- Direct Retail Operations (DOS) Improving Revenues and
Profitability;
- Wholesale Still Suffering From US Tariffs With a Penalized
Profitability;
- The Company Is Exploring Outsourced Production Capacity in
Tariff-Free Countries;
- Company Intends to Sell Certain Non-Strategic
Assets.
The Board of Directors of Natuzzi S.p.A. today approved 2019
unaudited second quarter and first six months consolidated
financial results.
In this document, numbers for the first half 2019 and 2018,
previously reported under Italian GAAP, are reclassified and
reported under IFRS.
In late August 2019, the US Administration has further
exacerbated the commercial dispute with China by increasing trade
tariffs at 30%, effective from next October.
The USA has always represented a key market for Natuzzi business
and is still today one of the core geographic areas. For this
reason, the Company is forced to quickly implement measures
necessary to change the industrial footprint.
The Company has started a series of initiatives, including the
sale of non-strategic assets, the revision of its manufacturing
configuration and pursuing alternative manufacturing
strategies.
In particular, the Company is actively working to accelerate the
establishment of production capacity in outsource in areas, such as
Far East and East Europe, that are not currently burdened by trade
tariffs.
Our Joint Venture in China has generated Net Profit of
approximately Euro 2 million in the first six months, of which our
share is approximately Euro 1 million.
In addition, the Company confirms its intention to sale
non-strategic assets with the aim to get a more flexible production
structure and invest in the development of the business in key
markets.
First Half 2019 results
Consolidated net sales for the first six months of 2019
were €198.3 million, down 10.6% from €221.9 million in 2018 same
period. Consolidated net revenues were also 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,
consolidated net sales would have decreased by 7.6%.
1. Natuzzi division
The Natuzzi division includes sales of Natuzzi Italia,
Natuzzi Editions and Divani&Divani by Natuzzi branded products,
distributed through a direct retail network (DOS and Concessions),
mono-brand franchised operated stores (“FOS”), and Natuzzi
galleries (store-in-store points of sales within multi-branded
stores and department stores).
First half 2019 net sales of this division were €148.7 million,
down 4.1% from €155.0 million in 2018 same period, after adjusting
for the above-mentioned deconsolidation of our Chinese commercial
subsidiary. The revenue variance by geographic regions was: -10.2%
in the EMEAI (Europe, Middle East, Africa and India); +1.3% in the
Asia Pacific region and +2.3% in the Americas, thanks to the
increase in DOS revenues and in spite of the slowdown in
wholesale.
Natuzzi branded sales represented 78.5% of the Group’s
upholstery and home furnishing revenues, versus 77.1% in the first
six months of 2018.
1.a Natuzzi division: Direct
retail
Within the Natuzzi division, the Group directly operates points
of sales (mono-brand DOS and concessions), under Natuzzi Italia and
Divani&Divani by Natuzzi name.
The revenues of the entire network of 53 DOS were €32.1 million,
up 24.4% against the same period last year. The entire DOS network
has delivered a Store EBIT profit of €1.0 million (or 3.1% on
sales) against a loss of €0.6 million in the same period last
year.
The revenues of the 46 Like-for-like DOS were €26.8 million, up
9.7% versus €24.5 million in 2018. The Store gross margin increased
by 80bp, while the operating costs have been reduced by 250bp. As a
result, the Like-for-Like DOS network has delivered a +4.6% Store
EBIT margin against +1.6% in the same period last year (increasing
by €0.9 million).
During 1H19, we have continued to work on our existing retail
operations:
- We have completed the turnaround of our DOS
in Florida, which we purchased from our licensed partner in 2016,
achieving for the third consecutive year revenues growth. In 1H19,
revenues were up 26.3% against the same period last year and the
Store EBIT was 10.7% versus 6.1% in the same period last year.
- The 3 DOS that we have opened last year in
the USA have achieved significant results:
i) The store in Costa Mesa, Los Angeles,
Store EBIT +4.6%; ii) The store in Chicago, Store EBIT +19.1%. iii)
The store in Philadelphia (King of Prussia) almost break-even.
- In Italy we have relaunched the business of
our Divani&Divani by Natuzzi DOS network. Their like-for-like
revenues were up 20.5% against the same period last year, while
they have delivered a Store EBIT of 11.7% against 4.9% in the same
period last year (improving by €0.6 million).
So far this year we have opened a new Natuzzi Italia DOS in
Sarasota, Florida, in April, and a Natuzzi Italia DOS, in Italy,
near Milan, in July.
At the time of this press release, the Directly Operated Stores
are 54, of which 40 DOS Natuzzi Italia and 14 DOS Divani&Divani
by Natuzzi. In addition, the Group also runs 12 Natuzzi Italia
concessions.
1.b Natuzzi division: third-party operated
points of sale
According to our brand and retail strategy, we kept pursuing the
transformation of the existing third-party distribution network in
order to elevate their ability to offer the value proposition of
our brand portfolio to the consumers and ultimately increase their
sales/sqf and margins.
