Natuzzi Announces Second Quarter Sales Increase

Furniture World Magazine

The Board of Directors of Natuzzi S.p.A., a leading manufacturer of leather-upholstered furniture, announced the approval of the consolidated financial statements for the second quarter and first half ended on June 30, 2006. NET SALES During the second quarter 2006 total net revenues increased by 18.1 percent at EUR 195.6 million, or $246.0 million, from EUR 165.6 million, or $ 208.5 reported for the same quarter last year. During the same period units sold were up 18.1 percent. Considering the first six months of 2006, Company's total net revenues were up by 15.6 percent at EUR 383.8 million, or $472.4 million, and unit sold by 12.0 percent. The double-digit growth of the turnover reported in the first half 2006 was mainly attributable to the soft comparison base of last year as well as the higher utilization of the order backlog existing at the end of 2005. In first half 2006 the total order amount expressed in units was up mid-single digit versus the same period of last year. In the second quarter 2006, upholstery net sales were up 21.9 percent at EUR 176.7 million, or $222.2 million, from EUR 145.0 million, or $182.6 million, reported in the same comparable period of last year. Other sales (principally living-room accessories and raw materials produced by the Company and sold to third parties) decreased by 8.3 percent at EUR 18.9 million, or $23.8 million. During the quarter ended on June 30, 2006, upholstery net sales increased, quarter-over-quarter, in the Americas by 9.4 percent at EUR 63.0 million, or $79.2 million, in Europe by 31.0 percent at EUR 102.7 million, or $129.2 million, and in the rest of the world by 22.2 percent at EUR 11.0 million, or $13.8 million. During the three months ended on June 30, 2006 total net sales to our chain of Divani & Divani by Natuzzi Stores and Natuzzi Stores were at EUR 38.6 million, or $48.5 million, increasing 43.0 percent as compared to EUR 27.0 million, or $34.0 million reported one year ago. In the same quarter six new stores were opened (1 each in Portugal, United Kingdom, Germany, Russia, Check Republic and China), whereas seven stores were closed (5 in Italy and 2 in Switzerland), thus bringing the total number of stores at 279 as at June 30, 2006. At the same date there were 548 galleries, 46 less than three months earlier. Leather-upholstered furniture sales in the second quarter 2006 were at EUR 153.8 million, or $193.4 million, 27.4 percent up from last year's second quarter, whereas over the same period fabric-upholstered furniture sales decreased by 5.8 percent, at EUR 22.9 million, or $28.8 million. In the second quarter 2006, net sales for the Natuzzi branded products increased by 17.6 percent over the same quarter of 2005 at EUR 114.4 million, thus representing 64.7 percent of total upholstery net sales, and sales for the Italsofa products increased by 30.6 percent at EUR 62.3 million. GROSS PROFIT & OPERATING INCOME During the second quarter 2006 gross profit was at EUR 70.7 million, or $88.9 million, increasing by 36.8 percent with respect to EUR 51.7 million, or $ 65.1 million, reported in the second quarter 2005. As percentage of sales, gross margin improved at 36.1 percent from 31.2 percent in second quarter 2005, thanks to the fact that the fixed costs were absorbed by the higher level of units sold. Over the same period, the Company reported an operating income of EUR 12.1 million, or $15.2 million, versus an operating loss of EUR 8.2 million, or $10.3 million, in second quarter 2005. FOREX & TAXES For the second quarter 2006 the Company reported a net foreign exchange loss of EUR 1.1 million, or $1.4 million, as compared to a net foreign exchange loss of EUR 1.6 million, or $2.0 million, of last year's comparable period. Over the same period, Company's income taxes were at EUR 2.3 million, or $2.9 million, as compared to income tax credits of EUR 2.3 million, or $2.9 million, reported in the same comparable quarter of 2005. NET INCOME & EARNINGS PER SHARE During the second quarter of 2006, the Company reported net earnings of EUR 9.9 million, or $12.5 million, versus a net loss of EUR 8.4 million, or $10.6 million, in second quarter of 2005. Earnings per share (ADR) were EUR 0.18, or $0.23, from EUR 0.15 losses per share, or $ 0.19, reported for the first quarter of last year. Considering the first six months of 2006, net earnings were at EUR 16.7 million, or $20.6 million, versus a net loss of EUR 11.9 million, or $15.3 million, reported for the first semester of 2005. CASH FLOW During the first half of 2006, operations generated cash flow of EUR 35.6 million, or $43.8 million, increasing from EUR 4.2 million, or $5.4 million, generated in the first six months of 2005. On a per ADR basis, net operating cash flow was EUR 0.65, or $0.80. Ernesto Greco, Chief Executive Officer of the Natuzzi Group, commented: "We are pleased with first half 2006 results even though the turnover's growth was mainly sustained by the existing backlog that has decreased materially over the past few months. As a consequence, the trend in net sales for the remaining part of 2006 could be affected. The persisting of unfavorable factors like a soft business environment, the strength of the Euro especially against the US dollar, high energy costs and a strong price competitive pressure, confirms that the Group took the right decision in launching the promotional line, Italsofa, and that we need to continue to invest in the repositioning of the Natuzzi brand, as well as be focused on the current operational restructuring program, both fundamental to regain the competitiveness of our Group." ABOUT NATUZZI S.P.A. Founded in 1959 by Pasquale Natuzzi, Natuzzi S.p.A. 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 123 markets on 5 continents. Since 1990, Natuzzi has sold its furnishings in Italy through the popular Divani & Divani by Natuzzi chain of 124 stores, which it licenses to qualified furniture dealers, and 1 Natuzzi Store. Outside Italy, the Company sells to various furniture retailers, as well as through 152 licensed Divani & Divani by Natuzzi and Natuzzi Stores. Natuzzi S.p.A. was listed on the New York Stock Exchange on May 13, 1993. The Company is ISO 9001 and 14001 certified.