UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Exact name of Registrant as specified in its charter)

(Translation of Registrant’s name into English)

Republic of Italy

(Jurisdiction of incorporation or organization)

Via Iazzitiello 47, 70029 Santeramo in Colle Bari, Italy

(Address of principal executive offices)

Mrs. Silvia Di Rosa
Tel. +39 335 78 64 209
sdirosa@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 registered
American Depositary Shares, each representing one Ordinary Share Ordinary Shares, with a par value of €1.00 each		New York Stock Exchange New York Stock Exchange (for listing purposes only)

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

As of December 31, 2009: 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 o No þ

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 o No þ

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes o No o Not Applicable þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP o		IFRS o		Other þ

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.

o Item 17 þ 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 o No þ

 

 

TABLE OF CONTENTS

		Page
PART I
Item 1. Identity of Directors, Senior Management and Advisers			2
Item 2. Offer Statistics and Expected Timetable			2
Item 3. Key Information			2
Selected Financial Data			2
Exchange Rates			5
Risk Factors			6
Forward Looking Information			11
Item 4. Information on the Company			11
Introduction			11
Organizational Structure			13
Strategy			14
Manufacturing			16
Product			22
Advertising			24
Retail Development			24
Markets			24
Incentive Programs and Tax Benefits			29
Management of Exchange Rate Risk			31
Trademarks and Patents			31
Regulation			31
Environmental Regulatory Compliance			31
Insurance			31
Description of Properties			32
Capital Expenditures			33
Item 4 A. Unresolved Staff Comments			33
Item 5. Operating and Financial Review and Prospects			34
Critical Accounting Policies			34
Results of Operations			36
Liquidity and Capital Resources			44

TABLE OF CONTENTS

		Page
Contractual Obligations and Commitments			45
Related Party Transactions			47
New Accounting Standards under Italian and U.S. GAAP			47
Item 6. Directors, Senior Management and Employees			48
Compensation of Directors and Officers			52
Share Ownership			53
Statutory Auditors			53
External Auditors			54
Employees			54
Item 7. Major Shareholders and Related Party Transactions			56
Major Shareholders			56
Related Party Transactions			57
Item 8. Financial Information			57
Consolidated Financial Statements			57
Export Sales			57
Legal and Governmental Proceedings			57
Dividends			59
Item 9. The Offer and Listing			59
Trading Markets and Share Prices			59
Item 10. Additional Information			60
By-laws			60
Certain Contracts			68
Exchange Controls			68
Taxation			69
Documents on Display			74
Item 11. Quantitative and Qualitative Disclosures About Market Risk			75
Item 12. Description of Securities Other than Equity Securities			77
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies			77

TABLE OF CONTENTS

		Page
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			77
Item 15. Controls and Procedures			77
Item 16. [Reserved]			80
Item 16.A Audit committee financial expert			80
Item 16.B Code of Ethics			80
Item 16.C Principal Accountant Fees and Services			80
Item 16.D Exemption from the Listing Standards for Audit Committees			81
Item 16.E Purchases of Equity Securities by the Issuer and Affiliated Purchasers			81
Item 16.F Change in Registrant’s Certifyng Accountant			81
Item 16.G Corporate Governance			82
PART III
Item 17. Financial Statements			86
Item 18. Financial Statements			86
Item 19. Exhibits			87
Exhibit 8.1
Exhibit 12.1
Exhibit 12.2
Exhibit 13.1
Exhibit 15.1

PRESENTATION OF FINANCIAL INFORMATION

In this 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 June 18, 2010 of U.S.$ 1.2360 per euro. 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 included in Item 18 of this annual report are prepared in conformity with accounting principles established by the Italian Accounting Profession (“Italian GAAP”). These principles vary in certain significant respects from generally accepted accounting principles in the United States (“U.S. GAAP”). See Note 26 to the Consolidated Financial Statements included in Item 18 of this annual report. All discussions in this annual report are in relation to Italian GAAP, 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,” “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.

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 statement of operations and balance sheet data presented below have been derived from the Consolidated Financial Statements.

The Consolidated Financial Statements, from which the selected consolidated financial data set forth below has been derived, were prepared in accordance with Italian GAAP, which differ in certain respects from U.S. GAAP. For a discussion of the principal differences between Italian GAAP and U.S. GAAP as they relate to the Group’s consolidated net loss and shareholders’ equity, see Note 26 to the Consolidated Financial Statements included in Item 18 of this annual report.

		Year Ended At December 31,
		2009				2009				2008				2007				2006				2005
		(millions of
		dollars, except
		per Ordinary Share)(1)				(millions of euro, except per Ordinary Share)
Statement of Operations Data:
Amounts in accordance with Italian GAAP:
Net sales:
Leather- and fabric-upholstered furniture		$	628.8			€	450.6			€	587.8			€	563.5			€	660.2			€	594.8
Other(2)			90.4				64.8				78.2				70.9				75.2				75.1
Total net sales			719.2				515.4				666.0				634.4				735.4				669.9
Cost of sales			(460.2	)			(329.8	)			(478.8	)			(460.6	)			(490.5	)			(459.4	)
Gross profit			259.0				185.6				187.2				173.8				244.9				210.5
Selling expenses			(208.8	)			(149.6	)			(172.3	)			(173.9	)			(186.2	)			(182.2	)
General and administrative expenses			(65.0	)			(46.6	)			(49.9	)			(49.0	)			(42.2	)			(43.0	)
Operating income (loss)			(14.8	)			(10.6	)			(35.0	)			(49.1	)			16.5				(14.7	)
Other income (expense), net(3) (4) (5) (6)			4.3				3.1				(25.8	)			(2.6	)			2.8				3.0
Earnings (loss) before taxes and minority interests			(10.5	)			(7.5	)			(60.8	)			(51.7	)			19.3				(11.7	)
Income taxes			(13.7	)			(9.8	)			(1.5	)			(11.4	)			(7.1	)			(3.1	)
Earnings (loss) before minority interests			(24.2	)			(17.3	)			(62.3	)			(63.1	)			12.2				(14.8	)
Minority interest			0.6				0.4				0.4				0.5				0.1				0.2
Net earnings (loss)			(24.8	)			(17.7	)			(61.9	)			(62.6	)			12.3				(14.6	)
Net earnings (loss) per Ordinary Share		$	(0.45	)		€	(0.32	)		€	(1.13	)		€	(1.14	)		€	0.23			€	(0.27	)
Dividends declared per share			—				—				—				—				—				—
Amounts in accordance with U.S. GAAP:
Net sales			706.0				506.0				670.1				635.9				736.8				672.0
Operating income (loss)			(19.8	)			(14.2	)			(40.0	)			(46.4	)			22.7				(4.5	)
Net earnings (loss)			(35.9	)			(25.7	)			(55.7	)			(60.0	)			14.5				(6.9	)
Net earnings (loss) per Ordinary Share (basic and diluted)		$	(0.65	)		€	(0.47	)		€	(1.02	)		€	(1.09	)		€	0.26			€	(0.13	)
Weighted average number of Ordinary Shares Outstanding			54,853,045				54,853,045				54,850,643				54,817,086				54,733,796				54,681,628
Balance Sheet Data:
Amounts in accordance with Italian GAAP:
Current assets		$	432.7			€	301.9			€	318.5			€	364.1			€	407.3			€	384.5
Total assets			728.9				508.6				543.8				617.5				674.7				664.9
Current liabilities			167.4				116.8				136.3				146.0				133.0				136.2
Long-term debt			8.4				5.9				3.3				2.1				2.4				3.6
Non controlling interest			2.7				1.9				0.8				0.1				0.6				0.7
Shareholders’ equity (7)			465.8				325.0				345.2				411.6				478.9				473.0
Amounts in accordance with U.S. GAAP:
Shareholders’ equity		$	469.5			€	327.6			€	353.3			€	408.5			€	468.4			€	453.7

Exchange Rates

The following table sets forth, for each of the periods indicated, the Federal Reserve Bank of New York Noon Buying Rate for the euro expressed in U.S. dollars per euro.

Year:		Average(1)				At Period End
2005			1.2400				1.1842
2006			1.2661				1.3197
2007			1.3797				1.4603
2008			1.4695				1.3919
2009			1.3955				1.4332

Month ending:		High				Low
31-Dec-09			1.5100				1.4243
29-Jan-10			1.4536				1.3870
26-Feb-10			1.3955				1.3476
31-Mar-10			1.3758				1.3344
30-Apr-10			1.3664				1.3130
31-May-10			1.2563				1.2224

The effective Noon Buying Rate on June 18, 2010 was U.S.$ 1.2360 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 and financial condition depend on its ability to continue to successfully restructure its operations— The Group reported net losses in 2009 (€ 17.7 million), 2008 (€ 61.9 million) and 2007 (€ 62.6 million), and operating losses of € 10.6 million, € 35.0 million and € 49.1 million for those same years, respectively. In addition, the Group’s net sales have declined from € 753.4 million in 2004 to € 515.3 million in 2009.

The Group attributes these negative results to an increasingly difficult macroeconomic environment affecting the furniture industry as a whole, and in particular the Group was faced with the following factors in 2009:

	•		price competition from low-cost manufacturers;
	•		continuing sluggishness of the global economy; and
	•		recurring unfavorable currency conditions.

The Group’s future operating and financial performance and business prospects will depend in large part on the successful implementation of the 2010 budget (the “2010 Budget”) approved by the Group’s Board of Directors on February 11, 2010, which reflects the current financial and economic uncertainty while incorporating the improvement in total net sales and order flow during the last few months of 2009. During 2009, the economic downturn continued and, as a result, by the end of 2009 the Group realized that the actual results were lower than the targets contemplated by the plan. As a consequence of the further deterioration of the economic environment, the Group decided to replace the three-year Business Plan with the 2010 Budget. Furthermore, we planned to periodically evaluate and fine-tune our long term objectives in order to incorporate any potential changes in the environment. The main goal of the 2010 Budget is to post a positive EBIT (earnings before interest and taxes) amount. To achieve this goal, the Group would have to increase the volume of sales across its product lines, the success of which depends on customer demand and is to a large extent beyond our control, and continue the efficiency process started during 2009, which seeks to reduce operating and administrative costs of the Group. From time to time, we may evaluate our plans and goals to reflect changing macroeconomic conditions and other factors affecting the Group and the furniture industry in general. See “Item 4. Information on the Company—Strategy” for more details about the 2010 Budget.

If the 2010 Budget is not successfully implemented, there could be a material adverse effect on the Group’s financial condition, results of operations and business prospects.

The current worldwide economic downturn has impacted the Group’s business and could continue to significantly impact our operations, sales, earnings and liquidity in the foreseeable future — Economic conditions deteriorated significantly in the United States and worldwide in late 2008 and global economic conditions did not fully recover in 2009 nor have they fully recovered yet in 2010. Uncertainty about current European economic conditions increased in the past few months with the Greek debt crisis. These persistently negative conditions have resulted in a decline in our sales and earnings and could continue to impact 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. The general level of consumer spending is affected by a number of factors, including, among others, general economic conditions, inflation, and consumer confidence, all of which are generally beyond our control. Consumer purchases of residential furniture decline during periods of economic downturn, when disposable income is lower. The economic downturn also impacts retailers, our primary customers, and may result in the inability of our customers to pay amounts owed to us. In addition, if our retail customers are unable to sell our product 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.

A failure to achieve our projected mix of product sales could result in a decrease in our future earnings — Our products are sold at varying price points and levels of profit. An increase in the sales of our lower profit products at the expense of the sales of our higher profit products could result in a decrease in our earnings. For example, during 2007 and 2008, our gross profit was negatively impacted by a change in the mix of our products sold, when volume sales growth was primarily driven by our Italsofa products.

Our growth strategy includes, in part, the development of new stores each year. If we and our dealers are not able to open new stores or effectively manage the growth of these stores, our ability to grow and our profitability could be adversely affected — Our ability and the ability of our dealers to identify and open new stores in desirable locations and operate such stores profitably is an important factor in our ability to grow successfully. We have in the past and will likely continue to purchase or otherwise assume operation of company-brand stores from independent dealers to the extent that such stores are considered strategic for the promotion of the Natuzzi Brand. Increased demands on our operational, managerial, and administrative resources could cause us to operate our business, including our existing and new stores, less effectively, which in turn could cause deterioration in our profitability.

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 experienced in some of our markets in Europe and the United States.

In 2009, the Group derived 31.0% of its leather and fabric-upholstered furniture net sales from the Americas, 58.5% from Europe and 10.4% from the rest of the world. A prolonged economic slowdown in the United States and Europe may have a material adverse effect on the Group’s results of operations.

The Group operates principally in a niche area of the furniture market — The Group is a leader in the production of leather-upholstered furniture, with 87.3% of net sales of upholstered furniture in 2009 derived 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 not decrease.

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 China, Eastern Europe and South America 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 reducing 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.

Fluctuations in currency exchange rates have adversely affected and may adversely affect the Group’s results — The Group conducts a substantial part of its business outside of the euro zone. An increase in the value of the euro relative to other currencies used in the countries in which the Group operates will 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 2009, a significant portion of the Group’s net sales, but only approximately 40.0% of its costs, were denominated in currencies other than the euro. 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. For more information, 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 that arise from its international operations, including changes in governmental regulations, tariffs or taxes and other trade barriers, price, wage and exchange controls, political, social, and economic instability in the countries where the Group operates, inflation and interest rate fluctuations. Any of these factors could have a material adverse effect on the Group’s results.

The price of the Group’s principal raw material is difficult to predict — Leather is used in approximately 87.4% of the Group’s upholstered furniture production, and the acquisition of cattle hides represents approximately 20.0% of 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.

Introduction of a new integrated management system — At the end of 2008, the Group adopted a new Enterprise Resource Planning system entitled “SAP” for its operations worldwide with the aim of enabling Management to achieve better control over the Company through:

	•		improved quality, reliability and timeliness of information;
	•		improved integration and visibility of information stemming from different management functions and countries; and
	•		optimization and global management of corporate processes.

The overall estimated investment for the project is about € 10.6 million. The adoption of the new SAP system, which will replace the existing accounting and management systems, poses several challenges relating to, among other things, training of personnel, communication of new rules and procedures, changes in corporate culture, migration of data, and the potential instability of the new system. In order to mitigate the impact of such critical issues, the Company decided to implement the new SAP system on a step-by-step basis, both geographically and in terms of processes. In relation to each step of the project, the Company has set up a contingency plan in order to ensure business continuity. However, there can be no assurance that the new SAP system will be successfully implemented and failure to do so could have a material adverse effect on the Group’s operations.

In 2009, the implementation of the project proceeded according to the original plan. SAP implementation for Finance and Purchase processes took place in Italy, Spain, U.S., Romania, UK, Switzerland, and China. The implementation of the Sales & Distribution and Production Planning processes took place worldwide. The implementation for production materials purchases and warehouse management took place in Romania. The implementation of the SAP system has involved a change in the management culture of the Company. This new culture is being implemented to create a more productive working environment and to better prepare for the transition to the new technological platform. We continue to proceed with the rollout of the SAP system with the appropriate contingency plans in place in order to avoid future problems.

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.

In recent years, the Group has opened manufacturing operations in China, Brazil and Romania and has been granted tax benefits and export incentives by the relevant governmental authorities in those countries. During the course of 2009, part of these tax benefits and export incentives were reduced or expired. There can be no assurance that the Group will continue to be eligible for such tax benefits or export incentives for its current or future investments.

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, chairman and CEO, Mr. Pasquale Natuzzi, as well as 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.

