Natuzzi S.p.A(NTZ) - 2022 Q3 - Quarterly Report

Executive Summary and Business Overview This section provides an overview of management's commentary and key financial highlights for Q2 2022 Management Commentary Management reported H1 2022 sales growth despite headwinds, accelerating transformation and strengthening branded business - The Shanghai factory closure due to COVID-19 lockdowns resulted in an estimated €15 million loss in production for the quarter[5] - Since April, the company has experienced a slowdown in orders, primarily from the Wholesale channel, as retail partners focus on de-stocking amid softer consumer demand[7][8] - The order backlog was intentionally reduced from €114.4 million to €102.0 million to improve delivery times and service levels[9] - The company's branded business (Natuzzi Italia and Natuzzi Editions) has grown to represent 90% of total business, up from 84% a year ago[10] - The company is strengthening its management team by hiring experienced professionals for key roles, including a new global Chief Operations Officer and a South-West Europe & Emerging Market Director[15][16] Second Quarter 2022 Highlights Q2 2022 saw 7.8% sales growth despite factory closure, with gross margin decline and positive operating profit Q2 2022 Financial Highlights | Metric | Q2 2022 | Q2 2021 | Change vs 2021 | Change vs 2019 | | :--- | :--- | :--- | :--- | :--- | | Invoiced Sales | - | - | +7.8% | +26.8% | | Gross Margin | 31.4% | 36.1% | -4.7 p.p. | +3.5 p.p. | | Operating Profit | €1.1 million | €1.5 million | -€0.4 million | +€8.9 million | | Cash | €59.8 million | - | +€6.3 million (vs Dec 2021) | +€20.0 million (vs Dec 2019) | Q2 2022 Financial Performance Q2 2022 financial performance was marked by revenue growth, gross margin decline, and improved operating expense efficiency Consolidated Revenue Q2 2022 consolidated revenue grew 7.8% to €116.9 million, driven by branded business and retail channel expansion Q2 2022 Revenue Performance | Metric | Q2 2022 | Q2 2021 | Change | | :--- | :--- | :--- | :--- | | Consolidated Revenue | €116.9 M | €108.4 M | +7.8% | | Upholstered & Home Furnishings Sales | €112.0 M | €105.5 M | +6.2% | Revenue by Business Segment Branded business sales increased 8.1% to €98.7 million, led by Natuzzi Italia, while other segments declined Q2 2022 Invoiced Sales by Brand (€ Million) | Brand Segment | Q2 2022 Sales | YoY Change | | :--- | :--- | :--- | | Total Branded | €98.7 M | +8.1% | | Natuzzi Italia | €53.6 M | +34.2% | | Natuzzi Editions | €45.1 M | -12.2% | | Unbranded | €13.3 M | -5.9% | Revenue by Key Markets Sales growth was strong in West & South Europe and Greater China, while North America and Emerging Markets saw declines Q2 2022 Invoiced Sales by Geography (€ Million) | Region | Q2 2022 | Q2 2021 | YoY Change | | :--- | :--- | :--- | :--- | | North America | 31.3 | 35.2 | -11.0% | | Greater China | 13.3 | 10.7 | +24.1% | | West & South Europe | 40.6 | 31.8 | +27.4% | | Emerging Markets | 13.1 | 14.1 | -7.3% | | Rest of the World | 13.7 | 13.6 | +1.0% | | Total | 112.0 | 105.5 | +6.2% | Revenue by Distribution Channel Retail network contribution increased to 61.2%, driven by strong growth in franchise and direct retail sales - The retail network (Directly Operated Stores and Franchise Operated Stores) contribution to total business increased to 61.2% in Q2 2022 from 50.1% in Q2 2021[28] - In the first half of 2022, the company added 49 new franchise stores, with 38 located in China[29] Q2 2022 Sales by Channel vs Q2 2021 | Channel | Q2 2022 Sales | YoY Change | | :--- | :--- | :--- | | Direct Retail (DOS) | €22.0 M | +14.1% | | Franchise Stores (FOS) | €46.6 M | +38.8% | | Wholesale | €43.4 M | -17.5% | Gross Margin Gross margin declined to 31.4% in Q2 2022 due to rising costs and inefficient fixed cost absorption - Gross margin decreased to 31.4% in Q2 2022 from 36.1% in Q2 2021[33] - The margin decline was caused by rising raw material and energy costs, alongside inefficient fixed cost leverage in the Shanghai plant due to the lockdown[33] - There is a time lag between incurring higher input costs and realizing price increases on delivered sales, which has negatively affected margins during this period of high inflation[34] Operating Expenses Operating expenses decreased to 30.5% of revenue in Q2 2022, driven by lower transportation costs Operating Expenses Comparison | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Operating