Revenues up 18.7%, Natuzzi's Sixth Consecutive Quarter of Strong Sales Growth; Earnings per ADR were $0.27

Furniture World Magazine

Industrie Natuzzi S.p.A. (NYSE: NTZ) ('Natuzzi' or 'the Company'), the world's leading manufacturer of leather furniture, announced record sales for the second quarter of 2001, with worldwide revenues continuing to grow at a strong pace. Natuzzi's net sales increased 18.7 percent to ITL 406.8 billion, or $ 183.5 million, compared to the second quarter of 2000. For the six months ended June 30, 2001, net sales increased 22.1 percent to ITL 803.1 billion, or $ 372.1 million. Natuzzi's second-quarter 2001 net income decreased 36.8% percent compared to the prior year's quarter to ITL 32.3 billion, or $ 14.6 million, primarily due to further increases in the price of leather, Natuzzi's principal raw material. Net income per ADR (1 ADR = 1 Share) decreased 33.8% to ITL 588, or $ 0.27. For the first half of 2001, net income decreased 17.9 percent to ITL 74.3 billion, or $ 34.4 million, compared to the prior year period. Earnings per ADR totaled ITL 1,344, 14.7 percent lower than first-half 2000. In terms of US dollars, earnings per ADR decreased 20.5 percent to $ 0.62 in the first half of this year. First-half 2001 net cash flow from operations at Natuzzi totaled ITL 45.7 billion, or $ 21.2 million, down 61.4 per cent from ITL 118.5 billion, or $ 58.7 million, in the same period last year. On a per ADR basis, net operating cash flow was ITL 827, or $ 0.38, a decrease of 59.8 per cent compared to first half of 2000. The decline in net operating cash flow from operations was primarily due to higher levels of receivables and inventory that have been required to finance the Company's growth, as well as delayed reimbursements of VAT credits from the Italian government. With respect to the increased inventory levels, Natuzzi has been stocking higher levels of raw materials to support increasing production of Italsofa and SoFast, products that are sold on a stock basis. Natuzzi's balance sheet remained strong, however, with a net cash position of ITL 124.1billion, or $ 57.5 million, as of June 30, 2001. Pasquale Natuzzi, Chairman and Chief Executive Officer of IndustrieNatuzzi, said: "Despite difficult overall trading conditions in the U.S., our largest market, Natuzzi continued to generate strong sales growth in the second quarter on a healthy order backlog. In Europe, we have been increasing market share with a more complete product offering designed to meet each customers' individual preferences, as well as through improved customer service. We also generated strong sales growth in markets outside the U.S. and Europe, in particular Asia Pacific, where we have been increasing Natuzzi's distribution capabilities." Commenting on earnings, Mr. Natuzzi added: "While we turned in our sixth consecutive quarter of double-digit sales growth, Natuzzi's earnings performance was again impacted by rising leather prices and increased transatlantic shipping costs. However, as we projected last May, leather prices and transportation costs have begun to moderate and are expected to decline for the remainder of the year." Of Natuzzi's ITL 406.8 billion in net sales in the second quarter, total upholstered furniture sales were ITL 368.0 billion, or $ 166.0 million, a 16.2 percent increase over second-quarter 2000. Other sales (principally living-room accessories and raw materials produced by the Company) increased 48.3% percent to ITL 38.8 billion, or $ 17.5 million. Total seat units sold in the second quarter of 2001 increased 14.2 percent over the prior year's period to 761,512 seats. In the Americas, unit volume rose 10.4 percent to 336,839 seats, while unit volume in Europe increased 18.9 percent to 285,858 seats. Seats sold in Italy and the Rest of the World increased 12.0% and 20.1% to 92,889 units and 45,926 units, respectively. During the second quarter, total net sales to Divani & Divani and Natuzzi franchised stores increased 17.8 percent over the prior year's quarter to ITL 43.7 billion, or $ 19.7 million. The Divani & Divani stores located in Italy represented 82.8 percent of these sales, or ITL 36.2 billion ($ 16.3 million). One new store was opened in Italy during the second quarter, and 1 new store was opened abroad under the Natuzzi brand. As of June 30, 2001, there were a total of 151 Divani & Divani and Natuzzi stores in operation, with 110 located in Italy and 41 located outside Italy. Gross profit in the second quarter of 2001 increased 3.3 percent to ITL 136.2 billion, or $61.4 million, compared to second-quarter 2000. Over the same period, the gross profit margin decreased to 33.5 percent from38.4 per cent, primarily due to higher leather prices and other raw materials costs. Increased transportation as well as higher Divani & Divani and trade advertising costs mostly contributed to lower second-quarter 2001 operating income, which decreased 27 percent to ITL 50.3 billion, or $22.7 million, compared to the second quarter of 2000. The Company's operating margin decreased to 12.4 percent versus 20.1 per cent in the same period last year. In the second quarter of 2001, foreign exchange losses totaled ITL 10.7 billion, or $4.8 million. Income taxes for the second quarter of 2001 totaled ITL 9.4 billion, or $4.3 million, representing an effective tax rate of 22.6 percent, which was lower than the 24.4 percent rate reported in the second quarter 2000. The Company continued buying back shares during the second quarter, repurchasing 130,000 ADRs at an average weighted price of $ 12.40, which amounted to $ 1.6 million, or ITL 3.5 billion. Under Natuzzi's eighteen-month share repurchase program, approved by shareholders in July 2000, the Company is authorized to buy back up to 4 million shares, or up to ITL 100 billion worth of shares. As of June 30, 2001, the Company had repurchased 2,644,400 shares at an weighted average price of $ 11.73. In July, Natuzzi's new corporate web site went live using the same Internet address, http://www.natuzzi.com . In addition to providing customers with more comprehensive product, service and store information, the new site offers enhanced functionality over the previous one. Investors are invited to visit the site's new investor relations section, which has been designed to facilitate the accessibility of information for investors and shareholders. Concluded Mr. Natuzzi: "We confirm our guidance of a 9% to 10% net profit margin and 10% to 15% year-over-year unit volume growth for full-year 2001. In addition, Natuzzi's order backlog remains healthy at almost 8 weeks." All second-quarter 2001 and second-quarter 2000 dollar figures presented in this announcement were converted at an average noon buying rate of ITL 2,216.43 per US dollar and ITL 2,074.40 per US dollar, respectively. First-half 2001 figures were converted at an average noon buying rate of ITL 2,158.17 per US dollar, while figures for the prior year were converted at ITL 2,019.20 per US dollar.