Natuzzi S.p.A

Annual Report on Form 20-F

20132014

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended: December 31, 20132014

Commission file number: 001-11854

NATUZZI S.p.A.

(Exact name of Registrant as specified in its charter)

Republic of Italy

(Jurisdiction of incorporation or organization)

Via Iazzitiello 47, 70029, Santeramo in Colle, Bari, Italy

(Address of principal executive offices)

Mr. Pietro DirenzoVittorio Notarpietro

Tel.: +39 080 8820 812;111;pdirenzo@natuzzi.comvnotarpietro@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:

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

As of December 31, 2013201454,853,045 Ordinary Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

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  x    No  ¨

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  x    No  ¨

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):

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

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ¨   Item 17    x   Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

TABLE OF CONTENTS

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PRESENTATION OF FINANCIALAND OTHER INFORMATION

In this annual report on Form 20-F (the “Annual Report”), references to “€” or “Euro” are to the Euro and references to “U.S. dollars,” “dollars,” “U.S.$” or “$” are to United States dollars.

Amounts stated in U.S. dollars, unless otherwise indicated, have been translated from the Euro amount by converting the Euro amounts into U.S. dollars at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) for euros on December 31, 20132014 of U.S.$ 1.3779.1.2101. 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 2931 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,” “Natuzzi Group”, “Company,” “Group,” “we,” “us,” and “our,” unless otherwise indicated or as the context may otherwise require, mean Natuzzi S.p.A. and its consolidated subsidiaries.

FORWARD-LOOKING INFORMATION

The Company makes forward-looking statements in this Annual Report. Statements that are not historical facts, including statements about the Group’s beliefs and expectations, are forward-looking statements. Words such as “believe,” “expect,” “intend,” “plan” and “anticipate” and similar expressions are intended to identify forward-looking statements but are not exclusive means of identifying such statements. These statements are based on management’s current plans, estimates and projections, and therefore readers should not place undue reliance on them. Forward-looking statements speak only as of the dates they were made, and the Company undertakes no obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

Projections and targets included in this Annual Report are intended to describe our current targets and goals, and not as a prediction of future performance or results. The attainment of such projections and targets is subject to a number of risks and uncertainties described in the paragraph below and elsewhere in this Annual Report. See “Item 3. Key Information—Risk Factors.”

Forward-looking statements involve inherent risks and uncertainties, as well as other factors that may be beyond our control. The Company cautions readers that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to: effects on the Group from competition with other furniture producers, material changes in consumer demand or preferences, significant economic developments in the Group’s primary markets, the Group’s execution of its reorganization plans for its manufacturing facilities, significant changes in labor, material and other costs affecting the construction of new plants, significant changes in the costs of principal raw materials, significant exchange rate movements or changes in the Group’s legal and regulatory environment, including developments related to the Italian Government’s investment incentive or similar programs. The Company cautions readers that the foregoing list of important factors is not exhaustive. When relying on forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and events.

PART I

ITEM 1. IDENTITYOF DIRECTORS, SENIOR MANAGEMENTAND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICSAND 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 2931 to the Consolidated Financial Statements included in Item 18 of this Annual Report.

2)	Sales included under “Other” principally consist of sales of polyurethane foam and leather to third parties and sales of living room accessories.accessories and beds.

3)	Other income (expense), net in 2014 was negatively affected by the write down of the €1.4 million investment in the share capital of Salena Srl, by impairment losses of €0.4 million related to the Ginosa plant and by impairment losses of long-lived assets in use of €0.7 million.

4)

Other income (expense), net in 2013 was negatively affected by impairment losses of long-lived assets in use of €2€2.1 million, by the write-off of €5.7€6.0 million attributable to an airplane to be sold, by impairment losses of €0.4 million for closed plants, by a provision of €19.9 million for one-time employee termination benefits and by other provisions for contingent liabilities.

4)

Other income (expense), net in 2011 was positively affected by the net Chinese relocation compensation and negatively affected by the impairment losses of long-lived assets, a one-time employee termination benefit and the provision for contingent liabilities. See Note 2628 to the Consolidated Financial Statements included in Item 18 of this Annual Report.

5)

Under US GAAP, impairment losses of €8.6€8.5 million for 2013, have been classified as “general and administrative expenses” and are included as part of operating loss (See Note 29)31). Impairment losses of €5.9 million for 2011 and of €0.7 million for 2010, respectively, have been reclassified to “general and administrative expenses” from the line “other income/(expenses), net,” where they were classified in 2011 and 2010 under Italian GAAP. These reclassifications are not material to the Company’s financial statements (See Note 29).

6)	Share capital as of December 31, 2014, 2013, 2012, 2011 2010 and 20092010 amounted to €54.9 million, €54.9 million, €54.9 million, €54.9 million and €54.9 million, respectively. Shareholder’s Equity represents the Total Equity attributable to Natuzzi S.p.A. and its subsidiaries.

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.

The effective Noon Buying Rate on April 18, 201424, 2015 was U.S.$ 1.38161.0876 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 and ability to maintain adequate levels of liquidity depend to a large extent on its ability to overcome macroeconomic and operational challenges —The Group reported net losses in 2014 (€49.4 million), 2013 (€68.6 million), 2012 (€26.1 million), 2011 (€19.6 million), and 2010 (€11.1 million) and 2009 (€17.7 million), while it reported an operating loss in each of 2014, 2013, 2012 and 2011 (€32.537.0 million, €32.3 million, €17.3 million and €27.3 million respectively) and an operating income of €0.4 million in 2010 after another year of operating losses (€10.6 million in 2009).2010. In addition, the Group’s net sales declined from €515.4€518.6 million in 20092010 to €449.1€461.4 million in 2013.2014. As evidenced by these financial results, we may not be able to achieve or maintain profitability on a consistent basis.

The Group attributes its negative results in 20132014 to a persistentpersistently difficult macroeconomic environment affecting the furniture industry as a whole (particularly evident in some mature markets such as Europe), including extreme weakness in economic activity in the Euro-zone, a general strengtheningcontinued strength of the Euro versus major currencies, stagnant or declining disposable income for consumers, particularly in some countries of the EU, continued high prices for raw materials and price competition from low-cost manufacturers. In 2014, the Group launched the Transformation Plan (as defined below), which is aimed at restructuring its operations and which foresees, in particular, a reduction in its Italian workforce, the closure of certain Italian facilities and the implementation of more efficient production processes in all of its manufacturing plants, including those in Italy, that remain in operation. Following the initial phase of the implementation of such plan, the Group faced other operational challenges, especially at the Italian and Chinese plants, that resulted in slower implementation of the Transformation Plan than had been originally foreseen and, consequently, in a lower-than-expected improvement in efficiency, affecting the Group’s overall profitability. In addition, pursuant to our obligations under the Italian Reorganization Agreements (as defined below), we incurred financial obligations in the amount of €13.5million connected to incentive payments designed to induce the voluntary resignation of redundant employees. As a result of the delays encountered in implementing the Transformation Plan and the additional financial burden incurred in connection with the abovementioned incentive payments, the Group experienced a liquidity reduction at the end of 2014, leading to a short postponement in paying employee salaries for work performed in December 2014 and social contributions for November and December 2014. See “Item 5. Operating and Financial Review and Prospects”. These operational challenges and negative trends have been partially offset by moderate signs of sales recovery from the Americas and some fast growing markets, such as those located in Eastern Europe, Asia-Pacific, Latin America and the Middle East. See “Item 5. Operating and Financial Review and Prospects.” The Group has also faced increased labor costs for some of its manufacturing plants operating abroad. See “Item 4. Information on the Company—Manufacturing” for further information.

Our results of operations and ability to maintain adequate levels of liquidity in the future will depend on our ability to overcome these and other challenges. Our failure to achieve profitability in the future could adversely affect the trading price of our shares and our ability to raise additional capital and, accordingly, our ability to grow our business. There can be no assurance that we will succeed in addressing any or all of these risks, and the failure to do so could have a material adverse effect on our business, financial condition and operating results.

The worldwide economic downturn over the past few years 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 Although in the United States and worldwide in late 2008 and general economic conditions did not fully recover in 2009. During 2010, the global economy started to show, on the whole, small signs of recovery althoughfollowing the 2008-2009 global financial crisis, there were considerable differences in the rate of recovery (if any) among regions. During 2011, the global economy, after an encouraging first half, subsequently lost momentum, with particular reference to the Euro-zone, as a consequence of the sovereign debt crisis affecting Greece, Portugal, Spain, Italy and Ireland. In 2012 and 2013, the global economy continued to grow at a modest pace, but this growth was curbed by the stagnation of economic activity in parts of Europe, as well as the slow-down of some emerging economies. In 2014 recovery remained gradual and economic developments were different across regions: growth in the United States accelerated, momentum slowed in China, economic activity did not gain traction in Japan, and economic conditions in Russia deteriorated further, but spillovers to other emerging markets remain limited to date.

