Thank you for standing by. Welcome to the Natuzzi S.p.A. fourth quarter 2025 financial results conference call and webcast. As a reminder, if you'd like to join the conference call via telephone, please dial one four one two seven one seven nine six three three, then passcode three nine two five two one zero three pound, in addition to the link already provided. Once again, to join via telephone, please dial plus one four one two seven one seven nine six three three, then passcode three nine two five two one zero three pound. At this time, all participants are in listen only mode. Following the introduction, we'll conduct a question and answer session. Instructions will be provided at that time for you to join the queue for questions.
Joining us on today's call as usual are Pasquale Natuzzi, Executive Chairman and Chief Executive Officer, Carlo Silvestri, Chief Financial Officer, and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I will now turn the conference call over to Piero. Please go ahead.
Thank you, Kevin, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2025 fourth quarter financial results. After a brief introduction, we will give room for the Q&A session. Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the U.S. securities laws. Actual results might differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial condition. Please refer to our most recent annual report on Form 20-F filed with the SEC for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. Now I would like to turn the call over to the company's Chief Executive Officer. Please, Mr. Natuzzi.
Thank you. Good morning, everyone, and thank you for you joining us in today's conference call. Our fourth quarter and full year 2025 results reflect a persistent and unfavorable macroeconomic environment. The market condition we currently face requires responsible, timely, and structuring decision. Consequently, we are working on a reorganization plan designed to restore the company to a stronger economic, capital, and financial foundation over the medium term. A core pillar of this strategy involves the reallocation of our low margin Italian production capacity because it is no longer sustainable under the current Italian cost structure. Therefore, we are shifting this volume to other manufacturing facility within the group like Romania, for example, or could it be China, could it be Brazil, or could it be Vietnam, where we still have our manufacturing company.
This shift will involve rationalization of our Italian footprint factories, including our tannery and logistic center. That's primarily the plan we are working on and to go forward. I ask Carlo, our CFO, eventually, you know, to comment something, and then obviously I'm available for any question. Thank you.
Thank you, Mr. Natuzzi. Good morning, everybody. Allow me to give me a little bit of more color of the numbers we did present, and then I will give you also more information of our strategic plan and how we intend to face it. First of all, we need to give a comment on our gross margin, specifically 'cause like from a 38.1% in fourth quarter last year, we did achieve 30.2% this year. The main reason that we did analyze stays also within the production shift that of certain Natuzzi Editions for the U.S. market from the Chinese factory to the Italian factories. As you may recall, last year we did plan such shift with the goal of avoid the trade tariff imposed by the U.S. administration for products manufacturing in Asia.
The subsequent trade tariff imposition also to the EU production has offset the benefits, and on top of that, we were expecting government grants that did not materialize for that. At the end, we were penalized from this shift. On top of that, in the fourth quarter, we did book a EUR 2.3 million impairment of machinery and equipment at certain Italian factories. The record of such impairment was the result of a prudent outlook of the current business environment in which we do operate, resulting in a more difficult recoverability of such non-financial assets.
If we do exclude this impairment, the gross margin would have been 33.2%, always compared to 38.1% of last year. The difference between the 38% and the 33.2%, apart the impact of the shift on Natuzzi Editions, stays in the lower direct retail of the sales coming from the retail channel compared to last year and unfavorable sales mix. We have seen less Natuzzi Italia and more Natuzzi Editions sold in the quarter. As Mr. Natuzzi was mentioning, we are in the middle of the restructuring plan that aim to create sustainability in the medium and long term.
What we are doing is on the top part, we are also continuously reviewing our price list to leverage and to recover from negative effect from U.S. trade duties and also from the strengthening of the euro. On the industrial part, even in the fourth quarter, we are also trying to reduce the impact of our industrial labor costs. In the EUR 17.1 million that you will find in our fourth quarter labor costs, we did book EUR 700,000 as accrual for cost reduction. Now, going back to the other impairment that we did book in our fourth quarter 2025 to have a more prudent view on our performances in the next future, we need to mention that we are continuously reviewing our DOS performances.
