Natuzzi S.p.A(NTZ) - 2023 Q1 - Quarterly Report

Financial Performance Overview This section provides an overview of the company's financial performance, strategic direction, and key results for Q4 and full year 2022 Management Commentary Management emphasizes the 'Brand-Retailer' strategy and cost discipline, navigating a challenging market while achieving continued operating profit and accelerating retail channel growth - The company's core strategy is to transition into a 'Brand Retailer', focusing on a dual-brand approach (Natuzzi Italia and Natuzzi Editions) and cost discipline to navigate a challenging macroeconomic environment[5][6] - Branded business sales reached 92% of total sales, up from 89% in the previous year. The retail value of this business was €830 million in 2023[7] - Sales from retail channels (Directly Operated Stores and Franchisees) grew to 61% of total sales, an increase from 53% a year earlier, indicating progress in the retail-focused strategy[8] - The company plans significant retail expansion in 2023, with a focus on opening 6 Directly Operated Stores (DOS) in the U.S. and approximately 100 new franchise stores worldwide[14] Fourth Quarter 2022 Highlights Q4 2022 saw a slight increase in invoiced sales and improved gross margin, achieving operating profit despite a net loss driven by adverse foreign exchange and higher financing costs Q4 2022 Key Financial Metrics | Metric | Q4 2022 | Q4 2021 | Change | Note | | :--- | :--- | :--- | :--- | :--- | | Invoiced Sales | €116.5M | €115.6M | +0.7% | Increased 15.8% vs pre-pandemic Q4 2019 | | Gross Margin | 37.0% | 35.6% | +1.4 p.p. | Would be 38.8% excluding one-off restructuring costs | | Operating Profit | €1.8M | €0.6M | +200% | Would be €5.6M net of non-recurring items | | Loss After Taxes | (€5.3M) | N/A | N/A | Impacted by adverse FX (€2.4M) and financing costs (€2.7M) | Full Year 2022 Highlights Full year 2022 saw a 9.6% sales increase, significant operating profit improvement, and strong cash flow generation, resulting in a net profit despite higher financial costs Full Year 2022 Key Financial Metrics | Metric | FY 2022 | FY 2021 | Change | | :--- | :--- | :--- | :--- | | Invoiced Sales | €468.5M | €427.4M | +9.6% | | Gross Margin | 35.1% | 36.0% | -0.9 p.p. | | Operating Profit | €8.4M | €4.9M | +71.4% | | Net Profit | €1.3M | €4.4M | -70.5% | | Net Cash from Operating Activities | €18.7M | €0.5M | +3640% | | Cash at Year-End | €54.5M | €53.5M | +1.9% | Fourth Quarter 2022 Financial Results This section details the consolidated revenue, gross margin, operating expenses, and net finance costs for the fourth quarter of 2022 Consolidated Revenue Q4 2022 consolidated revenue increased slightly to €116.5 million, driven by branded product growth in Europe and Emerging Markets, despite a decline in Greater China due to COVID-19 - Total consolidated revenue for Q4 2022 was €116.5 million, a 0.7% increase from Q4 2021 and a 15.8% increase from the pre-pandemic Q4 2019[19] Branded vs. Unbranded Business Branded invoiced sales grew 5.0% to €103.9 million, driven by Natuzzi Italia, while Natuzzi Editions declined due to de-stocking and unbranded business significantly decreased as per strategic focus Q4 2022 Branded Sales Performance (€ millions) | Brand | Q4 2022 Sales | YoY Change | vs. Q4 2019 Change | | :--- | :--- | :--- | :--- | | Natuzzi Italia | €51.7 | +20.7% | +38.1% | | Natuzzi Editions | €52.1 | -7.0% | +19.2% | | Total Branded | €103.9 | +5.0% | +28.0% | - Unbranded business sales decreased by 25.6% to €9.5 million compared to Q4 2021, as the company focuses on selected large accounts with a more efficient go-to-market model[22] Key Markets Geographic sales varied, with strong growth in Europe and Emerging Markets, modest growth in North America, and a significant decline in Greater China due to COVID-19 disruptions Q4 2022 Invoiced Sales by Geographic Area (€ millions) | Region | Q4 2022 | Q4 2021 | YoY Change (%) | | :--- | :--- | :--- | :--- | | North America | 30.6 | 30.0 | +2.0% | | Greater China | 10.5 | 15.6 | -33.0% | | West & South Europe | 41.1 | 38.5 | +6.8% | | Emerging Markets | 16.6 | 14.0 | +18.6% | | Rest of the World | 14.6 | 13.5 | +7.6% | | Total | 113.4 | 111.7 | +1.5% | - The significant sales drop in Greater China was attributed to the high level of COVID contagions in the region, which severely impacted consumer traffic in stores[26] Distribution Channels The retail network's share of sales increased to 60.7%, driven by growth in DOS and franchise stores, while the wholesale channel declined due to de-stocking, reflecting the shift to a retail model - The retail network's share of invoiced sales increased to 60.7% in Q4 2022 from 53.0% in Q4 2021, reflecting the success of the Brand Retailer strategy[31] - Sales from Directly Operated Stores (DOS) and Concessions rose 23.7% to €22.2 million, while franchise store sales increased 12.8% to €46.6 million[30] - Wholesale channel sales fell by 15.0% to €44.6 million, primarily due to large distributors in North America reducing their stock levels[32] Gross Margin Q4 2022 gross margin improved to 37.0% due to favorable sales mix and price adjustments, despite persistent high costs for energy-intensive raw materials - Gross margin increased to 37.0% in Q4 2022, up from 35.6% in Q4 2021[33] - Excluding €2.1 million in non-recurring labor restructuring costs, the gross margin would have been 38.8%[34] - The