) and (ii) the appropriate classification under IFRS of Natuzzi Trading Shanghai as a joint venture of Natuzzi S.p.A. As described under Item 15. Controls and Procedures, an inappropriate accounting policy was identified and corrected before
finalization and publication of our unaudited consolidated results as at and for the three months and full year ended December 31, 2018. Nonetheless, our management has concluded that the deficiency constitutes a material weakness in our internal
control over financial reporting and, as a result, internal control over financial reporting was not effective as at December 31, 2018. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We cannot assure you
that additional material weaknesses in our internal control over financial reporting will not arise in the future. We have developed a
plan to remediate this material weakness and believe, based on our evaluation to date, that this material weakness will be remediated on a timely basis in 2019. Nevertheless, we cannot assure you that this will occur within the contemplated
timeframe. If we are unable to remediate the material weakness, our ability to record, process and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and forms of the
Securities and Exchange Commission, could be adversely affected. The occurrence of or failure to remediate the material weakness may, in the event of similar significant unusual transactions in the future, have a material adverse effect on our
reputation and business and the market price of our ADSs and any other securities we may issue. Fluctuations in currency exchange
rates and interest rates may adversely affect the Groups results  The Group conducts a substantial part of its business outside of the Euro-zone and is exposed to market risks stemming from fluctuations in currency and interest
rates. In particular, an increase in the value of the Euro relative to other currencies used in the countries in which the Group operates has in the past, and may in the future, reduce the relative value of the revenues from its operations in those
countries, and therefore may adversely affect its operating results or financial position, which are reported in Euro. In addition to this risk, the Group is subject to currency exchange rate risk to the extent that its costs are denominated in
currencies other than those in which it earns revenues. In 2018, 64% of the Groups revenue and almost 46% of its costs were denominated in currencies other than the Euro. The Group also holds a substantial portion of its cash and cash
equivalents in currencies other than the Euro, including a large amount in Chinese Yuan (CNY or RMB, hereafter) received as compensation for the relocation of its Chinese manufacturing plant in 2011. The Group is therefore exposed to the risk that
fluctuations in currency exchange rates may adversely affect its results, as has been the case in recent years. During 2018 through the first part of 2019, the foreign exchange markets have been subject to a high degree of volatility, with the Euro
currency strengthening over the major currencies, US dollar in particular, in which the Group sells its products. In addition, foreign
exchange movements might also negatively affect the relative purchasing power of our clients which could also have an adverse effect on our results of operations. Although we seek to manage our foreign currency risk in order to minimize negative effects from rate fluctuations, including through hedging
activities, there can be no assurance that we will be able to do so successfully. Therefore, our business, results of operations and financial condition could be adversely affected by fluctuations in market rates, particularly if these highly
volatile market conditions persist. In the normal course of business, the Group also faces risks that are either non-financial or non-quantifiable. Such risks principally include country risk, credit risk and legal risk. For more information about currency and interest rates risks, see
Item 11, Quantitative and Qualitative Disclosures about Market Risk. The Group faces risks associated with its
international operations  The Group is exposed to risks arising from its international operations, including changes in governmental regulations, tariffs or taxes and other trade barriers, price, wage and currency exchange controls,
political, social, and economic instability in the countries where the Group operates, inflation and exchange rate and interest rate fluctuations. Any of these factors could have a material adverse effect on the Groups results. The Groups past results and operations have significantly benefited from government incentive programs, which may not
be available in the future  Historically, the Group derived significant benefits from the Italian Governments investment incentive programs for under-industrialized regions in Southern Italy, including tax benefits, subsidized loans
and capital grants. See Item 4. Information on the CompanyIncentive Programs and Tax Benefits. In recent years, the Italian Parliament replaced these incentive programs with an investment incentive program for all
under-industrialized regions in Italy, which is currently being implemented by the Group through grants, research and development benefits. There are no indications at this time that the Italian Government will implement new initiatives to support
companies located in under-industrialized regions in Italy. Therefore, there can be no assurance that the Group will continue to be eligible for such grants, benefits or tax credits for its current or future investments in Italy. The Group has opened manufacturing operations in China, Brazil and Romania and in some cases was granted tax benefits and export incentives by
the respective governmental authorities in those countries. There can be no assurance that the Group will benefit from such tax benefits or export incentives in connection with future investments. Failure to protect our intellectual property rights could adversely affect us We believe that our intellectual property rights
are important to our success and market position. We attempt to protect our intellectual property rights through a combination of patent and trademark laws, as well as licensing agreements and third party nondisclosure and assignment agreements or
confidentiality and restricted use agreements. We believe that our patents, trademarks and other intellectual property rights are adequately supported by applications for registrations, existing registrations and other legal protections in our
principal markets. However, we cannot exclude the possibility that our intellectual property rights may be challenged by others or that agreements designed to protect our intellectual property will not be breached, or that we may be unable to
register our patents, trademarks or otherwise adequately protect them in some jurisdictions. The Company relies on information
technology to operate its business, and any disruption to its technology infrastructure could harm the Companys operations  We operate many aspects of our business including financial reporting, and customer
relationship management through server and web-based technologies. We store various types of data on such servers or with third-parties who in turn store it on servers and in the cloud. Any
disruption to the internet or to the Companys or its service providers global technology infrastructure, including malware, insecure coding, Acts of God,  9




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attempts to penetrate networks, data theft or loss and human error, could have adverse effects on the Companys operations. A cyber attack of our systems or networks that impairs our
information technology systems could disrupt our business operations and result in loss of service to customers. We have a Business Continuity Plan and cybersecurity test designed to protect and preserve the integrity of our information technology
systems and the business continuity. Our ability to keep our business operating effectively depends on the functional and efficient operation of our information, data processing and telecommunications systems, including our design, procurement,
manufacturing, inventory, sales and payment process. While we have invested and continue to invest in information technology risk management, cybersecurity and disaster recovery plans, these measures cannot fully insulate the Company from technology
disruptions or data theft or loss and the resulting adverse effect on the Companys operations and financial results. The price
of the Groups principal raw materials is difficult to predict  In 2018, 83% of the Groups total upholstered net sales came from leather-upholstered furniture sales. The acquisition of cattle hides represented approximately 18%
of 2018 total cost of goods sold. The dynamics of the raw hides market are dependent on the consumption of beef, the levels of worldwide slaughtering, worldwide weather conditions and the level of demand in a number of different sectors, including
footwear, automotive, furniture and clothing. The Group is dependent on qualified personnel The Groups ability to
maintain its competitive position will depend to some considerable degree upon the personal commitment of its founder, chief executive officer (CEO) and chairman of the Companys board of directors (the Board of
Directors), Mr. Pasquale Natuzzi, as well as on its ability to continue to attract and maintain highly qualified managerial, manufacturing and sales and marketing personnel. There can be no assurance that the loss of key personnel would
not have a material adverse effect on the Groups results of operations. Changes in tax laws may affect our results We are subject to income taxes in Italy and other jurisdictions. Changes in tax laws, regulations, or administrative practices in those jurisdictions, such as the recently-enacted U.S. tax reform legislation commonly referred to as
the U.S. Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act) could affect our financial position and results of operations. The 2017 Tax Act has significantly changed the U.S. federal income tax rules applicable to U.S. corporations,
including by reducing the maximum statutory corporate income tax rate from 35% to 21% as of January 1, 2018. Accounting for the income tax effects of the 2017 Tax Act requires significant judgments in interpretation of its provisions,
which may be affected by additional guidance that may be issued by the U.S. Treasury Department, the IRS, and standards-setting bodies. We have completed our evaluation of the impact of the 2017 Tax Act on our U.S. operations and no material
impact has arisen for the 2017 and 2018 financial statements. Investors may face difficulties in protecting their rights as
shareholders or holders of ADSs  The Company is incorporated under the laws of the Republic of Italy. As a result, the rights and obligations of its shareholders and certain rights and obligations of holders of its ADSs (as defined below)
are governed by Italian law and the Companys statuto (or the By-laws). These rights and obligations are different from those that apply to U.S. corporations. Furthermore, under Italian law,
holders of ADSs have no right to vote the shares underlying their ADSs; however, pursuant to the Deposit Agreement (as defined below), ADS holders do have the right to give instructions to BNY Mellon, National Association (BNY or the
Depositary) the ADS depositary, as to how they wish such shares to be voted. For these reasons, the Companys ADS holders may find it more difficult to protect their interests against actions of the Companys management, board
of directors or shareholders than they would if they were shareholders of a company incorporated in the United States. One shareholder
has a controlling stake of the Company  Mr. Pasquale Natuzzi, who founded the Company and is currently CEO and chairman of the Board of Directors, beneficially owns, as of April 19, 2019, an aggregate amount of 30,967,521ordinary shares of the Company (the Ordinary Shares), representing 56.5% of the Ordinary Shares outstanding (61.6% of the Ordinary Shares outstanding if the Ordinary Shares owned by members of Mr. Natuzzis immediate
familythe Natuzzi Familyare aggregated). As a result, Mr. Natuzzi has the ability to exert significant influence over our corporate affairs and to control the Company, including its management and the selection of its
board of directors. Since December 16, 2003, Mr. Natuzzi has held his entire beneficial ownership of Natuzzi S.p.A. shares through INVEST 2003 S.r.l., an Italian holding company wholly-owned by Mr. Natuzzi and with its registered
office located at Via Gobetti 8, Taranto, Italy. In addition, under the Deposit Agreement dated as of May 15, 1993, as amended and
restated as of December 23, 1996, and as of December 31, 2001 (the Deposit Agreement), among the Company, the Depositary, and owners and beneficial owners of American Depositary Receipts (ADSs), the Natuzzi Family
has a right of first refusal to purchase all the rights, warrants or other instruments which BNY Mellon, as Depositary under the Deposit Agreement, determines may not lawfully or feasibly be made available to owners of ADSs in connection with each
rights offering, if any, made to holders of Ordinary Shares.  10




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Because a change of control of the Company would be difficult to achieve without the
cooperation of Mr. Natuzzi and the Natuzzi Family, the holders of the Ordinary Shares and the ADSs may be less likely to receive a premium for their shares upon a change of control of the Company. Purchasers of our Ordinary Shares and ADSs may be exposed to increased transaction costs as a result of the Italian financial transaction
tax or the proposed European financial transaction tax On February 14, 2013, the European Commission adopted a proposal for a directive on the financial transaction tax (hereafter EU FTT) to be implemented under the
enhanced cooperation procedure by eleven Member States initially (Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia, Slovakia and Spain). Following Estonias formal withdrawal on March 16, 2016, ten Member
States are currently participating in the negotiations on the proposed directive. Member States may join or leave the group of participating Member States at later stages and, subject to an agreement being reached by the participating Member States,
a final directive will be enacted. The participating Member States will then implement the directive in local legislation. If the proposed directive is adopted and implemented in local legislation, investors in Ordinary Shares and ADSs may be
exposed to increased transaction costs. The Italian financial transaction tax (the IFTT) applies with respect to trades
entailing the transfer of (i) shares or equity-like financial instruments issued by companies resident in Italy, such as the Ordinary Shares; and (ii) securities representing the shares and financial instruments under (i) above
(including depositary receipts such as the ADSs), regardless of the residence of the issuer. The IFTT may also apply to the transfer of Ordinary Shares and ADSs by a U.S. resident. The IFTT does not apply to companies having an average market
capitalization lower than 500 million in the month of November of the year preceding the year in which the trade takes place. In order to benefit from this exemption, companies whose securities are listed on a foreign regulated market,
such as the Company, need to be included on a list published annually by the Italian Ministry of Economy and Finance. The Company is not included in the list published on December 19, 2018 for transactions to be carried out in 2019. As a result
of the IFTT, investors in the Ordinary Shares and ADSs may be exposed to increased transaction costs. See TaxationOther Italian TaxesThe Italian Financial Transaction Tax. ITEM 4. INFORMATION ON THE COMPANY Introduction History and development of the company  Founded in 1959 by Pasquale Natuzzi, Natuzzi S.p.A. is Italys largest furniture
house and one of the most important global player in the furniture industry with an extensive manufacturing footprint and a global retail network. Natuzzi is the best known lifestyle brand in the global furniture industry (Brand Awareness Monitoring
ReportIpsos 2016). Continuous stylistic research, creativity, innovation, solid craftsmanship and industrial know-how and integrated management throughout the entire value chain are the mainstays that
have made Natuzzi one of the few players with global reach in the furniture market. Natuzzi S.p.A. has been listed on the New York Stock Exchange since May 13, 1993. Always committed to social responsibility and environmental sustainability,
Natuzzi is ISO 9001 and 14001 certified (Quality and Environment), OHSAS 18001 certified (Safety on the Workplace) and FSC® certified (Forest Stewardship Council). The Company first targeted the U.S. market in 1983 and subsequently began
entering other European markets. Natuzzi continues to focus its attention on Brazil, Russia, India, China and other developing markets. Currently, the distribution network covers approximately 100 countries on five continents. The brand portfolio of the Group is made of three main brands: Natuzzi Italia, Natuzzi Editions and Divani&Divani by
Natuzzi. For a detailed description of the brand and its target markets, please see StrategyThe Brand Portfolio Strategy and Products below. The Group also offers unbranded products (also through its private label,
Softaly) within a dedicated business unit to meet the specific needs of key accounts. As of March 31, 2019, the Group distributed
its products as follows:  
Natuzzi Italia: 220 Natuzzi Italia stores (of which 39 are directly operated by the
Group), 12 Natuzzi Italia concessions (store-in-store points of sale, directly managed by the Mexican subsidiaries of the Group, having closed in the first part of 2019 all the concessions managed by the Companys subsidiary
located in the UK), and Natuzzi Italia galleries (store-in-store points of sales managed by independent partners). The Natuzzi Re-vive® is an iconic product of Natuzzi Italia that is sold and distributed in over 80 different markets.  11




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
Natuzzi Editions: 257 stores (of which 15 are located in Italy through the
Divani&Divani by Natuzzi retail chain directly managed by the Group) and galleries.  
Private label: includes our unbranded and Softaly products and is currently marketed in North America,
Europe, Brazil and the Asia-Pacific region principally through a selected number of furniture retailers. The Natuzzi
Group presents its products at the worlds leading furniture fairs: Il Salone del Mobile in Milan, Italy, IMM in Cologne, Germany, Furniture Market in High Point, North Carolina, U.S., 100% Design in London, United
Kingdom, among others. On June 7, 2002, the Company changed its name from Industrie Natuzzi S.p.A. to Natuzzi S.p.A. The
statuto (or the By-laws) of the Company provide that the duration of the Company is until December 31, 2050. The Company, which operates under the trademark Natuzzi, is a
societàper azioni (joint stock company) organized under the laws of the Republic of Italy and was incorporated in 1959 by Mr. Pasquale Natuzzi, who is currently the CEO, chairman of the Board of Directors and
controlling shareholder of the Company. Most of the Companys operations are carried out through various subsidiaries that individually conduct a specialized activity, such as leather processing, foam production and shaping or furniture
manufacturing. The Companys principal executive offices are located at Via Iazzitiello 47, 70029 Santeramo in Colle, Italy, which
is approximately 25 miles from Bari, in southern Italy. The Companys telephone number is: +39 080 882-0111. The Companys general sales agent subsidiary in the United States is Natuzzi
Americas, Inc. (Natuzzi Americas), located at 130 West Commerce Avenue, High Point, North Carolina 27260. Natuzzi Americas telephone number is: +1 336 887-8300. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC. The address of that site is www.sec.gov. The Companys Internet address is natuzzi.com  12




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Organizational Structure Natuzzi S.p.A. is the parent company of the Natuzzi Group. As of March 31, 2019, the Companys principal operating subsidiaries
were:  Name

Percentage ofownership


Registered office

ActivityItalsofa Nordeste S/A


100.00


Salvador de Bahia, Brazil


(1
)Natuzzi (China) Ltd.


100.00


Shanghai, China


(1
)Italsofa Romania S.r.l.


100.00


Baia Mare, Romania


(1
)Natco S.p.A.


99.99


Santeramo in Colle, Italy


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


100.00


Bari, Italy


(3
)Nacon S.p.A.


100.00


Santeramo in Colle, Italy


(4
)Lagene S.r.l.


100.00


Santeramo in Colle, Italy


(4
)Natuzzi Americas Inc.


100.00


High Point, North Carolina, USA


(4
)Natuzzi Iberica S.A.


100.00


Madrid, Spain


(4
)Natuzzi Switzerland AG


100.00


Dietikon, Switzerland


(4
)Natuzzi Germany Gmbh


100.00


Köln, Germany


(4
)Natuzzi Japan KK


100.00


Tokyo, Japan


(4
)Natuzzi Services Limited


100.00


London, UK


(4
)Natuzzi Russia OOO


100.00


Moscow, Russia


(4
)Natuzzi India Furniture PVT Ltd.


100.00


New Delhi, India


(4
)Natuzzi Florida LLC


51.00


High Point, North Carolina, USA


(4
)Natmex S.DE.R.L.DE.C.V


99.00


Mexico City, Mexico


(4
)Natuzzi France S.a.s.


100.00


Paris, France


(4
)Softaly (Furniture) Shanghai Co. Ltd.


96.50


Shanghai, China


(4
)Natuzzi Netherlands Holding


100.00


Amsterdam, Holland


(5
)New Comfort S.r.l.


100.00


Santeramo in Colle, Italy


(6
)Italsofa Shanghai Ltd.


96.50


Shanghai, China


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


100.00


Santeramo in Colle, Italy


(6
)Natuzzi Oceania PTI Ltd.


100.00


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 See item 18 of this Annual Report for further information on the Companys subsidiaries. Strategy Over the last several years, the Group has focused its efforts on brand strengthening, expanding its product offering and retail network, and
efficiency improvements in both procurement and operations. At the same time, the Group has implemented cost control measures to streamline its headquarter related costs. Additionally, we launched a new Group organization in July 2016 based on two business models and two Divisions (Natuzzi Division and Softaly
Division). Such strategy has stayed consistent throughout 2017 and 2018. 1) The Natuzzi Division  The Natuzzi Division has
further developed its strategy as a widely-recognized, global consumer brand whose footprint has existed for the past 10 years. In 2018
the Natuzzi Division executed its plan to evolve into a direct-to-consumer business model, both organizationally and operationally. First of all, a new consumer-centric organization has been established to drive the entire go-to-market process, from R&D to design, merchandising, brand communication, customer acquisition and customer value, supply chain, after sales service and customer retargeting.  13




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With regard to customer acquisition worldwide, the direct-to-consumer business model has been accelerated through a wide set of actions, which included:  
fine tuning the retail format  
scaling the retail format of Natuzzi Italia stores in USA, EMEA and China;  
launching the retail format of Natuzzi Editions stores also in EMEA and USA;  
redesigning the retail format of Divani&Divani by Natuzzi stores and preparing an accelerated
expansion in 2019.  
evolving the Merchandising Strategy of each format, in order to maximize both margins by product
category and sales per square foot;  
launching new Brand campaigns for each brand;  
reaching out to consumers through the digital engagement, which includes:  
corporate websites for each brand;  
social media and digital campaigns;  
a cutting-edge HD 3D product configurator, both online and in-store;  
evolving the marketing strategy from price-driven into value-driven promotions, which contributed to
lower discounts and higher margins;  
redesigning the store experience across each format, in terms of layout, customer journey and visual
merchandising;  
rolling-out the selling ceremonies for retail excellence,
which includes:  
customer engagement;  
higher customer acquisition (conversion rate);  
higher customer value (average purchase / average ticket);  
rolling-out a trade program to engage interior designers,
architects and real estate developers, which contributed to enlarging the customer audience and increasing the value of average purchases;  
setting the foundations of Customer Retargeting (CRM), which has been launched in 2018;  
accelerating the upgrade of the existing third-party wholesale distribution network, by closing those
accounts which did not fit with our consumer brand strategy;  
operating the existing retail network more efficiently with the aim of deliveringenhanced like-for-like (i.e., considering points of sale in operation during the comparable period of both 2019 and 2018) growth and overall profitability against 2018. The execution of the above strategy is set to continue and be strengthened during 2019, in order to further nurture and
protect the Brand identity of each brand while strengthening the evolution towards a direct-to-consumer business model. 2) The second division is Softaly, our private label business, offering leather upholstery to the largest worldwide wholesalers
at a medium/low-end of the market. Softaly is the Groups manufacturing project that devotes its foreign plants to the business and customers at large retailers and department store resellers. This
segment of the market is exposed to any other competition offering uniquely a product value at specific markets price positionings, which clearly affects our margins. In order to get higher efficiencies, economies of scale and
recover competitiveness in this division, we will continue to be focused on simplifying the Softaly industrial project, re-engineering most of the Softaly models and developing new models according
to modular platform bases. Having gone through this process over the past year, we recently presented a new collection during the latest exhibitions in Europe and the U.S. In 2018, the Softaly division grew in line with our expectation both in the
Asia-Pacific and EMEA region, whereas in the North American region it kept suffering from a downsizing and decline in sales of the most important key retailers in that specific region combined with the Tariffs impact on the 4th Q18.  14




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The Companys plan for this division is to focus on a few selected primary customers. The implementation of these initiatives is a gradual process; therefore, immediate results are not expected. The Brand Portfolio Strategy  The Natuzzi Group, through its three brands, competes in all price segments of the upholstered
furniture market with an increasingly important offer of furnishings and accessories. Precise market segmentation, clear brand
positioning and clearly defined customer and consumer targets are intended to enhance the Groups competitive strengths in all market segments to gain market share through its different product lines: a)Natuzzi Italiais sold mainly through the retail channel in monobrand stores, concessions and galleries in multi-brand
specialized stores and high-end department stores. The offer includes sofas designed and manufactured in Italy at the Companys factories, positioned in the high end of the market, with unique and
customized materials, workmanship and finishes thanks to the Natuzzi heritage of fine craftsmanship in the leather sofas segment. The Natuzzi Italia product line includes furnishings and accessories for the living room and beds, bed linens
and bedroom furnishings to further expand its product offerings. b)Natuzzi Editions was initially designed
specifically for the U.S. market. This collection includes a wide range of leather upholstery products, targeting the medium/medium-high segment of the market and leveraging the know-how and high credibility
of the Natuzzi brand in the leather upholstery industry. Natuzzi Editions products are manufactured at the Groups overseas plants (Romania, China and Brazil), as well as in Italy, and are sold through monobrand stores and galleries. The
retail and merchandising format of Natuzzi Editions has evolved and now includes a wider offering of furnishings. c)Divani&Divani by Natuzzi represents the branded retail network of the Group in the Italian market, made of both direct-owned stores and franchised stores. Private label (Softaly division) is a key account program to compete mainly in the entry price segments of the market by conducting
business mainly through large distributors. Improvement of the Groups Retail Program and Brand Development
 The Group has made significant investments to improve its existing distribution network and strengthen its Natuzzi brand. The high level of recognition of the Natuzzi brand among high-end consumers
is the result of investments the Company has made over the past decade in its products, communication, store experience and customer service. This consumer brand awareness encourages the Company to carry on its brand development and further
enhancement of the Groups distribution network, in order to further increase consumers familiarity with the Natuzzi brand, and their association of it as a high-end brand.  15




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During 2018, the Group opened 36Natuzzi Italia stores, 15 of which are located in
China, 3 in the USA, 4 in United Kingdom, 2 in France, 1 in Italy, 1 in Brazil, 10 in other markets worldwide. Natuzzi Editions as
well as the Divani&Divani by Natuzzi retail chains are characterized by a medium positioning in the upholstery business. During 2018, the Group opened 56 Natuzzi Editions (40 of which in China) as well as 5 Divani&Divani by
Natuzzi stores. Product Diversification and Innovation  The Group believes that it is crucial to display a coordinated
product mix through its harmony maker offer. The harmony maker offer is a branded package in accordance with the latest trends in design, materials and colors, and includes high quality sofas, furnishings (including wall
units, dining tables and chairs) and accessories, all of which are developed mainly in-house and presented in harmonious and personalized solutions. The Group has taken a number of steps to broaden its product
lines, including the development of new models, such as modular and motion frames, and the introduction of new materials and colors, including exclusive fabrics and microfibers. The Group believes that expanding its harmony maker offer
will strengthen its relationships with the worlds leading distribution chains, which are interested in offering branded packages. The Group has also continued investing in the Natuzzi Style Center in Santeramo in Colle, Italy, to serve as a
creative hub for the Groups design activities. Manufacturing Our manufacturing facilities are located in China, Romania, Brazil and Italy. Our Chinese plant is located in Shanghai, extending over 88,000 square meters, and has been in operation since 2011. As of December 31,
2018, our Chinese plant employed 992 people, of whom 916 were laborers. It manufactures Natuzzi Editions and private label products for the Americas (apart from South America) and for the Asia-Pacific market. In 2018, the Chinese plant
produced about 32% of the Groups total consolidated upholstery revenue. Our Romanian plant is located in Baia Mare, extending over
75,600 square meters, and has been in operation since 2003. As of December 31, 2018, our Romanian plant employed 1,009 people, of whom 946 were laborers. It produces Natuzzi Editions and private label products for EMEA. In 2018, the
Romanian plant produced about 16% of the Groups total consolidated upholstery revenue. Our Brazilian plant is located in Salvador
De Bahia, extending over 28,700 square meters, and has been in operation since 2000. As of December 31, 2018, our Brazilian plant employed 232 people, of whom 172 were laborers. Since the end of 2016, in addition to Natuzzi Revive, Natuzzi Editions and Private Label, the Brazilian plant also produces the Natuzzi
Italia brand for the Brazil and South America market. During 2017, due to the increase in production volumes, a fourth and fifth moving line have been set up. The Group previously owned a Brazilian plant located in Pojuca, which it sold in 2015.
For further information on the sale of the Pojuca plant, see  ManufacturingBrazilian Production below. Our
three Italian plants dedicated to the production of upholstered products and two warehouses are located in Santeramo Jesce, Matera Jesce and Laterza, all of which are located either in or within a 25 kilometer radius of Santeramo in Colle, where the
Groups headquarters are located. Collectively these sites extend over 120,000 square meters. As of December 31, 2018, these sites employed 1,570 workers, the majority of whom were subject to the layoff program. See Item 6.
Directors, Senior Managers and EmployeesEmployees. With the exception of our Brazilian and South American markets, the Italian plants are the exclusive producers of Natuzzi Italia products for the world market and, beginning in
the first quarter of 2014, these plants began producing the Re-vive performance recliner. In 2018, these plants generated about 47% of the Groups total consolidated upholstery revenue. In addition to these three Italian plants, we have two plants elsewhere in Italy: one dedicated to the production of leather and another one
dedicated to the production of flexible polyurethane foam, as further described below. These operations retain many characteristics of
hand-crafted production coordinated through a management information system that identifies by number (by means of a bar-code system) each component of every piece of furniture and facilitates its automatic
transit and traceability through the different production phases up to the warehouse. In recent years, the Group has been investing in
the reorganization of its production processes, following the Lean Production approach. We believe that ongoing implementation of these more efficient production processes will allow us to regain competitiveness by reducing costs (both
in terms of labor and consumption of materials) and improving the quality of our services (by reducing defects and lead time for production).  16