Prospects

However, the prospects for full economic recovery, therefore,the world economy still remain uncertain especially in the so-called western economies, where private consumption continuesshort and medium term, particularly owing to be negatively impacted by a generalpersistent weakness in the Euro area (general weakness in the job market, ongoing vulnerability in the real-estate sector, a decreasing level of savings among families, high levels of public indebtedness in most developed countries, political instability in Greece, austerity measures designed to reduce public expenditures and consequent decreased consumer creditspending), the protraction of the slowdown in China, and spending.

Furthermore, the persistent funding difficulties of Europe’s banking industry, or a resurgence of the sovereign debt crisis in Europe could diminish the banking industry’s ability to lend to the real economy, thus setting in motion a negative spiral of declining production, higher unemployment and a weakening financial sector ..sector.

These persistently difficult conditions have resulted in a decline in our sales and earnings over the past few years 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, consumer confidence and the availability of consumer credit, 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 the amounts owed to us. In addition, if our retail customers are unable to sell our products or are unable to access credit, they may experience financial difficulties leading to bankruptcies, liquidations, and other unfavorable events. If any of these events occur, or if unfavorable economic conditions continue to challenge the consumer environment, our future sales, earnings, and liquidity would likely be adversely impacted.

The Group’s ability to generate the significant amount of cash needed to service our debt obligations and comply with our other financial obligations, and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on multiple factors, many of which may be beyond our control—Our ability to make scheduled payments due on our existing and anticipated debt obligations and on our other financial obligations, and to refinance and to fund planned capital expenditure and development efforts will depend on our ability to generate cash. See “—The Group has a recent history of losses; the Group’s future profitability, financial condition and ability to maintain adequate levels of liquidity depend to a large extent on its ability to overcome macroeconomic and operational challenges.” We will require generation of sufficient operating cash flow from our projectsoperations to service our current and future projected indebtedness. Our ability to obtain cash to service our existing and projected debts is subject to a range of economic, financial, competitive, legislative, regulatory, business and other factors, many of which are beyond our control. We may not be able to generate sufficient cash flow from operations to satisfy our existing and projected debt and other financial obligations, in which case, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments, or seekseeking to raise additional capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the financial markets and our financial condition at such time. To the extent we have borrowings under bank overdrafts that are payable upon demand or which have short maturities, we may be required to repay or refinance such amounts on short notice, which may be difficult to do on acceptable financial terms or at all. At December 31, 2013,2014, we had €25.0€20.8 million of bank overdrafts outstanding. In addition, while we had €61.0€32.8 million of cash and cash equivalents at December 31, 2013, 78%2014, 57% of this amount was held by our Chinese subsidiary andsubsidiaries, most of which cannot be paid to us as a dividend without incurring withholding taxes. We cannot assure you that any refinancing or restructuring would be possible, that any assets could be sold, or, if sold, of the timing of the sales or the amount of proceeds that would be realized from those sales. We cannot assure you that additional financing could be obtained on acceptable terms, if at all, or would be permitted under the terms of our various debt instruments then in effect. Our failure to generate sufficient cash flow to satisfy our existing and projected debt obligations, or to refinance our obligations on commercially reasonable terms, would have an adverse effect on our business, financial condition and results of operations.

The Group’s operations have benefited in 20132014 and in previous years from a temporary work force reduction program that, if not continued despite management’s desire to do so, may have an impact on the Group’s future performance — Due to the persistently difficult business environment that has negatively affected the Group’s order flowsales performance over the past few years, the Company has in recent years entered into an agreementa series of agreements with Italian trade unions and the Ministry of Labor and Social Policy pursuant to which it is entitled to benefit from the “Cassa Integrazione Guadagni Straordinaria” (or “CIGS”), anrelevant Italian temporary layoff programMinistry pursuant to which government funds have been used to pay a substantial

majority of the salaries of redundant workers who are subject to layoffs or reduced work schedules.schedules (as in the case of theCassa Integrazione Guadagni Straordinaria, or “CIGS,” an Italian temporary lay-off program). On March 3, 2015, the Company, the relevant trade union organizations and local institutions entered into an agreement (the “2015 Italian Reorganization Agreement”) that follows and develops the agreement previously entered into on October 10, 2013 (the “2013 Italian Reorganization Agreement,” incorporated by reference to the Company entered into a separate agreement (theForm 20-F filed by Natuzzi S.p.A. with the Securities Exchange Commission on April 30, 2014, file number 001-11854, and together with the 2015 Italian Reorganization Agreement, the “Italian Reorganization Agreement”Agreements”) with local institutions,. The 2013 Italian trade unions,Reorganization Agreement had paved the Ministriesway for the restructuring of Economic Development and of Labor and Social Policy and the regions of Puglia and Basilicata governing the reorganization plan for the Group’s Italian operations. The plan contemplated by the2015 Italian Reorganization Agreement anticipates future layoffsis a fundamental tool for the industrial re-launch of 1,506 employees. DueNatuzzi’s Italian plants (both from a qualitative and productive standpoint), representing the final step in the production efficiency and work-related cost reduction processes that have been tested over the past few months in the Group’s test laboratory. As a result of the 2015 Italian Reorganization Agreement, the Company will be able to better allocate workers according to efficiency criteria: workers on rotation will not be staffed at our plants (as opposed to the complexityfirst part of 2014, when the measures envisionedstaffing of workers on rotation at our plants led to a decrease in the level of productivity).

The new business structure as outlined by the plan and2015 Italian Reorganization Agreement will allow the Group to reduce the number of redundant employees subject to future lay-offs from 1,506 (previously envisaged in orderthe 2013 Italian Reorganization Agreement) to better manage workforce reductions,516. As a result, the number of employees in Italy will be equal to 1,818 (as opposed to the current number of 2,334 employees). The 2015 Italian Reorganization Agreement provides that the solidarity agreement between the Company and the trade unions obtainedwhich aim to reduce working hours in order to maintain company employment levels during a one-year extensioncrisis (the “Solidarity Agreement”) will be applicable to these 1,818 employees (both blue and white collars) for a 24-month period, starting from May 2, 2015. These 1,818 employees will work on a reduced-shift basis (for about five hours on average per day, as opposed to the current eight hour shift per day), which is consistent with the expected order flow that the Company foresees for its Italian productions. The remaining 516 employees will be covered by the Italian temporary lay-off program named “Cassa Integrazione Guadagni.”

Government funds cover the substantial majority of the Company’s participation insalaries of redundant workers under the CIGS which was otherwise due to expire in October 2013, through October 15, 2014.program and also partially reimburses employees on a reduced-shift program for their lost hours under the Solidarity Agreement.

The extraordinary and temporary layoff programs have been extended several times in the past by the Ministry of Labor and Social Policy, but there is no guarantee that the Group will be able to renew this layoff program, even if management deems ongoing participation in the program to be in the Company’s best interest,interest. If the Italian Government were to cease its financial support for the layoff programs, our labour costs may rise substantially and our ability to streamline our operations may be hindered, any of which could adversely impact our future performance. For more information see “Item 6. Directors, Senior Management and Employees—Employees”.

The Group’s operations may be adversely impacted by strikes, slowdowns and other labor relations matters —matters.Many of our employees, including many of the laborers at our Italian plants, are unionized and covered by collective bargaining agreements. As a result, we are subject to the risk of strikes, work stoppages or slowdowns, particularly in our Italian plants. These collective bargaining agreements also limit our ability to close plants, reduce wages or adjust work schedules in response to market conditions or competition without the agreement of Italian trade union representatives. During 2013 and the first few monthsparts of 2014, we have experienced strikes and slowdowns in connection with our Italian reorganization efforts, which resulted in lower productivity levels for the effected plants. Our operations may also be adversely impacted by future strikes or slowdowns, which we anticipate could occur in the future in connection with the announcement of layoffs and in particular, in connection with the expiration of our participation in the CIGS program in October 2014 and the subsequent termination of redundant employees.

Any strikes, threats of strikes, slowdowns or other resistance in connection with our reorganization plan, the negotiation of new labor agreements or otherwise could adversely affect our business as well as impair our ability to implement further measures to reduce structural costs and improve production efficiencies. A lengthy strike that involves a significant portion of our manufacturing facilities could have an adverse effect on our financial condition, results of operations, and cash flows.

We may not execute our 2014-2016 Business Plan, including reorganization plans for our Italian industrial operations, successfully or in a timely manner, which could lead to ongoing losses fromhave a material adverse effect on our results of operations and failureor on our ability to achieve the objectives set forth in our plans — On February 28, 2014, the Natuzzi board of directors approved the 2014-2016 Business Plan (the “Business Plan” or “Transformation Plan”), which also incorporates the plan for the reorganization of the Group’s Italian operations that was the subject of the Italian Reorganization Agreement in October 2013.Agreements. The reorganization of the Group’s Italian operations foresees aprovides for the reduction in our Italian workforce, closurethe rationalization of certain Italian facilities and the implementation of more efficient production processes in those plants that remain in operation.processes. The Business Plan reflects these objectives, while also contemplating efficiency improvements in our worldwide production and back officeback-office procedures, efficiency improvements in our supply chain, rationalization and realignment of our retail network, andthe streamlining of the number of brands within the group and store insignias as well aswithin the Group, and optimization of our marketing and commercial investments. Our objective of returningability to return our operations to profitability is dependent upon ourthe successful and timely execution of the objectives under the Business Plan, including, in particular, the successful reorganization of our Italian industrial operations.

