- RETAIL BUSINESS IMPROVES
- WHOLESALE BUSINESS AFFECTED BY ONGOING TRADE
DISPUTE
- GROSS MARGIN IMPROVING, NET OF RESTRUCTURING COSTS
- NEW INDUSTRIAL FOOTPRINT SETUP IN PROGRESS
The Board of Directors of Natuzzi S.p.A. (NYSE:NTZ) (“Natuzzi”
or the “Company”) today approved 2019 unaudited third quarter and
first nine months consolidated financial results.
In this document, numbers for 2019 and 2018, the latter
previously reported under Italian GAAP, are reclassified and
reported under IFRS.
Third Quarter 2019
results
Consolidated net sales for the third quarter of 2019 were
€88.1 million, down 3.7% from €91.5 million in 2018 same
period.
Considering the Group’s core business only (upholstery,
accessories and home furnishings), net sales were €83.7 million,
which represents a 3.0% decrease compared to last year. Non-core
sales were €4.4 million, down 15.5%.
Core business net revenues were impacted by the deconsolidation
of our Chinese commercial subsidiary (Natuzzi Trading Shanghai Co.,
Ltd.) following the agreement with Kuka Group finalized in July
2018. Net of the deconsolidation effect, core business net sales
would have decreased by 1.2%, as a result of the 5.0% increase
in the Natuzzi branded sales and a 18.8% decrease in the
Unbranded division.
The 5.0% increase in revenues for the Natuzzi division
saw a 19.5% increase in the Americas, a 1.0% decrease in the EMEAI
(sustained by the Divani&Divani by Natuzzi performance in Italy
which was +15.7%) and a 4.1% decrease in the Asia-Pacific region,
despite a 15.4% increase in China.
Natuzzi branded sales represented 78.6% of the Group’s core
business, versus 74.5% in the third quarter of 2018.
The Group now directly operates 56 mono-brand DOS, of
which 40 are Natuzzi Italia and 16 are Divani&Divani by Natuzzi
stores. The Group also directly operates 12 Natuzzi Italia
concessions. By the end of the year, we will open 2 additional new
Natuzzi Editions DOS in the UK.
DOS sales were €44.8 million, up 20.1% versus the first
nine months of 2018. In particular, DOS located in the USA have
shown a 47.0% increase in sales, achieving a positive result.
The Italian DOS chain of Divani&Divani by Natuzzi continues
to deliver positive results as sales increased by 23.5% over the
nine-month period of 2018, with a positive profit at store
level.
The performance of the DOS network turned out to be less
positive in the third quarter of 2019, reporting net sales of €12.6
million, up 9.3% against the same period last year, thanks - again
- to the positive performance reported in the USA (+21.2%) and
Italy (+22.4%).
On a like-for like basis, revenues of the 45 DOS were up 6.3%
for the nine months of 2019, while they decreased by 2.1% in the
third quarter of 2019.
The Natuzzi division also includes sales generated by
third-party operated mono-brand points of sales (Franchised
operated stores, or FOS, and galleries).
Natuzzi sales generated by these third-party operated points of
sale were €52.4 million, up 4.5%, net of the deconsolidation
effects of the Chinese subsidiary as mentioned above, following the
positive performance of the Americas (+20.8%), the 1.5% decrease in
the EMEAI (notwithstanding the 12.1% increase in Divani&Divani
by Natuzzi) and the 4.1% decrease in the APAC region.
In 2019, we have closed 31 franchised operated stores and 250
galleries and smaller points of sales whose partners and locations
were inconsistent with our brand strategy.
At the same time, we have opened 63 FOS, of which 43 are in
China by our commercial partner (31 under the Natuzzi Editions name
and 12 under Natuzzi Italia name).
We plan to open by the end of the year 26 FOS, of which 12 in
China and 3 in the UK.
Sales generated by the Unbranded wholesale division,
addressing the mass-merchant distribution, were €17.9 million, down
18.8% from €22.0 million in 2018 third quarter.