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The industrialization of the prototyped product lines was further defined in May 2011, and
in December 2011 three new production lines were completed in a new dedicated plant in Matera Jesce. We also moved the manufacturing of wooden frames, which was originally carried out in the production site located in Santeramo in Colle, Italy, to
the Matera Jesce plant, thus further optimizing both productivity and logistics costs through a direct, in-loco integration of sofa assembly. During 2012, these new moving lines were gradually introduced in all of the Groups production facilities. In 2013, the Group integrated
the following production phases in the moving line production process within our plants:  
direct integration with wood and foam suppliers to serve each plant according to daily needs (just in
time supplying) with the advantage of reducing the stock level for semi-finished goods; and  
leather cutting and sewing. This upgrade in the industrial process allows us to better control every stage in the moving line sequence in terms of quality, since every
worker at every stage supervises the quality of the piece he receives from the immediately previous stage as well as the piece he passes forward; should a quality issue arise, it must be resolved immediately before getting re-introduced into the production chain. This on-the-spot product quality monitoring started to slightly reduce our defect claims rate
and we expect further improvement from this monitoring. Beginning in 2014, we have been designing a software program in cooperation with
the University of Lecce that assists in assigning models to the moving line to which they are best-suited and where production would be most efficient. In 2015, we implemented the software in the Romanian plant. A final release was subsequently
performed in Matera Jesce and soon after released in China and Brazil. Consistent with its commitments under the Italian Reorganization
Agreements, the Company has reorganized its Italian operations by closing its plant located in Ginosa, effective January 2014. This closure has allowed us to concentrate all upholstered furniture production activities within just three facilities
with the aim of reducing logistics costs and industrial costs. The Company initially also planned to close its warehouse in Matera-La Martella, but, following the decision to execute the covering-cutting phase within all of the Italian plants, thus reducing space available for products assembled, it decided not to close it and to
continue utilizing the Matera-La Martella plant as a general warehouse for sofas and accessory furnishings. Furthermore, the Group also utilizes two facilities for the processing of leather (Natco S.p.A. (Natco), located in Udine), and
for the production of polyurethane foam (IMPE S.p.A. (IMPE), located near Naples). The Group processes leather hides to be
used as upholstery in its Udine plant whose main activities are leather dyeing and finishing. The Udine facility, which had 145 employees as of December 31, 2018, of whom 122 were laborers, receives both raw and tanned cattle hides, sends raw
cattle hides to subcontractors for tanning, and then dyes and finishes the hides. Hides are tanned, dyed and finished on the basis of orders given by the Groups central office in accordance with the Groups on demand planning
system, as well as on the basis of estimates of future requirements. The movement of hides through the various stages of processing is
monitored through our management information system. See Item 4. Information on the CompanyManufacturingSupply-Chain Management. The Group produces, directly and by subcontracting, ten grades of leather in approximately 40 finishes and 280 colors. The hides, after being
tanned, are split and shaved to obtain uniform thickness and separated into top grain and split. Top grain leather is primarily used in the manufacture of most Natuzzi Italia leather products, while split leather is
used, in addition to top grain leather, in the manufacture of some Natuzzi Italia products and most Natuzzi Editions products. The hides are then colored with dyes and treated with fat liquors and resins to soften and smooth the
leather, after which they are dried. Finally, the semi-processed hides are treated to improve the appearance and strength of the leather and to provide the desired finish. The Group also purchases finished hides from third parties.  17




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The Groups facility for the production of polyurethane foam, IMPE, employed 32 workers
as of December 31, 2018, of whom 19 were laborers, and is engaged in the production of flexible polyurethane foam, and also sells foam to third parties because the facilitys production capacity is in excess of the Groups needs. In
2012, IMPE obtained ISO 14001 certification in accordance with the environmental policy of the Natuzzi Group and also improved safety conditions at the plant. As part of the Groups efforts to improve its production process, we have substituted
some chemical compounds with more ecologically-friendly materials. As a result of intensive research and development activity, the
Company has developed a new family of highly resilient materials. The new polymer matrix is safer than others available in the market because of its improved flame resistance, and it is more environmentally-friendly because it can be disposed of
without releasing harmful by-products and because the raw materials used to make it cause a less harmful environmental impact during handling and storage. Chinese Production: The original Chinese plant owned by the Group was subject to an expropriation process by local Chinese authorities,
since the plant was located on land that was intended for public utilities. Negotiations involving the expropriation process began in 2009 and were concluded in 2011. The agreement setting for the payment of compensation for the expropriated plant
was signed with Chinese authorities on January 26, 2011. As compensation for this expropriation, the parties agreed upon a total indemnity of CNY 420 million, which was equivalent to approximately 46.7 million based on the
Yuan-Euro exchange rate as of December 31, 2011. The Company collected the full amount of the indemnity payment from the local Chinese authorities in 2011. During 2013, a second supplementary agreement was signed between the Company and the
Shanghai Municipality, by which the Company obtained the reimbursement (8.7 million) of taxes due and paid on the 2011 relocation compensation. The Groups current production plant in Shanghai was made available in January 2011 to compensate for the reduction in production
capacity caused by the expropriation. The relocation process began in February 2011 and was completed, as planned, by the end of May 2011, after equipment and machinery were moved to the new plant. The relocation resulted in worker turnover of
approximately 20% because of the distance of the new plant to the old one (approximately 35 kilometers). Brazilian Production:The
Group owned two plants in Brazil that, in the past, have been used for the production of upholstery for the Americas region. Due to the overall appreciation of the Brazilian Real against the U.S. dollar since these plants were opened and a
consequent decline in competitiveness, the Group decided to temporarily close the Pojuca plant (putting it up for sale in 2010) and reduced the production capacity of the Salvador de Bahia plant to a level that is sufficient to serve only the
Brazilian market. In February 2015 the Group entered into a sale purchase agreement to sell the Pojuca plant to a Brazilian company. By the end of 2015, the buyer paid the majority of the agreed sale price. The buyer completed the payment of the
remainder of the agreed sale price in January 2016. In order to minimize the potential future effects of currency fluctuations and reduce
supply lead times, our Brazilian subsidiary began to increase its local sourcing in 2014. Raw Materials  The principal raw
materials used in the manufacture of the Groups products are cattle hides, polyurethane foam, polyester fiber and wood. The Group
purchases hides from slaughterhouses and tanneries located mainly in Italy, Brazil, India, Germany, other countries in South America and Europe. The hides purchased by the Group are divided into several categories, with hides in the  18




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lowest categories being purchased mainly in South America and India. The hides in the middle categories are purchased in Europe or South America and hides in the highest-quality categories are
purchased in Italy, Germany and the United Kingdom. The Group has implemented a leather purchasing policy according to which a percentage of leather is purchased at a finished or semi-finished stage. The Group purchases finished leather hides, which
is leather that for either technical or price reasons is not processed by the Groups tanneries, from tanneries mainly located in Italy, Brazil and India. The finished leather suppliers ship their goods directly to the destinations where the
Groups factories are located: Santeramo (Italy), Shanghai (China), Baia Mare (Romania) and Salvador Bahia (Brazil). Hides purchased from Europe are delivered directly by the suppliers to the Groups leather facilities near Udine, while
those purchased outside of Italy are delivered to an Italian port and then sent to Udine and inspected by technicians of the Group. Management believes that the Group is able to purchase leather hides from its suppliers at reasonable prices as a result of the volume of its
orders, and that alternative sources of supply of hides in any category could be found quickly at an acceptable cost if the supply of hides in such category from one or several of the Groups current suppliers ceased to be available or were no
longer available on acceptable terms. The supply of raw cattle hides is principally dependent upon the consumption of beef, rather than on the demand for leather. During 2018, the prices for hides decreased by about 7% compared to 2017. According to historical trends, in 2018 the price of raw hides
reached the lowest level in the last ten years, even lower than the previous record low in 2009. The current situation is quite uncertain, and due to the volatile nature of the hides market, there can be no assurance that current prices will remain
stable or that price trends will not rise in the future. See Item 3. Key InformationRisk FactorsThe price of the Groups principal raw materials is difficult to predict. The Group also purchases fabrics and microfibers for use in coverings. Both kinds of coverings are divided into several price categories. Most
fabrics are purchased in Italy from a dozen suppliers which provide the product at the finished stage. Microfibers are purchased in Italy, South Korea and China through suppliers. Fabrics and microfibers are generally purchased from suppliers
pursuant to orders given every week specifying the quantity (in linear meters) and the delivery date. The Group obtains the chemicals for
the production of polyurethane foam from major chemical companies located in Europe (including Germany, Italy and the United Kingdom) and the polyester fiber filling for its cushions from several suppliers located mainly in Indonesia, China, Taiwan
and India. The chemical components of polyurethane foam are petroleum-based commodities, and the prices for such components are therefore subject to, among other things, fluctuations in the price of crude oil. The chemical components prices
increased significantly in 2018 compared with 2017 and strongly affected the prices of polyurethane foam. During the last month of 2018, this trend stopped and a decreasing trend began and continued into early 2019. Within our Romanian industrial
plant, we have a woodworking facility that provides wooden frames. The Group also offers a collection of home furnishing accessories
(tables, lamps, rugs, home accessories and wall units in different materials). Most of the suppliers are located in Italy and other European countries, while some hand-made products  19




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(such as rugs) are made in India and China. The new collections of beds, bedroom furniture and bed linens are produced by Italian companies that are external to the Group. Before any items are
introduced into our collection, they are tested in accordance with European and world safety standards. In the design phase particular attention is paid to the choice of innovative technological solutions that add value to the product and ensure
long lasting quality. Supply-Chain Management The Logistics Department is responsible for monitoring the solutions in order to ensure their effectiveness. Additionally, in order to improve
access to supply-chain information throughout the Group, the Logistics Department utilizes a portal that allows it and other departments (such as Customer Service and Sales) to monitor the movement of goods through the supply-chain. The Company
continues to invest in this area so as to continuously improve supply-chain tools and processes. Production Planning
(Order Management, Warehouse Management, Production, Procurement)  The Groups commitment to reorganizing procurement logistics is aimed to: 1) the development of a logistics-production model to customize the level of service to customers; 2) optimize the level of the size of the Groups inventory of raw materials and/or components. A procedure was implemented for the
continuous monitoring of global finished products inventories in order to determine which in-stock goods are currently not being sold as part of our existing collections (as a result of being phased-out) and enable the different commercial branches to promote specific sales campaigns of these goods; 3) the implementation of the SAP system. The Group also plans procurements of raw materials and components: i) On demand for those materials and components (which the Group identifies by code numbers) that require a
shorter lead time for order completion than the standard production planning cycle for customers orders. This system allows the Group to handle a higher number of product combinations (in terms of models, versions and coverings) for customers
all over the world, while maintaining a high level of service and minimizing inventory size. Procuring raw materials and components on demand eliminates the risk that these materials and components would become obsolete during the
production process; and ii) Upon forecast for those materials and components requiring a long lead time for order
completion. The Group utilizes a forecast methodology that balances the Groups desire to maintain low inventory levels against the Sales Departments needs for flexibility in filling orders. This methodology was developed together with
the Groups Information Systems Department, in order to create an intranet portal, called Advanced Planning and Optimization (APO). APO was launched in March 2011 for sales coming from the North American and Asian-Pacific markets,
under the supervision of a forecast manager and, beginning in June 2011, was implemented worldwide. This tool currently supports corporate logistics, operations managers and sales managers in our efforts to better forecast the future demand for the
Groups products and to improve communication between the Sales Department and the Logistics Department, therefore reducing inventory levels and improving the availability of raw materials. Since 2012, a new methodology concerning furnishing management has been introduced. A more efficient cooperation with suppliers enabled the
Group to handle furnishings components without storing them in our warehouses, resulting in improved service and reducing inventory levels.  20




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Lead times can be longer than those mentioned above when a high number of unexpected orders
are received. Delivery times vary depending on the place of discharge (transport lead times vary widely depending on the distance between the final destination and the production plant). All planning activities (finished goods load optimization, customer order acknowledgement, production and suppliers planning) are aimed
to guarantee that during the production process, the materials are located in the right place at the right time, thereby achieving a maximum level of service while minimizing handling and transportation costs. Load Optimization and Transportation  The Group delivers goods to customers by common carriers. Those goods destined
for the Americas and other markets outside Europe are transported by sea in 40-foot high cube containers, while those produced for the European market are generally delivered by truck and, in some cases, by
railway. In 2018, the Group shipped 6,439 containers overseas and approximately 4,451 full load mega-trailer trucks to European destinations. With the aim of decreasing costs and safeguarding product quality, the Group uses software developed through a research partnership with the
University of Bari and the University of Copenhagen that permits us to manage load optimization. The Group relies principally on several
shipping and trucking companies operating under time-volume service contracts to deliver its products to customers and to transport raw materials to the Groups plants and processed materials from one plant to another. In
general, the Group prices its products to cover its door-to-door shipping costs, including all customs duties and insurance premiums. Some of the Groups overseas
suppliers are responsible for delivering raw materials to the port of departure; therefore, transportation costs for these materials are generally under the Groups control. Products Products are mainly designed in the Companys Style Center, but the Group also collaborates with international designers for the
conception and prototyping of certain products in order to enhance brand visibility, especially with respect to the Natuzzi Italia product line. New models are the result of a constant information flow from the market, in which preferences are analyzed, interpreted and turned into a
brief for designers in terms of style, function and price point. Designers draw the sketches of new products in accordance with the guidelines they are provided and, through collaboration with the prototype department, approximately 70 new sofa
models are generally introduced each year. The diversity of customer tastes and preferences as well as the Groups inclination to offer new solutions results in the development of products that are increasingly personalized. More than 100
highly-qualified employees conduct the Groups research and development efforts from its headquarters in Santeramo in Colle, Italy. The Groups wide range of products includes a comprehensive collection of sofas and armchairs with particular styles, coverings and
functions, with more than two million combinations.  
The Natuzzi Italia collection stands out for its choice of high quality materials and finishes, as well
as for the creativity and details of its design. As of December 31, 2018, this product line offered 120 models of sofas and armchairs and eight models of beds. With respect to furniture coverings, the Natuzzi Italia collection has 10 leather
articles in 80 colors and 28 softcover articles in 138 colors. This collection also includes a selection of additional furniture pieces (such as wall units, coffee tables, tables, chairs, lamps and carpets) and accessories (including vases, mirrors,
magazines racks, trays and decorative objects) to offer a complete suite of furnishings and with the aim of enabling the Group to develop a lifestyle brand.  
The Natuzzi Editions collection consisted of 124 models as of December 31, 2018. This vast range of
models covers all styles from casual/contemporary to more traditional, suitable for all markets from Europe to Americas to Asia. The focus of Natuzzi Editions is leather, and this line offers a wide range of 10 leather types available in 77
colors. In addition, a collection of eight fabric articles available in 60 colors was added to the line.  21




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
The private label collection, as of December 31, 2018 had been significantly reduced to approximately 75
models, including exclusive models for key accounts. The products are mainly offered in top grain leather, but are also available in Next Leather® (a bonded leather that contains a minimum of 17 per cent of leather). In 2018, we began
re-engineering our processes in an effort to simplify both the industrial platforms and the production processes. The
Group operates in accordance with strict quality standards and has earned the ISO 9001 certification for quality and the ISO 14001 certification for its low environmental impact. The ISO 14001 certification also applies to the Companys tannery
subsidiary, Natco, located near Udine, Italy. The Groups plants in Laterza and the Santeramo in Colle headquarters have also received an ISO 9001 certification for their roles in design and production. Innovation Since the end of 2013, the Company has been implementing a new production model based on the Lean Production principles. The sofa production model, under which sofas were traditionally assembled in a department-based factory (or Isle Production
model), was subject to review with a view toward implementing moving line-based manufacturing processes, which would lead to improvements in efficiency, quality and lead time. The moving line production model improves job area ergonomics by
splitting products into lighter pieces at individual phases and also coordinates workers by ensuring that they work at a similar pace. The finished product tends to be of higher quality and produced more quickly. Tests and development of the moving
line production model at all stages of the production process still continue and are coordinated with our products design. In the field
of process and product innovation, the Group implemented since 2013 the Modular Industrial Platform System, aimed at reducing manufacturing costs. Industrial platforms represent an industrial base common to many models that can be technically and
aesthetically modified in order to meet customers requests. The utilization of such platforms grants substantial benefits in terms of product simplification (easy assembly), management (fewer codes to be managed), quality (fewer production
failures), and production costs (economies of scale), leading to an increase in competitiveness. Beginning in 2015, the Company
implemented the following new programs and measures related to the product development process and product design and engineering systems:  
It launched a holistic quality-based approach to control the quality of the product based on the Finite
Element Method, paving the way to reduce claims and to increase customer satisfaction regarding product durability;  
It established a dedicated comfort team, aimed to improve the ergonomic and comfort performance of the
prototyped sofas, also introducing Virtual Seating and Ergonomic IT solutions in order to increase the wellness comfort experience of customers;  
It implemented a 3D Designing System with the support of a product data management. The system increases the
effectiveness of the engineering team by reducing complexity, facilitating product development activities and testing platforms and the critical quality points. The Company also improved the design for manufacture and assembly strategy for product
development and aligned it with the Lean Production System;  
It implemented an improved control system for the product development process introducing a visual management
system, making it possible to have a real time understanding of product development requests;  
It established an open innovation office with the aim to lead breakthrough innovations, procure innovative
materials and collaborate with third-party professionals at the most famous research institutes. Management also
continues to encourage innovation and new products by leveraging on the above-mentioned innovations activities and adopting the most updated technology that exists in the sector. In reference to the innovation process, we began to implement the moving line production system in our plants at the beginning of 2014, and
the system was implemented across all of our plants by the end of 2015. The following number of moving lines are currently installed: 24 in China, 15 in Romania, 9 in Italy (4 in Jesce, 4 in Laterza and 1 in the experimental laboratory located in
the HQ) and 4 in Brazil.  22




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As for the Chinese plant in particular, during the first part of 2014, the installation of
the moving line production system was not simultaneously accompanied by the development of an appropriate IT system to support moving line production. It also lacked an appropriate training plan for workers who had to adapt their skills with the new
moving line-based production model. For these reasons and several others, namely, the need for a reduction in complexity, the unavailability of complete and functioning moving lines, together with a production planning that was inadequate in terms
of mix of products, caused a sharp decline in the overall production efficiency and productivity of our Chinese plant. In response, beginning in July 2014, we created a dedicated team (the lean team) whose main goal was to increase
productivity, in particular through the:  
analysis of the main product platforms produced in different plants of the Group;  
diagnosis of these platforms, resulting in the elimination of underperforming models;  
simplification of production complexity, through the elimination of models, versions, coverings that turned out
to be underperforming;  
test and implementation, in collaboration with the University of Lecce, of a new software able to plan the
production of all of the Groups plants, with the ultimate goal of increasing the degree of repetitiveness in production, so as to reduce the complexity of production not only in individual plants but also in each production moving lines;  
use of an additional software necessary to define the best production sequence of models belonging to the same
family of products (i.e., having similar components and similar production times) to be assembled and determine a correct balance between the various stations of the line. We formally launched the above-mentioned activities in December 2014. These activities started to deliver encouraging results since from their
implementation in early 2015 and are currently part of the ordinary industrial process. The lean team, with support from all of the
departments, continued their activities to achieve these goals in 2015 and 2016. The results in terms of reducing complexity and standardizing the moving lines processes have been very encouraging. As a result of their analysis, the Company
formalized the progressive implementation of a Last Planner, a planning tool scheduling the activity of every single moving line, in all Natuzzis plants starting from September 2015. Furthermore, beginning in July 2014, an experimental laboratory for simulating all single phases within a typical moving line was built at the
headquarters in Santeramo in Colle. In this laboratory, our experts test ideas proposed by the lean team, with the aim of improving production efficiency, productivity, quality of finished products and workstation ergonomics. The results were better
than expected, thanks also to the proactive involvement of people within this project. All of the ideas that have been tested successfully in this laboratory are expected to be implemented in all of the Groups industrial plants. Since 2015,
this laboratory has tested many of the new models designed and the new work methodology, providing a strong hand in improving the efficiency and product quality. In the last 3 years, Natuzzi products have been, both, addressing consumer needs and employing Lean Production practices. These are two
elements that contribute to our continuous pattern of innovation that is vital to our business and that help us develop products that stand out from those of our competitors and keep pace with changes in the marketplace and consumer needs. In the past year, we continued to improve the Natuzzi platform system, which allows the Company to achieve a shorter product development than
in the past. Furthermore, the Companys requirements concerning the testing and approval stages of our products have become even more stringent through the utilization of a Finite Element Analysis-based software that simulates stress conditions
on materials and functions. We are using all the resources to provide our customers with durable products and benefits in terms of
availability in the market and higher value products in terms of quality and functionality. In addition, our research and development
teams work to develop new high-tech structural materials, innovative foams and fibers, ergonomic automated mechanisms and an appealing aesthetic design, intended to contribute to an increased wellness and health experience. The Company is still working in an Open Innovation System, which enables it to develop and strengthen relationships with academia,
external technology centers of excellence and suppliers, contributing to the development of the next generation of sofas. Once new design
principles have been defined (i.e. typology and material selection for sofa frame, new foam features), a re-engineering process starts on less profitable products. From the start of 2018 through the end of 2019, we intend to submit  23




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more than 75 models (and relevant versions) to a deep technical review with the objective to reduce the value of BoM (Bill of Materials) and production time, maintaining unchanged the aesthetic,
comfort and mechanical features, in an effort to increase the margin and profitability. Specific focus is given to comfort and its
certification. The whole evaluation process is based on an ergonomic-principle conformity check (Gap Analysis), which includes carrying-out of several tests selected according to the required evaluation type
and performed in the corresponding ergonomic reference areas. Natuzzi carries out several types of ergonomic evaluations, including tests performed by experts (ergonomic expertise carried out or supervised by Certified European Ergonomists), tests
with real users, suitably selected to represent the final users categories (e.g.: biomechanical analysis and usability/distraction tests, interviews, focus groups), and CAD 3D evaluations and simulations. On the basis of the product type and
the request, users are asked to interact with the products by performing representative tasks of a physical (biomechanical interaction) or cognitive nature (cognitive ergonomics). Such evaluations are carried out to determine the compliance of
products with ergonomic principles and the requirements contained in the sector technical standards, which may result in the Ergonomic Certification. As regards the physical usage of the products, several factors are evaluated, including: correct
sizing in connection with the users anthropometric variations, with reachability, with placing, with viewing and visibility angles, with the presence of incongruous postures and strains due to the product characteristics and other possible
ergonomic-risk factors (e.g. weight, shapes, etc.) and to product physical components affecting usability (comfort, anti-decubitus properties, etc.). An Ergonomic Report is issued at the end of every evaluation, detailing the normative standards
applied, the instruments and methods used and the results. If the customer also required the Ergonomic Certification, the product, process or service compliance is assessed according to the technical standards requirements and acceptability
criteria. Research and development expenses, which include labor costs for the research and development department, design and modeling
consultancy expenses and other costs related to the research and development department, were 3.1 million in 2018 and 4.5 million in 2017. Advertising Natuzzi S.p.A. Marketing & Communication strategy has been built mainly with the goal to support revenues in each distribution
channel with different communication and media strategies per each branded product line. We also launched the Natuzzi Digital
(r)evolution project and continued to invest in our brand with special projects, events, media partnerships and advertising on high end lifestyle magazines. The marketing strategy is executed on monthly basis in the key countries (where each branded product line is distributed), providing
Natuzzi Italia and Divani&Divani by Natuzzi with promotional calls to actions, driven by a clear mission to encourage qualitative traffic of consumers in each of our retail stores. Thanks to strong integration between the
merchandising strategy and the communication strategy, each marketing campaign advertises specific products, using a specific media kit to hit the right customer audience that we find most widely active, following an
in-depth digital analysis, in the catchment area of a specific store (directly owned and licensed).  24




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##### Table of Contents

In reference to the Natuzzi Editions galleries, advertising was carried out with the
help of the retail advertising kit: a collection of templates that enables the direct advertising of the product lines in conjunction with the retailers brand. The Group also invested in its online/multichannel digital strategy, making new websites for each brand with a better user experience and with
a more easy and efficient product customization journey. This was made possible thanks to the launch of a 3D HD product configurator developed by the internal Marketing & Communication Lab together with one of the best Italian
application development companies. The configuration application (also available online on our websites) was intended to help the customer in its digital journey but already showed to be very helpful for the store staff (both in our stores and in
our galleries) who are now able to upsell and cross-sell items that are not available in the store but that can be powerfully seen by a customer on the tablet. In conjunction with these digital platforms and tools, in 2018, media spending was about 60% of the Groups total advertising costs,
becoming a fast growing and strong digital media advertiser. Digital advertising helped us to better plan, monitor, measure and report the performances of each marketing campaign. As a brand building strategy for Natuzzi Italia, we targeted high-end consumers, architects,
designers, interior decorators and young generations of influencers. The home-philosophy of Natuzzi Italia is narrated trough a communication campaign made with internationally renowned photographers and advertised on the best interior
design, fashion and lifestyle magazines (both printed and digital). Ultimately in order to spread our message in the design
community we have set up projects and contents for it: in 2017 and 2018 in China we presented the Natuzzi Designers Club, a yearly contest made for design professionals and students, in partnership with the best Chinese universities. In Italy in 2017 and 2018 we partnered with the most influential design academies, sponsoring two classes that exercised on R&D for
projects suggested by Natuzzi: such as multi-functionality and versatility in small spaces. In Brazil we have finalized also in 2018 a
media partnership to launch an interior design contest in the Brazilian Architects community. Upon implementing these activities, we
received positive press coverage, which showcased our stronger and most up-to-date vision of Natuzzi in the design community. Retail Development The Group has remained focused on achieving the objectives of its retail development plan in its most important markets by opening new stores
and closing/relocating those stores that have not met expected revenue goals. The majority of Natuzzi Italia stores that the
Company opened since 2017, or which the Company plans to open, currently follow or will follow the new retail format. This format is aimed at addressing the expectations and spending power of a wider range of consumers and continuing to provide
consistent and satisfactory results. The process of rationalization of the existing network is now close to the end, so that relocation
and closing of existing point of sales has become proportionally less relevant. New openings of all formats (stores and shops in shops for both Natuzzi Italia and Natuzzi Editions) increased the overall network of 100
points-of-sale at worldwide level. Most of the investment
in Directly Operated Stores (DOS) for Natuzzi Italia has been focused on North America, with 3 new DOS in the USA (one each in Chicago, Costa Mesa and Ft. Lauderdale), and 3 full refits of existing stores in Mexico. There were also three
new DOS in EMEA (2 new stores in Paris and 1 in Westfield, London city commercial center). In April 2019 a new Natuzzi Italia DOS was opened in Sarasota, FL, USA. The Group achieved a boost to the retail development plan by the Joint Venture the Company signed for the Greater China territory, where 17
Natuzzi Italia stores as well as 52 Natuzzi Editions Stores openings took place during 2018. Brazil and South America provided additional
growth opportunities, with 1 Natuzzi Italia store opening and 9 Natuzzi Editions store openings last year. The Group designed a new
Retail Concept for the Divani&Divani by Natuzzi chain in Italy that has been tested in 3 locations. Company expectations are to increase number of openings within 2019 also leveraging on this new design.  25




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##### Table of Contents

The UK Market continues to increase in importance for Natuzzi as demonstrated by 4 new
franchised Natuzzi Italia store openings and 2 franchised Natuzzi Editions store openings in 2018. Concessions in UK has been closed at the beginning of this year due to our inability to accomplish our Retail Development strategy
goals with this kind of store format in the UK. Markets The Group markets its products internationally as well as in Italy. Historically, the distribution of the Groups product has been in the
wholesale channel, which still represents a significant portion of the entire business. The Company continues to re-organize its
distribution in all its commercial regions, in order to better exploit market opportunities all over the world. This reorganization includes expanding its retail presence to increase visibility of the Natuzzi brands product lines. The following tables show the number of Group stores as of December 31, 2018 according to our principal geographic areas.  STORES

Natuzzi Italia


Natuzzi Editions


Divani&Divaniby Natuzzi


TOTALAmericas(1)

United States and Canada


13



1







14Other Americas


15



41







56Total Americas


28



42







70EMEA

Europe (ex Italy)