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 are governed by Italian law and the Company’s Statuto (or 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, ADS holders do have the right to give instructions to The Bank of New York Mellon, 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 Chief Executive Officer and Chairman of the Board of Directors, beneficially owns 29,358,089 Ordinary Shares, representing 53.5% of the Ordinary Shares outstanding (58.7% 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 (other than 196 ADSs) 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 Bank of New York Mellon, as Depositary (the “Depositary”), and owners and beneficial owners of American Depositary Receipts (“ADRs”), the Natuzzi Family has a right of first refusal to purchase all the rights, warrants or other instruments which The Bank of New York 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.

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.

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 (including, but not limited to, plans, estimates and projections associated with our 2010 Budget), 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 related to our 2010 Budget included in this annual report are included 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. 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, 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.

Item 4. Information on the Company

Introduction

The Group is primarily engaged in the design, manufacture and marketing of contemporary and traditional leather and fabric-upholstered furniture, principally sofas, loveseats, armchairs, sectional furniture, motion furniture and sofa beds, and living room accessories.

The Group is one of the world’s leading companies for the production of leather-upholstered furniture and believes that it has a leading share of the market for leather-upholstered furniture in the United States and Europe based on research conducted by CSIL, a well known, unaffiliated and reputable Italian market research firm, with reference to market information for the years 2007 and 2009 for the market for leather-upholstered furniture in the United States and Europe, respectively (Sources: CSIL, “The European market for upholstered furniture,” July 2009; CSIL, “The US market for upholstered furniture,” October 2007). Our distribution network covers approximately 100 countries.

The Group sells its Natuzzi branded furniture principally through franchised Divani & Divani by Natuzzi and Natuzzi furniture stores. As of March 31, 2010, the Group sells its furniture in the following locations: 124 Divani & Divani by Natuzzi and 174 Natuzzi stores, of which 56 are directly owned by the Group; eight Outlets; and 17 concessions in the United Kingdom and Republic of Ireland. The concessions are store-in-store concept managed directly by a subsidiary of the Company located in the United Kingdom. As of March 31, 2010, there were 430 Natuzzi galleries worldwide (store-in-store concept managed by independent partners).

In the last quarter of 2005 and the beginning of 2006, the Group moved some of the production of its most popular Natuzzi models in the United States under a collection named “Natuzzi Editions” to its manufacturing facilities outside of Italy in order to increase profitability by avoiding increased production costs at its Italian plants due to the weak U.S. dollar. This move included limited models and covers made of leather and microfibers, but did not include any “Total Look” furnishings. The “Natuzzi Editions” collection is mainly distributed through wholesale customers.

In the last quarter of 2009 and the beginning of 2010, based on the success and sales volumes generated by the Natuzzi Editions Collection, the Group decided to promote this collection as a distinct brand under the “Natuzzi Editions” label in the Americas region and under the “Editions” label in Europe and our “Rest of the World” region, with limited numbers of models and covers exclusively for wholesale distribution. The Group strategically decided to leverage the Natuzzi name in the Americas region, and therefore launched the brand as “Natuzzi Editions” due to its name recognition in the marketplace and in order to assure prior customers of the Group’s continuing strength and presence in that region. In Europe and the Rest of the World, the brand was launched as “Editions” in order not to avoid conflicting with the Group’s well-established network of stores and galleries that are already operating under the Natuzzi name.

The “Editions” brand was officially presented in January 2010 during a well-known worldwide trade fair in Koln, Germany as a new trademark intended for the traditional wholesale market.

Since 2007, the Group has refreshed and updated the image of its Italsofa brand and operates a total of 11 Italsofa stores in China, with the objective of positioning Italsofa as a higher market alternative to very low-cost Chinese competitors. By March 31, 2010, in addition to the 11 stores in China, the Group has opened five stores in Israel, one in Spain, one in UAE and one in Montenegro, and the Group has also opened six galleries in Europe and Asia. In 2010, the Group intends to continue developing the Italsofa retail channel in Europe and the Middle East. In addition, the Group has decided to allocate marketing investments for both communications and for the Italsofa display system to support this new retail channel.

Organizational Structure

Natuzzi S.p.A. is the parent company of the Natuzzi Group.

As of April 30, 2010, the Company’s principal operating subsidiaries were:

		Percentage of
Name		ownership				Registered office				Activity
Italsofa Nordeste S/A			100.00			Bahia, Brazil					(1)
Italsofa Shanghai Ltd.			96.50			Shanghai, China					(1)
Softaly Shanghai Ltd.			100.00			Shanghai, China					(1)
Natuzzi China Ltd.			100.00			Shanghai, China					(1)
Italsofa Romania			100.00			Baia Mare, Romania					(1)
Natco S.p.A.			99.99			Bari, Italy					(2)
I.M.P.E. S.p.A.			90.83			Qualiano, Italy					(3)
Nacon S.p.A.			100.00			Bari, Italy					(4)
Lagene S.r.l.			100.00			Bari, Italy					(4)
Natuzzi Americas Inc.			100.00			High Point, NC, USA					(4)
Natuzzi Iberica S.A.			100.00			Madrid, Spain					(4)
Natuzzi Switzerland AG			100.00			Kaltbrunn, Switzerland					(4)
Natuzzi Nordic			100.00			Copenaghen, Denmark					(4)
Natuzzi Benelux S.A.			100.00			Geel, Belgium					(4)
Natuzzi Germany Gmbh			100.00			Dusseldorf, Germany					(4)
Natuzzi Sweden AB			100.00			Stockholm, Sweden					(4)
Natuzzi Japan KK			100.00			Tokyo, Japan					(4)
Natuzzi Services Limited			100.00			London, UK					(4)
Natuzzi Trading Shanghai Ltd.			100.00			Shanghai, China					(4)
Natuzzi Oceania PTI Ltd.			100,00			Sidney, Australia					(4)
OOO Natuzzi Russia			100,00			Moscow, Russia					(4)
Italholding S.r.l.			100.00			Bari, Italy					(5)
Natuzzi Netherlands Holding			100.00			Amsterdam, Holland					(5)
Natuzzi Trade Service S.r.l.			100.00			Bari, Italy					(6)
La Galleria Limited			100.00			London, UK					(7)
Natuzzi United Kingdom Limited			100.00			London, UK					(7)
Kingdom of Leather Limited			100.00			London, UK					(7)

See Note 1 to the Consolidated Financial Statements included in Item 18 of this annual report for further information on the Company’s subsidiaries.

Strategy

The negative performance of the Group in 2009 and in recent years has largely been the result of several challenges specific to the furniture industry and prevalent in the economy at large. For instance, the discretionary spending of consumers on furnished goods has been negatively impacted by the persistent effects of the global economic downturn, largely as a result of lower home values, high levels of unemployment and personal debt, and reduced access to consumer credit.

In an effort to address these challenges and to restore the positive performance of the Group, the Board of Directors in February 2010 approved the 2010 Budget which took into account the current financial and economic uncertainty. This new budget replaces the previous three-year Business Plan for 2009-2011 approved by the Board on October 2008. The main goal of the 2010 Budget is to achieve € 600 million of consolidated net sales while posting a positive EBIT (earnings before interest and taxes) amount. If the Group is unable to fully implement the strategies identified in the 2010 Budget or if such strategies do not achieve their intended effects, the Group may continue to suffer losses. See “Item 3. Key Information—Risk Factors” for discussions of the risks and uncertainties that may impact the Group’s results and plans.

In order to accomplish its primary objectives, the 2010 Budget will employ a growth strategy based on:

	1.		increasing competitiveness;
	2.		improving service to clients;
	3.		improving product quality;
	4.		striving for innovation;
	5.		the worldwide launch of the new B2B trademark Edition;
	6.		creating more efficiency in the manufacturing and procurement process by revising product cost structures and focusing more on the R&D and engineering process; and
	7.		eliminating waste and redundancies in Group processes, with a focus on increasing integration within the Group by completing the SAP rollout.

The Group’s primary objective is to expand and strengthen its presence in the global upholstered furniture market in terms of sales and production, while at the same time increasing the Group’s profit and efficiency. To achieve these objectives, the Group’s principal strategic objectives include:

Repositioning the Brand Portfolio Strategy of the Group — The Group is focusing in all price segments of the leather and non-leather upholstered furniture market. The Group has divided its extensive product range into three different brands — Natuzzi, Italsofa, and Natuzzi Editions/Editions — in an effort to address specific market segments and increase its sales and profitability.

The Natuzzi brand offers high-end, high-quality products, with detailed designs and customized materials and finishes. The Group aims to position this brand as one that helps consumers rediscover the home as a welcoming place, a place of happiness and well-being. The Group also wants to establish an “inspirational” image for this brand through the style and quality of its products, and the concepts and presentation in its stores. Finally, the Group seeks to broaden this brand’s market by bringing consumers in various countries around the world product collections filled with beautiful, Italian-style living room design. Products under this brand are distributed through the Group’s stores, galleries, and qualified free market (multi-brand) retailers that carry high-end products.

From the identification of consumer preferences and market trends to the delivery of the living room in the consumer’s home, Natuzzi directly controls the production and distribution value chain, with the aim of ensuring ultimate quality at competitive prices. All models are designed in the Group’s Style Center in Italy and are primarily manufactured at the Group’s Italian factories.

The Italsofa brand targets the medium-to-medium low segment of the market. The Group aims to position this brand offering Italian style products at the best value. The brand includes a wide range of sofas and armchairs in leather, fabric and microfiber, which are available in different versions, coverings and colors. Products are designed and engineered in Italy and manufactured at the Group’s factories in China, Brazil and Romania, to provide the best possible value in the market. Products under this brand are mainly distributed through the wholesale channel in addition to single-brand stores and galleries.

The Natuzzi Editions / Editions Brand is a new brand that aims to generate the volumes necessary to sustain the Group’s production sites around the world. The Natuzzi Editions/Editions collection of sofas and armchairs are tailored to suit every taste and every style and the collection is developed solely for wholesale distribution. The Group is positioning this brand in the medium-to-medium low segment of the market and it contains a wide range of models and functionality, from stationary to sectionals, from motions to leather recliners and sofabeds, from traditional to transitional, and from casual to modern. For Europe and the Rest of the World, the Group offers a selection of unique models specifically tailored and designed for the enthusiasts of Italian made products. Like our other brands, all of the Natuzzi Editions/Editions models are designed and engineered in Italy.

With the introduction of the Natuzzi Editions/Editions brand, the Group aims to shift its Italsofa wholesale business to Natuzzi Editions/Editions in order to enable Italsofa to become exclusively a consumer Brand. In this way the Group will guarantee continuity of turnover in the wholesale distribution channel.

Competition has increased significantly in recent years within the medium-to-medium low segment 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 China, Eastern Europe and South America have increased competition in the lower-priced segment of the market.

In response to this increase and the inherent fragmentation in some markets in which the Group competes, the Group will continue to focus its efforts on improving product quality, design, reliable customer service and marketing support.

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 brand, primarily through the establishment of new distribution subsidiaries and an increase in the number of Natuzzi stores and Natuzzi galleries worldwide. See “Item 4. Information on the Company—Markets.”

As of March 31, 2010, there were 298 stores worldwide, including Natuzzi stores and Divani & Divani by Natuzzi stores, and 19 Italsofa stores. By using the same creative concepts and internal decorations in Natuzzi stores and Natuzzi galleries, the Group has created a coherent identity for the Natuzzi and Italsofa brands.

Since 2007, the Group has organized an annual Retail Congress in Italy, inviting all of its worldwide partners to visit the Group’s headquarters for product selection and collection renewal, and to participate in strategy sessions aimed at developing marketing and advertising plans for the upcoming year. More than 230 stores and 500 persons participated at the most recent Retail Congress. Due to the success of the most recent event, the Group has confirmed it will continue this practice in 2010.

Product Diversification and Innovation- The Group believes that it is the Italian manufacturing company in the designer furniture and home decoration industry most capable of offering consumers carefully developed, coordinated living rooms at competitive prices through its “Total Look” offer. The Total Look offer is conceived in accordance with the latest trends in design, materials and colors, and includes high quality sofas, furnishings and accessories, all of which are developed in-house and presented in harmonic 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. See “Item 4. Information on the Company—Product Development” In order to add to its already vast offerings in upholstered furniture, the Group has begun to invest in its furnishings and accessories offerings.

Beginning in 2006, the Group has further widened its collection of accessories by introducing wall units, thus completing its living room environment offering. The Group believes that expanding its Total Look offerings will strengthen its relationships with the world’s leading distribution chains, which are interested in offering branded packages. The Group has invested in Natuzzi Style Center in Santeramo, Italy, to serve as a creative hub for the Group’s design activities.

The Style Center is improving its interaction with the market under the coordination of dedicated office Range managers (who provide a link between R&D and market needs). The first effects of this market-oriented policy were visible during the Retail Congress held in May 2009, which resulted in positive feedback with respect to our products and pricing.

Manufacturing

Our manufacturing facilities are located in Italy, China, Romania and Brazil.

As of March 31, 2010, the Group operated six production facilities in Italy and three warehouses (one for leather, one for finished goods and one for accessories). Four of the facilities are engaged in upholstery cutting and sewing and assembly of finished and semi-finished products, and employed (net of those workers temporarily laid-off), as of the same date, 2,795 workers, 43.4% of whom are not directly involved in production. Seven of these nine facilities are located either in, or within a 25-mile radius of, Santeramo, where the Group’s headquarters are located. Assembly operations at the Group’s production facilities also include leather cutting and sewing and attaching foam and covering to frames.

These operations retain many characteristics of production by hand and are coordinated at the production facilities through the use of 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 through the different production phases up to the storehouse.

In July 2006, the Company initiated an industrial restructuring program to improve the flow of production logistics and simplify job assignments in order to increase productivity while improving product quality.

Operations at all of the Group’s facilities are normally conducted Monday through Friday with two maximum eight-hour shifts per day.

Two of the Group’s production facilities are involved in the processing of leather hides to be used as upholstery. One of the facilities is a leather dyeing and finishing plant located near Udine. The Udine facility receives both raw and tanned cattle hides, sends raw cattle hides to subcontractors for tanning, and then dyes and finishes the hides. The other facility, located near Vicenza, is a warehouse that receives semi-finished hides and sends them to various subcontractors for processing, drying and finishing, and then arranges for the finished leather to be shipped to the Group’s assembly facilities. 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 the management information system. See “Item 4. Information on the Company—Manufacturing—“Supply-Chain Management”.”

The Group produces, directly and by subcontracting, nine grades of leather in approximately 15 finishes and 118 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-branded leather products, while split leather is used, in addition to top grain leather, in the manufacture of some Natuzzi-branded products and most Italsofa products). The hides are then colored with dyes and treated with fat liquors 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.

One of the Group’s production facilities, which is located near Naples and employed 61 workers as of March 31, 2010, is engaged in the production of flexible polyurethane foam and, because the facility’s production capacity is in excess of the Group’s needs, also sells foam to third parties. The foam from the Naples facility, which is produced through a patented process that results in a high-quality material without using any auxiliary blowing agent, is sold under the “Eco-FlexTM” trademark. A material specially designed for mattresses is also produced and sold under the “GreenflexTM” trademark.

As a result of intensive R&D 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 less harmful environmental impacts during handling and storage.

The Group currently manufactures the Italsofa Collection outside Italy at plants located in China, Romania, and Brazil, although the strong appreciation of Brazilian currency against the U.S. dollar and the low productivity of the Brazilian plants have negatively affected the competitiveness of the Group’s manufacturing operations in Brazil. If orders exceed production capacity at these plants, Italsofa products are also manufactured in the plants of the Company’s subcontractors.