This division, as we know, continues to struggle by customs
duties on goods manufactured in China for the USA market, and, more
in general, by rising price competition.
The Company is progressing in the activities for downsizing its
manufacturing plant in China and at the same time continues to
explore alternative outsourced solution in tariffs-free and
low-cost Countries, for both European and North American
markets.
3Q2019 Gross margin
Third quarter 2019 consolidated gross margin was 28.7%, up from
26.7% in 2018 same quarter, thanks to a favorable trend in raw
material prices, a better sales mix, together with a better cost
management in our plants, notwithstanding decreasing sales.
The Cost of Sales also includes €1.6 million of lay-off costs
due to the reduction of the Italian workforce. Net of these
restructuring costs, the consolidated gross margin would have been
equal to 30.5% (improving from 29.4% and 30.1% in 2Q2019 and
1Q2019, respectively).
3Q2019 Selling, Administrative and other
income/expenses
Selling, Administrative and other income/expenses were €34.0
million (or 38.6% on revenues) from €33.0 million (or 36.0% on
revenues) in 2018 third quarter. Such increase is mainly due to the
€2.1 million of custom duties on goods manufactured in China and
delivered to the USA market. Included in 3Q2019 Selling and
Administrative expenses are also €0.3 million of costs related to
the reduction of the Italian workforce.
3Q2019 results
The Group reported an operating loss of €8.7 million, versus an
operating loss of €8.5 million in 2018 same quarter. Net of the
above mentioned lay-off costs for reducing the Italian workforce,
the operating loss would have been equal to €6.8 million. No
restructuring cost was incurred in 2018 third quarter.
Net Profit deriving from the 49% share of the above-mentioned
Chinese vehicle was €0.4 million in 2019 third quarter.
Loss for the period was €11.7 million.
2019 FIRST NINE MONTHS
RESULTS
Consolidated net sales for the first nine months of 2019 were
€286.4 million, down 8.6% from €313.4 million in the same period of
2018. Net of the above-mentioned deconsolidation adjustment, net
sales would have decreased by 5.9%.
Gross margin for the period was 29.0% versus 28.3% in 2018 same
period. Net of the € 3.0 million lay-off costs related to the
Italian manufacturing workforce, 2019 gross margin would have been
equal to 30.0%.
The Company reported an operating loss of €19.5 million versus
an operating loss of €16.6 million in 2018 first nine months. Net
of the €3.4 million of lay-off costs (of which €0.4 million accrued
in the Selling and Administrative expenses) related to the
workforce reduction plan in Italy, operating loss would have been
equal to €16.1 million.
The Group reported a loss for the period of €26.8 million, from
a profit of €45.6 million in the same period of 2018, as a result
of the extraordinary income resulting from the conclusion of the
partnership agreement in China in 2018.
Chairman and CEO, Pasquale Natuzzi, commented: “While the trade
environment remains difficult, the transformation process from a
pure manufacturer into a lifestyle brand is progressing. As of
today the Retail business represents the 49% on total sales
from 44% last year, thanks especially to the USA performance. We
will proceed in this direction to capitalize on the investments
made on intangibles and benefit from the higher margins associated
with the branded products.
The sales organization addresses the different distribution
channels (Retail versus wholesale), and market segments (branded
versus unbranded), each of them having specific needs in terms of
sales proposition and supply chain organization: a) Retail,
represented by directly and third-party operated mono-brand stores;
b) wholesale branded business, consisting mainly of
galleries and big distributors offering Natuzzi products; and c)
wholesale unbranded channel, addressing mass merchant
distributors.
Consistently with our retail-based strategy, the store
network expansion continues: so far in the year, we have opened
2 DOS as well as 63 FOS worldwide, of which 43 in China. Additional
26 FOS, of which 12 in China, are expected to be opened by the end
of the year. This will contribute to support revenues growth going
forward.
In addition, we have recently reached an agreement in UK with
two historical partners whose first step is the opening of 5
mono-brand stores, all under the Natuzzi Editions name, within the
end of this year.