As a matter of fact, first half 2014 results highlighted the need to implement certain corrective measures within the Group’s industrial operations, for the performance of our industrial plants in China and Italy has fallen short of our expectations, which may result in slower implementation of the Business Plan than originally envisaged.

The failure to execute these objectives successfully and timely could result in ongoing losses for the Group and a failure to reduce costs and improve sales as contemplated by the Business Plan.

A failure to offer a wide range of products that appeal to consumers in the markets we target and at different price-points could result in a decrease in our future earningsprofitability — The Group’s sales depend on our ability to anticipate and reflect consumer tastes and trends in the products we sell in various markets around the world, as well as our ability to offer our products at various price points that reflect the spending levels of our target consumers. While we have broadened the offering of our products in terms of styles and price points over the past several years in order to attract a wider base of consumers, our results of operations are highly dependent on our continued ability to properly anticipate and predict these trends. The potential inability of the Group to anticipate consumer tastes and preferences in the various markets in which we operate, and to offer these products at prices that are competitive to consumers, may negatively affect the Group’s ability to generate future earnings.

In addition, the Group is a leading player in the production of leather-upholstered furniture, with 94.9%92.2% of our net sales of upholstered furniture in 20132014 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 grow consistent with our projections under the Business Plan or that it will not decline.

Our Business Plan contemplates the rationalization and realignment of our retail network. If we and our dealers do not execute on these plans successfully or if we fail to effectively launch new stores in growing markets, our ability to grow and our profitability could be adversely affected — Our Business Plan contemplates the closure of certain under-peformingunder-performing stores and the opening of new stores and launching of new points of sale in markets with greater growth potential, particularly in the Asia-Pacific region, the Middle East, India, Russia, Eastern Europe and Latin America. 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 in the future 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 theNatuzzi Italia 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 recently experienced in some of our markets, such as Europe, or the United States and, particularly, Europe.some years ago.

In 2013,2014, the Group derived 40.3%45.2% of its leather and fabric-upholstered furniture net sales from the EMEA region, 41.8% from the Americas (Brazil included), 47.0% from EMEA and 12.6%13.0% from the Asia-Pacific region. A failure to recover from the economic slowdown or renewed economic pressures in the United States or Europe may have a material adverse effect on the Group’s results of operations.

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, many of which are larger and have greater financial resources than the Group. Some of the Group’s competitors offer extensively advertised, well-recognized branded products.

Competition has increased significantly in recent years as foreign producers from countries with lower manufacturing costs have begun to play an important role in the upholstered furniture market. Such manufacturers are often able to offer their products at lower prices, which increases price competition in the industry. In particular, manufacturers in Asia and Eastern Europe have increased competition in the lower-priced segment of the market. As a result of the actions and strength of the Group’s competitors and the inherent fragmentation in some markets in which it competes, the Group is continually subject to the risk of losing market share, which may lower its sales and profits.

Market competition may also force the Group to reduce prices and margins, thereby 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.Euro-zone. An increase in the value of the Euro relative to other currencies used in the countries in which the Group operates has in the past, and may in the future, reduce the relative value of the revenues from its operations in those countries, and therefore may adversely affect its operating results or financial position, which are reported in Euro. In addition to this risk, the Group is subject to currency exchange rate risk to the extent that its costs are denominated in currencies other than those in which it earns revenues. In 2013,2014, a significant portion of the Group’s net sales (almost 62%(about 66%), but approximately 52%45% of its costs, were denominated in currencies other than the Euro. The Group also holds a substantial portion of its cash and cash equivalents in currencies other than the Euro, including a large amount in RMB received as compensation for the relocation of its Chinese manufacturing plant. 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 exchange rate 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 materials is difficult to predict— In 2013,2014, approximately 85%88% of the Group’s revenues came from leather-upholstered furniture sales. The acquisition of cattle hides represents approximately 23%33% 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.

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 up through 2011, was granted tax benefits and export incentives by the relevantrespective governmental authorities in those countries. There can be no assurance that the Group will benefit from such tax benefits or export incentives in connection with future investments.

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 on its ability to continue to attract and maintain highly qualified managerial, manufacturing and sales and marketing personnel. There can be no assurance that the loss of key personnel would not have a material adverse effect on the Group’s results of operations.

Investors may face difficulties in protecting their rights as shareholders or holders of ADSs — The Company is incorporated under the laws of the Republic of Italy. As a result, the rights and obligations of its shareholders and certain rights and obligations of holders of its ADSs (as defined below) are governed by Italian law and the Company’sstatuto (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 (as defined below), 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, as of April 25, 2014, 30,217,52124, 2015, 30,967,521 Ordinary Shares, representing 55.1%56.5% of the Ordinary Shares outstanding (60.2%(61.6% of the Ordinary Shares outstanding if the Ordinary Shares owned by members of Mr. Natuzzi’s immediate family (the “Natuzzi Family”) are aggregated). As a result, Mr. Natuzzi has the ability to exert significant influence over our corporate affairs and to control the Company, including its management and the selection of its board of directors. Since December 16, 2003, Mr. Natuzzi has held his entire beneficial ownership of Natuzzi S.p.A. shares through INVEST 2003 S.r.l., an Italian holding company wholly-owned by Mr. Natuzzi and with its registered office located at Via Gobetti 8, Taranto, Italy.

In addition, under the Deposit Agreement dated as of May 15, 1993, as amended and restated as of December 23, 1996 and as of December 31, 2001 (the “Deposit Agreement”), among the Company, The 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.

Purchasers of our Ordinary Shares and ADSs may be exposed to increased transaction costs as a result of the Italian financial transaction tax or the proposed European financial transaction tax— On 14 February 2013, the European Commission adopted a proposal for a directive on the financial transaction tax (hereafter “EU FTT”) to be

implemented under the enhanced cooperation procedure by eleven Member States initially (Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia, Slovakia and Spain). Member States may join or leave the group of participating Member States at later stages. The proposal will be negotiated by Member States, and, subject to an agreement being reached by the participating Member States, a final directive will be enacted. The participating Member States will then implement the directive in local legislation. The aim of the European Commission is for the EU FTT to enter into force on 1 January 2014. If the proposed directive is adopted and implemented in local legislation, investors in Ordinary Shares and ADSs may be exposed to increased transaction costs.

Italy approved a financial transaction tax in 2012 (the “IFTT”), which, beginning March 1, 2013, applies with respect to trades entailing the transfer of (i) shares or equity-like financial instruments issued by companies resident in Italy, such as the Ordinary Shares; and (ii) securities representing the shares and financial instruments under (i) above (including depositary receipts such as the ADSs), regardless of the residence of the issuer. The IFTT may also apply to the transfer of Ordinary Shares and ADSs by a U.S. resident. The IFTT does not apply to companies having an average market capitalization lower than €500 million in the month of November of the year preceding the year in which the trade takes place. In order to benefit from this exemption, companies whose securities are listed on a foreign regulated market, such as the Company, need to be included on a list published annually by the Italian Ministry of Economy and Finance. As of the date of this Annual Report, the Company is yet to be included on such a list. As a result of the IFTT, investors in the Ordinary Shares and ADSs may be exposed to increased transaction costs. See “Taxation—Other Italian Taxes—The Italian Financial Transaction Tax.”

Our auditors, like other independent registered public accounting firms operating in Italy, are not currently permitted to be subject to inspection by the Public Company Accounting Oversight Board, and as such, investors may be deprived of the benefits of such inspection — Our independent registered public accountingU.S. law requires auditing firms that issue the audit reports included in our Annual Reports filed with the U.S. Securities and Exchange Commission (the “SEC”), as auditors ofpublicly traded companies or that otherwise are traded publicly in the United States and firms registered with the Public Company Accounting Oversight Board, or PCAOB, are required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with SECU.S. Securities and Exchange Commission (the “SEC”) rules and PCAOB professional standards. Because our auditors are a registered public accounting firm in Italy, a jurisdiction where the PCAOB is currently unable under Italian law to conduct inspections, our auditors, like other independent registered public accounting firms in Italy, are currently not inspected by the PCAOB.

Inspections of audit firms that the PCAOB has conducted where allowed have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections in Italy prevents the PCAOB from regularly evaluating our auditor’s audits and quality control procedures. As a result, the inability of the PCAOB to conduct inspections of auditors in Italy may deprive investors of the benefits of PCAOB inspections.

ITEM 4. INFORMATIONONTHE COMPANY

Introduction

The Natuzzi Group is engaged in designing, manufacturing and distributing upholstered furniture. The Group’s offering primarily includes linear and sectional sofas, including those with reclining and motion functions, armchairs and sofa beds, as well as living room and bedroom furnishings and accessories.