The Group owns the land and buildings for its principal assembly facilities located in Santeramo, Matera, its leather dyeing and finishing facility located near Udine, its foam-production facility located near Naples, and its facilities located in Ginosa, Laterza, Brazil, Romania and one of the two plants in China. The land and buildings of the remaining production facilities are leased from lessors with whom the Group enjoys long-term relationships. Although the lease terms vary in length, under Italian law the leases for the Group’s Italian plants must have a minimum term of six years. The lease agreements provide for rents that generally increase each year in line with inflation. Management believes that the prospects are good for renewing the leases on acceptable terms when they expire. The Group owns substantially all the equipment used in its facilities.

The Group’s Chinese production plants are subject to an expropriation process by local Chinese authorities since such plants are located on land that is intended for public utilities. Negotiations are currently underway with the local Chinese authorities as to the timing of the expropriation process and the compensation to be paid to the Group. Based on an informal meeting with the local Chinese authorities, we should vacate from our land no later than May 31, 2011. Management believes that, in terms of production continuity, no particular risk is expected from this expropriation process since the Company has already identified another area that will compensate for the production capacity reduction caused by the expropriation. In particular, the Group has identified an alternative production site on a “build to lease” basis with a production area of 88,800 square meters. The new production area will be available to us by July 30, 2010. Improvements will follow subsequently and the first production shift at the new production location is expected to start in December 2010. The production shift will be gradual (department by department) in order to mitigate any effect on production output. Therefore, it is expected that the final shift will occur by the end of March 2011.

From an economic point of view, the Group expects to receive adequate compensation as a result of the aforementioned expropriation process pursuant to Chinese laws and regulations.

Historically, the Group has entrusted some of its production work relating to the assembly of finished products from raw materials and finished parts to subcontractors located within a 20-mile radius of Santeramo (about 10% of Natuzzi’s production during fiscal year 2009). The Group’s contracts with these subcontractors provide that the Group will supply to each subcontractor product designs, finished leather, pre-cut cushions, wooden frames and other assembly materials. The subcontractors are required to assemble these materials into finished products.

The furniture is assembled at a fixed cost per unit that is set to increase annually in line with inflation. These contracts have an indefinite term, subject to termination by either party with prior notice (generally one month).

Raw Materials — The principal raw materials used in the manufacture of the Group’s products are cattle hides, polyurethane foam, polyester fiber, wood and wood products.

The Group purchases hides from slaughterhouses and tanneries located mainly in Italy, Brazil, Germany, Colombia, Ireland, Scandinavian countries, and Eastern Europe. The hides purchased by the Group are divided into several categories, with hides in the lowest categories being purchased mainly in Brazil. The hides in the middle categories are purchased mainly in Italy and certain other parts of Europe and hides in the highest categories are purchased in Germany and Scandinavian countries. A significant number of hides in the lowest categories are purchased at the “wet blue” stage — i.e., after tanning — while some hides purchased in the middle and highest categories are unprocessed. The Group has implemented a leather purchasing policy according to which a percentage of leather is purchased at a finished or semi-finished stage. Therefore, the Group has had a smaller inventory of “split leather” to sell to third parties. Approximately 80% of the Group’s hides are purchased from 10 suppliers, with whom the Group enjoys long-term and stable relationships. Hides are generally purchased from the suppliers pursuant to orders given every one to two months specifying the number of hides, the purchase price and the delivery date.

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 inspected overseas by technicians of the Group, delivered to an Italian port and then sent by the Group to the Udine facility and subcontractors. 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 was 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 the first quarter of 2009, the prices for hides stabilized. In the second quarter of 2009, the prices for hides decreased, although these prices have been continually increasing since the final quarter of 2009. Due to the volatile nature of the hides market, there can be no assurances that any current trend of stabilized prices will continue. See “Item 3. Key Information—Risk Factors—The price of the Group’s principal raw material is difficult to predict.”

The Group also purchases fibers and microfibers for use in coverings. Both kinds of coverings are divided into several price categories: most fabrics are in the highest price categories, while the most inexpensive of the microfibers are in the lowest price categories. Fabrics are purchased exclusively in Italy from 13 suppliers which provide the product at the finished stage. Microfibers are purchased in Italy, South Korea, Taiwan, through four suppliers who provide them at the finished stage. Microfibers purchased from the Group’s Italian supplier are in some cases imported by the supplier at the greige or semi-finished stage and then finished (dyed and bonded) in Italy. Fabrics and microfibers are generally purchased from the suppliers pursuant to orders given every week specifying the quantity (in linear meters) and the delivery date. The price is determined before the fiber or microfiber is introduced into the collection.

Fabrics and microfibers purchased from the Italian suppliers are delivered directly by the suppliers to the Group’s facility in Laterza, while those purchased outside of Italy are delivered to an Italian port and then sent to the Laterza facility. Microfibers and fabrics included into Italsofa and Natuzzi Editions are delivered directly by the suppliers to Chinese and Brazilian ports and then sent to the Group’s Shanghai and Salvador de Bahia facilities. The Group is able to purchase such products at reasonable prices as a result of the volume of its orders. The Group continuously searches for alternative supply sources in order to obtain the best product at the best price.

Price performance of fabrics is quite different from that of microfibers. Because fabrics are purchased exclusively in Italy and are composed of natural fibers, their prices are influenced by the cost of labor and the quality of the product. During 2008 and the beginning of 2009, fabric prices were stable due to long-term relationships with suppliers and the large volumes purchased by the Group. During the same period microfiber prices decreased due to the introduction of new suppliers and the renegotiation of prices with current suppliers. The price of microfibers is mainly influenced by the international availability of high-quality products and raw materials at low costs, especially from Asian markets.

The Group obtains the chemicals required 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 polyester fiber-filled cushions from several suppliers located mainly in Korea, China and Taiwan. 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, which has decreased over the last months. The Group obtains wood and wood products for its wooden frames from suppliers in Italy and Eastern Europe. Through its plant located in Romania, the Group has begun engaging directly in the cutting and transportation of wood from Romanian forests.

With regard to the Group’s collection of home furnishing accessories (tables, lamps, carpets, home accessories in different materials), most of the suppliers are located in Italy and other European countries, while some hand-made products (such as carpets) are made in India.

“Supply-Chain Management”

Procurement Policies and Operations Integration — In order to improve customer service and reduce industrial costs, the Group in 2009 established a definitive policy for handling suppliers and supply logistics. All of the sub-departments working in the Logistics Department have been reorganized to maximize efficiency throughout the supply-chain. The Logistics Department now coordinates periodic meetings among all of its working groups in order to identify areas of concern that arise in the supply-chain, and to identify solutions that will be acceptable to all groups. The Logistics Department is responsible for monitoring the proposed solutions in order to ensure their effectiveness. Additionally, in order to improve access to supply-chain information throughout the Group, the Logistics Department (with the support of the Information Systems department) has created a new portal that allows the Logistics Department and other departments (such as Customer Service and Sales) to monitor the movement of goods through the supply-chain.

Production Planning (Order Management, Production, Procurement) — The Group’s commitment to reorganizing procurement logistics has led to:

1) the development of a logistic-production model to customize the level of service to customers;

2) a 16.0% reduction in the size of the Group’s inventory of raw materials and/or components, particularly those pertaining to coverings. This positive impact was made possible by both the development of software that allows more detailed production programming and broader access by suppliers themselves, and a more general reorganization of supplier relationships. Suppliers are now able to provide assembly lines at Italian plants with requested components within four hours;

3) the planning and partial completion of the industrial reorganization of the local production center; and

4) since January 2009, the SAP system has been implemented through the organization.

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 new forecast methodology, developed in cooperation with a consulting firm. This methodology balances the Group’s desire to maintain low inventory levels against the Sales Department’s needs for flexibility in filling orders, all the while maintaining high customer satisfaction levels. This new methodology is currently being developed together with the Group’s Information Systems Department, in order to create a new intranet portal, called Worldwide Demand Planning tool. This tool is working for sales coming from the North American and Asia Pacific market, under the supervision of a forecast manager. Once completed, it will further support corporate logistics and operations managers to better forecast the future demand for the Group’s products so as to improve the lead time from material supply to sales delivery.

Special production programs—those requiring lead times shorter than three weeks—are only available to a restricted group of customers, for a limited group of collections and product combinations.

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 synchronized in order to guarantee that during the production process, the correct 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 — With the aim of decreasing costs and safeguarding product quality, the Group attains optimum load levels for shipping by using a software developed through a research partnership with the University of Bari and the University of Copenhagen, completed in June 2006.

This software manages customers’ orders to be shipped by sea with the goal of maximizing the number of orders shipped in full containers. If a customer’s order does not make optimal use of container space, revisions to the order quantities are suggested. This activity, which was previously a prerogative of the Group’s headquarters, has been almost completely transferred to Natuzzi Americas in High Point, North Carolina. Now, this software is also undergoing testing by customers.

As far as the load composition by truck is concerned, the Group has commissioned a software development project to minimize total transport costs by taking into account volume and route optimization for customers’ orders in defined areas. A prototype of this software was delivered to the Group in November 2007. The Group concluded testing of this prototype in September 2008 and it is currently operational. This software was developed by the Group jointly with Polytechnic of Bari and the University of Lecce.

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’ high cube containers, while those produced for the European market are generally delivered by truck and, in some cases, by railway. In 2009, the Group shipped 9,000 containers (40’hc) to overseas countries and approximately 6,000 full load mega-trailer trucks to European destinations. To improve service levels, a method of Supplier Vendor Rating is under development to measure performance of carriers and distributors providing direct service. This rating system has first been extended to transport by land, and, later, also to the transport by sea.

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. At the same time, a transportation tender has been organized during 2009. This tender involves worldwide transportation companies; the concept is to have a better service for our customers at a cheaper price reducing the number of transport companies involved in the inbound & outbound flow.

Product

The Group is committed to the conception, prototyping (for sofas and furnishings), production (for sofas only) and commercialization of a wide range of upholstered furniture, both in leather and in fabric, as well as furnishings and accessories. The Group also collaborates with acclaimed third-party designers and engineers for the conception and prototyping of certain products in order to enhance brand visibility, especially with respect to the Natuzzi Brand.

New models are the result of a constant information flow that stems from the market (whose preferences are analyzed, filtered and translated by the product managers into a brief, including specific styles, functions and price points), and is communicated to the group of designers who, through constant work with the team from the prototypes department, sketches the creation of new products in accordance with the guidelines received. The diversity of customer tastes and preferences and the natural inclination of the Group to offer new solutions results in the development of products that are increasingly personalized.

The product development process is also based on specific needs of particular clients (key accounts / mass dealers) who are capable of generating a critical mass of sales that enable the product to achieve the right market penetration. The Group’s product range falls within five broad categories of furniture: stationary furniture (sofas, loveseats and armchairs); sectional furniture; motion furniture; sofa beds; and occasional chairs (including recliners and body massage chairs).

In 2009, along with the development of new models and continuing research into new materials and design innovation, the Group also launched a company-wide project to reduce complexity, with the hopes of attaining an optimal number of products by streamlining and consolidating the number of semi-finished goods. The results of this project will likely materialize during the course of 2010 and into 2011.

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 Group’s offering is divided into three different brands and collections that satisfy different market needs:

	(a)		Natuzzi Collection: an inspirational, high-end brand, vigorously promoted worldwide as “Made in Italy”;
	(b)		Editions/Natuzzi Editions Collection: a trademark that aims to generate volumes necessary to regain market share; and
	(c)		Italsofa Collection: a brand that aspires to provide customers with tastefuldesigns at affordable prices.

The Natuzzi Collection, positioned in the medium-high market, focuses on making Italian quality and style accessible through coordinated and innovative living rooms. This collection stands out for high quality in the choice of materials and finishes, as well as the creativity and details of its designs. As of March 31, 2010, this line of products offered 115 models, 9 articles in fabrics in 48 colors, 13 leather articles in 91 colors. The collection also includes a selection of additional furniture (wall units, tables, lamps, carpets), accessories (pots and candles), furniture for the dining room (tables, chairs, lamps) to offer complete furniture with the aim enabling the Group to become a real “Lifestyle Company.”

The Italsofa Collection, which is characterized by a young and vibrant style, offers products for the medium-to-medium low market. As of March 31, 2010 this collection consisted of 93 models, six leather products in 41 colors, and four fabric products in 22 colors.

The Natuzzi Editions/Editions Collection, as of March 31, 2010, consisted of 97 models, 17 leather products in 73 colors, and one fabric product in two colors.

The Group’s overall sales are also partly the result of unbranded production, developed on the basis of specific provision agreements for important key accounts and mass-dealer clients like IKEA and Macy’s.

Innovation remains a strategic activity for the Group. Product Development efforts in 2009 continued to focus on the design of new products, particularly the study of better furniture coverings, and also on improvement of the manufacturing process, with the goal of adapting to the preferences of our target consumers. See also “Item 4. Information on the Company—Manufacturing.”

More than 150 highly-qualified people work in these activities, and typically about 100 new sofa models are generally introduced each year. The Group conducts its research and development efforts and activities from its headquarters in Santeramo in Colle, Italy in accordance with stringent 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 S.p.A. The Group’s plant in Laterza and the Santeramo headquarters have also received an ISO 9001 certification for their roles in the design and production of furnishings and accessories.

Advertising

The Group’s Communications System was developed to regulate all methods used in each market to advertise the brand name, and it operates simultaneously on different levels: the “brand-building level” establishes the brand’s philosophy, while the “traffic-building level” aims to attract consumers to points of sale using various kinds of initiatives, such as presentations of new collections, new store openings and promotional activities.

Advertising in store galleries is carried out with the help of the “Retail Advertising Kit,” a collection of templates that enable direct advertising of consumer brands or the advertising of such brands in conjunction with the retailer’s brand.

Retail Development

The Retail Development department has set up, following a strategic analysis, a Center for Retail Competence whose main objectives are, on a worldwide basis:

	1.		to determine and define the retail business model for the Group;
	2.		to design an auditing and control system for the Group’s retail business model under the supervision of top management;
	3.		to define the consumer segments to be targeted;
	4.		to define a product mix more consistent with the needs of targeted consumers and the market;
	5.		to define a store concept consistent with the Natuzzi brand’s high-end positioning;
	6.		to define store formats (e.g., size, location, aesthetic and commercial features);
	7.		to define development plans and network re-positioning; and
	8.		to define the correct communication tools and training.

The expansion of products that the Group offers for the high-end segment has required an adjustment to the presentation of products at points of sale. The Natuzzi product offering is increasingly oriented towards the concept of total living. Therefore, single-brand Natuzzi points of sales have been recently refurnished in order to re-create a complete living room environment, including the use of interior decorations.

Markets

The Group markets its products internationally as well as in Italy. Outside Italy, the Group sells its leather furniture principally on a wholesale basis to major retailers and furniture stores. In 1990, the Group began selling its leather-upholstered products in Italy and abroad through franchised Divani & Divani by Natuzzi and Natuzzi furniture stores. Since 2001, the Group has also sold its furniture through directly owned Natuzzi stores and Divani & Divani by Natuzzi stores. Starting from the second half of 2007, the Group has sold its promotional line in China through Italsofa stores, of which there were 16 as of the end of 2009.