Both the branded and unbranded wholesale business
has been affected by tariffs impositions in the USA. This year the
Group has been engaged in an extensive revision of the Group’s
industrial footprint with the aim to recover volumes and improve
margins.
The first step of this process is the downsizing of our
Chinese production plant in third quarter 2020 with the
aim to serve only the local market and Rest-of-APAC region. At the
same time, negotiations continue with third-parties production
players in tariffs-free and low-cost Countries for outsourced
production of unbranded products that will gradually start in Q1
next year.
Furthermore, as for Natuzzi Editions, we have also decided to
leverage within the first half of 2020 on our existing Brazilian
operations to serve the East coast of North America. In
addition, negotiations with a third-party player in Mexico
continue with the aim to find outsourced production and start
serving the West coast of North America from fourth quarter
2020.”
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
Certain statements set forth in this press release constitute
forward-looking statements within the meaning of the safe harbor
provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements involve risks and uncertainties that
could cause the Company’s actual results to differ materially from
those stated or implied by such forward-looking statements. More
information about the potential factors that could affect the
Company’s business and financial results is included in the
Company’s filings with the Securities and Exchange Commission,
including the Company’s most recent Annual Report on Form 20-F. The
Company undertakes no obligation to update any of the
forward-looking statements after the date of this press
release.
About Natuzzi S.p.A.
Founded in 1959 by Pasquale Natuzzi, Natuzzi S.p.A. is Italy’s
largest furniture house and one of the most important global
players in the furniture industry with an extensive manufacturing
footprint and a global retail network. Natuzzi is the European
lifestyle best-known brand in the upholstered furnishings sector
worldwide (Brand Awareness Monitoring Report - Ipsos 2018) and has
been listed on the New York Stock Exchange since May 13, 1993.
Always committed to social responsibility and environmental
sustainability, Natuzzi S.p.A. is ISO 9001 and 14001 certified
(Quality and Environment), OHSAS 18001 certified (Safety on the
Workplace) and FSC® certified (Forest Stewardship Council).
Natuzzi S.p.A. and
Subsidiaries
Unaudited consolidated
statement of profit or loss for the third quarter of 2019 and
2018
on the basis of IFRS -IAS
(expressed in millions Euro)
Three months ended on
Change
Percentage of Sales
30-Sep-19
30-Sep-18
%
30-Sep-19
30-Sep-18
Revenues
88.1
91.5
-3.7%
100.0%
100.0%
Cost of Sales
(62.8)
(67.0)
-6.4%
-71.3%
-73.3%
Gross profit
25.3
24.5
3.4%
28.7%
26.7%
Other income
1.1
0.9
1.3%
1.0%
Selling Expenses
(26.0)
(25.6)
1.8%
-29.6%
-28.0%
Administrative expenses
(8.1)
(8.3)
-2.1%
-9.2%
-9.0%
Impairment on trade receivables
(0.9)
0.0
-1.0%
0.0%
Other expenses
(0.1)
0.0
-0.1%
0.0%
Operating profit/(loss)
(8.7)
(8.5)
-9.9%
-9.3%
Finance income
0.1
0.1
Finance costs
(2.4)
(1.4)
Net exchange rate gains/(losses)
(0.8)
(1.2)
Gain from disposal and loss of control of a subsidiary
0.0
75.4
Net finance income/(costs)
(3.1)
73.0
