Industrie Natuzzi Announced Fourth-Quarter And Full-Year 2001 Financial Results

Furniture World Magazine

Industrie Natuzzi S.p.A. (NYSE: NTZ) (‘Natuzzi’ or ‘the Company’), the world’s leading manufacturer of leather furniture, announced financial results for the fourth quarter and fiscal year ended December 31, 2001. Fourth-quarter 2001 net sales were ITL 382.3 billion, or $176.7 million, essentially unchanged versus the fourth quarter of 2000. The flat quarter-to-quarter sales were the result of severe weather conditions in Italy in December, which forced the temporary closure of several factories, a strengthening of the euro against major currencies and the record sales reported in comparable quarter of last year. For the twelve-month period, net sales rose 14.2% over 2000 to ITL 1,522.2 billion, or $ 703.8 million. Net income for the fourth quarter decreased 13.2% from the prior year period to ITL 36.1 billion, or $16.7 million. Net income per ADR was down 11.2% to ITL 660, or $0.31. Excluding the unfavorable impact of an after-tax ITL 2.9 billion sequential third-to-fourth quarter adjustment in allowances for unrealized losses on forward exchange contracts that do not hedge on- or off-balance sheet items, net income would have been ITL 712 per ADR, 17.1% higher than the ITL 608 reported in last year’s quarter excluding an after-tax ITL 7.6 billion positive adjustment. In U.S. dollar terms, net income per ADR, excluding the same allowances, would have been $0.33 and $0.27, respectively. Net income for full-year 2001 was 146.5 billion lira, 4.4% lower than 2000. On a per ADR basis, net income was ITL 2,662, or $1.23, in 2001 versus ITL 2,685, or $1.28, reported in the prior year. Excluding ITL (3.7 billion) and ITL 4.2 billion after-tax adjustments in allowances for unrealized gains/(losses) in years 2001 and 2000, respectively, net income per ADR would have been ITL 2,730 and ITL 2,612 for each of these years. In U.S. dollar terms, annual net income per ADR would have been $1.27 and $1.25 in years 2001 and 2000, respectively. For 2001, net cash flow from operations totaled ITL 150.8 billion, or $69.7 million, up 1.7% from ITL 148.3 billion, or $70.7 million, in the previous year. On a per ADR basis, net operating cash flow was ITL 2,741, or $1.27, an increase of 7.3% over last year. Natuzzi’s balance sheet remains strong, with a year-end net cash position of ITL 144.7 billion, or $69.0 million. Pasquale Natuzzi, Chairman and Chief Executive Officer, said, "Despite worsening raw material prices and weak market conditions, we were able to meet our net profit margin goal for the year, demonstrating our ability to compete in a market that is becoming increasingly price competitive. Further, we are encouraged by recent sales trends, with orders growing at a double-digit rate compared to last year." In the fourth quarter of 2001, net upholstered furniture sales increased 1.2% over the prior year’s quarter to ITL 349.9 billion, or $161.8 million, while other sales (principally living-room accessories and raw materials produced by the Company) decreased 10.2% to ITL 32.4 billion, or $ 14.9 million. Total seat units sold in the fourth quarter of 2001 increased 2.4% over the same period in 2000 to 748,148 seats. In the Americas, unit volume rose 10.5% to 373,891 seats. European unit volume increased 1.3% to 253,748 seats, while unit sales in Italy decreased 16.7% to 82,313 seats, mainly due to the aforementioned weather problems. Seats sold in the Rest of the World decreased 11.9% to 38,106 units. For the full year, total unit sales increased 11.6% over 2000 to 2,876,258 seats. During the fourth quarter, total net sales to Divani & Divani and Natuzzi stores decreased 3.3% over the prior year’s quarter to ITL 43.3 billion, or $20.0 million. Five new stores were opened during the quarter, bringing the total number of Divani & Divani and Natuzzi stores to 115 in Italy and 50 outside Italy, respectively. Gross profit in the fourth quarter of 2001 decreased 6.5% to ITL 131.2 billion, or $60.6 million, compared to last year’s quarter. Over the same period, the gross margin decreased to 34.3% from 36.7%, primarily due to further increases in raw