The following tables show the leather and fabric-upholstered furniture net sales and number of seats sold of the Group broken down by geographic market for each of the years indicated:

Leather and Fabric Upholstered Furniture, Net Sales (in millions of euro)

		2009								2008								2007
Americas(1)			139.9				31.0	%			208.6				36.0	%			198.6				35.2	%
Natuzzi			71.7				15.9	%			110.4				18.8	%			114.4				20.3	%
Italsofa			68.2				15.1	%			98.2				16.7	%			84.2				14.9	%
Europe			263.7				58.5	%			323.7				55.1	%			319.4				56.7	%
Natuzzi			160.1				35.5	%			189.3				32.2	%			191.8				34.0	%
Italsofa			103.6				23.0	%			134.4				22.9	%			127.6				22.6	%
Rest of the world			47.0				10.4	%			55.5				9.4	%			45.5				8.1	%
Natuzzi			27.8				6.2	%			32.8				5.6	%			29.9				5.3	%
Italsofa			19.2				4.3	%			22.7				3.9	%			15.6				2.8	%
Total			450.6				100.0	%			587.8				100	%			563.5				100	%

Leather and Fabric Upholstered Furniture, Net Sales (in seats) ⁽²⁾

		2009								2008								2007
Americas (1)			785,156				40.8	%			1,272,559				46.7	%			1,176,585				45.4	%
Natuzzi			332,910				17.3	%			554,492				20.4	%			560,647				21.6	%
Italsofa			452,246				23.5	%			718,067				26.4	%			615,938				23.8	%
Europe			943,103				49.0	%			1,211,939				44.5	%			1,225,882				47.3	%
Natuzzi			415,582				21.6	%			487,821				17.9	%			523,054				20.2	%
Italsofa			527,521				27.4	%			724,118				26.6	%			702,828				27.1	%
Rest of the world			194,961				10.1	%			237,809				8.7	%			189,926				7.3	%
Natuzzi			70,855				3.7	%			90,430				3.3	%			87,950				3.4	%
Italsofa			124,106				6.5	%			147,379				5.4	%			101,976				3.9	%
Total			1,923,220				100.0	%			2,722,307				100.0	%			2,592,393				100.0	%

1. United States and the Americas.

In 2009, net sales of leather and fabric-upholstered furniture in the United States and the Americas was € 139.9 million, a decrease of 32.9% from € 208.6 million in 2008, and the number of seats sold decreased 38.3%, from 1,272,560 in 2008 to 785,156 in 2009.

The Group’s principal customers are major retailers. The Group advertises its products to retailers and, recently, to consumers in the United States and Canada 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.

The Group’s sales in the United States and Canada are handled by Natuzzi Americas, which maintains offices in High Point, North Carolina, the heart of the most important furniture manufacturing and distribution region in the United States. The staff at High Point provides customer service, marketing and logistics, handles finance and collections, and generally acts as the customers contact for the Group. As of March 31, 2010, the High Point operation had 63 employees, 27 independent sales representatives and eight sub-representatives for the United States and Canada. They are regionally supervised by three Vice Presidents.

Invoicing and accounting for the Group’s Latin American operations is also managed from High Point, whereas a new local representative office is now operating in San Paulo, Brazil and takes care of sales and marketing for all markets south of the US-Mexico border. As of March 31, 2010 Natuzzi Latin American representative office in Brazil had seven sales representatives.

A directly owned store operates in New York City under the brand Natuzzi. In addition, there are five Natuzzi single-brand stores operating in the Americas that are owned by local dealers and are located in the US, Mexico (2), Venezuela and Panama. The opening of the first directly owned store in Brazil is scheduled for May 2010 under the Italsofa brand. The launch of a Natuzzi brand store in Brazil is planned for 2011.

2. Europe.

During 2009, the Group continued to consolidate its position in Europe by investing in stores and galleries. Net sales of leather and fabric-upholstered furniture in Europe decreased by 18.5% to € 263.7 million (down from € 323.7 million in 2008), with the number of seats sold decreasing by 22.2%, from 1,211,939 in 2008 to 943,103 in 2009.

Italy. Since 1990, the Group has sold its upholstered products within Italy principally through the Divani & Divani franchised network of furniture stores (now Divani & Divani by Natuzzi). As of March 31, 2010, there were 103 Divani & Divani by Natuzzi stores and one Natuzzi store located in Italy. The Group directly owns 22 of these stores, including the store operating under the Natuzzi name.

Outside Italy. The Group expands into the European markets mainly through single-brand stores (local dealers, franchisees or directly operated stores). As of March 31, 2010, 128 single-brand stores were operating in Europe: 20 under the Divani & Divani by Natuzzi franchise brand (seven in Greece and 13 in Portugal); two Italsofa stores (Spain and Montenegro); and the remaining 106 under the Natuzzi name (28 in France, 23 in Spain, 11 in Holland, six in the United Kingdom, five in Switzerland, four in Russia, three in the Czech Republic, three in Poland, two each in Germany, Slovenia, Croatia, Romania, Latvia, Cyprus, Malta, and one each in Belgium, Sweden, Denmark, Finland, Ukraine, Hungary, Lithuania, Serbia, Bosnia-Herzegovina, and Estonia). Of these stores, 34 were directly owned by the Group as of March 31, 2010 and all were operated under the Natuzzi name: 22 in Spain (of which two are outlets), five in Switzerland, four in the United Kingdom, and one each in Denmark and Sweden. Apart from the Natuzzi stores, the Group also operates 17 concessions in the United Kingdom.

Given the size of the Russian market and its strategic relevance to the Group’s future growth, a local representative office was opened in Moscow in February, 2010 with the aim of managing sales, marketing and customer service for Russia and Ukraine, and to supervise the opening of new single-brand stores in the Russian market.

3. Rest of the World.

Middle East. In 2009, net sales of leather and fabric-upholstered furniture in the Middle East decreased 26% to € 10.8 million (down from € 14.7 million in 2008), and the number of seats sold also decreased 26%, from 57,292 in 2008 to 42,334 in 2009.

As of March 31, 2010, the Group had a total of 13 Natuzzi stores in the Middle East: four in Israel, two each in the United Arab Emirates, Saudi Arabia and Turkey, and one each in Kuwait, Lebanon and Qatar.

In addition, four single-brand stores were operating under the brand Italsofa in Israel.

Asia-Oceania-Africa. In 2009, net sales of leather and fabric-upholstered furniture in the Asia-Oceania-Africa decreased 11% to € 35.5 million (down from € 40.1 million in 2008), and the number of seats sold decreased 15%, from 177,548 in 2008 to 150,444 in 2009.

Natuzzi Trading (Shanghai) Co., Ltd. acts as a regional office and manages the commercial part of the business throughout the region. In addition to its subsidiary in Japan and a South Korean agency, the Group also set up a representative office in Sydney, in order to be closer to the Australian and New Zealand markets. All of these offices report to the regional office in Shanghai. 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.

As of March 31, 2010, 49 single-brand Natuzzi stores were operating in the Asia Pacific market: 19 in China, 17 in Australia, five in Taiwan, two in New Zealand, and one each in the Philippines, Singapore, Thailand, Malaysia, South Korea and Indonesia. The Group also maintains 25 galleries in the Asia-Oceania-Africa region with locations in New Zealand, South Korea, Japan, Thailand, Indonesia, South Africa, Morocco, Egypt, and Tunisia. The Group also has a gallery presence in Australia, specifically at 14 David Jones department stores.

In 2007, the Group launched an initiative to redefine the image of its Italsofa brand, with the objective of positioning Italsofa within a higher market segment in contrast to low-cost Chinese competitors. As of March 31, 2010, there were 10 Italsofa single-branded stores in China. The Group is currently planning to further expand its presence in China, specifically with single-brand stores located in medium-sized cities across the country.

India. The Group is focusing its efforts and seeking to further invest in the Indian market. A local representative office was opened in Mumbai in the beginning of 2010 to manage sales, marketing and customer service and supervise the Natuzzi stores and Italsofa retail roll out in the Indian market.

Expansion into New Markets — The Group first targeted the United States market in 1983 and subsequently began diversifying its geographic markets, particularly in the highly fragmented European markets (outside of Italy). Although the Group is currently a leader in the leather-upholstered furniture segment in the United States and in Europe, it is now focusing its attention on the development of new foreign markets, like Latin America, China and India (Sources: CSIL, “The European market for upholstered furniture,” July 2008; CSIL, “The US market for upholstered furniture,” October 2007). The Group intends to continue to consolidate its growth in these markets.

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 utilizes “open terms” in 81% of its sales and obtains credit insurance for almost 71% of this amount; 13% of the Group’s sales are commonly made to customers on a “cash against documents” and “cash on delivery” basis; and lastly, 6% of the Group’s sales are supported by a “letter of credit” or “payment in advance.”

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 provided tax benefits, capital grants and subsidized loans. In particular, a substantial portion of the Group’s earnings before taxes and non controlling interest from 1994 to 2003 was derived from Group companies to some extent from such tax exemptions. These tax exemptions expired between 1996 and 2003. The last tax exemption was related to the subsidiary “Style & Comfort S.r.l.” and expired on December 27, 2003.

In December 1996, the Company and the “Contract Planning Service” of the Italian Ministry of Industrial Activities signed a “Program Agreement” with respect to the “Natuzzi 2000 project.” In connection with this project, the Group prepared a multi-faceted program of industrial investments for the increase of the production capacity of leather and fabric upholstered furniture in the area close to its headquarters in Italy. According to this “Program Agreement”, the Company should have made investments for € 295.2 million and at the same time the Italian government should have contributed in the form of capital grants for € 145.5 million. During 2003 the Company revised its growth and production strategy due to the strong competition from competitors in countries like China and Brazil. Therefore, as a consequence of this change in the economic environment in 2003, the Company requested to the Italian Ministry of Industrial Activities for the revision of the original “Program Agreement” as follows: reduction of the investment to be made from € 295.2 million to € 69.8 million, and reduction of the related capital grants from € 145.5 million to € 35.0 million. In April 2005, the Company received from the Italian Government the final approval of the “Program Agreement” confirming these revisions. The Company received under the aforementioned project capital grants for € 24.2 million. A committee has been appointed by the Ministry of Industrial Activities to prepare the final technical report for the disbursement of the remaining capital grants of approximately € 10.8 million.

On April 27, 2004, the Technical-Scientific Committee of the Italian Education, University and Research Ministry approved a four-year research project presented by the Company in February 2002 related to improvement and development in leather manufacturing and processing. The Committee has approved a maximum capital grant of € 2.4 million and a 10-year subsidized loan for a maximum amount of € 3.0 million at a subsidized interest rate of 0.5% to be used in connection with industrial research expenses and prototype developments (as published on August 20, 2004, in the Italian Official Gazette (Gazzetta Ufficiale della Repubblica Italiana) n° 195). Industrial research and prototype developments, planned as part of the project, are already underway thanks to the collaborative efforts of specialized in-house personnel and university researchers from the University of Lecce and the Polytechnic University of Bari. In February 2007, the Company provided the aforementioned Committee with the complete list of expenses to be acknowledged under such project and that had been incurred between August 19, 2002 through December 31, 2003 (such expenses amounted to € 1.0 million). Also in 2007, the Company sent the list of all the costs incurred in 2004 and 2005, amounting to € 1.1 million and € 1.7 million respectively, to be acknowledged under the same project. In July 2008, the Company sent the final list of all the costs incurred in 2006 and 2007. As a result of these costs, the Italian Government provided a € 2.0 million subsidized loan and a € 1.5 million operating subsidy to the Company in June 2008, in addition to a € 0.6 million subsidized loan and a € 0.6 million operating subsidy in February 2010.

In 2006, the Company entered into an agreement with the Italian Ministry of Industrial Activities for the incentive program denominated “Integrated Package of Benefits—Innovation of the working national program ‘Developing Local Entrepreneurs’” for the creation of a centralized information system in Santeramo in Colle that will be utilized by all Natuzzi points-of-sale around the world. This agreement acknowledges costs of € 7.2 million and € 1.9 million for the development and industrialization program, respectively. On March 20, 2006, the Italian Industrial Ministry issued a concession decree providing for a provisional grant to the Company of € 2.8 million and a loan of € 4.3 million, to be repaid at a rate of 0.74% over 10 years. In December 2006, the Company provided the aforementioned Committee with the list of expenses to be acknowledged under such project and that have been incurred between July 2005 through December 31, 2006 (such expenses amounted to € 4.1 million). Additionally, in February 2008 and September 2008, the Company sent the list of all the remaining expenses incurred up to November 2007 (date of completion of the program) amounting to € 6.7 million. In April 2009, the Italian Government provided a € 3.9 million subsidized loan and a € 1.9 million operating subsidy to the Company.

During 2008, the Italian Ministry of Industrial Activities approved a new incentive program, entitled “Made in Italy — Industry 2015.” The objective of this program is to facilitate the realization and development of new production technologies and services with high innovation value in order to stimulate awareness for products that are made in Italy. In December 2008, the Company submitted to the Italian Ministry of Industrial Activities its proposal, entitled “i-sofas”, which is pending approval. The “i-sofas” program envisions a total investment of € 3.9 million, up to € 1.7 million of which may be contributed as a grant by the Italian Ministry of Industrial Activities. In March 2010, the Company was informed by the Italian Ministry of Industrial Activities that the “i-sofas” program had been approved but that it did not enter the final list for the capital contribution allocation because the funds that were budgeted by the Ministry for such incentive program were already assigned to other companies.

In November 2008, the Puglia regional authorities launched an incentive program in order to support companies located in the Puglia regional district that intend to invest in new production process changes, production diversification and industrial research. In January 2009, the Company submitted its proposal, entitled “UthinkLean,” which is pending to approval. The “UThinkLean” program envisions a total investment of € 11.3 million, up to € 3.7 million of which may be contributed as a grant by the Puglia regional authorities. However, there can be no assurance that the Company will receive any such grants.

In April 2010, Natuzzi S.p.A., as the leader of a coalition of 19 institutions (including universities, research centers and other industrial companies), submitted to the MIUR (The Italian Ministry of Education, University and Research) a project proposal entitled “Future Factory,” which hopes to be financed using “P.O.N.” (Piano Operativo Nazionale - National Operating Plan) funds. This project concerns the research and development of technologies and advanced applications for the control, monitoring and management of industrial processes. This project anticipates an overall cost of € 17.4 million, of which Natuzzi is supposed to bear € 3.3 million (€ 2.6 million as industrial research-related costs, and € 0.7 million as experimental activity-related costs). However, there can be no guarantee that the Company will receive any such grants from the Italian Government.

Certain of the Group’s foreign subsidiaries, including Natuzzi China Ltd and Italsofa Nordeste S.A. enjoy significant tax benefits, such as corporate income tax exemptions or reductions of the applicable corporate income tax rates.

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’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”, “Italsofa”, “Natuzzi Editions” and “Editions” trademarks. These trademarks and certain other trademarks, such as “Divani & Divani by Natuzzi,” have been registered as such in Italy, the European Union, the United States and elsewhere. In order to protect its investments in new product development, the Group has also undertaken a practice of registering certain new designs in most of the countries in which such designs are sold. The Group currently has more than 1,500 design patents and patents pending. 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.

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 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 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 April 30, 2010 are set forth below:

Size

(approximate

Production

square

Capacity

Unit of

Location

meters)

Function

per day

Measure

Santeramo in Colle (BA) — Italy

29,000

Headquarters, prototyping, manufacturing of wooden frames, showroom (Owned)

704

Frames

Santeramo in Colle, Iesce (BA) — Italy

28,000

Sewing and product assembly (Owned)

1,400

Seats

Matera La Martella — Italy

38,000

General warehouse of sofas and accessory furnishing (Owned)

N.A.

N.A.

Ginosa (TA) — Italy

16,000

Sewing and product assembly (Owned)

900

Seats

Laterza (TA) — Italy

11,000

Leather cutting (Owned)

7,500

Square Meters

Laterza (TA) — Italy

13,000

Fabric and lining cutting, leather warehouse (Owned)

6,000

Linear Meters

Laterza (TA) — Italy

20,000

Accessory Furnishing Packaging and Warehouse (Owned)

N.A.

N.A.

