Natuzzi S.p.A
Annual Report on Form 20-F
2019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended: December 31, 2019
Commission file number: 001-11854
NATUZZI S.p.A.
(Exact name of Registrant as specified in its charter)
Republic of Italy
(Jurisdiction of incorporation or organization)
Via Iazzitiello 47, 70029, Santeramo in Colle, Bari, Italy
(Address of principal executive offices)
Mr. Pietro Direnzo
Tel.: +39 080 8820 812; pdirenzo@natuzzi.com; Via Iazzitiello 47, 70029 Santeramo in Colle, Bari, Italy
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
American Depositary Shares, each
representing five Ordinary Shares
Ordinary Shares, with a par value of
€1.00 each*
Trading
Symbol
NTZ
Name of each exchange
on which registered
New York Stock Exchange
New York Stock Exchange*
*
Not for trading, but only in connection with registration of American Depositary Shares
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
As of December 31, 2019: 54,853,045 Ordinary Shares
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes ☒ No ☐
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
☐
Accelerated filer ☐
Non-accelerated filer
Emerging growth company
☒
☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange Act. ☐
†
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards
Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (§ 15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐
International Financial Reporting Standards as
issued
by the International Accounting Standards Board ☒
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
☐ Item 17 ☐ Item 18
Yes ☐ No ☒
TABLE OF CONTENTS
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
Selected Financial Data
Risk Factors
ITEM 4. INFORMATION ON THE COMPANY
Introduction
Organizational Structure
Strategy
Manufacturing
Supply-Chain Management
Products
Innovation
Advertising
Retail Development
Markets
Customer Credit Management
Incentive Programs and Tax Benefits
Management of Exchange Rate Risk
Trademarks and Patents
Regulation
Environmental Regulatory Compliance
Insurance
Description of Properties
Capital Expenditures
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Critical Accounting Policies and estimates
Non-GAAP Financial Measures
Results of Operations
2019 Compared to 2018
2018 Compared to 2017
Liquidity and Capital Resources
Contractual Obligations and Commitments
Trend information
Off-Balance Sheet Arrangements
Related Party Transactions
New Accounting Standards under IFRS
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Compensation of Directors and Officers
Statutory Auditors
Nominating and Compensation Committee
i
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TABLE OF CONTENTS
Employees
Share Ownership
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
Related Party Transactions
ITEM 8. FINANCIAL INFORMATION
Consolidated Financial Statements
Export Sales
Legal and Governmental Proceedings
Dividends
ITEM 9. THE OFFER AND LISTING
Trading Markets
ITEM 10. ADDITIONAL INFORMATION
By-laws
Material Contracts
Exchange Controls
Taxation
Documents on Display
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
ITEM 12A. DEBT SECURITIES
ITEM 12B. WARRANTS AND RIGHTS
ITEM 12C. OTHER SECURITIES
ITEM 12D. AMERICAN DEPOSITARY SHARES
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G. CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY DISCLOSURE.
PART III
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
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ii
EXPLANATORY NOTE
As previously reported by Natuzzi S.p.A. (the “Company”) in its Form 6-K filed with the U.S. Securities and Exchange Commission
(“SEC”) on March 30, 2020, in accordance with the SEC’s Order under Section 36 of the Securities Exchange Act of 1934 Granting
Exemptions From Specified Provisions of the Exchange Act and Certain Rules Thereunder dated March 4, 2020 (Release No. 34-
88318) (as modified on March 25, 2020 by Release No. 34-88465, the “Order”), the Company relied on the relief provided by the
Order in connection with the filing of this annual report on Form 20-F for the fiscal year ended December 31, 2019 (the “Annual
Report”) due to the circumstances related to the novel coronavirus (“COVID-19”) outbreak.
In particular, due to restrictions on domestic and international travel and public gatherings, and a general “stay at home” order
imposed by the Italian as well as other countries’ governments, the COVID-19 pandemic materially restricted the ability of the
Company to access its premises and records, thus delaying the Company’s ability to finalize its consolidated financial statements and
prepare this Annual Report. Further, as part of the measures adopted by the Italian government in response to the COVID-19 outbreak,
the Decree n. 18 of March 17, 2020 (the “Italian Order”) extended the deadline for the Company to hold a shareholders’ meeting to
approve its financial statements from 120 days to 180 days after the end of the applicable financial year. In accordance with the Italian
Order, the Company held a shareholders’ meeting to approve its financial statements for the year ended December 31, 2019 on
June 12, 2020.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
In this Annual Report, references to “€” or “Euro” are to the Euro and references to “U.S. dollars,” “dollars,” “U.S.$” or “$” are to
United States dollars.
Amounts stated in U.S. dollars, unless otherwise indicated, have been translated from the Euro amount by converting the Euro
amounts into U.S. dollars at the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) for euros on December 31, 2019 of U.S.$ 1.1227. The
foreign currency conversions in this Annual Report should not be taken as representations that the foreign currency amounts actually
represent the equivalent U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated.
The consolidated financial statements of Natuzzi S.p.A. as at and for the years ended December 31, 2019 and 2018 have been
prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board
(“IFRS”), including interpretations issued by the IFRS Interpretations Committee (“IFRS IC”) applicable to companies reporting
under IFRS. The consolidated financial statements as at and for the year ended December 31, 2018 were the Group’s first set of
consolidated financial statements prepared in accordance with IFRS and IFRS 1 “First-time Adoption of International Financial
Reporting” was applied to such financial statements. Historical financial results as at and for the year ended December 31, 2017 have
been restated for comparative purposes, in order to present the effect of the adoption of IFRS. See Note 1 to the Consolidated
Financial Statements.
All discussions in this Annual Report are in relation to IFRS, unless otherwise indicated.
In this Annual Report, the term “seat” is used as a unit of measurement. A sofa consists of three seats; an armchair consists of one
seat.
The terms “Natuzzi,” “Natuzzi Group,” “Company,” “Group,” “we,” “us,” and “our,” unless otherwise indicated or as the context may
otherwise require, mean Natuzzi S.p.A. and its consolidated subsidiaries.
None of the websites referred to in this Annual Report, including where a link is provided, nor any of the information contained on
such websites is incorporated by reference in this Annual Report.
1
FORWARD-LOOKING INFORMATION
The Company makes forward-looking statements in this Annual Report. Statements that are not historical facts, including statements
about the Group’s beliefs and expectations, are forward-looking statements. Words such as “believe,” “expect,” “intend,” “plan,”
“anticipate,” “likely,” “project,” “target,” “seek,” “goal,” “aim,” “could,” “should,” “would,” “may,” “might,” “will,” “strategy,”
“future,” “continue,” “potential” and similar expressions are intended to identify forward-looking statements but are not exclusive
means of identifying such statements. These statements are based on management’s current plans, estimates and projections, and
therefore readers should not place undue reliance on them. Forward-looking statements speak only as of the dates they were made, and
the Company undertakes no obligation to update or revise any of them, whether as a result of new information, future events or
otherwise.
Projections and targets included in this Annual Report are intended to describe our current targets and goals, and not as a prediction of
future performance or results. The attainment of such projections and targets is subject to a number of risks and uncertainties
described in the paragraph below and elsewhere in this Annual Report. See “Item 3. Key Information—Risk Factors.”
Forward-looking statements involve inherent risks and uncertainties, as well as other factors that may be beyond our control. The
Company cautions readers that a number of important factors could cause actual results to differ materially from those contained in
any forward-looking statement. Such factors include, but are not limited to: effects on the Group from competition with other furniture
producers, material changes in consumer demand or preferences, significant economic developments in the Group’s primary markets,
the Group’s execution of its reorganization plans for its manufacturing facilities, significant changes in labor, material and other costs
affecting the construction of new plants, significant changes in the costs of principal raw materials and in energy costs, significant
exchange rate movements or changes in the Group’s legal and regulatory environment, including developments related to the Italian
Government’s investment incentive or similar programs, the duration, severity and geographic spread of the recent coronavirus
(COVID-19) outbreak, actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to mitigate its
impact, the potential negative impact of COVID-19 on the global economy, consumer demand and our supply chain, and the impact of
COVID-19 on the Company’s financial condition, business operations and liquidity. The Company cautions readers that the foregoing
list of important factors is not exhaustive. When relying on forward-looking statements to make decisions with respect to the
Company, investors and others should carefully consider the foregoing factors and other uncertainties and events.
2
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
PART I
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3.
KEY INFORMATION
Selected Financial Data
The following table sets forth selected consolidated financial data under IFRS for the periods indicated and is qualified by reference
to, and should be read in conjunction with, the consolidated financial statements and the notes thereto included in Item 18 of this
Annual Report (the “Consolidated Financial Statements”) and the information presented under “Operating and Financial Review and
Prospects” included in Item 5 of this Annual Report. The statements of profit or loss and statements of financial position data
presented below have been derived from the Consolidated Financial Statements.
The consolidated financial statements of Natuzzi S.p.A. as at and for the years ended December 31, 2019 and 2018 have been
prepared in accordance with IFRS, including interpretations issued by the IFRS IC applicable to companies reporting under IFRS. The
consolidated financial statements as at and for the year ended December 31, 2018 were the Group’s first set of consolidated financial
statements prepared in accordance with IFRS and IFRS 1 “First-time Adoption of International Financial Reporting” was applied to
such financial statements. Historical financial results as at and for the year ended December 31, 2017 have been restated for
comparative purposes, in order to present the effect of the adoption of IFRS.
The Group’s date of transition to IFRS was January 1, 2017. For a description of the effects of the transition from Italian GAAP to
IFRS and the related reconciliation schedules, see Note 43 to the consolidated financial statements as at and for the year ended
December 31, 2018 included in the annual report on Form 20-F filed by the Company on April 30, 2019.
3
Consolidated Statement of Profit or Loss Data:
Revenue
Cost of sales
Gross profit
Other income
Selling expenses
Administrative expenses
Impairment on trade receivables
Other expenses
Operating loss
Finance income
Finance costs
Net exchange rate gains/(losses)
Gains from disposal and loss of control of a subsidiary
Net finance income/(costs)
Share of profit/(loss) of equity-method investees
Profit/(loss) before tax
Income tax expense
Profit/(loss) before non-controlling interests
Non-controlling interests
Profit/(loss) for the year
Profit/(loss) per ordinary share (basic and diluted)
Weighted average number of ordinary shares outstanding
Consolidated Statement of Financial Position Data (2):
2019
2018
2017
(millions of euro, except per Ordinary Share)
€
386.9 €
(271.9)
115.0
5.2
(105.3)
(34.0)
(2.4)
(1.0)
(22.5)
0.4
(7.9)
(2.4)
0.0
(9.9)
1.0
(31.4)
(2.3)
(33.7)
(0.3)
(33.4)
(0.61)
448.9
(318.4)
130.5
1.6
(118.2)
(36.1)
(1.5)
(0.2)
(23.9)
1.2
(6.3)
1.1
0.0
(4.0)
0.0
(27.9)
(2.9)
(30.8)
(0.4)
(30.4)
(0.55)
54,853,045 54,853,045 54,853,045
428.5 €
(308.2)
120.3
5.9
(115.0)
(35.3)
(0.7)
(0.6)
(25.4)
0.4
(5.6)
(3.9)
75.4
66.3
(0.3)
40.6
(7.5)
33.1
(0.2)
33.3
0.61
Current assets
Total assets
Current liabilities
Long-term borrowings
Non-controlling interests
Shareholders’ equity attributable to Natuzzi S.p.A. and its subsidiaries (1)
€
Net Assets
156.9 €
369.4
152.0
14.1
1.7
103.1
104.8
207.1 €
372.7
168.4
10.4
1.6
136.5
138.2
206.6
332.5
154.9
20.9
2.0
102.5
104.5
1)
2)
Share capital as of December 31, 2019, 2018 and 2017 amounted to €54.9 million. Shareholders’ equity represents the total equity attributable to
Natuzzi S.p.A. and its subsidiaries.
The selected data of the Consolidated Statement of Financial Position as of January 1, 2017, the Group’s date of transition to IFRS, were as follows:
Current assets: €226.1 million; Total assets: €356.4 million; Current liabilities: €155.2 million; Long-term borrowings: €6.3 million; Non-controlling
interests: €3.4 million; Shareholders’ equity attributable to Natuzzi S.p.A. and its Subsidiaries: €140.6 million; Net Assets: €144.0 million.
Risk Factors
Investing in the Company’s American Depositary Shares (“ADSs”) involves certain risks. You should carefully consider each of the following risks and all of
the information included in this Annual Report.
We may not be able to continue our business as a going concern — We may not be able to continue our business as a going concern. Our consolidated
financial statements for the year ended December 31, 2019 were prepared on a going concern basis, which assumes that the Group will be able to meet its
obligations as they fall due within one year from the date of the approval of such consolidated financial statements. However, as discussed in Note 3(f) to the
Consolidated Financial Statements and in “—The Group has a recent history of losses; the Group’s future profitability, financial condition and ability to
maintain adequate levels of liquidity depend, to a large extent, on its ability to overcome macroeconomic and operational challenges” and “—The global
outbreak of COVID-19 has had, and is expected to continue to have, an adverse impact on our business, operations and results,” the Company has suffered
recurring losses from operations and has revenue and cash flows of the first months of 2020 negatively affected by the COVID-19 outbreak, which raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans to mitigate the adverse effects of such events and conditions are described in Note 3(f) to the Consolidated Financial Statements. In
particular, the Company applied for a long-term bank borrowing, 90% guaranteed by an Italian state agency, and with nominal amount of €65.0 million, based
on the measures to support businesses approved by the Italian Government with Law Decree no. 23/2020 (the “Liquidity Decree”).
Although the Company’s directors are confident that such long-term bank borrowing will be received during the third quarter of 2020 for the requested
amount, since the Company meets all the conditions specified in Article 1 of the Liquidity Decree, there is uncertainty about the amount of the loan that will
actually be disbursed as well as the actual timing of this disbursement. This circumstance represents a material uncertainty that raises substantial doubt on the
Group’s ability to continue as a going concern for a reasonable period of time and, therefore, to continue realising its assets and discharging its liabilities in
the normal course of business.
There are no assurances of success relative to management’s plans described in Note 3(f) to the Consolidated Financial Statements. If we are not successful in
implementing these plans, we may not be able to continue operations as a going concern and our shareholders may lose their entire investment in us.
The global outbreak of COVID-19 has had, and is expected to continue to have, an adverse impact on our business, operations and results — The
recent outbreak of disease caused by the novel coronavirus (COVID-19), which has been declared a pandemic by the World Health Organization, has spread
across the globe and is impacting worldwide economic activity. A public health pandemic such as COVID-19 poses the risk that we and/or our employees,
suppliers, customers and other partners may be, or may continue to be, prevented from conducting business activities for an indefinite period of time,
including due to shutdowns, travel restrictions, social distancing requirements, stay-at-home orders and advisories and other restrictions that have been or may
be suggested or mandated by governmental authorities, or due to the impact of the disease itself on the workforce of those businesses.
4
The nature and scope of the consequences of the COVID-19 pandemic are difficult to evaluate precisely, and their future course is
impossible to predict with confidence.
The COVID-19 crisis has already had several significant effects on our business and our financial condition. During the first part of
2020, the COVID-19 outbreak has negatively affected our revenue and cash flows mainly due to a reduction in consumer demand,
significant business interruption arising from the closure of manufacturing facilities and directly operated stores and franchise stores
due to lockdown measures adopted by governmental authorities, supply chain and logistic disruptions, and travel restrictions and
unavailability of personnel.
All travel abroad, to and from areas affected by the COVID-19 pandemic, has been cancelled or reduced to a minimum, and is limited
to guaranteeing operational requirements. The Group has been making wide use of the remote work option, which involves almost the
entirety of its resources. Beginning in January 2020, we temporarily closed our retail locations and plant in China and, subsequently,
all of our other points of sale around the globe and our Italian and remaining plants. Due to the COVID-19 pandemic, the 2020 edition
of Il Salone del Mobile (one of the world’s leading furniture fairs that is held each year in Milan, Italy) has been cancelled and
additional furniture fairs where we typically present our products may in the future be cancelled or postponed if the pandemic
continues. Although we continue to serve our customers virtually through our online websites and remotely, our business operations
have been substantially affected by applicable regulatory restrictions including stay-at-home requirements applicable in the different
countries we operate, including the United States (“U.S.”), many European countries and Italy, where our corporate headquarters is
located.
While at the date of this Annual Report some of the lockdown measures in Italy and in other countries in which we operate have
started to be lifted and, as a result, some of our plants and stores have started to be reopened (especially in China), we may face longer
term closure requirements and other operational restrictions with respect to some of our physical locations for prolonged periods of
time due to, among other factors, continued stringent restrictions adopted by national or local authorities, including shelter-in-place
orders. Additionally, even once we are able to reopen all closed physical locations, changes in consumer behavior and health concerns
may continue to impact consumer demand for our products and customer traffic at our points of sale and may make it more difficult to
staff our business operations. Further, any efforts to mitigate the impact of COVID-19 through social distancing measures, enhanced
cleaning measures and the increased use of personal protective equipment at our plants and directly operated stores, as well as other
steps aimed at protecting the health, safety and financial security of our employees, may result in other negative impacts on our
operations, including increased costs, reduced efficiency levels or labor disputes resulting in a strike or other work stoppage or
interruption.
The spread of COVID-19 outbreak may disrupt our third-party business partners’ ability to meet their obligations to us, which may
negatively affect our operations. These third parties include, among others, our suppliers, logistics providers, vendors, landlords and
lenders. One or more of these third parties may experience financial distress, staffing shortages or liquidity challenges, file for
bankruptcy protection, go out of business, or suffer disruptions in their business due to the COVID-19 outbreak. The health crisis,
resulting deterioration in financial markets and overall economic conditions could have a material adverse effect on the financial
condition of third parties that could be essential to our business operations and we may incur losses and other negative impacts for
difficulties experienced by our suppliers, vendors and other third parties. Specifically, substantial disruptions to our global supply
chain have already occurred as a result of the COVID-19 health crisis and may continue to occur in the future, adversely affecting our
business and results of operations.
As a result of the COVID-19 outbreak, and the corresponding reduction in our sales, we had to institute a number of measures to
manage liquidity and reduce costs. See Note 3(f) to the Consolidated Financial Statements. These efforts may not be enough to offset
anticipated declines in revenue, including the loss of sales related to store and Italian plant closures, and may negatively affect our
ability to quickly resume operations when we are able to re-open all our points of sale.
5
As a result of our efforts to manage our liquidity, we may incur substantial reductions to the level of our expected capital expenditures
for the fiscal year 2020. The exact scope of our capital plans for 2020 will depend on a variety of factors including the availability of
other sources of capital and the way our business will perform for the entire duration of this health crisis. In addition, the effects of
COVID-19 on our business, including as a result to actions taken by central and local government authorities in many countries in
which we operate in response to the outbreak, may require changes to our real estate strategy and related capital expenditure and
financing plans. For example, we may need to delay planned projects and store openings and defer our international retail expansion.
In addition, we may continue to be required to make lease payments for our directly operated stores that have been closed, even if
temporarily. Our efforts to mitigate the costs of delays and deferrals, store closures and other operational difficulties resulting from
COVID-19, including negotiating with landlords and other third parties regarding the timing and amount of payments under existing
contractual arrangements, may not be successful, and as a result, our real estate and planned investment strategy may have ongoing
significant liquidity needs even as we scale back our operations and expansion cadence. While our general approach has been to target
capital toward investments that we believe will achieve favorable returns for our shareholders, these decisions involve a significant
amount of judgment regarding the availability of capital in future periods, especially during the current health emergency. In addition,
our near-term decisions regarding the sources and uses of capital in our business will reflect and adapt to changes in market conditions
and disruption in our business related to COVID-19.
The COVID-19 outbreak has also significantly increased economic uncertainty and has led to disruption and volatility in the global
capital markets, which could increase the cost of and accessibility to capital. If we need to access the capital markets, there can be no
assurance that financing may be available on attractive terms, if at all. If we are not able to access capital at the time and on terms that
our business requires, we may encounter difficulty funding our business requirements including debt repayments when due. We may
require waivers or amendments to our existing credit facilities and these requirements may trigger pricing increases from lenders for
available credit. If we are not able to access credit to fund our business requirements for liquidity, or the cost of available credit
increases, we may need to curtail our business operations including various business initiatives that require capital investment.
Substantially all of our management personnel, including those in our corporate office in Santeramo in Colle, Italy, are subject to
shelter-in-place requirements, which have resulted in most of our management team being required to work remotely. These working
arrangements as well as other related restrictions, including severe limitations on travel, may have an impact on our operations,
management effectiveness and internal control over financial reporting. Although we have technology and other resources to support
these new work requirements, there can be no assurance that we will not suffer material risks to our business, operations, productivity
and results of operations as a result of these restrictions. If a significant percentage of our workforce is unable to work, including
because of illness or travel or government restrictions in connection with COVID-19, our operations may be negatively impacted,
potentially materially adversely affecting our business, liquidity, financial condition or results of operations.
Disruption caused by business responses to the COVID-19 outbreak, including working-from-home arrangements, may create
increased vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage our
reputation and commercial relationships, disrupt operations, increase costs and/or decrease net revenues, and expose us to claims from
customers, suppliers, financial institutions, regulators, payment card associations, employees and others, any of which could have a
material adverse effect on our financial condition and results of operations.
The COVID-19 pandemic and mitigation measures have also had an adverse impact on global economic conditions as well as the
business climate in our primary consumer markets, including, but not limited to, the U.S., China, the United Kingdom (“UK”), Italy
and other Western European countries, which could have an adverse effect on our business and financial condition and our ability to
regain previous sales levels as we reopen our retail locations. Our business also depends to some extent on conditions in financial
markets. Previous downturns in the stock market were correlated with a reduction in consumer demands for our products. The
Company’s business is particularly sensitive to reductions in discretionary consumer spending, which may be adversely impacted by a
recession or fears of a recession, volatility and declines in the stock market and increasingly pessimistic consumer sentiment due to
perceived or actual economic and/or health risks.
6
The ultimate magnitude of the impact of COVID-19, including the extent of its impact on our business and financial performance, will
depend on numerous evolving factors that we may not be able to accurately predict, including: the length of time that the outbreak
continues; its effect on our suppliers, logistics providers and the demand for our products; the duration of our points of sale closures;
the effect of governmental regulations imposed in response to the outbreak; the effect on our customers, their communities and
customer demand and ability to pay for our products and services, which may be affected by prolonged high unemployment, increased
consumer debt levels, changes in net worth due to market conditions, and other factors that impact consumer confidence; disruptions
or restrictions on our employees’ ability to work and travel, as well as uncertainty regarding all of the foregoing. We cannot at this
time predict the full impact of the COVID-19 outbreak, but it could have a larger material adverse effect on our business, liquidity,
financial performance and results of operations beyond what is discussed within this Annual Report. We will continue to actively
monitor the COVID-19 situation and may take further actions that could alter our business operations as may be required by
governmental authorities, or that we determine are in the best interests of our customers, employees, suppliers, partners, stockholders
and communities.
The COVID-19 pandemic may also have the effect of heightening many of the other risks described in this “Risk Factors” section,
including, but not limited to, those relating to our growth strategy, our supply chain, increased prices of our principal raw materials,
increased energy costs and labor costs, disruption in operations, loss of key employees, our indebtedness, general economic conditions
and our international operations.
The Group has a recent history of losses; the Group’s future profitability, financial condition and ability to maintain adequate
levels of liquidity depend, to a large extent, on its ability to overcome macroeconomic and operational challenges — In 2019,
the Group reported a loss of €33.7 million and an operating loss of €22.5 million, mainly as a result of declining sales, extraordinary
costs related to the Italian workforce and customs duties imposed by the U.S. on goods imported from China. In 2018, the Group
reported a profit of €33.1 million, mainly as a result of a €75.4 million gain following the finalization of the joint venture in China
which occurred in July 2018, and an operating loss of €25.5 million. See “Item 5. Operating and Financial Review and Prospects.” In
2017, the Group reported a loss of €30.8 million and an operating loss of €24.0 million, mainly resulting from both external factors
and new operational challenges. During the 2013-2016 period, the Company implemented an intensive restructuring of its operations
that led to an improving trend in its yearly operating loss.
From 2017 through 2019, the Group concentrated its efforts on the expansion of the Group’s retail network of mono-brand stores, both
directly and franchised operated. This activity required significant upfront costs at both the regional and HQ level. Most of the newly
opened mono-brand stores were not fully productive during the first months following their openings and, therefore, investments in
the retail and marketing organization were, at the beginning, not adequately returned by sales. While the Group expects the newly
opened mono-brand stores will progressively improve in productivity to absorb such up-front costs, there is a chance that these
investments will not be recouped.
As in previous years, the Group continues to operate in a persistently difficult macroeconomic environment affecting the furniture
industry (particularly evident in some mature markets, such as Europe).
In response to this difficult macroeconomic environment, in 2014, the Group started the restructuring of its operations, including by
reducing its Italian workforce. The Group may continue to be affected by difficult macroeconomic conditions and may face
operational challenges going forward.
In addition, during the last eight years, pursuant to our obligations under the Italian Reorganization Agreements (as defined in Item 10.
Additional Information—Material Contracts”), the Group incurred aggregate financial obligations in the amount of € 46.6 million
(€3.8 million, €1.4 million, €16.9 million, €4.5 million, €4.5 million, €13.5 million, €1.4 million and €0.6 million for the years 2019,
2018, 2017, 2016, 2015, 2014, 2013 and 2012, respectively) in connection with an incentive program aimed at reducing redundant
employees.
Our results of operations and ability to maintain adequate levels of liquidity in the future will depend on our ability to overcome these
and other challenges. Our failure to achieve profitability in the future could adversely affect the trading price of our shares and our
ability to raise additional capital and, accordingly, our ability to grow our business. There can be no assurance that we will succeed in
addressing any or all of these risks, and the failure to do so could have a material adverse effect on our business, financial condition
and operating results.
7
The Group has redundant workers at its Italian operations. This remains an unresolved issue and the management of such
redundant workers may not be successful and, therefore, could significantly impact our operations, earnings and liquidity in
the foreseeable future — In May 2017, the Italian Supreme Court rejected the Company’s appeal of a lawsuit brought by two former
employees of the Company relating to the implementation of the Cassa Integrazione Guadagni Straordinaria (“CIGS”), an Italian
temporary lay-off program, ruling in favor of the plaintiffs. As a result of this decision, the Company accrued €9.3 million in the
“Provision for legal claims” included in the “Provisions (non-current)” caption of the Company’s statement of financial position. In
October 2016, the Company laid off 176 workers as part of an organization restructuring, 166 of which were then re-employed in the
second half of 2017 as the Bari Labor Court deemed the dismissals to have been carried out improperly. In December 2017, the
Company and the Italian institutions representing those workers agreed to extend the scope of an agreement signed by the Company
and the Minister of Labour and Social Politics in 2015 to reduce working hours per day (the “Solidarity Agreement”), in order to
lessen the impact of re-employments in 2018. Pursuant to the Solidarity Agreement, a higher number of workers, as compared to the
Company’s need, may continue to work at the Company, though with a salary reduction that is less than proportional to the reduction
in working hours (as a result of government financial support).
In December 2018, the Company, along with trade unions and relevant Italian authorities, agreed to extend the Solidarity Agreement
for a one-year period ending in December 2019 and signed an agreement allowing the Company to benefit from CIGS for up to 491
employees, for a period of 24 months, in order to support the Company’s reorganization process. Furthermore, the parties involved
agreed to set up an incentive plan for staff who would voluntarily terminate their employment relationship in 2019.
In December 2019, the Company, along with trade unions and relevant Italian authorities, agreed to extend the Solidarity Agreement
through September 2020 and signed an agreement allowing the Company to benefit from CIGS for up to 487 employees, until the end
of December 2020, in order to support the Company’s reorganization process. Furthermore, the parties involved agreed to set up an
incentive plan for staff who would voluntarily terminate their employment relationship in 2020.
For information on the probable contingent liability related to legal procedures initiated by several third parties as a result of these past
events, see Note 23 of the Consolidated Financial Statements.
Global economic conditions may affect the Group’s business and could significantly impact our operations, sales, earnings and
liquidity in the foreseeable future — Our sales volumes and revenues may be affected by overall general economic conditions. For
example, a significant decline in the global economy, or in consumers’ confidence could have a material adverse effect on our
business. Deteriorating general economic conditions, including as a result of the recent coronavirus (COVID-19) outbreak, may affect
disposable incomes and reduce consumer wealth, thus affecting client demand, which may negatively impact our profitability and put
downward pressure on our prices and volumes. Many factors, all of which are generally beyond our control, affect the level of
consumer spending in the home furnishing industry, including the state of the economy as a whole, stock market performance, interest
and exchange rates, inflation, political uncertainty, the availability of consumer credit, tax rates, unemployment levels and other
matters that influence consumer confidence. In general, sales of home furnishing goods tend to decline during recessionary periods
when the level of disposable income tends to be lower or when consumer confidence is low. We distribute our products internationally
and we may be affected by downturns in general economic conditions or uncertainties regarding future economic prospects that may
affect the countries in which we sell a significant portion of our products. In particular, the majority of our current sales are in the
European Union (“EU”) and in the U.S.; if we are unable to expand in emerging markets, a downturn in mature economies, such as
the EU and the U.S., may negatively affect our results of operations and financial performance.
More specifically, there are many risks to the global macro-economic outlook in 2020, including (among other things): the COVID-19
pandemic and uncertainties related to its duration and severity, as described in “— The global outbreak of COVID-19 has had, and is
expected to continue to have, an adverse impact on our business, operations and results;” monetary policy uncertainty; geopolitical
tensions globally; political tensions in Europe; unsolved sovereign debt issues in many Southern European countries; threats to
globalization by renewed protectionism, including tensions between the U.S. and China regarding trade relations and tariffs;
uncertainties related to the UK withdrawal from the EU (“Brexit”); high levels of government, corporate and consumer indebtedness
in various countries (including high levels of indebtedness in emerging markets) and a potentially significant slowdown in China’s
growth.
8
In the EU, in particular, despite measures taken by several governments and monetary authorities to provide financial assistance to
certain Eurozone countries and to avoid default on sovereign debt obligations, concerns persist regarding the debt burden of several
countries. These concerns, along with the significant fiscal adjustments carried out in several countries, intended to manage sovereign
credit risk, have led to further pressure on economic growth and may lead to new periods of recession, especially in light of the
COVID-19 pandemic. Furthermore, a resurgence of the sovereign debt crisis in Europe could diminish the banking industry’s ability
to lend to the real economy, thus creating a negative spiral of declining production, higher unemployment and a weakening financial
sector.
In addition, uncertainties regarding future trade arrangements and industrial policies in various countries create additional
macroeconomic risk. Following the UK’s withdrawal from the EU on January 31, 2020, an 11-month transition period started during
which EU rules will continue to apply in the UK. During this period, the UK and the EU will seek to reach an agreement about their
future relationship. However, there can be no assurance that such agreement will be reached prior to the end of the transition period.
Although we believe that Brexit will not have a direct material impact on our operations or tax expense, the form of Brexit remains
uncertain and may result, among other risks, in greater restrictions on imports and exports between the UK and EU countries, a
fluctuation in currency exchange rates and additional regulatory complexity as well as further global economic uncertainty, all of
which could have a material adverse effect on our business, financial condition and results of operations. Additionally, any policy to
discourage import into the U.S. of home furnishings manufactured elsewhere could adversely affect our operations. Any new policies
and any steps we may take to address such new policies may have an adverse effect on our business, financial condition and results of
operations.
Adverse economic conditions may also affect the financial health and performance of our dealers in a manner that will affect sales of
our products or their ability to meet their commitments to us. Economic downturn may also affect retailers, our primary customers,
and may result in the inability of our customers to pay the amounts owed to us. In addition, if our retail customers are unable to sell
our products or are unable to access credit, they may experience financial difficulties leading to bankruptcies, liquidations, and other
unfavorable events. If any of these events occur, or if unfavorable economic conditions continue to challenge the consumer
environment, our future sales, earnings, and liquidity would likely be adversely impacted.
The Group’s ability to generate the significant amount of cash needed to service our debt obligations and comply with our
other financial obligations, and our ability to refinance all or a portion of our indebtedness or obtain additional financing
depends on multiple factors, many of which may be beyond our control — Our ability to make scheduled payments due on our
existing and anticipated debt obligations and on our other financial obligations, and to refinance and to fund planned capital
expenditure and development efforts will depend on our ability to generate cash. See “— The Group has a recent history of losses; the
Group’s future profitability, financial condition and ability to maintain adequate levels of liquidity depend to a large extent on its
ability to overcome macroeconomic and operational challenges.” We will need to generate sufficient operating cash flow from our
operations to service our current and future projected indebtedness. Our ability to obtain cash to service our existing and projected
debts is subject to a range of economic, financial, competitive, legislative, regulatory, business and other factors, many of which are
beyond our control. We may not be able to generate sufficient cash flow from our operations to satisfy our existing and projected debt
and other financial obligations, in which case, we may have to undertake alternative financing plans, sell assets, reduce or delay
capital investments, or seek to raise additional capital on terms that may be onerous or highly dilutive. Our ability to refinance our
indebtedness will depend on the financial markets and our financial condition at such time. To the extent we have borrowings under
bank overdrafts and short-term borrowings that are payable upon demand or which have short maturities, we may be required to repay
or refinance such amounts on short notice, which may be difficult to do on acceptable financial terms or at all.
Given the fast-moving nature of the COVID-19 health crisis, and the corresponding impact on financial markets and the economy as a
whole, there is an enhanced degree of uncertainty regarding the Company’s capital position and availability of capital to fund the
Company’s liquidity requirements. Recognizing the significant threat to the liquidity of financial markets posed by COVID-19, most
of the central banks and governments all over the
9
world have taken dramatic actions to provide liquidity to the relevant banking systems and businesses. There can be no assurance that
these interventions will be successful and that the financial markets will not experience significant contractions in available liquidity.
While the Company may receive financial, tax or other relief and other benefits under and as a result of laws passed by the Italian and
other countries’ governments, it is not possible to estimate at this time the availability, extent or impact of any such relief. In addition,
store closures and other operational difficulties faced by the Company may negatively affect the Company’s financial condition and
restrict the availability of liquidity for its operational needs, and access to additional funds may be difficult as a result of the
disruptions in the global financial markets due to COVID-19. See “— The global outbreak of COVID-19 has had, and is expected to
continue to have, an adverse impact on our business, operations and results.”