The Group is one of the world’s leading companies for the production of leather-upholstered furniture and according to the World Luxury Tracking survey by Lagardère Global Advertising, the Natuzzi brand was ranked as the best-known global brand within the furniture category, and the second best-known brand if all sectors are considered, based on a sample of 7,700 luxury consumers from six countries (France, UK, Germany, Spain, Italy and the United States) (Source: World Luxury Tracking 2013 (Lagardère Global Advertising/IPSOS)).

Natuzzi began operations in Italy in 1959. The Company first targeted the U.S. market in 1983 and subsequently began entering other European markets. In 2008, Natuzzi started to focus its attention on Brazil, Russia, India and China and other developing markets. Today the distribution network covers approximately 100 countries on five continents.

On February 28, 2014, the Natuzzi Board of Directors approved the 2014-2016 Business Plan, prepared in cooperation with specialized external business advisors. The Group currently offers products underBusiness Plan has established a new brand strategy for the following brands:Group: the brands—Natuzzi Italia,Natuzzi Editions/Leather Editions and beginning in 2014,Natuzzi Re-vive. Each of these brands targets—will be developed as product lines each targeting a specific type of customer, based on different price points. The Group also offers unbranded and private label products. but all leveraging the strength of the Natuzzi brand name, the Company’s most recognized brand among consumers.

As part of the Business Plan, during 2014 the Group plans onstarted relabeling theLeather Editions products portfolio of products asNatuzzi Editions to capitalize on the strength of the Natuzzi name and streamline its offerings. the offer.

For a detailed description of these brands and their target markets, please see “Strategy—The Brand Portfolio Strategy” and “Products” below.

The Group also offers unbranded and private label products (including theSoftaly line) within our dedicated business unit aimed at generating sales volumes, which is designed and manufactured to meet the specific needs of key accounts.

As of February 28, 2014March 31, 2015 the Group distributed its products as follows:

Ÿ•

“Natuzzi Editions”/”“Leather Editions”: 4787 stores and 369376 galleries. Fifteen16 of these point of sales,stores, all of which are located in China, are directly managed by the Group. Consistent with the Business Plan, theLeather Editions stores apart from those stores located in China which will remainLeather Editions points of sale in the short term, will be gradually rebranded worldwide intoNatuzzi Editions points of sales.

The Natuzzi Group also presents its products at the world’s leading furniture fairs:Il Salone del Mobile in Milan, Italy,IMM in Cologne, Germany,Furniture Market in High Point, USA,100% Design in London, United Kingdom,I Saloni Worldwide in Moscow, Russia, among others.

On February 28, 2014, the Natuzzi board of directors approved the 2014-2016 Business Plan, prepared in cooperation with specialized external business advisors, establishing a new brand strategy for the Group. According to this new approach, three brands—Natuzzi Italia,Natuzzi Editions andNatuzzi Re-vive—will all be developed as product lines leveraging the strength of the Natuzzi brand name, which is our most recognized brand among consumers. OurSoftaly line will continue to be offered within our business unit aimed at generating sales volumes through private label offerings, which is designed and manufactured to meet the specific needs of key accounts.

On June 7, 2002, the Company changed its name fromIndustrie Natuzzi S.p.A. toNatuzzi S.p.A. Thestatuto, or by-laws, of the Company provide that the duration of the Company is until December 31, 2050. The Company, which operates under the trademark “Natuzzi,” is asocietà per azioni (joint stock company) organized under the laws of the Republic of Italy and was incorporated in 1959 by Mr. Pasquale Natuzzi, who is currently the Chairman of the Board of Directors, Chief Executive Officer, and controlling shareholder of the Company. Most of the Company’s operations are carried out through various subsidiaries that individually conduct a specialized activity, such as leather processing, foam production and shaping, furniture manufacturing, marketing or administration.

The Company’s principal executive offices are located at Via Iazzitiello 47, 70029 Santeramo in Colle, Italy, which is approximately 25 miles from Bari, in southern Italy. The Company’s telephone number is: +39 080 882-0111. The Company’s general sales agent subsidiary in the United States is Natuzzi Americas, Inc. (“Natuzzi Americas”), located at 130 West Commerce Avenue, High Point, North Carolina 27260. Natuzzi Americas telephone number is: +1 336 887-8300.

Organizational Structure

Natuzzi S.p.A. is the parent company of the Natuzzi Group. As of March 30, 2014,31, 2015, the Company’s principal operating subsidiaries were:

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 20132014 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 in recent years 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 austerity measures to consolidate public imbalances in advanced economies (within the EU in particular), and generally reduced access to consumer credit..

On February 28, 2014, the Company’s board of directors approved its 2014-2016 Business Plan (the “Business Plan”), prepared in cooperation with specialized external business advisors, which seeks to address and counteract

these trends. The Business Plan, which is anchored by the company’s foundational values of ethics and social responsibility and based on its points of strength (high brand awareness, innovation, industrial know-how and a global presence), has the following primary objectives: regaining market competitiveness reducing losses in 2014 and spurring a new phase of growth in revenues, with a return to profitability beginningbreakeven EBITDA, originally expected in 2015.2014.

During 2014, the Group experienced some operating difficulties in the implementation of Business Plan, especially in Italy and in China, that caused delays and inefficiencies in achieving the financial objectives set forth by the Business Plan.

Due to the delays associated with the introduction of the “moving line” production system in Group plants, the continued weak operating performance (when compared against forecasts) and the actions being undertaken envisaged in the Plan, Natuzzi management prepared the 2015 budget, adopted by the Board of Directors on December 19, 2014, that foresees a gradual reduction in the operating loss, as a consequence of the positive contribution from measures to improve efficiency, which have already been implemented, but not completed by December 31, 2014

The company will seek to regain market competitiveness and eliminate losses through a restructuring phase that envisions:

Beginning in 2015, the Business Plan foresees a gradual growth in revenues, and a return to operating profit, through the implementation of:

3.

Strengthening investments inmarketing and communications, during the term of the Business Plan.

The Brand Portfolio Strategy —The Group competes in all price segments of the upholstered furniture market with a complementary offer of furnishings and accessories divided into different business propositions each one with a specific brand name, identity, target and positioning. This differentiated brand portfoliooffering is designed to address all market segments and increase sales and profitability.

Precise market segmentation, clear brand positioning and clearly defined customer and consumer targets are intended to enhance the Group’s competitive strengths in all market segments to gain market share:

a)TheNatuzzi Italiabrand is the most established consumer brand within the Group’s portfolio. It is sold exclusively through the retail channel in mono-brand stores, concessions and galleries and beginning in 2014, we will begin selling this product line inmulti-brand specialized stores and high-end department stores. The offer includes sofas designed and manufactured in Italy at the Company’s facilities, priced atfactories, positioned in the middle to high-endhigh end of the market, with unique and customized materials, workmanship and finishes thanks to the Natuzzi heritage of fine craftsmanship in the leather sofas segment. TheNatuzzi Italiaproduct line includes complementary furnishings and accessories for the living room and, the bedroom.starting from 2014, also beds, bed linens and bedroom furnishings to further expand its product offerings. We believe that the brand benefit consists in helping consumers make their home a harmonious, beautiful environment. Through the style and quality of its products and the merchandizingmerchandising in its stores, the Group aims to makeposition this brand an affordable luxury.product line in the premium segment of the market. From the identification of market trends to the delivery to the consumer’s home, Natuzzi directly controls the upholstered production and distribution value chain with the aim of ensuring ultimate quality at competitive prices.

b.1)TheNatuzzi Editions brand dates back to 2005 and at the beginning it was specifically designed specifically for the U.S. market. The collection includes a wide range of leather upholstery products targeting the medium/medium-high segment of the market and leveraging on the know-how and the high credibility of Natuzzi in the leather upholstery business.industry.Natuzzi Editions products are manufactured at the Group’s overseas plants (Romania, China and Brazil) and sold solely in the Americas where the Natuzzi Group historically has a notable market share. These stores are provided with a specific display system and merchandising materials designed to emphasize the brand’s core values of “Leather & Craftsmanship”.Craftsmanship.”

b.2)TheLeather Editions brand was officially launched in 2010.Leather Editions It is similar toNatuzzi Editions in terms of collection,offer, target consumers, distribution channel and merchandising. TheUntil 2014, the primary difference is that through 2013, thebetweenNatuzzi Editions andLeather Editions brandwas distribution:Leather Editions was distributed in Europe and the rest of the world, excluding the Americas, whileNatuzzi Editions was sold only in the Americas. Under the Business Plan, in 2014 the Group contemplateshas started to gradually relabelingrelabel itsLeather Editionsproducts and stores asNatuzzi Editionsbeginning in 2014, apart from stores in China, which will continue, at least in the short term, to use theLeather Editionsstore name..

c)TheNatuzzi Re-vive is the Group’s first performance recliner. In this product line, innovative technology meets Natuzzi high craftsmanship to offer complete support as well as intuitively respond to movement. TheNatuzzi ReviveRe-vive is positioned in the medium/medium-high segment of the market targeting a wide range of consumers who we see as culturally open to innovation, sensitive to their well-being and willing to rediscover the human-dimension of their lives. The distribution of this product, which will beginbegan in 2014, will mainly be through points of sale and galleries within Natuzzi stores, department stores and multi-brands stores.

d)Private label production was introduced by the Group in 2011 as a key-account program to compete in low-end segments of the market. The objective was to recover business from large distributors and develop additional volumes. The Group aims to replicate the best practices applied in connection with the most demanding customers in terms of quality, service and price. These products are also occasionally sold under theSoftaly brand name. Each account is managed by dedicated key-account teams under the following guidelines to maintain efficiency:

Ÿ• accurate forecasting;

Ÿ

• product offerings to create production efficiency through synergies on raw materials, components and coverings, resulting in a focused collection with few models, versions and coverings;

Ÿ• dedicated manufacturing plants: China for Asia-Pacific and American accounts (other than those located in Brazil), Romania for European accounts and Brazil for Brazilian accounts;

Ÿ• dedicated supply chain and transportation service (full truck or full container).

