- UPDATE ON COVID-19 IMPACT ON THE GROUP’S OPERATIONS
- STARTED OUTSOURCED PRODUCTION
- RETAIL BUSINESS HOLDS IN 2019, WHILE WHOLESALE BUSINESS
AFFECTED BY TRADE DISPUTE
- CONSOLIDATED GROSS MARGIN CONTINUES TO IMPROVE
- 4Q2019 OPERATING BREAK-EVEN, NET OF EXTRAORDINARY
COSTS
The Board of Directors of Natuzzi S.p.A. (NYSE:
NTZ1) (“Natuzzi” or the “Company”) approved today its 2019 fourth
quarter and full year unaudited consolidated financial results and
the Company’s draft stand-alone financial statements. The
stand-alone financial statements of the Company for the year ended
December 31, 2019 will be approved by the Company's shareholders on
a meeting to be held, on first call, on June 12, 2020, or, on
second call, on June 14, 2020.
Update on COVID-19 Impact on Group’s
Operations
On March 11, 2020, the World Health Organization declared the
recent outbreak of disease caused by the novel coronavirus
(COVID-19) a pandemic. As a result, severe lockdown measures were
introduced in most countries, leading to a significant reduction in
the Group’s and its customers’ activities worldwide.
Considering the global evolution of the contagion and the
uncertainties related to its duration and intensity, it is not
possible to determine the likely extent of the economic and social
effects of the pandemic on international markets and, consequently,
on the Group’s results for the full current year. The Company
expects that these effects will be significantly negative in the
short-term.
Due to the disruptions and uncertainty generated by the COVID-19
pandemic, the Company reacted immediately by setting up a
task-force with the purpose of mitigating the effects of the
pandemic by reducing costs and prioritizing projects that can
quickly generate cash. In this context, the overall revision of
non-essential operating expenses, actions related to labor cost,
deferral of some investments and the review of a production
allocation compatible with the current scenario are all
underway.
In light of the profoundly different new reality the retail
industry has recently been experiencing, it also became necessary
for the Company to review its transformation plan, both for the
current and subsequent years. The revised transformation plan,
while confirming its main guidelines, introduces more significant
cost-reduction measures.
The Company has also taken steps to access the emergency
measures that the various governments are adopting to mitigate the
effects of the COVID-19 outbreak on worldwide economy. In Italy,
the Company has applied for long-term borrowings almost fully
backed by a State agency guarantee in accordance with Decree-Law
No. 23 of April 8, 2020 (also known as the “Liquidity Decree”).
The Company has started further different actions to manage
liquidity and costs during the current challenging economic
environment caused by COVID-19. Such actions include, among
others:
— Access to the COVID-19 social security procedures that allow
the Company to cut labor cost for a certain period;
— Obtainment of rent concessions or deferral payments for the
majority of lease contracts, granted by lessors in response to the
COVID-19 pandemic;
— Obtainment of suspension and deferral of installments of
long-term borrowings due in 2020;
— Access to suspension and deferral of tax payments, VAT
payments, payments to public administrations, payments of
withholding tax on wages, payments of social security
contributions, as provided by Decree-Law No. 18 of March 17, 2020
(also known as the “Cure Italy Decree”) adopted by the Italian
Government to mitigate the effects of the COVID-19 outbreak on the
Italian economy.
Fourth Quarter 2019
results
Consolidated net sales for the fourth quarter of 2019 were
€100.6 million, down 12.7% from €115.2 million in 2018 same
period.
Considering the Group’s core business only (upholstery,
accessories and home furnishings), net sales were €95.7 million,
down 13.3% compared to last year fourth quarter, due in particular
to the 39.7% decrease in Private Label sales. Natuzzi branded
business (Natuzzi Italia, Natuzzi Editions and Divani&Divani by
Natuzzi) declined by 5.9% over 2018 last quarter.
Non-core sales were €4.9 million, up 1.4%.
The 5.9% decrease in revenues for the Natuzzi division was the
result of the 5.3% decrease in the Americas (notwithstanding the
11.2% increase in the Natuzzi Italia sales), a 2.3% decrease in the
EMEAI (with Natuzzi Editions sales increasing by 12.2%) and a 13.2%
decrease in the Asia-Pacific region.
Natuzzi branded sales, generated by DOS (Directly Operated
Stores) and third-party operated points of sale, represented 84.8%
of the Group’s core business, versus 78.2% in the fourth quarter of
2018.