At December 31, 2019, we had €24.2 million of bank overdraft and short-term borrowings outstanding. In addition, while we had
€39.8 million of cash and cash equivalents at December 31, 2019, 41.6% of this amount was held by our Chinese subsidiaries. We
cannot assure you that any refinancing or restructuring would be possible, that any assets could be sold, or, if sold, of the timing of the
sales or the amount of proceeds that would be realized from those sales. We cannot assure you that additional financing could be
obtained on acceptable terms, if at all, or would be permitted under the terms of our various debt instruments then in effect. Our failure
to generate sufficient cash flow to satisfy our existing and projected debt obligations, or to refinance our obligations on commercially
reasonable terms, would have an adverse effect on our business, financial condition and results of operations.
The Company uses a securitization program to manage liquidity risk. Should such program be terminated, the Company’s
ability to manage such risk will be impaired — As a means to manage liquidity risk, in July 2015, the Company entered into a non-
recourse securitization agreement (the “Securitization Agreement”) with an affiliate of Banca Intesa (the “Assignee”). Under the
Securitization Agreement, the Company assigns certain customer receivables to the Assignee in exchange for short-term credit,
thereby providing the Company with an important and stable source of short-term funding. The Company’s ability to continue using
this tool to mitigate liquidity risk depends on the assigned receivables meeting certain credit criteria, one such criterion being the
continued solvency of the customers owing such receivables. If these criteria are not met, including, for example, because the credit
quality of the Company’s customers deteriorates, the Securitization Agreement may be terminated, thereby depriving the Company of
an important tool for managing liquidity risk. The Securitization Agreement is set to expire in July 2020. We cannot guarantee that we
will renew it or enter into a new securitization agreement at the same or similar terms, if at all.
The Group’s operations have benefited in 2019 and in previous years from temporary work force reduction programs that, if
not continued, may have an impact on the Group’s future performance — Due to the persistently difficult business environment
that has negatively affected the Group’s sales performance over the years, the Company has in recent years entered into a series of
agreements with Italian trade unions and the relevant Italian Ministry pursuant to which government funds have been used to pay a
substantial portion of the salaries of redundant workers who are subject to either layoffs (as in the case of CIGS, an Italian temporary
lay-off program) or reduced work schedules (as in the case of the Solidarity Agreement). See “—The Group has redundant workers at
its Italian operations. This remains an unresolved issue and the management of such redundant workers may not be successful and
therefore, could significantly impact our operations, earnings and liquidity in the foreseeable future.” The Company’s inability to
continue reducing redundant structural staff and the related cost of labor could have an adverse effect on our financial condition,
results of operations, and cash flows.
The Group’s operations may be adversely impacted by strikes, slowdowns and other labor relations matters — Many of our
employees, including many of the laborers at our Italian plants, are unionized and covered by collective bargaining agreements. As a
result, we are subject to the risk of strikes, work stoppages or slowdowns and other labor relations matters, particularly in our Italian
plants.
Any strikes, threats of strikes, slowdowns or other resistance in connection with our reorganization plan, the negotiation of new labor
agreements or otherwise could adversely affect our business as well as impair our ability to implement further measures to reduce
structural costs and improve production efficiencies. A lengthy strike that involves a significant portion of our manufacturing facilities
could have an adverse effect on our financial condition, results of operations, and cash flows.
10
We may not execute our Plan, successfully or in a timely manner, which could have a material adverse effect on our results of
operations or on our ability to achieve the objectives set forth in our plans — In October 2019, the Board of Directors adopted a
business plan for the 2020-2024 period (the “Plan”). The Plan focuses on several cornerstones including: a) increased focus on
controlled distribution through mono-brand stores, both owned and franchises, in priority markets; b) revision of our production
structure, including our collaboration with external industrial partners; c) sale of assets that are no longer in line with our strategy; d)
streamlining our processes and costs. More generally, the Plan provides for management, administrative and financial measures
designed to enable the Company to return to profitability within the period covered by the plan. Following the COVID-19 outbreak,
the Company had to revise the Plan, both for the current year and for the years to come, to take into account the high degree of
uncertainty of the current business scenario.
The profitability of our operations depends on the successful and timely execution of the revised Plan. Failure to successfully and
timely achieve the objectives included in the Plan could result in a failure to reduce costs and improve sales and, hence, generate
losses for the Group.
A failure to offer a wide range of products that appeal to consumers in the markets we target and at different price-points
could result in a decrease in our future profitability — The Group’s sales depend on our ability to anticipate and reflect consumer
tastes and trends in the products we sell in various markets around the world, as well as our ability to offer our products at various
price points that reflect the spending levels of our target consumers. While we have broadened the offering of our products in terms of
styles and price points over the past several years in order to attract a wider base of consumers, our results of operations are highly
dependent on our continued ability to properly anticipate and predict these trends. The potential inability of the Group to anticipate
consumer tastes and preferences in the various markets in which we operate, and to offer these products at prices that are competitive
to consumers, may negatively affect the Group’s ability to generate future earnings.
In addition, with the vast majority of our revenue deriving from the sale of leather-upholstered furniture, consumers have the choice of
purchasing upholstered furniture in a wide variety of styles and materials, and consumer preferences may change. There can be no
assurance that the current market for leather-upholstered furniture will grow consistently with our internal projections or that it will
not decline.
Demand for furniture is cyclical and may fall in the future — Historically, the furniture industry has been cyclical, fluctuating with
economic cycles, and sensitive to general economic conditions, housing starts, interest rate levels, credit availability and other factors
that affect consumer spending habits. Due to the discretionary nature of most furniture purchases and the fact that they often represent
a significant expenditure to the average consumer, such purchases may be deferred during times of economic uncertainty such as those
being currently experienced due to the COVID-19 pandemic and its negative impact on general economic conditions.
The furniture market is highly competitive — The Group operates in a highly competitive industry that includes a large number of
manufacturers. No single company has a dominant position in the industry. Competition is generally based on product quality, brand
name recognition, price and service.
The Group principally competes in the upholstered furniture sub-segment of the furniture market. In Europe, the upholstered furniture
market is highly fragmented. In the U.S., the upholstered furniture market includes a number of relatively large companies, some of
which are larger and have greater financial resources than the Group. Some of the Group’s competitors offer extensively advertised,
well-recognized branded products.
Competition has increased significantly in recent years as foreign producers from countries with lower manufacturing costs have
begun to play an important role in the upholstered furniture market. Such manufacturers are often able to offer their products at lower
prices, which increases price competition in the industry. In particular, manufacturers in Asia and Eastern Europe have increased
competition in the lower-priced segment of the market. As a result of the actions and strength of the Group’s competitors and the
inherent fragmentation in some markets in which it competes, the Group is continually subject to the risk of losing market share,
which may lower its sales and profits.
11
Market competition may also force the Group to reduce prices and margins, thereby negatively affecting its cash flows.
The highly competitive nature of the industry means that we are constantly at risk of losing market share, which would likely result in
a loss of future sales and earnings. In addition, due to high levels of competition, it may not be possible for us to raise the prices of our
products in response to inflationary pressures or increasing costs, which could result in a decrease in our profit margins.
Fluctuations in currency exchange rates and interest rates may adversely affect the Group’s results — The Group conducts a
substantial part of its business outside of the Euro-zone and is exposed to market risks stemming from fluctuations in currency and
interest rates. In particular, an increase in the value of the Euro relative to other currencies used in the countries in which the Group
operates has in the past, and may in the future, reduce the relative value of the revenues from its operations in those countries, and
therefore may adversely affect its operating results or financial position, which are reported in Euro. In addition to this risk, the Group
is subject to currency exchange rate risk to the extent that its costs are denominated in currencies other than those in which it earns
revenues. In 2019, 66% of the Group’s revenue and almost 46% of its costs were denominated in currencies other than the Euro. The
Group also holds a substantial portion of its cash and cash equivalents in currencies other than the Euro, including a large amount in
Chinese Yuan (“CNY” or “RMB”). The Group is therefore exposed to the risk that fluctuations in currency exchange rates may
adversely affect its results, as has been the case in recent years. This risk may be particularly relevant during 2020. Factors like the
recent COVID-19 outbreak and oil price drop have resulted in a volatility spike in foreign exchange markets in the first months of
2020 and may cause continued fluctuations in currency exchange rates for the rest of 2020.
In addition, foreign exchange movements might also negatively affect the relative purchasing power of our clients which could also
have an adverse effect on our results of operations.
Although we seek to manage our foreign currency risk in order to minimize negative effects from rate fluctuations, including through
hedging activities, there can be no assurance that we will be able to do so successfully. Therefore, our business, results of operations
and financial condition could be adversely affected by fluctuations in market rates, particularly during times of high volatility, such as
those currently experienced due to the adverse effects of the COVID-19 outbreak on financial markets.
In the normal course of business, the Group also faces risks that are either non-financial or non-quantifiable. Such risks principally
include country risk, credit risk and legal risk. For more information about currency and interest rates risks, see “Item 11. Quantitative
and Quality Disclosures about Market Risk.”
The Group faces risks associated with its international operations — The Group is exposed to risks arising from its international
operations, including changes in governmental regulations, tariffs or taxes and other trade barriers, price, wage and currency exchange
controls, political, social, and economic instability in the countries where the Group operates, inflation and exchange rate and interest
rate fluctuations. Any of these factors could have a material adverse effect on the Group’s results.
Compliance with laws may be costly, and changes in laws could make conducting our business more expensive or otherwise
change the way we do business — We are subject to numerous regulations, including labor and employment, customs, truth-in-
advertising, consumer protection, e-commerce, privacy, health and safety, real estate, environmental and zoning and occupancy laws,
and other laws and regulations that regulate the operations in our stores, plants and suppliers or otherwise govern our business. In
addition, to the extent we expand our operations as a result of engaging in new business initiatives or product lines or expanding into
new international markets, we become subject to further regulations and regulatory regimes. We may need to continually reassess our
compliance procedures, personnel levels and regulatory framework in order to keep pace with the numerous business initiatives that
we are pursuing, and there can be no assurance that we will be successful in doing so. If the regulations applicable to our business
operations were to change or were violated by us or our vendors or buying agents, the costs of certain goods could increase, or we
could experience delays in shipments of our goods, be subject to fines or penalties, or suffer reputational harm, which could reduce
demand for our products and harm our business and results of operations.
12
In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct of our business more
expensive or require us to change the way we do business. For example, public health officials and other governmental authorities in
various countries in which we operate have adopted numerous mitigation measures to address the spread of COVID-19, in particular
to discourage people from congregating in public, commercial or private spaces. Central and local authorities around the world, and in
some instances mall and shopping center owners, have implemented a number of different directives that encourage or require
changes in our business practices including requirements to close our points of sale and to curtail various aspects of our business
operations. The scope and duration of these directives is evolving and not entirely clear. For a discussion of the impacts of temporary
closure requirements on our business, see “— The global outbreak of COVID-19 has had, and is expected to continue to have, an
adverse impact on our business, operations and results.” In addition, changes in laws related to treatment of employees, including laws
related to limitations on employee hours, supervisory status, leaves of absence, mandated health benefits or overtime pay, could
negatively impact us by increasing compensation and benefits costs for overtime and medical expenses.
The Group’s past results and operations have significantly benefited from government incentive programs, which may not be
available in the future — Historically, the Group derived significant benefits from the Italian Government’s investment incentive
programs for under-industrialized regions in Southern Italy, including tax benefits, subsidized loans and capital grants. See “Item 4.
Information on the Company—Incentive Programs and Tax Benefits.” In recent years, the Italian Parliament replaced these incentive
programs with an investment incentive program for all under-industrialized regions in Italy, which is currently being implemented by
the Group through grants, research and development benefits. There are no indications at this time that the Italian Government will
implement new initiatives to support companies located in under-industrialized regions in Italy. Therefore, there can be no assurance
that the Group will continue to be eligible for such grants, benefits or tax credits for its current or future investments in Italy.
The Group has opened manufacturing operations in China, Brazil and Romania and in some cases was granted tax benefits and export
incentives by the relevant governmental authorities in those countries. There can be no assurance that the Group will benefit from such
tax benefits or export incentives in connection with future investments.
Failure to protect our intellectual property rights could adversely affect us — We believe that our intellectual property rights are
important to our success and market position. We attempt to protect our intellectual property rights through a combination of patent
and trademark laws, as well as licensing agreements and third-party nondisclosure and assignment agreements or confidentiality and
restricted use agreements. We believe that our patents, trademarks and other intellectual property rights are adequately supported by
applications for registrations, existing registrations and other legal protections in our principal markets. However, we cannot exclude
the possibility that our intellectual property rights may be challenged by others or that agreements designed to protect our intellectual
property will not be breached, or that we may be unable to register our patents, trademarks or otherwise adequately protect them in
some jurisdictions.
The Company relies on information technology to operate its business, and any disruption to its technology infrastructure
could harm the Company’s operations — We operate many aspects of our business including financial reporting, and customer
relationship management through server and web-based technologies. We store various types of data on such servers or with third
parties who in turn store it on servers and in the “cloud”. Any disruption to the internet or to the Company’s or its service providers’
global technology infrastructure, including malware, insecure coding, “Acts of God,” attempts to penetrate networks, data theft or loss
and human error, could have adverse effects on the Company’s operations. A cyber-attack of our systems or networks that impairs our
information technology systems could disrupt our business operations and result in loss of service to customers. We have a business
continuity plan, a disaster recovery plan and cybersecurity tests designed to protect and preserve the integrity of our information
technology systems and the business continuity. Our ability to keep our business operating effectively depends on the functional and
efficient operation of our information, data processing and telecommunications systems, including our design, procurement,
manufacturing, inventory, sales and payment process. While we have invested and continue to invest in information technology risk
management, cybersecurity and disaster recovery plans, these measures cannot fully insulate the Company from technology
disruptions or data theft or loss and the resulting adverse effect on the Company’s operations and financial results.
13
The price of the Group’s principal raw materials and energy costs are difficult to predict. In 2019, 81% of the Group’s total
upholstered net sales came from leather-upholstered furniture sales. The acquisition of cattle hides represented approximately 21% of
2019 total cost of goods sold. The dynamics of the raw hides market are dependent on the consumption of beef, the levels of
worldwide slaughtering, worldwide weather conditions and the level of demand in a number of different sectors, including footwear,
automotive, furniture and clothing.
More generally, changes in prices for raw materials are dependent on a number of factors beyond our control, including:
macroeconomic factors that may affect commodity prices; changes in supply and demand; general economic conditions; significant
political events; labor costs; competition; import duties, tariffs, anti-dumping duties and other similar costs; currency exchange rates
and government regulation; and events such as natural disasters and widespread outbreaks of infectious diseases (such as the recent
outbreak of COVID-19). In addition, energy costs have fluctuated dramatically in the past and, in recent periods, energy prices have
been declining and could experience significant volatility in the near term. Depending on the nature of changes in these different
factors that affect our business, we may experience an adverse impact on our business for different reasons including increased costs
of operation or lower demand for our products. We may experience slower demand from customers in markets that depend upon
energy prices for a portion of their economic activity.
The Group is dependent on qualified personnel — The Group’s ability to maintain its competitive position will depend to some
considerable degree upon the personal commitment of its founder, chief executive officer (“CEO”) and chairman of the Company’s
board of directors (the “Board of Directors”), Mr. Pasquale Natuzzi, as well as on its ability to continue to attract and maintain highly
qualified managerial, manufacturing and sales and marketing personnel. There can be no assurance that the loss of key personnel
would not have a material adverse effect on the Group’s results of operations.
Changes in tax laws may affect our results — We are subject to income taxes in Italy and other jurisdictions. Changes in tax laws,
regulations, or administrative practices in those jurisdictions could affect our financial position and results of operations. For example,
the U.S. tax reform legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) significantly
changed the U.S. federal income tax rules applicable to U.S. corporations, including by reducing the maximum statutory corporate
income tax rate from 35% to 21% as of January 1, 2018. Accounting for the income tax effects of the 2017 Tax Act requires
significant judgments in interpretation of its provisions, which may be affected by additional guidance that may be issued by the U.S.
Treasury Department, the IRS, and standards-setting bodies. We completed our evaluation of the impact of the 2017 Tax Act on our
U.S. operations and no material impact has arisen for the 2018 and 2019 financial statements. More recently, certain jurisdictions in
which we are subject to income taxes, including Italy and the U.S., have enacted changes in tax laws and procedures in response to the
outbreak of COVID-19 and its consequences. For example, in the U.S., the Coronavirus Aid, Relief, and Economic Security Act (the
“CARES Act”), enacted on March 27, 2020, introduced substantial changes to the U.S. tax code, including a temporary increase to the
limitations on deductibility of business interest expense and temporary waiver of certain limitations on the use of net operating losses,
in addition to making other changes. The impact of such changes, including by means of the CARES Act, on our financial position
and results of operations is currently uncertain.
Investors may face difficulties in protecting their rights as shareholders or holders of ADSs — The Company is incorporated
under the laws of the Republic of Italy. As a result, the rights and obligations of its shareholders and certain rights and obligations of
holders of its ADSs are governed by Italian law and the Company’s statuto (or the By-laws). These rights and obligations are different
from those that apply to U.S. corporations. Furthermore, under Italian law, holders of ADSs have no right to vote the shares
underlying their ADSs; however, pursuant to the Deposit Agreement (as defined below), ADS holders do have the right to give
instructions to BNY Mellon, National Association (“BNY” or the “Depositary”), the ADS depositary, as to how they wish such shares
to be voted. For these reasons, the Company’s ADS holders may find it more difficult to protect their interests against actions of the
Company’s management, board of directors or shareholders than they would if they were shareholders of a company incorporated in
the United States.
14
One shareholder has a controlling stake of the Company — Mr. Pasquale Natuzzi, founder of the Company and its CEO and
chairman of the Board of Directors, beneficially owns, as of the date of this Annual Report, an aggregate amount of 30,967,521
ordinary shares of the Company (the “Ordinary Shares”), representing 56.5% of the Ordinary Shares outstanding (61.6% of the
Ordinary Shares outstanding if the Ordinary Shares owned by members of Mr. Natuzzi’s immediate family (the “Natuzzi Family”) are
aggregated). As a result, Mr. Natuzzi has the ability to exert significant influence over our corporate affairs and to control the
Company, including its management and the selection of its board of directors. Since December 16, 2003, Mr. Natuzzi has held his
entire beneficial ownership of Natuzzi S.p.A. shares through INVEST 2003 S.r.l., an Italian holding company wholly-owned by
Mr. Natuzzi with its registered office located at Via Gobetti 8, Taranto, Italy.
In addition, under the Deposit Agreement dated as of May 15, 1993, as amended and restated from time to time (the “Deposit
Agreement”), among the Company, the Depositary, and owners and beneficial owners of ADSs, the Natuzzi Family has a right of first
refusal to purchase all the rights, warrants or other instruments which BNY Mellon, as Depositary under the Deposit Agreement,
determines may not lawfully or feasibly be made available to owners of ADSs in connection with each rights offering, if any, made to
holders of Ordinary Shares.
Because a change of control of the Company would be difficult to achieve without the cooperation of Mr. Natuzzi and the Natuzzi
Family, the holders of the Ordinary Shares and the ADSs may be less likely to receive a premium for their shares upon a change of
control of the Company.
Purchasers of our Ordinary Shares and ADSs may be exposed to increased transaction costs as a result of the Italian financial
transaction tax or the proposed European financial transaction tax — On February 14, 2013, the European Commission adopted
a proposal for a directive on the financial transaction tax (hereafter “EU FTT”) to be implemented under the enhanced cooperation
procedure by eleven Member States initially (Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia, Slovakia
and Spain). Following Estonia’s formal withdrawal on March 16, 2016, ten Member States are currently participating in the
negotiations on the proposed directive. Member States may join or leave the group of participating Member States at later stages and,
subject to an agreement being reached by the participating Member States, a final directive will be enacted. The participating Member
States will then implement the directive in local legislation. If the proposed directive is adopted and implemented in local legislation,
investors in Ordinary Shares and ADSs may be exposed to increased transaction costs.
The Italian financial transaction tax (the “IFTT”) applies with respect to trades entailing the transfer of (i) shares or equity-like
financial instruments issued by companies resident in Italy, such as the Ordinary Shares; and (ii) securities representing the shares and
financial instruments under (i) above (including depositary receipts such as the ADSs), regardless of the residence of the issuer. The
IFTT may also apply to the transfer of Ordinary Shares and ADSs by a U.S. resident. The IFTT does not apply to companies having
an average market capitalization lower than €500 million in the month of November of the year preceding the year in which the trade
takes place. In order to benefit from this exemption, companies whose securities are listed on a foreign regulated market, such as the
Company, need to be included on a list published annually by the Italian Ministry of Economy and Finance. The Company is in the
process of starting the relevant procedures to be included in such list by the end of 2020. For so long as the Company is not included
in such list, investors in the Ordinary Shares and ADSs may be exposed to increased transaction costs. See “Item 10. Additional
Information—Other Italian Taxes—Italian Financial Transaction Tax.”
ITEM 4.
INFORMATION ON THE COMPANY
Introduction
History and development of the Company — Founded in 1959 by Pasquale Natuzzi, Natuzzi S.p.A. is Italy’s largest furniture house
and one of the most important global players in the furniture industry with an extensive manufacturing footprint and a global retail
network. Natuzzi is the best-known
15
European lifestyle brand in the upholstered furniture industry worldwide (Brand Awareness Monitoring Report—Ipsos 2018).
Continuous stylistic research, creativity, innovation, solid craftsmanship, industrial know-how and integrated management throughout
the entire value chain are the mainstays that have made Natuzzi one of the few players with global reach in the furniture market.
Natuzzi S.p.A. has been listed on the New York Stock Exchange since May 13, 1993. For additional information on the Company’s
listing on the New York Stock Exchange, see “Item 9. The Offer and Listing—Trading Markets.” Always committed to social
responsibility and environmental sustainability, Natuzzi S.p.A. is ISO 9001 and 14001 certified (Quality and Environment), OHSAS
18001 certified (Safety on the Workplace) and FSC® certified (Forest Stewardship Council). The Company first targeted the U.S.
market in 1983 and subsequently began entering other markets. Currently, the distribution network covers approximately 100
countries on five continents.
The brand portfolio of the Group includes three main brands: Natuzzi Italia, Natuzzi Editions and Divani&Divani by Natuzzi. For a
detailed description of the brand and its target markets, see “Strategy—The Brand Portfolio Strategy” and “Products” below. The
Group also offers unbranded products within a dedicated business unit to meet the specific needs of key accounts.
As of March 31, 2020, the Group distributed its products as follows:
• Natuzzi Italia: 237 Natuzzi Italia stores (of which 40 mono-brand stores directly operated by the Group and 11 Natuzzi Italia
concessions, i.e., store-in-store points of sale, directly managed by the Mexican subsidiary of the Group). In addition, there are
Natuzzi Italia galleries (store-in-store points of sales managed by independent partners) worldwide. The Natuzzi Re-vive®
recliner is included in the Natuzzi Italia offering.
• Natuzzi Editions: 249 stores in addition to galleries.
• Divani&Divani by Natuzzi: 69 stores, almost entirely located in Italy, of which 14 directly operated by the Group.
•
Private label: includes our unbranded products and is currently marketed in North America, Europe, Brazil and the Asia-Pacific
region principally through a selected number of furniture wholesale distributors.
Every year, the Group presents its products at the world’s leading furniture fairs, such as Il Salone del Mobile in Milan, Italy, IMM in
Cologne, Germany, Furniture Market in High Point, North Carolina, U.S., 100% Design in London, United Kingdom, among others.
Due to the COVID-19 pandemic, the 2020 edition of Il Salone del Mobile has been cancelled.
The statuto (or By-laws) of the Company provides that the duration of the Company is until December 31, 2050. The Company, which
operates under the trademark “Natuzzi,” is a società per azioni (joint stock company) organized under the laws of the Republic of Italy
and was incorporated in 1959 by Mr. Pasquale Natuzzi, who is currently the CEO, chairman of the Board of Directors and controlling
shareholder of the Company. Most of the Company’s operations are carried out through various subsidiaries that individually conduct
a specialized activity, such as leather processing, foam production and shaping or furniture manufacturing.
The Company’s principal executive offices are located at Via Iazzitiello 47, 70029 Santeramo in Colle, Italy, which is approximately
25 miles from Bari, in Southern Italy. The Company’s telephone number is: +39 080 882-0111. The Company’s general sales agent
subsidiary in the United States is Natuzzi Americas, Inc. (“Natuzzi Americas”), located at 130 West Commerce Avenue, High Point,
North Carolina 27260. Natuzzi Americas’ telephone number is: +1 336 887-8300.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC. The address of that site is www.sec.gov. The Company’s Internet website is www.natuzzi.com.
16
Natuzzi S.p.A. is the parent company (the “Parent Company”) of the Natuzzi Group. As of December 31, 2019, the Company’s
principal operating subsidiaries were:
Organizational Structure
Name
Italsofa Romania S.r.l.
Natuzzi (China) Ltd
Italsofa Nordeste S/A
Natco S.p.A.
I.M.P.E. S.p.A.
Nacon S.p.A.
Lagene S.r.l.
Natuzzi Americas Inc.
Natuzzi Iberica S.A.
Natuzzi Switzerland AG
Natuzzi Germany Gmbh
Natuzzi Japan KK
Natuzzi Services Limited
Natuzzi UK Retail Limited
Natuzzi Russia OOO
Natuzzi India Furniture PVT Ltd
Natuzzi Florida LLC
Natmex S.DE.R.L.DE.C.V
Natuzzi France S.a.s.
Softaly (Furniture) Shanghai Co. Ltd
Natuzzi Oceania PTI Ltd
Natuzzi Netherlands Holding
Italsofa Shanghai Ltd
Natuzzi Trade Service S.r.l.
Percentage of
ownership
31/12/2019
100.00
100.00
100.00
99.99
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
70.00
100.00
100.00
51.00
99.00
100.00
96.50
100.00
100.00
96.50
100.00
Value of share/
quota capital
RON 109,271,750
CNY 106,414,300
BRL 157,654,283
EUR 4,420,000
EUR 1,000,000
EUR 2,800,000
EUR 10,000
USD 89
Registered office
Baia Mare, Romania
Shanghai, China
Salvador de Bahia, Brazil
Santeramo in Colle, Italy
Bari, Italy
Santeramo in Colle, Italy
Santeramo in Colle, Italy
High Point, NC, USA
EUR 386,255 Madrid, Spain
CHF 2,000,000
EUR 25,000
JPY 28,000,000
GBP 25,349,353
GBP 100
Dietikon, Switzerland
Köln, Germany
Tokyo, Japan
London, UK
Cardiff, UK
RUB 8,700,000 Moscow, Russia
INR 16,200,000
New Delhi, India
USD 4,955,186
High Point, NC, USA
MXN 69,195,993 Mexico City, Mexico
EUR 200,100
CNY 100,000
AUD 320,002
EUR 34,605,000
CNY 124,154,580
EUR 14,000,000
Paris, France
Shanghai, China
Sydney, Australia
Amsterdam, Holland
Shanghai, China
Santeramo in Colle, Italy
Activity
(1)
(1)
(1)
(2)
(3)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(5)
(6)
(6)
Intragroup leather dyeing and finishing
(1) Manufacture and distribution
(2)
(3) Production and distribution of polyurethane foam
(4) Services and distribution
(5)
Investment holding
(6) Dormant
See Item 18 of this Annual Report for further information on the Company’s subsidiaries.
Strategy
Over the last several years, the Group has focused its efforts on brand strengthening, expanding its product offering and retail network,
and efficiency improvements in both procurement and operations. At the same time, the Group has implemented cost control measures
to streamline its headquarters-related costs.
Additionally, we launched a new Group organization in July 2016 based on two business models (retail and wholesale) and two
divisions (the Natuzzi brand division and the Private label division). This strategy has remained consistent throughout 2017 and 2018.
In 2019, the Company further developed its sales organization by focusing on the specific needs of each of the three following
channels: i) the global business retail channel, represented by mono-brand stores operated directly by the Group and by third-parties;
ii) the global business branded wholesale channel, consisting mainly of galleries and distributors offering Natuzzi branded products;
and iii) the global business Private label wholesale channel, addressing mass distributors.
17
i) Global Business Retail Channel – Based on its vertical integration strategy, during 2019 the Group continued to develop its global
retail distribution presence, through both directly operated stores and franchise stores, under the Natuzzi Italia and Natuzzi Edition
brands (the latter distributed in Italy and Portugal under the Divani&Divani by Natuzzi name). Our main goal was to implement the
retail excellence business model in all stores. To be closer to the consumers, the Company worked on:
•
•
•
offering a wide variety of products;
increasing the customer’s shopping experience, redesigning our stores’ layout to offer innovative furniture solutions and design
in line with the unique Italian style;
improving the level of in-store service (e.g., by offering complimentary interior design services) and after-sales service we offer.
The Group launched a streamlined and clear performance management process to accelerate the deployment of planned activities and
a new incentive system linked to key store performance indicators; introduced a sales force evaluation process to assess and improve
performance during the year and implemented marketing and promotional activities to increase in-store traffic.
ii) Global Business Branded Wholesale Channel — While scaling up the retail format, in 2019 the Company decided to improve the
branded wholesale channel performance with a dedicated organization, both at headquarters and regional level.
Branded wholesale distribution, consisting mainly of Natuzzi-branded galleries in multi-brand stores, addresses specific groups of
customers, each with specific needs in terms of products, price and service. In the branded wholesale distribution channel, Natuzzi
Editions plays a major role. Its new brand identity, which reflects major investments in terms of product and style innovation, has
generated great interest in our main customers. As a result, our partners started rolling out new galleries and/or refreshing existing
ones, which we expect to result in an increase in our sales. Our ultimate goal is to have our partners open franchise mono-brand
Natuzzi Editions stores.
iii) Global Business Private Label Wholesale Channel— This division produces and offers leather upholstery to the world’s largest
wholesale distributors in the medium/low end of the market. The Private label division is the Group’s manufacturing project that
dedicates its foreign plants (mainly in Eastern Europe and Asia) to selected large national retailers and department store resellers. This
market segment is exposed to all competitors offering products at specific market price ranges, with consequent repercussions on our
margins. In order to achieve greater efficiencies, economies of scale and regain competitiveness in this division, we will continue to
focus on simplifying the Private label industrial project, by further evolving the engineering processes of the relevant product/model
platforms. The Company’s plan for this division is to focus on a few selected primary customers in both North America and Europe
and to properly implement these initiatives through a gradual process.
The Private label division has been most adversely affected by the trade dispute between the U.S. and China and, more generally, by
increased price competition. For information on the Company’s revision of its industrial footprint as a result of these challenges, see
“— Manufacturing.”
The Company has taken steps to sell some non-strategic assets, including two subsidiaries (tannery and foam operations based in Italy)
and real estate properties in the U.S. and Italy. The sale of these assets should increase the flexibility of our operations and reduce
working capital needs. The sale proceeds will be reinvested in the development of our business. The Group will also continue to
streamline its overall cost structure also through 2020, with particular reference to its Italian operations.
The Brand Portfolio and Merchandising Strategy — The Group, through its three brands and its unbranded offering, competes in
all price segments of the upholstered furniture market with an increasingly important offer of furnishings and accessories.
Natuzzi Edition and Divani&Divani by Natuzzi are two brands with different banners and store concepts, but with the same
merchandising offer (i.e., same positioning and consumers target). Divani&Divani by Natuzzi is mostly focused on the Italian market
where it was first launched, whereas Natuzzi Edition is distributed in other countries around the world.
18
Precise market segmentation, clear brand positioning and clearly defined customer and consumer targets are intended to enhance the
Group’s competitive strengths in all market segments to gain market share through its different product lines, as described below.
a) Natuzzi Italia is sold mainly through the retail channel in mono-brand stores, concessions and galleries in multi-brand specialized
stores and high-end department stores. The offer includes sofas designed and manufactured in Italy at the Company’s factories,
positioned in the high end of the market, with unique and customized materials, workmanship and finishes thanks to the Natuzzi
heritage of fine craftsmanship in the leather sofas segment. The Natuzzi Italia product line includes furnishings and accessories for the
living room and beds, bed linens and bedroom furnishings to further expand its product offerings.
b) Natuzzi Editions was initially designed specifically for the U.S. market. This collection includes a wide range of leather upholstery
products, targeting the medium/medium-high segment of the market and leveraging the know-how and high credibility of the Natuzzi
brand in the leather upholstery industry. Natuzzi Editions products are almost entirely manufactured at the Group’s overseas plants
(Romania, China and Brazil) and are sold through mono-brand stores and galleries. The retail and merchandising format of Natuzzi
Editions has evolved and now includes a wider offering of furnishings.
c) Divani&Divani by Natuzzi represents the branded retail network of the Group in the Italian market, made of both direct-owned
stores and franchise stores.
d) The Private label (or unbranded) division is a key account program to compete in the entry price segments of the market by
conducting business mainly through large distributors. Private label products are manufactured in the Group’s plants located in
Romania, China and Brazil.
Improvement of the Group’s Retail Program and Brand Development — The Group has made significant investments to improve
its existing distribution network and strengthen its Natuzzi brand. The high level of recognition of the Natuzzi brand among high-end
consumers is the result of investments the Company has made over the past decade in its products, communication, store experience
and customer service. This consumer brand awareness encourages the Company to carry on its brand development and further
enhancement of the Group’s distribution network, in order to further increase consumers’ familiarity with the Natuzzi brand, and their
association of it as a high-end brand.
During 2019, 26 Natuzzi Italia stores were opened, 18 of which are located in China, and one in each of the U.S., Argentina, Bolivia,
Brazil, Czech Republic, Italy, Kuwait and Vietnam.
Natuzzi Editions as well as the Divani&Divani by Natuzzi retail chains are characterized by a medium positioning in the upholstery
business. During 2019, 75 Natuzzi Editions were opened (53 of which in China, eight in the UK and seven in Brazil) as well as seven
Divani&Divani by Natuzzi stores in Italy.
As national and local governments have restricted travel, conferences, events and gatherings due to the COVID-19 outbreak and due
to reductions in our liquidity position and the need to use capital for day-to-day operations, our efforts to expand our business
internationally by establishing a new retail presence globally (including, but not limited to, the U.S., China, the UK, Italy and other
Western European countries) will likely be negatively impacted during 2020.
Product Diversification and Innovation — The Group believes that it is crucial to display a coordinated product mix through its
“harmony maker” offer. The “harmony maker” offer is a branded package in accordance with the latest trends in design, materials and
colors, and includes high quality sofas, furnishings (including wall units, dining tables and chairs) and accessories, all of which are
mainly developed in-house and presented in harmonious and personalized solutions. The Group has taken a number of steps to
broaden its product lines, including the development of new models, such as modular and motion frames, and the introduction of new
materials and colors, including exclusive fabrics and microfibers. The Group believes that expanding its “harmony maker” offer will
strengthen its relationships with the world’s leading distribution chains, which are interested in offering branded packages. The Group
has also continued investing in the Natuzzi’s style center in Santeramo in Colle, Italy (the “Style Center”), which serves as a creative
hub for the Group’s design activities.
