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Natuzzi Announces Third Quarter REsults

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Natuzzi S.p.A., a leading manufacturer of leather -upholstered furniture, announced financial results for the third quarter ended September 30, 2004. NET SALES In the third quarter 2004 net sales decreased by 4.8 percent to EUR 165.5 million, or $ 202.3 million, from EUR 173.9 million, or $ 195.9 million, reported in the third quarter 2003. In the first nine months of 2004, net sales were flat at EUR 559.9 million, or $ 686.2 million, over last year comparable period. During the third quarter 2004 Natuzzi’s net upholstery sales decreased marginally by 0.4 percent to EUR 147.1 million, or $ 179.8 million, compared to last year’s third quarter and other sales (principally living-room accessories and raw materials) decreased 29.8 percent to EUR 18.4 million, or $ 22.5 million. Third quarter 2004 net upholstery sales decreased 15.5 percent in the Americas to EUR 69.2 million, or $ 84.6 million, and increased 22.8 percent in Europe to EUR 66.9 million, or $ 81.8 million. In the rest of the world net upholstery sales decreased 2.7 percent to EUR 11.0 million, or $ 13.4 million. In the third quarter of 2004, total net sales to “Divani & Divani by Natuzzi”, “Natuzzi Store” and “Kingdom of Leather” stores increased 25.2 percent to EUR 26.8 million, or $ 32.8 million. During the same quarter 3 new stores were opened in France, Switzerland and Spain and one was closed in Italy, bringing the total number of stores to 139 in Italy and 125 outside Italy. Leather-upholstered furniture sales in the third quarter of 2004 increased by 0.2 percent with respect to last year’s third quarter, to EUR 120.7 million, or $ 147.6 million. Fabric upholstered furniture sales were EUR 26.4 million, or $ 32.3 million, down 3.3 percent compared to the third quarter 2003. Sales of Natuzzi-branded furniture, which accounted for 76.8 percent of third quarter total net upholstery sales, were EUR 112.9 million, or $ 138.0 million, down 0.3 percent compared to last year’s quarter sales of EUR 113.2 million, or $ 127.5 million. In the same period, net sales of Italsofa branded furniture decreased 0.9 percent to EUR 34.2 million, or $ 41.8 million, from EUR 34.5 million, or $ 38.9 million. Pasquale Natuzzi, Chairman and Chief Executive Officer, said: “Although also the third quarter 2004 was characterized by a weak demand, by a persistent U.S. dollar depreciation against Euro and, consequently, by a constant reduction in the order flow, net upholstery sales were substantially flat, whereas the unit sold have slightly increased”. GROSS PROFIT & OPERATING INCOME Third quarter 2004 gross profit was EUR 57.6 million, or $ 70.4 million, down 5.1 percent over the last year’s quarter. During the same period, Natuzzi’s gross profit margin slightly decreased to 34.8 percent from 34.9. Natuzzi’s third quarter 2004 operating income decreased 37.4 percent to EUR 6.7 million or $ 8.2 million. Operating margins for each year’s comparable quarter were 4.0 percent in 2004 and 6.2 percent in 2003. FOREX & TAXES In the third quarter 2004, Natuzzi had a net foreign exchange gain of EUR 1.8 million, or $ 2.2 million, versus a loss of EUR 2.3 million or $ 2.6 million reported in the third quarter 2003. Income taxes for third quarter 2004 were EUR 1.8 million, or $ 2.2 million. The effective tax rate was 24.0 percent versus a 27.1 percent in the prior year's period. NET INCOME & EARNINGS PER SHARE In the third quarter of 2004, the Company reported a net income of EUR 5.6 million, or $ 6.8 million, down 20.0 percent from EUR 7.0 million, or $ 7.9 million, achieved in the same period of 2003, while third quarter earnings per share (ADR) were EUR 0.10, or $ 0.12. In the nine month period net income decreased 17.8 percent to EUR 27.7 million, or $ 33.9 million, from EUR 33.7 million or $ 37.5 million in the prior year’s comparable period. Pasquale Natuzzi commented: “In third quarter 2004, the Company’s profitability continued to be affected by the same factors reported in the previous two quarters: strong appreciation of the Euro, higher selling costs related to the opening of stores and galleries and investments in the Natuzzi brand strategy. The economic environment is characterized by the persisting uncertainties due to the weak demand and to the continuing appreciation of the Euro. For the whole 2004 we expect a growth of seats sold of about 3% on 2003, and confirm our forecast of a Net Earnings of about 5%”. CASH FLOW In the first nine months of 2004, net cash flow from operations almost tripled to EUR 70.0 million or $ 85.8 million. On a per ADR basis, nine months 2004 net operating cash flow was EUR 1.28, or $ 1.57, compared to EUR 0.44 or $ 0.49 in 2003. OUTLOOK Concluded Mr. Natuzzi: ”Assuming that the current market, currency and economic scenario do not further deteriorate, in 2005 our efforts will be oriented to increase the unit sold by about 5% and to the achievement of Net Earnings in the region of 5%.” CONVERSION RATES The third quarter 2004 and 2003 dollar figures presented in this announcement were converted at an average noon buying rate of $ 1.2226 per EUR and $ 1.1266 per EUR, respectively. The nine months figures for 2004 and 2003 were converted at an average noon buying rate of $ 1.2255 per EUR and $ 1.1124 per EUR, respectively.

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