The Group’s brand portfolio also included theItalsofa brand that was launched in 2007 with the objective of positioning it as a higher market alternative to very low-cost Chinese competitors, specifically targeting young consumers. With the aim of better rationalizing its product offering, the Group has decided not to make further investments in theItalsofa brand. All the models thus far developed will be progressively absorbed by the Group’s other brand offerings. The Group will continue to assist those partners that have openedItalsofa points of sale and to convert the existingItalsofa stores or galleries into new projects of the Group.

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

The high level of recognition of the Natuzzi brand among luxury consumers from developed countries is the result of investments the Company has made over the past decade in its products, communication, in-store experience and customer service, thus securing a premium inherent in the brand itself. This consumer brand awareness encourages the Company to carry on in its brand development, through the rationalization of the Group’s brand portfolio and enhancement of the Group’s distribution network, in order to further increase consumers’ familiarity with the Natuzzi brand, and their association of it as a luxury brand. As

The premium brand within the portfolio, Natuzzi Italia, has undergone a rationalization process throughout 2014, in an effort to focus on the very high-end retail segment and to properly exploit opportunities in terms of February 28,profitability for the Group and its partners. During 2014, the Group sells its furniture through 95opened 14 mono-brandDivani & Divani by Natuzzi Italia and 177stores, 10 of which are located in China, as well as 17 Natuzzi Italia galleries. As of March 31, 2015 there were 169Natuzzi Italia stores, of which 44 are24 were directly owned by the Group, and through 1110 were concessions in the United Kingdom. The concessions are a store-in-store concept managed directly by a subsidiary of the Company located in the United Kingdom. As of February 28, 2014,March 31, 2015, there were 314 313Natuzzi Italia galleries worldwide (store-in-store concepts managed by independent partners).

Apart fromThe mid–high level cluster of the upholstery business is the main target of theNatuzzi ItaliaEditionsstores and product line as well as theDivani & Divani&Divani by Natuzzi network, asretail chain in Italy. As of February 28, 2014,March 31, 2015, there were 369376Natuzzi Editions/Leather Editionsgalleries 47(some formerly known asItalsofa galleries were converted intoNatuzzi Editions galleries), 79Leather Editions stores (all located in China), including 15China (of which 16 stores were directly operated by the Group, 12Group), sevenItalsofa Natuzzi Editions stores and 156Italsofa galleries.

The Group’s expansion, with particular focus on fast developing markets continued in 2013. During 2013, the Group opened 46 mono-brand stores, of which 20 were opened under theBrazil, oneNatuzzi ItaliaEditionsname (namely five store in China, two in each of Australia and Vietnam, and one each in Algeria, Côte d’Ivoire, the Netherlands, India, Italy, South Korea, Malta, Russia, Serbia-Montenegro, Ukraine and the United States), four under theIsrael, as well as 96Divani & Divani&Divani by Natuzzi name (all locatedstores (of which 85 were in Italy)Italy and 22 under11 in Portugal).

In 2014, significant focus was put on theLeather Editions name (all located in China). During development of the same period,Natuzzi brand’s new product line, Re-vive, addressing the recliner chair market segment. This effort led the Group to achieve, in one year only, a sustainable presence in this market segment, with sales in 537 store-in-store points-of-sale across the countries in which we offer our products. In addition, we opened 82 galleries,three directly operated stores (“Directly Operated Stores” or “DOS”) for Re-vive in Shanghai as a means to test market reaction as well as address unexploited potentialities of which 32 were opened under theNatuzzi Italianame (namely, fiveRe-vive in Austria, four in Russia, three each in Finland and the United Kingdom, two each in Brazil, Germany and the United States, and one each in Albania, Canada, Croatia, India, Kazakhstan, Mexico, Qatar, Romania, Slovenia, Spain and Turkey), and 43 under the Natuzzi Editions(orLeather Editions) names (namely, 18 in Brazil, five in India, three each in Austria and Hungary, two each in Belgium, Germany, Poland, Russia and the United States, and one each in Nigeria, Romania, Serbia-Montenegro and Spain).

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

Product Diversification and Innovation— The Group believes that it is important to offer consumers carefully developed, coordinated living roomsproducts at competitive prices through its “Total Look” offer, which was first introduced in 2006. The Total Look offer is conceived in accordance with the latest trends in design, materials and colors, and includes high quality sofas, furnishings (including wall units, dining tables and chairs) and accessories, all of which are

developed in-house and presented in harmonious and personalized solutions. The Group has taken a number of steps to broaden its product lines, including the development of new models, such as modular and motion frames, and the introduction of new materials and colors, including exclusive fabrics and microfibers. The Group believes that expanding its Total Look offerings will strengthen its relationships with the world’s leading distribution chains, which are interested in offering branded packages. The Group has also invested in the Natuzzi Style Center in Santeramo in Colle, Italy, to serve as a creative hub for the Group’s design activities.

On April 9, 2014, the Group announced that beginningBeginning in 2014, it willThe Group also beginbegan distributing beds, bed linens and bedroom furnishings to further expand its product offerings.

Manufacturing

As of February 28, 2014, ourOur manufacturing facilities are located China, Romania, Brazil and Italy.

Our Chinese plant is located in Shanghai, extending over 88,000 square meters, and has been operatingin operation since 2011. As of December 31, 2013,2014, our Chinese plant employed 1,4241,552 people, of whom 1,3311,459 were laborers. It manufacturesNatuzzi Editions and private label products for the Americas (apart from Brazil) and for the Asia-Pacific market. In 2013,2014, the Chinese plant produced about 40%41% of the Group’s total consolidated upholstery revenue.

Our Romanian plant is located in Baia Mare, extending over 75,600 square meters, and has been operatingin operation since 2003. As of December 31, 2013,2014, our Romanian plant employed 1,2421,286 people, of whom 1,0881,130 were laborers. It producesNatuzzi Editions and private label products for the EMEA region. In 20132014 the plant generated about 25%24% of the Group’s total consolidated upholstery revenue.

Our Brazilian plant is located in Salvador De Bahia, extending over 28,700 square meters, and has been operatingin operation since 2000. As of December 31, 2013,2014, our Brazilian plant employed 221196 people, of whom 177157 were laborers. It producesNatuzzi Editions and private label products exclusively for the local market. In 2013March 2015 the Group set up a new moving line dedicated to the Re-vive production to be sold exclusively for the Brazilian market. In 2014 the plant generated about 2%almost 3% of the Group’s total consolidated upholstery revenue. In addition2014 the Group sold its owned dormant plant in Brazil. The sale of such plant, for a total consideration of €5.0 million, is expected to be completed in 2015. In February 2015, the Salvador De Bahia plant, we have another Brazilian plant that is currently dormant.Group received the first payment of €1.5 million.

Our three Italian plants dedicated to the production of upholstered products and two warehouses are located in Santaremo Iesce, Matera Iesce and Laterza, all of which are located either in or within a 25 kilometer radius of Santeramo in Colle, where the Group’s headquarters are located. Collectively the three plantsthese sites extend over 82,000120,000 square meters. As of December 31, 2013,2014, these sites (together with the Group’s headquarters) employed 2,1681,892 laborers, the majority of whom were subject to the layoff program. See “Item 6. Directors, Senior Managers and Employees—Employees.” The Italian plants produce exclusivelyare the exclusive producers ofNatuzzi Italia products for the world market and, beginning in the first quarter of 2014, these plants also began producing theRe-viveperformance recliner. In 20132014 these plants generated about 33%32% of the Group’s total consolidated upholstery revenue. If orders exceed production capacity at the foreign plants,Natuzzi Editions products are also manufactured in the Company’s Italian plants. In addition to these three Italian plants, we have two plants elsewhere in Italy: one dedicated to the production of leather and another dedicated to the production of flexible polyurethane foam, as further described below.

These operations retain many characteristics of hand-crafted production coordinated through a management information system usage that identifies by number (by means of a bar-code system) each component of every piece of furniture and facilitates its automatic transit and traceability through the different production phases up to the warehouse.

Since June 2010, the Group has been investing in the reorganization of its production processes, following the “Lean Production” approach. We believe that ongoing implementation of these more efficient production processes will allow us to regain competitiveness by reducing costs (both in terms of labor and consumption of materials) and improving the quality of our services (by reducing defects and lead time for production).