19
Manufacturing
In response to recent challenges arisen in the global markets, and in particular the imposition of tariffs by the U.S. on goods imported
from China, in the second half of 2019 the Group started a thorough revision of its industrial footprint, which will continue through
2020.
The first step of this revision process is the downsizing of our Chinese manufacturing plant, expected to be completed in the third
quarter of 2020. Following the downsizing, our Chinese plant is expected to only serve the local market and the rest of the Asia-
Pacific region.
As part of this new revision process, the Company has recently started outsourcing its production of unbranded products for some key
U.S. accounts in Vietnam. Vietnam operations are expected to gradually serve the North American market, with a particular focus on
our Private label offering. At the same time, the Company continues to explore further external industrial capacity in tariffs-free and
low-cost European countries to increase its production volumes and competitiveness also in the EMEAI market.
Currently, our manufacturing facilities are located in Italy, Romania, China, and Brazil.
Our three Italian plants dedicated to the production of upholstered products and our two Italian warehouses are located either in or
within a 25 kilometer radius of Santeramo in Colle, where the Group’s headquarters is located. Collectively, these sites extend over
120,000 square meters. As of December 31, 2019, these sites employed 1,534 workers, the majority of whom were subject to layoff
programs. See “Item 6. Directors, Senior Managers and Employees—Employees.” With the exception of the South American market,
the Italian plants are the exclusive producers of Natuzzi Italia products. In 2019, these plants generated about 49% of the Group’s total
consolidated upholstery revenue.
Our Romanian plant is located in Baia Mare. Extending over 75,600 covered square meters (with the total area extending over about
400.000 square meters), it has been in operation since 2003. As of December 31, 2019, it employed 1,003 people, of whom 848 were
laborers. It produces Natuzzi Editions and Private label products for the EMEAI market. In 2019, the Romanian plant produced about
20% of the Group’s total consolidated upholstery revenue.
Our Chinese plant is located in Shanghai, currently extending over 88,000 square meters. The Group has been in operation in China
since 2002. As of December 31, 2019, it employed 869 people, of whom 802 were laborers. It manufactures Natuzzi Editions and
Private label products for the Americas (with the exception of South America) and for the Asia-Pacific market. In 2019, our Chinese
plant produced about 27% of the Group’s total consolidated upholstery revenue.
Our Brazilian plant is located in Salvador De Bahia. Extending over 28,700 square meters, it has been in operation since 2000. As of
December 31, 2019, our Brazilian plant employed 218 people, of whom 166 were laborers. Since the end of 2016, in addition to
Natuzzi Editions and Private label products, the Brazilian plant produces Natuzzi Italia branded products for the South America
market.
We also have two additional plants in Italy: one in Udine (Natco S.p.A. (“Natco”)) dedicated to the production of leather and one near
Naples (IMPE S.p.A. (“IMPE”)) dedicated to the production of flexible polyurethane foam. The Udine facility employed 140 workers
as of December 31, 2019, of whom 120 were laborers. The IMPE facility employed 31 workers as of December 31, 2019, of whom 19
were laborers.
The Group’s facility for the production of polyurethane foam, IMPE, is engaged in the production of flexible polyurethane foam, and
also sells foam to third parties because the facility’s production capacity is in excess of the Group’s needs. In 2012, IMPE obtained
ISO 14001 certification in accordance with the environmental policy of the Natuzzi Group and also improved safety conditions at the
plant. As part of the Group’s efforts to improve its production process, we have substituted some chemical compounds with more
ecologically-friendly materials.
Our production operations retain many characteristics of hand-crafted production coordinated through a management information
system that identifies each component of every piece of furniture by means of a bar-code system and facilitates its automatic transit
and traceability through the different production phases up to the warehouse.
Beginning in 2013, we reviewed our sofa production model, under which sofas were traditionally assembled in a department-based
factory (or “Isle Production” model), with a view toward implementing moving line-based manufacturing processes, with the aim to
improve efficiency, quality and lead time. The moving line production model improves job area ergonomics by splitting products into
lighter pieces at individual phases and also coordinates workers by ensuring that they work at a similar pace. The finished product
tends to be of higher quality and produced more quickly.
20
The new moving lines were gradually introduced in all of the Group’s production facilities. The Group integrated the following
production phases in the moving line production process within our plants: (a) direct integration with wood and foam suppliers to
serve each plant according to daily needs (“just in time” supplying) with the advantage of reducing the stock level for semi-finished
goods; and (b) leather cutting and sewing.
Raw Materials — The principal raw materials used in the manufacture of the Group’s products are hides (mainly cattle hides),
fabrics, polyurethane foam, polyester fiber and wood.
The Group purchases hides from slaughterhouses and tanneries located mainly in Italy, Brazil, India, Germany, other countries in
South America and Europe. The hides purchased by the Group are divided into several categories, with hides in the lowest categories
being purchased mainly in South America and India. The hides in the middle categories are purchased in Europe or South America
and hides in the highest-quality categories are purchased in Italy, Germany and the UK.
21
The supply of cattle hides is principally dependent upon the consumption of beef, rather than on the demand for leather.
During 2019, the prices for cattle hides significantly decreased compared to 2018. In 2019 the price of raw hides reached the lowest
level in the last ten years, even lower than the previous record low in 2009. The current situation is quite uncertain, and due to the
volatile nature of the hides market, there can be no assurance that current prices will remain stable or that price trends will not rise in
the future. See “Item 3. Key Information—Risk Factors—The price of the Group’s principal raw materials and energy costs are
difficult to predict.”
The Group also purchases fabrics and microfibers for use in coverings. Most fabrics are purchased in Italy from a dozen suppliers
which provide the product at the finished stage. Microfibers are purchased in Italy, South Korea and China through suppliers. Fabrics
and microfibers are generally purchased from suppliers pursuant to orders given every week specifying the quantity (in linear meters)
and the delivery date.
The Group obtains the chemicals for the production of polyurethane foam from major chemical companies located in Europe
(including Germany, Italy and the UK) and the polyester fiber filling for its cushions from several suppliers located mainly in
Indonesia, China, Taiwan and India. The chemical components of polyurethane foam are petroleum-based commodities, and the prices
for such components are therefore subject to, among other things, fluctuations in the price of crude oil. The chemical components
prices decreased significantly in 2019 compared with 2018 with a favorable impact on the prices of polyurethane foam. This trend
continued through early 2020.
The Group also offers a collection of home furnishing accessories (tables, lamps, rugs, home accessories and wall units in different
materials). Most of the suppliers are located in Italy, while some hand-made products (such as rugs) are made in India. The new
collections of beds, bedroom furniture and bed linens are produced by Italian companies that are external to the Group. Before any
items are introduced into our collection, they are tested in accordance with European and world safety standards. In the design phase
particular attention is paid to the choice of innovative technological solutions that add value to the product and ensure long lasting
quality.
Supply-Chain Management
The Logistics Department is responsible for monitoring the solutions in order to ensure their effectiveness. Additionally, in order to
improve access to supply-chain information throughout the Group, the Logistics Department utilizes a portal that allows it and other
departments (such as the Customer Service and Sales Department) to monitor the movement of goods through the supply-chain.
Production Planning (Order Management, Warehouse Management, Production, Procurement) — The Group’s commitment to
reorganizing procurement logistics is aimed to:
•
develop a logistics-production model to customize the level of service to customers; and
22
•
optimize the level of the size of the Group’s inventory of raw materials and/or components. A procedure was implemented for
the continuous monitoring of global finished products inventories in order to determine which in-stock goods are currently not
being sold as part of our existing collections (as a result of being phased-out) and enable the different commercial branches to
promote specific sales campaigns of these goods.
The Group also plans procurements of raw materials and components as follows:
(i) “On demand” for those materials and components (which the Group identifies by code numbers) that require a shorter lead time
for order completion than the standard production planning cycle for customers’ orders. This system allows the Group to handle a
higher number of product combinations (in terms of models, versions and coverings) for customers all over the world, while
maintaining a high level of service and minimizing inventory size. Procuring raw materials and components “on demand” eliminates
the risk that these materials and components would become obsolete during the production process; and
(ii) “Upon forecast” for those materials and components requiring a long lead time for order completion. The Group utilizes a
forecast methodology that balances the Group’s desire to maintain low inventory levels against the Sales Department’s needs for
flexibility in filling orders.
Lead times can be longer than those mentioned above when a high number of unexpected orders are received. Delivery times vary
depending on the place of discharge (transport lead times vary widely depending on the distance between the final destination and the
production plant).
Load Optimization and Transportation — The Group delivers goods to customers by common carriers. Those goods destined for
the Americas and other markets outside Europe are transported by sea in 40-foot high cube containers, while those produced for the
European market are generally delivered either by truck or by railway. In 2019, the Group shipped 5,641 containers overseas and
approximately 4,475 full load mega-trailer trucks to European destinations.
With the aim of decreasing costs and safeguarding product quality, the Group uses a software that permits us to manage load
optimization.
The Group relies principally on several shipping and trucking companies operating under “time-volume” service contracts to deliver
its products to customers and to transport raw materials to the Group’s plants and processed materials from one plant to another. In
general, the Group prices its products to cover its door-to-door shipping costs, including all customs duties and insurance premiums.
23
Products
Products are mainly designed in the Company’s Style Center, but the Group also collaborates with international designers for the
conception and prototyping of certain products in order to enhance brand visibility, especially with respect to the Natuzzi Italia
product line.
New models are the result of a constant information flow from the market, in which preferences are analyzed, interpreted and turned
into a brief for designers in terms of style, function and price point. Designers draw the sketches of new products in accordance with
the guidelines they are provided and, through collaboration with the prototype department, approximately 70 new sofa models are
generally introduced each year. The diversity of customer tastes and preferences, as well as the Group’s inclination to offer new
solutions, results in the development of products that are increasingly personalized. More than 100 highly qualified employees
conduct the Group’s R&D efforts from its headquarters in Santeramo in Colle, Italy.
The Group’s wide range of products includes a comprehensive collection of sofas and armchairs with particular styles, coverings and
functions, with more than two million combinations.
•
•
•
The Natuzzi Italia collection stands out for its choice of high-quality materials and finishes, as well as for the creativity and
details of its design. As of December 31, 2019, this product line offered 120 models of sofas and armchairs and eight models of
beds. With respect to furniture coverings, the Natuzzi Italia collection has 10 leather articles in 80 colors and 28 softcover
articles in 138 colors. This collection also includes a selection of additional furniture pieces (such as wall units, coffee tables,
tables, chairs, lamps and carpets) and accessories (including vases, mirrors, magazines racks, trays and decorative objects) to
offer a complete suite of furnishings and with the aim of enabling the Group to develop a “lifestyle” brand.
The Natuzzi Editions and Divani&Divani by Natuzzi collection consisted of 124 models overall as of December 31, 2019. This
vast range of models covers all styles from casual/contemporary to more traditional, suitable for all markets from Europe to
Americas to Asia. This collection focuses on leather and offers 10 leather types available in 77 colors. In addition, a collection
of eight fabric articles available in 60 colors was added to the line.
The Private label collection, as of December 31, 2019 had been significantly reduced to approximately 70 models, including
exclusive models for key accounts. The products are mainly offered in top grain leather, but are also available in a bonded
leather.
The Group operates in accordance with strict quality standards and has earned the ISO 9001 certification for quality and the ISO
14001 certification for its low environmental impact. The ISO 14001 certification also applies to the Company’s tannery subsidiary,
Natco.
The Company pays particular attention to the comfort of its products and its certification. The evaluation process is based on an
ergonomic-principle conformity check (gap analysis), which includes carrying-out several tests selected according to the required
evaluation type and performed in the corresponding ergonomic reference areas. The Company carries out several types of ergonomic
evaluations, including tests performed or supervised by experts (certified European ergonomists), CAD 3D evaluations and
simulations, and tests with real users selected to represent the final users’ categories (e.g., through biomechanical analysis,
usability/distraction tests, interviews, focus groups). Based on the specific product type and request, users are asked to interact with
the tested products by performing representative tasks of a physical (biomechanical interaction) or cognitive nature (cognitive
ergonomics). Such evaluations are carried out to determine the compliance of products with ergonomic principles and requirements
established by the sector technical standards, and may result in an ergonomic certification.
24
Innovation
Since the end of 2013, the Company has been implementing a new production model based on the “lean production” principles.
The sofa production model, under which sofas were traditionally assembled in a department-based factory (or “isle production”
model), was subject to review with a view toward implementing moving line-based manufacturing processes with the aim to improve
efficiency, product quality and lead time. The moving line production model improves job area ergonomics by splitting products into
lighter pieces at individual phases and coordinates workers by ensuring that they work at a similar pace. The finished product tends to
be of higher quality and produced more quickly.
The moving line production system was implemented across all our plants by the end of 2015.
In an effort to reduce the overall complexity of the moving lines processes and increase productivity, a dedicated team was created in
July 2014 (the “lean team”). This team is still in charge of the activities listed below, which are now part of our ordinary industrial
process: (a) analysis of the main product platforms produced in different plants of the Group; (b) diagnosis of these platforms,
resulting in the elimination of underperforming models; (c) simplification of production complexity, through the elimination of
models, versions, coverings that turned out to be underperforming; (d) test and implementation, in collaboration with the University of
Lecce, Italy, of a new software able to plan the production of all of the Group’s plants, with the ultimate goal of increasing the degree
of repetitiveness in production, in order to reduce the complexity of production processes not only in individual plants but also in each
production moving line; (e) use of an additional software necessary to define the best production sequence of models belonging to the
same “family of products” (i.e., having similar components and similar production times) to be assembled and determine a correct
balance between the various stations of the line.
In light of the encouraging results obtained in terms of reduced complexity and increased standardization of the moving lines
processes, the Company also formalized the progressive implementation of a “last planner,” i.e. a planning tool scheduling the activity
of every single moving line in all Natuzzi’s plants starting from September 2015.
In the field of process and product innovation, since 2013, the Group has implemented a modular industrial platform system. Industrial
platforms represent an industrial base common to many models that can be technically and aesthetically modified in order to meet
customers’ requests. The utilization of such platforms grants substantial benefits in terms of product simplification (easy assembly),
management (fewer codes to be managed), quality (potentially fewer production failures), and production costs (economies of scale).
The Company is implementing the following programs and measures related to the product development process and product design
and engineering systems:
•
•
•
a holistic quality-based approach to control the quality of the product based on the finite element method (“FEM”), expected to
lead to reduced claims and increased customer satisfaction regarding product durability;
a dedicated comfort team, with the aim to improve the ergonomic and comfort performance of the prototyped sofas, also by
introducing virtual seating and ergonomic IT solutions in order to increase the wellness comfort experience of customers;
a 3D designing system with the support of product data management. This system is expected to increase the effectiveness of
our engineering team by facilitating product development activities and testing platforms and critical quality points.
25
The Company is also improving the design for manufacture and assembly strategy for product development and aligning it with
the lean production system;
a visual management system within the product development process, making it possible to have a real-time understanding of
product development requests;
an open innovation office with the aim to lead breakthrough innovations, procure innovative materials and collaborate with
research institutes.
•
•
Beginning in July 2014, we built an experimental laboratory for simulating all single phases within a typical moving line at the
Company’s headquarters in Santeramo in Colle. In this laboratory, our experts test ideas proposed by the lean team, with the aim of
improving production efficiency, productivity, quality of finished products and workstation ergonomics. All the ideas that test
successfully in this laboratory are expected to be implemented in all of the Group’s industrial plants. Since 2015, this laboratory has
tested many new models and work methodologies.
R&D expenses, which include labor costs for the R&D department, design and modeling consultancy expenses and other costs related
to the R&D department, were €3.7 million in 2019, €3.4 million in 2018 and €4.5 million in 2017.
26
Advertising
The Company’s marketing and communication strategy continues to focus on the retail business model. Similarly to our distribution
model, our marketing and communication model relies heavily on a holistic and multichannel approach, which targets all possible
touchpoints with consumers through innovative digital projects, advertising activities and specifically targeted events.
Our marketing and communication strategy is differentiated per branded product line. Specifically, we have adopted two different
approaches, one for the Natuzzi Italia and Divani&Divani by Natuzzi brands and one for the Natuzzi Editions brand.
As for the Natuzzi Italia and Divani&Divani by Natuzzi brands, our strategy operates on three levels: lead nurture, field activation and
customer retention. This strategy is implemented through the definition of promotional calendars with communication campaigns
aimed at satisfying all three levels. Each promotional activity is differentiated geographically, with regard to both commercial terms
and the products offered, thus adapting our offering of collections and our media coverage to the targeted demographics.
With regard to Natuzzi Italia, a particularly successful project in 2020 was the Augmented Store project. Carried out in partnership
with Microsoft Corporation, this project entailed a new retail space where virtual and augmented reality, holographic displays and
advanced 3D configurators coexist with the physical store to offer personalized services to our customers. Winner of the 2020 Retail
Week Award, this project resulted in an increased conversion rate of orders, reduced time for customers to make purchase choices and
reduced costs to set up shops. In addition to these direct benefits, the project also generated a large return in terms of media coverage.
The Augmented Store project represents a further step in the direction of the “phygital” retail experience, which puts the end
consumer at the center of all activities.
Additionally, we targeted high-end consumers, architects, designers, interior decorators and influencers in the design and lifestyle
world with dedicated solutions and experiences, media coverage by the best interior design, fashion and lifestyle editorial firms, as
well as with dedicated events during main industry events, such as Il Salone del Mobile in Milan and the Furniture Fair in Shanghai.
With regard to Divani & Divani by Natuzzi, we placed great emphasis on the production and launch of the new catalog, which has
been physically and digitally distributed with dedicated campaigns. This communication tool continues to be fundamental for retail
marketing activities and constitutes a fundamental asset in business to business marketing and commercial dynamics.
The second approach we implemented with regard to our marketing and communication strategy specifically focused on the
distribution model of Natuzzi Editions, which needs to be supported through the development of content and marketing resources
functional to local marketing calendars. Accordingly, we developed a digital marketing platform to simplify access to content to our
global network. This digital marketing platform allows our network of distributors and store operators to plan and realize smarter and
more dynamic marketing activities that are updated and consistent with the evolution of the brand itself. The production and wide
distribution of a new catalog for Natuzzi Editions also had a positive impact, helping to share and communicate the brand’s added
values and its evolutionary path.
The Group has remained focused on achieving the objectives of its retail development plan in its most important markets by opening
new stores and closing/relocating those stores that have not met expected revenue goals.
Retail Development
27
Relocation and closing of existing non-performing points of sale continued during 2019 aimed to get to a more efficient distribution
network.
During 2019, new openings of directly operated stores (“DOS”) were concentrated in strategic countries: one Natuzzi Italia DOS was
opened in Sarasota, FL, U.S., one Natuzzi Italia DOS was opened in Italy, near Milan, and two Natuzzi Editions DOS were opened in
Stockton and Stoke, UK, in continuity with our brand expansion strategy in the retail parks.
The Group continued to strengthen its retail development plan through the joint venture the Company signed for Greater China, where
18 Natuzzi Italia stores and 53 Natuzzi Editions stores openings took place during 2019.
In addition, in 2019, we opened 3 Natuzzi Italia stores and 10 Natuzzi Editions stores in South America, which we believe could offer
further opportunities for growth.
The UK market continues to become more and more important for the Company, as demonstrated by six new Natuzzi Edition
franchise stores openings in 2019. Concessions in the UK were closed in early 2019 since this type of store format was not in line with
our retail development strategy goals in the UK.
Markets
The Group markets its products internationally as well as in Italy. Historically, the distribution of the Group’s product has been in the
wholesale channel, which still represents a significant portion of the entire business.
The following tables show the number of Group stores (both directly operated and franchises) as of March 31, 2020 according to our
principal geographic areas.
STORES
Americas(1)
EMEAI
Asia-Pacific
TOTAL
United States and Canada
Other Americas
Total Americas
Europe (excluding Italy)
Italy
Middle East, Africa and India
Total EMEAI
China (2)
Other Asia-Pacific
Total Asia-Pacific
Natuzzi
Italia
Natuzzi
Editions
Divani&Divani
by Natuzzi
13
27
40
68
6
25
99
77
21
98
2
47
49
18
0
1
19
178
3
181
237
249
TOTAL
15
74
0
0
0
2
67
0
69
0
0
0
69
89
88
73
26
187
255
24
279
555
1)
2)
Includes the United States, Canada, Central and South America (including Brazil) (collectively, the “Americas”).
Includes the Natuzzi stores (both directly operated and franchises) managed by Natuzzi Trading (Shanghai) Co., Ltd., owned by
the Company with a 49% stake, following the agreement with the Kuka group. See “3. Asia-Pacific Region” below.
As of December 31, 2019, there were 11 Natuzzi Italia concessions, all directly managed by the Company’s Mexican subsidiary. In
early 2019, the seven Natuzzi Italia concessions located in the UK were closed.
28
The following table shows the Group’s consolidated revenue of core products (including sales of upholstery sofas, beds and
furnishings) broken down by geographic market and business division for each of the years indicated.
Core business consolidated net sales (millions of Euro)
Americas(1)
Natuzzi(2)
Unbranded
EMEAI
Natuzzi(2)
Unbranded
Asia-Pacific
Natuzzi(2)
Unbranded
Total
2019
2018
2017
135.5
105.1
30.4
169.4
131.1
38.3
63.9
59.4
4.5
36.7% 135.1
28.5% 101.4
8.2% 33.7
46.0% 195.2
35.6% 140.1
10.4% 55.1
17.3% 76.9
16.1% 71.4
1.2% 5.5
33.2% 150.9
24.9% 109.4
8.3% 41.5
47.9% 196.3
34.4% 139.4
13.5% 56.9
18.9% 75.9
17.5% 69.8
1.4% 6.1
35.7%
25.9%
9.8%
46.4%
32.9%
13.5%
17.9%
16.5%
1.4%
368.8
100.0% 407.2
100.0% 423.1
100.0%
(1)
(2)
Includes the United States, Canada, Central and South America (including Brazil).
The “Natuzzi” brand includes the following lines of product: Natuzzi Italia, Natuzzi Editions and Divani&Divani by Natuzzi.
Upholstered net sales under the “Natuzzi” brand also includes net sales of beds sold under the Natuzzi Italia line.
The following table shows the number of seats sold broken down by geographic market and business division for each of the years
indicated:
Leather and Fabric Upholstered Furniture, Net Sales (in seats)
Americas(1)
Natuzzi(2)
Unbranded
EMEAI
Natuzzi(2)
Unbranded
Asia-Pacific
Natuzzi(2)
Unbranded
Total
2019
2018
2017
370,141
235,043
135,098
515,136
296,208
218,928
133,363
111,932
21,431
36.3% 439,729
23.1% 275,371
13.2% 164,358
50.6% 658,348
29.1% 322,851
21.5% 335,497
13.1% 152,069
11.0% 122,037
30,032
2.1%
35.2% 504,171
22.0% 301,605
13.1% 202,567
52.7% 641,567
25.8% 322,741
26.8% 318,826
12.2% 166,711
9.8% 129,632
37,079
2.4%
38.4%
23.0%
15.4%
48.9%
24.6%
24.3%
12.7%
9.9%
2.8%
1,018,640
100.0% 1,250,146
100.0% 1,312,449
100.0%
(1)
(2)
Includes the United States, Canada, Central and South America (including Brazil).
The “Natuzzi” brand includes the following four lines of product: Natuzzi Italia, Natuzzi Editions and Divani&Divani by
Natuzzi. Upholstered net sales under the “Natuzzi” brand also includes net sales of beds sold under the Natuzzi Italia line.
1. The Americas
In 2019, net sales from our core business (leather and fabric-upholstered furniture and beds, as well as furnishings) in the U.S. and the
rest of the Americas (including Brazil) were €135.5 million, up 0.3% compared to 2018, whereas the number of seats sold decreased
by 15.8%, to 370,141 in 2019.
In particular, net sales from our Natuzzi branded products were €105.1 million, up 3.7% compared to 2018.
29
Sales from our Private label division were €30.4 million, down 9.8% compared to 2018. The unbranded division continued to be
affected by difficult retail conditions experienced in the North American market resulting in a reduction of their points of sale. In
addition, in 2019, the unbranded division has been negatively affected by customs duties imposed on goods manufactured in China
and imported in the U.S. market and, more generally, by increased price competition. In light of the tariffs imposed by the U.S. on
goods imported from China, since December 2019, the Company has started to outsource in Vietnam part of its Private label
production for some Key Accounts in the U.S. See “—Manufacturing.”
The Group’s principal customers are major distributors. The Group advertises its products to distributors and, recently, to end-
consumers in the U.S., Canada, Central and South America (excluding Brazil) both directly and through the use of various marketing
tools. The Group also relies on its network of sales representatives and on furniture fairs held at its High Point, North Carolina, to
promote its products.
Natuzzi Americas maintains offices in High Point, North Carolina and provides Natuzzi S.p.A with agency services. The staff at High
Point provides customer service, trademarks and products promotions, credit collection assistance, and generally acts as the customers
contact for the Group. As of March 31, 2020, the High Point North Carolina operation had 49 employees. In addition, Natuzzi
Americas has six independent sales representatives.
Our commercial activities in Brazil are overseen from our Salvador de Bahia facility. The Group’s commercial structure in Brazil has
been reinforced over the years by an increase in personnel, from 12 representatives in 2012 to 20 as of the end of 2019. 2019 sales in
Brazil were €12.0 million. As a result of the focus to the Brazilian high-end consumer market, the Group currently distributes a
Natuzzi Italia “made in Brazil” collection, entirely manufactured in Brazil and dedicated exclusively to the South American market.
In 2016, the Group acquired seven Natuzzi Italia stores all located in Florida. In December 2016, the Company established a new
trading subsidiary located in Mexico, Natmex S.DE.R.L.DE.C.V. (“NATMEX”). In January 2017, NATMEX signed an agreement
with the owners of Muebleria Standard. Under the agreement, NATMEX acquired the three existing Natuzzi Italia stores located in
Mexico City-Altavista, Guadalajara and Monterrey. In addition to the directly operated stores, NATMEX sells in the Mexican market
through 11 directly managed Natuzzi Italia concessions in Palacio de Hierro, a high-end retailer having shopping malls in excellent
locations throughout Mexico. In June 2017, the Company opened its new North American retail store in West Palm Beach, Florida.
During 2018, the Company opened three new DOS in the USA, namely one in Chicago, one in Los Angeles-Costa Mesa and one in
Philadelphia. In 2019, one Natuzzi Italia store was opened in the Sarasota, Florida. These new stores are part of the strategy
announced in 2016 to open Company managed stores in high traffic and prime retail locations, showcasing the new store design,
merchandising concept and overall Natuzzi consumer experience.
As of March 31, 2020, there were 15 Natuzzi Italia stores in the Americas (12 in the U.S. and three in Mexico) directly managed by
the Group and 11 Natuzzi Italia concessions (store-in-store points of sale, directly managed by the Mexican subsidiary of the Group).
As of the same date, there were also 14 Natuzzi Italia stores operating in the Americas that are owned by local franchisees (six in
Brazil, two in Venezuela, one in each of the U.S., Argentina, Bolivia, Colombia, Dominican Republic and Panama). Furthermore, as
of the same date, there were 49 Natuzzi Editions franchise stores, of which 40 were located in Brazil, two in each of the U.S., Peru and
Uruguay, and one in each of Argentina, Ecuador and Paraguay.
2. EMEAI
In 2019, net sales from our core business in Europe (including Italy), the Middle East, Africa and India (collectively, “EMEAI”) were
€169.4 million, down 13.2% compared to 2018, with the number of seats decreasing by 21.8% to 515,136 in 2019. Natuzzi branded
sales amounted to a total of €131.1 million in 2019 (down 6.4% from 2018), and unbranded products net sales decreased by 30.5% to
€38.3 million.
30
2a) Italy. Since 1990, the Group has sold its upholstered products in Italy principally through the Divani&Divani by Natuzzi franchise
network of furniture stores. As of March 31, 2020, there were 67 Divani&Divani by Natuzzi stores (of which 14 directly operated by
the Company), and six Natuzzi Italia stores, all directly operated by the Company.
2b) Europe (Outside Italy). The Group sells its products in other European markets mainly through stores (franchises or directly
operated stores). As of March 31, 2020, 88 stores were operating in Europe: two under the Divani&Divani by Natuzzi, all located in
Portugal; 68 were under the Natuzzi Italia name (15 in the United Kingdom, 13 in Spain, six in Turkey, four in each of France and the
Czech Republic, three in each of Russia, Switzerland and Ukraine, two in each of Bosnia and the Netherlands and one in each of
Azerbaijan, Croatia, Cyprus, Greece, Hungary, Latvia, Malta, Poland, Romania, Serbia, Slovakia, Slovenia and Uzbekistan). As of the
same date, there were 18 Natuzzi Editions of which 10 located in the UK, four in the Czech Republic and one in each of the Croatia,
Serbia, Spain and Turkey. Of these stores, as of March 31, 2020, the Group directly owned 21, of which 19 were operated under the
Natuzzi Italia name (11 in Spain, four in the UK, three in Switzerland, and one in France) and two were operated under the Natuzzi
Editions name, both opened in December 2019 and located in the UK. During the first months of 2019, the Company decided to close
all the UK based concessions that were operating under the Natuzzi Italia name.
2c) Middle East, Africa and India. As of March 31, 2020, the Group had a total of 25 Natuzzi Italia stores in the Middle East, Africa
and India: five in each of India and Israel, three in each of Saudi Arabia and the United Arab Emirates, and one in each of Algeria,
Bahrain, Egypt, Ivory Coast, Kuwait, Lebanon, Pakistan, Qatar and Sri Lanka. In addition, one Natuzzi Editions store was operating in
Israel. All of these stores are operated by franchise partners.
In January 2012, following the worsening of the European Union’s diplomatic relations with Iran and Syria, the Company decided to
cease all business relations with these two countries. No impairment issue arose following the cessation of business relations with
those two countries. The Group had no sales in Iran or Syria in 2019, 2018, 2017 and 2016. Our prior interests and activities in Iran or
Syria were not a material investment risk, either from an economic, financial or reputational point of view. The Group has not had, nor
does it plan to have, any commercial contacts with the governments of Iran or Syria, or with entities connected with such
governments.
The Group has never generated sales in Sudan, North Korea or Cuba.
3. Asia-Pacific Region
In 2019, net sales from our core business in the Asia-Pacific region were €63.9 million, down 16.9% compared to 2018, and the
number of seats sold decreased by 12.3%, to 133,363 in 2019. In 2019, Natuzzi branded sales decreased by 16.8% to €59.4 million,
and unbranded sales decreased by 18.2% to €4.5 million compared to 2018.
The general strategy for the Natuzzi brand is to further expand the store network throughout the region, with a strong emphasis on the
Chinese market.
The Group’s commercial part of the business throughout the Asia-Pacific region was run by Natuzzi Trading (Shanghai) Co., Ltd.
until July 27, 2018. On that date, the Company announced the completion of the transactions (the “Closing”) contemplated by the joint
venture agreement, signed in March 2018, between the Company and Kuka Furniture (Ningbo) co., Ltd. (“Kuka”). As a result of the
Closing, the Company’s wholly-owned Chinese subsidiary, Natuzzi Trading (Shanghai) Co., Ltd. (“Trading Co.”) became a joint
venture in which each of the Company and Kuka currently owns a 49% and a 51% stake, respectively.
This joint venture is aimed at expanding the Company’s retail network in Mainland China, Hong Kong and Macau (the “Territory”).
Trading Co. will distribute the Natuzzi Italia and Natuzzi Editions branded products through a network of single-brand directly
operated stores and franchise stores in the Territory, as well as through online stores.
As of March 31, 2020, 98 Natuzzi Italia franchise stores were operating in the Asia-Pacific market: 74 in China, seven in Australia, six
in Taiwan, three in each of Hong Kong and in South Korea, and one in each of Indonesia, Philippines, Singapore, Thailand and
Vietnam. In addition, as of the same date, the Group had 181 Natuzzi Editions stores, of which 177 located in China, two in Taiwan
and one in each of Hong Kong and Thailand. Following the execution of this joint venture in China, the 11 Natuzzi Editions DOS
were transferred to Trading Co.
31
The Group also maintains galleries in the Asia-Pacific region under the Natuzzi Italia and Natuzzi Editions.
Customer Credit Management
The Group maintains an active credit management program. The Group evaluates the creditworthiness of its customers on a case-by-
case basis according to each customer’s credit history and information available to the Group. Throughout the world, the Group
utilizes “open terms” in 71% of its sales and obtains credit insurance for 90% of this amount; about 11% of the Group’s sales are
commonly made to customers on a “cash against documents” and “cash on delivery” basis; lastly, about 18% of the Group’s sales are
supported by a “letter of credit” or “payment in advance.” In July 2015, the Company signed the Securitization Agreement, a 5-year
non-recourse (pro soluto) assignment of trade receivables with a major Italian financial company by means of a securitization
program. The maximum amount of trade receivables that may be sold under this Securitization Agreement is currently €47.5 million
(increased from the €35 million originally established). Since the Securitization Agreement is set to expire in July 2020, we expect to
either renew it or enter into a new securitization program.
Incentive Programs and Tax Benefits
Historically, the Group has benefited from the Italian government’s investment incentive program for under-industrialized regions in
Southern Italy, which includes the area that serves as the center of the Group’s operations. The investment incentive program provides
tax benefits, capital grants and subsidized loans. There can be no assurance that the Group will continue to be eligible for such grants,
benefits or tax credits for its current or future investments in Italy.
In 2013, the Company took part in a temporary association of companies (Associazione Temporanea di Imprese) (“ATI”), under a
program called “MAIND,” which aimed to share research, development and training expenses related to eco-innovative materials and
advanced technologies for the manufacturing and construction industries. Since 2013, we have received approximately €0.4 million
from the Italian government under this program. This program ended in 2019.
