Natuzzi, S.p.A.

Ladies and gentlemen, thank you for standing by. Welcome to the Matute 2022 Fourth Quarter and Full Year Financial Results Conference Call. As a reminder, if you'd like to join via telephone, please dial plus 1-412-717-9633, then passcode 39252103, and then the pound sign. Once again, to join by phone, that's 1-412-717-9633. 412-717-9633, then the passcode 39252103, then pound. In addition to the link provided to join the video. At this time, all participants are in listen-only mode. Following the introduction, we'll conduct a question and answer session. Instructions will be given at that time. Joining us for today's call are Mr. Antonio Achille, Natuzzi's Chief Executive Officer, Mr. Carlos Silvestri, the Chief Financial Officer of the Natuzzi Group, Mr. Pasquale Natuzzi, Founder and Executive Chairman, and Mr. Jason Kemp, President of Natuzzi Americas and Piero Lorenzo, Investor Relations. As a reminder, today's call is being recorded. I'd now like to turn the conference over to Piero. Please go ahead.

Thank you, Kevin. Good day to everyone. Thank you for joining this conference call for the fourth quarter and full year 2022 financial results. After a brief introduction, we will give room for a Q&A session. Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the United States security laws. Obviously, actual results might differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial conditions. These refer to our most recent annual report on 420F filed with the United States Security and Exchange Commission for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. And now I would like to turn the call over to the company's chief executive officer. Please, Antonio.

