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Natuzzi Announces Fourth Quarter Sales Decrease

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- 2005 net sales at eur 669.9 million from eur 753.4 reported in 2004 - 2005 losses per share at eur 0.31 vs earnings per share of eur 0.34 in 2004 - full year 2005 cash flow from operations at eur 23.2 million The Board of Directors of Natuzzi S.p.A., a leading manufacturer of leather-upholstered furniture, announced the approval of the financial results for the fourth quarter and fiscal year ended on December 31, 2005. NET SALES In fourth quarter ended on December 31, 2005, Natuzzi total net sales decreased by 1.5 percent to EUR 190.6 million, or $226.6 million, down from EUR 193.6 million, or $251.5 million reported for the same quarter of 2004. During the same period total seats sold increased by 4.1 percent. Considering the twelve months ended on December 31, 2005, total net sales decreased 11.1 percent from 2004 at EUR 669.9 million, or $ 834.0 million, and units sold by 8.4 percent. During the last three months of 2005, upholstery net sales were up 3.0 percent at EUR 173.0, or $205.7 million, from EUR 167.9 million, or $ 218.1 million, reported for the same period last year. Other sales (principally living-room accessories and raw materials produced by the Company and sold to third parties) decreased by 31.5 percent to EUR 17.6 million, or $ 20.9 million. In the fourth quarter 2005 net sales in the Americas were at EUR 64.9 million, or $ 77.2 million, up by 19.7 percent from EUR 54.2 million, or $ 70.4 million in 2004 fourth quarter. In Europe sales were at EUR 96.9 million, or $ 115.2 million, down by 4.6 percent from EUR 101.6 million, or $ 132.0 million, reported in the same quarter last year, and in the rest of the world net sales were down 7.4 percent at EUR 11.2 million, or $ 13.3 million, from EUR 12.1 million, or $ 15.7 million, reported in the previous year comparable period. In the quarter ended on December 31, 2005, total net sales to the chains Divani & Divani by Natuzzi stores, Natuzzi stores, and Kingdom of Leather stores were at EUR 32.3 million, or $ 38.4 million, down by 21.0 percent as compared to EUR 40.9 million, or $ 53.1 million reported one year ago. During the same quarter nine new stores were opened (4 in Australia and one each in France, Denmark, Czech Republic, Latvia, and Saudi Arabia), whereas 3 stores were closed (2 in Italy, and one in China), therefore the total number of stores was 290 as at December 31, 2005. At the same date there were 605 galleries, 80 more than one year earlier. Leather-upholstered furniture sales in the fourth quarter 2005 were at EUR 147.4 million, or $ 175.3 million, increasing 6.4 percent over last year’s fourth quarter, whereas during the same period fabric-upholstered furniture were at EUR 25.6 million, or $30.4 million, down by 12.9 percent with respect to last year's comparable period. Fourth quarter 2005 net sales for the Natuzzi branded products, representing 61.5 percent of total upholstery net sales, were at EUR 106.4 million, or $ 126.5 million, 18.2 percent down with respect to the last year’s comparable quarter, whereas, over the same period, sales for the Italsofa products increased by 75.7 percent to EUR 66.6 million, or $ 79.2 million. GROSS PROFIT & OPERATING INCOME For the three months ended December 31, 2005, Natuzzi’s gross profit was at EUR 55.0 million, or $ 65.4 million, 14.9 percent down from EUR 64.6 million, or $ 83.9 million, reported one year earlier. As a percentage of sales, gross profit margin decreased at 28.9 percent from 33.4 percent recorded one year ago. Over the same period, the Company reported an operating loss of EUR 5.4 million, or $ 6.4 million, versus an operating income of EUR 2.8 million, or $ 3.6 million, reported in 2004 fourth quarter. NET INCOME & EARNINGS PER SHARE For the quarter ended on December 31, 2005, the Company reported net losses of EUR 2.8 million, or net losses of $ 3.3 million, from a net loss of EUR 9.3 million, or $ 12.1 million, reported in the same quarter of last year. Losses per share (ADR) were EUR 0.05, or $ 0.06, from EUR 0.17 losses per share, or $ 0.22, for the fourth quarter of 2004. In 2005 the Company recorded net losses of EUR 16.7 million, or net losses of $ 20.8 million, whereas one year earlier it reported net earnings of EUR 18.4 million, or $ 22.9 million. On ADR basis net losses for 2005 totaled EUR 0.31, or $ 0.39, down from earnings per share of EUR 0.34, or $ 0.42, reported for the whole 2004. CASH FLOW For the full 2005, cash flow from operations were EUR 23.2 million, or $ 28.9 million, down from EUR 68.3 million, or $ 85.0 million, generated in 2004. On a per ADR basis, net operating cash flow was EUR 0.42, or $ 0.52, versus EUR 1.25, or $ 1.55 generated in 2004. OUTLOOK Pasquale Natuzzi, Chairman and Chief Executive Officer, commented: “We are encouraged by the earnings before taxes reported in the fourth quarter 2005 after four quarters in a row of losses. In 2006 we will continue to be focused on the initiatives that should make our operations more efficient and profitable. At the same time, we have to take into consideration that the industry and currency scenario for 2006 appears to be characterized by the same uncertainties experienced last year. In light of the above, we confirm the previously announced targets for 2006 with a positive net profit margin at most at 3 percent together with an increase in units sold of about 5 percent.”

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