In 2019, we have closed 27 franchised operated stores and 208
galleries and smaller points of sales whose partners and locations
were inconsistent with our brand strategy.
As a result, Natuzzi sales generated by Franchised Operated
Stores (FOS) and galleries were €114.6 million, down 9.8%, net of
the deconsolidation effects of the Chinese subsidiary as mentioned
above.
Given the relative weight of the Group’s net sales (60.5%), the
efforts dedicated to this distribution channel will be of paramount
importance to improve the performance.
In 2019 we have opened 40 FOS, of which 15 under the Natuzzi
Italia name and 25 under the Natuzzi Editions name. Included in the
40 FOS, 27 mono-brand stores were opened in China (18 under the
Natuzzi Editions name and 9 under Natuzzi Italia name).
Softaly
Sales generated by this division, addressing the low-end segment
of the market, were €40.7 million, down 15.3% from €48.1 million in
2018 first half. This segment is characterized by strong
competition on price.
The Company is working on finding external production capacity
in tariffs-free and low-cost Countries, for both European and North
American markets.
1H 2019 Gross margin
Notwithstanding decreasing revenues, first half 2019
consolidated gross margin was 29.1%, from 29.0% in the previous
year, thanks to a favorable trend in raw material prices, a better
sales mix and selective price increases, together with an improved
efficiency in direct production costs in our plants.
The Cost of Sales also includes €1.4 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 29.8%.
1H 2019 Selling and Administrative
expenses
Selling and Administrative expenses were €70.3 million (or 35.5%
on revenues) from €76.2 million (or 34.3% on revenues) in last year
same period.
1H 2019 results
The Group reported an operating loss of €10.8 million, versus an
operating loss of €8.1 million in 2018 first half, mainly due to
declining sales.
The item “Net finance income/(costs)” of -€4.6 million also
includes -€2.0 million related to the application of IFRS 16
(present value of interests from leasing contracts), effective from
January 1st, 2019.
Net Profit deriving from the 49% share of the above-mentioned
Chinese vehicle was €1.0 million in 2019 first semester.
Finally, taxes €0.7 million were accounted for the period.
As a result, loss attributable to the shareholders was €15.1
million.
2019 Second Quarter
results
Consolidated net sales for the second quarter of 2019 were €92.2
million, down 12.5% from €105.3 million in the same period of 2018.
Net of the above-mentioned deconsolidation adjustment, net sales
would have decreased by 8.8%.
The Company reported a quarterly operating loss of €7.8 million
versus an operating loss of €4.8 million in the second quarter of
2018.
Natuzzi S.p.A. and its Subsidiaries reported a loss for the
period of €10.5 million, from a loss of €8.6 million in the same
quarter of 2018.
During the quarter, the Company accounted for €1.4 million for
lay-off costs at the Italian operations.
Year-to-date order flow of the Natuzzi brand division is up 1.6%
compared to the same period of last year as a result of high
single-digit growth of DOS written sales and flat written orders
from third-party operated points of sales. The trend is further
improving in the last three months.
On the contrary, year-to-date written orders from the Softaly
unbranded division are down 25.7% against the same period last
year. The trend is further deteriorating in the last three
months.
The Company expects 3q2019 sales almost in line with the same
quarter of the previous year.
Chairman and CEO Pasquale Natuzzi commented: “The Company
continues its transition from a pure Italian manufacturer toward an
international branded retailer, but the general deterioration in
the trade environment and specifically the worsening relations
between USA and China has been particularly disruptive for our
wholesale business, by reducing sales and margins. This forces us
to deeply revise our international production footprint.
Depending on the kind of business we run in North America, we
have started different initiatives, these having the same goal of
recovering market shares and increasing margins.
First, as for the unbranded business, which is particularly
suffering from tariffs imposition, we are considering outsourcing
in Vietnam. Secondly, we are also verifying the possibility to have
an outsourced activity in Central America. These two initiatives
are intended to replace the Chinese production for the North
American market.
The revision of the Group’s entire footprint also refers to the
EMEAI market. In this regard, we have started discussions with
manufacturers located in Eastern Europe, to serve our wholesales
customers in EMEAI. In addition, we will continue to shift the
manufacturing of lower margin product to our Romanian facility,
allowing us to focus on high margin products in our Italian
plants.
While the performance of our DOS retail network is gradually
improving, it is crucial for us to deploy our DOS best practices to
the franchised business, which is a significant part of our sales,
so to favor its organic growth.
The Company has taken actions in order to sell some
non-strategic assets, including some industrial assets along with
some real estate properties in USA and Italy. The disposal of such
assets will add flexibility to our operations and reduce
working-capital needs. The sales proceeds will be reinvested in the
development of the business.”