In December 2010, a new prototype for our more efficient production process was introduced in our Matera Iesce plant. This new prototype was developed through an alignment of industrial phases and the implementation of moving-line production processes, from assembly through to packaging of the final product on the same line, within the same production facility. This initial prototype did not incorporate the leather cutting and sewing phases.

The industrialization of the prototyped product lines was further defined in May 2011, and in December 2011, three new production lines were completed in a new dedicated plant in Matera Iesce. We also moved the manufacturing of wooden frames that was originally carried out in the production site located in Santeramo in Colle, Italy, to the Matera Iesce plant, thus further optimizing both productivity and logistics costs through a direct,in-loco integration of sofa assembly.

During 2011 and 2012, these new moving lines were gradually introduced in all of the Group’s production facilities.

In 2013, the Group integrated newthe following production phases in the moving linemoving-line production process within our plants:

Ÿ a• direct integration with wood and foam suppliers to serve each plant according to daily needs (“just in time” supplying) with the advantage of reducing the stock level for semi-finished goods; and

Ÿ• leather cutting and sewing.sewing

This upgrade in the industrial process allows us to better control every stage in the moving linemoving-line sequence in terms of quality, since every worker at every stage supervises the quality of the piece he receives from the immediately previous stage as well as the piece he passes forward; should a quality issue arise, it must be resolved immediately before getting re-introduced into the production chain. This on-the-spot product quality monitoring should significantly reduce our defect claims rate.

Testing of limited model samples produced with the moving linemoving-line process demonstrated a nearly 7% decline in cost of goods sold for certainNatuzzi Editions and private label products and a decline in cost of goods sold of nearly 12% for certainNatuzzi Italia products. Following these tests, management confirmed its decision to transform all the Group’s plants, substituting the old “Isle Production” models, with a roll out of moving linemoving-line production processes to all plants byplants. As of March 31, 2015 the endfollowing number of the second quarter of 2014. Our objective is to have up to 10moving lines were implemented and completed: 24 moving lines in Italy, up to 12China; 11 moving lines in Romania, up to 32Romania; 4 moving lines in China and up to threeItaly; 4 moving lines in Brazil. Each moving line ishas an estimated as being capableproduction capacity of producing up to 130 seats per day when utilized for two eight-hour shifts per day.

Beginning in 2014, we have also deployedbeen designing a software program in cooperation with the University of Lecce that assists in assigning models to the moving line to which they are best-suited and where production would be most efficient. We are considering deploying this software starting from May 2015 as we are testing it in our Matera Jesce plant.

Consistent with its commitments under the Italian Reorganization Agreement,Agreements, the Company has reorganized its Italian operations by deciding to close its plant located in Ginosa, and its warehouse located in Matera La Martella, the former having been closed ineffective January 2014, and the latter is expected2014. This closure has allowed us to be closed by June 2014. These closures had the main advantages of reducing logistics costs and industrial costs. This also had the advantage of concentratingconcentrate all upholstered furniture production activities within just three facilities.facilities with the aim of reducing logistics costs and industrial costs.

The Company initially also planned to close its warehouse in Matera-La Martella, but, following the decision to execute the covering-cutting phase within all of the Italian plants, thus reducing space available for products assembled, it decided not to close it and continue utilizing the Matera-La Martella plant as a general warehouse of sofas and accessory furnishings.

Furthermore, the Group also utilizes two facilities for the processing of leather (NATCO, located in Udine), and for the production of polyurethane foam (IMPE, located near Naples).

The Group remains involved in the processing ofprocesses leather hides to be used as upholstery and served byin its Udine plant whose main activities are leather dyeing and finishing. The Udine facility, which had 180156 employees as of December 31, 2013,2014, of whom 21 employees130 were subject to the CIGS program,laborers, receives both raw and tanned cattle hides, sends raw cattle hides to subcontractors for tanning, and then dyes and finishes the hides. Hides are tanned, dyed and finished on the basis of orders given by the Group’s central office in

accordance with the Group’s “on demand” planning system, as well as on the basis of estimates of future requirements. The movement of hides through the various stages of processing is monitored through theour management information system. See “Item 4. Information on the Company—Manufacturing—Supply-Chain Management.”

The Group produces, directly and by subcontracting, ten grades of leather in approximately 3040 finishes and 200280 colors. The hides, after being tanned, are split and shaved to obtain uniform thickness and separated into “top grain” and “split” (top“split.” Top grain leather is primarily used in the manufacture of mostNatuzzi Italia-branded leather products, while split leather is used, in addition to top grain leather, in the manufacture of someNatuzzi Italia-branded products and mostNatuzzi Editions products. The hides are then colored with dyes and treated with fat liquors and resins to soften and smooth the leather, after which they are dried. Finally, the semi-processed hides are treated to improve the appearance and strength of the leather and to provide the desired finish. The Group also purchases finished hides from third parties.

The other Group’s facility for the production facility,of polyurethane foam, IMPE S.p.A. (“IMPE”), employed up to 5033 workers as of December 31, 2013,2014, and is engaged in the production of flexible polyurethane foam, and also sells foam to third parties because the facility’s production capacity is in excess of the Group’s needs. In 2012, IMPE obtained ISO 14001 certification in accordance with the environmental policy of the Natuzzi Group and also improved safety conditions at the plant. As part of the Group’s efforts to improve its production process, we have substituted some chemical compounds with more ecologically-friendly materials.

As a result of intensive research and development activity, the Company has developed a new family of highly resilient materials. The new polymer matrix is safer than others available in the market because of its improved flame resistance, and it is more environmentally-friendly because it can be disposed of without releasing harmful by-products and because the raw materials used to make it cause a less harmful environmental impactsimpact during handling and storage.

Chinese Production: The original Chinese plant owned by the Group was subject to an expropriation process by local Chinese authorities, since the plant was located on land that was intended for public utilities. Negotiations involving the expropriation process began in 2009 and were concluded in 2011. The agreement setting forth the payment of compensation for the expropriated plant was signed with Chinese authorities on January 26, 2011. As compensation for this expropriation, the parties agreed upon a total indemnity of Chinese Yuan (CNY or RMB, hereafter) 420 million, which was equivalent to approximately €46.7 million based on the Yuan-Euro exchange rate as of December 31, 2011. The Company collected the full amount of the indemnity payment from the local Chinese authorities in 2011. During 2013, a second supplementary agreement was signed between the Company and the Shanghai Municipality, by which the Company obtained the reimbursement (€8.7 million) of taxes due and paid on the 2011 relocation compensation.

The Group identified itsGroup’s current production plant in Shanghai and its was made available in January 2011 to compensate for the reduction in production capacity reduction caused by the expropriation. The relocation process began in February 2011 and was completed, as planned, by the end of May 2011, after equipment and machinery waswere moved to the new plant. The relocation produced a turn-overresulted in worker turnover of approximately 20% in manpower because of the distance of the new plant to the old one (approximately 35 kilometers). Management had already reabsorbedIn response, management hired new personnel, fully eliminating the turn-over effect by hiring new manpower by the end of April 2011.

Brazilian Production:The Group owns two plants in Brazil that, in the past, have been used for the production of furnishings for the Americas region. Only our Salvador de Bahia plant remains open and active, while the other plant was put up for sale with a board of directors resolution in 2010. Due to the overall appreciation of the Brazilian Real versusReais against the U.S. dollar since these plants were opened and a consequent decline in competitiveness, the Group decided to temporarily close onethe Pojuca plant (putting it up for sale in 2010) and reducereduced the production capacity of the Salvador de Bahia plant down to a level that remainsis sufficient to serve only the Brazilian market. In July 2014 the Group reached an agreement to sell the Pojuca plant to a Brazilian company. The buyer has already paid a deposit and the complete transfer of the plant’s property is expected to occur by the end of 2015.

In March 2015 the Group set up a new moving line dedicated to the Re-vive production to be sold exclusively for the Brazilian market.

In order to minimize the potential future effects of currency fluctuations, our Brazilian subsidiary plansbegan to increase its local sourcing beginning in 2014.

After frequent interactions between the Group and top local retailers in the past few years, as well as in light of the high level of fragmentation of the Brazilian market, which consists primarily of small producers with low levels of know-how, the Group believes that the Latin American region currently represents a very good opportunity for the development of additional business.

Therefore, the Group intends to continue investing in the Latin American market, with a particular focus on Brazil, by better organizing operating, sales and marketing activities, by developing the current distribution channel ofNatuzzi Editions points-of-sale as well asand by improving relations with the most important local key accounts through a dedicated private label production.