The Group now directly operates 56 mono-brand DOS, of which 40
Natuzzi Italia, 14 Divani&Divani by Natuzzi stores and 2 new
Natuzzi Editions DOS opened in December 2019 in the UK. The Group
also directly operates 11 Natuzzi Italia concessions.
Considering the whole 2019, DOS sales were €61.2 million, up
15.0% versus full year 2018. In particular, DOS located in the USA
have shown a 36.7% increase in sales, achieving a positive
operating result. In addition, the Italian DOS chain of
Divani&Divani by Natuzzi delivered positive results as sales
increased by 16.8% over 2018, with a positive operating result at
store level too.
The performance of the DOS network turned out to be less
positive in the fourth quarter of 2019, as DOS net sales were €16.4
million, up 3.2% against the same period last year, led by the
positive performance reported in the USA (+12.9%).
On a like-for like basis, revenues of the 45 DOS were up 4.2% in
2019, while they decreased by 1.0% in the fourth quarter of 2019,
improving the positive result at store level both in 2019 and in
fourth quarter.
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 €64.2 million, down 7.6% over 2018 last quarter, as a
result of the 10.2% decrease in the Americas, the 0.6% decrease in
the EMEAI and the 13.2% decrease in the Asia-Pacific region.
In 2019, we have closed 37 FOS in addition to 272 galleries and
smaller points of sales whose partners and locations were
inconsistent with our brand strategy.
During 2019, we have opened 102 FOS globally, of which 71 in
China through our commercial partner (53 under the Natuzzi Editions
name and 18 under Natuzzi Italia name).
Sales generated by the unbranded wholesale division, addressing
the mass-merchant distribution, were €14.5 million, down 39.7% from
€24.1 million in 2018 fourth quarter.
This division, as we know, has struggled due to the trade
dispute between USA and China and, more in general, rising price
competition.
In light of the tariffs imposed by the US Administration on
goods imported from China, the Company has started to outsource in
Vietnam part of its Private Label production for some Key Accounts
in the USA.
The Company continues to explore further external industrial
capacity in tariffs-free and low-cost European Countries, to regain
volumes and competitiveness also in the EMEAI market.
4Q2019 Gross margin
Fourth quarter 2019 consolidated gross margin was 31.9%, up from
27.4% in 2018 same quarter, thanks to a favorable trend in raw
material prices, a better sales mix, notwithstanding decreasing
sales.
The Cost of Sales also includes €2.8 million of extraordinary
costs related to the Italian workforce. Net of these costs, the
consolidated gross margin would have been equal to 34.6% (improving
from 30.5%, 29.4% and 30.1% in 3Q2019, 2Q2019 and 1Q2019,
respectively).
4Q2019 Selling, Administrative and other
income/expenses
Selling, Administrative and other income/expenses were €35.0
million (or 34.9% on revenues), decreasing from €40.5 million (or
35.2% on revenues) in 2018 fourth quarter, notwithstanding the €3.0
million of custom duties on goods manufactured in China and
delivered to the USA market (they were €1.7 million in 4Q2018),
only partially recovered by a price increase. Included in 4Q2019
Selling and Administrative expenses are also €0.3 million of costs
related to the reduction of the Italian workforce. 4Q2019 Selling
and Administrative expenses also benefitted from the closure of our
head office in London and of all the UK concessions (store-in-store
directly operated by the Group).
4Q2019 results
The Group reported an operating loss of €3.0 million, versus an
operating loss of €8.9 million in 2018 last quarter.
Net of the above mentioned extraordinary costs related to the
Italian workforce, the Group would break-even (an operating profit
of €0.1 million) compared to an operating loss of €2.0 million, net
of €6.9 million of one-off costs incurred in 2018 fourth
quarter.
Loss for the period was €6.9 million.
2019 Full year results
Consolidated net sales for 2019 were €387.0 million, down 9.7%
from €428.5 million in 2018.
Considering the Group’s core business only, net sales were
€368.8 million, down 9.4% compared to 2018, as a result of the 5.5%
decrease in sales for the Natuzzi division (despite the 3.7%
increase in sales reported in the Americas) and the 22.3% decrease
in sales for the Private Label business.
Non-core sales were €18.2 million.
Gross margin for 2019 was 29.7% up from 28.1% in 2018.
The Group reported an operating loss of €22.5 million versus an
operating loss of €25.5 million in 2018. Net of the €5.6 million of
extraordinary costs (of which €0.5 million accrued in the Selling
and Administrative expenses) related to the Italian workforce,
operating loss would have been equal to €16.9 million.