72



6



5



83Italy


5







71



76Middle East, Africa and India


27



1







28Total EMEA


104



7



76



187Asia-Pacific

China


61



131







192Other Asia-Pacific


24



5







29Total Asia-Pacific


85



136







221TOTAL




217



185



76



478  1)
Includes the United States, Canada and Latin America (including Brazil) (collectively, the
Americas).  26




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##### Table of Contents

As of December 31, 2018, there were 19 Natuzzi Italia concessions, of which were
7 located in United Kingdom and 12 in Mexico. The concessions are store-in-store concept selling Natuzzi Italia products, and are managed directly by the
Companys subsidiaries located in the United Kingdom and U.S., respectively. The following table shows the Groups
consolidated revenue of core products (including sales of upholstery sofas, beds as well as furnishings) broken down by geographic market and Business Division for each of the years indicated:  2018


2017Americas(1)


135.1



33.2
%


150.9



35.7
%Natuzzi(2)


101.4



24.9
%


109.4



25.9
%Softaly


33.7



8.3
%


41.5



9.8
%EMEA(3)


195.2



47.9
%


196.3



46.4
%Natuzzi(2)


140.1



34.4
%


139.4



32.9
%Softaly


55.1



13.5
%


56.9



13.5
%Asia-Pacific


76.9



18.9
%


75.9



17.9
%Natuzzi(2)


71.4



17.5
%


69.8



16.5
%Softaly


5.5



1.3
%


6.1



1.4
%Total


407.2



100.0
%


423.1



100.0
%  (1)
Includes the United States, Canada and Latin America (including Brazil) (collectively, the
Americas). (2)
The Natuzzi brand includes the Groups four lines of product: Natuzzi Italia,
Natuzzi Editions, Divani&Divani by Natuzzi and Natuzzi Re-Vive.Starting from the second half of 2014, upholstered net sales under the Natuzzi brand also includes net sales
of beds sold under the Natuzzi Italia line. (3)
Due to a reorganization of our sales department, India is included in the EMEA region. The following table shows the number of seats sold of the Group broken down by geographic market and Business Division for each of the years
indicated: Leather and Fabric Upholstered Furniture, Net Sales (in seats)  2018


2017Americas(1)


439,729



35.2
%


504,171



38.4
%Natuzzi(2)


275,371



22.0
%


301,605



23.0
%Softaly


164,358



13.1
%


202,567



15.4
%EMEA(3)


658,348



52.7
%


641,567



48.9
%Natuzzi(2)


322,851



25.8
%


322,741



24.6
%Softaly


335,497



26.8
%


318,826



24.3
%Asia-Pacific


152,069



12.2
%


166,711



12.7
%Natuzzi(2)


122,037



9.8
%


129,632



9.9
%Softaly


30,032



2.4
%


37,079



2.8
%Total


1,250,146



100.0
%


1,312,449



100.0
%  (1)
Includes the United States, Canada and Latin America (including Brazil) (collectively, the
Americas). (2)
The Natuzzi brand includes the Groups four lines of product: Natuzzi Italia,
Natuzzi Editions, Divani&Divani by Natuzzi and Natuzzi Re-Vive.Starting from the second half of 2014, upholstered net sales under the Natuzzi brand also includes net sales
of beds sold under the Natuzzi Italia line. (3)
Due to a reorganization of our sales department, India is included in the EMEA region. In 2018, the Group derived 47.9% of its core business (including sales of upholstery sofas, beds and furnishings) from the EMEA region, 33.2%
from the Americas (Brazil included), and 18.9% from the Asia-Pacific region.  27




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##### Table of Contents

1. The Americas. In 2018, net sales of products of our core business (leather and fabric-upholstered furniture and beds, as well as furnishings) in the
United States and the rest of the Americas (including Brazil) were 135.1 million, down 10.5% compared to 2017, partially negatively affected by currency exchange rate fluctuations, and the number of seats sold decreased by 12.8%, to
439,729 in 2018. In particular, net sales from our Natuzzi branded products were 101.4 million, down 7.3% versus 2017. Sales from our Softaly division were 33.7 million, down 18.9% compared to 2017. The Softaly division was affected by difficult
retail conditions experienced in the North American market, as some of our historical partners are restructuring their retail assets, resulting in a reduction of their points of sales. In order to avoid competing solely on the basis of market price,
the Company has decided to focus primarily on a few selected primary customers going forward. The Groups principal customers are
major retailers. The Group advertises its products to retailers and, recently, to consumers in the United States, Canada, and Latin America (excluding Brazil) both directly and through the use of various marketing tools. The Group also relies on its
network of sales representatives and on the furniture fairs held at its High Point, North Carolina, offices each spring and fall to promote its products. Natuzzi Americas maintains offices in High Point, North Carolina and provides Natuzzi S.p.A with agency services. The staff at High Point
provides customer service, trademarks and products promotions, credit collection assistance, and generally acts as the customers contact for the Group. As of March 31, 2019, the High Point North Carolina operation had 53 employees. In
addition, such Company has 11 independent sales representatives. All of our commercial activities in Brazil are overseen from our
Salvador de Bahia facility. The Groups commercial structure in Brazil has been reinforced over the years by an increase in personnel, from 12 representatives in 2012 to 24 as of the end of 2018. 2018 sales in Brazil were
14.2 million. As of March 31, 2019, in Brazil there were 6 Natuzzi Italia stores, 38 Natuzzi Editions stores, in addition to both Natuzzi Editions andNatuzzi Italia galleries. As a result of the focus to the Brazilian high-end consumer market, the Group currently distributes a
Natuzzi Italia made in Brazil collection, entirely manufactured in Brazil and dedicated exclusively to the South American market. In 2016, the Group acquired 7 Natuzzi Italia stores all located in Florida. In December 2016, the Company established a new trading
subsidiary located in Mexico, Natmex S.DE.R.L.DE.C.V. (NATMEX). In January 2017, NATMEX signed an agreement with the Sandler family  owners of Muebleria Standard  its current partner for the distribution of Natuzzi
products in Mexico. Under the agreement, NATMEX acquired the three existing Natuzzi Italia stores from Muebleria Standard. The stores are located in Mexico City-Altavista, Guadalajara and Monterrey. In addition to the directly operated
stores, NATMEX sells in the Mexican market through 12 directly managed Natuzzi Italia concessions in Palacio de Hierro, a high-end retailer having shopping malls in excellent locations throughout
Mexico. In June 2017, the Company opened its new North American retail store in West Palm Beach, Florida. During 2018, the Company opened three new DOS in the USA, namely one in Chicago, one in Los Angeles-Costa Mesa and one in Philadelphia. These
new stores are part of the strategy announced in 2016 to open Company managed stores in high traffic and prime retail locations, showcasing the new store design, merchandising concept and overall Natuzzi consumer experience. As of March 31, 2019, the Company operated in the Americas 15 DOS (of which 12 were in the U.S. and three were in Mexico), and
12 concessions located in Mexico, all of them under the Natuzzi Italia name. As of the same date, there were also 13 Natuzzi Italia stores operating in the Americas that are owned by local dealers (6 in Brazil, two in Venezuela,
one in each of the U.S., Argentina, Colombia, Panama and Dominican Republic). Furthermore, as of the same date, there were 42 franchised Natuzzi Editions stores, of which 38 were located in Brazil and one in each of the U.S., Argentina,
Paraguay and Peru. 2. EMEA. During 2018, the Group continued to consolidate its position in Western Europe, and increase its presence in Eastern Europe, the Middle East,
Africa and India (collectively, EMEA), by investing mainly in mono-brand stores and galleries. Net sales of our core business in EMEA (including Italy) were 195.2 million in 2018, down 0.6% compared to 2017, with the number of
seats sold increasing by 2.6%, to 658,348 in 2018. Natuzzi branded sales amounted to a total of 140.1 million in 2018 (up 0.5% from 2017), and private label net sales decreased by 3.3% to 55.1 million.  28




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##### Table of Contents

2a) Italy. Since 1990, the Group has sold its upholstered products within Italy
principally through the Divani&Divani by Natuzzi franchised network of furniture stores. As of March 31, 2019, there were 64 Divani&Divani by Natuzzistores (of which 15 directly operated by the Company), and five
Natuzzi Italia stores (of which four directly operated by the Company) located in Italy. 2b) Europe (Outside Italy).The
Group expands into other European markets mainly through stores (local dealers, franchisees or directly operated stores). As of March 31, 2019, 85 stores were operating in Europe: 5 under the Divani&Divani by Natuzzi, all located in
Portugal; 72 were under the Natuzzi Italia name (15 in each of the United Kingdom, 13 in Spain, six in each of France and Turkey, four in each of the Czech Republic and Russia, three in Switzerland, two in each of Bosnia, the Netherlands, and
Ukraine and one in each of Armenia, Azerbaijan, Croatia, Cyprus, Greece, Hungary, Kosovo, Latvia, Malta, Poland, Romania, Serbia, Slovakia, Slovenia and Uzbekistan). As of the same date, there were eight Natuzzi Editions of which four located
in the UK, two in the Czech Republic and one in each of the Croatia and Serbia. Of these stores, 20 were directly owned by the Group as of March 31, 2019 and all were operated under the Natuzzi Italia name: 11 in Spain, four in the UK,
three in Switzerland, and two in France. During the first months of 2019, the Company decided to close all the 8 UK based concessions that were operating under the Natuzzi Italia name. 2c) Middle East,Africa and India. As of March 31, 2019, the Group had a total of 28 Natuzzi Italia
stores in the Middle East, Africa and India region: six in each of India and Israel, three in each of Saudi Arabia and the United Arab Emirates, and one in each of Algeria, Bahrain, Egypt, Ivory Coast, Jordan, Kuwait, Lebanon, Pakistan, Qatar
and Sri Lanka. In addition, one Natuzzi Editions store was operating in Israel. All of these stores are operated by franchised partners. In January 2012, following the worsening of the European Unions diplomatic relations with Iran and Syria, the Company decided to cease
all business relations with these two countries. No impairment issue arose following the cessation of business relations with those two
countries. The Group had no sales in Iran or Syria in 2018, 2017 and 2016. Our prior interests and activities in Iran or Syria were not a material investment risk, either from an economic, financial or reputational point of view. The Group
has not had, nor does it plan to have, any commercial contacts with the governments of Iran or Syria, or with entities connected with such governments. The Group has never generated sales in Sudan or North Korea or Cuba. 3. Asia-Pacific Region. In 2018, net sales of our core business in the Asia-Pacific region were 76.9 million, up 1.3% from 2017, and the number of seats
sold decreased 8.8%, to 152,069 in 2018. Natuzzi branded sales increased by 2.3% to 71.4 million, and private label sales decreased by 10.0% to 5.5 million. The general strategy for the Natuzzi brand is to further expand the store network throughout the region, with a strong emphasis on the
Chinese market. The Groups commercial part of the business throughout the Asia-Pacific region was run by Natuzzi Trading (Shanghai)
Co., Ltd. until July 27, 2018. On that date, the Company announced the completion of the transactions (the Closing) contemplated by the joint venture agreement, signed in March 2018, between the Company and Kuka Furniture (Ningbo)
co., Ltd. (Kuka). As a result of the Closing, the Companys wholly-owned Chinese subsidiary, Natuzzi Trading (Shanghai) Co., Ltd. (Trading Co.) has become a joint venture in which each of the Company and Kuka now owns a
49% and a 51% stake, respectively. Kuka invested a total of 65 million to acquire its stake in Trading Co. This joint venture
is aimed at expanding the Companys retail network in Mainland China, Hong Kong and Macau (the Territory). Trading Co. will distribute the Natuzzi Italia and Natuzzi Editions branded products through a network of single-brand
directly operated stores and franchised operated stores in the Territory, as well as through online stores. As of March 31, 2019, 87
franchised Natuzzi Italiastores were operating in the Asia-Pacific market: 63 in China, eight in Australia, six in Taiwan, three in each of Hong Kong and in South Korea, and one in each of Indonesia, Philippines, Singapore and Thailand. In
addition, as of the same date, the Group had 137 Natuzzi Editions stores, of which 132 located in China, two in  29




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##### Table of Contents

Vietnam, and one in each of Hong Kong Thailand and Taiwan. Following the execution of this joint venture in China, the 11 Natuzzi Editions Directly Operated Stores (DOS) were
transferred to Trading Co. and, consequently, are no longer considered in the consolidated financial statements. The Group also maintains
galleries in the Asia-Pacific region under the Natuzzi Italia and Natuzzi Editions. Customer
Credit Management The Group maintains an active credit management program. The Group evaluates the creditworthiness of its customers
on a case-by-case basis according to each customers credit history and information available to the Group. Throughout the world, the Group generally utilizes
open terms in 70% of its sales and obtains credit insurance for 74% of this amount; about 8% of the Groups sales are commonly made to customers on a cash against documents and cash on delivery basis; and
lastly, about 22% of the Groups sales are supported by a letter of credit or payment in advance. In July 2015, the Company signed a 5-year
non-recourse (pro-soluto) assignment of trade receivables with a major Italian financial company by means of a securitization program. Incentive Programs and Tax Benefits Historically, the Group derived benefits from the Italian Governments investment incentive program for under-industrialized regions in
Southern Italy, which includes the area that serves as the center of the Groups operations. The investment incentive program provides tax benefits, capital grants and subsidized loans. There can be no assurance that the Group will
continue to be eligible for such grants, benefits or tax credits for its current or future investments in Italy. In 2013, The Company
took part in a businesses temporary association (Associazione Temporanea di Imprese) (ATI), under a program called MAIND that aims to share Research, Development and Training expenses that relate to eco-innovative materials and advanced technologies for the manufacturing and construction industries. By taking part in ATI, the Company hopes to receive grants by the Italian Government covering its investments in
the moving line of its Italian plants. In November 2014, The Italian Ministry of Education, University and Research accepted the request for a grant from ATI, and in particular, granted Natuzzi S.p.A. 0.6 million to cover almost all of
its expenses presented under this experimental research and development project. In 2015, the Company, through the company that leads the ATI, presented to the Italian Ministry of Economic Development a statement of expenses totaling
0.2 million related to the personnel in the research and development department, as well as training expenses in moving line. In 2017, the Company collected 0.1 million from the Italian Ministry of Education, University and
Research. In 2018, the Company presented to the Italian Ministry of Economic Development a further statement of expenses under this program totaling 0.8 million. In July 2018, the Company collected an additional 0.1 million
from the Italian Ministry of Education, University and Research. As of the date of this Annual Report, the Company has not yet been informed by the relevant Italian Ministry of the timing of collection of the remaining part of the grant. In September 2015, the Company presented to the Italian Ministry of Economic Development a 49.7 million investment program for
industrial development, which is composed of six programs, including programs in research and development and for upgrading its Italian facilities located in the Puglia and Basilicata Regions. In 2015, the Company formally requested that the Italian
Ministry of Economic Development grant is 37.3 million from public incentives. Initially, the total amount of 49.7 million was composed of 27.7 million to upgrade the Italian plants located in Puglia and Basilicata
Regions, and the remaining part of 22.0 million is for innovation, research and development expenses. On September 23, 2015, the Company entered into a formal agreement (the Developing Contract) with the Ministry of
Economic Development (Ministero dello Sviluppo Economico) and the governments of the Puglia and Basilicata regions reflecting this investment. On January 23, 2017, following its review of such program, the Italian Ministry of Economic
Development reduced the amount of investments from 49.7 million to 37.8 million, of which 27.6 million has been allocated to upgrade the Italian plants located in Puglia and Basilicata Regions and
10.2 million has been allocated for innovation, research and development expenses. As a consequence, grants from public incentives were reduced from 37.3 million to 26.9 million. The expected grant should be
represented by 11.0 million as a capital grant and 15.9 as subsidized loan. The Company has already begun the planned investment activity and, specifically, in 2016, invested 5.0 million, and in 2017 a further
2.0 million. In January 2018, the Ministry issued a decree for the Company to sign. The Company, following the unfavorable judgement by the Bari Labor Court, which required the Company to re-employ
166 workers, decided not to sign such decree since the conditions set forth by the decree, among which is an obligation not to fire workers for a 10-year periodare considered by the Company to be too
onerous. Negotiations on such labor issue with the relevant Ministry are still ongoing. On March 5, 2019, the Company presented to the Ministry of Economic Development an updated document concerning the Developing Contract. As of the date of
this Annual Report, the Ministry of Economic Development has not yet provided the Company with an official reply. See Note 21 to the Consolidated Financial Statements included in Item 18 of this Annual Report.  30




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##### Table of Contents

In 2018, the Company took part in a business temporary association (Associazione
Temporanea di Società) (ATS), under a program called M2H- Machine to Human that aims to share Research and Development expenses related to leather processing. This program
was designed and coordinated by the University of Lecce. Such program was presented by the ATS to the Puglia region in March 2017. In October 2017, the Puglia region accepted the request for a grant in favor of the ATS and in particular granted
Natuzzi S.p.A. 0.7 million to cover almost entirely the expenses presented under this project. In particular, the Company intends to utilize a new technology that will automatically classify the raw hides (wet blue) according to the
degree of imperfections. This stage of the leather processing is currently carried out by workers rather than machines. The Company has not yet been informed as for the timing of collection of such grants. Management of Exchange Rate Risk The Group is subject to currency exchange rate risk in the ordinary course of its business to the extent that its costs are denominated in
currencies other than those in which it earns revenues. Exchange rate fluctuations also affect the Groups operating results because it recognizes revenues and costs in currencies other than Euro but publishes its financial statements in Euro.
The Group also holds a substantial portion of its cash and cash equivalents in currencies other than the Euro. The Groups sales and results may be materially affected by exchange rate fluctuations. For more information, see Item 11.
Quantitative and Qualitative Disclosures about Market Risk. Trademarks and Patents The Groups products are sold under the Natuzzi, Natuzzi Italia, Natuzzi Editions, Natuzzi Re-vive, Softaly trademarks. These trademarks and certain other trademarks, such asDivani&Divani by Natuzzi, have been registered in all jurisdictions in which the Group has a commercial
interest, such as Italy, the European Union and elsewhere. In order to protect its investments in new product development, the Group has also undertaken the practice of registering certain new designs in most of the countries in which such
designs are sold. The Group currently has approximately 910 design patents and patents (registered and pending) and approximately 17,500 design patents and patents by model and by country/jurisdiction (the same model may be registered in more
than one country and/or jurisdiction). Applications are made with respect to new product introductions that the Group believes will enjoy commercial success and have a high likelihood of being copied. In 2013, the Natuzzi Group launched
Re-vive®, an innovative armchair that was the result of a collaborative effort between Natuzzis Style Center and the Formway Design Studio
of Wellington, New Zealand. The Re-vive® recliner combines style and comfort, Italian artisan expertise and innovative New Zealand design. This
innovative armchair is internationally protected by several patents covering both its shape and all of its components. In particular, the design patent was filed in 40 countries, while the mechanism patent was filed and will be prosecuted in
8 countries. Natuzzi has entered into a 20-year licensing agreement, signed in January 2011, with Formway that allows it to utilize the design and mechanisms developed for the Re-vivearmchair in exchange for a licensing fee, payable in installments, and royalties representing a percentage of sales of the armchair. As for the distribution of the products that are manufactured in the Groups plants and identified under various names (Natuzzi
Italia, Natuzzi Editions, Natuzzi Re-vive), the Group has in place with its customers (retailers and/or wholesalers) business agreements under the form of a sales license (product supply and
brand usage license). Furthermore, the Group also has supply agreements in place with large wholesalers for the supply of private label
products that are manufactured by the Groups industrial plants outside of Italy. Regulation The Company is incorporated under the laws of the Republic of Italy. The principal laws and regulations that apply to the operations of
the Companythose of Italy and the European Unionare different from those of the United States. Such non-U.S. laws and regulations may be subject to varying interpretations or may be changed, and new laws and regulations may be
adopted, from time to time. Our products are subject to regulations applicable in the countries where they are manufactured and sold. Our production processes are regularly inspected to ensure compliance with applicable
regulations. While management believes that the Group is currently in compliance in all material respects with such laws and regulations (including rules with  31




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##### Table of Contents

respect to environmental matters), there can be no assurance that any subsequent official interpretation of such laws or regulations by the relevant governmental authorities that differs from
that of the Company, or any such change or adoption, would not have an adverse effect on the results of operations of the Group or the rights of holders of the Ordinary Shares or the owners of the Companys ADSs. See Item
4. Information on the CompanyEnvironmental Regulatory Compliance, Item 10. Additional InformationExchange Controls and Item 10. Additional InformationTaxation. Environmental Regulatory Compliance The Group, to the best of its knowledge, operates all of its facilities in compliance with all applicable laws and regulations. Insurance The Group maintains insurance against a number of risks. The Group insures against loss or damage to its facilities, loss or damage to its
products while in transit to customers, failure to recover receivables, certain potential environmental liabilities, product liability claims and Directors and Officer Liabilities. While the Groups insurance does not cover 100% of these risks,
management believes that the Groups present level of insurance is adequate in light of past experience. Description of Properties The location, approximate size and function of the principal physical properties used by the Group as of March 31, 2019 are set forth
below:  Country

Location

Size(approximatesquare meters)


Function

ProductionCapacity perday

Unit of
MeasureItaly

Santeramo in Colle (BA)


27,000


Headquarters, prototyping, showroom (Owned)

N.A.

N.A.Italy

Santeramo in Colle (BA)


2,000


Experimental laboratory: Leather cutting, Sewing, Assembling wooden parts for frame, product assembly (Owned)

100

SeatsItaly

Santeramo in Colle, Jesce (BA)


28,000


Sewing and product assembly (Owned)

800

SeatsItaly

Matera La Martella


38,000


General warehouse of sofas and accessory furnishing (Owned)

N.A.

N.A.Italy

Matera, Jesce


10,000


Leather cutting, Sewing, Assembling wooden parts for frame, product assembly (Owned)

350

SeatsItaly

Laterza (TA)


10,300


Leather and fabrics Warehouse, Leather and fabrics cutting, (Owned)

N.A.

N.A.Italy

Laterza (TA)


10,000


Sewing, Assembling wooden parts for frame, product assembly (Owned)

500

SeatsItaly

Laterza (TA)


16,000


Semi-finished products and accessories Warehouse (Owned)

N.A.

N.A.Italy

Qualiano (NA)


12,000


Polyurethane foam production (Owned)

46

TonsItaly

Pozzuolo del Friuli (UD)


21,000


Leather dyeing and finishing (Owned)

11,000

Square MetersU.S.A.

High Point, North Carolina


10,000


Office and showroom for Natuzzi Americas (Owned)

N.A.

N.A.Romania

Baia Mare


75,600


Leather cutting, sewing and product assembly, manufacturing of wooden frames, polyurethane foam shaping, fiberfill production and wood and wooden product manufacturing (Owned)

1,477

SeatsChina

Shanghai


88,000


Leather cutting, sewing and product assembly, manufacturing of wooden frames, polyurethane foam shaping, fiberfill production (Leased)

1,600

SeatsBrazil

Salvador de Bahia  Bahia


28,700


Leather cutting, sewing and product assembly, manufacturing of wooden frames, polyurethane foam shaping, fiberfill production (Owned)

210

Seats The Group believes that its production facilities are suitable for its production needs and are well
maintained.  32




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##### Table of Contents

Capital Expenditures The following table sets forth the Groups capital expenditures for each year for the two-year
period ended December 31, 2018:  Year ended December 31,(millionsofEuro)2018


2017Land and plants


0.7



0.7Equipment


6.6



6.0Intangible assets


0.9



1.2Total


8.2



7.9 Capital expenditures during the last two years were primarily made to make improvements to property, plant and
equipment and for the expansion of the Companys retail network. In 2018, capital expenditures were primarily made to make improvements at the Groups existing facilities, in particular in Italy for the improvement of the Groups
retail facilities. The Company made these capital expenditures as part of the Developing Contract (as defined in Item 4. Information on the CompanyIncentive Programs and Tax Benefits and further described below). As of the date of
this Annual Report, the Company has not been officially informed yet by the Government as for the amount and timing of possible government grants and subsidized loans for such investments. As of April 20, 2019, the Company has spent 1.1 million on capital expenditures since January 1, 2019. The Group expects that capital expenditures in 2019 will be in the region of 4.2 million. Capital expenditures in 2019 are expected
to be financed mainly through improved cash flow from operations. ITEM 4A. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion of the Groups results of operations, liquidity and capital resources is based on information derived from the
audited Consolidated Financial Statements and the notes thereto included in Item 18 of this Annual Report. These financial statements have been prepared in accordance with IFRS and are included in Item 18 of this Annual Report. All
information that is not historical in nature and disclosed under Item 5Operating and Financial Review and Prospects is deemed to be a forward-looking statement. See Item 3. Key InformationForward Looking
Information. The following discussion should be read in conjunction with our audited consolidated financial statements and their
accompanying notes included elsewhere herein. Such consolidated annual financial statements are our first financial statements prepared in accordance with IFRS. Pursuant to the transitional relief granted by the SEC in respect of the first-time
application of IFRS, no comparative information in respect to the consolidated financial statements and no financial information prepared under IFRS for the year ended December 31, 2016 have been included in this annual report. Consequently, no
discussion is included for the year 2016. See Note 1 and 43 to the Consolidated Financial Statements included in Item 18 of this Annual Report. Critical Accounting Policies and estimates Use of Estimates  The significant accounting policies used by the Group to prepare its financial statements are described in Note
4 to the Consolidated Financial Statements included in Item 18 of this Annual Report. The application of these policies requires management to make estimates, judgments and assumptions that are subjective and complex, and which affect the
reported amounts of assets and liabilities as of any reporting date and the reported amounts of revenues and expenses during any reporting period. The Groups financial results could be materially different if different estimates, judgments or
assumptions were used. The following discussion addresses the estimates, judgments and assumptions that the Group considers most material based on the degree of uncertainty and the likelihood of a material impact if a different estimate, judgment or
assumption were used. Actual results could differ from such estimates, due to, among other things, uncertainty, lack or limited availability of information, variations in economic inputs such as prices, costs, and other significant factors including
the matters described under Risk Factors. Impairment of non-financial Assets  Management reviews non-financial
assets, including intangible assets with estimable useful life, goodwill and equity-method investees, for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable and would record an
impairment charge if necessary. For impairment  33




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##### Table of Contents

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). Following IAS 36, recoverability of assets or CGUs to be held and used is measured by a comparison of the carrying amount of an asset to the recoverable amount, which is the higher of the estimated fair
value less costs to sell or of future discounted net cash flows expected to be generated by the asset or CGU. Future discounted net cash flows are significantly impacted by estimates of future prices for our products, capital needs, economic trends
and other factors. If the carrying value of an asset or CGU is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the asset or CGU exceeds its estimated recoverable amount, in relation to its use or
realization, as determined by reference to the most recent corporate plans. Assets not in use/to be disposed of are reported at the lower of their carrying amount and their fair value less costs to sell. Estimated fair value is generally determined
through various valuation techniques including quoted market values and third-party independent appraisals, as considered necessary. The Company analyzes its overall valuation and performs an impairment analysis of its
non-financial assets in accordance with IAS 36. Due to a market capitalization that falls below
the carrying amount of the Company, and history of operating loss and revenue decline, management has performed impairment tests on certain non-financial assets where losses have been generated. The fair value
analysis of each non-financial asset is unique and requires that management use estimates and assumptions that are deemed prudent and reasonable for a particular set of circumstances. Management believes that
the estimates used in the analyses are reasonable; however, changes in estimates could affect the relevant valuations and the recoverability of the carrying values of the assets. The cash flows employed in our 2018 discounted cash flow analyses for
impairment analysis of non-financial assets, were based on the budget approved by the board of directors on February 8, 2019. While management believes its estimates are reasonable, many of these matters involve significant uncertainty, and actual results may differ
from the estimates used. The key inputs and assumptions that were used in performing the 2018 impairment test for the main CGUs are as follows:  Year Ended Dec. 31, 2018CGU

