Natuzzi, S.p.A.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natutis Conference Call for 2023 Fourth Quarter and Full Year Financial Results. As a reminder, interested parties can join this conference call live, also via telephone, by dialing in the following number, plus 1-412-717-9633, then passcode 39259. In addition to the link already provided to join via video. Once again, if you'd like to join via telephone, please press plus 1-412-717-9633, then passcode 39252103-POUND. At this time, all participants are in listen-only mode. Following the introduction, we'll conduct a question and answer session. Instructions will be provided at that time, free to queue up for questions. Joining us on today's call are Mr. Antonio Achille, Natuzzi's Chief Executive Officer, Mr. Pasquale Natuzzi, Founder and Executive Chairman, Mr. Carlos Silvestri, Chief Financial Officer, then Mr. Mario De Jonato, Chief HR Organization and Legal Officer, Mr. Diego Babo, Global Retail Division Officer, and Piero Di Renzo, 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, and a good day to everyone. Thank you for joining the Natruzzi's conference call for the 2023 fourth quarter and full year financial results. After a brief introduction, we will give room for the question and answer 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 securities 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 condition. Please refer to our last annual report on Form 20-F filed with the SEC 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 good morning everyone and good afternoon for people which are connecting from Europe. Let me start to briefly discuss the figures of the last quarter of 2023 and the full year of 2023. Then I will provide, together with my colleague, an understanding of what we are doing and our long-term objective. So starting from the last quarter of the year, we reported a decline in sales. It is important to consider this decline in perspective versus 2022, where throughout the year, and especially in the last quarter of 2022, we had a strong backlog. If we net the performance of 2023 last quarter from that effect, the decrease is still significant but is in line from what we observe in the industry in general, given a very tough market for the durable and furniture in 2023. This is, let's say, clearly tough market condition. In 2023, last quarter, we work to accelerate our transition to becoming a brand retail company. In particular, in the last quarter, we have reported sales from branded goods in excess of 92%, which means that basically our entire sales is composed by branded sales, either Natuzzi Italia or Natuzzi Edition. The percentage was 85% at the beginning of 2021, so a step acceleration. Equally for retail, that if you wish, is the natural consequence of becoming a brand company, retail on total sales has been nearly 10%. Diego, can you put on silence, please, from 52%, which was reported in 2021. I will discuss later, but I believe this is a very important element because Natuzzi has completed a transformation as investor or other people interested in our story. Now we should really in full look at Natuzzi as a company which has been investing for more than 20 years to establish itself as a globally recognized brand and especially with Natuzzi Italia in the high segment of the market. This also implied that we had to invest, and we will comment later also with the help of Diego, to evolve our tools and organization really to control this retail and branded business in a manner that before was not required by the company. The other area which became evident in 2023 last quarter and more in general in the full year is that we are executing and accelerating on our restructuring plan and effort. In 2023, last quarter, in fact, we accrued 5.9 million of one-off restructuring costs for interventions that will become, from a cash perspective and from a benefits perspective, fully visible in the following year. In the last quarter, our gross margin net of this one-off restructuring activity has been of 36.2%, which compared with 38.8 in the last quarter of 2022, and it compared with 34.6 in the last quarter of 2019. So we are still in trajectory of improving margin. Clearly, the fact of having a sub-utilization in factory as a parcel is impact on the margins. These key figures on last quarter of 2023. Looking at the full year, I would say the key underlying elements that apply to 2023 are pretty similar in the sense that for us, as for the majority of the people, we compete with the public, the result. 2023 has been a year where after two years of very strong demand, given the implication of real estate and low confidence of consumer, we witnessed a lot of postponement in purchasing. And again, this caused a decrease that if you compare it with 2022, net of backlog is significant, but in line with what we observed from competitors. We discussed about restructuring. Let me give you a few numbers to give you the size of what we're talking about. In 2023 only, we reduced our team, especially from factory, by 514 units, which brings the total of reduction from the beginning of 2021 to 759 units. equivalent to 17.5% of the total workforce, which I believe is a significant achievement because in most of the jobs where we operate, starting from Italy, there is a very rigid labor law. So every step needs to be accurately planned and accurately executed. And we did so avoiding any kind of, let's say, turmoil in our environment. This restructuring will produce on a yearly base a benefit of 22.5 million running benefit and labour cost compared to 2021. In 2023, we also kept investing some 12 million, of which 4.6 in retail. We opened nine new doors. And 7.2, again, in the area of factory enhancement. So this is the key highlight on numbers and figures, on which then our C4 will provide some other details. In opening the Q&A, I would like to give you more holistic and strategic perspectives. So it's clear and evident that the results reported in 2023 are an effect of an adverse market for furniture. It's clear that those figures are well below our mid-term target and our potential. Having said that, there are three key messages I would like to share and elaborate on. The first one is now that we really have completed the transformation to become a brand company. As I mentioned, nearly 93% is branded, which is a huge, huge achievement considering that the company has been investing 20 years to arrive to this point. And its regions were very different because in the region, Natuzzi, it was an incredible growth story, but very much focused on the value segment. So it was selling at the lean price in the US in the range of $395. Currently in US, average ticket for Natus Italia is in the range of $9,000 and the best sold configuration product is in the range of $14,000. So you can imagine how much it takes to legitimate a brand to do this kind of stretch. So first element, we are a branded company. Second element, we really invested to excel in distribution. Distribution for us is both retail, where we mean the US direct to pre-store and franchising, but also, which is very important for us, wholesale of branded product that we distribute through a format which is called gallery, which again is a control format where we express the right merchandising and the right brand experience. And the last element, as I mentioned, Transformation, which we've been working on very hardly to prepare it in the last few months and year, now is getting to a pace that is what is going to be continuing and accelerating in the following year. So, to get some more detail, talking about the retail front, we now have 680 stores. with the banner Natuzzi, being them Natuzzi Italia, Natuzzi Edition, being them DOS or Franchising Operator. But for a customer perspective, those are store. And then we have some 600 galleries which are store in store. For us, both deserve equal attention. For the first area, the stores, we worked very much to really learn how to do retail and to really control the sales at sell-out level. Doing so required quite a significant program of investment in AT because historically the store were just, you know, an account number. We didn't really have an understanding of what's happening in the store. Now we have a very timely and punctual understanding of what's happening in the store in terms of people getting in, people buying, what they buy. And this, for our transformation to become a consumer-centered company, is really invaluable. To support that this knowledge gets progressively spread across our market, we created not only systems, but an organization. In particular, some 12 months ago, we created an organization that we called explicitly Global Retail Excellence Division, which really has the purpose of absorbing best practices, codifying them, and making them available. to our directly operated stores, but progressively also to our dealer, because we want the experience and the productivity also at the dealer level. Let me invite Diego Babbo for a brief illustration of some examples of what we do under this chapter of Global Retail Division.