Natuzzi S p A : 4Q2021 Conference call transcript

FOURTH QUARTER 2021 HIGHLIGHTS

•  INVOICED SALES INCREASED 15.7% VS 4Q 2020 AND 15.0% VS 4Q 2019, DESPITE PERSISTING DISRUPTION IN THE ENTIRE SUPPLY CHAIN

•  GROSS MARGIN OF 35.6%, INCREASING FROM 31.4% IN 4Q 2020 AND 31.9% IN 4Q 2019, DESPITE PERDURING INFLATIONARY ENVIRONMENT

•  OPERATING PROFIT OF €0.6 MILLION, AFFECTED BY EXCEPTIONAL TRANSPORTATION COSTS SPIKE, COMPARED TO A PROFIT OF €2.4 MILLION IN 4Q 2020 AND A LOSS OF (€3.0) MILLION IN 4Q 2019

FISCAL YEAR 2021 HIGHLIGHTS

•  INVOICED SALES +30.2% VS FY 2020, RESULTING ALSO HIGHER THAN THE YEAR BEFORE COVID (+10.4% VS FY 2019). THE YEAR 2021 ALSO ENDS WITH €114.4 MILLION OF ORDER FLOW BACKLOG

•  GROSS MARGIN OF 36.0%, FROM 31.4% IN FY 2020 AND 29.7% IN FY 2019

•  OPERATING PROFIT OF €4.9 MILLION, COMPARED TO A LOSS OF (€10.6) MILLION IN FY 2020 AND A LOSS OF (€22.5) MILLION IN FY 2019

•  ADJUSTED EBITDA OF €24.9 MILLION, COMPARED TO €12.3 MILLION IN 2020 AND €1.0 MILLION IN 2019

•  CASH OF €53.5 MILLION AS OF DECEMBER 31, 2021, FROM €48.2 MILLION AS OF DECEMBER 31, 2020, AND €39.8 MILLION AS OF DECEMBER 31, 2019

•  POSITIVE ORDER MOMENTUM CONTINUES IN 2022: WRITTEN ORDERS DURING FIRST 12 WEEKS OF 2022 UP 32.3% VS SAME PERIOD IN 2021, DRIVEN IN PARTICULAR BY OUR BRANDS: BRANDED BUSINESS +42.6%

Santeramo in Colle (BA), April 08, 2022 - The Board of Directors of Natuzzi S.p.A. (NYSE: NTZ) ("we", "Natuzzi" or the "Company" and, together with its subsidiaries, the "Group") announced its 2021 fourth quarter and full year unaudited consolidated financial results and approved the Company's draft stand-alone financial statements.

Pasquale Natuzzi, Chairman of the Group commented: "The year just passed has turned out to be a very tumultuous year, especially on the supply chain side. Nevertheless, we have been able to deliver a double digit increase in invoiced sales and a positive result from our operations vs the two prior years. I am particularly encouraged, beyond numbers, by the leadership that the CEO and the new governance is providing to our business, and I am confident that we have now the conditions to regain the global leadership that our brands and our Group deserve"

Antonio Achille, CEO of the Group commented: "The demand for our products has remained robust, exceeding our expectations thanks to the strength of our Brands, Natuzzi Italia, our luxury Brand completely designed and made in Italy, and Natuzzi Editions, our contemporary Brand entirely designed in Italy and strategically manufactured to efficiently serve individual markets. We ended 2021 with a double digit increase in written orders versus 2020 (+17.6%) and we ended the year with written orders which are 14.5% higher before the start of covid pandemic in 2019. Demand was strong across main geographies with reference to North America, China and Emerging markets.

Supply chain complications in the industry throughout most of 2021, such as the low availability of raw materials and semi-finished goods as well as shipping shortage and delays, have limited our ability to keep pace with continued growing demand.

As a consequence of the combined effect of the accelerated growth of the demand for our products and multiple supply chain bottlenecks, we ended 2021 with an order portfolio at €114.4 million vs €103.3 million at the end of 2020, mainly concentrated in our European factories. While this represents a solid base for future business, we are focused on enhancing our production capacity so to increase the service level for our customers and clients. This is particularly important since the demand for our products continues to be robust, with written orders for the first 12 weeks being +32.3% vs same period in 2021.