Cash flows

Net book valueof the assetafter impairmenttest(thousands of)


G


WACC


SalesCAGR2019-23Italy - production sites

Discounted


32,525



0.5
%


10
%


6
%Italy - assets not in use

Third-party independent appraisal


16,011



n/a



n/a



n/a G  estimated long-term growth rate from Damodaran Online at
http://pages.stern.nyu.edu/~adamodar/ WACC  Weighted Average Cost of Capital Sales CAGR  Sales Compound Annual Growth Rate The compound annual growth rate for sales for Italian production sites is based on the five-year business plan. The deterioration of the macroeconomic environment, retail industry and the deterioration of our performance, could affect our Italian
production CGU. In performing the impairment analysis management has performed a sensitivity analysis, which results in a discounted cash flow exceeding the carrying amount of the CGU with an adequate cushion. As of December 31, 2018 and 2017, the Company did not record an impairment loss for its
non-financial assets.  34




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##### Table of Contents

Recoverability of Deferred Tax Assets  Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the accounting in the consolidated financial statements of existing assets and liabilities and their respective tax bases, as well as for losses available for carrying
forward in the various tax jurisdictions. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available. Deferred tax assets and liabilities are calculated using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment
date. In assessing the feasibility of the realization of deferred tax assets, management considers whether it is probable that some
portion or all of the deferred tax assets will not be realized. The ultimate realization 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 carried-forwards are utilized. Estimating future taxable income requires estimates about matters that are inherently uncertain and requires significant management judgment, and different estimates can have a significant impact on the
outcome of the analysis. In 2018 and 2017, because domestic companies and some of foreign subsidiaries realized significant pre-tax losses and were in a cumulative loss position, management did not consider it probable that the deferred tax assets of those companies would be realized in the scheduled reversal periods (see Note 36 to the
Consolidated Financial Statements included in Item 18 of this Annual Report). In making its determination that a deferred tax asset was required, management considered the scheduled reversal of deferred tax liabilities and tax planning
strategies but was unable to identify any relevant tax planning strategies available to increase the recognition of the deferred tax assets. Changes in the assumptions and estimates related to future taxable income, tax planning strategies and scheduled reversal of deferred tax
liabilities could affect the recoverability of the deferred tax assets. If actual results differ from such estimates and assumptions the Group financial position and results of operation may be affected. Provisions  The Group makes estimates and judgements in relation to the provisions for legal and tax claims, service warranties
and one time termination benefits for certain employees. 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 preset 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. Actual results related to such provisions may differ significantly from the estimates, due to, among other things, uncertainty, lack or
limited availability of information and variation in economic inputs. Fair value of Natuzzi Trading (Shanghai) Co. Ltd. 
Following the transaction occurred with Kuka, as fully disclosed in Note 10 to the Consolidated Financial Statements included in Item 18 of this Annual Report, the Company has lost control over its former subsidiary Natuzzi Trading (Shanghai) Co.
Ltd. In accordance with IFRS 10, the Company has recognized the 49% retained interest in its former subsidiary at its fair value, which was estimated utilizing a third-party independent appraiser, by applying a discounted earnings technique. Such
fair value is therefore based on significant inputs that are not observable in the market. Actual results related to such fair value may differ significantly from the estimate, due to, among other things, uncertainty of the significant assumptions
(i.e. forecasted sales), lack of historical information and variation in economic inputs.  35




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##### Table of Contents

Non-GAAP Financial
Measures We monitor and evaluate our operating and financial performance using several
non-GAAP financial measures including: Adjusted EBITDA and Net Financial Position. We believe
that these non-GAAP financial measures provide useful and relevant information regarding our performance and our ability to assess our financial performance and financial position. They also provide us with
comparable measures that facilitate managements ability to identify operational trends, as well as make decisions regarding future spending, resource allocations and other operational decisions. While similar measures are widely used in the
industry in which we operate, the financial measures we use may not be comparable to other similarly titled measures used by other companies nor are they intended to be substitutes for measures of financial performance or financial position as
prepared in accordance with IFRS. Adjusted earnings before interest, tax, depreciation and amortisation (Adjusted EBITDA) Management has 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. 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
)  36




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##### Table of Contents

Adjusted EBITDA is presented by management to aid investors in their analysis of the
performance of the Group and to assist investors in the comparison of the Groups performance with that of other companies. Net Financial
Position Net Financial Position is defined as Cash and cash equivalents, less Bank overdraft and short-term
borrowings, less Current portion of long-term borrowings, less Long-term borrowings. The following table
sets forth the calculation, in millions of Euro, of Net Financial Position for the years ended December 31, 2018 and 2017.  2018


2017Cash and cash equivalents


62.1



55.0Bank overdraft and short-term borrowings


(35.1
)


(26.0
)Current portion of long-term borrowings


(10.6
)


(4.8
)Long-term borrowings


(10.4
)


(20.9
)Net Financial Position


6.0



3.3 We believe our Net Financial Position provides useful information for investors because it gives evidence of
our consolidated position either in terms of net indebtedness or net cash by measuring our capital resources based on cash and cash equivalents and the total level of our financial indebtedness.  37




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##### Table of Contents

Results of Operations Summary  In 2014, the Group started a thorough reorganization process covering its industrial, sales and service operations. The
first signs of efficiency recovery were achieved in 2015 and the process has continued in 2016 with an almost break-even operating margin. In 2017 and 2018, the Company continued to invest resources to set up its retail and marketing organization
worldwide and restructure its overhead costs. On July 27, 2018, the joint venture agreement with KUKA Furniture (Ningbo) Co., Ltd.
(Kuka) was finalized and consequently the Companys wholly owned subsidiary, Natuzzi Trading Shanghai Co. Ltd., was deconsolidated. As a consequence of this disposal, the Company accounted for a non recurring income under the
Gain from disposal and loss of control of a subsidiary caption within the statement of profit or loss, for a total of 75.4 million. Including this non recurring income, Profit attributable to the Owners of the Company in 2018 was 33.3 million. As of December 31, 2018, cash and cash equivalents for the Group was 62.1 million, from 55.0 million at the end of
2017, and the Groups Net Financial Position was positive by 6.0 million compared to 3.4 million at the end of 2017. The following table sets forth certain statement of profit or loss data expressed as a percentage of revenue for the years indicated:  Year Ended December 31,2018


2017Revenue


100.00
%


100.00
%Cost of sales


71.9
%


70.9
%Gross profit


28.1
%


29.1
%Other income


1.4
%


0.4
%Selling expenses


26.8
%


26.3
%Administrative expenses


8.2
%


8.0
%Impairment on trade receivables


0.2
%


0.3
%Other expenses


0.1
%


0.0
%Operating loss


-5.9
%


-5.3
%Net finance costs


15.5
%


0.9
%Share of profit/(loss) of equity-method investees


0.1
%


0.0
%Income tax expense


1.8
%


0.6
%Profit/(Loss) for the year


7.7
%


-6.9
% The Company intends to follow its vision and strategy for the future by pursuing two parallel paths to gain
new market share and increase profitability: i) the transformation of the Company into a lifestyle brand coupled with the extension of its mono-brand store network mainly in U.S., China, the UK and some European Countries, and ii) focusing on
selected customers within the unbranded/private label business. 2018 Compared to 2017 Revenue for 2018, including sales of leather and fabric-upholstered furniture and other sales (principally sales of polyurethane foam
and leather sold to third parties as well as of accessories), were 428.5 million, down 4.5% from 2017, negatively affected by currency exchange rate fluctuations. Sales of upholstery furniture and home furnishing accessories (core business) were 407.1 million, down 3.8% compared to
2017, as a result of the 6.2% decrease in upholstery furniture net sales (at 365.3 million), partially offset by the 24.4% increase in home furnishing accessories sales (at 41.7 million). The 6.2% decrease in upholstery furniture net
sales was due principally to a 4.7% decrease in terms of seats sold, and to a 3.0% negative currency translation, partially offset by price-list increase and a positive sales mix contribution (+1.5%).  38




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##### Table of Contents

Other sales (sales of polyurethane foam and other goods) were 21.4 million in
2018, versus 25.8 million in 2017. The Group distributes worldwide its products through the following two divisions:  1)
The Natuzzi Division includes Natuzzi Italia, Natuzzi Editions and Divani&Divani by
Natuzzi products distributed through both the Companys directly operated network as well as third-party operated points of sales. This division addresses the medium/high-end segment of the market;
and  2)
The Softaly division, selling unbranded products exclusively through the wholesale channel and addressing the low-end segment of the market. 1) Natuzzi Division 2018 net sales of this division were 312.9 million, down 1.8% compared to 2017, as a result of the 7.3% decrease in sales from the
Americas, partially offset by the increase in sales from the EMEA and the Asia-Pacific regions (+0.5% and +2.3% respectively). Within the
Natuzzi division, Natuzzi Italia net sales increased by 7.6% over 2017 and represents 35.6% of the entire Groups core business (as compared to 31.8% in 2017). The Divani&Divani by Natuzzi network grew by 5.1% over 2017. On the contrary,
Natuzzi Editions net sales decreased by 11.1% over 2017, due, in particular, to weak performance in some European Countries. 1.a)
Natuzzi Division: Direct Retail Within the above-mentioned Natuzzi division, the Group directly operates points of sales (including
stores and concessions) under both Natuzzi Italia and Divani&Divani by Natuzzi name. During 2018, the Group opened 6 Natuzzi
Italia DOS, of which 3 in the U.S. (Chicago, Costa Mesa California and Fort Lauderdale Florida), two in France both located in Paris, and one in the UK (London Westfield). As of the date of this Annual Report, there are 67 DOS, of which 40 operated under the Natuzzi Italia name, 15 Divani&Divani by
Natuzzi and 12 Natuzzi Italia concessions (these being all located in Mexico, as the Company closed in the first part of 2019 all the United Kingdom based concessions that were operating under the Natuzzi Italia name). As disclosed during 2018, following the execution of the joint venture agreement in China, the 11 Natuzzi Editions Directly Operated
Stores (DOS) were transferred in July 27, 2018 to the joint venture vehicle and deconsolidated since that date. In 2018, Groups total direct retail sales were 63.0 million (including sales generated by the 11
Natuzzi Editions DOS in China through July 27, 2018), and 56.5 million in 2017 (including sales generated by the 11 Natuzzi Editions DOS in China during the twelve months of the year). For a more direct comparison, we will no longer consider these 11 Natuzzi Editions in this section. In 2018 sales from our directly operated retail network (excluding the 11 Natuzzi Editions in China) were 57.1 million, up 14.3%
compared to 2017, with positive results mainly from U.S. (+46.8%), Italy (+4.0%), Switzerland (+10.9%). Sales from our UK-based points of sale decreased by 21.6% mainly due to the restructuring activity in
that region. Direct Retail sales represented 14.0% of our 2018 core business. Natuzzi Italia DOS sales increased 17.9% to
43.7 million and Divani&Divani by Natuzzi DOS sales increased by 3.8% million at 13.4 million. 2018
sales on a like-for-like basis (i.e., considering points of sale in operation for both full-year 2018 and 2017) were 44.1 million, up 6.2% from
41.5 million in 2017, thanks, in particular, to the performance of our DOS located in the USA (+20.6%), Italy (+6.1%) and Switzerland (+15.9%) and Spain (+1.6%). 1.b) Natuzzi division: wholesale Natuzzi Sales generated by the wholesale channel (Natuzzi franchised operated stores, or FOS, and other selling formats), were
255.8 million, down 4.8% from 268.6 million in 2017.  39




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##### Table of Contents

Within this wholesale channel, Natuzzi Italia sales were 101.3 million, up 3.7%,
Natuzzi Editions sales were 139.0 million, down 11.1%, and sales from Divani&Divani by Natuzzi network were 15.5 million, up 6.3% compared over 2017. The Company has recently launched a new store concept for the Natuzzi Editions business in Cardiff, Wales, and Glasgow, Scotland. 2) Softaly wholesale division Sales generated by this division, addressing the low-end segment of the market, were
94.2 million, down 9.9% from 104.5 million in 2017. The Softaly business in 2018 has been particularly
affected by the difficult retail conditions experienced in the North American market, as some of the Companys historical partners are restructuring their retail assets, resulting in a reduction of their points of sales. Due to the price-based
competition affecting this segment of the furniture industry, the Companys plan for this division is to focus on a few selected primary customers. Cost of Sales in 2018 was 308.3 million (or 71.9% as a percentage of revenue), as compared to 318.4 million (or
70.9% of revenue) in 2017. In 2017 and in 2018, the Group implemented its program to reduce the Italian workforce and therefore, within
the Consolidated statements of profit or loss, it accounted for labor-related costs of 10.0 million in 2017 (almost entirely represented by the accrual made for legal proceedings risks, in addition to 0.8 million as an
incentive program to reduce the workforce) and 5.6 million in 2018 pertaining mainly to the incentive program to reduce the number of workers. In addition, we had an increase in cost of labor, net of the abovementioned labor-related costs, from 18.3% in 2017 to 19.7%, also due to
extra work-time necessary to respect the delivery terms required by our customers during 2018. Gross Profit. During 2018, the
consolidated gross margin was equal to 28.1%, versus 29.1% in 2017. Net of the above mentioned labor related costs, the gross margin
would have been 29.4% in 2018 and 31.3% in 2017. The gross margin in 2018 was also affected by increasing prices in some raw materials. Selling Expenses. In 2018, selling expenses were 115.0 million (or 26.8% on revenues) compared to
118.3 million (or 26.3% on revenues) in 2017, affected by 0.5 million of costs pertaining to an incentive program to reduce the Italian workforce as described above. Administrative Expenses. In 2018, the Groups administrative expenses decreased by 0.8 million to
35.3 million, from 36.1 million in 2017, and, as a percentage of revenue, from 8.0% in 2017 to 8.2% in 2018 mainly affected by 0.8 million of costs pertaining an incentive program to reduce the Italian workforce as
described above. Net of this labor-related costs, administrative expenses on revenues would have been 8.1%. Operating Loss. As a
result of the factors described above, in 2018 the Group had an operating loss of 25.4 million compared to an operating loss of 23.9 million in 2017.  40




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##### Table of Contents

Net finance income/costs. The Group registered Net finance costs of
66.3 million in 2018 as compared to (4.0) million in 2017. Net finance costs of 2018 include:  
Finance income of 0.4 million (1.2 million in 2017);  
Finance costs of (5.6) million (6.3 million in 2017);  
Net exchange rate gains/(losses) of (3.9) million (1.1 million in 2017);  
Gains from disposal and loss of control of a subsidiary of 75.4 million (nil in 2017). The improvement of 70.3 million in Net finance costs is primarily due to the
75.4 million gain deriving from the transaction with Kuka. See Notes 10, 34 and 35 to the Consolidated Financial Statements included in Item 18 of this Annual Report. The Group recorded a 3.9 million foreign-exchange net loss in 2018, as compared to a net gain of 1.1 million in 2017.
The foreign exchange loss in 2018 primarily reflected the following factors:  
a net realized loss of 0.9 million in 2018 (as compared to a net realized gain of
1.9 million in 2017) on domestic currency swaps due to the difference between the forward rates of the domestic currency swaps and the spot rates at which the domestic currency swaps were closed (the Group uses forward rate contracts to
hedge its price risks against unfavorable exchange rate variations);  
a net realized gain of 3.3 million in 2018 (compared to a gain of 0.4 million in 2017),
from the difference between invoice exchange rates and collection/payment exchange rates;  
a net unrealized loss of 0.0 million in 2018 (compared to an unrealized gain of
1.0 million in 2017), from the mark-to-market evaluation of domestic currency swaps;  
a net unrealized loss of 5.4 million in 2018 (compared to an unrealized loss of
0.0 million in 2017) on accounts receivable and payable;  
a net unrealized loss of 0.9 million in 2018 (compared to an unrealized loss of
2.2 million in 2017), from the translation of non-monetary assets for those subsidiaries adopting Euro as their functional currency. The Group does not use hedge accounting and records all fair value changes of its domestic currency swaps in its statement of profit or loss.
See Notes 27 and 28 to the Consolidated Financial Statements included in Item 18 of this Annual Report. Income Taxes. In
2018, the Group income taxes increased to 7.4 million from 2.9 million in 2017. The Group had an effective tax rate of 18.32% on its profit before taxes and non-controlling interests,
compared to the Groups effective tax rate of 10.32% reported in 2017. See Note 36 to the Consolidated Financial Statements included in Item 18 of this Annual Report. Profit/(loss) for the year. Reflecting the factors above, the Group reported a profit of 33.1 million in 2018, as compared
to a loss of 30.8 million in 2017. On a per-Ordinary Share basis, the Group had profit of 0.61 in 2018, as compared to losses of 0.55 in 2017.  41




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Liquidity and Capital Resources In the ordinary course of business, our use of funds is for the payment of operating expenses, working capital requirements and capital
expenditures. The Groups principal source of liquidity has historically been its existing cash and cash equivalents and cash flow from operations, supplemented to the extent needed to meet the Groups short term cash requirements by
accessing the Groups existing lines of credit. During 2014, the Group experienced some operating difficulties in the implementation
of the Group Business Plan. The Business Plan foresaw, in its main guidelines, product innovation initiatives, with the introduction of the moving line production system in Group plants and subsequent
re-engineering of existing models, and a sharp decrease in fixed and production costs. See Item 3. Key InformationRisk FactorsThe Group has a recent history of losses; the Groups
future profitability, financial condition and ability to maintain adequate levels of liquidity depend to a large extent on its ability to overcome macroeconomic and operational challenges, Item 3. Key InformationRisk
FactorsThe Groups ability to generate the significant amount of cash needed to service our debt obligations and comply with our other financial obligations and our ability to refinance all or a portion of our indebtedness or obtain
additional financing depends on multiple factors, many of which may be beyond our control.  42




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In 2015, as a result of corrective measures introduced in the second half of 2014, the Group
achieved positive results in terms of production efficiency (in particular in the Italian and Chinese plants) and in terms of control and reduction of fixed costs and rationalization of the DOS network. As a consequence the operating loss improved
in 2015 as compared to 2014. During 2015, the Group was able to obtain new credit lines to support its cash needs. In particular, the
Company was granted a long-term loan of 5 million, and a bank overdraft of 2.5 million, while the Romanian subsidiary obtained a bank facility in the amount of 10 million. In addition, the existing short-term credit
lines were renewed and a non-recourse trade receivable securitization agreement was signed in July 2015 with a primary Italian financial institution, for the sale of a maximum amount of 35 million
performing receivables, on a revolving basis. During 2018, the Company finalized the joint venture agreement with Kuka, as
disclosed in Note 10 of the consolidated financial statements included in Item 18 of this Annual Report. The agreements with Kuka, finally signed on July 27, 2018, have resulted in an investment by Kuka in the Group of
65 million, for the acquisition of the majority stake in the subsidiary Natuzzi Trading (Shanghai) Co., Ltd. Out of these 65 million, 20 million have remained at Natuzzi Trading (Shanghai) Co., Ltd. to sustain
investments, while 45 million have been paid in favor of Natuzzi S.p.A., as cash consideration for the purchase of the investment in the subsidiary (30 million) and right to access of Natuzzis trademarks (15 million). In 2018, the Group reported an operating loss of 25.4 million from an operating loss of 23.9 million in 2017. The Groups Net Financial Position remained positive at 6.0 million at year-end 2018,
increasing by 2.6 million as compared to 2017, also thanks to the cash injection deriving from the transaction finalized with Kuka. As of December 31, 2018, the Group had cash and cash equivalents on hand of 62.1 million, and credit facilities totaling
138.2 million (147.7 million as of December 31, 2017). Existing credit lines of 2018 are as follows: a) unsecured credit line for 29.6 million; b) secured credit line for 61.1 million secured by real
estate mortgage and invoice discount facilities; and c) securitization of trade receivables of 47.5 million. The Group uses these lines of credit to manage its operational needs. The unused portions of lines of credit were approximately
24.0 million (see Note 24 to the Consolidated Financial Statements included in Item 18 of this Annual Report) as of December 31, 2018. The vast majority of these credit lines are under credit facilities that are not subject to
any restrictions. Bank overdrafts are repayable either on demand or on a short-term basis. See Item 3  Key Information  Risk Factors. The Groups borrowing needs generally are not subject to significant seasonal
fluctuations. Although we had 62.1 million in cash and cash equivalents on hand at December 31, 2018,
18.3 million of this amount is located in our Chinese subsidiaries. To the extent management intends to move the cash from China by a dividend distribution, a withholding tax of 10% and the income taxes in Italy (equal to 24.0% of 5% of
the dividends distributed) would have to be paid. Management believes that the Group has sufficient sources of liquidity that can be
generated by operating activities to fund working capital needs, capital expenditures and other contractual obligations for the next 12 months. The Company will continue to be focused on effective cash management, by rationalizing our overhead
structure, finding additional efficiency in our plants, improving logistics and quality, in order to balance our financial resources between working capital and investments needs. Cash Flows The Groups cash and cash equivalents, net of bank overdraft, were 60.4 million as of
December 31, 2018 as compared to 55.0 million as of December 31, 2017. The most significant changes in the Groups cash flows between 2018 and 2017 are described below. In 2018, Net Cash used in operating activities was 11.3 million. In 2017, net cash used in operations were 4.9 million
(of which (8.3) million was related to one-time termination costs). During 2018, the
Group continued to reduce net working capital as a result of: a) 7.4 million as positive contribution from the extension in days payables outstanding; b) 6.0 million as positive contribution from the improvement in inventories;
c) 3.7 million as negative contribution from receivables, of which 3.5 million relates to the worsening of other trade receivables (not involved in the securitization process).  43




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Net cash provided by investment activities in 2018 was 14.6 million as compared
to net cash used in investment activities of 10.3 million in 2017. The increase in cash was mainly due to the sale of the 23.54% stake in Natuzzi Trading Shanghai Co. Ltd. to Kuka, for a total consideration of
30 million. In 2018, capital expenditures were primarily made for the expansion of the Companys retail network, to make
improvements to property, plant and equipment of the existing facilities worldwide, to increase efficiency in production processes, and in software, with particular reference to the development of a 3D product-configurator application. Cash provided by financing activities in 2018 was 2.2 million compared to cash provided by financing activities in 2017 of
12.4 million; this change is mainly due to the obtainment of a 12.5 million long-term loan in 2017, and to a higher use of short-term borrowings in 2018 by 1.4 million. As of December 31, 2018, the Groups long-term contractual cash obligations amounted to 137.8 million, of which
59.6 million comes due in 2019. See Item 5. Operating and Financial Review and ProspectsContractual Obligations and Commitments. The Groups long-term borrowings represented 15.3% of Equity attributable to the
Owners of the Company as of December 31, 2018 (25.1% as of December 31, 2017) (see Note 18 to the Consolidated Financial Statements included in Item 18 of this Annual Report). As of December 31, 2018 and 2017 the Company was in compliance with the
long-term loans covenants. The Groups uses of funds are expected to be the payment of operating expenses, working capital requirements, capital expenditures and restructuring of operations. See Item 4. Products for further
description of our research and development activities. See Item 4. Incentive Programs and Tax Benefits for further description of certain government programs and policies related to our operations. See Item 4. Capital
expenditure for further description of our capital expenditures. Contractual Obligations and
Commitments The Groups current policy is to fund its cash needs, accessing its cash on hand and existing lines of credit,
consisting of short-term credit facilities and bank overdrafts, to cover any short-term shortfall. The Groups policy is to procure financing and access to credit at the Company level, with the liquidity of Group companies managed through a
cash-pooling zero-balancing arrangement with a centralized bank account at the Company level and sub-accounts for each subsidiary. Under this arrangement, cash is transferred to subsidiaries as needed on a daily basis to cover the subsidiaries
cash requirements, but any positive cash balance at subsidiaries must be transferred back to the top account at the end of each day, thus centralizing coordination of the Groups overall liquidity and optimizing the interest earned on cash held
by the Group. As of December 31, 2018, the Groups long-term borrowings consisted of 20.9 million (including 10.6
million of the current portion of such debt) and its short-term borrowings consisted of 35.1 million outstanding under its existing lines of credit, comprised entirely of bank overdrafts. The Group maintains cash and cash equivalents in the currencies in which it conducts its operations, principally Chinese Yuan, U.S. dollars,
Euros, New Romanian Leu, British pounds and Canadian dollars. The following table sets forth the contractual obligations and commercial
commitments of the Group as of December 31, 2018:  Payments Due by Period (thousands of euro)Contractual Obligations

Total


Less than 1 year


1-2 years


2-5 years


After 5 yearsLong-term borrowings


20,943



10,582



3,177



5,381



1,803Bank overdrafts and short term borrowings


35,148



35,148











Total Debt(1)


56,091



45,730



3,177



5,381



1,803Interest due on Total Debt (2)


963



413



233



282



35Operating Leases (3)


80,740



13,503



12,823



32,611



21,803Total Contractual Cash Obligations


137,794



59,646



16,233



38,274



23,641  (1)
Please see Note 18 to the Consolidated Financial Statements included in Item 18 of this Annual Report for more
information on the Groups long-term borrowings. See Notes 18 and 24 of the Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F.  (2)
Interest due on total debt has been estimated using rates contractually agreed with lenders.  (3)
The leases relate to the leasing of manufacturing facilities and stores by several of the Groups
companies. See Note 40 of the Consolidated Financial Statements included in Item 18 of this Annual Report.  44




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Under Italian law, the Company and its Italian subsidiaries are required to pay a
termination indemnity to their employees when these cease their employment with the Company or the relevant subsidiary. Likewise, the Company and its Italian subsidiaries are required to pay an indemnity to their sales agents upon termination of the
sales agents agreement. As of December 31, 2018, the Group had accrued an aggregate employee termination indemnity of 17.2 million. In addition, as of December 31, 2018, the Company had accrued an aggregate sales agent termination
indemnity of 1.1 million. See Notes 19 and 21 of the Consolidated Financial Statements included in Item 18 of this Annual Report. These amounts are not reflected in the table above. It is not possible to determine when the amounts that have
been accrued will become payable. As at December 31, 2018, the provision for legal claims refers for 9.3 million (9.3 million
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 9.3 million. See Note 21 to the Consolidated Financial Statements included in Item 18 of this Annual Report. The Group is also involved in a number of claims (including tax claims) and legal actions arising in the ordinary course of business. As of
December 31, 2018, the Group had accrued provisions relating to these contingent liabilities in the amount of 12.0 million. See Item 8. Financial InformationLegal and Governmental Proceedings and Note 21 to the
Consolidated Financial Statements included in Item 18 of this Annual Report. Trend information The recovery of the global economy is subject to a number of factors, most of which remain uncertain.  45