Net profit deriving from the 49% share of the Chinese vehicle
was €1.0 million in 2019.
The Group reported a loss for the period of €33.7 million, from
a profit of €33.1 million in 2018 as a result of the extraordinary
income deriving from the conclusion of the partnership agreement in
China in 2018.
Working capital (Inventories + trade receivables - Trade
payables) on consolidated sales decreased from 11.0% in 2018 to
7.9% in 2019.
As of December 31, 2019, cash and cash equivalents, net, for the
Group was €39.8 million from €62.1 million at the end of 2018, and
the Group’s net financial position (cash – short and long term
borrowings) was negative at -€2.8 million, compared to a positive
net financial position of €6.0 million at the end of 2018.
******************************
Chairman and CEO, Pasquale Natuzzi, commented: “Weak global
business environment and rising tension between USA and China,
which remains an unsolved issue, have affected the performance of
our operations, with particular reference to the wholesale
business, both branded and unbranded.
This challenging situation prompted the Company to deeply review
its plans and processes, focusing on some key cornerstones
including: a confirmed focus on the controlled distribution through
single-brand stores, both owned and franchised, in priority
markets; a review of the Group’s production allocation, including
the collaboration with external industrial partners located in
low-cost Countries; the disposal of assets no longer in line with
the strategic development adopted by the Group; and a generalized
streamlining of processes and costs.
We followed up immediately with the implementation of the
relevant measures and the first positive effects started to
arise.
In fact, sales from the retail channel, both directly and
franchised operated, showed improving trends. Then, the outsourced
production in Vietnam started to serve an important US distributor.
We intend to increase the share of the North American market that
can be served through outsourced production in Vietnam.
Furthermore, we are progressing our activities to find industrial
partners in low-cost Countries in Eastern Europe, with the aim to
support the wholesale Private Label and Natuzzi Edition business
also in the EMEAI region.
But since the beginning of the year, the shock due to the
COVID-19 pandemic has created unprecedented challenges for the
business, globally and transversally in almost all industries,
changing everyone’s life and habits. This has resulted in a
significant interruption in the Group’s as well as our customers’
activities, globally. Only recently part of the lockdown measures
in Italy and in some other countries have been lifted, allowing a
gradual reopening of most of our stores and manufacturing
facilities worldwide.
The ongoing pandemic experience is likely to lead to an
increasing focus on the omni-channel sale approach. Therefore, we
believe that now it is even more important to follow the direction
already undertaken, which focuses on retail development, with a
more integration between physical stores and digital commerce.
In addition, we will continue to rebalance the overall Group’s
industrial footprint, to best fit the new retail challenges and the
current protectionist pressures, as well as reduce the overall cost
structure, with particular reference to the Italian
operations.”
1 The Company is noncompliant with quantitative/qualitative
continued NYSE listing standards (see
https://www.nyse.com/quote/XNYS:NTZ). For further information,
please see the press release issued by the Company on April 25,
2020.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
Certain statements included 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 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 including, but not
limited to, potential risks and uncertainties relating to the
duration, severity and geographic spread of the COVID-19 pandemic,
actions that may be taken by governmental authorities to contain
the COVID-19 pandemic or to mitigate its impact, the potential
negative impact of COVID-19 on the global economy, consumer demand
and our supply chain, and the impact of COVID-19 on the Company's