Qualiano (NA) — Italy

12,000

Polyurethane foam production (Owned)

87

Tons

Pozzuolo del Friuli (UD) — Italy

21,000

Leather dyeing and finishing (Owned)

14,000

Square Meters

High Point — North Carolina — U.S.A.

10,000

Office and showroom for Natuzzi Americas (Owned)

N.A.

N.A.

Baia Mare — Romania

75,600

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

2,900

Seats

Shanghai — China

44,000

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

4,000

Seats

Shanghai (Fengpu) — China

14,500

Leather cutting, leather and fabric warehouse (Leased)

10,800

Square Meters

Fabric cutting

420

Linear Meters

Salvador de Bahia (Bahia) — Brazil

28,700

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

700

Seats

The Group believes that its production facilities are suitable for its production needs and are well maintained. The Group’s production facilities are operated utilizing close to 73.0% of their production capacity. Operations at all of the Group’s production facilities are normally conducted Monday through Friday with two eight-hour shifts per day. In 2009, the Group continued to utilize subcontractors to meet demand variability.

Capital Expenditures

The following table sets forth the Group’s capital expenditures for each year for the three-year period ended December 31, 2009:

		Year ending December 31,
		(millions of Euro)
		2009				2008				2007
Land and plants			0.3				1.1				3.3
Equipment			1.6				5.1				10.1
Other assets			6.7				9.8				13.1
Total			8.6				16.0				26.5

Capital expenditures during the last three years were primarily made to make improvements to property, plant and equipment, to implement SAP as well as for the expansion of the Company’s retail network. For further discussion see notes 9 and 10 to the Consolidated Financial Statement included in Item 18 of this annual report. In 2009, capital expenditures were primarily made to open new Natuzzi stores and Natuzzi galleries, to make improvements at the Group’s existing facilities (those located in Baia Mare, Romania, and other facilities located in and around Santeramo in Colle, Italy) in order to increase productivity as well as for the purpose of implementing the SAP system. The Group expects that capital expenditures in 2010 will be approximately € 30 million, which is expected to be financed with cash flow from operations. The Group plans to direct such capital expenditures mainly to open new stores and galleries, towards the continued implementation of SAP and to achieve productivity improvements in existing plants and to complete the process of relocating its existing Chinese facilities to new venues in light of the anticipated expropriation process relating to its current facilities. The Group expects approximately 84% of the new store and gallery openings to be in the Europe region and approximately 16% of the new store and gallery opening to occur in Eastern Europe, the Middle East, China and India.

Item 4A. Unresolved Staff Comments

None.

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 Italian GAAP, which differ in certain respects from U.S. GAAP. For a discussion of the principal differences between Italian GAAP and U.S. GAAP as they relate to the Group’s consolidated net loss and shareholders’ equity, see Note 26 to the Consolidated Financial Statements included in Item 18 of this annual report.

Critical Accounting Policies

Use of Estimates — The significant accounting policies used by the Group to prepare its financial statements are described in Note 3 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 presentation 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.

Recoverability of Long-lived Assets Including Goodwill and Other Intangible Assets — The Group periodically reviews the carrying values of the long-lived assets held for use and the carrying values of assets to be disposed of, including goodwill and other intangible assets, when events and circumstances warrant such a review. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its estimated recovery value, in relation to its use or realization, as determined by reference to the most recent corporate plans. Management believes that the estimates of these recovery values are reasonable; however, changes in estimates of such recovery values could affect the relevant valuations. The analysis of each long-lived asset is unique and requires that management use estimates and assumptions that are deemed prudent and reasonable for a particular set of circumstances.

In particular in 2009, our market capitalization increased significantly, by approximately 105%, but it is still below our company’s book value. Many factors could have contributed to this situation, including, without limitation, general economic and financial conditions, our financial results, movement in stock market prices and, from time to time, an illiquid trading market for our ADSs. As a result of market capitalization and other triggering events discussed in detail in Notes 9, 23, 26(g) and 26(k) of the Consolidated Financial Statements included in Item 18 of this annual report, the Company had to analyze its overall valuation and performed an impairment analysis of its long-lived assets, including intangible assets, and goodwill in accordance with Italian GAAP and US GAAP (whenever the events or changes in circumstances indicate that the carrying amount of an asset may be not recoverable).

Based on this impairment analysis, the Company did not record any impairment loss in its consolidated statements of operation for the year ended December 31, 2009.

Furthermore, the Company would like to underline that the net book value of goodwill (net of impairment charge) as of December 31, 2009 under Italian GAAP and US GAAP was 0.4% and 1.3% of total assets, respectively (see notes 10 and 26(g) of the Consolidated Financial Statements included in item 18 of this annual report).

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 reduced by a valuation allowance to an amount that is reasonably certain to be realized. 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 reasonably certain 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 carry forwards are utilized.

Given the cumulative loss position of Natuzzi and of most of its Italian and foreign subsidiaries as of December 31, 2009 and 2008 (see note 14 of the Consolidated Financial Statements included in item 18 of this annual report), management considered the scheduled reversal of deferred tax liabilities and tax planning strategies, in making this assessment. However, after a reasonable effort as of December 31, 2009 and 2008, management has not identified any relevant tax planning strategies available to reduce the need for a valuation allowance. Therefore, at December 31, 2009 and 2008 the realization of the deferred tax assets is primarily based on the scheduled reversal of deferred tax liabilities (see note 14 of the Consolidated Financial Statements included in item 18 of this annual report).

Based upon this analysis, management believes it is more likely than not that the Group will realize only a portion of the benefits of the deductible differences and net operating loss carry forwards (see note 14 of the Consolidated Financial Statements included in item 18 of this annual report), net of the existing valuation allowances at December 31, 2009 and 2008.

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.

Allowances for Returns and Discounts — The Group records revenues net of returns and discounts. The Group estimates sales returns and discounts and creates an allowance for them in the year of the related sales. The Group makes estimates in connection with such allowances based on its experience and historical trends in its large volumes of homogeneous transactions. However, actual costs for returns and discounts may differ significantly from these estimates if factors such as economic conditions, customer preferences or changes in product quality differ from the ones used by the Group in making these estimates.

Allowance for Doubtful Accounts — The Group makes estimates and judgments in relation to the collectibility of its accounts receivable and maintains an allowance for doubtful accounts based on losses it may experience as a result of failure by its customers to pay amounts owed. The Group estimates these losses using consistent methods that take into consideration, in particular, insurance coverage in place, the creditworthiness of its customers and general economic conditions. Changes to assumptions relating to these estimates could affect actual results. Actual results may differ significantly from the Group’s estimates if factors such as general economic conditions and the creditworthiness of its customers are different from the Group’s assumptions.

Revenue Recognition — Under Italian GAAP, the Group recognizes sales revenue, and accrues associated costs, at the time products are shipped from its manufacturing facilities located in Italy and abroad. A significant part of the products are shipped from factories directly to customers under sales terms such that ownership, and thus risk, is transferred to the customer when the customer takes possession of the goods. These sales terms are referred to as “delivered duty paid,” “delivered duty unpaid,” “delivered ex quay” and “delivered at customer factory.” Delivery to the customer generally occurs within one to six weeks from the time of shipment. The Group’s revenue recognition under Italian GAAP is at variance with U.S. GAAP. For a discussion of revenue recognition under U.S. GAAP, see Note 26(c) to the Consolidated Financial Statements included in Item 18 of this annual report.

Results of Operations

Summary — Despite a series of challenges, including increasingly stiff industry competition and reduced consumer discretionary spending as a result of the global economic downturn, aspects of the Group’s performance in 2009 improved as compared with its performance in 2008, although notably its sales volumes decreased significantly during that time. In 2009, the Group had net losses of € 17.7 million, which was a substantial improvement compared to net losses of € 61.9 million in 2008, although the Group did experience a 22.6% decrease in net sales, from € 666.0 million in 2008 to € 515.4 million in 2009. In 2009, the Group sold 1,923,220 seats, down 29.3% as compared to 2008. In 2009, net sales of Natuzzi branded products, which targets the high-end of the market, decreased by 23.4% to € 254.7 million (from € 332.6 million in 2008), with the number of Natuzzi-branded seats sold decreasing by 29.9% as compared to 2008. Net sales of the medium/low-priced Italsofa furniture decreased by 23.2% in 2009, to € 195.9 million from € 255.2 million in 2008, with the number of Italsofa seats sold decreasing by 28.9

The Group’s negative performance in 2009 was principally due to a decrease in the sales volume of Natuzzi-branded products though it was partially offset by an improvement in gross margin. In particular, we believe that the underperformance in sales was primarily caused by a number of ongoing factors in the global economy that have negatively impacted the discretionary spending of consumers. These economic factors include lower home values, high levels of unemployment and personal debt, and reduced access to consumer credit. These developments, coupled with the ongoing malaise of the global financial system and capital markets, have caused a decline in consumer confidence and curtailed consumer spending.

Due to a decrease in net sales volume of our products, the poor performance of the Group’s retail network, and the low efficiency of the manufacturing plant operating in Brazil, the Group reported operating losses in 2009 (despite realizing a significant improvement in operating margin levels when compared to 2008) despite improving its net financial position.

Despite these challenges, the Group continued to invest in the repositioning of the Natuzzi brand and the reorganization of its sales activities in 2009, as well as in the ongoing restructuring of its operations, with the aim of regaining its competitiveness and ensuring its long-term profitability.

The following table sets forth certain statement of operations data expressed as a percentage of net sales for the years indicated:

		Year Ended December 31,
		2009				2008				2007
Net sales			100.0	%			100.0	%			100.0	%
Cost of sales			64.0				71.9				72.6
Gross profit			36.0				28.1				27.4
Selling expenses			29.0				25.9				27.4
General and administrative expenses			9.0				7.4				7.7
Operating loss			(2.0	)			(5.2	)			(7.7	)
Other income (expense), net			0.6				(3.9	)			(0.4	)
Income taxes			1.9				0.2				1.8
Net loss			(3.3	)			(9.3	)			(9.9	)

See “Item 4. Information on the Company—Markets” for tables setting forth the Group’s net leather- and fabric-upholstered furniture sales and seats sold, which are broken down by geographic market, for the years ended December 31, 2007, 2008 and 2009.

2009 Compared to 2008

Net Sales for 2009, 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), decreased 22.6% to € 515.4 million, as compared to € 666.0 million in 2008.

Net sales for 2009 of leather and fabric-upholstered furniture decreased 23.3% to € 450.6 million, as compared to € 587.8 million in 2008. The 23.3% decrease was due to a combination of factors, principally (i) a 29.3% decrease in the number of seats sold, (ii) a 0.7% increase in sales as reported in euro stemming from the depreciation of the euro against the U.S. dollar, and (iii) a 5.3% increase due to targeted pricing strategies and advertising with respect to certain product models. Net sales of Natuzzi-branded furniture accounted for 56.5% of our total net sales in 2009 (as compared to 56.6% in 2008), and net sales of Italsofa-branded products accounted for 43.5% of our total net sales for 2009 (as compared to 43.4% in 2008).

Net sales for 2009 of leather upholstered furniture decreased 22.7% to € 413.7 million, as compared to € 535.2 million in 2008, and net sales for 2009 of fabric upholstered furniture decreased 30.0% to € 36.8 million, as compared to € 52.6 million in 2008.

In the Americas, net sales for 2009 of upholstered furniture decreased by 32.9% to € 139.8 million, as compared to € 208.6 million in 2008, and seats sold decreased by 38.3% to 785,156, as compared to 1,272,560 in 2008. Net sales of the lower-priced Italsofa-branded furniture decreased 30.6% compared to 2008, while net sales of the higher-priced Natuzzi-branded furniture decreased 35.0%. In Europe, net sales for 2009 of upholstered furniture decreased 18.5% to € 263.7 million, as compared to € 323.7 million in 2008, due to the combined effect of a 18.0% decrease in net sales of Natuzzi-branded furniture and to a 19.2% decrease in net sales of Italsofa-branded furniture. In the Rest of the World, net sales for 2009 of upholstered furniture decreased 15.2% to € 47.0 million, as compared to € 55.5 million in 2008, due to a 15.2% decrease in net sales of Natuzzi-branded furniture and to a 15.2% decrease in net sales of Italsofa-branded furniture.

Net sales for 2009 of the Natuzzi-branded furniture decreased 23.4% to € 254.7 million, as compared to € 332.6 million in 2008, with the number of Natuzzi-branded seats sold decreasing by 29.9%. During 2009, net sales of the medium/low-priced Italsofa furniture decreased 23.2% to € 195.9 million, as compared to € 255.2 million in 2008, with the number of Italsofa seats sold decreasing by 28.9%.

Total net sales of Divani & Divani by Natuzzi and Natuzzi Stores decreased 18.2% in 2009 to € 96.1 million, as compared to € 117.1 million in 2008.

In 2009, total seats sold decreased 29.3% to 1,923,220 from 2,722,307 sold in 2008. Negative performance was recorded in the Europe region (down 22.1% to 943,103 seats), in the Americas (down 38.3% to 785,156 seats) and the Rest of the World (down 18.0% to 194,961 seats).

The following provides a more detailed country by country examination of the changes in volumes by brand in our principal markets:

• Natuzzi Brand. In terms of seats sold under the Natuzzi brand, the Group recorded negative results in the United States (-41.9%), Canada (-40.2%), France (-30.3%), Italy (-14.1%), Spain (-26.3%), Ireland (-47.3%), Portugal (-49.3%), Denmark (-48.6%) and Belgium (-13.6%). Positive results were reported in Mexico (+13.8%), Korea (+9.2%), and Israel (+8.7%).

• Italsofa Brand. In terms of seats sold under the Italsofa brand, the Group recorded decreases in many countries, including Holland (-23.1%), Germany (-24.1%), France (-26.6%), Ireland (-16.1%), Chile (-36.9%), Sweden (-30.4%) and Norway (-18.8%). Positive results were reported in Korea (+1.4%), Israel (+5.7%), the United Kingdom (+6.2%), Portugal (+ 1.8) and China (+3.6%).

Other Net Sales (principally sales of polyurethane foam and leather sold to third parties, as well as of accessories) decreased 17.2% to € 64.8 million, as compared to € 78.2 million in 2009.

Cost of Sales in 2009 decreased in absolute terms by 31.1% to € 329.7 million (representing 64.0% of net sales), as compared to € 478.8 million (or 71.9% of net sales) in 2008. The improvement in cost of sales, as a percentage of net sales, was due to the decrease in the cost of leather and of other principal raw materials, as well as improvements in material efficiency and plant rationalization.

Gross Profit. The Group’s gross profit decreased 0.9% in 2009 to € 185.6 million, as compared to € 187.2 million in 2008 as a result of the factors described above.

Selling Expenses decreased 13.2% in 2009 to € 149.6 million, as compared to € 172.3 million in 2008, and, as a percentage of net sales, increased from 25.9% in 2008 to 29.0% in 2009. This increase was mainly due to lower net sales.

General and Administrative Expenses. In 2009, the Group’s general and administrative expenses decreased 6.7% to € 46.6 million, as compared to € 49.9 million in 2008, and, as a percentage of net sales, increased from 7.4% in 2008 to 9.0% in 2009 as a result of the Group’s decreased net sales.

Operating Loss. The Group had an operating loss of € 10.6 million for 2009, as compared to an operating loss of € 35.0 million in 2008, as a result of the factors described above.

Other Income (expenses), net. The Group registered other income, net, of € 3.1 million in 2009 as compared to other expenses, net of € 25.8 million in 2008. Net interest expenses, included in other income (expense), net, in 2009 was € 1.1 million, as compared to net expenses of € 0.2 million in 2008. See Note 23 to the Consolidated Financial Statement included in Item 18 of this annual report.

