Natuzzi, S.p.A.

Welcome to the Nutriti S.P.A. 4th Quarter and Full Year 2024 Financial Results Webcast. As a reminder, if you'd like to dial into the conference via telephone, please dial plus 1-412-717-9633, then passcode 39252103. Once again, to dial in via phone, please press plus 1-412-717-9633. 717-9633, then pass code 39252103-POUND, in addition to the link already provided to join via video. At this time, all participants are in a listen-only mode. Following the introduction, we'll conduct a question and answer session. Instructions will be provided at that time. Joining us on today's call are Antonio Aquile, Chief Executive Officer, Pasquale Natuzzi, Chief Executive Chairman, Carlo Silvestri, Chief Financial Officer, Daniele Tranchini, Chief Marketing and Communication Officer, and Piero Di Renzo, Investor Relations. As a reminder, today's call is being recorded. I now turn the conference call over to Piero. Please go ahead.

Thank you, Kevin, and good day to everyone. Thank you for joining the Natuzzi's conference call for the 2024 fourth quarter and full year financial results. After a brief introduction, we will give room for the 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 condition. These refer to our most recent annual report on Form 20F 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, Kevin. Thank you, Piero. It's a pleasure to be again with you and good morning to the people joining from the US and good afternoon for those joining from Europe. We're going to be today discussing the result of the last quarter and the full fiscal year 2024. As usually, we like to provide also context and what we are working on beyond the figure we're going to be sharing. There's a reason why with Pasquale we also decided to invite our chief marketing officer. They will be testifying together with Pasquale the standard that our brand retail journey went up to now. Let me start with the financial part. As you have read by our press, we close the year at €318.8 million, 3% lower than last year. As you know, the market continues being quite volatile and challenging. This is a level of sales which, of course, does not make us satisfied. At the same time, I believe it's a testament that our company is very resilient in light of a very volatile and, through 2024, still a very soft market in most of the geography we operate in. Looking at the share out of the total, which is represented by branded, Out of the 318.8 million, 289 million has been made through our brand. This is definitely part of our vision initiated by our chairman Pasquale of transforming a manufacturer into a brand retailer. This figure compared with 295 in 2023 and 295.9 in 2019. So while we look at 2019 and we continue looking at 2019 as a year of comparison, because it was the last year before this very prolonged a period in which we actually witnessed everything from COVID to wars, to duty war. It's interesting to flesh out that in 2019, our sales were higher, were 387. But when you look at the brand, the sales were pretty much at the same level. This means that we already been working to improve the quality of sales, which then are going to be, which is reflected in margin, which is something we'll comment later on. And in fact, today, branded sales represent roughly 93% versus 80% in 2019. So I hope you appreciate that we increased by almost 13% the quota of revenue that we do through branded business, which is, of course, a more representative way of our value, not only in terms of margin, but a way of expressing the DNA of the company. Another element which goes hand in hand with that is the relevance of the retail, because typically if you are branded, you want to express the DNA and the customer experience in a more controlled environment, being a freestanding store, DOS or franchising or a gallery, which is our way to ensure a presence in a multi-brand retailer. Looking at the direct-to-operated store, in the year we reported 70.1 million, which is up 4% versus 2023 and 18% versus 2019. The growth had been mostly in terms of top line driven by the US, where it is important also to remember we opened an additional store in 2024, in particular in Denver. At the same time, to better interpret those data with a like-for-like approach, it's important to notice that we also close two non-performing stores of Natuzzi Italia, one in Spain and one in Switzerland. And additionally, we close one store not performing of Divani Divani, which I remind you is the brand used to sell Natuzzi edition. how you should interpret this closure in a positive way because the company started retail and this will be something we'll be discussing today 30 years ago so the company and the collection were very different some of the location where we opened initially the stores not only maybe they change location because you know city evolve mall evolves but also because our brand evolved so this is particularly true for natuzzi italia natuzzi italia today is a very different brand than it was 20 years ago so some of the location they don't longer they don't represent any longer our brand and when there an opportunity to exit the contract, the location contract, we take it to then requalify the network. Another important element we keep on very focused through 2024 is continuing our transformation. It's been, I would define it as silent in the sense that luckily no single line of newspapers has been written on this, but very, very pervasive. In 2024, we let go 638 people, roughly out of which in China, where, and I will discuss later, we relocate our production from Shanghai, which was not any longer available. cost-effective, especially for labor, to Qingzhou, which is 300 kilometers south, which offers a better rent and cost condition. In doing so, and again, I think the credit goes very much also to our chairman, which helped really to anticipate some of the things happening outside, we decided not to have any longer the production of Natuzzi edition for North America in China, which was