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

The Group purchases hides from slaughterhouses and tanneries located mainly in Italy, Brazil, Germany, Paraguay, other countries in South America and Europe. The hides purchased by the Group are divided into several categories, with hides in the lowest categories being purchased mainly in Brazil or South America. The hides in the middle categories are purchased in Europe or South America and hides in the highesthighest-quality categories are purchased in Germany and in the United Kingdom. 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 ten10 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 delivered to an Italian port and then sent to the Udine and inspected by technicians of the Group. Management believes that the Group is able to purchase leather hides from its suppliers at reasonable prices as a result of the volume of its orders, and that alternative sources of supply of hides in any category could be found quickly at an acceptable cost if the supply of hides in such category from one or several of the Group’s current suppliers ceased to be available or 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 2013,2014, the prices for hides increased about 15% compared to 2012.2013. Due to the volatile nature of the hides market, there can be no assurance that any current prices will remain stable or that price trends will remain consistent.not rise in the future. See “Item 3. Key Information—Risk Factors—The price of the Group’s principal raw materials is difficult to predict.”

The Group also purchases fabrics and microfibers for use in coverings. Both kinds of coverings are divided into several price categories. Most fabrics are purchased in Italy from about a dozen suppliers which provide the product at the finished stage. Microfibers are purchased in Italy, South Korea and China through some suppliers who provide them at the finished stage. Fabrics and microfibers are generally purchased from suppliers pursuant to orders given every week specifying the quantity (in linear meters) and the delivery date.

Fabrics and microfibers for theNatuzzi Italia branded products that are purchased from Italian suppliers are delivered directly by the suppliers to the Group’s facility in Laterza, while those that are purchased outside of Italy are delivered to an Italian port and then sent to the Laterza facility.

Fabrics and microfibers for theNatuzzi Editions/Leather Editions and private label products are delivered directly by the suppliers to Chinese, Romanian and Brazilian ports and then sent to the Group’s Shanghai, Bahia Mare and Salvador de Bahia facilities.

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, depending on the different range of the products’ quality.

Because fabrics are purchased exclusivelypredominantly in Italy and are composed of natural fibers, their prices are influenced by the cost of labor and the quality of the product.

The price of microfibers, in contrast, 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 Indonesia, China, Taiwan and India. The chemical components of polyurethane foam are petroleum-based commodities, and the prices for such components are therefore subject to, among other things, fluctuations in the price of crude oil, which has remained high in 2012 and 2013 compared to 2011.through the middle of 2014, after which it declined sharply. Within our Romanian industrial plant, we have a woodworking facility that provides wooden frames for all our plants worldwide.

The Group also offers a collection of home furnishing accessories (tables, lamps, rugs, home accessories and wall units in different materials). Most of the suppliers are located in Italy and other European countries, while some hand-made products (such as rugs) are made in India and China. On April 9, 2014, the Company officially presented its new collections of beds, bedroom furniture and bed linens in Milan. They will be produced by Italian companies that are external to the Group. Before beingany items are introduced in theinto our collection, all itemsthey are tested in accordance with European and world safety standards. In the design phase particular attention is paid to the choice of innovative technological solutions that add value to the product and ensure long lasting quality. TheWe believe that the Group’s product packaging for each product hasadheres to a higher standard than the average productsproduct packaging marketed by its competitors,competitors; we prioritize our high standard of packaging in an effort to ensure better customer service.

Supply-Chain Management

Procurement Policies and Operations Integration — In order to improve customer service and reduce industrial costs, the Group in 2009 established a policy for handling suppliers and supply logistics. All of the sub-departments working in the Logistics Department have beenwere reorganized to maximize efficiency throughout the supply-chain. The Logistics Department 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 utilizes a portal that allows it and other departments (such as Customer Service and Sales) to monitor the movement of goods through the supply-chain. The Company continues to invest in this area so as to advance continuous improvement in terms ofcontinuously improve supply-chain tools and processes.

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

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

2) a stable level of 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;hours. At the same time, a procedure was implemented for the continuous monitoring of global finished products inventories in order to determine which in-stock goods are currently not being sold as part of our existing collections (as a result of being phased-out) and enable the different commercial branches to promote specific sales campaigns of these goods;

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

4) since January 2009,the implementation of the SAP system has been implementedsince January 2009, throughout 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 forecast methodology that 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 methodology was developed together with the Group’s Information Systems Department, in order to create an intranet portal, called Advanced Planning and Optimization (“APO”). APO was launched in March 2011 for sales coming from the North American and Asia Pacific markets, under the supervision of a forecast manager and, beginning in June 2011, was implemented worldwide. This tool currently supports corporate logistics, operations managers and sales managers in our efforts to better forecastingforecast the future demand for the Group’s products and to improve communication between the Sales Department and the Logistics Department, therefore reducing inventory levels and improving the availability of raw materials.

Since 2012, a new methodology concerning furnishing management has been introduced. A better supplier’s partnershipmore efficient cooperation with suppliers enabled the Group to handle furnishings components without storing them in our warehouses, resulting in improved service and reducing inventory levels.

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 and Transportation —The Group delivers goods to customers by common carriers. Those goods destined for the Americas and other markets outside Europe are transported by sea in 40-foot high cube containers, while those produced for the European market are generally delivered by truck and, in some cases, by railway. In 2013,2014, the Group shipped 9,9469,550 containers to overseas countries and approximately 5,4424,060 full load mega-trailer trucks to European destinations, serving more than 3,0003,700 different delivery points.

With the aim of decreasing costs and safeguarding product quality, the Group uses software developed through a research partnership with the University of Bari and the University of Copenhagen that permits us to manage load optimization.

As far as the load composition by truck is concerned, the Group uses software designed to minimize total transport costs by taking into account volume, route and optimization of carriers for customers’customer orders in defined areas. To maintain service levels, we use a supplier vendor rating that measures the performance of carriers and distributors providing direct service over land.

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,departure; therefore transportation costs for these materials are generally under the Group’s control.

Products

Products are mainly designed in the Company’s Style Center, but the Group also collaborates with acclaimed international designers for the conception and prototyping of certain products in order to enhance brand visibility, especially with respect to theNatuzzi Italia brand.product line.

New models are the result of a constant information flow from the market, in which preferences are analyzed, interpreted and turned into a brief for designers in terms of style, function and price point. Designers draw the sketches of new products in accordance with the guidelines they are provided and, through collaboration with the prototype department, approximately 70 new sofa models are generally introduced each year. The diversity of customer tastes and preferences as well as the Group’s inclination to offer new solutions results in the development of products that are increasingly personalized. More than 100 highly-qualified employees conduct the Group’s research and development efforts from its headquarters in Santeramo in Colle, Italy.

The Group’s wide range of products includes a comprehensive collection of sofas and armchairs with particular styles, coverings and functions, with more than two million combinations.

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TheNatuzzi Re-vive armchair was designed by Formway Design Studio of New Zealand and is the subject of two patents, one covering the design and one covering the unique mechanism made of 120 different parts.Natuzzi Re-vive armchairs are available in fourseven styles (Quilted, Linear, Tailored, and—beginning later in 2014—Casual)Casual, Club, Lounge, Suit), two sizes (King and Queen), twofour configurations (with/without headrest)headrest—basic chair/complete with ottoman), elevenseven leather articles in 42 colors, and four softcover articles in 23 colors, four basic spine/base finishing and a coordinated ottoman.two special spine/base finishing. The finished product and each of its components are subject to rigorous quality controls.

The Group operates in accordance with strict quality standards and has earned the ISO 9001 certification for quality and the ISO 14001 certification for its low environmental impact. The ISO 14001 certification also applies to the Company’s tannery subsidiary, Natco S.p.A., located near Udine, Italy. The Group’s plantplants in Laterza and the Santeramo in Colle headquarters have also received an ISO 9001 certification for their roles in design and production.

Innovation—The companyCompany has been implementing since the end of 2013 a new production model based on the Lean Production principles.

The sofa production model, under which sofas were traditionally was developed intoassembled in a department-based factory (or “Isle Production” model), was subject to rigorous review with a view toward implementing moving lineline-based manufacturing processes, which would lead to improvements in efficiency, quality, and lead time. The moving line production model improves job area ergonomics by splitting products into lighter pieces at individual phases and also coordinates workers by ensuring that they work at a similar pace. The finished product tends to be of higher quality and produced more quickly. Tests and development of the moving linemoving-line production model at all stages of the production process are ongoingstill continue and are coordinated with our productproducts design.

We are also conducting research and analysis, both internally and in cooperation with Italian research institutions, to investigate the potential for incorporating new, alternative materials into our products.

In the field of process and product innovation, the Group implemented the Modular Industrial Platform System in late 2013, aimed at reducing manufacturing costs. Industrial platforms represent an industrial base common to many models that can be technically and aesthetically modified in order to meet customers’ requests. The utilization of such platforms grants substantial benefits in terms of product simplification (easy assembly), management (fewer codes to be managed), quality (fewer production failures), and production costs (economies of scale), leading to an increase in competitiveness.

In 2013, management has continuedManagement continues to encourage innovation and the introduction of new products, as evidenced by the introductionrecently introduced armchair, Re-vive, officially launched in October 2013, and presented worldwide thorough 2014.

We began to implement the moving-line production system in our plants at the beginning of 2014 and expect theRe-vive performance armchair, which system to be fully implemented across all of our plants by the end of 2015. As of March 31, 2015 the following number of moving lines were implemented and completed: 24 moving-lines in China; 11 moving-lines in Romania; and four moving-lines in each of Italy and Brazil.