cost of some raw materials, particularly energy-intensive ones like iron, wood, and polyurethane, remains high, while leather costs show a downward trend[35] Operating Expenses Q4 2022 operating expenses were €41.3 million (35.5% of revenue), including €1.7 million in non-recurring accruals, while transportation costs improved - Operating expenses were €41.3 million (35.5% of revenue), compared to €40.6 million (35.2% of revenue) in Q4 2021[37] - The quarter included €1.7 million in non-recurring accruals, including €1.0 million for a legal dispute in Brazil and costs related to an employee incentive plan and a stock option plan[38][39] - Transportation costs as a percentage of revenue decreased to 12.5% from 13.6% in Q4 2021[38] Net Finance Income/(Costs) Q4 2022 saw net finance costs of €4.8 million, a significant shift from income, driven by rising interest rates and a €2.4 million net exchange rate loss due to Euro strengthening - Reported net finance costs of €4.8 million, compared to net finance income of €1.7 million in Q4 2021[40] - Finance costs increased to €2.7 million from €1.5 million in Q4 2021 due to rising interest rates[40] - A net exchange rate loss of €2.4 million was recorded, compared to a gain of €2.8 million in Q4 2021, due to the strengthening of the Euro[41] Full Year 2022 Financial Results This section provides a summary of the company's key financial results for the full year 2022, including revenue, gross margin, operating profit, and net profit Key Results Summary Full year 2022 saw total revenue increase by 9.6% to €468.5 million, with operating profit significantly improving to €8.4 million, resulting in a net profit despite higher finance costs Full Year 2022 Performance Summary | Metric | FY 2022 | FY 2021 | Note | | :--- | :--- | :--- | :--- | | Total Revenue | €468.5M | €427.4M | +9.6% | | Gross Margin | 35.1% | 36.0% | Affected by high input costs | | Operating Profit | €8.4M | €4.9M | Includes €2.3M of non-recurring accruals | | Net Finance Costs | (€5.2M) | €0.3M (Income) | Driven by rising interest rates | | Profit After Tax | €1.3M | €4.4M | 2021 included a €5.0M one-off gain | Financial Position and Cash Flow This section details the company's balance sheet and cash flow performance, highlighting improvements in cash generation and net financial position Balance Sheet and Cash Flow The company significantly improved cash generation, with net cash from operating activities reaching €18.7 million, ending 2022 with €54.5 million in cash and an improved net financial position - Net cash provided by operating activities was €18.7 million in 2022, a substantial increase from €0.5 million in 2021[43] - Cash and cash equivalents stood at €54.5 million as of December 31, 2022[46] - The net financial position before lease liabilities improved to €7.9 million at the end of 2022, compared to (€0.1) million at the end of 2021[46] Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including the statement of profit or loss, financial position, and cash flows for the periods presented Statement of Profit or Loss (Q4 2022 vs Q4 2021) The unaudited Q4 2022 consolidated profit or loss statement shows a slight revenue increase to €116.5 million, an operating profit of €1.8 million, and a net loss of €5.3 million Q4 2022 vs Q4 2021 Profit & Loss (€ millions) | | Fourth quarter ended on | Change | | :--- | :--- | :--- | | | 31-Dec-22 | 31-Dec-21 | % | | Revenue | 116.5 | 115.6 | 0.7% | | Gross profit | 43.1 | 41.2 | 4.6% | | Operating profit/(loss) | 1.8 | 0.6 | 200.0% | | Profit/(Loss) before tax | (4.6) | 3.1 | -248.4% | | Profit/(Loss) for the period | (5.3) | 1.9 | -378.9% | Statement of Profit or Loss (FY 2022 vs FY 2021) The unaudited FY 2022 consolidated profit or loss statement details revenue of €468.5 million, an operating profit of €8.4 million, and a net profit of €1.3 million FY 2022 vs FY 2021 Profit & Loss (€ millions) | | Twelve months ended on | Change | | :--- | :--- | :--- | | | 31-Dec-22 | 31-Dec-21 | % | | Revenue | 468.5 | 427.4 | 9.6% | | Gross profit | 164.3 | 153.8 | 6.8% | | Operating profit/(loss) | 8.4 | 4.9 | 71.4% | | Profit/(Loss) before tax | 3.6 | 8.8 | -59.1% | | Profit/(Loss) for the period | 1.3 | 4.4 | -70.5% | Statement of Financial Position The unaudited consolidated statement of financial position as of December 31, 2022, shows total assets of €368.6 million and total equity of €92.6 million Condensed Balance Sheet (€ millions) | | 31-Dec-22 | 31-Dec-21 | | :--- | :--- | :--- | | ASSETS | | | | Non-current assets | 177.6 | 189.6 | | Current assets | 191.0 | 200.4 | | TOTAL ASSETS | 368.6 | 390.0 | | EQUITY AND LIABILITIES | | | | Total Equity | 92.6 | 83.8 | | Non-current liabilities | 95.3 | 107.5 | | Current liabilities | 180.8 | 198.7 | | TOTAL EQUITY AND LIABILITIES | 368.6 | 390.0 | Statement of Cash Flows The unaudited consolidated cash flow statement for FY 2022 highlights net cash provided by operating activities of €18.7 million, with cash used in investing and financing activities Condensed Cash Flow Statement (€ millions) | | 31-Dec-22 | 31-Dec-21 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 18.7 | 0.5 | | Net cash provided by (used in) investing activities | (4.7) | 7.0 | | Net cash provided by (used in) financing activities | (13.5) | (2.0) | | Increase (decrease) in cash and cash equivalents | 0.5 | 5.5 | | Cash and cash equivalents, end of the period | 52.7 | 52.2 |