The Group registered a € 6.9 million foreign-exchange net gain in 2009 (included in other income (expense), net), as compared to a net loss of € 11.0 million in 2008. The foreign exchange gain in 2009 primarily reflected the following factors:

•

a net realized loss of € 3.1 million in 2009 (compared to a loss of € 1.3 million in 2008) 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 the forward rate to hedge its price risks against unfavourable exchange rate variations);

•

a net realized gain of € 2.1 million in 2009 (compared to a loss of € 6.3 million in 2008), from the difference between invoice exchange rates and collection/payment exchange rates;

•

a net unrealized gain of € 7.9 million in 2009 (compared to an unrealized gain of € 1.1 million in 2008) on accounts receivable and payable; and

•

a net unrealized loss of € 0.06 million in 2009 (compared to an unrealized loss of € 4.4 million in 2008), from the mark-to-market of domestic currency swaps.

The Group also recorded other expenses, included in other income (expense), net, in 2009 of € 2.6 million, compared to other expenses of € 14.5 million reported in 2008. These expenses reflected the following factors:

•

a € 3.8 million contingent-liabilities provision for estimated losses related to some claims (including tax claims) and legal actions in 2009, while in 2008, the provisions for contingent liabilities amounted to € 3.2 million;

•

other expenses of €0.6 million deriving from the write-off of fixed assets in 2009, while in 2008, the other expenses deriving from the write off of fixed assets amounted to € 1.2 million;

•

the Group did not record any expenses due to the impairment of long-lived assets, while in 2008 it recorded € 4.7 million for such expense;

•

the Group did not record any expenses for one-time termination benefits, while in 2008 it recorded € 4.6 million for such expenses; and

•

€ 2.9 million as other income, net in 2009, compared to other expenses, net of € 0.8 million in 2008.

The Group does not follow hedge accounting and records all fair value changes of its domestic currency swaps in its statement of operations.

Income Taxes. In 2009, the Group suffered a negative effective tax rate of 131.6% on the loss before taxes and non controlling interest, compared to the Group’s effective negative tax rate of 2.2% reported in 2008.

For the Group’s Italian companies the negative effective tax rate (i.e., the obligation to accrue taxes despite reporting a loss before taxes) was due to the regional tax denominated “Irap” (see Note 14 to the Consolidated Financial Statements in Item 18 of this annual report). This regional tax is generally levied on the gross profits determined as the difference between gross revenue (excluding interest and dividend income) and direct production costs (excluding labor costs, interest expenses and other financial costs). As a consequence, even if an Italian company reports a pre-tax loss, it could still be subject to this regional tax. In 2009, most Italian companies within the Group reported losses but had to pay “Irap.”

In 2009, the Group’s effective income tax rate was negatively affected also by the considerable increase in the deferred tax assets valuation allowance. In fact, in 2009, most of the Italian and foreign subsidiaries realized significant pre-tax losses and were in a cumulative loss position, so management did not consider it reasonably certain that the deferred tax assets of those companies would be realized in the scheduled reversal periods (see Note 14 to the Consolidated Financial Statements in Item 18 of this annual report).

For some of the Group’s foreign subsidiaries (Italsofa Shanghai Ltd, Softaly Shanghai Ltd, Natuzzi China Ltd and Italsofa Romania), the increase in the effective tax rate was mainly due to the improvement in profit before taxes and reduction or maturity of tax incentives to which they were entitled.

Net Loss. The Group reported a net loss of € 17.7 million in 2009, as compared to a net loss of € 61.9 million in 2008. On a per-Ordinary Share, or per-ADS basis, the Group had net losses of € 0.32 in 2009, as compared to net losses of € 1.13 in 2008.

As disclosed in Note 26 to the Consolidated Financial Statements included in Item 18 of this annual report, established accounting principles in Italy vary in certain significant respects from generally accepted accounting principles in the United States. Under U.S. GAAP, the Group would have had net losses of € 25.7 million, € 55.7 million and € 60 million in 2009, 2008 and 2007, respectively, compared to net losses of € 17.7 million, € 61.9 million and € 62.6 million in 2009, 2008 and 2007, respectively under Italian GAAP.

2008 Compared to 2007

Net Sales for 2008, 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), increased 5.0% to € 666.0 million, as compared to € 634.4 million in 2007.

Net sales for 2008 of leather and fabric-upholstered furniture increased 4.3% to € 587.8 million, as compared to € 563.5 million in 2007. The 4.3% increase was due to a combination of factors, principally (i) a 5.0% increase in the number of seats sold, (ii) a 3.9% decrease in sales as reported in euro stemming from the appreciation of the euro against the U.S. dollar, and (iii) a 3.2% increase due to targeted pricing strategies and advertising with respect to certain product models. Net sales of Natuzzi-branded furniture accounted for 56.6% of our total net sales in 2008 (as compared to 59.6% in 2007), and net sales of Italsofa-branded products accounted for 43.4% of our total net sales for 2008 (as compared to 40.4% in 2007).

Net sales for 2008 of leather upholstered furniture increased 6.4% to € 535.2 million, as compared to € 502.9 million in 2007, and net sales for 2008 of fabric upholstered furniture decreased 13.2% to € 52.6 million, as compared to € 60.6 million in 2007.

In the Americas, net sales for 2008 of upholstered furniture increased by 5.0% to € 208.6 million, as compared to € 198.6 million in 2007, and seats sold increased by 8.2% to 1,272,559, as compared to 1,176,585 in 2007. Net sales of the lower-priced Italsofa-branded furniture increased 16.5% compared to 2007, while net sales of the higher-priced Natuzzi-branded furniture decreased 3.5%. In Europe, net sales for 2008 of upholstered furniture increased 1.3% to € 323.4 million, as compared to € 319.4 million in 2007, due to the combined effect of a 1.3% decrease in net sales of Natuzzi-branded furniture and to a 5.3% increase in net sales of Italsofa-branded furniture. In the Rest of the World, net sales for 2008 of upholstered furniture increased 22.0% to € 55.5 million, as compared to € 45.5 million in 2007, due to a 9.9% increase in net sales of Natuzzi-branded furniture and to a 45.5% increase in net sales of Italsofa-branded furniture.

Net sales for 2008 of the Natuzzi-branded furniture decreased 1.0% to € 332.6 million, as compared to € 336.1 million in 2007, with the number of Natuzzi-branded seats sold decreasing by 3.3%. During 2008, net sales of the medium/low-priced Italsofa furniture increased 12.2% to € 255.2 million, as compared to € 227.4 million in 2007, with the number of Italsofa seats sold increasing by 11.9%.

Total net sales of Divani & Divani by Natuzzi and Natuzzi Stores increased 21.5% in 2008 to € 139.9 million, as compared to € 115.1 million in 2007.

In 2008, total seats sold increased 5.0% to 2,722,307 from 2,592,393 sold in 2007. Negative performance was recorded in the Europe region (down 1.1% to 1,211,939 seats), while positive results were achieved in the Americas (up 8.2% to 1,272,559 seats) and the Rest of the World (up 25.2% to 237,809 seats).

The following provides a more detailed country by country examination of the changes in volumes by brand in our principal markets:

• Natuzzi Brand. In terms of seats sold under the Natuzzi brand, the Group recorded negative results in the United States (-2.6%), Italy (-13.7%), Spain (-28.0%), Ireland (-30.8%), Portugal (-7.4%), Denmark (-14.9%) and Belgium (-1.0%). Positive results were reported in Canada (+3.7%), Korea (+4.0%), Holland (+18.5%) and China (+20.9%).

• Italsofa Brand. In terms of seats sold under the Italsofa brand, the Group recorded decreases in many countries, including Holland (-11.4%), Germany (-9.7%), Portugal (-33.0%), the United Kingdom (-2.0%), Ireland (-46.3%), Chile (-68.0%), Sweden (-30.1%) and Norway (-46.7%). Positive results were reported in Spain (+13.4%), France (+31.2%), Belgium (+14.7%), Australia (+ 32.4) and China (+599.1%).

Other Net Sales (principally sales of polyurethane foam and leather sold to third parties, as well as of accessories) increased 10.3% to € 78.2 million, as compared to € 70.9 million in 2007.

Cost of Sales in 2008 increased in absolute terms by 3.9% to € 478.8 million (representing 71.9% of net sales), as compared to € 460.6 million (or 72.6% of net sales) in 2007. The improvement in cost of sales, as a percentage of net sales, was due to the decrease in the cost of leather and of other principal raw materials, as well as to the lower impact of fixed costs resulting from the increase in net sales.

Gross Profit. The Group’s gross profit increased 7.7% in 2008 to € 187.2 million, as compared to € 173.8 million in 2007 as a result of the factors described above.

Selling Expenses decreased 0.9% in 2008 to € 172.3 million, as compared to € 173.9 million in 2007, and, as a percentage of net sales, decreased from 27.4% in 2007 to 25.9% in 2008. This decrease was mainly due to lower advertising and exhibition costs.

General and Administrative Expenses. In 2008, the Group’s general and administrative expenses increased 1.8% to € 49.9 million, as compared to € 49.0 million in 2007, and, as a percentage of net sales, decreased from 7.7% in 2007 to 7.4% in 2008.

Operating Loss. The Group had an operating loss for 2008 of € 35.0 million, as compared to an operating loss of € 49.1 million in 2007, as a result of the factors described above.

Other Income (expenses), net. The Group registered other expenses, net, of € 25.8 million in 2008 as compared to other expenses, net of € 2.6 million in 2007. Net interest expenses, included in other income (expense), net, in 2008 was € 0.2 million, as compared to net income of € 1.7 million in 2007. See Note 23 to the Consolidated Financial Statement included in Item 18 of this annual report.

The Group registered a € 11.0 million foreign-exchange net loss in 2008 (included in other income (expense), net), as compared to a net loss of € 7.1 million in 2007. The foreign exchange loss in 2008 primarily reflected the following factors:

•

a net realized loss of € 1.3 million in 2008 (compared to a gain of € 5.9 million in 2007) 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 the forward rate to hedge its price risks against unfavourable exchange rate variations);

•

a net realized loss of € 6.3 million in 2008 (compared to a loss of € 3.9 million in 2007), from the difference between invoice exchange rates and collection/payment exchange rates;

•

a net unrealized gain of € 1.0 million in 2008 (compared to an unrealized loss of € 10.1 million in 2007) on accounts receivable and payable; and

•

a net unrealized loss of € 4.4 million in 2008 (compared to an unrealized gain of € 0.9 million in 2007), from the mark-to-market of domestic currency swaps.

The Group also recorded other expenses, included in other income (expense), net, in 2008 of € 14.5 million, compared to other income of € 2.8 million reported in 2007. This income reflected the following factors:

•

a € 4.7 million expense due to the impairment of long-lived assets in 2008, while no such expenses were registered in 2007;

•

a € 4.6 million expense for the one-time termination benefits incurred in 2008, while no such expenses were registered in 2007;

•

a € 3.2 million contingent-liabilities provision for estimated losses related to some claims (including tax claims) and legal actions in 2008, while in 2007, the provisions for contingent liabilities amounted to € 3.0 million;

•

other expenses of € 1.2 million deriving from the write-off of fixed assets in 2008, while in 2007, the other expenses deriving from the write off of fixed assets amounted to € 2.3 million;

•

the Group did not register any refunds from tax authorities in 2008, while in 2007 it registered a refund of € 3.0 million obtained from the Italian tax authorities for income and other taxes not due related to prior years (in addition in 2007, the Italian tax authorities confirmed that a portion of the income tax of € 0.7 accrued in year 2006, was no longer due);

•

the Group did not register any provisions or reversals for legal actions in 2008, while in 2007 it registered an income of € 1.5 million due to the write off of a provision for legal actions accrued in 2006, which resulted from a settlement of the claim; and

•

€ 0.8 million as other expense, net in 2008, compared to other income, net of € 2.9 million in 2007.

Since 2003, the Group has not followed hedge accounting and records all fair value changes of its domestic currency swaps in its statement of operations.

Income Taxes. In 2008, the Group suffered a negative effective tax rate of 2.6% on the loss before taxes and minority interest, compared to a Group’s effective negative tax rate of 22.2% reported in 2007.

For the Group’s Italian companies the negative effective tax rate (or the obligation to accrue taxes despite reporting a loss before taxes) was due in part to the regional tax denominated “Irap” (see Note 14 to the Consolidated Financial Statements in Item 18 of this annual report). As indicated in the “Income Taxes” section for 2009 above, even if an Italian company reports a pre-tax loss, it could still be subject to this regional tax. In 2008, most Italian companies within the Group reported losses but had to pay “Irap.”

In 2007, the Group’s effective income tax rate was negatively affected by the considerable increase in the deferred tax assets valuation allowance. In fact, in 2007 most of the Italian and foreign subsidiaries realized significant pre-tax losses and were in a cumulative loss position, so management did not consider it reasonably certain that the deferred tax asset of those companies would be realized in the scheduled reversal periods (see Note 14 to the Consolidated Financial Statements in Item 18 of this annual report).

Some of the Group’s foreign subsidiaries (Italsofa Shanghai Ltd, Softaly Shanghai Ltd, Natuzzi China Ltd, Italsofa Bahia Ltd, Minuano Nordeste S.A. and Italsofa Romania) are entitled to significant tax benefits, such as corporate income tax exemptions or reductions in statutory corporate income tax rates, the most significant of which will expire in 2012. As a consequence, some of those foreign subsidiaries reported a lower effective tax rate than the Group’s Italian subsidiaries. See “Item 4. Information on the Company—Incentive Programs and Tax Benefits.”

Net Loss. The Group reported a net loss of € 61.9 million in 2008, as compared to a net loss of € 62.6 million in 2007. On a per-Ordinary Share, or per-ADS basis, the Group had net losses of € 1.13 in 2008, as compared to net losses of € 1.14 in 2007.

As disclosed in Note 26 to the Consolidated Financial Statements included in Item 18 of this annual report, established accounting principles in Italy vary in certain significant respects from generally accepted accounting principles in the United States. Under U.S. GAAP, the Group would have had net losses of € 55.7 million and € 60.0 million in 2008 and 2007, respectively, and net earnings of € 14.5 million in 2006, compared to net losses of € 61.9 million and € 62.6 million in 2008 and 2007, respectively, and net earnings of € 12.3 million in 2006 under Italian GAAP.

Liquidity and Capital Resources

The Group’s cash and cash equivalents were € 66.3 million as of December 31, 2009, as compared to € 47.3 million as of December 31, 2008. The most significant changes in the Group’s cash flows between 2008 and 2009 are described below.

Cash flow generated by operating activities were € 33.4 million in 2009, as compared to cash flow used in operations of € 32.0 million in 2008. This improvement in cash flow in operating activities of € 65.4 million from 2008 to 2009 was primarily as a result of improvement in operating loss of € 24.4 million, a decrease in trade receivables of € 25.8 million, a decrease in inventory of € 10.8 million, which was partially offset by a decrease in accounts payable of € 4.8 million. The decrease in inventories was primarily attributable to overall improvements in inventory control and reduction in inventory levels, while the decrease in trade receivables was primarily attributable to a decrease in credit sales. These effects were partially offset by the negative impact of cash flow used by the reduction of other receivables and accounts payables in 2009.

Cash flow used in investment activities in 2009 decreased € 5.0 million to € 8.5 million. The decrease in cash used in investment activities in 2009 was due to lower capital expenditures. Capital expenditures were € 16.0 million and € 8.6 million in 2008 and 2009, respectively. In both 2008 and 2009, capital expenditures related primarily to the opening of new Natuzzi stores and galleries as well as improvements at existing manufacturing facilities intended to increase productivity (including the purchase of equipment). In 2009, the Group continued to invest in order to continue the implementation of the SAP system for its domestic and foreign companies. See “Item 3. Key Information—Risk Factors—Introduction of a new integrated management system.”