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Global trade growth moderated in 2018 amid significant volatility, with a strong performance
being recorded in the first half of 2018, followed by a relatively sharp deceleration. This slowdown reflects weakening global manufacturing activity, heightened trade tensions and, more recently, a significant deterioration in trade in Asia 
particularly in China. A temporary agreement between the United States and China in December 2018 on tariffs dispute has fueled further
trade tensions. Tariffs on U.S.$200 billion of Chinese exports to the United States had originally been set to rise from 10% to 25% as of January 1, 2019, but that increase was put on hold as a result of the agreed truce. While this sent a
positive signal, there remains considerable uncertainty as to whether the ongoing trade negotiations will lead to a significant de-escalation of trade tensions. A formal trade agreement between the United
States and China is currently expected to be signed shortly. Risks remain, however, as trade tensions with China could intensify again and the US administration could also impose new tariffs on imports from other countries. In the USA, favorable financial conditions and fiscal stimulus are continuing to support growth, outweighing the adverse impact of the trade
dispute with China. Annual headline consumer price inflation fell to 1.6% in January from 1.9% in the previous month, largely on account of falling energy prices, while consumer price inflation excluding food and energy remained unchanged at 2.2%. Euro area growth remained subdued in the last part of 2018. Most recent data, with particular reference to the manufacturing sector that
has been affected by the slowdown in external demand and some Country-specific factors, suggest that growth will continue at moderate rates in the near term. The impact of these factors is turning out to be somewhat longer-lasting, which suggests
that the near-term growth outlook will be weaker than previously anticipated, notwithstanding favorable financing conditions and further, albeit small, employment gains and rising wages. In the United Kingdom, heightened political uncertainty is continuing to weigh on growth. Even the short-term outlook is subject to
considerable uncertainty as a result of the forthcoming votes on the EU withdrawal agreement in parliament. In Japan, recovering domestic
demand supported growth in late 2018. This recovery followed a sharp contraction in the third quarter due to natural disasters. Looking ahead, the countrys accommodative monetary policy stance, its strong labor market and its robust demand for
investment (despite a weakening external environment) are all projected to support growth. In addition, fiscal measures are expected to smooth out the negative impact of the consumption tax increase that is scheduled for October of this year. In central and eastern European countries, growth is projected to moderate somewhat this year. Investment growth remains strong, supported by
EU funds, and consumer spending also remains robust, underpinned by strong labor market performance. However, the slowdown in the euro area is weighing on the growth outlook for this region. Growth in China has lost some of its momentum at the end of 2018. Moreover, monthly indicators suggest that this trend is likely to continue
in 2019. In order to protect the economy from a sharper slowdown, the Chinese authorities have announced a number of fiscal and monetary policy measures. Despite the temporary truce between the United States and China, risks stemming from an intensification of global trade tensions remain high.
A sharper slowdown in Chinas economy might be more difficult to address using policy stimulus, which will also pose challenges in the context of the countrys ongoing rebalancing process. Meanwhile, a no deal Brexit scenario
could have highly adverse spillover effects, especially in Europe, and elevated geopolitical uncertainties could weigh on global growth. Prospects remain uncertain in particular in the Euro area due to the general weakness in the job market, ongoing vulnerability in the
real-estate sector, a decreasing level of savings among families, high levels of public indebtedness in most developed countries, political, austerity measures designed to reduce public expenditures and consequent decreased consumer spending.
Furthermore, a resurgence of the sovereign debt crisis in certain European countries could diminish the banking industrys ability to lend to the real economy, thus setting in motion a negative spiral of declining production, higher
unemployment and a weakening financial sector. Total Group order flow through the first fifteen weeks of 2019 Total
Groups order flow is down low single-digit versus the same period of 2018, due to the weak performance of the Softaly division. 1) Natuzzi Division Order flow for the Natuzzi division was flat as compared to the same period of last year. We reported a positive performance in the EMEA region and in the Asia-Pacific region, and a decrease in the Americas. Order flow for the Natuzzi Italia products decreased, notwithstanding the positive performance from our directly operated segment.
Order flow for the Natuzzi Edition products reported an increase.  46




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For 2019, the Group will focus its efforts primarily on North America, China, United Kingdom
and Italy. The efforts the Company has made over the last several years on brand, in expanding its product offering and its monobrand
store network, together with high Natuzzi brand recognition, are expected to support the branded business. 2) Softaly Division year-to-date order flow, as compared to the same period in 2018, shows a medium single-digit decrease, due to the negative performance in the EMEA region that
has more than offset the increase in the Americas and in the Asia-Pacific region. The Companys plan for the Softaly division is to focus primarily on a few selected primary customers. Trend in raw materials  For the first part of 2019, the Group has benefitted from the decrease in leather prices and expects
stable trend for the next months. Off-Balance Sheet Arrangements As of December 31, 2018, neither Natuzzi S.p.A. nor any of its subsidiaries was a party to any
off-balance sheet arrangements. Related Party Transactions Please see Item 7. Major Shareholders and Related Party Transactions of this Annual Report. New Accounting Standards under IFRS Recently issued Accounting PronouncementsIFRS Recently issued but not yet adopted IFRS relevant for the Company
are as follows: (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 at the date of approval of the consolidated financial statements as at December 31, 2018, 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 recognition exemptions mentioned above, the Group has non-cancellable operating lease commitments of approximately 80 million 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 million.  47




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The Group expects no significant impact from the application of the new standard on net
profit and cash flow from operating activities, nor on its ability to comply with loan covenants. (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.  48




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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES As of the date of this Annual Report, the board of directors of Natuzzi S.p.A. consists of seven members, all of whom were elected at the
Companys annual general shareholders meeting held on April 30, 2018. All of the members of the board of directors were elected for a three-year period. The directors and senior executive officers of the Company as of April 30,
2019, were as follows:  Name

Age

Position within the CompanyPasquale Natuzzi *

79

Chairman of the Board of Directors and CEOAntonia Isabella Perrone *

49

Non-executive DirectorPaolo Braghieri*

65

Non-executive DirectorGiuseppe Antonio DAngelo *

53

Non-executive DirectorVincenzo Perrone*

60

Non-executive DirectorStefania Saviolo*

54

Non-executive DirectorErnesto Greco*

68

Executive DirectorVittorio Notarpietro

56

Chief Financial and Legal OfficerMichele Variale

39

Chief AuditorPierangelo Colacicco

50

Chief Technology & Digital Innovation OfficerMichele Onorato

41

Chief HR & Organization OfficerPasquale Junior Natuzzi

29

Creative Director & StylistAldo Amati

48

Chief Process Innovation & Product Development OfficerAntonino Gambuzza

59

Chief Operations OfficerUmberto Longobardo

52

Chief Quality & Customer Care OfficerNazzario Pozzi

47

Chief Commercial Officer NatuzziGiovanni Tucci

47

Chief Commercial Officer Private Label & Key Country Wholesales  *
The above-mentioned members of the board of directors were elected at the Companys annual general
shareholders meeting held on April 30, 2018. Pasquale Natuzzi, currently Chairman of the Board of
Directors and CEO. He founded the Company in 1959. Mr. Natuzzi held the title of sole director of the Company from its incorporation in 1972 until 1991, when he became the Chairman of the Board of Directors. Mr. Natuzzi has creative skills
and is directly involved with brand development and product styling. He takes care of strategic partnerships with existing and new accounts. Antonia Isabella Perrone is a Non-executive Director and is involved in the main areas of
Natuzzi Group management, from the definition of strategies to retail distribution, marketing and brand development, and foreign transactions. In 1998, she was appointed sole director of a company in the agricultural-food sector, wholly owned by the
Natuzzi Family. She joined the Natuzzi Group in 1994, dealing with marketing and communication for the Italian market under the scope of retail development management until 1997. She has been married to Pasquale Natuzzi since 1997. Paolo Braghieri is a Non-executive Director of the Company. In 2017 he founded and is the
controlling shareholder of G.B.C. S.A., a real estate company. From 2009 through 2016, he served as CEO and general manager of GE Capital Interbanca. From 2004 through 2008 he was a general manager of Interbanca S.p.A. and from 2001 through 2004 he
acted as country manager and head of the corporate and investment banking division of ABN Amro in Italy. From 1991 through 2001, he worked at Credit Suisse First Boston in London and was responsible for the management of corporate finance
transactions involving Italian clients. He started his banking career as a credit analyst at The Chase Manhattan Bank N.A. where he eventually held various positions in the investment banking division of the London, Rome and Milan branches from 1980
through 1991. He served as member of the board of directors and of the executive committee of Sorin S.p.A. (2006 - 2009) and as member of the board of directors of IMA S.p.A. (2004 - 2006). He is a member of the Advisory Board of the Department of
Mechanical Engineering of the Polytechnic of Milan since 2016. He earned his degree in Mechanical Engineering from the Polytechnic of Milan and his MBA from the Polytechnic of Milan School of Management. Giuseppe Antonio DAngelo is a Non-executive Director of the Company and is currently
Executive Vice President of Anglo-America & CIS regions with Ferrero International SA. Before joining Ferrero in 2009, he acquired significant international experience in general management of multinational companies such as General
Mills (from 1997 to 2009), S.C. Johnson & Son (from 1991 to 1997) and Procter & Gamble (from 1989 to 1991). Mr. DAngelo earned his Bachelor of Arts degree in Economics from LUISS University of Rome in 1988. He received
certification from Harvard Business School in the Advanced Management Program in 2004. Vincenzo Perroneis a Non-executive Director of the Company and is currently Professor of Organizational Theory and Behavior at Bocconi UniversityMilan, Italy, where he also previously served as Director of the Organizational and
Human Resource Management Department of the Bocconi School of Management (19962002), Chairman of the Institute of Organization and Information Systems (20012007) and Vice-Rector for Research (20082012). He was a visiting
professor at Carlson School of Management at the University of Minnesota from 1992 to 1994. He currently serves on the  49




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board of publishing company Egea S.p.A. (since June 2009) and of Aviva Italia Holding (since 2015), an insurance company where he also serves as a member of the risk, auditing and remuneration
committees. He has prior experience as a member of the board of directors of ClarisVita S.p.A. (20032005), ACTA S.p.A. (2004), IP Cleaning S.p.A. (20042008) and Società Autostrada Pedemontana Lombarda S.p.A.
(20092011) and served on the advisory boards of Arthur Andersen MBA S.r.l. (19992000) and SAP Italia S.p.A. (20002001), as a member of the Technical and Scientific Oversight Board for procurement studies overseen by the
Ministry of Economy and Finance  Treasury Department, on board committees responsible for awarding public tenders organized by Consip S.p.A. (20002003), on the Technical Committee for Research and Innovation of Confindustria
(20042008) and on the Technical Commission for Public Finance at the Ministry of Economy and Finance (20072008). He has served as the Director of the Bocconi School of Managements Economia&
Management journal and has served as a reviewer for the Academy of Management Journal, Academy of Management Review, Organization Science (editorial board member) and Journal of International Business Studies. He has
published several books and articles both in Italian and international journals. Stefania Saviolo is a Non-executive Director of the Company. She is currently Professor of Management at Bocconi University and SDA Bocconi School of Management where, since 2013, she has been the Director of the Luxury &
Fashion Knowledge Center and, since 2001, founder and director of the Master in Fashion, Experience & Design Management in partnership with Fondazione Altagamma. She was a visiting scholar at the Stern School of Business, New York
University and also served as a visiting professor at Fudan University in Shanghai, China. She is a member of the board of directors of TXT e-solutions, a listed international software products and solutions
vendor, where she is also member of the risk committee and President of the remuneration committee. She has gained expertise in brand and retail management, product marketing and international strategies as a senior consultant for international
fashion, luxury and design companies. She is the author and co-author of several books and articles diffused at international level, particularly in the luxury, fashion and design industries. Ernesto Grecois an Executive Director of the Company. Following the ordinary shareholders meeting held on May 2, 2017, the Board
of Directors met on the same day and entrusted Director Ernesto Greco with ad hoc powers to supervise and support activities of the finance staff. Since October 2007 has been the Chief Financial Officer and General Manager for Administration,
Control and Information Systems of the Ferragamo Group. He started his professional career working at large chemical companies, including Montedison and Eni, as well as in technology companies such as Hewlett Packard and Wang Laboratories in
controllership and finance related positions. From 1989 to 2006 he served as Chief Financial Officer at the Bulgari Group and, from 2006 to 2007, he served as Chief Executive Officer of the Natuzzi Group. Vittorio Notarpietro is the Chief Financial & Legal Officer of the Company. He joined the Group in 2009 as Chief
Financial Officer and from 1991 to 1998 was the Finance Director and Investor Relations Manager for the Group. From 1999 to 2006, he was Vice President for Finance for IT Holding Group. From 2006 to 2009, he was the CEO of Malo S.p.A., a
leading Italian company in the luxury sector. He re-joined the Group in September 2009. Michele Varialeis the Chief Auditor of the Group. He joined the Group at the end of August 2017 with responsibility for providing
assurance to the Board of Directors and the Audit Committee that processes and internal controls are effective and properly designed to mitigate key business risks. Within the mandate he has been provided by the Board of Directors, his scope of work
covers all key Group risks, including strategic, financial, operational and compliance risks. His main duties include defining and completing planned audit activities, following up on opportunities for improvement, providing independent advice and
periodically reporting to the Audit Committee and the Board of Directors on matters regarding internal control and risk management. In addition, he is responsible for providing assurance over design and effectiveness of key controls relevant for
SOX. Global Internal Audit team members fulfill their duties in compliance with the ethical code of the Institute of Internal Audit. During his professional career, he has performed different roles in Finance, Internal Audit and Financial Crime
Compliance in the last 15 years. Previously, he has worked for PwC, General Electric and Willis Towers Watson, in different industries and sectors. He is a Certified Internal Auditor and a Certified Anti Money Laundering Specialist. Nazzario Pozziis the Chief Natuzzi Division Officer. He joined the Group in 2016 and is responsible for the growth strategy relating
to the brand strategy, brand communication, consumer strategy, research and development, style and design, merchandising, product development and product engineering, marketing, global retail and sales operations and customer acquisition. He
graduated from Harvard Business School. Throughout his career, he has held general management positions in brands and retail businesses at global level and in the luxury goods, consumer goods and cross-industry retail sectors. He has managed brand
strategies and profitable growth in brands such as HUGO BOSS, Salvatore Ferragamo and DIESEL, and has served as senior strategy advisor to the CEO of Baccarat.  50




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##### Table of Contents

Pasquale Junior Natuzziis the Chief Creative Director & Stylist Officer of
the Group. Pasquale Junior, as son of the company owner Pasquale Natuzzi, joined the Group in 2012. He is responsible for defining the Groups strategic direction in style and creativity, managing the transformation of the Company from a
furniture player to a lifestyle brand. He is also Global Marketing & Communication Director of the Group, a position he assumed in 2017. Pasquale Junior started his career at Natuzzi as Marketing Program Manager, before his appointment as
Global Communication Director and Deputy Creative Director from 2016-2017, where he oversaw the development of Natuzzis global brand strategy. Giovanni Tucciis the Chief Commercial Officer Softaly & Key Country Wholesale of the Natuzzi Group. He joined the Group in
2013 and is responsible for worldwide merchandising and sales for both the commercial and the industrial elements of business, as well as overseeing the Softaly global team. He, will also oversee the management of the entire wholesale business for
the following Key Markets: DACH, the US East Coast and France. He joined the Group in January 2013 as Private Label Sales Director for EMEA, bringing with him many years of experience in merchandising and sales. He also previously worked in both the
automotive and wholesale furniture industries. Giovannis background includes: attending a scientific high school, and flight academy. He also earned a bachelors degree in economics and business administration. His role is presently
focused on restructuring sales in the North American market in line with the EMEA. Antonino Gambuzzais the Chief Operations
Officer of the Group. He joined the Group in January 2019 and is responsible for worldwide operations, including the Groups purchases and its supply chain. Antonino is a graduate of Politecnico of Milan, where he received a degree in
Electronic Management Engineering. He has twenty-five years of experience in international engineering companies, developing technical skills oriented to a lean manufacturing logic and managing complex industrial projects at an international level.
His previous experience includes being Executive Operations Director at ILVA, holding positions of increasing responsibility up to Manufacturing Executive Director at Indesit Company and serving as Head of the Lacquering Department at the FIAT
Group. Michele Onoratois the Chief HR & Organization Officer of the Group. He joined the Group in June 2018 with the
responsibility of supporting the realization of the Group strategy through the implementation of an HR Global Management System that supports the continuous development of the Groups internal competences in relation to its business priorities.
Michele holds a degree in Economics and Business and a Masters in Human Resource Management. He has developed his professional career in roles of ever-increasing responsibility within the Human Resources Management and Industrial Relations
department. From 2015 to May 2018, he was Human Resources Director South Area at Ilva SpA. He also gained work experience in the Coesia Group, Philips, Saeco and Indesit. Umberto Longobardois the Chief Quality & Customer Care Officer of the Group. He joined the Company in January 2017 and is
responsible for the worldwide quality and customer care departments that include order management, credit collection and claims management. Umberto started his career in Nuovo Pignone SpA (General Electric) as Plant Quality Manager, then served as
Plant Manufacturing & Maintenance Manager in 2001 He formerly worked at Indesit S.p.A., where he held positions of increasing responsibility such as Plant Quality Control Manager, Plant Operations Manager and Returns Manager. In 2008 he
joined Gucci Logistics S.p.A. - Kering Group, a global Luxury Group representing Gucci, Bottega Veneta, Saint Laurant, Stella McCartney and other entities. He developed his career in the field of Quality Management and After Sales, including WW
Quality & After Sales Service Director. He holds a degree in Mechanical Engineering. Aldo Amati is the Chief Process
Innovation & Product Development Officer of the Group. He joined the Group in May 2018 with responsibility focused in two different areas: 1) product development, industrialization and product innovation, and 2) innovation and integrated
production process methodologies. He is an experienced manager with more than 19 years professional career in the Aerospace field, primarily focused on improvement projects and production processes. About his previous experience, he served from 2004
to 2006 at Officine Aeronavali S.p.A. as Production Manager. He formerly worked at Alenia Aermacchi S.p.A. in roles of increasing responsibility, including Manufacturing Engineering & Assembly Production Unit Manager. From 2015 to May 2018
he worked at Salver S.p.A as Production Unit Director. Angelo Colacicco is the Chief Technology & Digital Innovation
Officer of the Group. The Digital department was created with a clear objective: upgrading our mindset from traditional to digital. This goal is attainable through the discovery, adoption and implementation of innovative technologies that make
processes simple throughout the supply chain, while improving customer satisfaction and making the brand more competitive. From 2014 to 2018, he was Chief Information Officer (CIO), Process and Organization Director, and from 2007 to 2014 he was CIO
of the Group. He joined the Companys HR & Organization department in 1994. In 1996, he served as a software specialist in the IT department. From 2000 to 2007, he was the IT manager for all sales and distribution processes.  51




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##### Table of Contents

Compensation of Directors and Officers As a matter of Italian law and under our By-laws, the compensation of executive directors, including
the CEO, is determined by the board of directors, after consultation with the board of statutory auditors, within a maximum amount established by the Companys shareholders. The Companys shareholders determine the base compensation for
all members of the board of directors, including non-executive directors. Compensation of the Companys executive officers (for performing their role as such) is determined by the CEO. None of our
directors or senior executive officers is party to a contract with the Company that would entitle such persons to benefits upon the termination of service as a director or employee, as the case may be. Aggregate compensation paid by the Group to the directors and officers was approximately 2.9 million in 2018. The compensation recognised in 2018 to the members of the board of directors is set forth below individually:  Name

BaseCompensationPasquale Natuzzi


120,000.00Antonia Isabella Perrone


25,000.00Giuseppe Antonio DAngelo


25,000.00Braghieri Paolo(1)


17,333.00Stefania Saviolo


26,000.00Ernesto Greco


25,000.00Vincenzo Perrone


26,000.00Cristina Finocchi Mahne(2)


8,333.00  (1)
Mr. Paolo Braghieri was elected for the first time at the Companys annual general shareholders
meeting held on April 30, 2018. His 2018 compensation is prorated accordingly. (2)
Mrs. Cristina Finocchi Mahne served until the Companys annual general shareholders meeting held on
April 30, 2018, but she was not re-elected at such meeting. Her 2018 compensation is prorated accordingly. In 2019,
approximately 42, only the first reports of the CEO and only commercial staff from around the world, can participate in the MBO incentive system. The Company will only pay a bonus pursuant to the MBO system if certain budget results relating to the
operating result are achieved. Statutory Auditors At the Companys annual general shareholders meeting on April 27, 2016, the following individuals were elected to the
Companys board of statutory auditors for a three-year term. Their terms ended in April 2019. The board consists of three members, one of which is a chairperson, and two alternates.  Name

PositionCarlo Gatto

ChairmanCataldo Sferra

MemberGiuseppe Pio Macario

MemberAndrea Venturelli

AlternateVito Passalacqua

Alternate During 2018, the Groups statutory auditors received approximately 0.1 million in compensation
in the aggregate for their services to the Company and its Italian subsidiaries. At the Companys annual general shareholders
meeting on April 29, 2019, the following individuals were elected to the Companys board of statutory auditors for a three-year term. The board consists of three members, one of which is a chairperson, and two alternates.  Name

PositionGiuseppe Pio Macario

ChairmanFrancesco Campobasso

MemberAndrea Venturelli

MemberAurelio Franco Colasanto

AlternateVito Passalacqua

Alternate  52




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##### Table of Contents

We are subject to Rule 10A-3 (Rule 10A-3) under the Securities Exchange Act of 1934, as amended (the Exchange Act), which requires, absent an exemption, that a listed company maintain an audit committee composed of members of the
issuers board of directors that meet certain independence requirements. The Company relies on an exemption from the Rule 10A-3 requirements provided by Rule 10A-3(c)(3) of the Exchange Act for foreign private issuers with a board of statutory auditors established in accordance with local law or
listing requirements and subject to independence requirements under local law or listing requirements. See Item 16D. Exemption from Listing Standards for Audit Committees for more information. Employees The following table illustrates the breakdown of the Groups employees by qualification and location for the periods indicated:  Qualification

As of December 31,


Change2018/2017


Change2017/20162018


2017


2016Top managers


55



55



56



0



(1
)Middle managers


199



223



202



(24
)


21Clerks


1,035



1,012



981



23



31Laborers


3,564



3,849



3,932



(285
)


(83
)Total


4,853



5,139



5,171



(286
)


(32
)Location

As of December 31,


Change2018/2017


Change2017/20162018


2017


2016Italy


2,364



2,436



2,268



(72
)


168Outside Italy


2,489



2,703



2,903



(214
)


(200
)Total


4,853



5,139



5,171



(286
)


(32
) In 2018, we completed the Reintegration Plan (involving 168 work units) after the Bari Labor Court determined
that they were unjustly dismissed. Overall, 55 workers in this time period have voluntarily left the Company. Abroad, the reduction is
due to a contraction of production volumes and to the Joint Venture with Kuka, which has caused a shift of employees of Trading Shanghai to another Company. In December 20, 2018, the Company announced that, subject to obtaining any applicable authorizations, the Company, along with the Trade
Unions and Italian relevant the authorities agreed to extend the Solidarity Agreement (reduced-work schedules) for a one-year period ending in December 2019. In addition, parties signed an agreement to allow
the Company to benefit from a temporary workforce reduction program, called CIGS, involving up to 491 employees, for a period of 24 months in order to support the reorganization process. HR People Development The growth and development of Natuzzi employees is the most important mission that the HR People Development department is pursuing. Natuzzi
has the strong conviction that people are the Company. Employee development is a joint initiative by the employee and the employer to improve individuals existing skills and knowledge. Respecting this fundamental belief, we are aware that Employee Development is a long-term initiative, but also produces benefits in the
short-term like increased loyalty and improved performance and engagement. We are constantly working to put in place programs and tools to achieve both initiatives. In order to accomplish our ends, we are following these guidelines to improve development: 1. Continuous Learning& Training: professional training, personal attitude to improve, cross-department
training, and soft-skills training. 2. Coaching& Mentoring: based on assessment activities results,
performance evaluation, and other forms of continuous feedback, HR People Development can design solutions to match learning needs, not only by classroom or one-way lessons, but by leveraging the
expertise and knowledge already present in the Company that must be expertly handed down.  53




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##### Table of Contents

The two aforementioned guidelines implement plans and training programs designed on the
basis of the needs or any performance gap to be met. The guidelines align with the Groups long-term principles, and the continuity of the training courses started in previous years. In addition, these guidelines shape and direct other aspects
of employee hiring, retention and overall experience, including Recruitment, Induction, Talent acquisition & management, Workforce planning, and others. These processes are constantly being improved and adapted to the specific needs at
Global Organization level. In 2018, we conducted training activities to support the company strategy with regard to both Commercial
Employees and Corporate Employees. Commercial training activities at the Companys Headquarters - 2018 The Commercial Training in 2018 sought not just to guarantee the education of Sales staff to enable them offer the best retail experience, but
to focus on the launch of the e-learning project. The Natuzzi Digital Academy is a strategic
investment, offering the opportunity to train and educate the entire sales force and effectively support the Company in the achievement of goals set by the business plan. This project is particularly relevant considering that the current Natuzzi
distribution covers five continents and the new brand strategy requires professionals who are even more skilled, from the store staff to the top management. Thanks to this web-based platform, the trainers at
the Companys Headquarters will be able to provide direct training about a wide range of topics (Company, Brand, Retail Operations, Sales Tools, Soft skills, etc.) to different kind of positions (Sales Staff, Visual Merchandiser, Merchandising
Managers, Marketing Managers, etc.) at the same time. Furthermore, after we make an initial major investment to have the platform set up and its contents produced, we anticipate that this method will make this kind of training more effective also
from a cost saving standpoint. While the platform has been available since April 2019, the Company continues to invest in skills
development through traditional training sessions such as Company and Store Opening training as well educational paths in collaboration with prestigious consulting firms about technical and soft skills. Other training Activities in 2018 We engage in a series of other trainings as well that cover competencies such as specialized R&D concepts and certifications, packaging,
ergonomic design, digital skills, marketing & communications, customer service and production. The companys corporate training is a testament to the companys constant desire for innovation in its mission. An example of a type of
corporate training we offer is a program for the Designers Team on the ergonomic design of sofas. In addition, together with an external consultant company, the Company organized training courses for part of its finance staff regarding specific
international accounting principles and the related impacts on the operational side.  54




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##### Table of Contents

Share Ownership Mr. Pasquale Natuzzi, who founded the Company and is currently its CEO and Chairman of the Board of Directors, as of April 20, 2018,
beneficially owns an aggregate amount of 30,967,521 Ordinary Shares, representing 56.5% of the Ordinary Shares outstanding (61.6% of the Ordinary Shares outstanding if the 5.1% of the Ordinary Shares owned by members of Mr. Natuzzis
immediate family - the Natuzzi Family - are aggregated). As a result, Mr. Natuzzi controls Natuzzi S.p.A., including its
management and the selection of the members of its board of directors. Since December 16, 2003, Mr. Natuzzi has held his entire beneficial ownership of Natuzzi S.p.A. shares through INVEST 2003 S.r.l., an Italian holding company
wholly-owned by Mr. Natuzzi and having its registered office at Via Gobetti 8, Taranto, Italy. On November 6, 2014, INVEST 2003
S.r.l., completed the purchase of 250,000 ADSs, each representing one Ordinary Share, at a price of U.S.$2.00 per ADS. The purchase was privately negotiated with a single individual and was effected through an escrow arrangement with BNY Mellon. On July 30, 2014, INVEST 2003 S.r.l., completed the purchase of 500,000 ADSs, each representing one Ordinary Share, at a price of
U.S.$2.75 per ADS. The purchase was privately negotiated with a single individual and was effected through an escrow arrangement with BNY Mellon. For more information, refer to Schedule 13D (Amendment No. 2), filed with the SEC on
September 14, 2014, that amends and supplements the Schedule 13D, filed with the SEC on April 24, 2008 (as amended by Amendment No. 1 filed on April 8, 2013 (Amendment No. 1). These two purchases, carried out for investment purposes, brought the number of Ordinary Shares beneficially owned by each of Mr. Natuzzi
and INVEST 2003 S.r.l. to 30,967,521 (representing 56.5% of the Ordinary Shares outstanding). Between September 27, 2011 through
April 30, 2013, INVEST 2003 S.r.l. completed the purchase of a total of 859,628 Natuzzi S.p.A. ADSs (representing approximately 1.6% of the Companys total shares outstanding), at an average price of U.S.$ 2.37 per ADS. These
purchases were made in accordance with a purchase plan undertaken pursuant to Rule 10b-18 (Purchases of Certain Equity Securities by the Issuer and Others) promulgated under the Securities Exchange Act of 1934 (the Rule
10b-18 Plan). On April 18, 2008, INVEST 2003 S.r.l. purchased 3,293,183 ADSs, each representing one Ordinary Share, at the
price of U.S.$ 3.61 per ADS. For more information, refer to Schedule 13D, filed with the SEC on April 24, 2008, and related Amendment No. 1 to Schedule 13D, filed with the SEC on April 8, 2013. For further discussion, see Note 22
to the Consolidated Financial Statements included in Item 18 of this Annual Report. On February 8, 2019, the Companys board of
directors approved a change in the ratio of its ADSs to Ordinary Shares, from one (1) ADS representing one (1) Ordinary Share, to one (1) ADS representing five (5) Ordinary Shares. The effective date of the ratio change was February 21, 2019. There
were 4,361,981 ADSs (equivalent to 21,809,905 Ordinary Shares) outstanding as of February 21, 2019.  55