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 second quarter of 2019 and
2018on the basis of IFRS -IAS (expressed in millions Euro)
Three months ended on Change Percentage of
Sales
30-Jun-19
30-Jun-18
% 30-Jun-19 30-Jun-18 Revenues
92.2
105.3
-12.5%
100.0%
100.0%
Cost of Sales
(66.4)
(74.0)
-10.2%
-72.1%
-70.2%
Gross profit
25.7
31.3
-17.9%
27.9%
29.8%
Other income
1.4
2.6
Selling Expenses
(25.8)
(29.9)
-13.8%
-28.0%
-28.4%
Administrative expenses
(8.5)
(8.8)
-3.0%
-9.2%
-8.3%
Impairment on trade receivables
(0.4)
0.0
Other expenses
(0.3)
0.0
Operating profit/(loss)
(7.8)
(4.8)
-8.4%
-4.6%
Finance income
0.1
0.1
Finance costs
(2.2)
(1.2)
Net exchange rate gains/(losses)
(0.7)
(1.1)
Net finance income/(costs)
(2.8)
(2.3)
-3.1%
-2.2%
Share of profit/(loss) of equity-method investees
0.6
0.0
Profit/(Loss) before tax
(10.0)
(7.1)
-10.9%
-6.8%
Income tax expense
(0.5)
(1.5)
-0.5%
-1.4%
Profit/(Loss) for the period
(10.5)
(8.6)
-11.4%
-8.2%
Profit/(Loss) attributable to: Owners of the Company
(10.5)
(8.6)
-11.4%
-8.1%
Non-controlling interests
0.1
0.1
Profit/(loss) per Ordinary Share
(0.19)
(0.16)
Natuzzi S.p.A. and
Subsidiaries
Unaudited consolidated statement of profit or loss for the six
months of 2019 and 2018on the basis of IFRS -IAS (expressed in
millions Euro)
Six months ended on Change
Percentage of Sales 30-Jun-19 30-Jun-18
% 30-Jun-19 30-Jun-18 Revenues
198.3
221.9
-10.6%
100.0%
100.0%
Cost of Sales
(140.6)
(157.7)
-10.8%
-70.9%
-71.0%
Gross profit
57.7
64.2
-10.2%
29.1%
29.0%
Other income
2.6
4.0
Selling Expenses
(53.3)
(59.4)
-10.2%
-26.9%
-26.7%
Administrative expenses
(17.0)
(16.8)
1.1%
-8.6%
-7.6%
Impairment on trade receivables
(0.4)
(0.1)
Other expenses
(0.4)
0.0
Operating profit/(loss)
(10.8)
(8.1)
-5.4%
-3.6%
Finance income
0.2
0.1
Finance costs
(4.7)
(2.6)
Net exchange rate gains/(losses)
(0.1)
(1.6)
Net finance income/(costs)
(4.6)
(4.1)
Share of profit/(loss) of equity-method investees
1.0
0.0
Profit/(Loss) before tax
(14.4)
(12.1)
-7.3%
-5.5%
Income tax expense
(0.7)
(1.7)
-0.4%
-0.8%
Profit/(Loss) for the period
(15.2)
(13.9)
-7.6%
-6.3%
Profit/(Loss) attributable to: Owners of the Company
(15.1)
(14.0)
-7.6%
-6.3%
Non-controlling interests
(0.0)
0.1
Profit/(loss) per Ordinary Share
(0.28)
(0.25)
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-Jun-19
31-Dec-18
ASSETS Non-current assets
220.9
165.6
Current assets
174.1
207.1
TOTAL ASSETS
395.0
372.7
EQUITY AND LIABILITIES Equity attributable to Owners
of the Company
122.1
136.5
Non-controlling interests
1.9
1.6
Non-current liabilities
112.9
66.1
Current liabilities
158.0
168.4
TOTAL EQUITY AND LIABILITIES
395.0
372.7
Natuzzi S.p.A. and Subsidiaries Unaudited
consolidated statements of cash flows (condensed) (Expressed in
millions of Euro)
30-Jun-19
31-Dec-18
Net cash provided by (used in) operating
activities
2.7
(11.3)
Net cash provided by (used in) investing activities
(2.8)
14.6
Net cash provided by (used in) financing activities
(24.9)
2.2
Increase (decrease) in cash and cash equivalents
(24.9)
5.4
Cash and cash equivalents, beginning of the year
62.1
55.0
Effect of movements in exchange rates on cash held
0.2
(0.1)
Cash and cash equivalents, end of the period
37.4
60.4
For the purpose of the statements of cash flow,
cash and cash equivalents comprise the following: (Expressed in
millions of Euro)
30-Jun-19
31-Dec-18
Cash and cash equivalents in the statement of financial position
41.6
62.1
Bank overdrafts repayable on demand
(4.2)
(1.8)
Cash and cash equivalents in the statement of cash flows
37.4
60.4
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version on businesswire.com: https://www.businesswire.com/news/home/20190927005469/en/
For information: 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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