Cash used by financing activities in 2009 totalled € 5.7 million, as compared to € 4.0 million of cash generated by financing activities in 2008. The cash used by financing activities in 2009 was negatively affected by the decrease in short term borrowings and was partially offset by the higher proceeds of long term-debt.

As of December 31, 2009, the Group had available unsecured lines of credit for cash disbursements totalling € 45.8 million, of which € 0.8 million (or 1.7% of the total) were used. The Group uses these lines of credit to manage its short-term liquidity needs. The unused portions of these lines of credit amounted to approximately € 45.0 million (see Note 11 to the Consolidated Financial Statements included in Item 18 of this annual report) as of December 31, 2009. Amounts borrowed by the Group under these credit facilities are not subject to any restrictions on their use, but are repayable either on demand (for bank overdrafts) or on a short-term basis (for other bank borrowings under existing credit lines). Given their nature, these lines of credit may be terminated by the banks at any time. The Group’s borrowing needs are not subject to seasonal fluctuations.

In light of the downturn of the global economy and the continuing uncertainty about these conditions in the foreseeable future, we are focused on effective cash management, controlling costs, and preserving cash in order to continue to make necessary capital expenditures and acquire of stores. For example, we reviewed all capital projects for 2010 and are committed to execute only those projects that are necessary for business operations.

Management believes that the Group’s working capital is sufficient for its present requirements. The Group’s principal source of liquidity is its existing cash and cash equivalents, supplemented to the extent needed to meet the Group’s short term cash requirements by accessing the Group’s existing lines of credit. The Group expects to continue relying on existing cash and cash equivalents as its principal source of liquidity in the future. As of December 31, 2009, the Group’s long-term contractual cash obligations amounted to € 94.7 million of which € 17.4 million comes due in 2010 (€ 13.4 million in 2009). See “Item 5. Operating and Financial Review and Prospects—Contractual Obligations and Commitments.” The Group’s long-term debt represented less than 1.0% of shareholders’ equity as of December 31, 2009 and 2008 (see Note 16 to the Consolidated Financial Statements included in Item 18 of this annual report). At December 31, 2009 and 2008 there are no covenants on the above long-term debt. The Group’s principal uses of funds are expected to be the payment of operating expenses, working capital requirements, capital expenditures and restructuring of operations.

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 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 the sub-accounts as needed on a daily basis to cover the subsidiaries’ cash requirements, but any balance on the sub-accounts 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, 2009, the Group’s long-term debt consisted of € 7.0 million (including the current portion of such debt) outstanding under subsidized loans granted by the Italian government (see “Item 4. Incentive Programs and Tax Benefits”) and its short-term debt consisted of € 0.8 million outstanding under its existing lines of credit, comprised entirely of bank overdrafts. This compares to € 3.8 million of long-term debt and € 9.7 million of short-term debt outstanding as of December 31, 2008.

As of December 31, 2009, all of the Group’s long-term debt and short-term debt were denominated in euro. For the maturity profile of the Group’s long-term debt, please consult the table labelled “Contractual Obligations” below. Short-term overdrafts are payable on demand. Other bank borrowings under existing lines of credit have other short-term maturities. The bulk of the group’s long-term debt bears interest at a fixed rate of 0.74% per annum, with 24.3% of its long-term debt bearing interest at 2.25% per annum. The Group’s short-term debt bears interest at floating rates, with a weighted average interest rate per annum of 1.18% on the Group’s overdraft borrowing and 0.0% on other short-term borrowing as of December 31, 2009, compared to 3.31% and 6.22%on the Group’s overdraft and other short-term borrowing, respectively, as of December 31, 2008. The Group does not have outstanding any other debt instruments, except that it has entered derivative instruments to reduce its exposure to the risk of short-term declines in the value of its foreign currency denominated revenues and not for speculative or trading purposes. For additional information on these derivative instruments, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Exchange Rate Risks.”

The Group maintains cash and cash equivalents in the currencies in which it conducts its operations, principally euro, U.S. dollars, Canadian dollars, Australian dollars and British pounds.

The following tables set forth the material contractual obligations and commercial commitments of the Group (of the type required to be disclosed pursuant to Item 5F of Form 20-F) as of December 31, 2009:

		Payments Due by Period (thousands of euro)
						Less than												After 5
Contractual Obligations		Total				1 year				2-3 years				4-5 years				years
Long-Term Debt(1)			6,980				1,123				2,149				1,634				2,074
Interest due on Long Term Debt (2)			324				81				126				76				41
Operating Leases (3)			87,438				16,245				28,631				21,855				20,707
Total Contractual Cash Obligations			94,742				17,449				30,906				23,565				22,822

Amount of Commitment Expiration Per

Period (thousands of euro)

Total

Amounts

Less than

After 5

Other Commitments

Committed

1 year

2-3 years

4-5 years

years

Guarantees(1)

11,595

11,595

—

—

—

Under Italian law, the Company and its Italian subsidiaries are required to pay a termination indemnity to their employees when they 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 any sales agent’s agreement. As of December 31, 2009, the Group had accrued an aggregate employee termination indemnity of € 29.6 million. In addition, as of December 31, 2009, the Company had accrued a provision for contingent liabilities of € 14.9 million, a sales agent termination indemnity of € 1.2 million and a one-time termination indemnity benefit of € 2.0 million. The one-time termination benefit includes the amount to be paid on the separation date to certain workers to be terminated on an involuntary basis. See Notes 3(n) and 17 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.

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, 2009, the Group had accrued provisions relating to these contingent liabilities in the amount of €14.9 million. See “Item 8. Financial Information—Legal and Governmental Proceedings” and Note 17 to the Consolidated Financial Statements included in Item 18 of this annual report.

Related Party Transactions

Please see “Item 7. Major Shareholders and Related Party Transactions” of this annual report.

New Accounting Standards under Italian and U.S. GAAP

Process of Transition to International Accounting Standards — Following the entry into force of European Regulation No. 1606 of July 2002, EU companies whose securities are traded on regulated markets in the EU have been required, since 2005, to adopt International Financial Reporting Standards (“IFRS”), formerly known as IAS, in the preparation of their consolidated financial statements. Given that the Company’s securities are only traded on the NYSE, the Company is not subject to this requirement and continues to report its financial results in accordance with Italian GAAP and to provide the required reconciliation of certain items to U.S. GAAP in the Company’s annual reports on Form 20-F.

Italian GAAP — The are no recently issued accounting standards under Italian GAAP that have not been adopted by the Group.

U.S. GAAP — The new accounting standards under U.S. GAAP relevant for the Company are outlined below:

Accounting Standards Update (“ASU”) No. 2009-17, Improvements to Financial Reporting by Enterprises involved with Variable Interest Entities (Formerly FASB Statement No. 46R):

In December 2009 the FASB issued ASU 2009-17 (formerly FASB Statement No. 167) that amends the guidance on variable interest entities in Accounting Standards Codification (“ASC”) No. 810, Improvements to Financial Reporting by Enterprises involved with Variable Interest Entities (Formerly FASB Statement No. 46R) related to the consolidation of variable interest entities. It requires reporting entities to evaluate former QSPEs for consolidation, changes the approach to determining a VIE’s primary beneficiary from a quantitative assessment to a qualitative assessment designed to identify a controlling financial interest, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a VIE. It also clarifies, but does not significantly change, the characteristics that identify a VIE. ASU 2010-10 is effective as of the beginning of a company’s first fiscal year that begins after November 15, 2009, and for subsequent interim and annual reporting periods. Early adoption is prohibited. The Company is currently evaluating the impact of adopting ASU No. 2009-17 on its financial position and results of operations.

Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures:

In January 2010 the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures. The standard update amends certain disclosure requirements of Subtopic 820-10. This ASU provides additional disclosures for transfers in and out of Levels I and II and for activity in Level III. This ASU also clarifies certain other existing disclosure requirements including level of desegregation and disclosures around inputs and valuation techniques. The final amendments to the Accounting Standards Codification will be effective for annual or interim reporting periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity for purchases, sales, issuances, and settlements on a gross basis. That requirement will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early adoption is permitted. The amendments in the update do not require disclosures for earlier periods presented for comparative purposes at initial adoption. The Company is currently evaluating the provisions of these standards, but does not expect adoption to have a material impact on its financial position and results of operations.

Accounting Standards Update (“ASU”) No. 2010-13, Compensation—Stock Compensation:

In April 2010 the FASB issued Accounting Standards update (“ASU”) No. 2010-13, Compensation—Stock Compensation. The objective of this update is to address the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. FASB Accounting Standards Codification Topic 718, Compensation—Stock Compensation, provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment award that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. This update provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this update do not expand the recurring disclosures required by Topic 718. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company is currently evaluating the provisions of these standards, but does not expect adoption to have a material impact on its financial position and results of operations.

Item 6. Directors, Senior Management and Employees

The Board of Directors of Natuzzi S.p.A. currently consists of eight members.

The directors and senior executive officers of the Company as of June 18, 2010 were as follows:

Name		Age				Position with the Company
Pasquale Natuzzi *			70			Chairman of the Board of Directors, Chief Executive Officer
Antonia Isabella Perrone *			40			Director
Annamaria Natuzzi *			44			Director
Giuseppe Antonio D’Angelo *			45			Independent Director
Maurizia Iachino Leto di Priolo *			61			Independent Director
Francesco Giannaccari *			45			Independent Director

Name		Age				Position with the Company
Mario Lugli *			63			Independent Director
Giacomo Santucci **			54			Independent Director
Vittorio Notarpietro			47			Chief Financial Officer, IR & IT
Annunziata Natuzzi			46			Program Reshaping Committee Director
Francesco Basile			42			Chief Human Resources and Organization Officer
Umberto Bedini			54			Chief Operation Officer
Giuseppe Cacciapaglia			42			Chief Internal Control Systems Officer
Cosimo Cavallo			51			Chief Commercial Officer
Giambattista Massaro			48			Chief Procurement Officer
Stefano Sette			41			Chief Marketing & Product Development Officer
Giacomo Ventolone			42			Chief Institutional Relations & Corporate Communication Officer

Pasquale Natuzzi, currently Chairman of the Board of Directors and Chief Executive Officer, 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.

Antonia Isabella Perrone is a 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 became part of 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.

Annamaria Natuzzi is a Director of the Company and holds 2.6% of the Company’s outstanding share capital. She is currently involved in defining Group strategy. She entered the Group in 1980, first working in Production Management (until 1985) and then with Sales Management (until 1995), mainly dealing with the Italian and European markets. She gained significant experience in the Research & Development Management, where she remained until 2004. She is the daughter of Pasquale Natuzzi.

Giuseppe Antonio D’Angelo is an Independent Director of the Company and is currently Executive Vice President of Anglo-America 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 Bachelors 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.

Maurizia Iachino Leto di Priolo is an Independent Director of the Company. She has gained expertise in the executive search field as a Partner at Spencer Stuart Italy, an executive search consulting firm. Since 2001, she has been advising quoted and private companies on corporate governance. Since 2007, she has been leading the Governance Practice at Key2people. Ms. Iachino was President of Save the Children Italy from 2001 to 2007, she is a board member of Fondazione Franco Parenti, member of the scientific committee of Ned Community, the Italian Community of Non-Executive Directors and is Member of the De Agostini Executive Committee for the IV generation.

Francesco Giannaccari is an Independent Director of the Company and is the Vice President for Tom Ford International and International Franchisees. He is also the CEO for Pelletteria Artigiana, the company producing leather accessories for Tom Ford. He was Head of International Operations with Abercrombie & Fitch from 2005 to 2007. Mr. Giannaccari developed his career as controller for the Rinascente Group (from 1991 to 1997) and subsequently joined the GUCCI Group, where he became CFO for Gucci Europe (from 1998 to 2001) before accepting the office of Vice Executive President of Bottega Veneta (a subsidiary of the GUCCI Group NV) from 2001 to 2005.

Mario Lugli is an Independent Director of the Company, he graduated magna cum laude from the University of Modena and with an LL.M. from Oxford University and he is a lawyer specializing in corporate law. His professional experience includes service as General Counsel and Head of Corporate Legal Affairs for important groups such as Luxottica, RCS Media Group, FIAT Group, Montedison and IRI-Italstat. He is currently a member of the Board of Directors or Statutory Auditors of major Italian companies such as AMSA S.p.A., InalcaJBS S.p.A., CostieroGas S.p.A., Investimenti Infrastrutture S.p.A., ENI Trading and Shipping S.p.A., and ENI Servizi S.p.A. He was appointed auditor for the Ministry of Justice in 1995.

Giacomo Santucci is an Independent Director of the Company. He is a founder, owner and consultant of Creative Consulting, a company that combines different experiences in management consulting services. From 2001 to 2004, he was given various areas of responsibility in the Gucci Group. He has served as Chief Executive Officer of the Industrial Operations Division of the Gucci Group, as well as Chief Executive Officer and Vice President of the Gucci Division in Florence. From 1994 to 2000, he assumed roles of increasing responsibility in IPI Services, including serving as President of the Asia Pacific & Hong Kong region, General Manager/Director — Sales and Marketing Group, Chief Executive Officer and Board Member, Director of the Group Business Development & Planning and President of Helmut Lang. He has also served as Senior Manager for McKinsey & Co, as well as General Manager, International Director of Sales & Marketing and Assistant to the Chief Executive Officer for Salvatore Ferragamo.

Vittorio Notarpietro is the Chief Financial Officer of the Company. He rejoined the Group in September 2009. From 1991 to 1998, he was the Finance Director and Investor Relation Manager in the Group. From 1999 to 2006, he was IT Holding Group Finance Vice President. From 2006 to 2009, he was the CEO of Malo S.p.A., a leading Italian company in the luxury sector.

Annunziata Natuzzi is the Program Reshaping Committee Director and she joined the Company in 1981. She started working in the Production Department and, in two years, worked briefly in all of the departments of the Group. She has extensive experience in the Group’s Italian Sales Department and in the International Sales Administration Department. She worked in the Group’s Human Resources Department from 1990 to 2007. Annunziata Natuzzi is the daughter of Pasquale Natuzzi.

Francesco Basile is Chief Human Resources and Organization Officer. He joined the Company in 1997 as Recruiting and Training Manager. Mr. Basile previously worked in SIEMENS Nixdorf Information system AG Group as HR manager and was in charge of trade union relations.

Umberto Bedini is the Chief Operation Officer. He joined the Company in January 2009. Mr. Bedini previously occupied key functions within a number of large international groups, including Angelini Pharmaceutical Group, Rockwell Rimoldi, Merloni and Candy Group. Since 2004, Mr. Bedini has been a partner and CEO of ECA Consulting.

Giuseppe Cacciapaglia is the Chief Internal Control Systems Officer and he joined the Company in July 1996, primarily focusing on carrying out financial audit activities of the Group.

Cosimo Cavallo is the Chief Commercial Officer. He was a Regional Manager UK, SAE Europe and Middle East from September 2008 to December 2009. He joined the Company as a Europe Regional Manager in May 2008. He has also served as Group General Manager in the Sara Lee Corporation for the Champion Sports Wear and Hanes Casual Wear division. He has been a National Sales Manager Italy for Fruit of the Loom, RJ Reynolds Tobacco & Quaker.