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##### Table of Contents

Each of the Companys other directors and officers owns less than 1% of the
Companys Ordinary Shares and ADSs. None of the Companys directors or officers has stock options. ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Major Shareholders Mr. Pasquale Natuzzi, who founded the Company and is currently its CEO and Chairman of the Board of Directors, as of April 19, 2019,
beneficially owns an aggregate amount of 30,967,521 Ordinary Shares representing 56.5% of the Ordinary Shares outstanding (61.6% of the Ordinary Shares outstanding if the 5.1% of the Ordinary Shares owned by the Natuzzi Family are aggregated). Since
December 16, 2003, Mr. Natuzzi has held his entire beneficial ownership of Natuzzi S.p.A. shares through INVEST 2003 S.r.l., an Italian holding company wholly-owned by Mr. Natuzzi and having its registered office at Via Gobetti 8,
Taranto, Italy. The following table sets forth information, as of April 19, 2019, with respect to each person who beneficially owns
5% or more of the Companys Ordinary Shares or ADSs:  Number ofOrdinary Sharesowned


PercentownedPasquale Natuzzi (1)


30,967,521



56.5
%Quaeroq CVBA(2)


3,748,180



6.8
%Donald Smith & Co., Inc.(3)


2,935,525



5.4
%Credit Suisse Group AG (4)


2,759,900



5.0
%  (1)
Includes ADSs purchased on April 18, 2008, purchases made from September 27, 2011 through
April 30, 2013 under the Rule 10b-18 Plan and two privately negotiated purchases executed on July 30, 2014 and November 6, 2014. If Mr. Natuzzis Ordinary Shares are aggregated with
those held by members of the Natuzzi Family, the amount owned would be 33,767,521 and the percentage ownership of Ordinary Shares would be 61.6%. (2)
According to the Schedule 13G filed with the SEC by Quaeroq CVBA on May 1, 2017. (3)
According to the Schedule 13G filed with the SEC by Donald Smith & Co., Inc. on February 8, 2018. (4)
According to the Schedule 13F filed with the SEC by Credit Suisse AG on September 30, 2018. As indicated in Item 6.  Share Ownership, Mr. Natuzzi controls Natuzzi S.p.A., including its
management and the selection of the members of its board of directors. Since December 16, 2003, Mr. Natuzzi has held his entire beneficial ownership of Natuzzi S.p.A. shares through INVEST 2003 S.r.l., an Italian holding company
wholly-owned by Mr. Natuzzi and having its registered office at Via Gobetti 8, Taranto, Italy. In addition, the Natuzzi Family has a
right of first refusal to purchase all the rights, warrants or other instruments which BNY, as Depositary under the Deposit Agreement, determines may not lawfully or feasibly be made available to owners of ADSs in connection with each right
offering, if any, made to holders of Ordinary Shares. None of the shares held by the above shareholders has any special voting rights. As
of April 19, 2019, 54,853,045 Ordinary Shares were outstanding. As of the same date, there were 4,361,981 ADSs (equivalent to 21,809,905 Ordinary Shares) outstanding. The ADSs represented 39.8% of the total number of Natuzzi Ordinary Shares
issued and outstanding. On February 8, 2019, the Companys board of directors approved a change in the ratio of its ADSs to
Ordinary Shares, from one (1) ADS representing one (1) Ordinary Share, to one (1) ADS representing five (5) Ordinary Shares (the Ratio Change). The effective date of the Ratio Change was February 21, 2019. There
were 4,361,981 ADSs (equivalent to 21,809,905 Ordinary Shares) outstanding as of February 21, 2019.  56




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##### Table of Contents

For ADS holders, the Ratio Change had the same effect as a one-for-five reverse ADS split. No new shares were issued in connection with the Ratio Change. As a result of the Ratio Change, the price of the Companys ADSs automatically increased proportionally. Since certain Ordinary Shares and ADSs are held by brokers or other nominees, the number of direct record holders in the United States
may not be fully indicative of the number of direct beneficial owners in the United States or of where the direct beneficial owners of such shares are resident. Related Party Transactions Transactions that have been entered into with related parties as at December 31, 2018 and 2017 are set forth, in millions of Euro, in the
following table:  31/12/2018


31/12/2017Sales


16.4



3.6Expenses


1.0



Amount owned by related parties


9.3



1.4Amounts due to related parties


1.0



0.0 Other than the foregoing transactions, neither the Company nor any of its subsidiaries was a party to a
transaction with a related party that was material to the Company or the related party, or any transaction that was unusual in its nature or conditions, involving goods, services, or tangible or intangible assets, nor is any such transaction
presently proposed. During the same period, neither the Company nor any of its subsidiaries made any loans to or for the benefit of any related party. ITEM 8. FINANCIAL INFORMATION Consolidated Financial Statements Please refer to Item 18. Financial Statements of this Annual Report. Export Sales Export sales from Italy totaled approximately 129.3 million in 2018, down 1.9% from 2017. That figure represents approximately 35%
of the Groups 2018 net leather and fabric-upholstered furniture sales. Legal and Governmental
Proceedings The Group is involved in tax and legal proceedings, including several minor claims and legal actions, arising in the
ordinary course of business. The provision recorded against these claims is 12.0 million as of December 31, 2018 (14.9 million as of December 31, 2017). See Item 3. Key InformationRisk factors
and Note 21 to the Consolidated Financial Statements included in Item 18 of this Annual Report. Apart from the proceedings
described above, neither the Company nor any of its subsidiaries is a party to any legal or governmental proceeding that is pending or, to the Companys knowledge, threatened or contemplated against the Company or any such subsidiary that, if
determined adversely to the Company or any such subsidiary, would have a materially adverse effect, either individually or in the aggregate, on the business, financial condition or results of the Groups operations. Dividends Notwithstanding the Net Profit reported by the Group in 2018 mainly because of the extraordinary income of 75.4 million and
considering the capital requirements necessary to implement the restructuring of the operations and its planned retail and marketing activities, the Group decided not to distribute dividends in respect of the year ended on December 31, 2018.
The Group has also not paid dividends in any of the prior three fiscal years. The payment of future dividends will depend upon the
Companys earnings and financial condition, capital requirements, governmental regulations and policies and other factors. Accordingly, there can be no assurance that dividends in future years will be paid at a rate similar to dividends paid in
past years or at all.  57




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##### Table of Contents

Dividends paid to owners of ADSs or Ordinary Shares who are United States residents
qualifying under the Income Tax Convention will generally be subject to Italian withholding tax at a maximum rate of 15%, provided that certain certifications are given timely. Such withholding tax will be treated as a foreign income tax which U.S.
owners may elect to deduct in computing their taxable income, or, subject to the limitations on foreign tax credits generally, credit against their United States federal income tax liability. See Item 10. Additional
InformationTaxationTaxation of Dividends. ITEM 9. THE OFFER AND LISTING Trading Markets and Share Prices Natuzzis Ordinary Shares are listed on the NYSE in the form of ADSs under the symbol NTZ. Neither the Companys
Ordinary Shares nor its ADSs are listed on a securities exchange outside the United States. BNY Mellon is the Companys Depositary for purposes of issuing the American Depositary Shares evidencing ADSs. Trading in the ADSs on the NYSE commenced
on May 13, 1993. On December 26, 2018 the Company received notice from the NYSE that the Company was no longer in compliance
with one of the NYSEs continued listing standards for a listed company, particularly, the average closing price of the Companys ADSs was less than US$1.00 over a consecutive 30-trading day-period. The Company notified the NYSE on December 27, 2018 of its intention to cure this
deficiency within the prescribed timeframe. On February 8, 2019, the Companys Board of Directors approved a change in the
ratio of its ADSs to ordinary shares, par value 1.00 per share (the Shares), from one (1) ADS representing one (1) Share, to one (1) ADS representing five (5) Shares (the Ratio Change). The effective
date of the Ratio Change (the Effective Date) was February 21, 2019. There were 4,361,981 ADSs (equivalent to 21,809,905 Ordinary Shares) outstanding as of February 21, 2019. For ADS holders, the Ratio Change had the same effect as a
one-for-five reverse ADS split. No new shares were issued in connection with the Ratio Change and Natuzzis ADSs continue to be traded on the NYSE under the same
symbol NTZ. As a result of the Ratio Change, the price of the Companys ADSs automatically increased proportionally. On
March 1, 2019, the Company received confirmation from the NYSE that it had regained compliance with continued listing standards. If,
in the future, the Company again falls below the continued listing criterion of a minimum share price of $1.00 over a 30-trading day period, the Companys security will be subject to immediate review by
the NYSE. The Company is currently in compliance with all the NYSE continued listing standards under Section 802.00 of the NYSE
manual. The following table sets forth, for the periods indicated, the high and low market prices on an intraday basis per ADS as
reported by the NYSE. The prices for the periods indicated in the following table already reflect the new ADS ratio.  58




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##### Table of Contents

New York Stock ExchangePrice per ADS(in US dollars)High

Low2014

16.10

6.652015

14.50

6.752016

11.90

6.402017

16.50

7.252018

9.45

3.75High

Low2017First quarter

14.45

10.10Second quarter

16.50

11.55Third quarter

14.20

9.50Fourth quarter

10.84

7.25High

Low2018First quarter

9.45

7.05Second quarter

8.80

7.40Third quarter

8.35

6.80Fourth quarter

6.90

3.75High

Low2019First quarter

6.53

4.18High

LowMonthly dataOctober 2018

6.90

5.80November 2018

6.25

4.10December 2018

5.05

3.75January 2019

6.53

4.18February 2019

6.23

4.47March 2019

5.63

4.65April, through 19, 2019

4.97

4.07 ITEM 10. ADDITIONAL INFORMATION By-laws The following is a summary of (i) certain information concerning the Companys shares and By-laws
(statuto) and (ii) the relevant provisions of Italian stock corporations. In particular, Italian issuers of shares that are not listed on a regulated market of the European Union are governed by the rules of the Italian civil code (the
Civil Code). This summary contains all the information that the Company considers to be material regarding its shares, but does not purport to be complete and is qualified in its entirety by reference to the By-laws or the relevant provisions of Italian law, as the case may be. General  The issued
share capital of the Company consists of 54,853,045 Ordinary Shares, with a par value of 1.00 per share. All the issued shares are fully paid, non-assessable and in registered form. The Company is registered with the Companies Registry of Bari at No. 261878, with its registered office in Santeramo in Colle
(Bari), Italy. As set forth in Article 3 of the By-laws, the Companys corporate purpose is
the production, marketing and sale of sofas, armchairs, furniture in general and raw materials used for their production. The Company is generally authorized to take any actions necessary or useful to achieve its corporate purpose. Authorization of Shares  At the extraordinary shareholders meeting of the Company held on July 23, 2004, the
shareholders authorized the Companys board of directors to carry out a free capital increase of up to 500,000, and a capital increase against payment of up to 3.0 million to be issued, in connection with the grant of stock
options to employees of the Company and of other Group companies. On January 24, 2006 the Companys board of directors, in accordance with the Regulations of the Natuzzi Stock Incentive Plan 2004-2009 (which was approved by the
board of directors in a meeting held  59




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##### Table of Contents

on July 23, 2004), decided to issue without consideration 56,910 new Ordinary Shares in favor of the beneficiary employees. Consequently, the number of Ordinary Shares increased on the same
date from 54,681,628 to 54,738,538. On January 23, 2007, the Companys board of directors, in accordance with the Regulations of the Natuzzi Stock Incentive Plan 2004-2009, decided to issue without consideration 85,689 new
Ordinary Shares in favor of beneficiary employees. Consequently, the number of Ordinary Shares increased on the same date from 54,738,538 to 54,824,227. On January 24, 2008 the Companys board of directors, in accordance with the
Regulations of the Natuzzi Stock Incentive Plan 2004-2009, decided to issue without consideration 28,818 new Ordinary Shares in favor of the beneficiary employees. Consequently, the number of Ordinary Shares increased on the same date
from 54,824,227 to 54,853,045, the current number. Form and Transfer of Shares  The Companys Ordinary Shares are in
certificated form and are freely transferable by endorsement of the share certificate by or on behalf of the registered holder, with such endorsement either authenticated by a notary, in Italy or elsewhere, or by a broker-dealer or a bank in Italy.
The transferee must request that the Company enters his name in the register of shareholders in order to exercise his rights as a shareholder of the Company. Dividend Rights  Payment by the Company of any annual dividend is proposed by the board of directors and is subject to the
approval of the shareholders at the annual shareholders meeting. Before dividends may be paid out of the Companys unconsolidated net income in any year, an amount at least equal to 5% of such net income must be allocated to the
Companys legal reserve until such reserve is at least equal to one-fifth of the par value of the Companys issued share capital. If the Companys share capital is reduced as a result of
accumulated losses, no dividends may be paid until the capital is reconstituted or reduced by the amount of such losses. The Company may pay dividends out of available retained earnings from prior years, provided that, after such payment, the
Company will have a legal reserve at least equal to the legally required minimum. No interim dividends may be approved or paid. Dividends
will be paid in the manner and on the date specified in the shareholders resolution approving their payment (usually within 30 days of their annual general meeting). Dividends that are not collected within five years of the date on which
they become payable are forfeited to the benefit of the Company. Holders of ADSs will be entitled to receive payments in respect of dividends on the underlying shares through BNY, as ADR Depositary, in accordance with the deposit agreement relating
to the ADSs. Voting Rights  Registered holders of the Companys Ordinary Shares are entitled to one vote per
Ordinary Share. As a registered shareholder, the Depositary (or its nominee) will be entitled to vote the Ordinary Shares underlying the
ADSs. The Deposit Agreement requires the Depositary (or its nominee) to accept voting instructions from holders of ADSs and to execute such instructions to the extent permitted by law. Neither Italian law nor the Companys By-laws limit the right of non-resident or foreign owners of the Companys Ordinary Shares to hold or vote shares of the Company. Board of directors  Under Italian law and pursuant to the Companys By-laws, the
Company may be run by a sole director or by a board of directors, consisting of seven to eleven individuals. The Company is currently run by a board of directors composed of seven individuals (see Item 6. Directors, Senior Management and
Employees). The board of directors is elected by the ordinary shareholders meeting of the Company, for the period established at the time of election but in no case for longer than three fiscal years. A director, who may, but is not
required to be, a shareholder of the Company, may be reappointed for successive terms. The board of directors has the full power of ordinary and extraordinary management of the Company and in particular may perform all acts it deems advisable for
the achievement of the Companys corporate purposes, except for the actions reserved by the applicable law or the By-laws to a vote of the ordinary or extraordinary shareholders meeting. See also
Item 10. Additional InformationMeetings of Shareholders. The board of directors must appoint a chairman
(presidente) and may appoint a vice-chairman. The chairman of the board of directors is the legal representative of the Company. The board of directors may delegate certain powers to one or more managing directors (amministratori
delegati), determine the nature and scope of the powers delegated to each director and revoke such delegation at any time. The managing directors must report to the board of directors and the board of statutory auditors at least every 180 days
on the Companys business and the main transactions carried out by the Company or by its subsidiaries. The board of directors may
not delegate certain responsibilities, including the preparation and approval of the draft financial statements, the approval of merger and de-merger plans to be submitted to shareholders meetings,
increases in the amount of the Companys share capital or the issuance of convertible debentures (if any such power has been delegated to the board of directors by vote of the extraordinary shareholders meeting) and the fulfilment of the
formalities required when the Companys capital has to be reduced as a result of accumulated losses that reduce the Companys stated capital by more than one-third. See also Item 10. Additional
InformationMeetings of Shareholders.  60




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The board of directors may also appoint a general manager (direttore generale), who
must report directly to the board of directors and confer powers for single acts or categories of acts to employees of the Company or persons unaffiliated with the Company. Meetings of the board of directors are called no less than five days in advance by letter sent via fax, telegram or e-mail by the chairman on his own initiative. Meetings may be held in person, by video-conference or tele-conference, in the location indicated in the notice convening the meeting, or in any other destination, each
time that the chairman may consider necessary. The quorum for meetings of the board of directors is a majority of the directors in office. Resolutions are adopted by the vote of a majority of the directors present at the meeting. In case of a tie,
the chairman has the deciding vote. Directors having any interest in a proposed transaction must disclose their interest to the board of
directors and to the board of statutory auditors, even if such interest is not in conflict with the interest of the Company in the same transaction. The interested director is not required to abstain from voting on the resolution approving the
transaction, but the resolution must state explicitly the reasons for, and the benefit to the Company of, the approved transaction. In the event that these provisions are not complied with, or that the transaction would not have been approved
without the vote of the interested director, the resolution may be challenged by a director or by the board of statutory auditors if the approved transaction may be prejudicial to the Company. A managing director must solicit prior board approval of
any proposed transaction in which he has any interest and that is within the scope of his powers. The interested director may be held liable for damages to the Company resulting from a resolution adopted in breach of the above rules. Finally,
directors may be held liable for damages to the Company if they illicitly profit from insider information or corporate opportunities. The
board of directors may transfer the Companys registered office within Italy, set up and eliminate secondary offices and approve mergers by absorption into the Company of any subsidiary in which the Company holds at least 90% of the issued
share capital. The board of directors may also approve the issuance of shares or convertible debentures and reductions of the Companys share capital in the case of withdrawal of a shareholder if so authorized by the Companys
extraordinary shareholders meeting. Under Italian law and pursuant to the Companys
By-laws, directors may be removed from their office at any time by the vote of shareholders at an ordinary shareholders meeting. However, if removed in circumstances where there was no just cause, such
directors may have a claim for damages against the Company. Directors may resign at any time by written notice to the board of directors and to the chairman of the board of statutory auditors. The board of directors, subject to the approval of the
board of statutory auditors, must appoint substitute directors to fill vacancies arising from removals or resignations to serve until the next ordinary shareholders meeting. If at any time more than half of the members of the board of
directors appointed by the shareholders meeting of the Company resign, such resignation is ineffective until the majority of the new board of directors has been appointed. In such a case, the remaining members of the board of directors (or the
board of statutory auditors if all the members of the board of directors have resigned or ceased to be directors) must promptly call an ordinary shareholders meeting to appoint the new directors. The compensation of executive directors, including the CEO, is determined by the board of directors, after consultation with the board of
statutory auditors, within a maximum amount established by the Companys shareholders meeting. The Companys shareholders meeting determines the base compensation for all board members, including
non-executive directors. Directors are entitled to reimbursement for expenses reasonably incurred in connection with their functions. Statutory Auditors  In addition to appointing the board of directors, the ordinary shareholders meeting of the Company,
appoints a board of statutory auditors (collegio sindacale) and its chairman, and set the compensation of its members. The statutory auditors are elected for a term of three fiscal years, may be
re-elected for successive terms and may be removed only for cause and with the approval of a competent court. Expiration of their office will have no effect until a new board is appointed. Membership of the
board of statutory auditors is subject to certain good standing, independence and professional requirements, and shareholders must be informed as to the offices the proposed candidates hold in other companies prior to or at the time of their
election. In particular, at least one standing and one alternate member must be a chartered public accountant. The Companys By-laws provide that the board of statutory auditors shall consist of three statutory auditors and two alternate auditors (who are automatically substituted for a statutory auditor who resigns or is otherwise unable
to serve). The Companys board of statutory auditors is required, among other things, to verify that the Company (i) complies
with applicable laws and the By-laws, (ii) complies with applicable principles of good governance, and (iii) maintains adequate organizational structure and administrative and accounting systems. The
Companys board of statutory auditors must be convened at least once every 90days. The board of statutory auditors reports to the annual shareholders meeting on the results of its activity and the results of the Companys operations.
In addition, the statutory auditors of the Company must attend the meetings of the Companys board of directors and shareholders meetings.  61




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The statutory auditors may decide to call a shareholders meeting, ask information
about the management of the Company to the members of the board of directors, carry out inspections and verifications at the Company and exchange information with the Companys external auditors. Additionally, the statutory auditors have the
power to initiate a liability action against one or more directors after adopting a resolution with an affirmative vote by two thirds of the auditors in office. Any shareholder may submit a complaint to the board of statutory auditors regarding
facts that such shareholder believes should be subject to scrutiny by the board of statutory auditors, which must take any complaint into account in its report to the shareholders meeting. If shareholders collectively representing 5% of the
Companys share capital submit such a complaint, the board of statutory auditors must promptly undertake an investigation and present its findings and any recommendations to a shareholders meeting of the Company (which must be convened
immediately if the complaint appears to have a reasonable basis and there is an urgent need to take action). The board of statutory auditors may report to a competent court serious breaches of directors duties. External Auditor  The audit of the Companys accounts is entrusted, as per current legislation, to an independent audit firm
whose appointment falls under the competency of the shareholders meeting, upon the board of statutory auditors proposal. In addition to the obligations set forth in national auditing regulations, Natuzzis listing on the NYSE
requires that the audit firm issues an audit report on the consolidated financial statements included in the annual report on Form 20-F, in compliance with the auditing standards issued by the Public Company
Accounting Oversight Board (PCAOB). Moreover, the independent audit firm is required, if applicable, to issue an opinion on the effectiveness of the internal control system applied to financial reporting. No such opinion was required for the Company
as of December 31, 2018. The external auditor or the firm of external auditors is appointed for a three-year term, may be re-elected for successive terms, and its compensation is determined by a vote at an ordinary shareholders meeting of the Company and may be removed only for just cause by a vote of the shareholders
meeting. Meetings of Shareholders  Shareholders are entitled to attend and vote at ordinary and extraordinary
shareholders meetings. Votes may be cast personally or by proxy. Shareholders meetings may be called by the Companys board of directors (or the board of statutory auditors) and must be called if requested by holders of at least 10%
of the issued shares. If a shareholders meeting is not called despite the request by shareholders and such refusal is unjustified, a competent court may call the meeting. Shareholders are not entitled to request that a meeting of shareholders
be convened to vote on matters which, as a matter of law, shall be resolved on the basis of a proposal, plan or report by the Companys board of directors. The Company may hold general meetings of shareholders at its registered office in Santeramo in Colle, or elsewhere within Italy or at
locations outside Italy, following publication of notice of the meeting in any of the following Italian newspapers: Il Sole 24 Ore, Corriere della Sera or La Repubblica at least 15 days before
the date fixed for the meeting. The ordinary shareholders meeting of the Company must be convened at least once a year. The
Companys annual stand-alone financial statements are prepared by the board of directors and submitted for approval to the ordinary shareholders meeting, which must be convened within 120 days after the end of the fiscal year to
which such financial statements relate. This term may be extended by up to 180 days after the end of the fiscal year, as long as the Company continues to be bound by law to draw up consolidated financial statements or if particular circumstances
concerning its structure or its purposes so require. At ordinary shareholders meetings, shareholders also appoint the external auditors, approve the distribution of dividends, appoint the members of the board of directors and of the board of
statutory auditors, determine their remuneration and vote on any matter the resolution or authorization of which is entrusted to them by law. Extraordinary shareholders meetings may be called to vote on proposed amendments to the By-laws,
issuance of convertible debentures, mergers and de-mergers, capital increases and reductions, when such resolutions may not be taken by the board of directors. Liquidation of the Company must be resolved by an
extraordinary shareholders meeting. The notice of a shareholders meeting of the Company may specify two or more meeting dates
for an ordinary or extraordinary shareholders meeting; such meeting dates are generally referred to as calls. The
quorum for an ordinary shareholders meeting of the Company is 50% of the Ordinary Shares, and resolutions are adopted by the majority of Ordinary Shares present or represented. At an adjourned ordinary meeting, no quorum is required, and the
resolutions are carried by the majority of Ordinary Shares present or represented. Certain matters, such as amendments to the By-laws, the issuance of shares, the issuance of convertible debentures, mergers
and de-mergers, may only be resolved upon at an extraordinary meeting, at which special voting rules apply. Resolutions at an extraordinary meeting of the Company are adopted, on first call, by a majority of
the Ordinary Shares. An adjourned extraordinary meeting is validly held with a quorum of one-third of the issued shares and its resolutions are carried by a majority of at least
two-thirds of the holders of shares present or represented at such meeting. In addition, certain matters (such as a change in purpose or corporate form of the company, demergers, mergers, the transfer of its
registered office outside Italy, its liquidation prior to the term set forth in its By-laws, the  62




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extension of the term, the revocation of liquidation and the issuance of preference shares) are approved by the holders of more than two-thirds of the
shares present and represented at such meeting that must also represent more than one-third of the issued shares. According to the By-laws, in order to attend any shareholders meeting, each shareholder of the
Company, at least five days prior to the date fixed for the meeting, must deposit its share certificates at the offices of the Company or with such banks as may be specified in the notice of call of the relevant meeting, in exchange for an admission
ticket. Owners of ADRs may make special arrangements with the Depositary for the beneficial owners of such ADRs to attend shareholders meetings, but not to vote at or formally address such meetings. The procedures for making such arrangements
will be specified in the notice of such meeting to be mailed by the Depositary to the owners of ADRs. Shareholders may appoint proxies by
delivering in writing an appropriate power of attorney to the Company. Directors, auditors and employees of the Company or of any of its subsidiaries may not be proxies and any one proxy cannot represent more than 20 shareholders. Pre-emptive Rights  Pursuant to Italian law, holders of Ordinary Shares or of debentures
convertible into shares, if any exist, are entitled to subscribe for the issuance of shares, debentures convertible into shares and rights to subscribe for shares, in proportion to their holdings, unless such issues are for non-cash consideration or pre-emptive rights are waived or limited and such waiver or limitation is required in the interest of the Company. There can be no assurance that the
holders of ADSs may be able to exercise fully any pre-emptive rights pertaining to Ordinary Shares. Preference Shares. Other Securities  The Companys By-laws allow the Company to
issue preference shares with limited voting rights, to issue other classes of equity securities with different economic and voting rights, to issue so-called participation certificates with limited voting
rights, as well as so-called tracking stock. The power to issue such financial instruments is attributed to the extraordinary meeting of shareholders. The Company, by resolution of the board of directors, may issue debt securities non-convertible into
shares, while it may issue debt securities convertible into shares through a resolution of an extraordinary shareholders meeting. Segregation of Assets and Proceeds  The Company, by means of an extraordinary shareholders meeting resolution, may approve
the segregation of certain assets into one or more separate pools. Such pools of assets may have an aggregate value not exceeding 10% of the shareholders equity of the Company. Each pool of assets must be used exclusively to carry out a
specific business and may not be attached by the general creditors of the Company. Similarly, creditors with respect to such specific business may only attach those assets of the Company that are included in the corresponding pool. Tort creditors,
on the other hand, may always attach any assets of the Company. The Company may issue securities carrying economic and administrative rights relating to a pool. In addition, financing agreements relating to the funding of a specific business may
provide that the proceeds of such business be used exclusively to repay the financing. Such proceeds may be attached only by the financing party and such financing party would have no recourse against other assets of the Company. Liquidation Rights  Pursuant to Italian law and subject to the satisfaction of the claims of all other creditors, shareholders
are entitled to a distribution in liquidation that is equal to the nominal value of their shares (to the extent available out of the net assets of the Company). Holders of preference shares, if any such shares are issued in the future by the
Company, may be entitled to a priority right to any such distribution from liquidation up to their par value. Thereafter, all shareholders would rank equally in their claims to the distribution or surplus assets, if any. Ordinary Shares rank pari
passu among themselves in liquidation. Purchase of Shares by the Company  The Company is allowed to purchase shares,
subject to certain conditions and limitations provided for by Italian law. Shares may be purchased out of profits available for dividends and out of distributable reserves, in each case as appearing on the latest stand-alone financial statements
approved by the Companys shareholders meeting. Further, the Company may only repurchase fully paid-in shares. Such purchases must be authorized by the ordinary shareholders meeting. The
aggregate purchase price of such shares may not exceed the earnings reserve specifically approved by shareholders. Shares held in violation of the above conditions and limitations must be sold within one year of the date of purchase. Similar
limitations apply with respect to purchases of the Companys shares by its subsidiaries. A corresponding reserve equal to the
purchase price of such shares must be created in the statement of financial position, and such reserve is not available for distribution, unless such shares are sold or cancelled. Shares purchased and held by the Company may be resold only pursuant
to a resolution adopted at an ordinary shareholders meeting. The voting rights attaching to the shares held by the Company or its subsidiaries cannot be exercised, but the shares are counted for quorum purposes in shareholders meetings.
Dividends and pre-emptive rights attaching to such shares will accrue to the benefit of other shareholders. The Company does not own any of its Ordinary Shares.  63