Thank you, Piero and Kevin, for an introduction. Good morning and good afternoon to all the attendants of this 2022 fourth quarter and fiscal year press release. I will actually start more from an overview of how the 2022 closed for us. Then I will let Carlo Silvestri, who has been announced already, joining our group from Ferragamo, our new CFO, to comment more specifically on figures regarding full quarter and fiscal year. So we closed 2022 in terms of revenue. at 468 million euro, which is 10% more than last year and some 20% more 2019. If we go back to 2020, that is an increase of 40%. So we kind of added 140 million business from the 2020, which was really affected by COVID. So I would say high single-digit top-line increase. This happened also in parallel, continuing working on gross margin. As you might remember, 2022 was dominated by a strong inflection on general cost and raw material. We were working so to protect and expand our marginality, which is currently 5% of the point above what was in 2019. So we were able to protect and expand marginality. In terms of BABIT, in terms of operating profit, that resulted in 8.4 million euro, which could have been an higher figure, could have been close to 13 million, if we didn't have to do a call for very specific one-off element, which would be commented by Carver in the section. So, in general, the trajectory is, let's say, going north on the two fundamental dimensions that we have in our long-term plan, which is top-line growth and profitability expansion. At the same time, which is another, let's say, proxy of value creation, we expanded our cash flow from operation. which was close to 19 million in 2022, and that figure compared to 0.5 million in 2021 and 4.7 million in 2019. So, again, through the discipline we're trying to have also in terms of working capital, even though our business has been growing, we've been able to enhance the cash flow generation from operations. Cash position was pretty much the same as the previous year, so we are dealing at 54.5 million euros in terms of cash, which is significantly higher than what we need from operation. And I also reminded that we don't have long-term debts, so in a situation of uncertainty, like the one we are all facing in the industry, I believe that also should convey a positive message to the investors. Looking a bit more at the quality of what we've done, I'm pleased to report that we are continuing executing the journey that has been initiated by Pasquale Matuzzi of transforming the company into a brand retailer. We set some long-term target to measure that trajectory, and I was surprised to anticipate reaching some of those targets versus our plan. For instance, in 2022, 92% of our total sales came from branded product compared to 89% versus previous year. That is pretty much a significant transformation because, as you all remind us, Natuzzi Original started as more an operator and a manufacturer, and the percentage of branded product was not dominant. We set ourselves a target to, you know, reach almost, you know, the vast majority of sales generated by branded, and we are ahead of that target. And the interesting, if we measure our, let's say, strengths of the brand in the eyes of the consumer, which means measuring it at sell-out, the brand is 830 million euro brand. So if we consider what we do in terms of selling with a retail multiplier, the brand is on pace to become a 1 billion retail brand. These are things is a useful figure. to compare it with the player in the industry, which are pure retailers, and to compare it with those numbers, Apple with Apple. The other dimension we're working on is to continue working on retail. Retail, for us, is an objective to accelerate growth, is an objective to expand originality, and is also an objective to have a better control of the brand. Listen, maybe you want to mute because we're hearing your message coming in. If you can continue, thank you. So, at the end of 2022, the percentage of total sales done through retail, either directly or through franchising, was 61% versus 53% of the previous year. So, from this dimension, we're well on track on our objective to complete our retail transformation. And we overcome, in 2022, the number of 700 store, freestanding store, carrying inter-notice title and notice edition. I believe with a global coverage, this is one of the highest figure in terms of number of stores distributing a single brand in the industry. And this leads to another consideration that a lot of the work we are doing currently is to expand organically the performance of the stores. We continue seeking opportunities to expand our network, and I will discuss in a minute our plan for accelerating the opening of additional stores directly operating in the U.S. But if we recognize that one of the, in a sense, less capital-intensive opportunities that we have to grow the top line is to make those 700 stores performing more in terms of sales per square meter and marginality. So a lot of effort which is currently being done in the organization, which led also us to create a new division, is really to try to create a common methodology that can become an asset, a competitive asset, for our direct-to-operated stores and for the one operated by our franchisee. I'm happy to report that we continue also working in strength in our team. Carlo has been long waited for, has been announced in a separate press release. We just brought on board a few weeks ago another senior executive, Scott Kruger, who is now in charge on the wholesale business in North America. North America is a special reality because wholesale distribution is still a relevant part of the market. Natuzzi is one of the most known brands in the channel, actually the first in terms of brand awareness among European brands. So we envisage a parallel opportunity as we are building the retail to continue serving the market. We realized that we wanted to change gear. So there's been a change in the leadership. We equally realized that we want to increase the coverage in terms of rep across the states. And we are now onboarding with very positive results agency. So not the exclusive agency, but the agency that would bring along the lines also . I was in the U.S. very recently, two weeks ago, and I was particularly happy to see how well is received this opportunity by top agency, definitely see an opportunity of creating business in their accounts with Natuzzi, which is still a very, very well-respected and inspirational brand for the large retail in the U.S. So that is another area where we are working. I believe that you are, as we are, interested in the future. The future remains to be, I would say, difficult to read. As you know, we are clearly for the durable industry, for the furniture, leading a phase of transition. After two years, which has been dominated by booming demand and difficulties in fulfilling the demand, the wind changes dramatically. turning into mid of April, mid of 2022, we don't see yet a clear, you know, change in trajectory in the sense that the demand remain weaker than it used to be in the previous year, both at wholesale and in terms of traffic in our store. Looking at the first weeks of the year, we do see encouraging sign when it comes to fuel geography, like China, especially for our Natus Edition business, which has been back on growth, and also U.S., especially Natus Edition. So we are... cautiously optimistic that the, let's say, the bottom has been reached and we can hopefully see a recoup of demand. So that is our hope. But at the same time, we are planning and acting as this, let's say, negative phase of the economy should last. What does it mean that? We are very cautious about spending, as is made, and our cash position. Regarding the cash position, we continue seeking actively the opportunity to sell non-strategic assets chiefly in the US and in Italy. We are with active process on those assets, and I hope that in the coming conversation, we can report some positive outcome in that sense. Let me stop here for, let's say, a more general overview of what has been the year so far, and also we'll say our mindset. In essence, our mindset is the one which has been put in writing our long-term plan, which is to exploit the potential of this brand on this group, continuing the growth on both the brand, and continue achieving that through retail. So our long-term plan has not been changed, and we have the highest confidence we can achieve it. At the same time, we need to recognize that for the industry, the shift in gear has been pretty brutal, and so we are managing our group to make sure we can navigate these negative circumstances without affecting the industry. the overall goal contained in our internal strategic plan. Okay, let me stop here. If you agree, I will pass it over to Carlo, who will comment some of the figure of 2022. I believe that would be useful, especially in consideration We had several material one-off events affecting our P&L in 2022, which I believe is useful to characterize to kind of get to a more normalized performance of the year. So I suggest that Carlo does this comment on our structure of the P&L, and then we open up for questions, both on my section, which is more to say a strategic framework, as well to the technical reading of the figure that Carlo is now doing.