In September 2015, the Company presented to the Italian Ministry of Economic Development (Ministero dello Sviluppo Economico,
the “Ministry”) a €49.7 million investment program for industrial development consisting of six programs, including a research and
development program and the upgrade of its Italian facilities located in the regions of Puglia and Basilicata. In 2015, the Company
formally requested that the grant from the Ministry be €37.3 million from public incentives. On September 23, 2015, the Company
entered into a formal agreement (the “Development Contract”) with the Ministry and the governments of Puglia and Basilicata
reflecting this investment. On January 23, 2017, following its review of such program, the Ministry reduced the amount of
investments from €49.7 million to €37.8 million, according to the following allocation: €27.6 million to upgrade the Italian plants
located in Puglia and Basilicata and €10.2 million for innovation, research and development expenses. Consequently, grants from
public incentives were reduced from €37.3 million to €26.9 million (€11.0 million as a capital grant and €15.9 as subsidized loan). The
Company began the planned investment activity in 2016. Specifically, it invested €5.0 million in 2016 and €2.0 million in 2017. In
January 2018, the Ministry issued a decree for the Company to sign. Following the unfavorable judgement by the Labor Court of Bari,
which required the Company to re-employ 166 workers, the Company decided not to sign the decree because it considered that the
conditions set out in the decree, including the obligation not to fire workers for a 10-year period, were too onerous. On March 5, 2019,
the Company presented to the Ministry of Economic Development an updated document concerning the Developing Contract. In July
2019, the Ministry issued a decree which valued the Company’s investment program at €45.7 million, of which €33.9 million
considered eligible for public incentives, and granted the Company: (i) a €4.3 million capital grant and a €12.7 million subsidized loan
for the upgrade of the Italian facilities in Puglia and Basilicata and (ii) a €5.9 million capital grant and a €1.2 million subsidized loan
for innovation, research and development expenses, for a total of €24.1 million in grants from public incentives. By signing the
decree, the Company undertook to carry out the research and development program and the upgrade of the Italian facilities in Puglia
and Basilicata by December 31, 2020, recently postponed to December 31, 2021 by the relevant Ministry. Following the COVID-19
outbreak, the Company requested a further extension of the deadline to December 31, 2022. As of the date of this Annual Report, the
Ministry has not yet provided the Company with an official reply. In December 2019, the Company received €7.2 million from the
Ministry, equivalent to 30% of the total grants, of which €3.0 million as a capital grant and €4.2 million as a subsidized loan. The
Company must present the expenditure documentation relating to the €7.2 million received by July 31, 2020. Subsequent statements
of expenses relating to this investment program will need to be submitted by January 31, 2021.
32
Management of Exchange Rate Risk
The Group is subject to currency exchange rate risk in the ordinary course of its business to the extent that its costs are denominated in
currencies other than those in which it earns revenues. Exchange rate fluctuations also affect the Group’s operating results because it
recognizes revenues and costs in currencies other than Euro but publishes its financial statements in Euro. The Group also holds a
substantial portion of its cash and cash equivalents in currencies other than the Euro. The Group’s sales and results may be materially
affected by exchange rate fluctuations. For additional information see “Item 3. Key Information—Risk Factors—Fluctuations in
currency exchange rates and interest rates may adversely affect the Group’s results” and “Item 11. Quantitative and Qualitative
Disclosures about Market Risk.”
Trademarks and Patents
The Group’s products are sold mainly under the Natuzzi Italia and Natuzzi Editions trademarks. These trademarks and certain other
trademarks, such as Divani&Divani by Natuzzi and Natuzzi Re-vive, have been registered in all jurisdictions in which the Group has a
commercial interest, such as Italy, the European Union and elsewhere. In order to protect its investments in new product development,
the Group has also undertaken the practice of registering certain new designs in most of the countries in which such designs are
sold. Currently, the Group has approximately 709 certificates of design registrations referring to single and multiple applications for a
total of 1516 models (the same model may be registered in more than one country and/or jurisdiction, resulting in more than 12.000
registrations related to 1516 models in several countries) and 13 patents (registered and pending).
Applications are made with respect to new product introductions that the Group believes will enjoy commercial success and have a
high likelihood of being copied.
In 2013, the Natuzzi Group launched Re-vive®, an innovative armchair that was the result of a collaborative effort between Natuzzi’s
Style Center and the Formway Design Studio of Wellington, New Zealand. The Re-vive® recliner combines style and comfort, Italian
artisan expertise and innovative New Zealand design. This innovative armchair is internationally protected by several patents covering
both its shape and all of its components. In particular, the design patent was filed in 40 countries, while the mechanism patent was
filed in 8 countries.
As for the distribution of the products that are manufactured in the Group’s plants and identified under various names (Natuzzi Italia,
Natuzzi Editions, Divani&Divani by Natuzzi and Natuzzi Re-vive), the Group has entered into business agreements under the form of
sale licenses (product supply and brand usage licenses) with its customers (distributors and retailers).
Furthermore, the Group has supply agreements in place with large wholesalers for the supply of Private label products that are
manufactured by the Group’s industrial plants outside of Italy.
33
Regulation
The Company is incorporated under the laws of the Republic of Italy. The principal laws and regulations that apply to the operations
of the Company—those of Italy and the European Union—are different from those of the United States. Such non-U.S. laws and
regulations may be subject to varying interpretations or may be changed, and new laws and regulations may be adopted, from time to
time. Our products are subject to regulations applicable in the countries where they are manufactured and sold. Our production
processes are regularly inspected to ensure compliance with applicable regulations. While management believes that the Group is
currently in compliance in all material respects with such laws and regulations (including rules with respect to environmental matters),
there can be no assurance that any subsequent official interpretation of such laws or regulations by the relevant governmental
authorities that differs from that of the Company, or any such change or adoption, would not have an adverse effect on the results of
operations of the Group or the rights of holders of the Ordinary Shares or the owners of the Company’s ADSs. See “—Environmental
Regulatory Compliance,” “Item 10. Additional Information—Exchange Controls” and “Item 10. Additional Information—Taxation.”
The Group, to the best of its knowledge, operates all of its facilities in compliance with all applicable laws and regulations.
Environmental Regulatory Compliance
The Group maintains insurance against a number of risks. The Group insures against loss or damage to its facilities, loss or damage to
its products while in transit to customers, failure to recover receivables, certain potential environmental liabilities, product liability
claims and Directors and Officer Liabilities. While the Group’s insurance does not cover 100% of these risks, management believes
that the Group’s present level of insurance is adequate in light of past experience.
Insurance
34
The location, approximate size and function of the principal physical properties used by the Group as of March 31, 2020 are set forth
below:
Description of Properties
Country
Italy
Italy
Location
Santeramo in Colle (BA)
Santeramo in Colle (BA)
Italy
Italy
Santeramo in Colle, Jesce (BA)
Matera La Martella
Italy
Matera, Jesce
Italy
Laterza (TA)
Italy
Laterza (TA)
Italy
Laterza (TA)
Italy
Italy
U.S.A.
Qualiano (NA)
Pozzuolo del Friuli (UD)
High Point, North Carolina
Romania
Baia Mare
China
Shanghai
Brazil
Salvador de Bahia – Bahia
Size
(approximate
square meters)
Function
27,000 Headquarters, prototyping, showroom (Owned)
Experimental laboratory: Leather cutting, Sewing,
Assembling wooden parts for frame, product
assembly (Owned)
2,000
28,000 Sewing and product assembly (Owned)
38,000
10,000
10,300
10,000
General warehouse of sofas and accessory
furnishing (Owned)
Leather cutting, Sewing, Assembling wooden parts
for frame, product assembly (Owned)
Leather and fabrics Warehouse, Leather and
fabrics cutting, (Owned)
Sewing, Assembling wooden parts for frame,
product assembly (Owned)
Semi-finished products and accessories Warehouse
(Owned)
16,000
12,000 Polyurethane foam production (Owned)
21,000 Leather dyeing and finishing (Owned)
10,000
75,600
88,000
28,700
Office and showroom for Natuzzi Americas
(Owned)
Leather cutting, product assembly, manufacturing
of wooden frames, polyurethane foam shaping,
fiberfill production and wood and wooden product
manufacturing (Owned)
Leather cutting, sewing and product assembly,
manufacturing of wooden frames, polyurethane
foam shaping, fiberfill production (Leased)
Leather cutting, sewing and product assembly,
manufacturing of wooden frames, polyurethane
foam shaping, fiberfill production (Owned)
Production
Capacity per
day
N.A.
100
Unit of
Measure
N.A.
Seats
800
N.A.
350
N.A.
500
N.A.
46
Seats
N.A.
Seats
N.A.
Seats
N.A.
Tons
11,000 Square Meters
N.A.
N.A.
1,477
Seats
1,600
Seats
195
Seats
The Group believes that its production facilities are suitable for its production needs and are well maintained.
The following table sets forth the Group’s capital expenditures for the two-year period ended December 31, 2019:
Capital Expenditures
Land and plants
Equipment
Intangible assets
Total
Year ending December 31,
(millions of Euro)
2019
2018
0.6
3.6
0.9
5.1
0.7
6.6
0.9
8.2
35
Capital expenditures in the last two years have been made primarily to make improvements to property, plant and equipment and to
expand our retail network. In 2019, capital expenditures were primarily made to make improvements to the Group’s existing industrial
and retail facilities, in particular in Italy, and to develop our e-commerce, the “Natuzzi customer experience” configurator and our 3D
digital platform.
As of May 22, 2020, the Company spent €1.3 million on capital expenditures since January 1, 2020. The Group expects that capital
expenditures in 2020 will be in the order of €8.1 million. Capital expenditures in 2020 are expected to be financed mainly through
long-term borrowings. For information on potential impacts of the COVID-19 pandemic on our capital expenditures plans, see “Item
3. Key Information—Risk Factors— The global outbreak of COVID-19 has had, and is expected to continue to have, an adverse
impact on our business, operations and results.”
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of the Group’s results of operations, liquidity and capital resources is based on information derived from the
audited Consolidated Financial Statements and the notes thereto included in Item 18 of this Annual Report. These financial statements
have been prepared in accordance with IFRS and are included in Item 18 of this Annual Report. All information that is not historical
in nature and disclosed under “Item 5—Operating and Financial Review and Prospects” is deemed to be a forward-looking statement.
See “Item 3. Key Information—Forward Looking Information.”
The consolidated financial statements of Natuzzi S.p.A. as at and for the years ended December 31, 2019 and 2018 have been
prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board
(“IFRS”), including interpretations issued by the IFRS Interpretations Committee (“IFRS IC”) applicable to companies reporting
under IFRS. The consolidated financial statements as at and for the year ended December 31, 2018 were the Group’s first set of
consolidated financial statements prepared in accordance with IFRS and IFRS 1 “First-time Adoption of International Financial
Reporting” was applied to such financial statements. Historical financial results as at and for the year ended December 31, 2017 have
been restated for comparative purposes, in order to present the effect of the adoption of IFRS. See Note 1 to the Consolidated
Financial Statements.
Critical Accounting Policies and estimates
Use of Estimates — The significant accounting policies used by the Group to prepare its financial statements are described in Note 4
to the Consolidated Financial Statements. The application of these policies requires management to make estimates, judgments and
assumptions that are subjective and complex, and which affect the reported amounts of assets and liabilities as of any reporting date
and the reported amounts of revenues and expenses during any reporting period. The Group’s financial results could be materially
different if different estimates, judgments or assumptions were used. The following discussion addresses the estimates, judgments and
assumptions that the Group considers most material based on the degree of uncertainty and the likelihood of a material impact if a
different estimate, judgment or assumption were used. Actual results could differ from such estimates, due to, among other things,
uncertainty, lack or limited availability of information, variations in economic inputs such as prices, costs, and other significant factors
including the matters described under “Risk Factors.”
Impairment of non-financial Assets — Management reviews non-financial assets, including intangible assets with estimable useful
life, goodwill and equity-method investees, for impairment whenever changes in circumstances indicate that the carrying amount of
the assets may not be recoverable and would record an impairment charge if necessary. For impairment testing, assets are grouped
together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash
inflows of other assets or cash generating units (“CGUs”). Following IAS 36, recoverability of assets or CGUs to be held and used is
measured by a comparison of the carrying amount of an asset to the recoverable amount, which is the higher of the estimated fair
value less costs to sell or of future discounted net cash flows expected to be generated by the asset or CGU.
36
Future discounted net cash flows are significantly impacted by estimates of future prices for our products, capital needs, economic
trends and other factors. If the carrying value of an asset or CGU is considered impaired, an impairment charge is recorded for the
amount by which the carrying value of the asset or CGU exceeds its estimated recoverable amount, in relation to its use or realization,
as determined by reference to the most recent corporate plans. Assets not in use/to be disposed of are reported at the lower of their
carrying amount and their fair value less costs to sell. Estimated fair value is generally determined through various valuation
techniques including quoted market values and third-party independent appraisals, as considered necessary. The Company analyzes its
overall valuation and performs an impairment analysis of its non-financial assets in accordance with IAS 36.
Due to a market capitalization that falls below the carrying amount of the Company, and history of operating loss and revenue decline,
management has performed impairment tests on certain non-financial assets where losses have been generated. The fair value analysis
of each non-financial asset is unique and requires that management use estimates and assumptions that are deemed prudent and
reasonable for a particular set of circumstances. Management believes that the estimates used in the analyses are reasonable; however,
changes in estimates could affect the relevant valuations and the recoverability of the carrying values of the assets.
The cash flows employed in our 2019 discounted cash flow analyses for impairment analysis of non-financial assets, were based on
the budget approved by the Board of Directors in last quarter of 2019.
While management believes its estimates are reasonable, many of these matters involve significant uncertainty, and actual results may
differ from the estimates used. The key inputs and assumptions that were used in performing the 2019 impairment test for the main
CGUs are as follows:
CGU
Italy – production sites
Italy – assets not in use
G – Estimated long-term growth rate
Cash Flows
Discounted
Third-
party independent appraisal
Year Ended Dec. 31, 2019
Net book value
(thousands of €)
36,636
G
0.5%
WACC
9.39%
10,468
n.a.
n.a.
Sales CAGR
2020-2024
5.0%
n.a.
WACC – Weighted average cost of capital, based on inputs, among other sources, from “Damodaran Online” available at the
following page: http://pages.stern.nyu.edu/~adamodar/
Sales CAGR – Sales compound annual growth rate
The compound annual growth rate for sales for Italian production sites is based on the five-year business plan.
The deterioration of the macroeconomic environment, retail industry and the deterioration of our performance, could affect our Italian
production CGU. In performing the impairment analysis management has performed a sensitivity analysis, which results in a
discounted cash flow exceeding the carrying amount of the CGU with an adequate cushion.
As of December 31, 2019 and 2018, the Company did not record an impairment loss for its non-financial assets. See Notes 8, 9, 10
and 11 to the Consolidated Financial Statements.
Recoverability of Deferred Tax Assets — Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the accounting in the consolidated financial statements of existing assets and liabilities and their
respective tax bases, as well as for losses available for carrying forward in the various tax jurisdictions. Deferred tax assets are
recognised to the extent that it is probable that future taxable profits will be available. Deferred tax assets and liabilities are calculated
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes
the enactment date.
37
In assessing the feasibility of the realization of deferred tax assets, management considers whether it is probable that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible and the tax loss carried-forwards are
utilized. Estimating future taxable income requires estimates about matters that are inherently uncertain and requires significant
management judgment, and different estimates can have a significant impact on the outcome of the analysis.
In 2019 and 2018, because domestic companies and some of foreign subsidiaries realized significant pre-tax losses and were in a
cumulative loss position, management did not consider it probable that the deferred tax assets of those companies would be realized in
the scheduled reversal periods (see Note 38 to the Consolidated Financial Statements). In making its determination that a deferred tax
asset was required, management considered the scheduled reversal of deferred tax liabilities and tax planning strategies but was unable
to identify any relevant tax planning strategies available to increase the recognition of the deferred tax assets.
Changes in the assumptions and estimates related to future taxable income, tax planning strategies and scheduled reversal of deferred
tax liabilities could affect the recoverability of the deferred tax assets. If actual results differ from such estimates and assumptions the
Group financial position and results of operation may be affected.
Provisions — The Group makes estimates and judgements in relation to the provisions for legal and tax claims, service warranties and
one time termination benefits for certain employees. Provisions for legal and tax claims, service warranties and one time termination
benefits for certain employees are recognised when the Group has a present legal or constructive obligation as a result of past events,
it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions
are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood
of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the
present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting
period. The discount rate used to determine the preset value is a pre-tax rate that reflects current market assessments of the time value
of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest
expense.
Actual results related to such provisions may differ significantly from the estimates, due to, among other things, uncertainty, lack or
limited availability of information and variation in economic inputs.
Fair value of Natuzzi Trading (Shanghai) Co. Ltd. —Following the transaction occurred with Kuka, as disclosed in Note 11 to the
Consolidated Financial Statements, the Company has lost control over its former subsidiary Natuzzi Trading (Shanghai) Co. Ltd. In
accordance with IFRS 10, the Company has recognized the 49% retained interest in its former subsidiary at its fair value, which was
estimated utilizing a third-party independent appraiser, by applying a discounted earnings technique. Such fair value is therefore based
on significant inputs that are not observable in the market. Actual results related to such fair value may differ significantly from the
estimate, due to, among other things, uncertainty of the significant assumptions (i.e. forecasted sales), lack of historical information
and variation in economic inputs.
Non-GAAP Financial Measures
We monitor and evaluate our operating and financial performance using several non-GAAP financial measures including: Adjusted
EBITDA and Net Financial Position.
We believe that these non-GAAP financial measures provide useful and relevant information regarding our performance and our
ability to assess our financial performance and financial position. They also provide us with comparable measures that facilitate
management’s ability to identify operational trends, as well as make decisions regarding future spending, resource allocations and
other operational decisions. While similar measures are widely used in the industry in which we operate, the financial measures we
use may not be comparable to other similarly titled measures used by other companies nor are they intended to be substitutes for
measures of financial performance or financial position as prepared in accordance with IFRS.
38
Adjusted earnings before interest, tax, depreciation and amortisation (Adjusted EBITDA)
Management has presented the performance measure Adjusted EBITDA because it monitors this performance measure at a
consolidated level and it believes that this measure is relevant to an understanding of the Group’s financial performance. Adjusted
EBITDA is calculated by adjusting profit or loss from continuing operations to exclude the impact of taxation, net finance
income/(costs), depreciation, amortisation, government grants related to depreciation and share of profit of equity-method investees.
Adjusted EBITDA is not a defined performance measure in IFRS. The Group’s definition of Adjusted EBITDA may not be
comparable with similarly titled performance measures and disclosures by other entities.
The following tables show the reconciliation of Adjusted EBITDA to profit or loss for the years ended December 31, 2019, 2018 and
2017.
Profit/(loss) for the year
Income tax expense
Profit/(loss) before tax
Adjustments for:
–Net finance income/(costs)
–Share of profit/(loss) of equity-method investees
–Depreciation
–Amortisation
–Government grants
Adjusted EBITDA
2019
2018
(33,680) 33,119 (30,845)
2,335 7,429 2,886
2017
(31,345) 40,548 (27,959)
9,868 (66,296) 4,004
290 —
(1,011)
24,196 10,154 10,861
910 1,569
(1,626) (1,061) (1,068)
917
999 (15,455) (12,593)
The Group initially applied IFRS 16 as at January 1, 2019 (see note 5(A) to the Consolidated Financial Statements). In applying IFRS
16, in relation to the leases that were classified as operating leases, the Group recognises depreciation and interest costs, instead of
operating lease expense. In relation to those leases, the Group recognised €13.2 million of depreciation charges and €2.6 million of
additional interest costs from leases in 2019. Further, the Group used the modified retrospective approach when initially applying
IFRS 16 and under such approach comparative information is not restated.
Adjusted EBITDA is presented by management to aid investors in their analysis of the performance of the Group and to assist
investors in the comparison of the Group’s performance with that of other companies.
Net Financial Position
Net Financial Position is defined as “Cash and cash equivalents,” less “Bank overdraft and short-term borrowings,” less “Current
portion of long-term borrowings,” less “Current portion of lease liabilities,” less “Long-term borrowings,” less “Long-term lease
liabilities.”
39
As of December 31, 2019, 2018 and 2017 our Net Financial Position was as reported in the following tables:
Cash and cash equivalents
Bank overdraft and short-term borrowings
Current portion of long-term borrowings
Long-term borrowings
Net Financial Position before lease liabilities
Lease liabilities, current portion
Lease liabilities, non-current portion
Net Financial Position
2017
2019
2018
39.8 62.1 55.0
(24.2) (35.1) (26.0)
(4.3) (10.6) (4.8)
(14.1) (10.4) (20.9)
(2.8) 6.0 3.3
(11.3) — —
(46.1) — —
(60.2) 6.0 3.3
The net financial position as of December 31, 2019 is affected in a significant way by the adoption of IFRS 16 “Leases” accounting
standard starting from January 1, 2019.
We believe our Net Financial Position provides useful information for investors because it gives evidence of our consolidated position
either in terms of net indebtedness or net cash by measuring our capital resources based on cash and cash equivalents and the total
level of our financial indebtedness.
Results of Operations
Summary — During the last few years, the Group started a thorough reorganization process covering its industrial, sales and service
operations. The first signs of efficiency recovery were achieved in 2015 and the process continued in 2016 with an almost break-even
operating margin. In 2017, 2018 and 2019 the Company continued to invest resources to set up its retail and marketing organization
worldwide, develop its retail distribution channel and restructure its overhead costs.
On July 27, 2018, the joint venture agreement with KUKA Furniture (Ningbo) Co., Ltd. (“Kuka”) was finalized and consequently the
Company’s wholly owned subsidiary, Natuzzi Trading Shanghai Co. Ltd., was deconsolidated. As a consequence of this disposal, the
Company accounted for a non-recurring income under the “Gain from disposal and loss of control of a subsidiary” caption within the
consolidated statement of profit or loss, for a total of €75.4 million. Including this non-recurring income, profit attributable to the
owners of the Company in 2018 was €33.4 million.
The following table sets forth certain statement of profit or loss data expressed as a percentage of revenue for the years indicated:
2017
2019
Year Ended December 31,
2018
100.0% 100.0% 100.0%
70.3%
70.9%
71.9%
29.7% 28.1 % 29.1 %
0.4%
1.3%
26.3%
27.2%
8.0%
8.8%
0.3%
0.6%
0.0%
0.2%
-5.3%
-5.8%
0.9%
2.6%
0.0%
0.3%
0.6%
0.6%
-6.9%
-8.7%
1.4%
26.8%
8.2%
0.2%
0.1%
-5.9%
15.5%
0.1%
1.8%
7.7%
Revenue
Cost of sales
Gross profit
Other income
Selling expenses
Administrative expenses
Impairment on trade receivables
Other expenses
Operating loss
Net finance costs
Share of profit/(loss) of equity-method investees
Income tax expense
Profit/(Loss) for the year
40
The Company intends to follow its vision and strategy for the future by focusing on some key cornerstones including: i) a confirmed
focus on the controlled distribution through single-brand stores, both owned and franchised, in priority markets; ii) a review of the
Group’s production allocation, including the collaboration with external industrial partners located in low-cost countries; iii) the
disposal of assets no longer in line with the strategic development adopted by the Group; and iv) a generalized streamlining of
processes and costs.
2019 Compared to 2018
Revenue for 2019, including sales of leather and fabric-upholstered furniture and other sales (principally sales of polyurethane foam
and leather sold to third parties as well as of accessories), were €387.0 million, down 9.7% from €428.5 million in 2018.
Sales of upholstery furniture and home furnishing accessories (“core business”) were €368.8 million, down 9.4% compared to 2018,
due in particular to the 22.3% decrease in Private label sales. Natuzzi branded business (Natuzzi Italia, Natuzzi Editions and
Divani&Divani by Natuzzi) declined by 5.5% in 2019 compared to 2018.
Other sales (sales of polyurethane foam and other goods) were €18.2 million in 2019, versus €21.5 million in 2018.
The 5.5% decrease in revenues for the Natuzzi division was the result of the 6.4% decrease in the EMEAI and a 16.8% decrease in the
Asia-Pacific region, notwithstanding the 3.7% increase in the Americas.
Natuzzi branded sales, generated by DOS (Directly Operated Stores) and third-party operated points of sale, represented 80.2% of the
Group’s core business, versus 76.9% in 2018.
As of the date of this Annual Report, the Group directly operates 56 mono-brand DOS, of which 40 Natuzzi Italia stores, 14
Divani&Divani by Natuzzi stores and two new Natuzzi Editions DOS opened in late December 2019 in the UK. The Group also
directly operates 11 Natuzzi Italia concessions, all located in Mexico.
In 2019, core sales from the retail network directly operated by the Group (DOS and concessions) were €64.4 million, up 12.9%
versus full year 2018. In particular, DOS located in the U.S. and the Italian DOS chain of Divani&Divani by Natuzzi delivered
positive results as sales increased by 36.7% and 16.8% in 2019 compared to 2018, respectively.
On a like-for like basis (that is, considering only those DOS opened entirely in both 2019 and 2018), revenues of the 45 DOS were up
4.2% in 2019 compared to 2018.
During 2019, we opened one Natuzzi Italia DOS in Sarasota, Florida, one Natuzzi Italia DOS in Italy, near Milan, and two Natuzzi
Editions in the UK.
The Natuzzi division also includes sales generated by third-party operated mono-brand points of sales (franchised operated stores, or
FOS, and galleries). Natuzzi sales generated by these third-party operated points of sale were €231.2 million in 2019, down 9.6%
compared to 2018, as a result of a 2.7% decrease in the Americas, a 10.2% decrease in the EMEAI and a 16.8% decrease in the Asia-
Pacific region.
In 2019, we closed 37 FOS in addition to 272 galleries and smaller points of sales whose partners and locations were inconsistent with
our brand strategy.
During 2019, we opened 102 FOS globally, of which 71 in China through our commercial partner (53 under the Natuzzi Editions
name and 18 under Natuzzi Italia name).
Sales generated by the unbranded wholesale division, addressing the mass-merchant distribution, were €73.2 million in 2019, down
22.3% from €94.2 million in 2018. This division has been negatively affected by the trade dispute between the U.S. and China and,
more generally, by rising price competition.
41
In light of the tariffs imposed by the U.S. on goods imported from China, the Company has started to outsource in Vietnam part of its
Private label production for some key accounts in the U.S.
The Company continues to explore further external industrial capacity in tariffs-free and low-cost European countries, to regain
volumes and competitiveness also in the EMEAI market.
In addition, the Private label performance has been affected by the severity of the crisis faced by brick-and-mortar distributors,
particularly evident in the U.S., which have been struggling with a shift to online shopping. Therefore, some of the Company’s
historical partners are restructuring their retail assets, resulting in a reduction of their points of sales.
Gross margin for 2019 was 29.7% up from 28.1% in 2018.
The Group reported an operating loss of €22.5 million in 2019 versus an operating loss of €25.5 million in 2018.
The Group reported a loss of €33.7 million in 2019 versus a profit of €33.1 million in 2018, which profit was the result of the
extraordinary income deriving from the conclusion of the partnership agreement in China in 2018.
Cost of Sales in 2019 was €271.9 million (or 70.3% as a percentage of revenue), as compared to €308.2 million (or 71.9% of revenue)
in 2018.
In 2019 and in 2018, the Group implemented its program to reduce the Italian workforce. In 2019, the Group accounted for labor-
related costs of €5.1 million, of which €3.1 million as incentive program to reduce the workforce, and €2.0 million represented by the
accrual made for legal proceedings risks. In 2018, labor-related costs were €5.6 million pertaining mainly to the incentive program to
reduce the number of workers.
Gross Profit. During 2019, the consolidated gross margin was equal to 29.7%, versus 28.1% in 2018. Net of the above-mentioned
labor related costs, the gross margin would have been 31.0% in 2019 and 29.4% in 2018. The gross margin in 2019 was positively
affected mainly by a favorable trend in raw material prices, a better sales mix, notwithstanding decreasing sales.
Selling, Administrative, Impairment on trade receivables and other income/expenses in 2019 were €137.5 million (or 35.5% on
revenues) compared to €145.7 million (or 34.0% on revenues) in 2018, mainly affected by €9.3 million of custom duties on goods
manufactured in China and delivered to the U.S. (€2.9 million in 2018), only partially offset by a price increase. In addition, the 2019
selling and administrative expenses include €0.5 million of costs pertaining to an incentive program to reduce the Italian workforce.
Selling and administrative expenses also benefitted from the closure of our head office in London and of all UK concessions (store-in-
store directly operated by the Group).
Operating Loss. The Group reported an operating loss of €22.5 million in 2019 versus an operating loss of €25.5 million in 2018.
Net finance income/(costs). The Group registered net finance costs of €9.9 million in 2019 as compared to net finance income of
€66.3 million in 2018. Net finance costs of 2019 include:
•
•
•
•
finance income of €0.4 million (€0.4 million in 2018);
finance costs of €7.9 million (€5.6 million in 2018);
net exchange rate losses of €2.4 million (net exchange rate losses of €3.9 million in 2018);
gain from disposal and loss of control was nil in 2019, whereas in 2018 it was €75.4 million, deriving from the finalization of
the agreement with Kuka.
The Group recorded net exchange rate losses of €2.4 million in 2019, as compared to net exchange rate losses of €3.9 million in 2018.
The net exchange rate losses in 2019 primarily reflected the following factors:
•
a net realized loss of €0.8 million in 2019 (as compared to a net realized loss of €0.9 million in 2018) on domestic currency
swaps due to the difference between the forward rates of the domestic currency swaps and the spot rates at which the domestic
currency swaps were closed (the Group uses forward rate contracts to hedge its price risks against unfavorable exchange rate
variations);
42
•
•
•
•
a net realized gain of €1.6 million in 2019 (compared to a gain of €3.3 million in 2018), from the difference between invoice
exchange rates and collection/payment exchange rates;
a net unrealized loss of €0.7 million in 2019 (compared to an unrealized loss of €0.0 million in 2018), from the mark-to-market
evaluation of domestic currency swaps;
a net unrealized loss of €0.5 million in 2019 (compared to an unrealized loss of €5.4 million in 2018) on accounts receivable and
payable;
a net unrealized loss of €2.0 million in 2019 (compared to an unrealized loss of €0.9 million in 2018), from the translation of
non-monetary assets for those subsidiaries adopting Euro as their functional currency.
The Group does not use hedge accounting and records all fair value changes of its domestic currency swaps in its statement of profit
or loss.
Income Taxes. In 2019, the Group income taxes were €2.3 million, from €7.4 million reported in 2018. The Group had an effective
tax rate of 7.45% on its profit/(loss) before taxes and non-controlling interests, compared to the Group’s effective tax rate of 18.32%
reported in 2018.
Profit/(loss) for the year. Reflecting the factors above, the Group reported a loss of €33.7 million in 2019, as compared to a profit of
€33.1 million in 2018. On a per-ordinary share basis, the Group had loss of €0.61 in 2019, as compared to profit of €0.61 in 2018.
Please refer to the Company’s annual report on Form 20-F filed with the SEC on April 30, 2019.
2018 Compared to 2017
Liquidity and Capital Resources
Our business has relied on cash flows from operations as well as borrowings under our credit facilities as our primary sources of
liquidity. Our liquidity will be impacted by the outbreak of COVID-19. See Note 3(f) “Going concern assumption” and Note 44
“Subsequent events” to the Consolidated Financial Statements.
In response to the impact of COVID-19, we have been implementing a number of measures to minimize cash outlays, including,
among others, managing workforce costs, delaying capital expenditures and minimizing discretionary expenses. We are negotiating
with third parties to whom we have payment obligations. These negotiations may include changes in the cadence of payments to
vendors, modifications to rent and other obligations. We plan to utilize our credit facility, and we may pursue other sources of capital
that may include other forms of external financing, in order to increase our cash position and preserve financial flexibility in response
to the international uncertainty resulting from COVID-19. See Note 3(f) to the Consolidated Financial Statements.
In the ordinary course of business, our use of funds is for the payment of operating expenses, working capital requirements and capital
expenditures. The Group’s principal source of liquidity has historically been its existing cash and cash equivalents and cash flow from
operations, supplemented to the extent needed to meet the Group’s short term cash requirements by accessing the Group’s existing
lines of credit.
During 2018, the Company finalized the joint venture agreement with Kuka, as disclosed in Note 11 of the Consolidated Financial
Statements. The agreements with “Kuka,”signed on July 27, 2018, resulted in an investment by Kuka in the Group of €65 million, for
the acquisition of the majority stake in the subsidiary Natuzzi Trading (Shanghai) Co., Ltd. Out of these €65 million, €20 million have
remained at Natuzzi Trading (Shanghai) Co., Ltd. to sustain investments, while €45 million have been paid in favor of Natuzzi S.p.A.,
as cash consideration for the purchase of the investment in the subsidiary (€30 million) and right to access of Natuzzi’s trademarks
(€15 million).
43
In 2019, the Group reported an operating loss of €22.5 million, from an operating loss of €25.5 million in 2018.
As of December 31, 2019, the Group’s cash and cash equivalents amount to €39.8 million, while its long-term borrowings are of
€18.4 million, including the current portion of €4.3 million, and its bank overdrafts and short-term borrowings are €24.2 million.
Furthermore, as of December 31, 2019, the unused portion of credit facilities available to the Group, for which no commitment fees
are due, amounts to €24.3 million. Such unused portion is related to a non-recourse factoring agreement for export-related trade
receivables (€18.1 million), borrowings to be secured with trade receivables (€3.6 million) and bank overdrafts (€2.6 million).
As of December 31, 2019, the Group’s Net Financial Position was negative at €60.2 million, compared to a positive net financial
position of €6.0 million at the end of 2018. See Notes 17, 19, 20 and 26 to the Consolidated Financial Statements.
Although we had €39.8 million in cash and cash equivalents on hand at December 31, 2019, €16.6 million of this amount is located in
our Chinese subsidiaries. To the extent management intends to move the cash from China by a dividend distribution, a withholding tax
of 10% and the income taxes in Italy (equal to 24.0% of 5% of the dividends distributed) would have to be paid.
Management believes that the Group’s plans to recover efficiency and competitiveness and the actions to mitigate the adverse effects
of COVID-19, combined with the cash and cash equivalents and unused credit facilities as at December 31, 2019 will be sufficient to
fund working capital needs, capital expenditures and other contractual obligations as they fall due within one year from the date of the
approval of the consolidated financial statements as at December 31, 2019. See Note 3(f) to the Consolidated Financial Statements.
Cash Flows — The Group’s cash and cash equivalents, net of bank overdraft, were €37.8 million as of December 31, 2019 as
compared to €60.4 million as of December 31, 2018. The most significant changes in the Group’s cash flows between 2019 and 2018
are described below.
In 2019, net cash provided by operating activities was €4.7 million. In 2018, net cash used in operations was €11.3 million.
During 2019, the Group continued to reduce net working capital as a result of: a) €14.5 million as positive contribution from the
improvement in inventories; b) €13.6 million as positive contribution from trade and other receivables; c) €9.5 million as negative
contribution from trade and other payables.
During 2019, the Group used €3.8 million of cash to pay one-time termination benefits and €1.7 million of cash in connection with the
employees’ leaving entitlement.
Net cash used in investment activities in 2019 was €3.3 million as compared to net cash provided by investment activities of
€14.6 million in 2018. The cash used in investing activities in 2019 was mainly due to additions in machinery and equipment,
leasehold improvements and software, while the cash provided by investing activities in 2018 was mainly related to the consideration
received for the disposal of the 51% stake in entity Natuzzi Trading (Shanghai) Co., Ltd, as disclosed in Note 11 to the Consolidated
Financial Statements.