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Notification of the Acquisition of Shares  In accordance with Italian antitrust
laws, the Italian Competition Authority prohibits the acquisition of control in a company which would thereby create or strengthen a dominant position in the domestic market or a significant part thereof and which would result in the elimination or
substantial reduction of competition on a lasting basis, provided that certain turnover thresholds are exceeded. However, if the turnover of the acquiring party and the company to be acquired exceeds certain other monetary thresholds, the antitrust
review of the acquisition falls within the exclusive jurisdiction of the European Commission and will be assessed under the EU Merger Regulation (Council Regulation (EC) No. 139/2004). Minority Shareholders Rights. Withdrawal Rights  Shareholders resolutions which are not adopted in conformity with
applicable law or the Companys By-laws may be challenged (with certain limitations and exceptions) within ninety days by absent, dissenting or abstaining shareholders representing individually or in the
aggregate at least 5% of Companys share capital (as well as by the board of directors or the board of statutory auditors). Shareholders not reaching this threshold or shareholders not entitled to vote at Companys meetings may only claim
damages deriving from the resolution. Dissenting or absent shareholders may require the Company to buy back their shares as a result of
shareholders meeting resolutions approving, among others things, material modifications of the Companys corporate purpose or of the voting rights of its shares, the transformation of the Company from a stock corporation into a different
legal entity, or the transfer of the Companys registered office outside Italy. The buy-back would occur at a price established by the board of directors, upon consultation with the board of statutory
auditors and the Companys external auditor, having regard to the net assets value of the Company, its prospective earnings and the market value of its shares, if any. The Companys By-laws may set
forth different criteria to determine the consideration to be paid to dissenting shareholders in such buy-backs. Each shareholder may bring to the attention of the board of statutory auditors facts or actions which are deemed wrongful. If such
shareholders represent more than 5% of the share capital of the Company, the board of statutory auditors must investigate without delay and report its findings and recommendations to the shareholders meeting (which must be convened immediately
if the complaint appears to have a reasonable basis and there is an urgent need to take action). Shareholders representing more than 10%
of the Companys share capital have the right to report to a competent court all of the serious breaches of the directors duties, which may be prejudicial to the Company or to its subsidiaries. In addition, shareholders representing at
least 20% of the Companys share capital may commence derivative suits before a competent court against its directors, statutory auditors and general managers. The Company may waive or settle the suit unless shareholders holding at least 20% of the shares vote against such waiver or settlement. The
Company will reimburse the legal costs of such action in the event that the claim of such shareholders is successful and the court does not award such costs against the relevant directors, statutory auditors or general managers. Any dispute arising out of or in connection with the By-Laws that may arise between the Company and
its shareholders, directors, or liquidators shall fall under the exclusive jurisdiction of the Tribunal of Bari (Italy). Liability for
Mismanagement of Subsidiaries  Under Italian law, companies and other legal entities that, acting in their own interest or the interest of third parties, mismanage a company subject to their direction and coordination powers are liable to
such companys shareholders and creditors for ensuing damages suffered by such shareholders. This liability is excluded if (i) the ensuing damage is fully eliminated, including through subsequent transactions, or (ii) the damage is
effectively offset by the global benefits deriving in general to the company from the continuing exercise of such direction and coordination powers. Direction and coordination powers are presumed to exist, among other things, with respect to
consolidated subsidiaries. The Company is subject to the direction and coordination of INVEST 2003 S.r.l. Material Contracts The Company is not a party to any material contract, other than contracts entered into in the ordinary course of business and the contracts
described immediately below:  
The Securitization Agreement with Muttley S.r.l., and concerning Banca IMI, Intesa San Paolo for the
without recourse factoring of export-related financial receivables for 35 million, dated July 7, 2015. The Securitization Agreement can be found in Exhibit 4.5 to this Annual Report; in June 21, 2016, we amended the
Securitization Agreement to increase the credit line to 55 million.  64




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
The Company has entered into various agreements with representatives of trade unions regarding the
reorganization of its employees, dated March 22, 2016 and March 27, 2017 (the Italian Reorganization Agreements). The Italian Reorganization Agreements are attached as Exhibits 4.3, 4.4, 4.6 and 4.7 to this Annual Report.  
The Company has entered into a joint venture contract with Jason Furniture (Hangzhou) Co., Ltd.
(Kuka) on March 22, 2018 (the Joint Venture Agreement) under which the Companys wholly-owned Chinese subsidiary, Natuzzi Trading (Shanghai) Co., Ltd. (Natuzzi Trading Shanghai) would become a joint
venture (the Joint Venture). On July 27, 2018, the Company completed transactions contemplated by Joint Venture Agreement. As a result of the completion of these transactions, the Companys wholly-owned Chinese subsidiary,
Natuzzi Trading (Shanghai) Co., Ltd. (Trading Co.), has become a joint venture in which each of the Company and Kuka now owns a 49% and 51% stake, respectively. Kuka invested 65 million to acquire its stake in Trading Co. The
Joint Venture will distribute Natuzzi Italiaand Natuzzi Editionsbranded products through a network of single-brand directly operated stores and franchised operated stores in Mainland China, Hong Kong and Macau, as well as through
online stores. The Joint Venture Agreement is subject to regulatory approval and approval by Kukas shareholders. The Joint Venture Agreement is attached as Exhibit 4.8 to this Annual Report.  
The Company has entered into an agreement for the sale and purchase and subscription of shares in Natuzzi
Trading Shanghai with Kuka and Natuzzi Trading Shanghai on March 22, 2018 (the Share Purchase Agreement). Under the Share Purchase Agreement, Kuka will make a 65 million investment in exchange for a majority stake in the
Joint Venture. The Share Purchase Agreement is subject to regulatory approval and approval by Kukas shareholders. The Share Purchase Agreement is attached as Exhibit 4.9 to this Annual Report.  
On December 18, 2018, the Company, along with the Trade Unions and Italian relevant authorities agreed to
extend the current Solidarity Agreement (a reduced-work schedules) for a one-year period ending in December 2019, and parties signed an agreement to allow the Company to benefit from a temporary workforce reduction program, involving up to 491
employees, for a period of 24 months, called CIGS, in order to support the reorganization process. Exchange Controls There are currently no exchange controls, as such, in Italy restricting rights deriving from the ownership of
shares. Residents and non-residents of Italy may hold foreign currency and foreign securities of any kind, within and outside Italy. Non-residents may invest in Italian
securities without restriction and may transfer to and from Italy cash, instruments of credit and securities, in both foreign currency and Euro, representing interest, dividends, other asset distributions and the proceeds of any dispositions. Certain requirements however are imposed by law. Regulations on the use of cash and bearer securities are contained in legislative decree
No. 231 of November 21, 2007, as amended from time to time (the Decree 231), which implemented in Italy the European directive on anti-money laundering 2005/60/EC (actually replaced by directive (EU) 2015/849, as amended by
directive (EU) 2018/843). Such legislation requires that, subject to certain exceptions, transfers of cash or bearer instruments in Euro or in foreign currency, effected for whatsoever reason between different parties, shall be carried out by means
of credit institutions, Poste Italiane S.p.A., electronic money institutions and payment institutions providing payment services which are different from those indicated under Article 1, paragraph 1, letter d), number 6) of legislative decree
No. 11 of January 27, 2010 when the total amount to be transferred is equal to or more than 3,000. Cash remittance services are subject to a 1,000 limit. Credit institutions and the other intermediaries effecting such
transactions on behalf of residents or non-residents of Italy are required to maintain records of such transactions for ten years after the end of the relevant business relationship or the closing of the
relevant transaction. Such records may be inspected at any time by the competent Italian authorities. Non-compliance with, inter alia, the reporting and record-keeping requirements set forth in the
above-mentioned Decree 231 may result in administrative fines or, in the case of (inter alia) reporting of false or misleading information or falsification of the information that is relevant for the purposes of compliance with Decree
231, criminal penalties. The Financial Intelligence Unit of the Bank of Italy (the FIU) may use the information received and/or transfer it to the anti-mafia investigative directorate (Direzione investigativa antimafia), the
special monetary police nucleus (Nucleo speciale di polizia valutaria della Guardia di finanza) and other competent authorities, to police money laundering, tax evasion and any other unlawful activity. The FIU is required in certain cases to
maintain record of the reports for ten years. Individuals, non-profit entities and partnerships that are residents of Italy must disclose
on their annual tax returns all investments and financial assets held outside Italy. Such obligation lies also on the aforesaid resident taxpayers who, even if do not own directly investments and financial assets held abroad, qualify as
beneficial owner of the same. No such tax disclosure is required in respect of securities deposited for management with qualified Italian financial intermediaries and in respect of contracts entered into through their intervention,
provided that the items of income derived from such foreign financial assets are  65




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subjected to withholding tax or substitute tax through the intervention of the same intermediaries. Corporate residents of Italy are exempt from these tax disclosure requirements with respect to
their annual tax returns because this information is required to be disclosed in their financial statements. There can be no assurance
that the current regulatory environment in or outside Italy will persist or that particular policies presently in effect will be maintained, although Italy is required to maintain certain regulations and policies by virtue of its membership of the
EU and other international organizations and its adherence to various bilateral and multilateral international agreements. Taxation The following is a summary of certain U.S. federal and Italian tax matters. The summary contains a description of the
principal U.S. federal and Italian tax consequences of the purchase, ownership and disposition of Ordinary Shares or ADSs by a holder who is a citizen or resident of the United States or a U.S. corporation or who otherwise will be subject to U.S.
federal income tax on a net income basis in respect of the Ordinary Shares or ADSs. The summary is not a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase or hold Ordinary Shares or ADSs. In
particular, the summary deals only with beneficial owners who will hold Ordinary Shares or ADSs as capital assets and does not address the tax treatment of a beneficial owner who owns 10% or more of the voting shares of the Company or who may be
subject to special tax rules, such as banks, tax-exempt entities, insurance companies, partners or partnerships therein, or dealers in securities or currencies, or persons that will hold Ordinary Shares or
ADSs as a position in a straddle for tax purposes or as part of a constructive sale or a conversion transaction or other integrated investment comprised of Ordinary Shares or ADSs and one or more other
investments. The summary does not address the U.S. Medicare tax on net investment income, the U.S. alternative minimum tax, or any aspect of U.S. state or local tax law. The summary does not discuss the treatment of Ordinary Shares or ADSs that are
held in connection with a permanent establishment through which a non-resident beneficial owner carries on business or performs personal services in Italy. The summary is based upon tax laws and practice of the United States and Italy in effect on the date of this Annual Report, which are subject
to change. Investors and prospective investors in Ordinary Shares or ADSs should consult their own advisors as to the U.S., Italian or
other tax consequences of the purchase, beneficial ownership and disposition of Ordinary Shares or ADSs, including, in particular, the effect of any state or local tax laws. For purposes of the summary, beneficial owners of Ordinary Shares or ADSs who are considered residents of the United States for purposes of
the current income tax convention between the United States and Italy (the Income Tax Convention), and are not subject to an anti-treaty shopping provision that applies in limited circumstances, are referred to as U.S.
owners. Beneficial owners who are citizens or residents of the United States, corporations organized under U.S. law, and U.S. partnerships, estates or trusts (to the extent their income is subject to U.S. tax either directly or in the hands of
partners or beneficiaries) generally will be considered to be residents of the United States under the Income Tax Convention. Special rules apply to U.S. owners who are also residents of Italy, according to the Income Tax Convention. For the purpose of the Income Tax Convention and the United States Internal Revenue Code of 1986, as amended, beneficial owners of ADSs
evidencing ADSs will be treated as the beneficial owners of the Ordinary Shares represented by those ADSs. Taxation of Dividends i) Italian Tax Considerations  As a general rule, Italian laws provide for the withholding of income tax on dividends
paid by Italian companies to shareholders who are not residents of Italy for tax purposes, currently levied at a 26% rate. Italian laws provide a mechanism under which non-resident shareholders can claim a
refund, up to 11/26 of Italian withholding taxes on dividend income by establishing to the Italian tax authorities that the dividend income was subject to income tax in another jurisdiction in an amount at least equal to the total refund claimed.
U.S. owners should consult their own tax advisers concerning the possible availability of this refund, which traditionally has been payable only after extensive delays. Alternatively, reduced rates (normally 15%) may apply to non-resident shareholders who are entitled to, and comply with procedures for claiming, benefits under an income tax convention. Under the Income Tax Convention, dividends derived and beneficially owned by U.S. owners are subject to an Italian withholding tax at a
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However, the amount initially made available to the Depositary for payment to U.S. owners
will reflect withholding at the 26% rate. U.S. owners who comply with the certification procedures described below may then claim an additional payment of 11% of the dividend (representing the difference between the 26% rate, and the 15% rate, and
referred to herein as a treaty refund). This certification procedure will require U.S. owners (i) to obtain from the U.S. Internal Revenue Service (IRS) a form of certification required by the Italian tax authorities
(IRS Form 6166), unless a previously filed certification is effective on the dividend payment date (such certificates, filed together with the statement indicated under (ii) below, should be effective until the end of the fiscal year for which
the statement was originally filed), (ii) to produce a statement in accordance with the Italian tax authorities decree of July 10, 2013, whereby the U.S. owner represents to be a U.S. owner individual or corporation with no permanent
establishment in Italy, and (iii) to set forth other required information. IRS Form 6166 may be obtained by filing a request for certification on IRS Form 8802. (Additional information, including IRS Form 8802, can be obtained from the IRS
website at www.irs.gov. Information appearing on the IRS website is not incorporated by reference into this document.) The time for processing requests for certification by the IRS normally is 30 to 45 days. Accordingly, in order to be eligible for
the procedure described below, U.S. owners should begin the process of obtaining certificates as soon as possible after receiving instructions from the Depositary on how to claim a treaty refund. The Depositarys instructions will specify certain deadlines for delivering to the Depositary the documentation required to obtain a
treaty refund, including the certification that the U.S. owners must obtain from the IRS. In the case of ADSs held by U.S. owners through a broker or other financial intermediary, the required documentation should be delivered to such financial
intermediary for transmission to the Depositary. In all other cases, the U.S. owners should deliver the required documentation directly to the Depositary. The Company and the Depositary have agreed that if the required documentation is received by
the Depositary on or within 30 days after the dividend payment date and, in the reasonable judgment of the Company, such documentation satisfies the requirements for a refund by the Company of Italian withholding tax under the Convention and
applicable law, the Company will within 45 days thereafter pay the treaty refund to the Depositary for the benefit of the U.S. owners entitled thereto. If the Depositary does not receive a U.S. owners required documentation within 30 days after the dividend payment date, such U.S. owner
may for a short grace period (specified in the Depositarys instructions) continue to claim a treaty refund by delivering the required documentation (either through the U.S. owners financial intermediary or directly, as the case may be)
to the Depositary. However, after this grace period, the treaty refund must be claimed directly from the Italian tax authorities rather than through the Depositary. Expenses and extensive delays have been encountered by U.S. owners seeking refunds
from the Italian tax authorities. Distributions of profits in kind will be subject to withholding tax. In that case, prior to receiving
the distribution, the holder will be required to provide the Company with the funds to pay the relevant withholding tax. ii) United
States Tax Considerations  The gross amount of any dividends (that is, the amount before reduction for Italian withholding tax) paid to a U.S. owner generally will be subject to U.S. federal income taxation as foreign-source dividend
income and will not be eligible for the dividends-received deduction allowed to domestic corporations. Dividends paid in Euro will be included in the income of such U.S. owners in a dollar amount calculated by reference to the exchange rate in
effect on the day the dividends are received by the Depositary or its agent. If the Euro are converted into dollars on the day the Depositary or its agent receives them, U.S. owners generally should not be required to recognize foreign currency gain
or loss in respect of the dividend income. U.S. owners who receive a treaty refund may be required to recognize foreign currency gain or loss to the extent the amount of the treaty refund (in dollars) received by the U.S. owner differs from the U.S.
dollar equivalent of the Euro amount of the treaty refund on the date the dividends were received by the Depositary or its agent. Italian withholding tax at the 15% rate will be treated as a foreign income tax which U.S. owners may elect to deduct
in computing their taxable income or, subject to the limitations on foreign tax credits generally, credit against their U.S. federal income tax liability. The rules governing the foreign tax credit are complex and U.S. owners are urged to consult
their own tax advisers in this regard. Dividends will generally constitute foreign-source passive category income for U.S. tax purposes. Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with respect
to the Ordinary Shares or ADSs will be subject to taxation at reduced rates if the dividends are qualified dividends. Dividends paid on the Ordinary Shares or ADSs will be treated as qualified dividends if (i) the Company is
eligible for the benefits of a comprehensive income tax treaty with the United States that the IRS has approved for the purposes of the qualified dividend rules and (ii) the Company was not, in the year prior to the year in which the dividend
was paid, and is not, in the year in which the dividend is paid, a passive foreign investment company (PFIC). The Income Tax Convention has been approved for the purposes of the qualified dividend rules, and the Company believes it is
eligible for the benefits of the Income Tax Convention. Based on the Companys audited financial statements and relevant market and shareholder data, the Company believes that it was not treated as a PFIC for U.S. federal income tax purposes
with respect to its 2017 or 2018 taxable year. In addition, based on the Companys audited financial statements and its current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market
and shareholder data, the Company does not anticipate becoming a PFIC for its 2019 taxable year.  67




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Foreign tax credits may not be allowed for withholding taxes imposed in respect of certain
short-term or hedged positions in securities or in respect of arrangements in which a U.S. owners expected economic profit is insubstantial. U.S. owners should consult their own advisers concerning the implications of these rules in light of
their particular circumstances. A beneficial owner of Ordinary Shares or ADSs who is, with respect to the United States, a foreign
corporation or a nonresident alien individual, generally will not be subject to U.S. federal income tax on dividends received on Ordinary Shares or ADSs, unless such income is effectively connected with the conduct by the beneficial owner of a trade
or business in the United States. Taxation of Capital Gains i) Italian Tax Considerations  Under Italian law, capital gains tax (CGT) is generally levied on capital gains
realized by non-residents from the disposal of shares in companies resident in Italy for tax purposes even if those shares are held outside of Italy. However, capital gains realized by non-resident holders on the sale of non-qualified shareholdings (as defined below) in companies listed on a stock exchange and resident in Italy for tax purposes (as is the
Companys case) are not subject to CGT. In order to benefit from this exemption, such non-Italian-resident holders may need to file a certificate evidencing their residence outside of Italy for tax
purposes. A qualified shareholding consists of securities that entitle the holder to exercise more than 2% of the voting
rights of a company with shares listed on a stock exchange in the ordinary meeting of the shareholders or represent more than 5% of the share capital of a company with shares listed on a stock exchange. A
non-qualified shareholding is any shareholding that does not exceed either of these thresholds. The relevant percentage is calculated taking into account the shareholdings sold during the prior 12-month period. As a general rule, capital gains realized as of January 1, 2019 upon disposal of a
qualified shareholding are subject to a 26% substitute tax. If a taxpayer realizes taxable capital gains in excess of capital losses incurred in the same tax year, such excess amount is subject to the 26% substitute tax. If such
taxpayers capital losses exceed its taxable capital gains, then the excess amount can be carried forward and deducted from the taxable amount of capital gains realized by such person in the following tax years, up to the fourth, provided that
it is reported in the tax report in the year of disposal. The above is subject to any provisions of an income tax treaty entered into by
the Republic of Italy, if the income tax treaty provisions are more favorable. The majority of double tax treaties entered into by Italy, including the Income Tax Convention, in accordance with the OECD Model tax convention, provide that capital
gains realized from the disposition of Italian securities are subject to CGT only in the country of residence of the seller. The Income
Tax Convention between Italy and the U.S. provides that a U.S. owner is not subject to the Italian CGT on the disposal of shares, provided that the shares are not held through a permanent establishment of the U.S. owner in Italy. ii) United States Tax Considerations Gain or loss realized by a U.S. owner on the sale or other disposition of Ordinary Shares
or ADSs will be subject to U.S. federal income taxation as capital gain or loss in an amount equal to the difference between the U.S. owners basis in the Ordinary Shares or the ADSs and the amount realized on the disposition (or its dollar
equivalent, determined at the spot rate on the date of disposition, if the amount realized is denominated in a foreign currency). Any such gain or loss generally would be treated as arising from sources within the United States. Such gain or loss
will generally be long-term capital gain or loss if the U.S. owner holds the Ordinary Shares or ADSs for more than one year. The net amount of long-term capital gain recognized by a U.S. owner that is an individual holder generally is subject to
taxation at a reduced rate. The ability to offset capital losses against ordinary income is subject to limitations. Deposits and withdrawals of Ordinary Shares by U.S. owners in exchange for ADSs will not result in the realization of gain or loss
for U.S. federal income tax purposes. A beneficial owner of Ordinary Shares or ADSs who is, with respect to the United States, a foreign
corporation or a nonresident alien individual will not be subject to U.S. federal income tax on gain realized on the sale of Ordinary Shares or ADSs, unless (i) such gain is effectively connected with the conduct by the beneficial owner of a
trade or business in the United States or (ii), in the case of gain realized by an individual beneficial owner, the beneficial owner is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions
are met.  68




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Taxation of Distributions from Capital Reserves Italian Tax Considerations  Special rules apply to the distribution of certain capital reserves. Under certain circumstances, such
a distribution may be considered as taxable income in the hands of the recipient depending on the existence of current profits or outstanding reserves at the time of distribution and the actual nature of the reserves distributed. The application of
such rules may also have an impact on the tax basis in the Ordinary Shares or ADSs held and/or the characterization of any taxable income received and the tax regime applicable to it. Non-resident shareholders
may be subject to withholding tax and CGT as a result of such rules. You should consult your tax adviser in connection with any distribution of capital reserves. Other Italian Taxes Estate and Inheritance Tax  A transfer of Ordinary Shares or ADSs by reason of death or gift is subject to an inheritance and gift
tax levied on the value of the inheritance or gift, as follows:  
Transfers to a spouse or direct descendants or ancestors up to 1,000,000 to each beneficiary are exempt
from inheritance and gift tax. Transfers in excess of such threshold will be taxed at a 4% rate on the value of the Ordinary Shares or ADSs exceeding such threshold;  
Transfers between relatives within the fourth degree other than siblings, and direct or indirect relatives-in-law within the third degree are taxed at a rate of 6% on the value of the Ordinary Shares or ADSs (where transfers between siblings up to a maximum value of
100,000 for each beneficiary are exempt from inheritance and gift tax); and  
Transfers by reason of gift or death of Ordinary Shares or ADSs to persons other than those described above
will be taxed at a rate of 8% on the value of the Ordinary Shares or ADSs. If the beneficiary of any such transfer is a
disabled individual, whose handicap is recognized pursuant to Law No. 104 of February 5, 1992, the tax is applied only on the value of the assets received in excess of 1,500,000 at the rates illustrated above, depending on the type
of relationship existing between the deceased or donor and the beneficiary. The tax regime described above will not prevent the
application, if more favorable to the taxpayer, of any different provisions of a bilateral tax treaty, including the convention between Italy and the United States against double taxation with respect to taxes on estates and inheritances, pursuant
to which non-Italian resident shareholders are generally entitled to a tax credit for any estate and inheritance taxes possibly applied in Italy. Italian Financial Transaction Tax The IFTT is applicable, among other transactions, to all trades entailing the transfer of
title of (i) shares or equity-like financial instruments issued by companies resident in Italy, such as the Ordinary Shares; and (ii) securities representing the shares and financial instruments under (i) above (including depositary
receipts such as the ADSs), regardless of the residence of the securities issuer. The IFTT may also apply to the transfer of Ordinary Shares and ADSs by a U.S. resident. The IFTT applies at a rate of 0.2% for over-the-counter
transactions, reduced to 0.1% for trades executed on a regulated market or multilateral trading facility established in States or territories allowing an adequate exchange of information with the Italian tax authorities. The New York Stock Exchange
should qualify as a regulated market for such purposes. The rules governing the IFTT are fairly complex. As to its basic features, it
should be noted that the IFTT (i) is levied on a tax base equal to (x) the market value (calculated by taking the net balance of daily trades on the relevant securities) or, in the absence of any such market value, (y) the
consideration paid for each trade; and (ii) is borne by the purchaser but is collected by the financial intermediaries (including non-resident financial intermediaries) intervening in the relevant trades. However, a number of exemptions apply, including with respect to trades of securities issued by companies having an average market
capitalization lower than 500 million in the month of November of the year preceding the year in which the trade takes place. Companies, the securities of which are listed on a foreign regulated market, and which could benefit from this
exemption, such as the Company, need a confirmation from the Italian Ministry of Economy and Finance: such companies must communicate their market capitalization for each tax year to the Ministry, which will then prepare a list of the companies in
relation to which the exemption applies. EU Financial Transaction Tax  On February 14, 2013, the European Commission
proposed the implementation of the EU FTT (see Item 3. Key InformationRisk Factors) that may also apply to the transfer of Ordinary Shares and ADSs by a U.S. resident. This directive has been modified by the European Commission.
However, the related EU directive has not yet been enacted. Moreover, the implementation of the proposed EU FTT may also affect the IFTT, as described above.  69