financial condition, business operations and liquidity. Additional
information about potential factors that could affect the Company’s
business and financial results is included in the Company’s filings
with the U.S. 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 fourth quarter of 2019 and
2018on the basis of IFRS -IAS (expressed in millions Euro)
Three months ended on Change Percentage of
Sales
31-Dec-19
31-Dec-18
%
31-Dec-19
31-Dec-18
Revenues
100.6
115.2
-12.7%
100.0%
100.0%
Cost of Sales
(68.5)
(83.6)
-18.0%
-68.1%
-72.6%
Gross profit
32.0
31.6
1.4%
31.9%
27.4%
Other income
1.4
1.1
1.4%
0.9%
Selling Expenses
(25.9)
(30.1)
-13.9%
-25.8%
-26.1%
Administrative expenses
(8.9)
(10.3)
-12.9%
-8.9%
-8.9%
Impairment on trade receivables
(1.1)
(0.6)
-1.1%
-0.6%
Other expenses
(0.5)
(0.6)
-0.5%
-0.5%
Operating profit/(loss)
(3.0)
(8.9)
-3.0%
-7.7%
Finance income
0.1
0.1
Finance costs
(0.8)
(1.6)
Net exchange rate gains/(losses)
(1.5)
(1.2)
Gain from disposal and loss of control of a subsidiary
0.0
0.0
Net finance income/(costs)
(2.2)
(2.6)
Share of profit/(loss) of equity-method investees
(0.4)
(0.5)
Profit/(Loss) before tax
(5.5)
(12.0)
-5.5%
-10.4%
Income tax expense
(1.3)
(0.5)
-1.3%
-0.4%
Profit/(Loss) for the period
(6.9)
(12.5)
-6.8%
-10.8%
Profit/(Loss) attributable to: Owners of the Company
(6.7)
(12.3)
-6.7%
-10.7%
Non-controlling interests
(0.2)
(0.2)
Profit/(loss) per Ordinary Share
(0.12)
(0.22)
Natuzzi S.p.A. and Subsidiaries Unaudited consolidated
statement of profit or loss for the twelve months of 2019 and
2018on the basis of IFRS -IAS (expressed in millions Euro)
twelve months ended on
Change
Percentage of Sales
31-Dec-19
31-Dec-18
%
31-Dec-19
31-Dec-18
Revenues
387.0
428.5
-9.7%
100.0%
100.0%
Cost of Sales
(271.9)
(308.2)
-11.8%
-70.3%
-71.9%
Gross profit
115.0
120.3
-4.4%
29.7%
28.1%
Other income
5.2
5.9
1.3%
1.4%
Selling Expenses
(105.3)
(115.0)
-8.5%
-27.2%
-26.8%
Administrative expenses
(34.0)
(35.3)
-3.7%
-8.8%
-8.2%
Impairment on trade receivables
(2.4)
(0.7)
-0.6%
-0.2%
Other expenses
(1.0)
(0.6)
-0.3%
-0.1%
Operating profit/(loss)
(22.5)
(25.5)
-5.8%
-5.9%
Finance income
0.4
0.4
Finance costs
(7.9)
(5.6)
Net exchange rate gains/(losses)
(2.3)
(3.9)
Gain from disposal and loss of control of a subsidiary
0.0
75.4
Net finance income/(costs)
(9.9)
66.3
Share of profit/(loss) of equity-method investees
1.0
(0.3)
Profit/(Loss) before tax
(31.3)
40.5
-8.1%
9.5%
Income tax expense
(2.3)
(7.4)
-0.6%
-1.7%
Profit/(Loss) for the period
(33.7)
33.1
-8.7%
7.7%
Profit/(Loss) attributable to: Owners of the Company
(33.4)
33.3
-8.6%
7.8%
Non-controlling interests
(0.3)
(0.2)
Profit/(loss) per Ordinary Share
(0.61)
0.61
Natuzzi S.p.A. and Subsidiaries Unaudited consolidated
statements of financial position (condensed)on the basis of
IFRS-IAS(Expressed in millions of Euro)
31-Dec-19
31-Dec-18
ASSETS Non-current assets
212.5
165.6
Current assets
156.9
207.1
TOTAL ASSETS
369.4
372.7
EQUITY AND LIABILITIES Equity attributable to Owners
of the Company
103.1
136.5
Non-controlling interests
1.7
1.6
Non-current liabilities
112.6
66.1
Current liabilities
152.0
168.4
TOTAL EQUITY AND LIABILITIES
369.4
372.7
Natuzzi S.p.A. and Subsidiaries Unaudited consolidated
statements of cash flows (condensed) (Expressed in millions of
Euro)
31-Dec-19
31-Dec-18
Net cash provided by (used in) operating
activities
4.7
(11.3)
Net cash provided by (used in) investing activities
(3.3)
14.6
Net cash provided by (used in) financing activities
(24.2)
2.2
Increase (decrease) in cash and cash equivalents
(22.8)
5.4
Cash and cash equivalents, beginning of the year
60.4
55.0
Effect of movements in excahnge rates on cash held
0.3
(0.1)
Cash and cash equivalents, end of the period
37.8
60.4
For the purpose of the statements of cash flow,
cash and cash equivalents comprise the following: (Expressed in
millions of Euro)
31-Dec-19
31-Dec-18
Cash and cash equivalents in the statement of financial position
39.8
62.1
Bank overdrafts repayable on demand
(2.0)
(1.8)
Cash and cash equivalents in the statement of cash flows
37.8
60.4
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200523005008/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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