Cash used in financing activities in 2019 was €24.2 million (compared to €2.2 million of cash provided by financing activities in
2018), mainly due to long-term borrowing proceeds of €4.6 million, €6.0 million of long-term borrowing repayments, €12.0 million of
payment of lease liabilities due to the adoption of IFRS 16 “Leases” as at January 1, 2019 with the modified retrospective approach
under which comparative information is not restated, and €11.2 million of short-term borrowings repayments, the latter caused by a
lower amount of trade receivables assigned within the securitization program, in line with decreasing consolidated sales.
As of December 31, 2019, the Group’s long-term contractual cash obligations and commercial commitments (whose amounts are
gross and undiscounted and include contractual interest payments) amounted to €112.6 million, of which €42.8 million comes due in
2020. See “—Contractual Obligations and Commitments.”
44
The Group’s discounted value long-term borrowings represented 17.9% of Equity attributable to the Owners of the Company as of
December 31, 2019 (15.3% as of December 31, 2018) (see Note 19 to the Consolidated Financial Statements). During 2019, the
Company made all installment payments related to its long-term-borrowings.
As of December 31, 2019 and 2018 the Company was in compliance with the long-term loans covenants.
Starting from January 1, 2019, as a consequence of the application of the IFRS 16 accounting principle for the treatment of leasing
(see Note 5(A) to the Consolidated Financial Statements) the Group also records lease liabilities.
As of December 31, 2019, gross and undiscounted amount, also including contractual interest payments related to the Group’s lease
liabilities amounted to €68.2 million, of which €13,9 million comes due in 2020. See “Item 5. Operating and Financial Review and
Prospects—Contractual Obligations and Commitments.” The Group’s undiscounted value lease liabilities represented 66.1% of Equity
attributable to the Owners of the Company as of December 31, 2019 (nil as of December 31, 2018) (see Note 20 to the Consolidated
Financial Statements).
The Group’s uses of funds are expected to be the payment of operating expenses, working capital requirements, capital expenditures
and restructuring of operations. See “Item 4. Products” for further description of our research and development activities. See “Item 4.
Incentive Programs and Tax Benefits” for further description of certain government programs and policies related to our operations.
See “Item 4. Capital expenditure” for further description of our capital expenditures and “Item 3. Key Information—Risk Factors—
The global outbreak of COVID-19 has had, and is expected to continue to have, an adverse impact on our business, operations and
results” for a discussion of the impact of the COVID-19 pandemic on our capital expenditures.
Contractual Obligations and Commitments
The Group’s current policy is to fund its cash needs, accessing its cash on hand and existing lines of credit, consisting of short-term
credit facilities and bank overdrafts, to cover any short-term shortfall. The Group’s policy is to procure financing and access to credit
at the Company level, with the liquidity of Group companies managed through a cash-pooling zero-balancing arrangement with a
centralized bank account at the Company level and sub-accounts for each subsidiary. Under this arrangement, cash is transferred to
subsidiaries as needed on a daily basis to cover the subsidiaries’ cash requirements, but any positive cash balance at subsidiaries must
be transferred back to the top account at the end of each day, thus centralizing coordination of the Group’s overall liquidity and
optimizing the interest earned on cash held by the Group.
As of December 31, 2019, the undiscounted Group’s long-term borrowings consisted of €20.2 million (including €4.7 million of the
current portion of such debt) and its short-term borrowings consisted of €24.2 million outstanding under its existing lines of credit,
comprised entirely of bank overdrafts and short-term borrowings. The undiscounted lease liabilities amounted to €68.2 million
(including €13.9 million as current portion).
The Group maintains cash and cash equivalents in the currencies in which it conducts its operations, principally Euros, Chinese Yuan,
U.S. dollars, New Romanian Leu, British pounds and Canadian dollars.
The following table sets forth the contractual obligations and commercial commitments of the Group as of December 31, 2019 (the
amounts are gross and undiscounted and include contractual interest payments):
Contractual Obligations
Long-term borrowings
Bank overdrafts and short-term borrowings
Total Debt
Leases liabilities (1)
Total Contractual Cash Obligations
Total
20,216
24,170
Payments Due by Period (thousands of euro)
Less than 1 year
1-2 years
4,734 6,568 5,389
24,170 — —
2-5 years After 5 years
3,525
—
44,386
68,228
112,614
28,904 6.568 5.389
3.525
13,928 9.972 26.568
17.760
42,832 16.540 31.957
21.285
(1)
Lease liabilities relate to the Group’s lease contracts for buildings of its retail stores, warehouses, factory facilities and vehicles .
See Notes 9 and 20 of the Consolidated Financial Statements.
45
Under Italian law, the Company and its Italian subsidiaries are required to pay a termination indemnity to their employees when these
cease their employment with the Company or the relevant subsidiary. Likewise, the Company and its Italian subsidiaries are required
to pay an indemnity to their sales agents upon termination of the sales agent’s agreement. As of December 31, 2019, the Group had
accrued an aggregate employee’s leaving entitlement of €16.1 million. In addition, as of December 31, 2019, the Company had
accrued an aggregate sales agent termination indemnity of €1.2 million. See Notes 21 and 23 of the Consolidated Financial
Statements. These amounts are not reflected in the table above. It is not possible to determine when the amounts that have been
accrued will become payable.
As at December 31, 2019, within the provision for legal claims, €9.8 million (€9.3 million as at December 31, 2018) refers to the
probable contingent legal liability related to legal procedures initiated by 159 workers against the Company for the misapplication of
the social security procedure called CIGS (Cassa Integrazione Guadagni Straordinaria). According to the CIGS procedure, the
Company pays a reduced salary to the worker for a certain period of time based on formal agreements signed with the trade unions
and other public social parties. In particular, these 159 workers are claiming in the legal procedures that the Company applied CIGS
during the period from 2004 to 2016 without foreseeing any time rotation. In May 2017, the Company received from the Italian
Supreme Court of Justice (“Corte di Cassazione”) an adverse verdict for the above litigation related to only two workers. Based on
this unfavorable verdict, the Company, with the support of its legal counsel, has assessed that the liability for legal procedures initiated
by all 159 workers is €9.8 million. See Note 23 to the Consolidated Financial Statements.
The Group is involved in a number of claims (including tax claims) and legal actions arising in the ordinary course of business. As of
December 31, 2019, the Group had accrued total provisions relating to these contingent liabilities in the amount of €11.1 million. See
“Item 8. Financial Information—Legal and Governmental Proceedings” and Note 23 to the Consolidated Financial Statements.
Trend information
The recovery of the global economy is subject to a number of factors, most of which remain uncertain.
The coronavirus (COVID-19) outbreak has paralysed the global economy and trade. The measures taken by different governments to
contain the spread of the virus are a key factor driving the sharp decline in economic activity in the near term. Other factors also
weighing on economic activity, especially in emerging market economies, include a sharp reduction in commodity prices and a
significant tightening of financial conditions.
Survey data suggest that the economic fallout from containment measures is likely to be abrupt and deep. The global composite output
Purchasing Managers’ Index (“PMI”) excluding the euro area declined sharply from 52 in January to 45 in February and further to 41
in March 2020. The decline was driven by the strong contraction in the services index, which plummeted to 39.4, the lowest level
since December 2008. This points to a sharp contraction in global activity (excluding the euro area) in the first half of 2020, which is
likely to be more pronounced than at the trough observed during the global financial crisis (“GFC”).
Central banks that had room to decrease interest rates used it promptly and cut their key policy rates, while some have also resumed
asset purchases. Liquidity-providing operations and swaps have been implemented to smooth the functioning of financial markets. In
addition, large fiscal stimulus packages have been enacted, with the composition of such packages being heavily skewed towards loan
guarantees and income support measures.
46
World trade is estimated to have fallen sharply, driven by supply chain disruptions and a widespread demand shock. In the first quarter
of 2020 virus-related production disruptions in China affected international trade, especially in Asian countries strongly
interconnected with China through regional value chains.
However, as the outbreak turned into a pandemic, production disruptions spread and are likely to weigh on global trade for some time.
Global merchandise imports contracted marginally further in February 2020, extending the decline seen at the end of 2019.
Global inflation slowed slightly in February 2020. Annual consumer price inflation in the countries of the Organisation for Economic
Co-operation and Development (“OECD”) declined to 2.2% in February 2020, driven by a moderation in energy price inflation. The
slowdown in inflation was broad-based across most advanced economies and major non-OECD emerging market economies. Looking
ahead, global inflationary pressures are expected to decelerate further as a result of both the sharp fall in oil prices and weak demand.
Brent crude oil prices have sharply declined, primarily owing to a sudden collapse in demand associated with the COVID-19
pandemic.
Containment measures will lead to a decline in U.S. economic activity in the first half of 2020, particularly in the second quarter.
Advance estimates for the first quarter suggest that GDP contracted at an annualised rate of 4.8%. As this advance estimate is based on
incomplete data and subject to further revisions, forthcoming releases could show an even larger decline in GDP. The impact on
economic activity is expected to be even larger in the second quarter. By end-March, almost all U.S. states had ordered wide-ranging
business closures and strict limits on movement. The cumulative number of workers seeking unemployment insurance from mid-
March to end-April 2020 reached around 30 million, i.e. 19% of the labour force. As a result, consumer confidence and spending has
plunged. In early April 2020, the University of Michigan Consumer Sentiment Index fell to its lowest level since December 2011,
while retail sales fell steeply by a record 8.7% in March 2020. Sharp drops in other indicators, such as PMIs, point to a more
generalised impact on activity. Major central banks estimate that, overall, U.S. GDP is expected to shrink in the first half of the year
2020 by more than during the GFC. The policy response has been immediate. On the fiscal side, U.S. Congress agreed on fiscal
support amounting to almost 10% of GDP, consisting of government spending to contain the outbreak and measures to attenuate its
effects. On the monetary side, the Federal Reserve System cut the target range for the federal funds rate to between 0% and 0.25%. It
also established a number of credit facilities that can provide up to USD 2.3 trillion in financing against a wide range of financial
instruments to ensure that financial markets remain liquid and credit continues to flow through the economy.
Economic growth in China has fallen to its lowest level in decades as a result of the pandemic and weak external demand. In the first
quarter of 2020 GDP decreased by 6.8% year-on-year owing to virus containment measures. However, high-frequency indicators of
economic activity suggest that activity is recovering. While daily coal consumption in early-April 2020 continued at levels that were
around 15 percentage points lower than during the same period last year, real estate activity and traffic congestion indices are only
marginally below the levels observed during the same period in 2019. Activity is expected to rebound only partly in the second quarter
of 2020 as weak domestic demand is amplified by weak external demand, held back by cautious consumer behaviour and the
prevailing containment measures. Policy measures have been implemented to support the economy and ensure liquidity in the banking
system. The People’s Bank of China has repeatedly injected significant liquidity in the market since the beginning of the year and has
cut policy and reserve requirement rates. Fiscal policy stimulus in the form of tax exemptions, purchase vouchers, income support and
loan guarantees is expected to cushion the impact of the pandemic.
Incoming data for the UK suggest that the coronavirus outbreak has had a significant adverse impact on an already slowing economy.
The monthly GDP release for February 2020, on a three-month-on-three-month basis, showed that the UK economy was stagnating
even ahead of the pending coronavirus outbreak. Since then, the March 2020 PMI Composite Output Index has plummeted to a new
series low, far below even the worst readings seen at the depths of the GFC. Economic policy responses have been swift and strong.
On March 11, 2020, the Bank of England cut interest rates to 0.25% (subsequently reduced further to 0.1%), introduced a new Term
Funding Scheme and reduced the countercyclical capital buffer. This support has been further
47
extended to include a round of quantitative easing and the reactivation of a temporary monetary financing facility for the government.
At the same time, the government introduced a series of coronavirus contingency measures, including a variety of income support
measures, additional budget for the National Health Service, as well as an expansive array of loan facilities, tax payment holidays and
grants to small businesses.
Total Group’s order flow through the first twenty-three weeks of 2020 — The Group’s order flow during the first twenty-three
weeks of 2020 has been heavily affected by the COVID-19 pandemic. Total order flow was down 32.4% versus the same period of
2019, as a result of a 26.0% decrease in Natuzzi products order flow and a 54.1% decrease in the Private label order flow.
Considering the global evolution of the contagion and the uncertainties related to its duration and intensity, it is not possible to
determine the likely extent of the economic and social effects of the COVID-19 pandemic on international markets and, consequently,
on the Group’s business for the full current year.
As of December 31, 2019, neither Natuzzi S.p.A. nor any of its subsidiaries was a party to any off-balance sheet arrangements.
Off-Balance Sheet Arrangements
Please see “Item 7. Major Shareholders and Related Party Transactions” of this Annual Report.
Related Party Transactions
New Accounting Standards under IFRS
Recently issued Accounting Pronouncements IFRS — Recently issued but not yet adopted IFRS relevant for the Company are as
follows:
In May 2017 the IASB issued IFRS 17—Insurance Contracts which establishes principles for the recognition, measurement,
presentation and disclosure of insurance contracts issued as well as guidance relating to reinsurance contracts held and investment
contracts with discretionary participation features issued. IFRS 17 is effective on or after January 1, 2023 with early adoption allowed
if IFRS 15—Revenue from Contracts with Customers and IFRS 9—Financial Instruments are also applied. The Group does not expect
any impact from the adoption of such standard.
48
In October 2018 the IASB issued narrow scope amendments to IFRS 3—Business Combinations to improve the definition of a
business. The amendments aim to help companies determine whether an acquisition made is of a business or a group of assets. The
amended definition emphasizes that the output of a business is to provide goods and services to customers, whereas the previous
definition focused on returns in the form of dividends, lower costs or other economic benefits to investors and others. In addition to
amending the definition of a business, supplementary guidance is provided. These amendments are effective on or after January 1,
2020. The Group does not expect any material impact from the adoption of these amendments.
In October 2018 the IASB issued amendments to IAS 1—Presentation of Financial Statements and IAS 8—Accounting Policies,
Changes in Accounting Estimates and Errors to clarify the definition of “material”, as well as how materiality should be applied by
including in the definition guidance that is included elsewhere in IFRS standards. Furthermore, the explanations accompanying the
definition have been improved and the amendments ensure that the definition of material is consistent across all IFRS standards. These
amendments are effective on or after January 1, 2020. The Group does not expect any material impact from the adoption of these
amendments.
In September 2019 the IASB issued amendments to IFRS 9—Financial Instruments, IAS 39—Financial Instruments: Recognition and
Measurement and IFRS 7—Financial Instruments: Disclosures, collectively the “Interest Rate Benchmark Reform”. These
amendments modify certain hedge accounting requirements in order to provide relief from potential effects of the uncertainty caused
by the interbank offered rates (IBOR) reform and require companies to provide additional information to investors about their hedging
relationships that are directly affected by these uncertainties. These amendments are effective on or after January 1, 2020. The Group
does not expect any material impact from the adoption of these amendments.
In January 2020 the IASB issued amendments to IAS 1—Presentation of Financial Statements: Classification of Liabilities as Current
or Non-Current to clarify how to classify debt and other liabilities as current or non-current, and in particular how to classify liabilities
with an uncertain settlement date and liabilities that may be settled by converting to equity. These amendments are effective on or
after January 1, 2022. The Group does not expect any material impact from the adoption of these amendments.
In March 2018 the IASB revised the Conceptual Framework for Financial Reporting, effective immediately for the IASB and the
IFRS Interpretations Committee when setting future standards, and effective for annual reporting periods on or after January 1, 2020
for companies that use the Conceptual Framework to develop accounting policies when no IFRS Standard applies to a particular
transaction, with early application permitted. Key changes include (i) increasing the prominence of stewardship in the objective of
financial reporting; (ii) reinstating prudence as a component of neutrality, defined as the exercise of caution when making judgements
under conditions of uncertainty; (iii) defining a reporting entity; (iv) revising the definitions of an asset and a liability; (v) removing
the probability threshold for recognition, and adding guidance on derecognition; (vi) adding guidance on the information provided by
different measurement bases, and explaining factors to consider when selecting a measurement basis; and (vii) stating that profit or
loss is the primary performance indicator and income and expenses in other comprehensive income should be recycled where the
relevance or faithful representation of the financial statements would be enhanced. The Group does not expect a material impact from
the adoption of the revised Conceptual Framework.
49
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 6.
As of the date of this Annual Report, the Board of Directors of Natuzzi S.p.A. consists of nine members. The directors and senior
executive officers of the Company as of the date of this Annual Report are as follows:
Name
Pasquale Natuzzi (1)
Antonia Isabella Perrone (1)
Paolo Braghieri (1)
Giuseppe Antonio D’Angelo (1)
Vincenzo Perrone (1)
Stefania Saviolo (1)
Marco Caneva (2)
Alessandro Musella (3)
Pasquale Junior Natuzzi (3)
Position within the Company
Age
80 Chairman of the Board of Directors and CEO
49 Non-executive Director
65 Non-executive Director
53 Non-executive Director
60 Non-executive Director
54 Non-executive Director
51 Non-executive Director
50 Non-executive Director
30 Director, Chief Creative & Marketing Officer and the Chief Commercial Officer
Emerging Markets
Vittorio Notarpietro
Pierangelo Colacicco
Matteo Sambugaro
Michele Onorato
Antonino Gambuzza
Umberto Longobardo
Domenico Ricchiuti
Italia Casalino
Cosimo Bardi
Giovanni Tucci
(1)
(2) Mr. Marco Caneva was coopted on May 9, 2020 by the Board of Directors following the resignation of Mr. Ernesto Greco and
57 Chief Financial and Legal Officer
51 Chief Technology & Digital Innovation Officer
34 Chief Transformation Officer
42 Chief HR & Organization Officer
60 Chief Operations Officer
54 Chief Quality & Customer Care Officer
44 Chief Product Development & Process Innovation Officer
46 Global Business Retail Channel Director
45 Global Business Wholesales Channel Director
49 Global Business Wholesales Channel Private Label Director
Elected at the Company’s annual general shareholders’ meeting held on April 30, 2018 for a three-year period.
his appointment was subsequently approved at the Company’s annual general shareholders’ meeting held on June 12, 2020. Mr.
Caneva’s term will expire simultaneously with the terms of office of the directors elected at the shareholder’s meeting held on
April 30, 2018.
Elected at the Company’s annual general shareholders’ meeting held on June 12, 2020. Mr. Musella’s and Mr. Pasquale Junior
Natuzzi’s terms will expire simultaneously with the terms of office of the directors elected at the shareholder’s meeting held on
April 30, 2018.
(3)
Pasquale Natuzzi is the Chairman of the Board of Directors and CEO. He founded the Company in 1959. Mr. Natuzzi held the title of
sole director of the Company from its incorporation in 1972 until 1991, when he became the Chairman of the Board of Directors.
Mr. Natuzzi has creative skills and is directly involved with brand development and product styling. He takes care of strategic
partnerships with existing and new accounts. At the end of 2019, he also assumed the ad interim role of Chief Omnichannel
Commercial Officer WW.
Antonia Isabella Perrone is a Non-executive Director and is involved in the main areas of the Group management, from the
definition of strategies to retail distribution, marketing and brand development, and foreign transactions. In 1998, she was appointed
sole director of a company in the agricultural-food sector, wholly owned by the Natuzzi Family. She joined the Group in 1994, dealing
with marketing and communication for the Italian market under the scope of retail development management until 1997. She has been
married to Pasquale Natuzzi since 1997.
Paolo Braghieri is a Non-executive Director of the Company. In 2017 he founded and is the controlling shareholder of G.B.C. S.A., a
real estate company. From 2009 through 2016, he served as CEO and general manager of GE Capital Interbanca. From 2004 through
2008 he was a general manager of Interbanca S.p.A. and from 2001 through 2004 he acted as country manager and head of the
corporate and investment banking division of ABN Amro in Italy. From 1991 through 2001, he worked at Credit Suisse First Boston
in London and was responsible for the management of corporate finance transactions involving Italian clients. He started his banking
career as a credit analyst at The Chase Manhattan Bank N.A. where he held various positions in the investment banking division of the
London, Rome and Milan branches from 1980 through 1991. He served as member of the board of directors and of the executive
committee of Sorin S.p.A. (2006—2009) and as member of the board of directors of IMA S.p.A. (2004—2006). He is a member of the
Advisory Board of the Department of Mechanical Engineering of the Polytechnic of Milan since 2016. He earned his degree in
Mechanical Engineering from the Polytechnic of Milan and his MBA from the Polytechnic of Milan School of Management.
Giuseppe Antonio D’Angelo is a Non-executive Director of the Company and is currently Executive Vice President of Anglo-
America & CIS regions with Ferrero International SA. Before joining Ferrero in 2009, he acquired significant international experience
in general management of multinational companies such as General Mills (from 1997 to 2009), S.C. Johnson & Son (from 1991 to
1997) and Procter & Gamble (from 1989 to 1991). Mr. D’Angelo earned his Bachelor of Arts degree in Economics from LUISS
University of Rome in 1988. He received certification from Harvard Business School in the Advanced Management Program in 2004.
50
Vincenzo Perrone is a Non-executive Director of the Company and is currently Professor of Organizational Theory and Behavior at
Bocconi University—Milan, Italy, where he also previously served as Director of the Organizational and Human Resource
Management Department of the Bocconi School of Management (1996—2002), Chairman of the Institute of Organization and
Information Systems (2001—2007) and Vice-Rector for Research (2008—2012). He was a visiting professor at Carlson School of
Management at the University of Minnesota from 1992 to 1994. He currently serves on the board of publishing company Egea S.p.A.
(since June 2009) and of Aviva Italia Holding (since 2015), an insurance company where he also serves as a member of the risk,
auditing and remuneration committees. He has prior experience as a member of the board of directors of ClarisVita S.p.A. (2003—
2005), ACTA S.p.A. (2004), IP Cleaning S.p.A. (2004—2008) and Società Autostrada Pedemontana Lombarda S.p.A. (2009—
2011) and served on the advisory boards of Arthur Andersen MBA S.r.l. (1999—2000) and SAP Italia S.p.A. (2000—2001), as a
member of the Technical and Scientific Oversight Board for procurement studies overseen by the Ministry of Economy and Finance –
Treasury Department, on board committees responsible for awarding public tenders organized by Consip S.p.A. (2000—2003), on the
Technical Committee for Research and Innovation of Confindustria (2004—2008) and on the Technical Commission for Public
Finance at the Ministry of Economy and Finance (2007—2008). He has served as the Director of the Bocconi School of
Management’s Economia & Management journal and has served as a reviewer for the Academy of Management Journal, Academy of
Management Review, Organization Science (editorial board member) and Journal of International Business Studies. He has published
several books and articles both in Italian and international journals.
Stefania Saviolo is a Non-executive Director of the Company. She is currently Professor of Management at Bocconi University and
SDA Bocconi School of Management where, since 2013, she has been the Director of the Luxury & Fashion Knowledge Center and,
since 2001, founder and director of the Master in Fashion, Experience & Design Management in partnership with Fondazione
Altagamma. She was a visiting scholar at the Stern School of Business, New York University and also served as a visiting professor at
Fudan University in Shanghai, China. She is a member of the board of directors of TXT e-solutions, a listed international software
products and solutions vendor, where she is also member of the risk committee and President of the remuneration committee. She has
gained expertise in brand and retail management, product marketing and international strategies as a senior consultant for international
fashion, luxury and design companies. She is the author and co-author of several books and articles published internationally,
particularly in the luxury, fashion and design sectors.
Marco Caneva is a Non-executive Director of the Company. Since 2010, he has been a director at large IT-focused companies, such
as Phase Motion Control, FOS Group, BaoSteel Italia, an Italy-based joint venture controlled by Chinese giant BaoSteel, and Aurora
Imaging Technology. He also served as director on the boards of several other companies, including, Italmatch Chemicals and Gruppo
Partecipazioni Industriali S.p.A, the holding company of Pirelli & C. S.p.A., as well as Chairman of the board of Paramed, an Italy-
based MRI manufacturer, and its U.S. subsidiary. He started his professional career working in the investment banking department of
Goldman Sachs and, from 2009 to 2017, he served as Chief Investment Officer of Hofima S.p.A. In 2017, he founded Calit Advisors,
a financial advisory and investment firm based in Italy, Ireland and California.
Alessandro Musella is a Non-executive Director of the Company. He is currently a partner of the law firm BonelliErede, where he
focuses on corporate compliance, corporate governance and digital innovation. He is also a non-executive director of Global
Assistance S.p.A. and a former member of the Supervisory Board of Equens Worldline SE. He is a member of the Italian bar and
holds a law degree from the University of Genoa.
Pasquale Junior Natuzzi is a Director of the Company and the Chief Creative & Marketing Officer and the Chief Commercial
Officer Emerging Markets of the Group. Son of the Company’s founder and CEO Pasquale Natuzzi, he joined the Group in 2012. He
is responsible for defining the Group’s strategy with regard to style and creativity, managing the transformation of the Company from
a furniture player to a lifestyle brand. Pasquale Junior started his career at Natuzzi as Marketing Program Manager and was appointed
Global Communication Director in 2016 and Deputy Creative Director in 2017, in which roles he oversaw the development of
Natuzzi’s global brand strategy.
Vittorio Notarpietro is the Chief Financial & Legal Officer of the Company. He joined the Group in 2009 as Chief Financial Officer
and from 1991 to 1998 was the Finance Director and Investor Relations Manager for the Group. From 1999 to 2006, he was Vice
President for Finance for IT Holding Group. From 2006 to 2009, he was the CEO of Malo S.p.A., a leading Italian company in the
luxury sector. He re-joined the Group in September 2009.
Pierangelo Colacicco is the Chief Technology & Digital Innovation Officer of the Group. The digital department was created with a
clear objective: upgrading our mindset from traditional to digital. This goal is attainable through the discovery, adoption and
implementation of innovative technologies that make processes simpler while improving customer satisfaction and making the brand
more competitive. From 2014 to 2018, he was Chief Information Officer (CIO), Process and Organization Director, and from 2007 to
2014 he was CIO of the Group. He joined the Company’s HR & Organization department in 1994. In 1996, he served as a software
specialist in the IT department. From 2000 to 2007, he was the IT manager for all sales and distribution processes.
51
Matteo Sambugaro is the Chief Transformation Officer. He is responsible for coordinating the implementation of the 11 workstreams
identified in the Company’s medium/long term plans. He joined the Group in January 2019 as Senior Professional Strategy &
Business Plan Execution, after over nine years of experience in strategy consulting, of which eight years at Roland Berger, one of the
most prestigious strategy consulting firms worldwide. In his career, he has worked in more than 30 projects for multinational
companies in the U.S., Germany, Italy, Austria and the Netherlands. He holds a degree in Statistics and Management. He studied at
the University of Padova (Italy), Aarhus Business School (Denmark) and HAAS School of Business at the University of California
Berkeley.
Michele Onorato is the Chief HR & Organization Officer of the Group. He joined the Group in June 2018 with the responsibility of
supporting the realization of the Group strategy through the implementation of an HR Global Management System that supports the
continuous development of the Group’s internal competences in relation to its business priorities. Michele holds a degree in
Economics and Business and a Masters in Human Resource Management. He has developed his professional career in roles of ever-
increasing responsibility within the Human Resources Management and Industrial Relations department. From 2015 to May 2018, he
was Human Resources Director South Area at Ilva SpA. He also gained work experience in the Coesia Group, Philips, Saeco and
Indesit.
Antonino Gambuzza is the Chief Operations Officer of the Group. He joined the Group in January 2019 and is responsible for
worldwide operations, including the Group’s purchases and its supply chain. Antonino is a graduate of Politecnico of Milan, where he
received a degree in Electronic Management Engineering. He has more than twenty-five years of experience in international
engineering companies, developing technical skills oriented to a lean manufacturing logic and managing complex industrial projects at
an international level. His previous experience includes being Executive Operations Director at ILVA, holding positions of increasing
responsibility up to Manufacturing Executive Director at Indesit Company and serving as Head of the Lacquering Department at the
FIAT Group.
Umberto Longobardo is the Chief Quality & Customer Care Officer of the Group. He joined the Company in January 2017 and is
responsible for the worldwide quality and customer care departments that include order management, credit collection and claims
management. Umberto started his career in Nuovo Pignone S.p.A. (General Electric) as Plant Quality Manager, then served as Plant
Manufacturing & Maintenance Manager in 2001. He formerly worked at Indesit S.p.A., where he held positions of increasing
responsibility such as Plant Quality Control Manager, Plant Operations Manager and Returns Manager. In 2008 he joined Gucci
Logistics S.p.A. - Kering Group, a global Luxury Group representing Gucci, Bottega Veneta, Saint Laurant, Stella McCartney and
other entities. He developed his career in the field of Quality Management and After Sales, including WW Quality & After Sales
Service Director. He holds a degree in Mechanical Engineering.
Domenico Ricchiuti is the Chief Product Development & Process Innovation Officer of the Group. He joined the Group in 2009 as
Total Quality and Lean Manager and became Product Development and Innovation Director in 2018. In this role, he coordinated all
processes and activities related to product innovation, development and industrialization. He assumed the role of Chief Product
Development & Process Innovation Officer in March 2020.
Italia Casalino is the Global Business Retail Channel Director of the Group. She joined the Group in September 2019 to carry out the
Group’s retail strategy and manage its business performances WW. She built her professional experience in the retail and wholesale
business at companies like Indesit, where she served as Country Manager Netherlands, and Luxottica, where she was Retail Project
Director. She holds a bachelor’s degree in Economics from the University of Bari and a master’s degree in Business Administration.
Cosimo Bardi is the Global Business Wholesales Channel Director of the Group. He is responsible of the business development and
economic performance management of the wholesales business. He joined the Group in 2004 and became Chief Style &
Merchandising Officer in 2016 with the responsibility of achieving strategic and budget goals for the Natuzzi Brand through the
definition and management of the Natuzzi product range. He assumed the role of Global Merchandising & Business Development
Wholesale Channel Director in 2008.
Giovanni Tucci is the Chief Wholesales Officer of the Private label division of the Group. He joined the Group in 2013 in the Private
label division for the sole EMEA region and then obtained global responsibilities in 2016. He currently focuses on restructuring sales
and margins at worldwide level with the largest global retailers. He holds a bachelor’s degree in Economics and Business
Administration and also achieved flying CPL licenses as part of his aeronautical career. He has a wide experience in marketing,
merchandising and sales in both the automotive and wholesale furniture industries.
Compensation of Directors and Officers
As a matter of Italian law and under our By-laws, the compensation of executive directors, including the CEO, is determined by the
Board of Directors, after consultation with the board of statutory auditors, within a maximum amount established by the Company’s
shareholders. The Company’s shareholders determine the base compensation for all members of the Board of Directors, including
non-executive directors. Compensation of the Company’s executive officers (for performing their role as such) is determined by the
CEO. None of our directors or senior executive officers is party to a contract with the Company that would entitle such person to
benefits upon the termination of service as a director or employee, as the case may be.
Aggregate compensation paid by the Group to the directors and officers was approximately €2.0 million in 2019.
52
The compensation recognized in 2019 to each of the members of the Board of Directors is set forth below:
Name
Pasquale Natuzzi
Antonia Isabella Perrone
Giuseppe Antonio D’Angelo
Braghieri Paolo
Stefania Saviolo
Ernesto Greco
Vincenzo Perrone
Base
Compensation
€ 120,000.00
25,000.00
€
25,000.00
€
25,000.00
€
26,000.00
€
25,000.00
€
26,000.00
€
In 2020, approximately 70 directors and managers around the world will participate in the management by objectives (“MBO”)
incentive system. The Company will only pay a bonus pursuant to the MBO system if certain budget results relating to the operating
result are achieved.
Statutory Auditors
During 2019, the Company’s statutory auditors received approximately €0.1 million in compensation in the aggregate for their
services to the Company and its Italian subsidiaries.
At the Company’s annual general shareholders’ meeting on April 29, 2019, the following individuals were elected to the Company’s
board of statutory auditors for a three-year term. The board consists of three members, one of which is the chairman, and two
alternates.
Name
Giuseppe Pio Macario
Francesco Campobasso
Andrea Venturelli
Aurelio Franco Colasanto
Vito Passalacqua
Position
Chairman
Member
Member
Alternate
Alternate
We are subject to Rule 10A-3 (“Rule 10A-3”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which
requires, absent an exemption, that a listed company maintain an audit committee composed of members of the issuer’s board of
directors that meet certain independence requirements.
The Company relies on an exemption from the Rule 10A-3 requirements provided by Rule 10A-3(c)(3) of the Exchange Act for
foreign private issuers with a board of statutory auditors established in accordance with local law or listing requirements and subject to
independence requirements under local law or listing requirements. See “Item 16D. Exemption from Listing Standards for Audit
Committees” for more information.
Nominating and Compensation Committee
On May 24, 2019, the Board of Directors established a nominating and compensation committee. This committee has the task of
assisting the Board of Directors in evaluations and decisions relating to the composition of the Board of Directors and the
remuneration of directors and executives with strategic responsibilities. This committee consists of three members.
Name
Stefania Saviolo
Vincenzo Perrone
Giuseppe Antonio D’Angelo
Position
Chairman
Member
Member
53
The following table illustrates the breakdown of the Group’s employees by qualification and location for the periods indicated:
As of December 31
Change
Change
Employees
Qualification
Top managers
Middle managers
Clerks
Laborers
Total
Location
Italy
Outside Italy
Total
2019
2018
2017
2019/2018
55
46
55
202 199 223
874 1,035 1,012
3,493 3,564 3,849
2018/2017
0
(24)
23
(285)
(9)
3
(161)
(71)
4,615 4,853 5,139
(238 )
(286 )
As of December 31
Change
Change
2019
2,278
2,337
2018
2,364
2,489
2017
2,436
2,703
2019/2018
(86)
(152)
2018/2017
(72)
(214)
4,615
4,853
5,139
(238 )
(286 )
In 2019, 66 workers have voluntarily left the Company. Outside of Italy, the reduction in the number of employees is due to a
contraction of production volumes.
On December 18, 2019, the Company, along with trade unions and Italian relevant authorities, agreed to extend the Solidarity
Agreement (reduced work schedules) until September 23, 2020 and signed an agreement allowing the Company to benefit from CIGS
(a temporary workforce reduction program) for up to 487 employees until the end of December 2020.
Furthermore, the parties involved agreed to set up an incentive plan for staff who would voluntarily terminate their employment
relationship in 2020.
HR People Development
Training for Corporate and Industrial Plants Staff
The growth and development of Natuzzi employees is one of the most important missions that the HR People Development
department is pursuing. Natuzzi has the strong conviction that people are the Company. Employee development is a “joint initiative”
by the employee and the employer to improve individuals’ existing skills and knowledge.
Respecting this fundamental belief, we are aware that employee development is a long-term initiative, but also produces benefits in
the short-term like increased loyalty and improved performance and engagement. We are constantly working to put in place programs
and tools to support each professional’s growth on an ongoing basis.