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United States Information Reporting and Backup Withholding Requirements In general, information reporting requirements will apply to payments by a paying agent within the United States to a non-corporate (or other non-exempt) U.S. owner
of dividends in respect of the Company Shares or ADSs, or the proceeds received on the sale or other disposition of the Company Shares or ADSs. Backup withholding may apply to such amounts if the U.S. owner fails to provide an accurate taxpayer
identification number to the paying agent on a properly completed IRS Form W-9 or otherwise comply with the applicable requirements of the backup withholding rules. Amounts withheld as backup withholding will
be creditable against the U.S. owners U.S. federal income tax liability, provided that the required information is timely furnished to the IRS. Specified Foreign Financial Assets  Certain U.S. owners that own specified foreign financial assets with an aggregate
value in excess of USD 50,000 are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. Specified foreign financial assets include any financial
accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer that are not held in accounts maintained by financial
institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold
direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. owners who fail to report the required information could be subject to substantial penalties. You should consult your own tax
advisors concerning the application of these rules to your particular circumstances. Documents on Display The Company is subject to the information reporting requirements of the Exchange applicable to foreign private issuers. In accordance
therewith, the Company is required to file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission. As a foreign private issuer, we have been
required to make filings with the SEC by electronic means since November 4, 2002. Any filings we make electronically will be available to the public over the Internet at the SECs website at http://www.sec.gov. The Form 20-F and reports and other information filed by the Company with the Commission will also be available for inspection by ADS holders at the Corporate Trust Office of BNY at 101 Barclay Street, New York,
New York 10286. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion of the Groups risk management activities includes forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those projected in the forward looking statements. See Forward Looking Information. A significant portion of the Groups net sales and its costs, are denominated in
currencies other than the euro, in particular the U.S. dollar. The Group is exposed to market risks principally from fluctuations in the
exchange rates between the Euro and other currencies, including, but not limited to, in particular the U.S. dollar, and to a significantly lesser extent, from variations in interest rates. Exchange Rate Risks  The Groups foreign exchange rate risks in 2018 arose principally in connection with U.S. dollars, Euro
(for the Companys subsidiary located in Eastern Europe), British pounds, Canadian dollars, Australian dollars, Swiss francs, Japanese yen, Swedish kroner, Danish kroner and Norwegian kroner as well as in connection with Chinese yuan, Romanian
Leu, Brazilian Reais, Mexican Peso, Russian Rubles and Indian Rupee, for the Companys subsidiaries operating in currencies different from the Euro. As of December 31, 2018 and 2017, the Group had outstanding trade receivables denominated in foreign currencies totaling
26.5 million and 17.0 million, respectively, of which 8.2% and 22.0%, respectively, were denominated in U.S. dollars. On those same dates, the Group had 27.4 million and 21.2 million, respectively, of
trade payables denominated in foreign currencies, principally U.S. dollars. See Notes 14 and 25 to the Consolidated Financial Statements included in Item 18 of this Annual Report. As of December 31, 2018, the Company was a party to a number of currency forward contracts (known in Italy as domestic currency swaps),
all of which are designed to hedge future sales denominated in U.S. dollars and other currencies. The Group does not use such foreign exchange contracts for speculative trading purposes.  70




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As of December 31, 2018, the notional amount in Euro terms of all of the Groups
outstanding currency forward contracts totaled 43.6 million. As of December 31, 2017, the notional amounts of all of the Groups outstanding currency forward contracts totaled 49.6 million. At the end of 2018, such currency forward contracts had notional amounts of U.S.$ 16.8 million, 11.3 million, British pounds
9.5 million, Japanese yen 300.0 million, Australian dollars 3.5 million, Canadian dollars 2.0 million, Danish kroner 8.1 million, and Swedish kroner 2.8 million. All of these forward contracts had various maturities
extending through June 2019, except for one USD denominated contract expiring in August 2019 and two contracts expiring in July 2019 (namely, one denominated in USD and one in JPY). See Note 27 to the Consolidated Financial Statements included in
Item 18 of this Annual Report. The table below summarizes (in thousands of Euro equivalent) the contractual amounts of currency forward contracts intended to hedge future cash flows from accounts receivable and sales orders as of
December 31, 2018 and 2017:  Euro equivalent of contractual amounts of
currency forward contracts as of:

December 31,2018


2017U.S. dollars


14,528



21,979Euro*


11,407



10,226British pounds


10,612



11,137Japanese yen


2,318



1,692Australian dollars


2,129



2,294Canadian dollars


1,300



1,338Danish Kroner


1,086



713Swedish kroner


265



249Total


43,645



49,627 in thousands of Euro equivalent  *
Used by the Groups Romanian subsidiary to hedge its net collections denominated in Euro vs. RON. As of December 31, 2018, these forward contracts had a net unrealized gain of 0.1 million, compared
to a net unrealized gain of 0.08 million as of December 31, 2017. The Group recorded this amount in net exchange rate gains (losses) in its Consolidated Financial Statements. See Note 27 to the Consolidated Financial
Statements included in Item 18 of this Annual Report. The following table presents information regarding the contract amount in
thousands of Euro equivalent and the estimated fair value of all of the Groups foreign exchange contracts: contracts with unrealized gains are presented as assets and contracts with unrealized losses are presented as
liabilities.  December 31, 2018


December 31, 2017ContractAmount


Unrealizedgains (losses)


ContractAmount


Unrealizedgains (losses)Assets


27,459



218



31,089



339Liabilities


16,186



(320
)


18,538



(267
)Total


43,645



(102
)


49,627



72 in thousands of Euro equivalent The potential loss in fair value of all of the Groups forward contracts outstanding as of December 31, 2018 that would have
resulted from a hypothetical, instantaneous and unfavorable 10% change in currency exchange rates would have been approximately 4.6 million. This sensitivity analysis assumes an instantaneous and unfavorable 10% fluctuation in exchange
rates affecting the foreign currencies of all of the Groups hedging contracts outstanding as of the end of 2018. For the accounting
of transactions entered into in an effort to reduce the Groups exchange rate risks, see Notes 3 and 29 to the Consolidated Financial Statements included in Item 18 of this Annual Report. At December 31, 2018, the Group had 18.3 million in cash and cash equivalents held by our Chinese subsidiaries, almost
entirely denominated in Chinese Yuan (20.7 million as at December 31, 2017). Exchange rate fluctuations in respect of this currency could have significant positive or negative effects on our results of operations in future periods.
see Note 16 to the Consolidated Financial Statements included in Item 18 of this Annual Report.  71




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Interest Rate Risk  To a significantly lesser extent, the Group is also exposed
to interest rate risk. As of December 31, 2018, the Group had 56.1 million (equivalent to 15.0% of the Groups total assets as of the same date) in debt outstanding (Bank overdraft and short-term borrowings plus long-term
debt, including the current portion of such debt), which is for the most part subject to floating interest rates. See Notes 18 and 24 to the Consolidated Financial Statements included in Item 18 of this Annual Report. The potential increase in interest expenses on the Groups total debt (bank overdrafts and long-term debt, including their current
portion) that would have resulted from a hypothetical, instantaneous and unfavorable 1.0% increase in interest rates would have been approximately 0.5 million. This sensitivity analysis assumes an instantaneous and unfavorable 1.0%
increase in the variable interest rates of Groups total debt outstanding as of December 31, 2018. In the normal course of
business, the Group also faces risks that are either non-financial or non-quantifiable. Such risks principally include country risk, credit risk and legal risk. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ITEM 12A. DEBT SECURITIES Not applicable. ITEM 12B. WARRANTS AND RIGHTS Not applicable. ITEM 12C. OTHER SECURITIES Not applicable. ITEM 12D. AMERICAN DEPOSITARY SHARES Fees paid by ADS holders  The BNY Mellon, as the Depositary of our ADSs, collects its fees for delivery and surrender of ADSs
directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts
distributed or by selling a portion of distributable property to pay the fees. The Depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.  72




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Persons depositing or withdrawing shares must pay:

For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)

   Depositing or substituting the underlying shares
   Selling or exercising rights
   Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement
terminatesA fee for the distribution of proceeds of sales of securities or rights in an amount equal to the lesser of: (i) the fee for the issuance of ADSs referred to above which would have been charged as a result of the deposit by
owners of securities (for purposes hereof treating all such securities as if they were shares) or shares received in exercise of rights distributed to them, respectively, but which securities or rights are instead sold by the Depositary and the net
proceeds distributed and (ii) the amount of such proceeds

   Distribution of securities distributed to holders of deposited
securities which are distributed by the Depositary to ADS registered holdersRegistration or transfer fees

   Transfer and registration of shares on our share register to or from
the name of the Depositary or its agent when holders deposit or withdraw sharesExpenses of the Depositary

   Cable, telex and facsimile transmissions (when expressly provided in the
deposit agreement)    Converting foreign currency to U.S. dollarsTaxes and other governmental charges the Depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes

   As necessaryAny charges incurred by the Depositary or its agents for servicing the deposited securities

   As necessary Fees payable by the Depositary to the Company i) Fees incurred in past annual period  From January 1, 2018 to December 31, 2018, the Depositary waived a total of
$2,373.33 in administrative fees for routine corporate actions including services relating to Natuzzis annual general meeting of shareholders. ii) Fees to be paid in the future  The Company does not have any agreements in place with the Depositary for the payment or
reimbursement of fees or other direct or indirect payments by the Depositary to the Company in connection with its ADS program.  73




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PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS None. ITEM 15. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures Based on the evaluation of our disclosure controls and procedures (as defined in
the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act) required by Exchange Act Rules 13a-15(b) or 15d-15(b), our Chief Executive Officer and our Chief Financial Officer have concluded that as of
the end of the period covered by this report, our disclosure controls and procedures were not effective as a result of the material weakness in our internal control over financial reporting discussed below. (b) Managements Annual Report on Internal Control Over Financial Reporting Management is responsible for
establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board
(IFRS) and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Companys assets that could have a material effect on the financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control - Integrated Framework (2013)issued by the Committee of
Sponsoring Organizations of the Treadway Commission as of December 31, 2018. Based on its evaluation, our management identified the
following control deficiency: ineffective design, implementation, operation and documentation of the management review control over the significant unusual transaction (SUT) we completed in 2018 as part of a joint venture agreement with
Kuka Furniture (Ningbo) Co., Ltd. (Kuka), specifically with respect to (i) the appropriate accounting under IFRS of the recognition of the revenue from the licensing of Natuzzis trademarks to the joint venture Natuzzi Trading
Shanghai (IFRS 15 B58) and (ii) the appropriate classification under IFRS of Natuzzi Trading Shanghai as a joint venture of Natuzzi S.p.A. (IFRS 11). This control deficiency created a reasonable possibility that a material misstatement to the consolidated financial statements would not have
been prevented or detected on a timely basis, and therefore we concluded that the deficiency represents a material weakness in our internal control over financial reporting and our internal control over financial reporting was not effective as of
December 31, 2018. We have investigated the cause of this material weakness, and concluded it was due to Company personnel relying on the
work of external experts engaged to assist the Company, without performing the management review control themselves at the level of precision required to verify the conclusions reached by the external experts in interpretation of accounting
standards IFRS 11 and IFRS 15 B58. The inappropriate accounting policy was identified and corrected before finalization and publication
of our unaudited consolidated results as at and for the three months and full year ended December 31, 2018. We have investigated whether
the material weakness indicates a more pervasive issue in other components of internal control and concluded that the material weakness is isolated to the management review control over the SUT. Remediation Plan. Management has
developed a remediation plan to address the internal control deficiency that led to the material weakness. The remediation plan includes
strengthening our control framework over significant unusual transactions (SUT) by:  
enhancing our internal procedures on management review controls over SUTs; and  
improving documentation standards through the implementation of checklists aimed to facilitate operating
effectiveness of SUT-related management review controls. In addition, we will include targeted training on IFRS 11 and
licensing-related matters described in IFRS 15 (paragraphs B52 to B62) within the continuous training program for Finance personnel. We intend to remediate this material weakness on a timely basis in 2019. (d) Changes in Internal Control over Financial Reporting Except for the material weakness described above in
Managements Annual Report on Internal Control Over Financial Reporting, there were no changes in our internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) that occurred during our most recently
completed fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  74




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ITEM 16. [RESERVED] ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT The Company has determined that, because of the existence and nature of its board of statutory auditors, it qualifies for an exemption provided
by Rule 10A-3(c)(3) of the Exchange Act from many of the Rule 10A-3 audit committee requirements. The board of statutory auditors has determined that each of its members
is an audit committee financial expert as defined in Item 16A of Form 20-F. For the names of the members of the board of statutory auditors, see Item 6. Directors, Senior Management and
EmployeesStatutory Auditors and Item 16G. Corporate GovernanceAudit Committee and Internal Audit Function. Each of the audit committee financial experts is independent under the NYSE Independence Standards that would apply to audit committee members
in the absence of our reliance on the exemption in Rule 10A-3(c)(3). ITEM 16B.
CODE OF ETHICS The Company has adopted a code of ethics, as defined in Item 16B of Form 20-F
under the Exchange Act. This code of ethics applies, among others, to the Companys CEO and CFO. The Companys code of ethics is downloadable from its website at http://www.natuzzigroup.com/pdf/ir/coe_inglese.pdf. ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES KPMG S.p.A. (KPMG) served as Natuzzi S.p.A.s principal independent registered public auditor for fiscal years 2018 and 2017,
for which it audited the consolidated financial statements for the years-ended December 31, 2018 and 2017 included in this Annual Report. The following table sets forth the aggregate fees billed and billable to the Company by KPMG in Italy and abroad during the fiscal years ended
December 31, 2018 and 2017, for audit fees, auditrelated fees, tax fees and all other fees for audit.  2018


2017(Expressed in thousands of euros)Audit fees


575



480Audit-related fees






Tax fees






All Other fees






Total fees


575



480 Audit fees in the above table are the aggregate fees billed and billable in connection with the audit of the
Companys annual financial statements. The Companys board of statutory auditors expressly
pre-approves on a case-by-case basis any engagement of our independent auditors for audit and
non-audit services provided to our subsidiaries or to us. All services rendered by our independent auditors for audit and non-audit services were pre-approved by our board of statutory auditors in accordance with this policy. At the Companys
annual general shareholders meeting on April 29, 2019, the Company appointed KPMG as Natuzzi S.p.A.s principal independent registered public auditor for fiscal years 2019, 2020 and 2021. ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. The Company is relying on the exemption from listing standards for audit committees provided by Exchange Act Rule 10A-3(c)(3). The basis for this reliance is that the Companys board of statutory auditors meets the following requirements set forth in Exchange Act Rule 10A-3(c)(3):  
the board of statutory auditors is established and selected pursuant to Italian law expressly permitting such a
board;  
the board of statutory auditors is required under Italian law to be separate from the Companys board of
directors;  75




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##### Table of Contents


the board of statutory auditors is not elected by management of the Company and no executive officer of the
Company is a member of the board of statutory auditors;  
Italian law provides for standards for the independence of the board of statutory auditors from the Company and
its management;  
the board of statutory auditors, in accordance with applicable Italian law and the Companys governing
documents, is responsible, to the extent permitted by Italian law, for the appointment, retention and oversight of the work (including, to the extent permitted by law, the resolution of disagreements between management and the auditor regarding
financial reporting) of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company, and  
to the extent permitted by Italian law, the audit committee requirements of paragraphs (b)(3), (b)(4) and
(b)(5) of Rule 10A-3 apply to the board of statutory auditors. The
Companys reliance on Rule 10A-3(c)(3) does not, in its opinion, materially adversely affect the ability of its board of statutory auditors to act independently and to satisfy the other requirements of
Rule 10A-3. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PURCHASERS On November 6, 2014, INVEST 2003 s.r.l. completed the purchase of 250,000 ADSs, each representing one
Ordinary Share, at a price of U.S.$2.00 per ADS. The purchase was privately negotiated with a single individual and was effected through an escrow arrangement with BNY Mellon. On July 30, 2014, INVEST 2003 s.r.l. completed the purchase of
500,000 ADSs, each representing one Ordinary Share, at a price of U.S.$2.75 per ADS. The purchase was privately negotiated with a single individual and was effected through an escrow arrangement with BNY Mellon. For more information, refer to
Schedule 13D (Amendment No. 2), filed with the SEC on September 14, 2014, that amends and supplements the Schedule 13D, filed with the SEC on April 24, 2008 (as amended by Amendment No. 1 filed on April 8, 2013). From January 1, 2014 to December 31, 2018, no purchases were made by or on behalf of the Company or any other affiliated purchaser
of the Companys Ordinary Shares or ADSs. ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT None. ITEM 16G. CORPORATE GOVERNANCE Under NYSE rules, the Company is permitted, as a listed foreign private issuer, to adhere to the corporate governance rules of our home country
in lieu of certain NYSE corporate governance rules. Corporate governance rules for Italian stock corporations (società per
azioni) like the Company, whose shares are not listed on a regulated market in the European Union, are set forth in the Civil Code. As described in more detail below, the Italian corporate governance rules set forth in the Civil Code differ
in a number of ways from those applicable to U.S. domestic companies under NYSE listing standards, as set forth in the NYSE Listed Company Manual. As a general rule, Companys main corporate bodies are governed by the Civil Code and are assigned specific powers and duties that are
legally binding and cannot be derogated from. The Company follows the traditional Italian corporate governance system, with a board of directors (consiglio di amministrazione) and a separate board of statutory auditors (collegio
sindacale) with supervisory functions. The two boards are separate and no individual may be a member of both boards. Both the members of the board of directors and the members of the board of statutory auditors owe duties of loyalty and care to
the Company. As required by Italian law, an external auditing firm (società di revisione) is in charge of auditing the Companys financial statements. The members of the Companys board of directors and board of
statutory auditors, as well as the external auditor, are directly and separately appointed by shareholder resolution at the shareholders meetings. This system differs from the unitary system envisaged for U.S. domestic companies by the
NYSE listing standards, which contemplate the board of directors serving as the sole governing body.  76




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Below is a summary of the significant differences between Italian corporate governance rules
and practices, as the Company has implemented them, and those applicable to U.S. issuers under NYSE listing standards, as set forth in the NYSE Listed Company Manual. Independent Directors NYSE Domestic Company Standards  The NYSE listing standards applicable to U.S. companies provide that independent
directors must comprise a majority of the board. In order for a director to be considered independent, the board of directors must affirmatively determine that the director has no material direct or indirect relationship
with the company. These relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationship (among others). More specifically, a director is not independent if, inter alia, such director or his/her immediate family members has certain
specified relationships with the company, its parent, its consolidated subsidiaries, their internal or external auditors, or companies that have significant business relationships with the company, its parent or its consolidated
subsidiaries. Ownership of a significant amount of stock, by itself, is not a per se bar to independence. Our Practice 
The presence of a prescribed number of independent directors on the Companys board is neither mandated by any Italian law applicable to the Company nor required by the Companys By-laws. However, Italian law sets forth certain independence requirements applicable to the Companys statutory auditors. Statutory
auditors independence is assessed on the basis of the following rules: a person who (i) is a director, or the spouse or a close relative of a director, of the Company or any of its affiliates, or (ii) has an employment or a regular
consulting or similar relationship with the Company or any of its affiliates, or (iii) has an economic relationship with the Company or any of its affiliates which might compromise his/her independence, cannot be appointed to the Companys
board of statutory auditors. The law sets forth certain principles aimed at ensuring that any member of the board of statutory auditors who is a chartered public accountant (iscritto nel registro dei revisori contabili) be substantively
independent from the company subject to audit and not be in any way involved in the companys decision-making process. The Civil Code mandates that at least one standing and one alternative member of the board of statutory auditors be a
chartered public accountant. Each of the current members of the board of statutory auditors is a chartered public accountant. Executive Sessions NYSE Domestic Company Standards  Non-executive directors of U.S. companies listed on the
NYSE must meet regularly in executive sessions, and independent directors should meet alone in an executive session at least once a year. Our Practice  Under the laws of Italy, neither non-executive directors nor independent
directors are required to meet in executive sessions. The members of the Companys board of statutory auditors are required to meet at least every 90 days. Audit Committee and Internal Audit Function NYSE Domestic Company Standards  U.S. companies listed on the NYSE are required to have an audit committee that satisfies the
requirements of Rule 10A-3 under the Exchange Act and certain additional requirements set by the NYSE. In particular, all members of this committee must be independent and the committee must adopt a written
charter. The committees prescribed responsibilities include (i) the appointment, compensation, retention and oversight of the external auditors; (ii) establishing procedures for the handling of whistle blower
complaints regarding accounting, internal accounting controls, or auditing matters; (iii) engaging independent counsel and other advisers, as it determines necessary to carry out its duties and (v) determine appropriate funding for
payments to the external auditor, advisors employed by the audit committee and other necessary administrative expenses of the audit committee. A company must also have an internal audit function, which may be outsourced, except to the
independent auditor. Our Practice Rule 10A-3(c)(3) of the Exchange Act provides
that foreign private issuers with a board of statutory auditors established in accordance with local law or listing requirements and meeting specified requirements with regard to independence and responsibilities (including the performance of most
of the specific tasks assigned to audit committees by Rule 10A-3, to the extent permitted by local law) (the Statutory Auditor Requirements) are exempt from the audit committee requirements
established by the rule. The Company is relying on this exemption on the basis of its separate board of statutory auditors, which is permitted by the Civil Code and which satisfies the Statutory Auditor Requirements. Nevertheless our board of
statutory auditors, consisting of independent and highly professional experts, complies with the requirements indicated at points (i), (iii) and (iv) of the preceding paragraph. The Company also has an internal audit function, which has not
been outsourced.  77




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##### Table of Contents

Compensation Committee NYSE Domestic Company Standards  U.S. companies listed on the NYSE are required to have a compensation committee (or equivalent)
comprised solely of independent directors and have a written charter addressing certain corporate governance matters. The compensation committee must approved the compensation of the CEO and make recommendations to the board of directors with
regard to the compensation of other officers, incentive compensation plans and equity-based plans. Disclosure of individual management compensation information for these companies is mandated by the Exchange Acts proxy rules, from which
foreign private issuers are generally exempt. Our Practice The Company has not established a compensation committee. As a
matter of Italian law applicable to Italian stock corporations whose shares are not listed on a regulated market in the European Union and under our By-laws, the compensation of executive directors, including
the CEO, is determined by the board of directors, after consultation with the board of statutory auditors, within a maximum amount established by the Companys shareholders, while the Companys shareholders determine the base compensation
for all members of the board of directors, including non-executive directors. Compensation of the Companys executive officers is determined by the CEO. The Company does not produce a compensation
report. However, the Company discloses aggregate compensation of all of its directors and officers as well as individual compensation of each director in Item 6 of its Annual Report. Nominating Committee NYSE Domestic Company Standards  Under NYSE standards, a domestic company must have a nominating/corporate governance committee
(or equivalent) comprised solely of independent directors, which is responsible for nominating directors, and a written charter addressing certain corporate governance matters. Our Practice As allowed by Italian laws, the Company has not established a nominating/corporate governance committee (or
equivalent) responsible for nominating its directors. Directors may be designated by any of the Companys shareholders but shall be appointed by the shareholders meeting. If, during the term of the appointment, one or more directors
of the Company ends its directorship, the other directors shall replace them by a resolution approved by the board of statutory auditors, provided that the majority is still made up of directors appointed by the shareholders. Replacement directors
remain in office until the next shareholders meeting. If at any time more than half of the members of the board of directors appointed by the shareholders meeting resigns, such resignation is ineffective until the majority of the new
board of directors has been appointed. In such a case, the remaining members of the board of directors (or the board of statutory auditors if all the members of the board of directors have resigned or ceased to be directors) must promptly call an
ordinary shareholders meeting to appoint the new directors. Invest 2003 s.r.l., a company controlled by Mr. Pasquale Natuzzi, by virtue of owning a majority of the outstanding shares of the Company, controls the Company and the
appointment of its board of directors. Corporate Governance and Code of Ethics NYSE Domestic Company Standards  Under NYSE standards, a company must adopt governance guidelines and a code of business conduct
and ethics for directors, officers and employees. A company must also publish these items on its website and provide printed copies on request. Section 406 of the Sarbanes-Oxley Act requires a company to disclose whether it has
adopted a code of ethics for senior financial officers, and if not, the reasons why it has not done so. The NYSE listing standards applicable to U.S. companies provide that codes of conduct and ethics should address, at a minimum, conflicts of
interest; corporate opportunities; confidentiality; fair dealing; protection and use of company assets; legal compliance; and reporting of illegal and unethical behavior. Corporate governance guidelines must address, at a minimum,
directors qualifications, responsibilities and compensation; access to management and independent advisers; management succession; director orientation and continuing education; and annual performance evaluation of the board. Our Practice In January 2011, the Companys board of directors approved the adoption of a compliance program to prevent
certain criminal offenses, according to the Italian Decree 231/2001. The task of supervising the application of the compliance program requested by the above-mentioned Italian Decree has been entrusted to an autonomous supervisory body
(Organismo di Vigilanza) that consists of two (they were three until September 21, 2018) independent and qualified members. In February 2016, the board of directors approved a new code of ethics that applies to all employees and
officers of the Company, including the board of directors and the board of statutory auditors, the CEO, the CFO and principal accounting officer. The Company believes that its code of ethics and the conduct and procedures adopted by the Company
address the relevant issues contemplated by the NYSE standards applicable to U.S. companies noted above. The code of ethics is available on Natuzzis website.  78




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Certifications as to Violations of NYSE Standards NYSE Domestic Company Standards  Under NYSE listing standards, the CEO of a U.S. company listed on the NYSE must certify annually
to the NYSE that he or she is not aware of any violation by the company of the NYSE corporate governance standards. The company must disclose this certification, as well as the fact that the CEO/CFO certification required under Section 302
of the Sarbanes-Oxley Act of 2002 has been made in the companys annual report to shareholders (or, if no annual report to shareholders is prepared, its annual report). Each listed company on the NYSE, both domestic and foreign issuers,
must submit an annual written affirmation to the NYSE regarding compliance with applicable NYSE corporate governance standards. In addition, each listed company on the NYSE, both domestic and foreign issuers, must submit interim affirmations to
the NYSE upon the occurrence of specified events. A domestic issuer must file such an interim affirmation whenever the independent status of a director changes, a director joins or leaves the board, a change occurs to the composition of the
audit, nominating/corporate governance, or compensation committee, or there is a change in the companys classification as a controlled company. The CEO of both domestic and foreign issuers listed on the NYSE must promptly notify the NYSE in writing if any executive officer becomes
aware of any non-compliance with the NYSE corporate governance standards. Our Practice
 Under the NYSE rules, the Companys CEO is not required to certify annually to the NYSE whether he is aware of any violation by the Company of the NYSE corporate governance standards. However, the Company is required to submit an
annual affirmation of compliance with applicable NYSE corporate governance standards to the NYSE within 30 days of the filing of its annual report on Form 20-F with the SEC. The Company is also required to
submit to the NYSE an interim written affirmation any time it is no longer eligible to rely on, or chooses to no longer rely on, a previously applicable exemption provided by Rule 10A-3, or if a member of its
audit committee ceases to be deemed independent or an audit committee member had been added. Under NYSE rules, the Companys CEO must notify the NYSE in writing if any executive officer becomes aware of any material non-compliance by the Company with NYSE corporate governance standards. Shareholder Approval of
Adoption and Modification of Equity Compensation Plans NYSE Domestic Company Standards  Shareholders of a U.S. company
listed on the NYSE must approve the adoption of and any material revision to the companys equity compensation plans, with certain exceptions. Our Practice Although the shareholders meeting of the Company must authorize (i) the issuance of shares in connection
with capital increases, and (ii) the buy-back of its own shares, the adoption of equity compensation plans does not per se require prior approval of the shareholders. ITEM 16H. MINE SAFETY DISCLOSURE. Not applicable.  79




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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  80




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##### Table of Contents

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, 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 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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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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




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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




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##### Table of Contents

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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##### Table of Contents

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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##### Table of Contents

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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##### Table of Contents

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




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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




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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




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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




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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




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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




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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




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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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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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




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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) 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




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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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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##### Table of Contents

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




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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




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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




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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




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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




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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) 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




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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




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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 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




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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




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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




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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




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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




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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




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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




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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




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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




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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. 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. 8.1*  List of Significant Subsidiaries. 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.  
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..  
As permitted by Rule 405(a)(2)(ii) of Regulation S-T, the registrants XBRL (eXtensible Business Reporting
Language) information will be furnished in an amendment to this Form 20-F that will be filed no more than 30 days after the date hereof. In accordance with Rule 402 of Regulation S-T, such XBRL information will be furnished and not filed or part of
a registration statement or prospectus for purposes of Sections 11 or 12 of the Act, will be deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise will not be subject to liability under those sections.




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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 and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.  NATUZZI S.p.A.By

/s/ Pasquale NatuzziName: Pasquale NatuzziTitle: Chief Executive Officer
 Date: April 30, 2019