We reported increasing gross margins both on a quarterly and yearly basis, despite the challenges of a generalized inflationary environment, with escalating commodity and freight costs that put pressures on margins, particularly evident in 2021 fourth quarter.

In order to mitigate such supply-chain related issues, we are progressing with a series of initiatives which are aimed at enhancing the modernization of our factories, increasing efficiency and production capacity.

As anticipated in November, we started the "Factory 4.0" pilot in one of our factories in Italy. This program, completely inspired by the automotive industry, leverages on innovative technologies and provides for a greater involvement of our vendors in the process, so that everyone in the value chain, our suppliers included, can contribute to identify opportunities to improve and stabilize the overall process flow. This program, once fine-tuned in our pilot plant, will be gradually extended to the main Group's owned remaining factories in Italy as well as in China, Romania and Brazil.

Last year also saw significant changes on our organization which are now impacting positively on the way our team works. In November, we launched the new commercial organization, which pivots on the Brands rather than the distribution channels. This represents an important step forward in supporting our journey to become a lifestyle brand and a retailer with a clear strategy and a different positioning for each of the two brands. Each Chief Brand Officer is now fully on board and in charge of setting the brand marketing and merchandising strategy while interacting closely with the Regions to define the distribution priorities. We believe this has been a key step in the direction of becoming a Consumer and Brand Centric organization. The growth of both Brands in the first 12 weeks of 2022 confirms the positive impact of the new organization on our business.

We also introduced a new Business Unit to capture and develop further our Furnishing & Accessories business. Furnishings and accessories have been experiencing significant growth, increasing in 2021 by 28.6% vs 2020 and we believe this is a great opportunity to increase the average order tickets of our stores.

This business unit, which will oversee the entire value chain, will adopt an "asset light" business model, as suppliers will be directly involved in both production and inventory management. The manager of this new division will join us in April. Mr. Massimiliano Giacomelli, with thirty years of experience in the home furnishings industry, joins us from an Italian high-end furniture companywhere he served as CEO. Massimiliano will report to the CEO and will act in close relation with both Chief Brand Officers and the Creative director to ensure coherence of the merchandising proposition with the strategy of each brand, so to further enhance the retail experience.

We keep on working to strengthen our organization to support and accelerate our transformation. To execute our plans, we are still looking for a few specific talents to complement our team. I want to have in all key positions of the new organization managers which have an entrepreneurial mindset and share passion towards the vision we have developed to regain our Global Leadership position by 2026.

The other front we keep on working is retail, in an effort to complete our transition to a Brand Retailer group. On this front, I am pleased that our stores continue improving their performance, most notably in the US, which remains one of our strongest retail opportunities. During 2021, like-for-like sales of our DOS located in the US grew by 64.8% and 35.6% over 2020 and 2019, respectively.

We are also very pleased with the pace of development and performance of retail in China, which is predominately served with franchising monoband stores. During 2021, our JV added 84 new monoband stores, bringing the total number of stores to 340. We are seeing continuous growth in revenues, not only as a result of retail expansion, but also in terms of organic growth.

We also concluded an important JV agreement to accelerate the growth of the rest of Apac and to reinforce our production capabilities in Vietnam. I am particularly glad that Mr. Mai Huu Tin, Executive Chairman of TTF, has completed his 20% acquisition in our subsidiary Natuzzi Singapore. Mr. Tin completely shares the values of our Company and the vision for growing our Brands in the Region, both through retail and the growing contract business. With this partnership now in place, I am confident that we have the necessary ingredients to accelerate the development of our business in the region."

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The economic and geopolitical context remains extremely delicate. For this reason, we are applying a tight approach to cost management, reducing costs whenever it is possible without jeopardizing the current growth momentum. In addition, as we work to execute our 2022 budget, which is inspired by the ambition to strengthen our growth trajectory, we keep monitoring closely the evolution of the key markets we operate in, so to be ready, if needed, to timely take appropriate initiatives to adjust our cost structure and operating model to the evolving context.