During 2019, the focus of our training planning was to support our corporate strategy to develop and enhance the retail channel and to
support the Company in its digitizing processes. In 2019, we conducted training activities with regard to both commercial and
corporate employees.
Natuzzi Smart Academy
Following the launch in 2019 of the Natuzzi Smart Academy, our e-learning platform, we worked on strengthening existing courses
and introducing new ones, as well as designing a plan for the development of training modules ranging from visual merchandising, to
brands, use of sales tools and sale techniques. The Natuzzi Smart Academy is a strategic investment that demonstrates the importance
the Company places on up-to-date solutions that make it possible for the Company to reach the largest number of people, allowing
them to obtain and benefit from training contents at any time and in any place. Thanks to this web-based platform, in 2019 trainers at
the Company’s headquarters were able to provide direct training about a wide range of topics (including, IT security, use of personal
data, use of the e-learning platform) to different kind of positions (sales staff, visual merchandiser, merchandising managers,
marketing managers, etc.) at the same time. Our e-learning platform also offers the possibility to follow up with more targeted
trainings in case our feedback, tracking or evaluation systems highlight specific training needs.
54
While the platform has been available since April 2019, the Company continues to invest in skills development through traditional
training sessions such as Company and store opening training where in-person interaction is more effective, as well educational paths
in collaboration with prestigious consulting firms about technical and soft skills.
Other Training Activities in 2019
We engage in a series of other trainings as well that cover competencies such as specialized R&D concepts and certifications,
packaging, ergonomic design, digital skills, marketing and communication, customer service and production. The Company’s
corporate training is a testament to the Company’s constant desire for innovation in its mission. As an example, in 2019 we offered a
training aimed at strengthening our employees’ digital skills, which resulted in the adoption of a system of representation and
management of big data, integrated and shared among the various Company functions. In addition, the Company organized
management training courses aimed at developing big data research and analysis techniques to guide strategic choices.
Share Ownership
Mr. Pasquale Natuzzi, founder of the Company and its CEO and Chairman of the Board of Directors, as of the date of this Annual
Report, 2020, beneficially owns an aggregate amount of 30,967,521 Ordinary Shares, representing 56.5% of the Ordinary Shares
outstanding (61.6% of the Ordinary Shares outstanding if the 5.1% of the Ordinary Shares owned by the Natuzzi Family are
aggregated).
As a result, Mr. Natuzzi controls Natuzzi S.p.A., including its management and the selection of the members of its board of directors.
Since December 16, 2003, Mr. Natuzzi has held his entire beneficial ownership of Natuzzi S.p.A. shares through INVEST 2003 S.r.l.,
an Italian holding company wholly-owned by Mr. Natuzzi and having its registered office at Via Gobetti 8, Taranto, Italy.
On November 6, 2014, INVEST 2003 S.r.l. completed the purchase of 250,000 ADSs, each representing one Ordinary Share at the
time of purchase, at a price of U.S.$2.00 per ADS. The purchase was privately negotiated with a single individual and was effected
through an escrow arrangement with BNY Mellon.
On July 30, 2014, INVEST 2003 S.r.l., completed the purchase of 500,000 ADSs, each representing one Ordinary Share at the time of
purchase, at a price of U.S.$2.75 per ADS. The purchase was privately negotiated with a single individual and was effected through an
escrow arrangement with BNY Mellon. For more information, refer to Schedule 13D (Amendment No. 2), filed with the SEC on
September 14, 2014, that amends and supplements the Schedule 13D, filed with the SEC on April 24, 2008 (as amended by
Amendment No. 1 filed on April 8, 2013 (“Amendment No. 1”).
These two purchases, carried out for investment purposes, brought the number of Ordinary Shares beneficially owned by each of
Mr. Natuzzi and INVEST 2003 S.r.l. to 30,967,521 (representing 56.5% of the Ordinary Shares outstanding).
Between September 27, 2011 and April 30, 2013, INVEST 2003 S.r.l. completed the purchase of a total of 859,628 Natuzzi S.p.A.
ADSs (each representing one Ordinary Share at the time of purchase, for a total of approximately 1.6% of the Company’s total shares
then outstanding), at an average price of U.S.$ 2.37 per ADS. These purchases were made in accordance with a purchase plan
undertaken pursuant to Rule 10b-18 (“Purchases of Certain Equity Securities by the Issuer and Others”) promulgated under the
Securities Exchange Act of 1934 (the “Rule 10b-18 Plan”).
On April 18, 2008, INVEST 2003 S.r.l. purchased 3,293,183 ADSs, each representing one Ordinary Share at the time of purchase, at
the price of U.S.$ 3.61 per ADS. For more information, refer to Schedule 13D, filed with the SEC on April 24, 2008, and related
Amendment No. 1 to Schedule 13D, filed with the SEC on April 8, 2013.
On February 8, 2019, the Company’s board of directors approved a change in the ratio of its ADSs to Ordinary Shares, from one ADS
representing one Ordinary Share, to one ADS representing five Ordinary Shares. The effective date of the ratio change was
February 21, 2019. There were 4,361,981 ADSs (equivalent to 21,809,905 Ordinary Shares) outstanding as of February 21, 2019.
55
Each of the Company’s other directors and officers owns less than 1% of the Company’s Ordinary Shares and ADSs. None of the
Company’s directors or officers has stock options.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The following table sets forth information, as of the date of this Annual Report, with respect to each person who beneficially owns 5%
or more of the Company’s Ordinary Shares or ADSs:
Major Shareholders
Pasquale Natuzzi (1)
Quaeroq CVBA (2)
Number of
Ordinary Shares owned
Percent
owned
30,967,521
3,748,180
56.5%
6.8%
(1)
(2)
Includes ADSs purchased on April 18, 2008, purchases made from September 27, 2011 through April 30, 2013 under the Rule
10b-18 plan and two privately negotiated purchases executed on July 30, 2014 and November 6, 2014. If Mr. Natuzzi’s
Ordinary Shares are aggregated with those held by members of the Natuzzi Family, the amount owned would be 33,767,521 and
the percentage ownership of Ordinary Shares would be 61.6%.
Source: BNY Mellon (http://nexen.bnymellon.com).
As indicated in “Item 6. — Share Ownership,” Mr. Natuzzi controls Natuzzi S.p.A., including its management and the selection of the
members of its board of directors. Since December 16, 2003, Mr. Natuzzi has held his entire beneficial ownership of Natuzzi S.p.A.
shares through INVEST 2003 S.r.l., an Italian holding company wholly-owned by Mr. Natuzzi and having its registered office at Via
Gobetti 8, Taranto, Italy.
In addition, the Natuzzi Family has a right of first refusal to purchase all the rights, warrants or other instruments which BNY, as
Depositary under the Deposit Agreement, determines may not lawfully or feasibly be made available to owners of ADSs in connection
with each right offering, if any, made to holders of Ordinary Shares. None of the shares held by the above shareholders has any special
voting rights.
As of May 29, 2020, 54,853,045 Ordinary Shares were outstanding. As of the same date, there were 4,362,342 ADSs (equivalent to
21,811,711 Ordinary Shares) outstanding. The ADSs represented 39.8% of the total number of Natuzzi Ordinary Shares issued and
outstanding.
On February 8, 2019, the Board of Directors approved the Ratio Change, which became effective on February 21, 2019. There were
4,361,981 ADSs (equivalent to 21,809,905 Ordinary Shares) outstanding as of February 21, 2019.
For ADS holders, the Ratio Change had the same effect as a one-for-five reverse ADS split. No new shares were issued in connection
with the Ratio Change. As a result of the Ratio Change, the price of the Company’s ADSs automatically increased proportionally.
Since certain Ordinary Shares and ADSs are held by brokers or other nominees, the number of direct record holders in the U.S. may
not be fully indicative of the number of direct beneficial owners in the U.S. or of where the direct beneficial owners of such shares are
resident.
56
Transactions that have been entered into with related parties as at December 31, 2019 and 2018 are set forth, in millions of Euro, in
the following table.
Related Party Transactions
Sales
Expenses
Amount owned by related parties
Amounts due to related parties
31/12/2019
31/12/2018
16.4
1.0
9.3
1.0
39.9
0.1
5.2
0.1
Other than the foregoing transactions, neither the Company nor any of its subsidiaries was a party to a transaction with a related party
that was material to the Company or the related party, or any transaction that was unusual in its nature or conditions, involving goods,
services, or tangible or intangible assets, nor is any such transaction presently proposed. During the same period, neither the Company
nor any of its subsidiaries made any loans to or for the benefit of any related party.
ITEM 8.
FINANCIAL INFORMATION
Please refer to “Item 18. Financial Statements” of this Annual Report.
Consolidated Financial Statements
Export Sales
Sales of upholstery products manufactured in Italy and sold outside Italy totaled approximately €109.0 million in 2019, down 15.7%
from 2018. That figure represents 36% of the Group’s 2019 net leather and fabric-upholstered furniture sales.
Legal and Governmental Proceedings
The Group is involved in tax and legal proceedings, including several minor claims and legal actions, arising in the ordinary course of
business. The provision recorded against these claims is €11.1 million as of December 31, 2019 (€12.0 million as of December 31,
2018). See “Item 3. Key Information—Risk factors” and Note 23 to the Consolidated Financial Statements.
Apart from the proceedings described above, neither the Company nor any of its subsidiaries is a party to any legal or governmental
proceeding that is pending or, to the Company’s knowledge, threatened or contemplated against the Company or any such subsidiary
that, if determined adversely to the Company or any such subsidiary, would have a materially adverse effect, either individually or in
the aggregate, on the business, financial condition or results of the Group’s operations.
Dividends
Since the Group reported a negative net result in 2019 and considering the capital requirements necessary to implement the
restructuring of the operations and its planned retail and marketing activities, the Group decided not to distribute dividends in respect
of the year ended December 31, 2019. The Group has also not paid dividends in any of the prior three fiscal years.
The payment of future dividends will depend upon the Company’s earnings and financial condition, capital requirements,
governmental regulations and policies and other factors. Accordingly, there can be no assurance that dividends in future years will be
paid at a rate similar to dividends paid in past years or at all.
57
Dividends paid to owners of ADSs or Ordinary Shares who are U.S. residents qualifying under the Income Tax Convention will
generally be subject to Italian withholding tax at a maximum rate of 15%, provided that certain certifications are given timely. Such
withholding tax will be treated as a foreign income tax which U.S. owners may elect to deduct in computing their taxable income, or,
subject to the limitations on foreign tax credits generally, credit against their U.S. federal income tax liability. See “Item 10.
Additional Information—Taxation—Taxation of Dividends.”
ITEM 9.
THE OFFER AND LISTING
Trading Markets
Natuzzi’s Ordinary Shares are listed on the NYSE in the form of ADSs under the symbol “NTZ.” Neither the Company’s Ordinary
Shares nor its ADSs are listed on a securities exchange outside the United States. BNY Mellon is the Company’s Depositary for
purposes of issuing the American Depositary Shares evidencing ADSs. Trading in the ADSs on the NYSE commenced on May 13,
1993.
On December 26, 2018 the Company received notice from the NYSE that the Company was no longer in compliance with one of the
NYSE’s continued listing standards for a listed company, particularly, the average closing price of the Company’s ADSs was less than
US$1.00 over a consecutive 30-trading day-period.
The Company notified the NYSE on December 27, 2018 of its intention to cure this deficiency within the prescribed timeframe.
On February 8, 2019, the Company’s Board of Directors approved a change in the ratio of its ADSs to Ordinary Shares, par value
€1.00 per Ordinary Share, from one ADS representing one Ordinary Share, to one ADS representing five Ordinary Shares (the “Ratio
Change”). The effective date of the Ratio Change was February 21, 2019. There were 4,361,981 ADSs (equivalent to 21,809,905
Ordinary Shares) outstanding as of February 21, 2019.
For ADS holders, the Ratio Change had the same effect as a one-for-five reverse ADS split. No new shares were issued in connection
with the Ratio Change and Natuzzi’s ADSs continue to be traded on the NYSE under the same symbol “NTZ.” As a result of the Ratio
Change, the price of the Company’s ADSs automatically increased proportionally.
On March 1, 2019, the Company received confirmation from the NYSE that it had regained compliance with continued listing
standards.
On April 7, 2020 the Company received notice from the NYSE that the Company is no longer in compliance with one of the NYSE’s
continued listing standards for a listed company because the average closing price of the Company’s ADSs was less than US$1.00
over a consecutive 30-trading day-period (the “Dollar Price Standard”).
NYSE notified the Company that its ADSs would be delisted if it is not able to comply with the Dollar Price Standard within the
applicable cure period. As of April 6, 2020, the average closing price of Natuzzi’s ADSs over the preceding consecutive 30 trading-
day period was US$ 0.78 per ADS. The issuance of the notification is not discretionary and is sent automatically when a listed
company’s share price falls below the Dollar Price Standard.
The Company can regain compliance at any time during the cure period if, on the last trading day of any calendar month during the
cure period, the Company has a closing share price of at least US$1.00 and an average closing share price of at least US$1.00 over the
30 trading-day period ending on the last trading day of that month. In the event that the Company is not in compliance with the Dollar
Price Standard at the end of the cure period, the Company expects that the NYSE will commence suspension and delisting procedures.
Until then, the Company’s shares are expected to continue to be listed and traded on the NYSE, subject to compliance with other
NYSE continued listing standards.
A delisting from the NYSE is not expected to affect the Company’s business operations and is not expected to conflict with or cause
an event of default under any of the Company’s material debt or other agreements.
58
Since March 17, 2020, the Company has also not been in compliance with the NYSE’s continued listing standard set forth in
Section 802.01(b) of the NYSE Listed Company Manual, which requires the Company to maintain an average global market
capitalization of not less than US$15 million over a consecutive 30-trading day period (the “Capitalization Standard”).
In response to the COVID-19 outbreak, the NYSE has suspended the application of the Dollar Price Standard and of the Capitalization
Standard until June 30, 2020. In light of this, the cure period for the Company to regain compliance with the Dollar Price Standard
will expire on December 16, 2020. However, the Company’s capitalization (equal to US$ 8.4 million as of May 29, 2020) suggests
that the NYSE may commence proceedings to delist Natuzzi’s ADSs after 30 trading days from the expiration of the suspension
period of the Capitalization Standard, regardless of any action taken by the Company to cure its non-compliance with the Dollar Price
Standard prior to the expiration of the cure period for the Dollar Price Standard. Therefore, the Company notified the NYSE on
April 21, 2020 that it does not currently intend to take any action in connection with its non-compliance with the Dollar Price
Standard.
The Company may reconsider this in the future if, among other things, its global market capitalization has risen above US$15 million
following the COVID-19 suspension.
ITEM 10. ADDITIONAL INFORMATION
By-laws
The following is a summary of (i) certain information concerning the Company’s shares and By-laws (statuto) and (ii) the relevant
provisions of Italian stock corporations. In particular, Italian issuers of shares that are not listed on a regulated market of the European
Union are governed by the rules of the Italian civil code (the “Civil Code”). This summary contains all the information that the
Company considers to be material regarding its shares, but does not purport to be complete and is qualified in its entirety by reference
to the By-laws or the relevant provisions of Italian law, as the case may be.
General — The issued share capital of the Company consists of 54,853,045 Ordinary Shares, with a par value of €1.00 per share. All
the issued shares are fully paid, non-assessable and in registered form.
The Company is registered with the Companies’ Registry of Bari at No. 261878, with its registered office in Santeramo in Colle
(Bari), Italy.
As set forth in Article 3 of the By-laws, the Company’s corporate purpose is the production, marketing and sale of sofas, armchairs,
furniture in general and raw materials used for their production. The Company is generally authorized to take any actions necessary or
useful to achieve its corporate purpose.
Authorization of Shares — At the extraordinary shareholders’ meeting of the Company held on July 23, 2004, the shareholders
authorized the Company’s board of directors to carry out a free capital increase of up to €500,000, and a capital increase against
payment of up to €3.0 million to be issued, in connection with the grant of stock options to employees of the Company and of other
Group companies. On January 24, 2006 the Company’s board of directors, in accordance with the Regulations of the “Natuzzi Stock
Incentive Plan 2004-2009” (which was approved by the board of directors in a meeting held on July 23, 2004), decided to issue
without consideration 56,910 new Ordinary Shares in favor of the beneficiary employees. Consequently, the number of Ordinary
Shares increased on the same date from 54,681,628 to 54,738,538. On January 23, 2007, the Company’s board of directors, in
accordance with the Regulations of the “Natuzzi Stock Incentive Plan 2004-2009,” decided to issue without consideration 85,689 new
Ordinary Shares in favor of beneficiary employees. Consequently, the number of Ordinary Shares increased on the same date from
54,738,538 to 54,824,227. On January 24, 2008 the Company’s board of directors, in accordance with the Regulations of the “Natuzzi
Stock Incentive Plan 2004-2009,” decided to issue without consideration 28,818 new Ordinary Shares in favor of the beneficiary
employees. Consequently, the number of Ordinary Shares increased on the same date from 54,824,227 to 54,853,045, the current
number.
Form and Transfer of Shares — The Company’s Ordinary Shares are in certificated form and are freely transferable by endorsement
of the share certificate by or on behalf of the registered holder, with such endorsement either authenticated by a notary, in Italy or
elsewhere, or by a broker-dealer or a bank in Italy. The transferee must request that the Company enters his name in the register of
shareholders in order to exercise his rights as a shareholder of the Company.
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Dividend Rights — Payment by the Company of any annual dividend is proposed by the board of directors and is subject to the
approval of the shareholders at the annual shareholders’ meeting. Before dividends may be paid out of the Company’s unconsolidated
net income in any year, an amount at least equal to 5% of such net income must be allocated to the Company’s legal reserve until such
reserve is at least equal to one-fifth of the par value of the Company’s issued share capital. If the Company’s share capital is reduced
as a result of accumulated losses, no dividends may be paid until the capital is reconstituted or reduced by the amount of such losses.
The Company may pay dividends out of available retained earnings from prior years, provided that, after such payment, the Company
will have a legal reserve at least equal to the legally required minimum. No interim dividends may be approved or paid.
Dividends will be paid in the manner and on the date specified in the shareholders’ resolution approving their payment (usually within
30 days from their annual general meeting). Dividends that are not collected within five years of the date on which they become
payable are forfeited to the benefit of the Company. Holders of ADSs will be entitled to receive payments in respect of dividends on
the underlying shares through BNY, as ADR Depositary, in accordance with the Deposit Agreement.
Voting Rights — Registered holders of the Company’s Ordinary Shares are entitled to one vote per Ordinary Share.
As a registered shareholder, the Depositary (or its nominee) will be entitled to vote the Ordinary Shares underlying the ADSs. The
Deposit Agreement requires the Depositary (or its nominee) to accept voting instructions from holders of ADSs and to execute such
instructions to the extent permitted by law. Neither Italian law nor the Company’s By-laws limit the right of non-resident or foreign
owners of the Company’s Ordinary Shares to hold or vote shares of the Company.
Board of directors — Under Italian law and pursuant to the Company’s By-laws, the Company may be run by a sole director or by a
board of directors, consisting of seven to eleven individuals. The Company is currently run by a board of directors composed of nine
individuals (see “Item 6. Directors, Senior Management and Employees”). The board of directors is elected by the ordinary
shareholders’ meeting of the Company, for the period established at the time of election but in no case for longer than three fiscal
years. A director, who may, but is not required to be, a shareholder of the Company, may be reappointed for successive terms. The
board of directors has the full power of ordinary and extraordinary management of the Company and in particular may perform all acts
it deems advisable for the achievement of the Company’s corporate purposes, except for the actions reserved by the applicable law or
the By-laws to a vote of the ordinary or extraordinary shareholders’ meeting. See also “Item 10. Additional Information—Meetings of
Shareholders.”
The board of directors must appoint a chairman (presidente) and may appoint a vice-chairman. The chairman of the board of directors
is the legal representative of the Company. The board of directors may delegate certain powers to one or more managing directors
(amministratori delegati), determine the nature and scope of the powers delegated to each director and revoke such delegation at any
time. The managing directors must report to the board of directors and the board of statutory auditors at least every 180 days on the
Company’s business and the main transactions carried out by the Company or by its subsidiaries.
The board of directors may not delegate certain responsibilities, including the preparation and approval of the draft financial
statements, the approval of merger and de-merger plans to be submitted to shareholders’ meetings, increases in the amount of the
Company’s share capital or the issuance of convertible debentures (if any such power has been delegated to the board of directors by
vote of the extraordinary shareholders’ meeting) and the fulfilment of the formalities required when the Company’s capital has to be
reduced as a result of accumulated losses that reduce the Company’s stated capital by more than one-third. See also “Item 10.
Additional Information—Meetings of Shareholders”.
The board of directors may also appoint one or more general managers (direttori generali), who must report directly to the board of
directors and confer powers for single acts or categories of acts to employees of the Company or persons unaffiliated with the
Company.
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Meetings of the board of directors are called no less than five days in advance by letter sent via fax, telegram or e-mail by the
chairman on his own initiative. Meetings may be held in person, by video-conference or tele-conference, in the location indicated in
the notice convening the meeting, or in any other destination, each time that the chairman may consider necessary. The quorum for
meetings of the board of directors is a majority of the directors in office. Resolutions are adopted by the vote of a majority of the
directors present at the meeting. In case of a tie, the chairman has the deciding vote.
Directors having any interest in a proposed transaction must disclose their interest to the board of directors and to the board of
statutory auditors, even if such interest is not in conflict with the interest of the Company in the same transaction. The interested
director is not required to abstain from voting on the resolution approving the transaction, but the resolution must state explicitly the
reasons for, and the benefit to the Company of, the approved transaction. In the event that these provisions are not complied with, or
that the transaction would not have been approved without the vote of the interested director, the resolution may be challenged by a
director or by the board of statutory auditors if the approved transaction may be prejudicial to the Company. A managing director must
solicit prior board approval of any proposed transaction in which he has any interest and that is within the scope of his powers. The
interested director may be held liable for damages to the Company resulting from a resolution adopted in breach of the above rules.
Finally, directors may be held liable for damages to the Company if they illicitly profit from insider information or corporate
opportunities.
The board of directors may transfer the Company’s registered office within Italy, set up and eliminate secondary offices and approve
mergers by absorption into the Company of any subsidiary in which the Company holds at least 90% of the issued share capital. The
board of directors may also approve the issuance of shares or convertible debentures and reductions of the Company’s share capital in
the case of withdrawal of a shareholder if so authorized by the Company’s extraordinary shareholders’ meeting.
Under Italian law and pursuant to the Company’s By-laws, directors may be removed from their office at any time by the vote of
shareholders at an ordinary shareholders’ meeting. However, if removed in circumstances where there was no just cause, such
directors may have a claim for damages against the Company. Directors may resign at any time by written notice to the board of
directors and to the chairman of the board of statutory auditors. The board of directors, subject to the approval of the board of statutory
auditors, must appoint substitute directors to fill vacancies arising from removals or resignations to serve until the next ordinary
shareholders’ meeting. If at any time more than half of the members of the board of directors appointed by the shareholders’ meeting
of the Company resign, such resignation is ineffective until the majority of the new board of directors has been appointed. In such a
case, the remaining members of the board of directors (or the board of statutory auditors if all the members of the board of directors
have resigned or ceased to be directors) must promptly call an ordinary shareholders’ meeting to appoint the new directors.
The compensation of executive directors, including the CEO, is determined by the board of directors, after consultation with the board
of statutory auditors, within a maximum amount established by the Company’s shareholders meeting. The Company’s shareholders
meeting determines the base compensation for all board members, including non-executive directors. Directors are entitled to
reimbursement for expenses reasonably incurred in connection with their functions.
Statutory Auditors — In addition to appointing the board of directors, the ordinary shareholders’ meeting of the Company, appoints
a board of statutory auditors (collegio sindacale) and its chairman, and set the compensation of its members. The statutory auditors are
elected for a term of three fiscal years, may be re-elected for successive terms and may be removed only for cause and with the
approval of a competent court. Expiration of their office will have no effect until a new board is appointed. Membership of the board
of statutory auditors is subject to certain good standing, independence and professional requirements, and shareholders must be
informed as to the offices the proposed candidates hold in other companies prior to or at the time of their election. In particular, at
least one standing and one alternate member must be a chartered public accountant.
The Company’s By-laws provide that the board of statutory auditors shall consist of three statutory auditors and two alternate auditors
(who are automatically substituted for a statutory auditor who resigns or is otherwise unable to serve).
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The Company’s board of statutory auditors is required, among other things, to verify that the Company (i) complies with applicable
laws and the By-laws, (ii) complies with applicable principles of good governance, and (iii) maintains adequate organizational
structure and administrative and accounting systems. The Company’s board of statutory auditors must be convened at least once every
90days. The board of statutory auditors reports to the annual shareholders’ meeting on the results of its activity and the results of the
Company’s operations. In addition, the statutory auditors of the Company must attend the meetings of the Company’s board of
directors and shareholders’ meetings.
The statutory auditors may decide to call a shareholders’ meeting, ask information about the management of the Company to the
members of the board of directors, carry out inspections and verifications at the Company and exchange information with the
Company’s external auditors. Additionally, the statutory auditors have the power to initiate a liability action against one or more
directors after adopting a resolution with an affirmative vote by two thirds of the auditors in office. Any shareholder may submit a
complaint to the board of statutory auditors regarding facts that such shareholder believes should be subject to scrutiny by the board of
statutory auditors, which must take any complaint into account in its report to the shareholders’ meeting. If shareholders collectively
representing 5% of the Company’s share capital submit such a complaint, the board of statutory auditors must promptly undertake an
investigation and present its findings and any recommendations to a shareholders’ meeting of the Company (which must be convened
immediately if the complaint appears to have a reasonable basis and there is an urgent need to take action). The board of statutory
auditors may report to a competent court serious breaches of directors’ duties.
External Auditor — The audit of the Company’s accounts is entrusted, as per current legislation, to an independent audit firm whose
appointment falls under the competence of the shareholders’ meeting, upon the board of statutory auditors’ proposal. In addition to the
obligations set forth in national auditing regulations, Natuzzi’s listing on the NYSE requires that the audit firm issues an audit report
on the consolidated financial statements included in the annual report on Form 20-F, in compliance with the auditing standards issued
by the Public Company Accounting Oversight Board (PCAOB). Moreover, the independent audit firm is required, if applicable, to
issue an opinion on the effectiveness of the internal control system applied to financial reporting. No such opinion was required for the
Company as of December 31, 2019.
The external auditor or the firm of external auditors is appointed for a three-year term, may be re-elected for successive terms, and its
compensation is determined by a vote at an ordinary shareholders’ meeting of the Company and may be removed only for just cause
by a vote of the shareholders’ meeting.
Meetings of Shareholders — Shareholders are entitled to attend and vote at ordinary and extraordinary shareholders’ meetings. Votes
may be cast personally or by proxy. Shareholders’ meetings may be called by the Company’s board of directors (or the board of
statutory auditors) and must be called if requested by holders of at least 10% of the issued shares. If a shareholders’ meeting is not
called despite the request by shareholders and such refusal is unjustified, a competent court may call the meeting. Shareholders are not
entitled to request that a meeting of shareholders be convened to vote on matters which, as a matter of law, shall be resolved on the
basis of a proposal, plan or report by the Company’s board of directors.
The Company may hold general meetings of shareholders at its registered office in Santeramo in Colle, or elsewhere within Italy or at
locations outside Italy, following publication of notice of the meeting in any of the following Italian newspapers: “Il Sole 24 Ore,”
“Corriere della Sera” or “La Repubblica” at least 15 days before the date fixed for the meeting.
The ordinary shareholders’ meeting of the Company must be convened at least once a year. The Company’s annual stand-alone
financial statements are prepared by the board of directors and submitted for approval to the ordinary shareholders’ meeting, which
must be convened within 120 days after the end of the fiscal year to which such financial statements relate. This term may be extended
by up to 180 days after the end of the fiscal year, as long as the Company continues to be bound by law to draw up consolidated
financial statements or if particular circumstances concerning its structure or its purposes so require. At ordinary shareholders’
meetings, shareholders also appoint the external auditors, approve the distribution of dividends, appoint the members of the board of
directors and of the board of statutory auditors, determine their remuneration and vote on any matter the resolution or authorization of
which is entrusted to them by law.
Extraordinary shareholders’ meetings may be called to vote on proposed amendments to the By-laws, issuance of convertible
debentures, mergers and de-mergers, capital increases and reductions, when such resolutions may not be taken by the board of
directors. Liquidation of the Company must be resolved by an extraordinary shareholders’ meeting.
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The notice of a shareholders’ meeting of the Company may specify two or more meeting dates for an ordinary or extraordinary
shareholders’ meeting; such meeting dates are generally referred to as “calls.”
The quorum for an ordinary shareholders’ meeting of the Company is 50% of the Ordinary Shares, and resolutions are adopted by the
majority of Ordinary Shares present or represented. At an adjourned ordinary meeting, no quorum is required, and the resolutions are
carried by the majority of Ordinary Shares present or represented. Certain matters, such as amendments to the By-laws, the issuance of
shares, the issuance of convertible debentures, mergers and de-mergers, may only be resolved upon at an extraordinary meeting, at
which special voting rules apply. Resolutions at an extraordinary meeting of the Company are adopted, on first call, by a majority of
the Ordinary Shares. An adjourned extraordinary meeting is validly held with a quorum of one-third of the issued shares and its
resolutions are carried by a majority of at least two-thirds of the holders of shares present or represented at such meeting. In addition,
certain matters (such as a change in purpose or corporate form of the company, demergers, mergers, the transfer of its registered office
outside Italy, its liquidation prior to the term set forth in its By-laws, the extension of the term, the revocation of liquidation and the
issuance of preference shares) are approved by the holders of more than two-thirds of the shares present and represented at such
meeting that must also represent more than one-third of the issued shares.
According to the By-laws, in order to attend any shareholders’ meeting, each shareholder of the Company, at least five days prior to
the date fixed for the meeting, must deposit its share certificates at the offices of the Company or with such banks as may be specified
in the notice of call of the relevant meeting, in exchange for an admission ticket. Owners of ADRs may make special arrangements
with the Depositary for the beneficial owners of such ADRs to attend shareholders’ meetings, but not to vote at or formally address
such meetings. The procedures for making such arrangements will be specified in the notice of such meeting to be mailed by the
Depositary to the owners of ADRs.
Shareholders may appoint proxies by delivering in writing an appropriate power of attorney to the Company. Directors, auditors and
employees of the Company or of any of its subsidiaries may not be proxies and any one proxy cannot represent more than 20
shareholders.
Pre-emptive Rights — Pursuant to Italian law, holders of Ordinary Shares or of debentures convertible into shares, if any exist, are
entitled to subscribe for the issuance of shares, debentures convertible into shares and rights to subscribe for shares, in proportion to
their holdings, unless such issues are for non-cash consideration or pre-emptive rights are waived or limited and such waiver or
limitation is required in the interest of the Company. There can be no assurance that the holders of ADSs may be able to exercise fully
any pre-emptive rights pertaining to Ordinary Shares.
Preference Shares. Other Securities — The Company’s By-laws allow the Company to issue preference shares with limited voting
rights, to issue other classes of equity securities with different economic and voting rights, to issue so-called participation certificates
with limited voting rights, as well as so-called tracking stock. The power to issue such financial instruments is attributed to the
extraordinary meeting of shareholders.
The Company, by resolution of the board of directors, may issue debt securities non-convertible into shares, while it may issue debt
securities convertible into shares through a resolution of an extraordinary shareholders’ meeting.
Segregation of Assets and Proceeds — The Company, by means of an extraordinary shareholders’ meeting resolution, may approve
the segregation of certain assets into one or more separate pools. Such pools of assets may have an aggregate value not exceeding 10%
of the shareholders’ equity of the Company. Each pool of assets must be used exclusively to carry out a specific business and may not
be attached by the general creditors of the Company. Similarly, creditors with respect to such specific business may only attach those
assets of the Company that are included in the corresponding pool. Tort creditors, on the other hand, may always attach any assets of
the Company. The Company may issue securities carrying economic and administrative rights relating to a pool. In addition, financing
agreements relating to the funding of a specific business may provide that the proceeds of such business be used exclusively to repay
the financing. Such proceeds may be attached only by the financing party and such financing party would have no recourse against
other assets of the Company.
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Liquidation Rights — Pursuant to Italian law and subject to the satisfaction of the claims of all other creditors, shareholders are
entitled to a distribution in liquidation that is equal to the nominal value of their shares (to the extent available out of the net assets of
the Company). Holders of preference shares, if any such shares are issued in the future by the Company, may be entitled to a priority
right to any such distribution from liquidation up to their par value. Thereafter, all shareholders would rank equally in their claims to
the distribution or surplus assets, if any. Ordinary Shares rank pari passu among themselves in liquidation.
Purchase of Shares by the Company — The Company is allowed to purchase shares, subject to certain conditions and limitations
provided for by Italian law. Shares may be purchased out of profits available for dividends and out of distributable reserves, in each
case as appearing on the latest stand-alone financial statements approved by the Company’s shareholders’ meeting. Further, the
Company may only repurchase fully paid-in shares. Such purchases must be authorized by the ordinary shareholders’ meeting. The
aggregate purchase price of such shares may not exceed the earnings reserve specifically approved by shareholders. Shares held in
violation of the above conditions and limitations must be sold within one year of the date of purchase. Similar limitations apply with
respect to purchases of the Company’s shares by its subsidiaries.
A corresponding reserve equal to the purchase price of such shares must be created in the statement of financial position, and such
reserve is not available for distribution, unless such shares are sold or cancelled. Shares purchased and held by the Company may be
resold only pursuant to a resolution adopted at an ordinary shareholders’ meeting. The voting rights attaching to the shares held by the
Company or its subsidiaries cannot be exercised, but the shares are counted for quorum purposes in shareholders’ meetings. Dividends
and pre-emptive rights attaching to such shares will accrue to the benefit of other shareholders.
The Company does not own any of its Ordinary Shares.
Notification of the Acquisition of Shares — In accordance with Italian antitrust laws, the Italian Competition Authority prohibits the
acquisition of control in a company which would thereby create or strengthen a dominant position in the domestic market or a
significant part thereof and which would result in the elimination or substantial reduction of competition on a lasting basis, provided
that certain turnover thresholds are exceeded. However, if the turnover of the acquiring party and the company to be acquired exceeds
certain other monetary thresholds, the antitrust review of the acquisition falls within the exclusive jurisdiction of the European
Commission and will be assessed under the EU Merger Regulation (Council Regulation (EC) No. 139/2004).
Minority Shareholders’ Rights. Withdrawal Rights — Shareholders’ resolutions which are not adopted in conformity with
applicable law or the Company’s By-laws may be challenged (with certain limitations and exceptions) within ninety days by absent,
dissenting or abstaining shareholders representing individually or in the aggregate at least 5% of Company’s share capital (as well as
by the board of directors or the board of statutory auditors). Shareholders not reaching this threshold or shareholders not entitled to
vote at Company’s meetings may only claim damages deriving from the resolution.