As for the Chinese plant in particular, during the first part of 2014, the installation of the moving-line production system was not simultaneously accompanied by the development of an appropriate IT system to support moving-line production. It also lacked an appropriate training plan for workers who had to adapt their skills with the new moving line-based production model. For these reasons and several others, namely, the need for a reduction in complexity, the unavailability of complete and functioning moving lines, together with a production planning not adequate in terms of mix of products, has caused a sharp decline in the overall production efficiency and productivity of our Chinese plant. Starting from July 2014, as a result, we believe will openhave created a dedicated team (the “lean-team”) whose main goal is to increase productivity, in particular through the:

We formally launched the above-mentioned activities in December 2014, but most of them have been undertaken since September 2014. The results have been very encouraging with a gradual recovery in production efficiency and productivity.

Furthermore, beginning in July 2014, an experimental laboratory for simulating all single phases within a typical moving line was designed and built at the headquarters in Santeramo in Colle. In this laboratory, our experts have been testing all ideas that the lean-team proposes with the aim of improving production efficiency, productivity, quality of finished products and workstation ergonomics. The results turned out to be better than expected, thanks also to the proactive involvement of people within this project. All the ideas that have been tested successfully in this laboratory are expected to be implemented in all of the Group’s industrial plants.

In 2014 our R&D department completed, as scheduled, the re-engineering of models representing about 80% of the consolidated turnover so that they can now be produced through a moving line production process, thus contributing to a reduction in COGS. New models need to be designed so that they can fulfill platform technical requirements (as of December 31, 2014 there were 50 platforms).

In 2014 the Group set up a dedicated moving line at JESCE 1 plant, Italy, for the production of the Re-vive armchair.

The Group continues its cooperation with Italian research centers aimed at identifying alternative product materials. Through this cooperation, we have identified a new market opportunities.wood material and a way to recycle other wood-based products, having mechanical properties suitable for use in sofa production. The relevant industrialization phase is still ongoing.

Research and development expenses, which include labor costs for the research and development department, design and modeling consultancy expenses and other costs related to the research and development department, were €5.8 million in 2014, €7.9 million in 2013 and € 7.9 million in 2012, and € 7.3 million in 2011.2012.

Advertising

The Group’s Communications System was developed to regulate all methods used in each market to advertise the Natuzzi 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.

In particular, the Company approach to communication campaigns is differentiated accordingspecific to the identity of each product line: theNatuzzi Italia home philosophy is narrated with the support of famous international photographers; the advertising for theofNatuzzi Editions/Leather Editionsproducts transfers,conveys, thanks to the collaboration with local professionals in thethose markets where theythe products are sold, the value of the unique comfort of such products coupled with a style suitable to the local market tastes;Natuzzi Re-viveadvertising primarily focuses on innovation in support of its global retail launch.

Advertising for 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.

The Group has also invested heavily in its online digital channel that represents and, consideringgiven the trends of pastin recent years, more and more will represent to a greater degree the future of communication worldwide.

Retail Development

During 2013, our Retail DepartmentThe Group’s expansion, with particular focus on fast developing markets, continued the developmentalso in 2014. In terms of the “Your Design By Natuzzi” software program, which is now being used inNatuzzi Italiamono-brand stores, in over 40 countries,2014, in conjunction with increased efforts to target interior decorators and architects.

In our flagship and other prominenttotal, the Group opened 14Natuzzi Italia stores we(of which 10 are in China and one in each of the USA, India, Romania and Spain), threeNatuzzi Re-vive stores (all located in China), fourDivani & Divani by Natuzzi stores (all located in Italy) as well as 42Natuzzi Editions stores (of which 36 are in China and six in Brazil). Moreover, during 2014 the Group opened 17Natuzzi Italia galleries together with 64Natuzzi Editions galleries.

Among the particularly notableNatuzzi Italia stores opened in 2014 were the flagship store in Madison Av., New York, NY (USA), opened in June 2014, which replaces the one previously located in Soho, New York, and the brand new stores in Pune (India), Bucharest (Romania) and Lanzhou, China. In addition, a 500 sqm stand-aloneNatuzzi Italia flagship store within the unique environment of the Miami Design District, Florida, USA, was opened in February 2015.

On the other hand, a rationalization strategy with respect to existing, nonperforming DOS has been put into place in order to cut costs, increase turnover and reduce losses in the shortest time. In Western Europe, eight DOS were closed during 2014, but sales overall increased by + 11.4 % compared to 2013, with losses having been nearly halved.

The Natuzzi product offering is increasingly oriented towards the concept of “total living.” Therefore, single-brandNatuzzi Italiapoints-of-sale have been recently refurnished in order to recreate a complete living room environment, matching the “Home Philosophy” global strategy of theNatuzzi Italia Brand including the use of interior decorations tools.

“To give the Sales/Interior Design Consultant all the sales tools needed in one room” is the objective of the ‘Design Studio,’ originally launched in October 2013 and shown at the new “DesignCologne 2015 IMM Fair stand. We have now put into operation 37 Design Studio” installations globally (in store spaces which includesinclude a number of sales support tools andas well as design kits for on-site use by designers in the space where the furniture will be used(at home consultation) or in-store use withby store staff). The Design Studios are a great way to allow end customers to make the final consumers, together with a dedicated training program for ourcorrect decision by matching colour schemes and textures during the room design and sales staff.process.

In order to support sales of theRe-vive armchair, a specific tool using Augmented Reality Technology has been developed and recently launched.

We have also developed a retail format, known as the “Essence Area,” that is country-specific and is aimed at providing, in no more than 120 square meters of sales area, the best selection of theNatuzzi Italiaproduct range, displayed within a small set of branded and easy to assemble items. The “Essence Area” is utilized mainly within multi-brand high-end furniture stores, mostly in emerging markets but also in mature markets where the brand is going through a repositioning.

The greatest effort in termsdevelopment of new points of sale openings has been focused on the Chinese market, where 22 new Leather Editions stores and five newNatuzzi Italiastores were opened in 2013,tools for enabling partners to increase quantity as well as quality of sales is always a top priority for us. For example, we have made available at the retail level the D-Sales tool, which is a tablet application focused on providing instantly updated figures on sales and products. In addition, the Retail Community Social Network, which is focused on fostering the sharing of best practices among Natuzzi Retailers, is always updated; the NARES order management system is now relying on a new platform and Your Design by Natuzzi Configuration System has been installed at 126 locations worldwide.

All these digital tools are expected to be fully integrated in the U.S., where a largeNatuzzi Italiastore was openedfirst half of 2015 in Orlando, Florida. In February 2014, we opened a new, directly-operatedNatuzzi Italia flagship store in New York City on Madison Avenue,an effort to provide our sales force with the aimmost efficient sales tools.

Within the first quarter of anchoring2015, a complete upgrade of the Group’s expansion inRevive Display System was implemented as well, which takes into account the New York-Connecticut-New Jersey Tristate area. We expect to close our New York City store located in Soho.

The third directly-operated flagshipNatuzzi Italiastore in Italy opened in November 2013 in Rome, and we anticipate that it will increase brand awareness and boost sales withinfeedback received from Sales Managers during the Group’s home country.past year’s implementation phase.

Markets

The Group markets its products internationally as well as in Italy. Thanks to its international presence, the seasonality does not significantly influence the Group’s operations. Outside Italy, the Group sells its 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 franchisedDivani & Divani by Natuzzi andNatuzzi (nowNatuzzi Italia) furniture stores. Since 2001, the Group has also sold its furniture through directly ownedNatuzzi(nowNatuzzi Italia) stores and Divani & Divani by Natuzzi stores. In 2005 the Group introduced theNatuzzi Editions brand to the U.S. market, and it continues to be sold in the Americas through galleries and concessions. TheLeather Editions brand targets a similar customer toNatuzzi Editions and was introduced in markets outside the Americas in 2010 and also is sold through galleries and concessions. As part of the Business Plan, the Group has started its plan to re-label theLeather Editions portfolio of products asNatuzzi Editions to capitalize on the strength of the “Natuzzi” name and streamline its offerings. Consequently, theLeather Editions stores, including those stores located in China, will be gradually rebranded worldwide intoNatuzzi Editions points of sales. TheItalsofabrand was introduced in 2007 with the intent of competing with low-priced competitors. In 2013, the Group decided not to make further investments in theItalsofabrand. All theItalsofamodels thus far developed will be progressively absorbed by the Group’s other brand offerings. In October 2013, the Group officially launched Re-vive, its innovative performance recliner, and began its distribution in the first half of 2014 in 25 markets through approximately 150 direct customers and about 500 points of sale.

The Company has almost completed its commercial and distribution re-organization in all its commercial regions, consistent with the Business Plan, in order to better exploit market opportunities all over the world. This reorganization includes expanding its retail presence in large department stores to increase visibility of the Natuzzi brand’s product lines as well as establishing a separate business unit, aimed at generating sales volumes and developing new key accounts through its private label offerings.

The following tables show the number of the Group’sGroup stores and galleries as of February 28, 2014March 31, 2015 according to the mainour principal geographical areas and brands.

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)