Expenses | €35.6 M | €37.7 M | | OpEx as % of Revenue | 30.5% | 34.8% | - Transportation costs decreased to 11.1% of revenue from 12.9% in Q2 2021, partly due to a different geographic mix of deliveries[36] - Q2 2021 operating results included approximately €1.4 million in benefits from COVID-19 government support programs, which were not available in Q2 2022[37][38] First Half 2022 Performance Summary H1 2022 revenue grew 12.1% to €235.4 million, with gross margin compression and lower profitability H1 2022 vs H1 2021 Key Financials | Metric | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Total Revenue | €235.4 M | €209.9 M | | Gross Margin | 32.8% | 36.2% | | Operating Profit | €2.5 M | €4.8 M | | Profit After Tax | €0.7 M | €5.9 M | - The H1 2021 operating profit included €4.2 million from temporary public support measures related to labor costs, which were not renewed in 2022[41] - The H1 2021 profit after tax included a one-off gain of €4.8 million from the disposal of a subsidiary[42] Balance Sheet and Cash Flow The company generated €10.2 million in operating cash flow, increasing cash to €59.8 million and improving its net financial position - Net cash provided by operating activities for the first six months of 2022 was €10.2 million[43] - Investing activities used (€3.6) million, primarily for capital expenditures[45] - Financing activities used (€1.9) million, reflecting loan and lease repayments partially offset by a new government loan and a capital contribution from a partner[46] Cash and Financial Position (€ Million) | Metric | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and Cash Equivalents | 59.8 | 53.5 | | Net Financial Position (before lease liabilities) | 7.6 | (0.1) | Consolidated Financial Statements This section provides the unaudited consolidated statements of profit or loss, financial position, and cash flows for the period Statement of Profit or Loss (Q2 2022) Q2 2022 revenue was €116.9 million, resulting in an operating profit of €1.1 million and a net loss of €0.6 million Q2 2022 Profit & Loss Summary (€ Million) | Item | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Revenue | 116.9 | 108.4 | | Gross profit | 36.7 | 39.2 | | Operating profit/(loss) | 1.1 | 1.5 | | Profit/(Loss) for the period | (0.6) | (0.1) | | Profit/(Loss) attributable to Owners | (1.0) | 0.2 | Statement of Profit or Loss (H1 2022) H1 2022 revenue reached €235.4 million, yielding an operating profit of €2.5 million and a net profit of €0.7 million H1 2022 Profit & Loss Summary (€ Million) | Item | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Revenue | 235.4 | 209.9 | | Gross profit | 77.3 | 76.0 | | Operating profit/(loss) | 2.5 | 4.8 | | Profit/(Loss) for the period | 0.7 | 5.9 | | Profit/(Loss) attributable to Owners | (0.0) | 5.8 | Statement of Financial Position As of June 30, 2022, total assets and total equity and liabilities both stood at €390.0 million Condensed Balance Sheet (€ Million) | Item | 30-Jun-22 | 31-Dec-21 | | :--- | :--- | :--- | | Total Assets | 390.0 | 398.1 | | Total Equity and Liabilities | 390.0 | 398.1 | | Equity attributable to Owners | 82.3 | 90.4 | Statement of Cash Flows H1 2022 operating activities generated €10.2 million in cash, leading to a €4.7 million net increase in cash and equivalents Condensed Cash Flow Statement - H1 2022 (€ Million) | Item | H1 2022 | | :--- | :--- | | Net cash from operating activities | 10.2 | | Net cash from investing activities | (3.6) | | Net cash from financing activities | (1.9) | | Increase in cash and cash equivalents | 4.7 | Other Information This section provides cautionary statements regarding forward-looking information and an overview of Natuzzi S.p.A Cautionary Statement Concerning Forward-Looking Statements This statement warns that forward-looking information is subject to risks like supply chain, raw material costs, and geopolitical events - The company identifies several forward-looking risks, including supply-chain issues, raw material costs, COVID-19 impacts on the economy and demand, and geopolitical tensions from the war in Ukraine[55] About Natuzzi S.p.A. Natuzzi S.p.A., founded in 1959, is a luxury furniture brand with a global retail network, listed on NYSE since 1993 - As of June 30, 2022, Natuzzi's global retail network consists of 700 mono-brand stores and 566 galleries[56] - The company has been listed on the New York Stock Exchange (NYSE) since May 13, 1993[56]