While we keep believing that our retail strategy will be the core at our business, we have booked a EUR 4.4 million impairment loss on our financial assets related to the retails operation, principally in Europe and in U.S. At the same, we did book in the administrative expenses a EUR 1.9 million accrual for impairment of non-financial assets compared to EUR 500,000 booked last year. At the same time, the company remains fully committed in reducing the cost of the overall structure in Italy and in some selected commercial subsidiaries. The structure is, let's say, strategy is, keep going and will be a focus even for 2026.
From the cash flow perspective, the two points that I would like to highlight is that for the operating activities, we use EUR 4.5 million, the most important thing is that we had a benefit from EUR 2.5 million of our improvement of our working capital change. That is mainly given by EUR 13 million decrease in inventory level. We are also focusing on this point to create value for the company, try to maximize our inventory, and to decrease the stock, while we did decrease our trade payable and other liabilities.
On top of that, it's extremely important that in our investing activities, the main, let's say, contributor has been the EUR 9.9 million collected in connection with the completion of the sales of two non-strategic assets, namely, the land in Romania for EUR 2.4 million and the completion of the sales of High Point for EUR 7.5 million. As Mr. Natuzzi was mentioning, the rationalization of our industrial process will bring us with some assets that we'll be able to sell and contribute to our restructuring process. We have been discussing in our press release of the legal framework that we will operate to be more efficient in this restructuring process.
I'm not a legal person, but I would like to give you more clarity and more, let's say, information about this process because it's important that we have all a clear information about this framework. The board of director has granted Mr. Natuzzi to initiate a specific procedure under the Italian corporate law framework called Composizione Negoziata della Crisi, CNC so-called. This will be confirmed because our submission will be, let's say, official in the coming weeks. What is the CNC? It's a voluntary out-of-court restructuring procedure specific to Italian companies only and designated to facilitate an early and orderly management of the group position while preserving business continuity, industrial value, and the interest of all the stakeholders.
It's extremely important to underline that under this procedure, the company is able to continue its normal daily operation under the guidance of the current management team and the shareholders continue to exercise their ordinary rights as equity holders of the company. There will be no change. There will be the presence of an independent expert appointed by the competent chamber of commerce, and this procedure aims to reach mutually agreed solution with all the stakeholder to facilitate the process of turnaround. To give you a brief summary, the target of this procedure that as mentioned, is totally voluntary and out of the court, is to protect the group industrial and commercial value, to strengthen the group financial structure, improve our operational efficiency and cash generation. Again, it's important to reiterate that the company will continue to operate normally.
There will be full continuity in our industrial and commercial activity, as well in our relationship with clients, suppliers, and employees. This was extremely important because like we did introduce in our press release. Now I will leave the floor for questions.
Thank you. If you'd like to be placed into question queue at this time, you can open up the Q&A function. You could do so by using the Q&A part on your screen. Once again, if you do have any questions, please use the Ask a Question feature that's appearing on your screen now. One moment please while we poll for questions. Once again, ladies and gentlemen, if you do have any questions today, you're gonna see the Ask a Question feature on your screen. You may press that to ask the question, if so. One moment please while we poll for questions. We'll just stand by and see if anybody does have any questions. Okay.
If there are no questions at this time, I'm just gonna say I'm gonna poll one more time and say, if you have any questions, please use the Ask a Question feature on your screen. If there are no questions at this time, I'd like to turn the floor back over for any further closing comments. If there are no questions at this time. Do you have any further closing comments?
No, from our side, we don't have any. I don't know if Mr. Natuzzi want to have a final comments, but I want just to underline that we're always available for questions, and you can reach us out, and we can arrange a phone call, or we can reply through email. It's important that if there is any question, we are ready here to reply from our side.
I agree with you, Carlo. Thank you very much. Sorry, I mean, you know, I would expect some question, just, you know, to clarify what we are doing and why we are, I mean, acting in that direction. Certainly, we are working here as always and more than ever, you know, really to address this situation in the best way possible. This company has...
Thank you.
...67 years history. You know, we are planning to write down the next 67 years history. That's, certainly is the intention and the determination that the management and myself we have in this company. Thank you very much for listening us. Thank you again. Let's be confident because this horrible situation around the world, we all hope that we will change and will really improve. Thank you again. Thanks a lot for everyone, to everyone. [Foreign language]
Thank you. That does conclude today's webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Thank you.
Thank you.