Natuzzi Announces Third Quarter Operating Loss

Furniture World Magazine

NET SALES Natuzzi third quarter 2006 total net sales were at EUR 158.5 million, or $ 202.0 million, up 7.7 percent as compared to third quarter 2005. During the first nine months of the year, total net sales increased by 13.1 percent with respect to the same period of 2005 at EUR 542.4 million, or $ 675.6 million. During the third quarter 2006, upholstery net sales were at EUR 142.0 million, or $ 180.9 million, up 8.8 percent over the third quarter of last year. During the same period, total seats sold increased by 10.0 percent. In the first nine months of 2006, the Company sold 2,236,121 seats, 11.4 percent more than 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 1.2 percent to EUR 16.5 million, or $ 21.0 million, over the third quarter of last year. During the three months ended on September 30, 2006, net sales in the Americas increased by 1.3 percent over the third quarter 2005 at EUR 60.1 million, or $ 76.6 million, by 12.1 percent in Europe at EUR 68.8 million, or $ 87.7 million, by 33.7 percent in the rest of the world at EUR 13.1 million, or $ 16.7 million. In the third quarter 2006, two new stores were opened in China, whereas three stores were closed (one in Italy, one in UK and one in Switzerland), thus bringing the total number of stores to 278 as at September 30, 2006. In the same period, twelve galleries were opened, so that the total number of Natuzzi galleries was 560 as at September 30, 2006. Leather-upholstered furniture net sales were at EUR 123.4 million, or $ 157.2 million, up 11.7 percent over third quarter 2005, whereas fabric-upholstered net sales were down 7.0 percent at EUR 18.6 million, or $ 23.7 million. During the third quarter 2006, net sales for the Natuzzi branded products increased by 2.8 percent over the third quarter 2005 at EUR 83.8 million, or $ 106.8 million, and by 18.8 percent for the Italsofa products at EUR 58.2 million, or $ 74.2 million. GROSS PROFIT & OPERATING INCOME For the three months ended on September 30, 2006, gross profit increased at EUR 51.1 million, or $ 65.1 million, as compared to EUR 48.6 million, or $ 59.3 million, reported for the third quarter of the previous year. Gross profit margin slightly decreased at 32.2 percent, from 33.0 percent reported for the third quarter of 2005, mainly due to the unfavorable currency effect on upholstery net sales. The Company reported an operating loss of EUR 1.1 million, or $ 1.4 million, as compared to a break even in the third quarter 2005. FOREX & TAXES During the quarter ended on September 30, 2006, the Company reported a net foreign exchange loss of EUR 0.4 million, or a loss of $ 0.5 million, as compared to a net foreign exchange loss of EUR 0.9 million, or a net foreign exchange loss of $ 1.1 million, reported in the same comparable period of last year. For the third quarter of 2006, the Company had income tax credit of EUR 0.2 million, or $ 0.3 million, versus income taxes of EUR 0.5 million, or $ 0.6 million, reported last year. NET INCOME & EARNINGS PER SHARE For the third quarter 2006, the Company reported net income of EUR 0.8 million, or $ 1.0 million, versus net losses of EUR 2.0 million, or $ 2.4 million, reported in the same quarter of last year. Earning per share (ADR) was EUR 0.01, or $ 0.01, as compared to net loss per share of EUR 0.04, or $ 0.05, reported in third quarter 2005. For the first nine months, in 2006 the Company reported net earnings of EUR 17.5 million, or $ 21.8 million, versus net losses of EUR 13.9 million, or $ 17.6 million, for the same comparable period in 2005 CASH FLOW During the nine month period ended on September 30, 2006, net cash flow from operations increased at EUR 53.6 million, or $ 66.8 million, from EUR 16.9 million, or $ 21.3 million, generated for the same period in 2005. On per ADR basis, net operating cash flow was EUR 0.98, or $ 1.22, up from EUR 0.31, or $ 0.39, generated during the first nine months of 2005. Ernesto Greco, Chief Executive Officer of the Natuzzi Group, commented: “As in the prior quarter, the positive net sales performance has not been accompanied by a similar order flow. In fact, in the last few months the Group has been reporting a decrease in the order flow which could lead us to an adjustment of the production level. This decrease is mainly due to the general weak retail environment for home furnishing, confirmed at recent High Point furniture market, accompanied by persisting unfavorable currency conditions. Despite this, the Company expects to report for the full year 2006 an high single digit increase in revenues over year 2005 thanks to the existing order back log. In this challenging environment, we continue to invest in the Natuzzi brand. At the same time, we are focusing our efforts on an extensive process reengineering program that should improve the overall efficiency of the Group and on the reorganization of sales activities so to better envisage customers’ needs and improve their satisfaction. Besides, we are finalizing a new exclusive spring collection for which we expect to obtain a successful reception from our customers at next January Cologne furniture fair. The combination of the above initiatives – concluded Greco - should better position the Group for future sales growth and profitability recovery”. CONVERSION RATES The third quarter 2006 and 2005 dollar figures presented in this announcement were converted at an average noon buying rate of $1.2742 per EUR and $1.2196 per EUR, respectively. The nine months figures for 2006 and 2005 were converted at an average noon buying rate of $ 1.2455 per EUR and $ 1.2628 per EUR, respectively. MONTELEONE RESIGNED FROM THE BOARD OF DIRECTORS Gianluca Monteleone, Group Marketing Director until October 31st, 2006, resigned today from the Board of Directors. For the time being, he will not be replaced. 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 125 stores, 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.