moved in October 2024 to Europe. These We didn't have any anticipation of what would happen, but this proved clearly very smart in the light of the evolving tariff because it would have been impossible to serve North America from China. So the new plant in Qingzhou is entirely dedicated to the domestic market, to the China market where we operate with our JV. So looking at the perspective more with three years horizon, which is the horizon I've been having the honor to serve the company, we let go 1,141 people as net reduction, which means that at the same time we hired more than 100 people to reinforce our marketing and retail competencies. Daniele, for instance, is one of those hires. So we reduced by 26%, by one-fourth, by one-fourth, the total account of the company. So quite pervasive. Again, privileging to protect and reinforce, let's call it the new Natuzzi, merchandising, retail, marketing, digital Italy, and reducing the historical large capacity we had in production which was due when the company was a manufacturer in the large volume business. 2024 gross margin closed at 36.3%. Again, I'm proving by two percentage points versus 2023, where it was of 34.3%. So I repeated because I understand it was not very clear. So the margin in 2024 was 36.3 against 34.3 in 2023 and 29.7 in 2019. So versus 2019, we improved the margin of almost 7%. And we continue improving also in two years, which again, I would say they were not definitely easy for many aspects. How does it play in terms of breakeven? It's interesting to notice that, for instance, in 2019, when we had 387 million sales, so roughly 70 million more than we had this year, the company closed with 22.5 million losses, while this year we closed with 70 million less revenue with 6.3 million losses, which, of course, does make us very, very, very unsatisfied, very unhappy. But I think it's testified that the company is lowering the breakeven. And in fact, if we don't consider the restructuring that, according to the FSLA, the operational loss would have been of one million. Clearly, we are not operating with the aspiration of losing. We want to definitely win and be profitable. But I believe it gives you a sense of how the machine now is responding in terms of extracting value from what we do. In terms of net financial cost, there's been pretty much stability. As you know, for the IFRS principle, According to the FRS principle, part of the lease goes under this net financial cost. In particular, we had 0.7 million. They were due to the fact that we increased the number of stores in 2024, which explains the difference in net financial cost. um we continued on the program to divest strategic asset as we've been very transparent the board approved a proposal from the inside shareholder to acquire a high point which has been completed the transaction has been completed in march 2025 i give We give transparency in this press release. Of course, the additional payment, which was reported of 8.3 million euro, is not yet reflected in the net financial position, net cash position of the re-end, because we closed the net cash position on the 31st December 2024, while the transaction was completed in March 2025. So it will be something visible next round. I will not go line by line in commenting the last quarter. The things which I maybe flesh out, they are true. The relocation between plants, so the closing of Shanghai and the transfer of the production for the domestic market to Qingdao, which had, of course, a ramp up, and moving all the Natuzzi Edition collection from North America in the U.S., has been well planned, but of course they are quite a significant move. So operations in the last quarter were not able to fully keep up with the production pace. And in fact, we increased the backlog of 6.4 million in the last quarter that without this change in production should have materialized in terms of sales for the quarter. So last quarter was really affected by that. The other element that may be a flesh out is that the last quarter closed at 38.1 in terms of margin. So again, I would say a nice progression because if we look at just the last quarter, again, it's quite an increase because the last quarter of 2023, the margin was 30%, so 8 percentage points compared to previous year. This, of course, is something we're going to be very disciplined and try to defend and amplify. So this is for, let's say, the financial. And of course, we will be very happy to take more questions. Let me provide some color on what we are working on. In 2044, we worked very hard in the group future because we do believe this group has a strong future. And it's a kind of combination because you need to manage the cost with the microscope, but use the telescope to keep looking at the future, because if you are just too tactical, you don't build the future. You can also die by being too tactical. So we really focus on cost control, but at the same time, maintaining the ability to invest for brand, for retail system. I mentioned already the achievement in terms of margin. This is for us something, of course, important and again is the direction we're going to be continuing. The other aspect I will mention is the hard work, which is not yet, I would say, reflected in sales that has been taken to really transform a company, which for a long part of its history was a manufacturer, to a company that had the vision to become a retailer, but then had to become a retailer in terms of system and competencies. And on this, I would like to call in Pasquale, who is the person which can testify best this journey, because it was his vision and is best able to describe how hard it was with him, also with the new team, to transform a very successful manufacturer in a company that needs to learn a new job. Being a retailer. So I think it would be nice to hear indirectly from him how difficult, but also what has been the important step achieved by the company under this dimension. Pasquale, do you mind sharing your view with the team?