Dissenting or absent shareholders may require the Company to buy back their shares as a result of shareholders’ meeting resolutions
approving, among others things, material modifications of the Company’s corporate purpose or of the voting rights of its shares, the
transformation of the Company from a stock corporation into a different legal entity, or the transfer of the Company’s registered office
outside Italy. The buy-back would occur at a price established by the board of directors, upon consultation with the board of statutory
auditors and the Company’s external auditor, having regard to the net assets value of the Company, its prospective earnings and the
market value of its shares, if any. The Company’s By-laws may set forth different criteria to determine the consideration to be paid to
dissenting shareholders in such buy-backs.
Each shareholder may bring to the attention of the board of statutory auditors facts or actions which are deemed wrongful. If such
shareholders represent more than 5% of the share capital of the Company, the board of statutory auditors must investigate without
delay and report its findings and recommendations to the shareholders’ meeting (which must be convened immediately if the
complaint appears to have a reasonable basis and there is an urgent need to take action).
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Shareholders representing more than 10% of the Company’s share capital have the right to report to a competent court all of the
serious breaches of the directors’ duties, which may be prejudicial to the Company or to its subsidiaries. In addition, shareholders
representing at least 20% of the Company’s share capital may commence derivative suits before a competent court against its
directors, statutory auditors and general managers.
The Company may waive or settle the suit unless shareholders holding at least 20% of the shares vote against such waiver or
settlement. The Company will reimburse the legal costs of such action in the event that the claim of such shareholders is successful
and the court does not award such costs against the relevant directors, statutory auditors or general managers.
Any dispute arising out of or in connection with the By-Laws that may arise between the Company and its shareholders, directors, or
liquidators shall fall under the exclusive jurisdiction of the Tribunal of Bari (Italy).
Liability for Mismanagement of Subsidiaries — Under Italian law, companies and other legal entities that, acting in their own
interest or the interest of third parties, mismanage a company subject to their direction and coordination powers are liable to such
company’s shareholders and creditors for ensuing damages suffered by such shareholders. This liability is excluded if (i) the ensuing
damage is fully eliminated, including through subsequent transactions, or (ii) the damage is effectively offset by the global benefits
deriving in general to the company from the continuing exercise of such direction and coordination powers. Direction and
coordination powers are presumed to exist, among other things, with respect to consolidated subsidiaries.
The Company is subject to the direction and coordination of INVEST 2003 S.r.l.
Material Contracts
The Company is not a party to any material contract, other than contracts entered into in the ordinary course of business and the
contracts described immediately below:
— The Securitization Agreement with Muttley S.r.l., and concerning Banca IMI, Intesa San Paolo for the non-recourse factoring of
export-related financial receivables for €35 million, dated July 7, 2015. The Securitization Agreement can be found in Exhibit
4.5 to this Annual Report.
— The Company entered into various agreements with representatives of trade unions regarding the reorganization of its
employees, dated March 22, 2016 and March 27, 2017 (the “Italian Reorganization Agreements”). The Italian Reorganization
Agreements are attached as Exhibits 4.3, 4.4, 4.6 and 4.7 to this Annual Report.
— The Company entered into a joint venture contract with Jason Furniture (Hangzhou) Co., Ltd. (“Kuka”) on March 22, 2018 (the
“Joint Venture Agreement”) under which the Company’s wholly-owned Chinese subsidiary, Natuzzi Trading (Shanghai) Co.,
Ltd. (“Natuzzi Trading Shanghai”) would become a joint venture (the “Joint Venture”). On July 27, 2018, the Company
completed the transactions contemplated by the Joint Venture Agreement. As a result of the completion of these transactions,
the Company’s wholly-owned Chinese subsidiary, Natuzzi Trading (Shanghai) Co., Ltd. (“Trading Co.”), became a joint
venture in which each of the Company and Kuka currently owns a 49% and 51% stake, respectively. Kuka invested €65 million
to acquire its stake in Trading Co. The Joint Venture distributes Natuzzi Italia and Natuzzi Editions branded products through a
network of single-brand directly operated stores and franchise stores in Mainland China, Hong Kong and Macau, as well as
through online stores. The Joint Venture Agreement is attached as Exhibit 4.8 to this Annual Report.
— The Company entered into an agreement for the sale and purchase and subscription of shares in Natuzzi Trading Shanghai with
Kuka and Natuzzi Trading Shanghai on March 22, 2018 (the “Share Purchase Agreement”). Under the Share Purchase
Agreement, Kuka made a €65 million investment in exchange for a majority stake in the Joint Venture. The Share Purchase
Agreement is attached as Exhibit 4.9 to this Annual Report.
— On December 18, 2018, the Company, along with trade unions and Italian relevant authorities, agreed to extend the Solidarity
Agreement for a one-year period ending in December 2019 and signed an agreement allowing the Company to benefit from
CIGS for up to 491 employees, for a period of 24 months, in order to support the Company’s reorganization process.
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• On December 18, 2019, the Company, along with trade unions and Italian relevant authorities, agreed to extend the Solidarity
Agreement until September 23, 2020 and signed an agreement allowing the Company to benefit from CIGS for up to 487
employees until the end of December 2020.
• On February 28, 2020, in light of the extraordinary challenges faced by the Group due to the COVID-19 pandemic, the
Company entered into an agreement with INVEST 2003 S.r.l., its majority shareholder, setting forth the undertaking of such
shareholder, upon request of the Company, to make advance payments of up to €15.0 million to satisfy the subscription price of
a future rights issue. The agreement further provides that any such advance payments are subject to repayment unless a rights
issue in a minimum amount of €15.0 million is approved by the Company’s shareholders and completed before year end.
Exchange Controls
There are currently no exchange controls, as such, in Italy restricting rights deriving from the ownership of shares. Residents and non-
residents of Italy may hold foreign currency and foreign securities of any kind, within and outside Italy. Non-residents may invest in
Italian securities without restriction and may transfer to and from Italy cash, instruments of credit and securities, in both foreign
currency and Euro, representing interest, dividends, other asset distributions and the proceeds of any dispositions.
Certain requirements however are imposed by law. Regulations on the use of cash and bearer securities are contained in legislative
decree No. 231 of November 21, 2007, as amended from time to time (the “Decree 231”), which implemented in Italy the European
directive on anti-money laundering 2005/60/EC (actually replaced by directive (EU) 2015/849, as amended by directive (EU)
2018/843). Such legislation requires that, subject to certain exceptions, transfers of cash or bearer instruments in Euro or in foreign
currency, effected for whatsoever reason between different parties, shall be carried out by means of credit institutions, Poste Italiane
S.p.A., electronic money institutions and payment institutions providing payment services which are different from those indicated
under Article 1, paragraph 1, letter d), number 6) of legislative decree No. 11 of January 27, 2010 when the total amount to be
transferred is equal to or more than €3,000. Such limit will be decreased to €2,000 from July 1, 2020. Cash remittance services are
subject to a €1,000 limit. Credit institutions and the other intermediaries effecting such transactions on behalf of residents or non-
residents of Italy are required to maintain records of such transactions for ten years after the end of the relevant business relationship
or the closing of the relevant transaction. Such records may be inspected at any time by the competent Italian authorities.
Non-compliance with, inter alia, the reporting and record-keeping requirements set forth in the above-mentioned Decree 231 may
result in administrative fines or, in the case of (inter alia) reporting of false or misleading information or falsification of the
information that is relevant for the purposes of compliance with Decree 231, criminal penalties. The Financial Intelligence Unit of the
Bank of Italy (the “FIU”) may use the information received and/or transfer it to the anti-mafia investigative directorate (Direzione
investigativa antimafia), the special monetary police nucleus (Nucleo speciale di polizia valutaria della Guardia di finanza) and other
competent authorities, to police money laundering, tax evasion and any other unlawful activity. The FIU is required in certain cases to
maintain record of the reports for ten years.
Individuals, non-profit entities and partnerships that are residents of Italy must disclose on their annual tax returns all investments and
financial assets held outside Italy. Such obligation lies also on the aforesaid resident taxpayers who, even if do not own directly
investments and financial assets held abroad, qualify as “beneficial owner” of the same. No such tax disclosure is required in respect
of securities deposited for management with qualified Italian financial intermediaries and in respect of contracts entered into through
their intervention, provided that the items of income derived from such foreign financial assets are subjected to withholding tax or
substitute tax through the intervention of the same intermediaries. Corporate residents of Italy are exempt from these tax disclosure
requirements with respect to their annual tax returns because this information is required to be disclosed in their financial statements.
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There can be no assurance that the current regulatory environment in or outside Italy will persist or that particular policies presently in
effect will be maintained, although Italy is required to maintain certain regulations and policies by virtue of its membership of the EU
and other international organizations and its adherence to various bilateral and multilateral international agreements.
Taxation
The following is a summary of certain U.S. federal and Italian tax matters. The summary contains a description of the principal U.S.
federal and Italian tax consequences of the purchase, ownership and disposition of Ordinary Shares or ADSs by a holder who is a
citizen or resident of the United States or a U.S. corporation or who otherwise will be subject to U.S. federal income tax on a net
income basis in respect of the Ordinary Shares or ADSs. The summary is not a comprehensive description of all of the tax
considerations that may be relevant to a decision to purchase or hold Ordinary Shares or ADSs. In particular, the summary deals only
with beneficial owners who will hold Ordinary Shares or ADSs as capital assets and does not address the tax treatment of a beneficial
owner who owns 10% or more of the voting shares of the Company or who may be subject to special tax rules, such as banks, tax-
exempt entities, insurance companies, partners or partnerships therein, U.S. expatriates, or dealers in securities or currencies, or
persons that will hold Ordinary Shares or ADSs as a position in a “straddle” for tax purposes or as part of a “constructive sale” or a
“conversion” transaction or other integrated investment comprised of Ordinary Shares or ADSs and one or more other investments.
The summary does not address the U.S. Medicare tax on net investment income, the U.S. alternative minimum tax, or any aspect of
U.S. state or local tax law. The summary does not discuss the treatment of Ordinary Shares or ADSs that are held in connection with a
permanent establishment through which a non-resident beneficial owner carries on business or performs personal services in Italy.
The summary is based upon tax laws and practice of the United States and Italy in effect on the date of this Annual Report, which are
subject to change.
Investors and prospective investors in Ordinary Shares or ADSs should consult their own advisors as to the U.S., Italian or other tax
consequences of the purchase, beneficial ownership and disposition of Ordinary Shares or ADSs, including, in particular, the effect of
any state or local tax laws.
For purposes of the summary, beneficial owners of Ordinary Shares or ADSs who are considered residents of the United States for
purposes of the current income tax convention between the United States and Italy (the “Income Tax Convention”), and are not
subject to an anti-treaty shopping provision that applies in limited circumstances, are referred to as “U.S. owners”. Beneficial owners
who are citizens or residents of the United States, corporations organized under U.S. law, and U.S. partnerships, estates or trusts (to
the extent their income is subject to U.S. tax either directly or in the hands of partners or beneficiaries) generally will be considered to
be residents of the United States under the Income Tax Convention. Special rules apply to U.S. owners who are also residents of Italy,
according to the Income Tax Convention.
For the purpose of the Income Tax Convention and the United States Internal Revenue Code of 1986, as amended, beneficial owners
of ADSs evidencing ADSs will be treated as the beneficial owners of the Ordinary Shares represented by those ADSs.
Taxation of Dividends
i) Italian Tax Considerations — As a general rule, Italian laws provide for the withholding of income tax on dividends paid by
Italian companies to shareholders who are not residents of Italy for tax purposes, currently levied at a 26% rate. Italian laws provide a
mechanism under which non-resident shareholders can claim a refund, up to 11/26 of Italian withholding taxes on dividend income by
establishing to the Italian tax authorities that the dividend income was subject to income tax in another jurisdiction in an amount at
least equal to the total refund claimed. U.S. owners should consult their own tax advisers concerning the possible availability of this
refund, which traditionally has been payable only after extensive delays. Alternatively, reduced rates (normally 15%) may apply to
non-resident shareholders who are entitled to, and comply with procedures for claiming, benefits under an income tax convention.
67
Under the Income Tax Convention, dividends derived and beneficially owned by U.S. owners are subject to an Italian withholding tax
at a reduced rate of 15%.
However, the amount initially made available to the Depositary for payment to U.S. owners will reflect withholding at the 26% rate.
U.S. owners who comply with the certification procedures described below may then claim an additional payment of 11% of the
dividend (representing the difference between the 26% rate, and the 15% rate, and referred to herein as a “treaty refund”). This
certification procedure will require U.S. owners (i) to obtain from the U.S. Internal Revenue Service (“IRS”) a form of certification
required by the Italian tax authorities (IRS Form 6166), unless a previously filed certification is effective on the dividend payment
date (such certificates, filed together with the statement indicated under (ii) below, should be effective until the end of the fiscal year
for which the statement was originally filed), (ii) to produce a statement in accordance with the Italian tax authorities decree of
July 10, 2013, whereby the U.S. owner represents to be a U.S. owner individual or corporation with no permanent establishment in
Italy, and (iii) to set forth other required information. IRS Form 6166 may be obtained by filing a request for certification on IRS
Form 8802. (Additional information, including IRS Form 8802, can be obtained from the IRS website at www.irs.gov. Information
appearing on the IRS website is not incorporated by reference into this document.) The time for processing requests for certification
by the IRS normally is 30 to 45 days. Accordingly, in order to be eligible for the procedure described below, U.S. owners should begin
the process of obtaining certificates as soon as possible after receiving instructions from the Depositary on how to claim a treaty
refund.
The Depositary’s instructions will specify certain deadlines for delivering to the Depositary the documentation required to obtain a
treaty refund, including the certification that the U.S. owners must obtain from the IRS. In the case of ADSs held by U.S. owners
through a broker or other financial intermediary, the required documentation should be delivered to such financial intermediary for
transmission to the Depositary. In all other cases, the U.S. owners should deliver the required documentation directly to the
Depositary. The Company and the Depositary have agreed that if the required documentation is received by the Depositary on or
within 30 days after the dividend payment date and, in the reasonable judgment of the Company, such documentation satisfies the
requirements for a refund by the Company of Italian withholding tax under the Convention and applicable law, the Company will
within 45 days thereafter pay the treaty refund to the Depositary for the benefit of the U.S. owners entitled thereto.
If the Depositary does not receive a U.S. owner’s required documentation within 30 days after the dividend payment date, such U.S.
owner may for a short grace period (specified in the Depositary’s instructions) continue to claim a treaty refund by delivering the
required documentation (either through the U.S. owner’s financial intermediary or directly, as the case may be) to the Depositary.
However, after this grace period, the treaty refund must be claimed directly from the Italian tax authorities rather than through the
Depositary. Expenses and extensive delays have been encountered by U.S. owners seeking refunds from the Italian tax authorities.
Distributions of profits in kind will be subject to withholding tax. In that case, prior to receiving the distribution, the holder will be
required to provide the Company with the funds to pay the relevant withholding tax.
ii) United States Tax Considerations — The gross amount of any dividends (that is, the amount before reduction for Italian
withholding tax) paid to a U.S. owner generally will be subject to U.S. federal income taxation as foreign-source dividend income and
will not be eligible for the dividends-received deduction allowed to domestic corporations. Dividends paid in Euro will be included in
the income of such U.S. owners in a dollar amount calculated by reference to the exchange rate in effect on the day the dividends are
received by the Depositary or its agent. If the Euro are converted into dollars on the day the Depositary or its agent receives them, U.S.
owners generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. U.S. owners who
receive a treaty refund may be required to recognize foreign currency gain or loss to the extent the amount of the treaty refund (in
dollars) received by the U.S. owner differs from the U.S. dollar equivalent of the Euro amount of the treaty refund on the date the
dividends were received by the Depositary or its agent. Italian withholding tax at the 15% rate will be treated as a foreign income tax
which U.S. owners may elect to deduct in
68
computing their taxable income or, subject to the limitations on foreign tax credits generally, credit against their U.S. federal income
tax liability. The rules governing the foreign tax credit are complex and U.S. owners are urged to consult their own tax advisers in this
regard. Dividends will generally constitute foreign-source “passive category” income for U.S. tax purposes.
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with
respect to the Ordinary Shares or ADSs will be subject to taxation at reduced rates if the dividends are “qualified dividends”.
Dividends paid on the Ordinary Shares or ADSs will be treated as qualified dividends if (i) the Company is eligible for the benefits of
a comprehensive income tax treaty with the United States that the IRS has approved for the purposes of the qualified dividend rules
and (ii) the Company was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the
dividend is paid, a passive foreign investment company (“PFIC”). The Income Tax Convention has been approved for the purposes of
the qualified dividend rules, and the Company believes it is eligible for the benefits of the Income Tax Convention. Based on the
Company’s audited financial statements and relevant market and shareholder data, the Company believes that it was not treated as a
PFIC for U.S. federal income tax purposes with respect to its 2018 or 2019 taxable year. In addition, based on the Company’s audited
financial statements and its current expectations regarding the value and nature of its assets, the sources and nature of its income, and
relevant market and shareholder data, the Company does not anticipate becoming a PFIC for its 2020 taxable year.
Foreign tax credits may not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities
or in respect of arrangements in which a U.S. owner’s expected economic profit is insubstantial. U.S. owners should consult their own
advisers concerning the implications of these rules in light of their particular circumstances.
A beneficial owner of Ordinary Shares or ADSs who is, with respect to the United States, a foreign corporation or a nonresident alien
individual, generally will not be subject to U.S. federal income tax on dividends received on Ordinary Shares or ADSs, unless such
income is effectively connected with the conduct by the beneficial owner of a trade or business in the United States.
Taxation of Capital Gains
i) Italian Tax Considerations — Under Italian law, capital gains tax (“CGT”) is generally levied on capital gains realized by non-
residents from the disposal of shares in companies resident in Italy for tax purposes even if those shares are held outside of Italy.
However, capital gains realized by non-resident holders on the sale of non-qualified shareholdings (as defined below) in companies
listed on a stock exchange and resident in Italy for tax purposes (as is the Company’s case) are not subject to CGT. In order to benefit
from this exemption, such non-Italian-resident holders may need to file a certificate evidencing their residence outside of Italy for tax
purposes.
A “qualified shareholding” consists of securities that entitle the holder to exercise more than 2% of the voting rights of a company
with shares listed on a stock exchange in the ordinary meeting of the shareholders or represent more than 5% of the share capital of a
company with shares listed on a stock exchange. A “non-qualified shareholding” is any shareholding that does not exceed either of
these thresholds. The relevant percentage is calculated taking into account the shareholdings sold during the prior 12-month period.
As a general rule, capital gains realized as of January 1, 2019 upon disposal of a “qualified” shareholding are subject to a 26%
substitute tax. If a taxpayer realizes taxable capital gains in excess of capital losses incurred in the same tax year, such excess amount
is subject to the 26% substitute tax. If such taxpayer’s capital losses exceed its taxable capital gains, then the excess amount can be
carried forward and deducted from the taxable amount of capital gains realized by such person in the following tax years, up to the
fourth, provided that it is reported in the tax report in the year of disposal.
The above is subject to any provisions of an income tax treaty entered into by the Republic of Italy, if the income tax treaty provisions
are more favorable. The majority of double tax treaties entered into by Italy, including the Income Tax Convention, in accordance
with the OECD Model tax convention, provide that capital gains realized from the disposition of Italian securities are subject to CGT
only in the country of residence of the seller.
69
The Income Tax Convention between Italy and the U.S. provides that a U.S. owner is not subject to the Italian CGT on the disposal of
shares, provided that the shares are not held through a permanent establishment of the U.S. owner in Italy.
ii) United States Tax Considerations — Gain or loss realized by a U.S. owner on the sale or other disposition of Ordinary Shares or
ADSs will be subject to U.S. federal income taxation as capital gain or loss in an amount equal to the difference between the U.S.
owner’s basis in the Ordinary Shares or the ADSs and the amount realized on the disposition, as determined in U.S. dollars. If the
amount realized is denominated in a foreign currency, its dollar equivalent generally will be determined at the spot rate in effect on the
date of disposition (or, if the Ordinary Shares or ADSs are traded on an established securities market such as the NYSE, in the case of
cash basis and electing accrual basis beneficial owners, the settlement date). Any such gain or loss generally would be treated as
arising from sources within the United States. Such gain or loss will generally be long-term capital gain or loss if the U.S. owner holds
the Ordinary Shares or ADSs for more than one year. The net amount of long-term capital gain recognized by a U.S. owner that is an
individual holder generally is subject to taxation at a reduced rate. The ability to offset capital losses against ordinary income is
subject to limitations. Deposits and withdrawals of Ordinary Shares by U.S. owners in exchange for ADSs will not result in the
realization of gain or loss for U.S. federal income tax purposes.
A beneficial owner of Ordinary Shares or ADSs who is, with respect to the United States, a foreign corporation or a nonresident alien
individual will not be subject to U.S. federal income tax on gain realized on the sale of Ordinary Shares or ADSs, unless (i) such gain
is effectively connected with the conduct by the beneficial owner of a trade or business in the United States or (ii), in the case of gain
realized by an individual beneficial owner, the beneficial owner is present in the United States for 183 days or more in the taxable year
of the sale and certain other conditions are met.
Taxation of Distributions from Capital Reserves
Italian Tax Considerations — Special rules apply to the distribution of certain capital reserves. Under certain circumstances, such a
distribution may be considered as taxable income in the hands of the recipient depending on the existence of current profits or
outstanding reserves at the time of distribution and the actual nature of the reserves distributed. The application of such rules may also
have an impact on the tax basis in the Ordinary Shares or ADSs held and/or the characterization of any taxable income received and
the tax regime applicable to it. Non-resident shareholders may be subject to withholding tax and CGT as a result of such rules. You
should consult your tax adviser in connection with any distribution of capital reserves.
Other Italian Taxes
Estate and Inheritance Tax — A transfer of Ordinary Shares or ADSs by reason of death or gift is subject to an inheritance and gift
tax levied on the value of the inheritance or gift, as follows:
•
•
•
Transfers to a spouse or direct descendants or ancestors up to €1,000,000 to each beneficiary are exempt from inheritance and
gift tax. Transfers in excess of such threshold will be taxed at a 4% rate on the value of the Ordinary Shares or ADSs exceeding
such threshold;
Transfers between relatives within the fourth degree other than siblings, and direct or indirect relatives-in-law within the third
degree are taxed at a rate of 6% on the value of the Ordinary Shares or ADSs (where transfers between siblings up to a
maximum value of €100,000 for each beneficiary are exempt from inheritance and gift tax); and
Transfers by reason of gift or death of Ordinary Shares or ADSs to persons other than those described above will be taxed at a
rate of 8% on the value of the Ordinary Shares or ADSs.
If the beneficiary of any such transfer is a disabled individual, whose handicap is recognized pursuant to Law No. 104 of February 5,
1992, the tax is applied only on the value of the assets received in excess of €1,500,000 at the rates illustrated above, depending on the
type of relationship existing between the deceased or donor and the beneficiary.
70
The tax regime described above will not prevent the application, if more favorable to the taxpayer, of any different provisions of a
bilateral tax treaty, including the convention between Italy and the United States against double taxation with respect to taxes on
estates and inheritances, pursuant to which non-Italian resident shareholders are generally entitled to a tax credit for any estate and
inheritance taxes possibly applied in Italy.
Italian Financial Transaction Tax — The IFTT is applicable, among other transactions, to all trades entailing the transfer of title of
(i) shares or equity-like financial instruments issued by companies resident in Italy, such as the Ordinary Shares; and (ii) securities
representing the shares and financial instruments under (i) above (including depositary receipts such as the ADSs), regardless of the
residence of the securities’ issuer. The IFTT may also apply to the transfer of Ordinary Shares and ADSs by a U.S. resident.
The IFTT applies at a rate of 0.2% for over-the-counter transactions, reduced to 0.1% for trades executed on a regulated market or
multilateral trading facility established in States or territories allowing an adequate exchange of information with the Italian tax
authorities. The New York Stock Exchange should qualify as a regulated market for such purposes.
The rules governing the IFTT are fairly complex. As to its basic features, it should be noted that the IFTT (i) is levied on a tax base
equal to (x) the market value (calculated by taking the net balance of daily trades on the relevant securities) or, in the absence of any
such market value, (y) the consideration paid for each trade; and (ii) is borne by the purchaser but is collected by the financial
intermediaries (including non-resident financial intermediaries) intervening in the relevant trades.
However, a number of exemptions apply, including with respect to trades of securities issued by companies having an average market
capitalization lower than €500 million in the month of November of the year preceding the year in which the trade takes place.
Companies, the securities of which are listed on a foreign regulated market, and which could benefit from this exemption, such as the
Company, need a confirmation from the Italian Ministry of Economy and Finance: such companies must communicate their market
capitalization for each tax year to the Ministry, which will then prepare a list of the companies in relation to which the exemption
applies.
EU Financial Transaction Tax — On February 14, 2013, the European Commission proposed the implementation of the EU FTT
(see “Item 3. Key Information—Risk Factors”) that may also apply to the transfer of Ordinary Shares and ADSs by a U.S. resident.
This directive has been modified by the European Commission. However, the related EU directive has not yet been enacted.
Moreover, the implementation of the proposed EU FTT may also affect the IFTT, as described above.
United States Information Reporting and Backup Withholding Requirements — In general, information reporting requirements
will apply to payments by a paying agent within the United States to a non-corporate (or other non-exempt) U.S. owner of dividends
in respect of the Company Shares or ADSs, or the proceeds received on the sale or other disposition of the Company Shares or ADSs.
Backup withholding may apply to such amounts if the U.S. owner fails to provide an accurate taxpayer identification number to the
paying agent on a properly completed IRS Form W-9 or otherwise comply with the applicable requirements of the backup withholding
rules. Amounts withheld as backup withholding will be creditable against the U.S. owner’s U.S. federal income tax liability, provided
that the required information is timely furnished to the IRS.
Specified Foreign Financial Assets — Certain U.S. owners that own “specified foreign financial assets” with an aggregate value in
excess of USD 50,000 on the last day of the taxable year or USD 75,000 at any time during the taxable year are generally required to
file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign
financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S.
issuer that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living
abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or
availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. owners who
fail to report the required information could be subject to substantial penalties. You should consult your own tax advisors concerning
the application of these rules to your particular circumstances.
71
Documents on Display
The Company is subject to the information reporting requirements of the Exchange applicable to foreign private issuers. In accordance
therewith, the Company is required to file reports, including annual reports on Form 20-F, and other information with the SEC. As a
foreign private issuer, we have been required to make filings with the SEC by electronic means since November 4, 2002. Any filings
we make electronically will be available to the public over the Internet at the SEC’s website at http://www.sec.gov. The Form 20-F
and reports and other information filed by the Company with the SEC will also be available for inspection by ADS holders at the
Corporate Trust Office of BNY at 240 Greenwich Street, New York, New York 10286.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion of the Group’s risk management activities includes “forward-looking statements” that involve risks and
uncertainties. Actual results could differ materially from those projected in the forward looking statements. See “Forward Looking
Information.” A significant portion of the Group’s net sales and costs is denominated in currencies other than the euro.
The Group is exposed to market risks principally from fluctuations in the exchange rates between the Euro and other currencies,
including, but not limited to, in particular the U.S. dollar, and to a significantly lesser extent, from variations in interest rates.
Exchange Rate Risk — The Group’s foreign exchange rate risks in 2019 arose principally in connection with U.S. dollars, British
pounds, Euro (for the Company’s subsidiary located in Eastern Europe), Canadian dollars, Japanese yen, Australian dollars, Danish
kroner, Swedish kroner and Swiss francs, as well as in connection with Chinese yuan, Romanian Leu, Brazilian Reais, Mexican Peso,
Russian Rubles and Indian Rupee, for the Company’s subsidiaries operating in currencies different from the Euro.
For further details about the Group’s exposure to currency risk, see Note 30(C)(iv) to the Consolidated Financial Statements.
As of December 31, 2019, the Company was a party to a number of currency forward contracts (known in Italy as domestic currency
swaps), all of which are designed to hedge future sales denominated in different currencies. The Group does not use such foreign
exchange contracts for speculative trading purposes.
As of December 31, 2019, the notional amount in Euro terms of all of the Group’s outstanding currency forward contracts totaled
€40.4 million. As of December 31, 2018, the notional amounts of all of the Group’s outstanding currency forward contracts totaled
€43.6 million.
At the end of 2019, such currency forward contracts had notional amounts of British pounds 15.0 million, €11.3 million, U.S.$
7.0 million, Canadian dollars 2.9 million, Japanese yen 185.0 million, Australian dollars 2.1 million, Danish kroner 5.6 million and
Swedish kroner 2.3 million. All of these forward contracts had various maturities extending through August 2020. See Note 29 to the
Consolidated Financial Statements.
The table below summarizes (in thousands of Euro equivalent) the contractual amounts of currency forward contracts intended to
hedge future cash flows from accounts receivable and sales orders as of December 31, 2019 and 2018:
Euro equivalent of contractual amounts of currency
forward contracts as of:
British pounds
Euro*
U.S. dollars
Canadian dollars
Japanese yen
Australian dollars
Danish Kroner
Swedish kroner
Total
December 31,
2019
2018
€ 16,947 € 10,612
11,347 11,407
6,347 14,528
1,300
1,937
2,318
1,549
2,129
1,280
1,086
751
265
208
€40,366 €43,645
*
Used by the Group’s Romanian subsidiary to hedge its net collections denominated in Euro vs. RON.
72
As of December 31, 2019, these forward contracts had a net unrealized loss of €0.6 million, compared to a net unrealized loss of
€0.1 million as of December 31, 2018. The Group recorded this amount in “net exchange rate gains/(losses)” in its Consolidated
Financial Statements. See Note 29 to the Consolidated Financial Statements.
The following table presents information regarding the contract amount in thousands of Euro equivalent and the estimated fair value
of all of the Group’s foreign exchange contracts: contracts with unrealized gains are presented as “assets” and contracts with
unrealized losses are presented as “liabilities.”
December 31, 2019
December 31, 2018
Assets
Liabilities
Total
Contract
Amount
10,419
29,947
Unrealized
gains (losses)
Contract
Amount
145 27,459
(772) 16,186
Unrealized
gains (losses)
218
(320)
40,366 €
(627) € 43,645 €
(102)
The potential loss in fair value of all of the Group’s forward contracts outstanding as of December 31, 2019 that would have resulted
from a hypothetical, instantaneous and unfavorable 10% change in currency exchange rates would have been approximately
€5.0 million.
For the accounting of transactions entered into in an effort to reduce the Group’s exchange rate risks, see Notes 3(s) and 30 to the
Consolidated Financial Statements.
At December 31, 2019, the Group had €16.6 million in cash and cash equivalents held by our Chinese subsidiaries, almost entirely
denominated in Chinese Yuan (€18.3 million as at December 31, 2018). Exchange rate fluctuations in respect of this currency could
have significant positive or negative effects on our results of operations in future periods. See Note 17 to the Consolidated Financial
Statements.
Interest Rate Risk — To a significantly lesser extent, the Group is also exposed to interest rate risk. As of December 31, 2019, the
Group had €42.6 million (equivalent to 11.5% of the Group’s total assets as of the same date) in debt outstanding (Bank overdrafts and
short-term borrowings plus long-term debt, including the current portion of such debt), which is for the most part subject to floating
interest rates. See Notes 19, 26 and 30 to the Consolidated Financial Statements.
The potential increase in interest expenses on the Group’s total debt (bank overdrafts and long-term debt, including their current
portion) that would have resulted from a hypothetical, instantaneous and unfavorable 1.0% increase in the interest rates of the Group’s
total debt outstanding as of December 31, 2019 would have been approximately €0.3 million.
In the normal course of business, the Group also faces risks that are either non-financial or non-quantifiable. Such risks principally
include country risk, credit risk and legal risk.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
ITEM 12A. DEBT SECURITIES
Not applicable.
ITEM 12B. WARRANTS AND RIGHTS
Not applicable.
73
ITEM 12C. OTHER SECURITIES
Not applicable.
ITEM 12D. AMERICAN DEPOSITARY SHARES
Fees paid by ADS holders — BNY, as Depositary of our ADSs, collects its fees for delivery and surrender of ADSs directly from
investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The
Depositary collects fees to make distributions to investors by deducting those fees from the amounts distributed or by selling a portion
of distributable property to pay the fees. The Depositary may generally refuse to provide fee-attracting services until its fees for those
services are paid.
Persons depositing or withdrawing shares must pay:
For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
• Depositing or substituting the underlying shares
A fee for the distribution of proceeds of sales of securities or rights
in an amount equal to the lesser of: (i) the fee for the issuance of
ADSs referred to above which would have been charged as a result
of the deposit by owners of securities (for purposes hereof treating
all such securities as if they were shares) or shares received in
exercise of rights distributed to them, respectively, but which
securities or rights are instead sold by the Depositary and the net
proceeds distributed and (ii) the amount of such proceeds
Registration or transfer fees
Expenses of the Depositary
•
Selling or exercising rights
• Cancellation of ADSs for the purpose of withdrawal,
including if the Deposit Agreement terminates
• Distribution of securities distributed to holders of
deposited securities which are distributed by the
Depositary to ADS registered holders
• Transfer and registration of shares on our share register to
or from the name of the Depositary or its agent when
holders deposit or withdraw shares
• Cable, telex and facsimile transmissions (when expressly
provided in the Deposit Agreement)
• Converting foreign currency to U.S. dollars
Taxes and other governmental charges the Depositary or the
custodian have to pay on any ADS or share underlying an ADS, for
example, stock transfer taxes, stamp duty or withholding taxes
• As necessary
Any charges incurred by the Depositary or its agents for servicing
the deposited securities
• As necessary
Fees payable by the Depositary to the Company
i) Fees incurred in past annual period — From January 1, 2019 to December 31, 2019, the Depositary waived a total of $13,511.16
in administrative fees for routine corporate actions including services relating to Natuzzi’s annual general meeting of shareholders. Of
this amount, $10,000.00 represented a non-recurring expense in the ADR program resulting from a reverse split.