Giambattista Massaro is the Chief Procurement Officer. He returned to the Company in January 2010 after his service as CEO of Ixina Italy s.r.l. — Snaidero Group from 2007 to 2009. From 1993 to 2007, he was General Manager of Purchasing, Logistics and Overseas Operation and a member of the Board of Directors of the Group. From 1992 to 1993, he was Assistant to Mr. Natuzzi, and from 1990 to 1992, he was Pricing and Costs Manager. He joined the Company in 1987 as a buyer. He also previously served as Chairman of Natco S.p.A., Natuzzi Trade Service S.r.l. and Lagene as well as Director of Italsofa Bahia Ltda., Italsofa Romania S.r.l. and Natuzzi Asia Ltd.

Stefano Sette is the Chief Marketing and Product Development Officer. He has also served as the Natuzzi Brand Group Senior Vice President, Vice President Sales Worldwide and Worldwide Product Manager. He joined the Company in its Export Sales Department in 1990 .

Giacomo Ventolone is the Chief Institutional Relations & Corporate Communication Officer. He worked in the US market as Brand Manager for Natuzzi Italy from December 2009 to March 2010. From January 2009 to December 2009, he was Regional Vice President for Latin America. He joined the company in 1997 and eventually served as Corporate and Internal Communication Manager from February 2004 to March 2007, and Communications Director from March 2007 to December 2008. Mr. Ventolone began his career as a freelancer with Pryngeps Galleryfrom 1992 to 1995, where he was responsible for the creation of communication tools for the industry. From 1995 to 1997, he worked in marketing and sales at De Agostini Diffusione del Libro.

Compensation of Directors and Officers

The Company established a compensation committee in February 2010, and it is composed of two directors, Mrs. Perrone and Mrs Iachino. As a matter of Italian law, the compensation of executive directors is determined by the Board of Directors, while the Company’s shareholders generally determine the base compensation for all Board members, including non-executive directors. Compensation of the Company’s executive officers is determined by the Chairman of the Board. A list of significant differences between the Group’s corporate governance practices and those followed by U.S. companies listed on the New York Stock Exchange may be found at www.natuzzi.com. See “Item 16G. Corporate Governance on the Company—Strategy” for a description of these significant differences.

Aggregate compensation paid by the Group to the directors and officers was approximately € 5.3 million in 2009.

The compensation paid in 2009 to the members of the Board of Directors is set forth below individually:

Name		Base Compensation
Pasquale Natuzzi		€	280,000
Antonia Isabella Perrone		€	30,000
Annamaria Natuzzi		€	30,000
Giuseppe Antonio D’Angelo		€	30,000
Maurizia Iachino Leto di Priolo		€	30,000
Francesco Giannaccari		€	30,000
Mario Lugli		€	30,000
Giacomo Santucci		€	19,667
Aldo Uva (*)		€	16,400

For 2010, the Group has launched a new Incentive System called Management By Process and Objectives —(“MBPO”). The new system is the natural consequence of the re-definition of the targets defined by the Board considering the objective impossibility of achieving the targets set forth in the Business Plan for 2009 — 2011, which has since been replaced by the 2010 Budget due to the persisting negative economic conditions generally and with respect to the furniture sector specifically.

The objective of the MBPO is to incentivize an improvement in the business results of the Group by spurring a “return to competitiveness” and a renewed focus on customer satisfaction. In order to safeguard the interests of the Company’s shareholders, the new incentive system is taking advantage of a “switch on/off” formula that contemplates, as necessary condition in order to activate the liquidation of 2010 MBPO sheets, the attainment of the Company’s target Operating income including the cost of the new incentive system.

Share Ownership

Mr. Pasquale Natuzzi, who founded the Company and is currently its Chief Executive Officer and Chairman of the Board of Directors, beneficially owns 29,358,089 Ordinary Shares, representing 53.5% of the Ordinary Shares outstanding (58.7% of the Ordinary Shares outstanding if the 5.2% of the Ordinary Shares owned by members of Mr. Natuzzi’s immediate family (the “Natuzzi Family”) are aggregated). As a result, Mr. Natuzzi controls the Group, 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 (other than 196 ADSs) 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 April 18, 2008, INVEST 2003 S.r.l. purchased 3,293,183 American Depositary Shares, each representing one Ordinary Share, at the price U.S.$ 3.61 per ADS. For more information, refer to Schedule 13D filed with the U.S. Securities and Exchange Commission (“SEC”) on April 24, 2008. In relation to the “Natuzzi Stock Incentive Plan 2004-2009” (see “Item 10. Additional Information—Authorization of Shares”), the total number of new Natuzzi ordinary shares that were assigned without consideration to the beneficiary employees in 2006, 2007 and 2008 represents 0.3% of the current outstanding shares. For further discussion see Note 19 to the Consolidated Financial Statement included in Item 18 of this annual report.

Statutory Auditors

The following table sets forth the names of the three members of the board of statutory auditors of the Company and the two alternate statutory auditors and their respective positions. The current board of statutory auditors was elected for a three-year term on April 30, 2010.

Name		Position
Carlo Gatto		Chairman
Gianvito Giannelli		Member
Cataldo Sferra		Member
Costante Leone		Alternate
Giuseppe Pio Macario		Alternate

During 2009, the former statutory auditors of the Group received approximately € 224,000 in compensation in the aggregate for their services to the Company and its Italian subsidiaries.

According to Rule 10A-3 of the Securities Exchange Act of 1934, companies must establish an audit committee meeting specific requirements. 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; (iii) discussion of financial reporting and internal control issues and critical accounting policies (including through executive sessions with the external auditors); (iv) the approval of audit and non-audit services performed by the external auditors; and (v) the adoption of an annual performance evaluation. A company must also have an internal audit function, which may be out-sourced, as long as it is not out-sourced to the external auditor.

The Company relies on an exemption from these audit committee requirements provided by Exchange Act Rule 10A-3(c)(3) 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.

External Auditors

On April 30, 2010, at the annual general shareholders’ meeting, Reconta Ernst & Young S.p.A., with offices in Bari, Italy, was appointed as the Company’s external auditor for a three-year period, replacing KPMG S.p.A. See further discussion in Item 16F, “Change in Registrant’s Certifying Accountant.”

Employees

As of December 31, 2009, the Group had 6,935 employees, (of which 3,360 are located in Italy and 3,575 are located abroad) as compared to 7,569 on December 31, 2008. As of March 31, 2010, the total number of employees was 6,992 (of which 3,348 were located in Italy and 3,644 were located abroad).

The following is a breakdown of the Group’s employees by qualification for the periods indicated:

										Change
										between
										2009 and
Qualification		2008				2009				2008
Top managers			56				61				+5
Middle managers			127				141				+14
Employees			1.306				1.125				-181
Blue collars			6.080				5.608				-472
Total			7,569				6,935				-634

The average total amount of employees during 2009 was of 6,980 (compared to an average of 7,256 employees during 2008).

We believe in Corporate Social Responsibility and have enjoyed generally good relations with our employees.

Italian law provides that, upon termination of employment for whatever reason, employees located in Italy are entitled to receive certain severance payments based on length of employment. As of December 31, 2009, the Company had € 29.6 million reserved for such termination indemnities, with such reserves being equal to the amounts, calculated on a percentage basis, required by Italian law.

As a result of the credit crisis and economic downturn in 2008 that negatively affected order flows and the Group’s sales numbers, the Company, in connection with the adoption of its 2009-2011 business plan, launched an industrial restructuring program in late 2008 in order to increase productivity while improving product quality. This restructuring program was based on the “Cassa Integrazione Guadagni” (or “CIG”), an Italian temporary and extraordinary lay-off program, and it involved approximately 1,273 workers in the Group’s Italian facilities.

Under persistently difficult business conditions that have negatively affected the Group’s order flow in 2009 and during the first few months of 2010, the Company entered into an important agreement with the trade unions on May 17 and 19, 2010, pursuant to which, in addition to renewing the CIG, the Company and the trade unions have agreed on the necessity of improving production efficiency by rationalizing the Group’s production in Italy. The average number of positions that participated in CIG in the Group’s Italian facilities for 2009 was substantially unchanged from 2008.

The extraordinary and temporary lay-off program, which was originally set to expire on June 16, 2010, was extended on June 15, 2010 for a further period of four months by the Ministry of Labor, with the possibility of further renewing the program for an additional period.

The new extraordinary and temporary lay-off program will involve about 1,500 workers including some white collars.

Further initiatives taken by the HR department were targeted towards achieving the Company’s strategic goals in order to recover its competitiveness, improve its customer service and to enhance its product quality. In particular, the HR department:

•

has launched a new organization, mainly directed at the customer, which is able to act efficiently and effectively to guarantee further management simplification and cost rationalization. For the Group, this new organization became necessary to ensure the creation of value for the consumer and all the stakeholders going forward;

•

has launched a revised management plan, entitled “My Way,” whose objective is to specify, by the end of 2010, the tools necessary to define the HR management model founded on the uniqueness of the Company and on the entrepreneur approach. To this end, the Group’s partnership with IULM University of Milan, which has launched a real program of research in order to define both the Company values (My Vision) and the managing guidelines (My Making), has been crucial in developing this plan. The results of the plan will be reflected in the new Values Charter and Natuzzi Management Style;

•

has joined the Business International Training Network, which offers different services, such as institutional and management events about economics, finance, and development; and

•

has confirmed the initiatives of retraining and re-qualification for workers participating in CIG, in order to facilitate a more effective reintegration of such workers in the workplace through structured paths in the fields of IT, and workplace safety.

The compensation policy, which considers organizational impacts and cost control measures, continues to be motivated by the values of meritocracy and selectivity. The compensation policy is compliant with labour market standards, attentive to internal equilibriums, successful in preserving the Group’s human resources while also making the Company attractive to potential valuable employees.

The Group also maintains a company intranet and, as a major employer in the Bari/Santeramo area, is an important participant in community life.

Item 7. Major Shareholders and Related Party Transactions

Major Shareholders

Mr. Pasquale Natuzzi, who founded the Company and is currently Chief Executive Officer and Chairman of the Board of Directors, beneficially owns 29,358,089 Ordinary Shares, representing 53.5% of the Ordinary Shares outstanding (58.7% of the Ordinary Shares outstanding if 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 (other than 196 ADSs) 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 reflected in the records of the Company as of April 30, 2010, with respect to each person who owns 5% or more of the Company’s Ordinary Shares or ADSs:

		Number of
		Shares				Percent
		Owned				Owned
Pasquale Natuzzi (1)			29,358,089				53.5	%
Schroder Investment Management North America Ltd (2)			4.085.100				7.448	%
Quaeroq CVBA (3)			2,760,400				5.0	%

In addition, the Natuzzi Family has a right of first refusal to purchase all the rights, warrants or other instruments which The Bank of New York 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. None of the shares held by the above shareholders have any special voting rights.

As of April 30, 2010 54,853,045 Ordinary Shares were outstanding. As of the same date, there were 22,655,525 ADSs (equivalent to 22,655,525 Ordinary Shares) outstanding. The ADSs represented 41.3% of the total number of Natuzzi Ordinary Shares issued and outstanding.

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

Since January 2007, 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. For purposes of the foregoing, “related party” has the meaning ascribed to it in Item 7.B of Form 20-F.

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 € 198.6 million in 2009 down 22.5% from 2008. That figure represents 44.1% of the Group’s 2009 net leather and fabric-upholstered furniture sales.

Legal and Governmental Proceedings

The Group is involved in legal proceedings, arising in the ordinary course of business with suppliers and employees.

As already reported in previous Financial Statements, Natuzzi S.p.A has been requested to pay social security contributions related to prior years. The Company benefited from a national exemption in connection with personnel employed under “Training and Work experience” contracts for the years 1995-2001. In 2004, the European Court of Justice disregarded such exemptions and the European Commission ordered the Italian Government to collect all of the relevant unpaid contributions. The National Institute for Social Security (“INPS”) then issued a bill of payment of about € 18 million, but the Company appealed to the Labor Courts of Bari and Matera, referencing its compliance with the law in force at the time and invoking the statute of limitations with respect to periods prior to February 2000. In 2009, the Bari Labor Court cancelled all of the contributions claimed, with the exception of € 0.67 million, which had already been paid. The Matera Labor Court has not decided yet, but the Company considers it likely that it will obtain the same decision it did from the Bari Labor Court, and has therefore estimated the relevant probable risk to be approximately € 0.89 million, which has also already been paid. The total amount paid for the two claims was € 1.56 million, of which € 0.48 million was already accrued in the 2008 provision and was fully utilized in 2009, and the remaining € 1.08 million was accounted for in the 2009 Statement of Operations.

The Company intends to request a refund as management and its advisors maintain that such formal assessments were issued in error by the competent authorities. See Note 20 to the Consolidated Financial Statements included in Item 18 of this annual report.

In 2001, the Company brought suit against a competitor alleging copyright infringement. In 2006, the Court in which the suit was filed rejected the Company’s claims and ordered the Company to reimburse the legal costs sustained by the defendant. As of December 31, 2006, the Company estimated the probable amount of these legal costs to be € 1.5 million. This amount was charged to other income (expense), net in 2006. During 2007, the Company settled its liabilities in connection with these proceedings through an out-of-court agreement with the opposing party. See Note 23 to the Consolidated Financial Statements included in Item 18 of this annual report.

During 2007, the Company charged to other income (expense), net the amount of €2.2 million for the probable tax contingent liabilities related to income taxes and other taxes of some foreign subsidiaries. This represents the probable amount that could be claimed back by the tax authorities in case of tax audit. See Note 23 to the Consolidated Financial Statements included in Item 18 of this annual report.

Furthermore, in 2007, the Company set up a provision of € 0.8 million for contingent liabilities related to several minor claims and legal actions arising in the ordinary course of business. See Note 23 to the Consolidated Financial Statements included in Item 18 of this annual report.

During 2008, the Company charged to other income (expense), net the amount of € 2.2 million for the probable tax contingent liabilities related to income taxes and other taxes of some foreign subsidiaries. This represents the probable amount that could be claimed back by the tax authorities in case of tax audit. See Note 23 to the Consolidated Financial Statements included in Item 18 of this Annual Report.

Furthermore, in 2008, the Company set up a provision of € 1.0 million for contingent liabilities related to several minor claims and legal actions arising in the ordinary course of business. See Note 23 to the Consolidated Financial Statements included in Item 18 of this annual report.

During 2009, the Company charged to other income (expense), net the amount of € 2.6 million for the probable tax contingent liabilities related to income taxes and other taxes of some foreign subsidiaries. This represents the probable amount that could be claimed back by the tax authorities in case of tax audit. See Note 23 to the Consolidated Financial Statements included in Item 18 of this Annual Report.

Furthermore, in 2009, the Company set up a provision of € 1.2 million for contingent liabilities related to several minor claims and legal actions arising in the ordinary course of business. See Note 23 to the Consolidated Financial Statements included in Item 18 of this annual report.

In addition, the Group is involved in several minor claims and legal actions arising out of the ordinary course of business.

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

Considering that the Group reported a negative net result in 2009 and 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, 2009. The Group has also not paid dividends in each 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.

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 New York Stock Exchange (“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. The Bank of New York Mellon is the Company’s Depositary for purposes of issuing the American Depositary Receipts (“ADRs”) evidencing ADSs.

Trading in the ADSs on the NYSE commenced on May 15, 1993. The following table sets forth, for the periods indicated, the high and low closing prices per ADS as reported by the NYSE.

		New York Stock Exchange
		Price per ADS
		High				Low
		(in US dollars)
2005			11.65				6.76
2006			8.65				6.32
2007			9.60				4.36
2008			4.63				1.63
2009			3.51				1.00
2008
First quarter			4.63				3.20
Second quarter			4.10				3.16
Third quarter			4.04				2.61
Fourth quarter			3.43				1.63