Share of profit/(loss) of equity-method investees
0.4
0.2
Profit/(Loss) before tax
(11.4)
64.7
-12.9%
70.7%
Income tax expense
(0.3)
(5.2)
-0.3%
-5.7%
Profit/(Loss) for the period
(11.7)
59.5
-13.2%
65.0%
Profit/(Loss) attributable to: Owners of the Company
(11.6)
59.6
-13.1%
65.1%
Non-controlling interests
(0.1)
(0.1)
Profit/(loss) per Ordinary Share
(0.21)
1.09
Natuzzi S.p.A. and Subsidiaries Unaudited consolidated
statement of profit or loss for the nine months of 2019 and
2018 on the basis of IFRS -IAS (expressed in millions
Euro)
Nine months ended on
Change
Percentage of Sales
30-Sep-19
30-Sep-18
%
30-Sep-19
30-Sep-18
Revenues
286.4
313.4
-8.6%
100.0%
100.0%
Cost of Sales
(203.4)
(224.7)
-9.5%
-71.0%
-71.7%
Gross profit
83.0
88.7
-6.4%
29.0%
28.3%
Other income
3.8
4.9
1.3%
1.5%
Selling Expenses
(79.4)
(84.9)
-6.6%
-27.7%
-27.1%
Administrative expenses
(25.1)
(25.1)
0.0%
-8.8%
-8.0%
Impairment on trade receivables
(1.3)
(0.1)
-0.4%
0.0%
Other expenses
(0.5)
0.0
-0.2%
0.0%
Operating profit/(loss)
(19.5)
(16.6)
-6.8%
-5.3%
Finance income
0.3
0.2
Finance costs
(7.1)
(4.0)
Net exchange rate gains/(losses)
(0.9)
(2.7)
Gain from disposal and loss of control of a subsidiary
0.0
75.4
Net finance income/(costs)
(7.7)
68.9
Share of profit/(loss) of equity-method investees
1.4
0.2
Profit/(Loss) before tax
(25.8)
52.6
-9.0%
16.8%
Income tax expense
(1.0)
(7.0)
-0.4%
-2.2%
Profit/(Loss) for the period
(26.8)
45.6
-9.4%
14.6%
Profit/(Loss) attributable to: Owners of the Company
(26.7)
45.6
-9.3%
14.6%
Non-controlling interests
(0.1)
0.0
Profit/(loss) per Ordinary Share
(0.49)
0.83
Natuzzi S.p.A. and
Subsidiaries
Unaudited consolidated
statements of financial position (condensed)
on the basis of
IFRS-IAS
(Expressed in millions of
Euro)
30-Sep-19 31-Dec-18 ASSETS Non-current
assets
221.2
165.6
Current assets
148.9
207.1
TOTAL ASSETS
370.1
372.7
EQUITY AND LIABILITIES Equity attributable to Owners
of the Company
111.3
136.5
Non-controlling interests
1.9
1.6
Non-current liabilities
119.1
66.1
Current liabilities
137.8
168.4
TOTAL EQUITY AND LIABILITIES
370.1
372.7
Natuzzi S.p.A. and Subsidiaries Unaudited
consolidated statements of cash flows (condensed) (Expressed in
millions of Euro)
30-Sep-19 31-Dec-18
Net cash provided by (used in) operating activities
6.3
(11.3)
Net cash provided by (used in) investing activities
(4.0)
14.6
Net cash provided by (used in) financing activities
(36.1)
2.2
Increase (decrease) in cash and cash equivalents
(33.8)
5.4
Cash and cash equivalents, beginning of the year
62.1
55.0
Effect of movements in exchange rates on cash held
0.4
(0.1)
Cash and cash equivalents, end of the period
28.7
60.4
For the purpose of the statements of cash flow,
cash and cash equivalents comprise the following: (Expressed in
millions of Euro)
30-Sep-19 31-Dec-18 Cash and cash
equivalents in the statement of financial position
32.2
62.1
Bank overdrafts repayable on demand
(3.5)
(1.8)
Cash and cash equivalents in the statement of cash flows
28.7
60.4
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version on businesswire.com: https://www.businesswire.com/news/home/20191129005374/en/
NATUZZI INVESTOR RELATIONS Piero Direnzo | tel.
+39.080.8820.812 | pdirenzo@natuzzi.com
NATUZZI CORPORATE COMMUNICATION Vito Basile (Press
Office) | tel. +39.080.8820.676 | vbasile@natuzzi.com
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