Fourth Quarter American Sales Drop For Natuzzi

Furniture World Magazine

The Board of Directors of Natuzzi S.p.A., a leading manufacturer of leather-upholstered furniture, presented its consolidated financial statements for the fourth quarter and full year 2006. NET SALES During the fourth quarter of 2006, Natuzzi total net sales increased by 1.3% at EUR 193.1 million from EUR 190.6 million reported for the last quarter of 2005. During the same period, units sold decreased by 2.9%. Considering the whole 2006, total net sales increased by 9.8% at EUR 735.5 million, from EUR 669.9 million reported in 2005. For the last three months of 2006, upholstery net sales slightly increased at EUR 174.2 million from EUR 173.0 million of the previous year’s fourth quarter. Other sales (principally living-room accessories and raw material produced by the Company and sold to third parties) increased by 7.4% at EUR 18.9 million from EUR 17.6 million reported for the last quarter of 2005. In the fourth quarter of 2006 net sales in the Americas were at EUR 58.5 million, down 9.9% from EUR 64.9 million reported in 2005 fourth quarter, whereas in the same period net sales in Europe increased by 5.5% at EUR 102.2 million, and in the rest of the world by 20.5% at EUR 13.5 million on a quarterly basis. During the three months ended on December 31, 2006, total net sales from our chains Divani & Divani by Natuzzi stores and Natuzzi Stores were at EUR 37.3 million, up 15.5% from EUR 32.3 million reported for the fourth quarter of 2005. During the same period, three new stores were opened (1 in Turkey, 1 in Australia and 1 in New Zealand), whereas three stores were closed (1 in France and 2 in Spain), thus maintaining the total number of stores to 278 as at December 31, 2006. At the same date there were 560 Natuzzi Galleries, whereas one year earlier there were 605 Natuzzi galleries. Leather upholstered furniture net sales in the fourth quarter of 2006 were at EUR 152.5 million, increasing 3.5% from EUR 147.4 million reported for the last quarter of 2005, whereas fabric upholstered net sales decreased by 15.2% at EUR 21.7 million with respect to EUR 25.6 million reported in fourth quarter 2005. During the fourth quarter of 2006 net sales for the Natuzzi branded products were down 1.4% at EUR 108.9 million, whereas, over the same period, net sales of Italsofa products increased 4.5% at EUR 65.3 million. GROSS PROFIT & OPERATING INCOME For the three-month period ended on December 2006, the Company reported a gross profit of EUR 58.5 million, increasing by 6.4% with respect to EUR 55.0 million reported for the same comparable period of the previous year. As percentage of sales, gross margin increased from 28.9% to 30.3% on a quarterly basis, showing a material improvement in the manufacturing process. During 2006 fourth quarter the Company reported a net operating loss of EUR 3.4 million, as compared to a net operating loss of EUR 5.4 million reported for the same quarter of 2005. FOREX, EXTRAORDINARY ITEMS AND TAXES During the fourth quarter of 2006 the Company had a net foreign exchange gain of EUR 2.8 million, as compared to a net foreign exchange gain of EUR 2.4 million reported in 2005 fourth quarter. The comparison of other income/(losses) on a quarterly base was negatively affected by provisions for contingent liabilities accounted for in the fourth quarter 2006, amounting at EUR 5.6 million, and extraordinary income represented by the Government grants of EUR 4.4 million received by the Company in 2005. Over the same period, Company’s income taxes were EUR 1.0 million, versus income taxes of EUR 4.0 million reported one year earlier. Considering the twelve-month period, for the 2006 the Company reported income taxes of EUR 7.1 million, as compared to EUR 3.1 million reported for the whole 2005. NET INCOME & EARNINGS PER SHARE During 2006 fourth quarter, the Company reported net losses of EUR 5.1 million, as compared to net losses of EUR 0.7 million reported for the same quarter of 2005. Losses per share (ADR) for the fourth quarter of 2006 were at EUR 0.09 from EUR 0.01 losses per share reported for the last quarter of 2005. Considering the twelve-month period, in 2006 the Company reported net earnings of EUR 12.3 million, versus net losses of EUR 14.6 million in 2005. Net earnings per share were EUR 0.22 in 2006 versus net losses per share of EUR 0.27 reported for the whole 2005. CASH FLOW In 2006 cash flow from operations was EUR 66.9 million, increasing from EUR 23.2 million generated during the whole 2005. The cash increase was mainly due to a more efficient inventory management. On ADR basis, net operating cash flow was EUR 1.22, as compared to EUR 0.42 generated in 2005. Ernesto Greco, Chief Executive Officer of the Group, commented “We are pleased with the positive net sales performance reported year over year, return to profit and strong cash flow from operations achieved in 2006. However, as anticipated, the revenue performance was supported by the reduction of the orders backlog. The business scenario, unfortunately, has been and continues to be very soft due to the very aggressive pricing competition and unfavorable exchange rates. This challenging environment has been confirmed by major players in the market. As a result, the first part of 2007 has seen, relatively to the same period of last year, a high single digit reduction in the order flow, while revenues slowed down at a double digit rate. In this challenging market, we remain committed to invest in the repositioning of the Natuzzi brand and reorganization of our sales activities and we continue to be focused on the current restructuring process of our operations, so to regain competitiveness and profitability”. CONVERSION RATES The fourth quarter 2006 and 2005 dollar figures presented in this announcement were converted at an average noon buying rate of $1.2894 per EUR and $1.1890 per EUR, respectively. The 2006 and 2005 figures were converted at an average noon buying rate of $1.2565 per EUR and $1.2449 per EUR, respectively. TRANCHINI RESIGNED FROM THE BOARD OF DIRECTORS Daniele Tranchini, Natuzzi Chief Sales & Marketing Officer, resigned from the Company and Board of Directors, effective from April 30th, 2007. 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, and 1 Natuzzi Store. Outside Italy, the Company sells to various furniture retailers, as well as through 158 licensed Divani & Divani by Natuzzi and Natuzzi Stores.