material prices, mostly leather. The margin deterioration was also due to lower efficiency levels at start-up plants, where mostly new, inexperienced workers are employed. For the year, gross income rose 1.5% over 2000 to ITL 515.2 billion, or $238.2 million, while the gross margin decreased to 33.8% from 38.1% during the same period. Fourth quarter 2001 operating income decreased 34.5% to ITL 38.6 billion, or $17.9 million, compared to the prior year’s quarter. Natuzzi’s operating margin was 10.1% in the fourth quarter versus 15.5% in the prior year period. In addition to the higher raw materials prices and production costs, this margin decline was due to increased selling, general and administrative expenses. Operating income for 2001 totaled ITL 189.3 billion, or $87.5 million, a decrease of 22.7% from 2000. Over the same period, the operating margin decreased to 12.4% from 18.4%. In the fourth quarter of 2001, Natuzzi had a net foreign exchange gain of ITL 60 million, or $27,738. For the year, the Company had a net foreign exchange loss of ITL (12.0 billion), or $(5.6 million). Income taxes for the fourth quarter of 2001 totaled ITL 7.0 billion, or $3.2 million, representing an effective tax rate of 16.3% versus 26.7% in the prior year’s quarter. The marked difference was due to the opposite effect on taxes that changes in allowances for unrealized losses and gains on forward exchange contracts had in fourth quarter 2001 and 2000, respectively, as well as tax deductions stemming from investment incentives granted by the Italian government in the fourth quarter 2001. Income taxes for the year were ITL 42.4 billion, or $19.6 million. The effective tax rate for 2001 was 22.5% versus 24.3% last year. During 2001, the Company repurchased 1,061,200 ADRs at an average price of $12.27, concluding an eighteen-month share repurchase program. A total of 2,843,900 shares were bought back at an average price of $ 11.64, representing a total investment of ITL 73.0 billion. Commenting on the Company’s growth initiatives, Mr. Natuzzi said: "At last January’s trade fairs in Cologne, Paris and Birmingham, we officially introduced our new branding strategy: The Natuzzi brand will be clearly positioned and affordably priced in the medium-to-high price segment of living room furniture, and Italsofa brand will address the promotional market. Both the brands generated a great deal of interest among furniture dealers attending the fairs. Now we are focused on the execution of our strategy in the various stages of our value chain." Concluded Mr. Natuzzi "For 2002, we expect to outperform the upholstery market with continued double-digit unit volume growth. Our net profit margin is expected to be in the region of 8.0% to 9.0%, though, as a result of higher income taxes and initial investments in advertising to support the launch of the brands." All fourth-quarter 2001 and 2000 dollar figures in this announcement were converted at an average noon buying rate of ITL 2,163.2 per U.S. dollar and ITL 2,228.9 per U.S. dollar, respectively. Twelve-month 2001 and 2000 dollar figures were converted at an average exchange rate of ITL 2,162.9 per U.S. dollar and ITL 2,097.4 per U.S. dollar, respectively. ABOUT INDUSTRIE NATUZZI S.P.A.: Founded in 1959 by Pasquale Natuzzi, Industrie Natuzzi designs and manufactures a broad collection of leather-upholstered residential furniture. Italy’s largest furniture manufacturer, Natuzzi is the global leader in the leather segment, exporting its innovative, high-quality sofas and armchairs to 144 markets on 5 continents. Cutting-edge designs, superior Italian craftsmanship, and advanced manufacturing capabilities enable Natuzzi to maintain leading market shares in North America and Europe. Since 1990, Natuzzi has sold its furnishings in Italy through the popular Divani & Divani chain of 115 stores, which it licenses to qualified furniture dealers. Outside Italy, the Company sells to various furniture retailers, as well as through 50 licensed Divani & Divani and Natuzzi branded stores. Natuzzi’s holding company, Industrie Natuzzi S.p.A., was listed on the New York Stock Exchange on May 13, 1993. The Company is ISO 9000 and 14001 certified.