74
ii) Fees to be paid in the future — The Company does not have any agreements in place with the Depositary for the payment or
reimbursement of fees or other direct or indirect payments by the Depositary to the Company in connection with its ADS program.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
PART II
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures — The Company carried out an evaluation under the supervision and with the participation
of Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures as of December 31, 2019. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or
overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Based on the Company’s evaluation of its disclosure controls and procedures, our
Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective
as of December 31, 2019 to provide reasonable assurance that information required to be disclosed in the reports the Company files
and submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s
applicable rules and forms, and that it is accumulated and communicated to the Company’s management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Management’s Annual Report on Internal Control Over Financial Reporting — The Company’s management is responsible
for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15 (f) under
the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Because of
its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Even when determined to
be effective, they can provide only reasonable assurance regarding the reliability of financial reporting and the preparation and
presentation of financial statements. Additionally, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and
procedures may deteriorate. To assess the effectiveness of the Company’s internal control over financial reporting, Company’s
management, including its Chief Executive Officer and Chief Financial Officer, used the criteria described in “2013 Internal
Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The
Company’s management assessed the effectiveness of its internal control over financial reporting as of December 31, 2019. Based on
such assessment, the Company’s management has concluded that as of December 31, 2019, the Company’s internal control over
financial reporting was effective and that there were no material weaknesses in the Company’s internal control over financial
reporting.
(d) Changes in Internal Control over Financial Reporting — There were no changes in our internal control over financial reporting
as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) that occurred during our most recently completed fiscal year that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
75
ITEM 16.
[RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Company has determined that, because of the existence and nature of its board of statutory auditors, it qualifies for an exemption
provided by Rule 10A-3(c)(3) of the Exchange Act from many of the Rule 10A-3 audit committee requirements. The board of
statutory auditors has determined that each of its members is an “audit committee financial expert” as defined in Item 16A of Form
20-F. For the names of the members of the board of statutory auditors, see “Item 6. Directors, Senior Management and Employees—
Statutory Auditors” and Item 16G. Corporate Governance—Audit Committee and Internal Audit Function.”
Each of the audit committee financial experts is independent under the NYSE Independence Standards that would apply to audit
committee members in the absence of our reliance on the exemption in Rule 10A-3(c)(3).
ITEM 16B. CODE OF ETHICS
The Company has adopted a code of ethics, as defined in Item 16B of Form 20-F under the Exchange Act. This code of ethics applies,
among others, to the Company’s CEO and CFO. The Company’s code of ethics is downloadable from its website at
http://www.natuzzigroup.com/pdf/ir/coe_inglese.pdf.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
KPMG S.p.A. (“KPMG”) served as Natuzzi S.p.A.’s principal independent registered public auditor for fiscal years 2019 and 2018,
for which it audited the consolidated financial statements for the years-ended December 31, 2019 and 2018 included in this Annual
Report.
The following table sets forth the aggregate fees billed and billable to the Company by KPMG in Italy and abroad during the fiscal
years ended December 31, 2019 and 2018, for audit fees, audit–related fees, tax fees and all other fees for audit.
Audit fees
Audit-related fees
Tax fees
All Other fees
Total fees
2019
2018
(Expressed in thousands of euros)
690
—
—
—
690
575
—
—
—
575
Audit fees in the above table are the aggregate fees billed and billable in connection with the audit of the Company’s annual financial
statements.
The Company’s board of statutory auditors expressly pre-approves on a case-by-case basis any engagement of our independent
auditors for audit and non-audit services provided to our subsidiaries or to us. All services rendered by our independent auditors for
audit and non-audit services were pre-approved by our board of statutory auditors in accordance with this policy.
At the Company’s annual general shareholders’ meeting held on April 29, 2019, the Company appointed KPMG S.p.A. as Natuzzi
S.p.A.’s principal independent registered public auditor for fiscal years 2019, 2020 and 2021.
76
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
The Company is relying on the exemption from listing standards for audit committees provided by Exchange Act Rule 10A-3(c)(3).
The basis for this reliance is that the Company’s board of statutory auditors meets the following requirements set forth in Exchange
Act Rule 10A-3(c)(3):
•
•
•
•
•
•
the board of statutory auditors is established and selected pursuant to Italian law expressly permitting such a board;
the board of statutory auditors is required under Italian law to be separate from the Company’s board of directors;
the board of statutory auditors is not elected by management of the Company and no executive officer of the Company is a
member of the board of statutory auditors;
Italian law provides for standards for the independence of the board of statutory auditors from the Company and its
management;
the board of statutory auditors, in accordance with applicable Italian law and the Company’s governing documents, is
responsible, to the extent permitted by Italian law, for the appointment, retention and oversight of the work (including, to the
extent permitted by law, the resolution of disagreements between management and the auditor regarding financial reporting) of
any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit,
review or attest services for the Company, and
to the extent permitted by Italian law, the audit committee requirements of paragraphs (b)(3), (b)(4) and (b)(5) of Rule 10A-3
apply to the board of statutory auditors.
The Company’s reliance on Rule 10A-3(c)(3) does not, in its opinion, materially adversely affect the ability of its board of statutory
auditors to act independently and to satisfy the other requirements of Rule 10A-3.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
On November 6, 2014, INVEST 2003 S.r.l. completed the purchase of 250,000 ADSs, each representing one Ordinary Share at the
time of purchase, at a price of U.S.$2.00 per ADS. The purchase was privately negotiated with a single individual and was effected
through an escrow arrangement with BNY Mellon. On July 30, 2014, INVEST 2003 S.r.l. completed the purchase of 500,000 ADSs,
each representing one Ordinary Share at the time of purchase, at a price of U.S.$2.75 per ADS. The purchase was privately negotiated
with a single individual and was effected through an escrow arrangement with BNY Mellon. For more information, refer to Schedule
13D (Amendment No. 2), filed with the SEC on September 14, 2014, that amends and supplements the Schedule 13D, filed with the
SEC on April 24, 2008 (as amended by Amendment No. 1 filed on April 8, 2013).
From January 1, 2014 to December 31, 2019, no purchases were made by or on behalf of the Company or any other affiliated
purchaser of the Company’s Ordinary Shares or ADSs.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
77
ITEM 16G. CORPORATE GOVERNANCE
Under NYSE rules, the Company is permitted, as a listed foreign private issuer, to adhere to the corporate governance rules of our
home country in lieu of certain NYSE corporate governance rules.
Corporate governance rules for Italian stock corporations (società per azioni) like the Company, whose shares are not listed on a
regulated market in the EU, are set forth in the Civil Code. As described in more detail below, the Italian corporate governance rules
set forth in the Civil Code differ in a number of ways from those applicable to U.S. domestic companies under NYSE listing
standards, as set forth in the NYSE Listed Company Manual.
As a general rule, Company’s main corporate bodies are governed by the Civil Code and are assigned specific powers and duties that
are legally binding and cannot be derogated from. The Company follows the traditional Italian corporate governance system, with a
board of directors (consiglio di amministrazione) and a separate board of statutory auditors (collegio sindacale) with supervisory
functions. The two boards are separate and no individual may be a member of both boards. Both the members of the board of directors
and the members of the board of statutory auditors owe duties of loyalty and care to the Company. As required by Italian law, an
external auditing firm (società di revisione) is in charge of auditing the Company’s financial statements. The members of the
Company’s board of directors and board of statutory auditors, as well as the external auditor, are directly and separately appointed by
shareholder resolution at the shareholders’ meetings. This system differs from the unitary system envisaged for U.S. domestic
companies by the NYSE listing standards, which contemplate the board of directors serving as the sole governing body.
Below is a summary of the significant differences between Italian corporate governance rules and practices, as the Company has
implemented them, and those applicable to U.S. issuers under NYSE listing standards, as set forth in the NYSE Listed Company
Manual.
Independent Directors
NYSE Domestic Company Standards — The NYSE listing standards applicable to U.S. companies provide that “independent”
directors must comprise a majority of the board. In order for a director to be considered “independent,” the board of directors must
affirmatively determine that the director has no “material” direct or indirect relationship with the company. These relationships “can
include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationship (among others).”
More specifically, a director is not independent if, inter alia, such director or his/her immediate family members has certain specified
relationships with the company, its parent, its consolidated subsidiaries, their internal or external auditors, or companies that have
significant business relationships with the company, its parent or its consolidated subsidiaries. Ownership of a significant amount of
stock, by itself, is not a per se bar to independence.
Our Practice — The presence of a prescribed number of independent directors on the Company’s board is neither mandated by any
Italian law applicable to the Company nor required by the Company’s By-laws.
However, Italian law sets forth certain independence requirements applicable to the Company’s statutory auditors. Statutory auditors’
independence is assessed on the basis of the following rules: a person who (i) is a director, or the spouse or a close relative of a
director, of the Company or any of its affiliates, or (ii) has an employment or a regular consulting or similar relationship with the
Company or any of its affiliates, or (iii) has an economic relationship with the Company or any of its affiliates which might
compromise his/her independence, cannot be appointed to the Company’s board of statutory auditors. The law sets forth certain
principles aimed at ensuring that any member of the board of statutory auditors who is a chartered public accountant (iscritto nel
registro dei revisori contabili) be substantively independent from the company subject to audit and not be in any way involved in the
company’s decision-making process. The Civil Code mandates that at least one standing and one alternative member of the board of
statutory auditors be a chartered public accountant. Each of the current members of the board of statutory auditors is a chartered public
accountant.
78
Executive Sessions
NYSE Domestic Company Standards — Non-executive directors of U.S. companies listed on the NYSE must meet regularly in
executive sessions, and independent directors should meet alone in an executive session at least once a year.
Our Practice — Under the laws of Italy, neither non-executive directors nor independent directors are required to meet in executive
sessions. The members of the Company’s board of statutory auditors are required to meet at least every 90 days.
Audit Committee and Internal Audit Function
NYSE Domestic Company Standards — U.S. companies listed on the NYSE are required to have an audit committee that satisfies the
requirements of Rule 10A-3 under the Exchange Act and certain additional requirements set by the NYSE. In particular, all members
of this committee must be independent and the committee must adopt a written charter. The committee’s prescribed responsibilities
include (i) the appointment, compensation, retention and oversight of the external auditors; (ii) establishing procedures for handling
“whistle blower” complaints regarding accounting, internal accounting controls, or auditing matters; (iii) engaging independent
counsel and other advisers, as it determines necessary to carry out its duties and (v) determine appropriate funding for payments to the
external auditor, advisors employed by the audit committee and other necessary administrative expenses of the audit committee. A
company must also have an internal audit function, which may be outsourced, except to the independent auditor.
Our Practice — Rule 10A-3(c)(3) of the Exchange Act provides that foreign private issuers with a board of statutory auditors
established in accordance with local law or listing requirements and meeting specified requirements with regard to independence and
responsibilities (including the performance of most of the specific tasks assigned to audit committees by Rule 10A-3, to the extent
permitted by local law) (the “Statutory Auditor Requirements”) are exempt from the audit committee requirements established by the
rule. The Company is relying on this exemption on the basis of its separate board of statutory auditors, which is permitted by the Civil
Code and which satisfies the Statutory Auditor Requirements. Nevertheless, our board of statutory auditors, consisting of independent
and highly professional experts, complies with the requirements indicated at points (i), (iii) and (iv) of the preceding paragraph. The
Company also has an internal audit function, which has not been outsourced, and a control and risk committee. This committee,
comprised of three independent directors, has the task of supporting the Board of Directors’ evaluations and decisions relating to the
internal control and risk management system, as well as those relating to the approval of periodic financial reports.
Nominating and Compensation Committees
NYSE Domestic Company Standards —Under NYSE standards, a domestic company must have a nominating/corporate governance
committee (or equivalent) comprised solely of independent directors, which is responsible for nominating directors, and a written
charter addressing certain corporate governance matters. Additionally, U.S. companies listed on the NYSE are required to have a
compensation committee (or equivalent) comprised solely of independent directors and have a written charter addressing certain
corporate governance matters. The compensation committee must approve the compensation of the CEO and make recommendations
to the board of directors with regard to the compensation of other officers, incentive compensation plans and equity-based
plans. Disclosure of individual management compensation information for these companies is mandated by the Exchange Act’s proxy
rules, from which foreign private issuers are generally exempt.
Our Practice — Although not required under Italian laws, the Company has established a nominating and compensation committee.
This committee is comprised of three directors and has the task of assisting the Board of Directors in evaluations and decisions
relating to the composition of the Board of Directors and the remuneration of directors and executives with strategic responsibilities.
Under Italian law, directors may be designated by any of the Company’s shareholders but shall be appointed by the shareholders in a
general shareholders’ meeting. If, during the term of the appointment, one or more directors of the Company resign, the other directors
shall replace them by a resolution approved by the board of statutory auditors, provided that the majority of the board is still
comprised of directors appointed by the Company’s shareholders. The coopted directors remain in office until the next shareholders’
meeting. If at any time more than half of the members of the board of directors appointed by the shareholders’ meeting resigns, such
79
resignation is ineffective until the majority of the new board of directors has been appointed. In such a case, the remaining members of
the board of directors (or the board of statutory auditors if all the members of the board of directors have resigned or ceased to be
directors) must promptly call an ordinary shareholders’ meeting to appoint the new directors. INVEST 2003 S.r.l., a company
controlled by Mr. Pasquale Natuzzi, by virtue of owning a majority of the outstanding shares of the Company, controls the Company
and the appointment of its board of directors.
As a matter of Italian law applicable to Italian stock corporations whose shares are not listed on a regulated market in the European
Union and under our By-laws, the compensation of executive directors, including the CEO, is determined by the board of directors,
after consultation with the board of statutory auditors, within a maximum amount established by the Company’s shareholders, while
the Company’s shareholders determine the base compensation for all members of the board of directors, including non-executive
directors. Compensation of the Company’s executive officers is determined by the CEO. The Company’s nominating and
compensation committee does not produce a compensation report. However, the Company discloses aggregate compensation of all of
its directors and officers as well as individual compensation of each director in Item 6 of its annual reports on Form 20-F.
Corporate Governance and Code of Ethics
NYSE Domestic Company Standards — Under NYSE standards, a company must adopt governance guidelines and a code of business
conduct and ethics for directors, officers and employees. A company must also publish these items on its website and provide printed
copies on request. Section 406 of the Sarbanes-Oxley Act requires a company to disclose whether it has adopted a code of ethics for
senior financial officers, and if not, the reasons why it has not done so. The NYSE listing standards applicable to U.S. companies
provide that codes of conduct and ethics should address, at a minimum, conflicts of interest; corporate opportunities; confidentiality;
fair dealing; protection and use of company assets; legal compliance; and reporting of illegal and unethical behavior. Corporate
governance guidelines must address, at a minimum, directors’ qualifications, responsibilities and compensation; access to
management and independent advisers; management succession; director orientation and continuing education; and annual
performance evaluation of the board.
Our Practice — In January 2011, the Company’s board of directors approved the adoption of a compliance program to prevent certain
criminal offenses, according to the Italian Decree 231/2001. The task of supervising the application of the compliance program
requested by the above-mentioned Italian Decree has been entrusted to an autonomous supervisory body (“Organismo di Vigilanza”)
that consists of two independent and qualified members. In February 2016, the board of directors approved a new code of ethics that
applies to all employees and officers of the Company, including the board of directors and the board of statutory auditors, the CEO,
the CFO and principal accounting officer. Additionally, the Company has in place an insider trading policy, which applies to all
employees, officers, directors of the Company. The Company believes that its code of ethics and the conduct and procedures adopted
by the Company address the relevant issues contemplated by the NYSE standards applicable to U.S. companies noted above. The full
text of our code of ethics and insider trading policy and information related to our organizational model pursuant to Italian decree
231/2001 may be found on our website at www.natuzzigroup.com.
Certifications as to Violations of NYSE Standards
NYSE Domestic Company Standards — Under NYSE listing standards, the CEO of a U.S. company listed on the NYSE must certify
annually to the NYSE that he or she is not aware of any violation by the company of the NYSE corporate governance standards. The
company must disclose this certification, as well as the fact that the CEO/CFO certification required under Section 302 of the
Sarbanes-Oxley Act of 2002 has been made in the company’s annual report to shareholders (or, if no annual report to shareholders is
prepared, its annual report). Each listed company on the NYSE, both domestic and foreign issuers, must submit an annual written
affirmation to the NYSE regarding compliance with applicable NYSE corporate governance standards. In addition, each listed
company on the NYSE, both domestic and foreign issuers, must submit interim affirmations to the NYSE upon the occurrence of
specified events. A domestic issuer must file such an interim affirmation whenever the independent status of a director changes, a
director joins or leaves the board, a change occurs to the composition of the audit, nominating/corporate governance, or compensation
committee, or there is a change in the company’s classification as a “controlled company.”
80
The CEO of both domestic and foreign issuers listed on the NYSE must promptly notify the NYSE in writing if any executive officer
becomes aware of any non-compliance with the NYSE corporate governance standards.
Our Practice — Under the NYSE rules, the Company’s CEO is not required to certify annually to the NYSE whether he is aware of
any violation by the Company of the NYSE corporate governance standards. However, the Company is required to submit an annual
affirmation of compliance with applicable NYSE corporate governance standards to the NYSE within 30 days of the filing of its
annual report on Form 20-F with the SEC. The Company is also required to submit to the NYSE an interim written affirmation any
time it is no longer eligible to rely on, or chooses to no longer rely on, a previously applicable exemption provided by Rule 10A-3, or
if a member of its audit committee ceases to be deemed independent or an audit committee member had been added. Under NYSE
rules, the Company’s CEO must notify the NYSE in writing if any executive officer becomes aware of any material non-compliance
by the Company with NYSE corporate governance standards.
Shareholder Approval of Adoption and Modification of Equity Compensation Plans
NYSE Domestic Company Standards — Shareholders of a U.S. company listed on the NYSE must approve the adoption of and any
material revision to the company’s equity compensation plans, with certain exceptions.
Our Practice — Although the shareholders’ meeting of the Company must authorize (i) the issuance of shares in connection with
capital increases, and (ii) the buy-back of its own shares, the adoption of equity compensation plans does not per se require prior
approval of the shareholders.
ITEM 16H. MINE SAFETY DISCLOSURE.
Not applicable.
ITEM 17. FINANCIAL STATEMENTS
Our financial statements have been prepared in accordance with Item 18 hereof.
PART III
ITEM 18. FINANCIAL STATEMENTS
Our audited consolidated financial statements are included in this Annual Report beginning at page F-1.
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated statements of financial position as at December 31, 2019 and 2018
Consolidated statements of profit or loss for the years ended December 31, 2019, 2018 and 2017
Consolidated statements of comprehensive income for the years ended December 31, 2019, 2018 and 2017
Consolidated statements of changes in equity for the years ended December 31, 2019 2018 and 2017
Consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017
Notes to consolidated financial statements
Page
F-1
F-2
F-3
F-4
F-5
F-6
F-7
81
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Natuzzi S.p.A.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Natuzzi S.p.A. and subsidiaries (the Company) as
of December 31, 2019 and 2018, the related consolidated statements of profit or loss, comprehensive income, changes in equity, and
cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued
by the International Accounting Standards Board.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 3(f) to the consolidated financial statements, the Company has suffered recurring losses from operations
and subsequent to year-end has declining revenue and cash flows that raise substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are also described in Note 3(f). The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Change in Accounting Principle
As discussed in Note 5 to the consolidated financial statements, the Company has changed its method of accounting for the lease
contracts as of January 1, 2019 due to the adoption of IFRS 16 “Lease”.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG S.p.A.
We have served as the Company’s auditor since 2016.
Bari, Italy
June 13, 2020
F - 1
Natuzzi S.p.A. and subsidiaries
Consolidated statements of financial position as at December 31, 2019 and 2018
(Expressed in thousands of euros except as otherwise indicated)
December 31, 20
19
December 31, 20
18
Not
e
ASSETS
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets and goodwill
Equity-method investees
Other non-current receivables
Other non-current assets
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade receivables
Other current receivables
Other current assets
Current income tax assets
Gains on derivative financial instruments
Cash and cash equivalents
Total current assets
TOTAL ASSETS
EQUITY
Share capital
Reserves
Retained earnings
EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
Non-controlling interests
TOTAL EQUITY
LIABILITIES
Non-current liabilities
Long-term borrowings
Long-term lease liabilities
Employees’ leaving entitlement
Non-current contract liabilities
Provisions
Deferred income for government grants
Other non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Bank overdrafts and short-term borrowings
Current portion of long-term borrowings
Current portion of lease liabilities
Trade payables
Other payables
Current contract liabilities
Provisions
Other current liabilities
Liabilities for current income tax
Losses on derivative financial instruments
Total current liabilities
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
F - 2
102,523
54,718
6,021
41,342
4,519
2,896
513
212,532
69,685
29,187
7,723
9,241
1,082
145
39,799
156,862
369,394
54,853
17,147
31,126
103,126
1,692
104,818
14,091
46,053
16,121
9,089
12,966
13,869
—
430
112,619
24,170
4,321
11,314
68,476
22,049
14,014
4,489
1,069
1,283
772
151,957
264,576
369,394
8
9
10
11
12
13
38
14
15
16
13
38
29
17
18
18
18
19
20
21
22
23
24
25
38
26
19
20
27
28
22
23
25
38
29
111,086
—
5,892
40,220
4,533
3,359
475
165,565
84,227
40,967
9,507
8,107
1,986
218
62,131
207,143
372,708
54,853
17,198
64,496
136,547
1,634
138,181
10,361
—
17,181
9,934
14,502
13,002
1,119
42
66,141
35,148
10,582
—
77,901
26,914
12,165
4,476
—
880
320
168,386
234,527
372,708
Natuzzi S.p.A. and subsidiaries
Consolidated statements of profit or loss for the years ended December 31, 2019, 2018 and 2017
(Expressed in thousands of euros except as otherwise indicated)
Revenue
Cost of sales
Gross Profit
Other income
Selling expenses
Administrative expenses
Impairment on trade receivables
Other expenses
Operating loss
Finance income
Finance costs
Net exchange rate gains/(losses)
Gain from disposal and loss of control of a subsidiary
Net finance income/(costs)
Share of profit/(loss) of equity-method investees
Profit/(loss) before tax
Income tax expense
Profit/(loss) for the year
Profit/(loss) attributable to:
Owners of the Company
Non-controlling interests
Profit/(loss) per share
Basic profit/(loss) per share
Diluted profit/(loss) per share
2019
2018
386,962 428,539
(271,931) (308,250)
115,031 120,289
2017
Restated (*)
Note
448,880 31
(318,401) 32
130,479
5,162
5,944
(105,250) (114,997)
(34,026) (35,344)
(745)
(605)
(2,389)
(1,016)
1,650 33
(118,254) 34
(36,105) 35
(1,475) 15
(250) 33
(22,488) (25,458)
(23,955)
400
(7,928)
(2,340)
379
(5,580)
(3,914)
— 75,411
1,252 36
(6,289) 36
1,033 37
— 11
(9,868) 66,296
(4,004)
1,011
(290)
— 11
(31,345) 40,548
(2,335)
(7,429)
(33,680) 33,119
(27,959)
(2,886) 38
(30,845)
(33,370) 33,289
(170)
(310)
(30,392)
(453)
(0.61)
(0.61)
0.61
0.61
(0.55) 39
(0.55) 39
(*) The Group has initially applied IFRS 9 as at January 1, 2018. Under the transition method chosen, comparative information has
not been restated except for separately presenting impairment losses on trade receivables. See note 5(C).
F - 3
Natuzzi S.p.A. and subsidiaries
Consolidated statements of comprehensive income for the years ended December 31, 2019, 2018 and 2017
(Expressed in thousands of euros except as otherwise indicated)
2019
2018
(33,680) 33,119 (30,845)
2017
Note
(615)
573
— —
(108) 18
(8) 38
(615)
573
(116)
586
251 (7,778) 18
— — —
251 (7,778)
824 (7,894) 18
586
(29)
(33,709) 33,943 (38,739)
(33,421) 34,089 (38,059)
(680)
(146)
(288)
Profit/(loss) for the year
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial gains/(losses) on employees’ leaving entitlement
Tax impact
Total
Items that are or may be reclassified subsequently to profit or loss
Exchange rate differences on translation of foreign operations
Tax impact
Total
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income/(loss) for the year
Total comprehensive income/(loss) attributable to:
Owners of the Company
Non-controlling interests
F - 4
Natuzzi S.p.A. and subsidiaries
Consolidated statements of changes in equity for the years ended December 31, 2019, 2018 and 2017
(Expressed in thousands of euros except as otherwise indicated)
Balance as at January 1, 2017
Dividends distribution
Loss for the year
Other comprehensive loss for the year
IAS 19
reserve
Other
reserves
Retained
earnings
Equity
attributable
to owners
of
the
Company
Equity
attributable
to Non-
controlling
interests
Total
equity
Translation
reserve
12,606 — 11,459 61,636
— — — —
— — — (30,392)
(116) — —
(7,551)
140,554
—
(30,392)
(7,667)
3,445 143,999
(726)
(726)
(453) (30,845)
(227) (7,894)
Share
Capital
amount
54,853
—
—
—
Balance as at December 31, 2017
54,853
5,055
(116) 11,459 31,244
102,495
2,039 104,534
Adjustment on initial application of IFRS 9,
net of tax
Adjusted balance as at January 1, 2018
Dividends distribution
Capital contribution
Profit for the year
Other comprehensive income/(loss) for the
year
Balance as at December 31, 2018
Capital contribution
Loss for the year
Other comprehensive income/(loss)
for the year
Balance as at December 31, 2019
—
— — —
(37)
(37)
—
(37)
54,853
5,055
(116) 11,459 31,207
102,458
2,039 104,497
—
—
—
— — — —
— — — —
— — — 33,289
—
—
33,289
(453)
(453)
194
194
(170) 33,119
—
227
573 — —
800
24
824
54,853
5,282
457 11,459 64,496
136,547
1,634 138,181
—
—
— — — —
— — — (33,370)
—
(33,370)
346
346
(310) (33,680)
—
564
(615) — —
(51)
22
(29)
54,853
5,846
(158) 11,459 31,126
103,126
1,692 104,818
F - 5
Natuzzi S.p.A. and subsidiaries
Consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017
(Expressed in thousands of euros except as otherwise indicated)
Cash flows from operating activities:
Profit/(loss) for the period
Adjustments for:
Depreciation
Amortization
Interest expenses
Share of (profit)/loss of equity-method investees, net of tax
(Gain) from loss of control in a former subsidiary
(Gain)/loss on sale of property, plant and equipment
Unrealized foreign exchange (gains)/losses
Deferred income for capital grants
Tax expense
Changes in:
Total adjustment
Inventories
Trade and other receivables
Other assets
Trade and other payables
Contract liabilities
Provisions
Other liabilities
One-time termination benefit payments
Employees’ leaving entitlement
Total changes
Cash provided by (used in) operating activities
Interest paid
Income taxes paid
Net cash used in operating activities
Cash flows from investing activities:
Property, plant and equipment:
Additions
Disposals
Intangible assets
Government grants received for PPE
Purchase of business, net of cash acquired
Disposal of a business, net of cash disposed of
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Long-term borrowings:
Proceeds
Repayments
Short-term borrowings
Payment of lease liabilities
Dividends distribution to non-controlling interests
Capital contribution by non-controlling interests
Net cash provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents as at January 1 (*)
Effect of movements in exchange rates on cash held
Cash and cash equivalents as at December 31 (*)
2019
2018
2017
Note
(33,680) 33,119 (30,845)
24,196 10,154 10,861 8 and 9
10
917
5,930
(1,011)
910
3,796
290
— (75,411)
(171)
—
174
525
(769)
(1,626)
7,429
2,335
1,569
4,639
(18)
—
73
(1,141)
(989)
2,886
31,266 (53,598) 17,880
11
11
5,999
(1,387)
14,542
(3,678)
5,723
13,578
1,484
(1,675)
(671)
7,365 11,854
(9,490)
3,235
1,004 12,317
3,732
(3,694)
(1,523)
—
1,119
1,273
(8,272)
(1,411)
(3,812)
(606)
(1,066)
(1,676)
13,225 15,276 15,763
2,798
(5,203)
10,811
(2,821)
(3,033)
(5,111)
(4,878)
(1,048)
(3,112)
(4,901)
4,652 (11,348)
(3,805)
(7,283)
66
572
(913)
(878)
1,327
—
—
—
— 22,156
(6,708)
760
(845)
—
(3,558)
—
(3,325) 14,567 (10,351)
11
— 9 and 20
4,615
(5,980)
(11,190)
(11,960)
—
346
(24,169)
— 12,500
(4,744)
5,956
(4,774)
7,419
—
(453)
—
(1,349)
—
2,192 12,363
(22,842)
(2,889)
5,411
60.369 55,035 60,565
(2,641)
37,825 60,369 55,035
298
(77)
17
(*) As at December 31, 2019, 2018 and 2017 cash and cash equivalents include bank overdrafts of 1,974, 1,762 and nil,
respectively, that are repayable on demand and form an integral part of the Group’s cash management.
F - 6
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
1
Introduction
The consolidated financial statements of the Natuzzi S.p.A. as at December 31, 2019 and 2018 have been prepared in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board
(“IFRS”), including interpretations issued by the IFRS Interpretations Committee (IFRS IC) applicable to companies reporting
under IFRS. The consolidated financial statements as at December 31, 2018 were the Group’s first set of consolidated financial
statements prepared in accordance with IFRS and IFRS 1 “First-time Adoption of International Financial Reporting” has been
applied.
Being a first-time adopter, the Group restated the 2017 consolidated financial statements for comparative purposes, in order to
present the effect of the adoption of the IFRS. The prior year note 43 described the effects of the transition from the generally
accepted accounting principles in the Republic of Italy (“Italian GAAP”) to the IFRS and presented the related reconciliation
schedules. The Group’s date of transition to the IFRS was January 1, 2017 and its first set of consolidated financial statements
prepared in accordance with the IFRS was that as at and for the year ended December 31, 2018.
Natuzzi S.p.A., as SEC Registrant, has also presented the consolidated statements of profit or loss, comprehensive income,
changes in equity and cash flows for the year ended December 31, 2017.
During 2019, 2018 and 2017 no significant non-recurring events or unusual transactions have occurred other than that described
in note 11. All transactions performed by the Group during 2019, 2018 and 2017 are part of the Group’s ordinary business.
2
Description of the business and Group composition
Natuzzi S.p.A. (“Natuzzi”, the “Company” or the “Parent”) is domiciled in Italy. The Company’s registered office is at via
Iazzitello 47, 70029 Santeramo in Colle (Bari). These consolidated financial statements include the accounts of Natuzzi S.p.A.
and of its subsidiaries (together with the Company, the “Group”). The Group’s primary activity is the design, manufacture and
marketing of leather and fabric upholstered furniture (see note 6 on operating segment).
The financial statements utilized for the consolidation are the financial statements of each Group’s legal entity as at
December 31, 2019, 2018 and 2017. The 2019, 2018 and 2017 financial statements have been adopted by the respective Boards
of Directors of the relevant entities. The financial statements of subsidiaries are adjusted, where necessary, to conform to
Natuzzi’s accounting principles and policies (see note 4), which are consistent with International Financial Reporting Standards
(IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) applicable to companies reporting under
IFRS (see note 3(a)).
The consolidated financial statements of the Group as at December 31, 2019 have been approved by the Company’s Board of
Directors (the Board) on May 22, 2020 and authorised on June 12, 2020.
The subsidiaries included in the consolidation as at December 31, 2019 and 2018, together with the related percentages of
ownership and other information, are as follows:
F - 7
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Name
Italsofa Romania S.r.l.
Natuzzi (China) Ltd
Italsofa Nordeste S/A
Natco S.p.A.
I.M.P.E. S.p.A.
Nacon S.p.A.
Lagene S.r.l.
Natuzzi Americas Inc.
Natuzzi Iberica S.A.
Natuzzi Switzerland AG
Natuzzi Germany Gmbh
Natuzzi Japan KK
Natuzzi Services Limited
Natuzzi UK Retail Limited
Natuzzi Russia OOO
Natuzzi India Furniture PVT Ltd
Natuzzi Florida LLC
Natmex S.DE.R.L.DE.C.V
Natuzzi France S.a.s.
Softaly (Furniture) Shanghai Co. Ltd
Natuzzi Oceania PTI Ltd
Natuzzi Netherlands Holding
New Comfort S.r.l.
Italsofa Shanghai Ltd
Natuzzi Trade Service S.r.l.
Percentage of
31/12/2019
100.00
100.00
100.00
99.99
100.00
100.00
100.00
Percentage of
31/12/2018
100.00
100.00
100.00
99.99
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
70.00
100.00
100.00
51.00
99.00
100.00
96.50
100.00
100.00
—
96.50
100.00
100.00
100.00
100.00
100.00
100.00
100.00
—
100.00
100.00
51.00
99.00
100.00
96.50
100.00
100.00
100.00
96.50
100.00
Share/
quota capital
Ownership
registered office
RON 109,271,750 Baia Mare, Romania
CNY 106,414,300 Shanghai, China
BRL 157,654,283 Salvador de Bahia, Brazil
EUR 4,420,000 Santeramo in Colle, Italy
EUR 1,000,000 Bari, Italy
EUR 2,800,000 Santeramo in Colle, Italy
EUR 10,000 Santeramo in Colle, Italy
High Point, N. Carolina,
USA
USD 89
EUR 386,255 Madrid, Spain
CHF 2,000,000 Dietikon, Switzerland
EUR 25,000 Köln, Germany
JPY 28,000,000 Tokyo, Japan
GBP 25,349,353 London, UK
GBP 100 Cardiff (UK)
RUB 8,700,000 Moscow, Russia
INR 16,200,000 New Delhi, India
USD 4,955,186
MXN 69,195,993 Mexico City, Mexico
High Point, N. Carolina,
USA
EUR 200,100 Paris, France
CNY 100,000 Shanghai, China
AUD 320,002 Sydney, Australia
EUR 34,605,000 Amsterdam, Holland
EUR 20,000 Santeramo in Colle, Italy
CNY 124,154,580 Shanghai, China
EUR 14,000,000 Santeramo in Colle, Italy
Activity
(1)
(1)
(1)
(2)
(3)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(4)
(5)
(6)
(6)
(6)
Intragroup leather dyeing and finishing
(1) Manufacture and distribution
(2)
(3) Production and distribution of polyurethane foam
(4) Services and distribution
(5)
Investment holding
(6) Dormant
As at December 31, 2019 the consolidation area changed due to the set up of Natuzzi UK Retail Limited and the liquidation of
New Comfort S.r.l..
As at December 31, 2018 the consolidation area changed due to: (a) the deconsolidation of Natuzzi Trading (Shanghai) Co. Ltd
occurred on July 27, 2018 as a consequence of the loss of control (see note 11); (b) the sale of Natuzzi Benelux.
The following table summarises the information relating to the only material non-controlling interests related to the Group’s
subsidiary Natuzzi Florida LLC, before any intra-group eliminations.
F - 8
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Summarized statement of financial position of Natuzzi Florida LLC and Non-controlling interests share in equity as at December 31,
2019 and 2018
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Net assets attributable to NCI – 49%
31/12/19
31/12/18
2,870 3,890
10,479 1,713
(4,186) (4,033)
(7,267) —
1,896 1,570
769
929
Summarized statement of profit or loss of Natuzzi Florida LLC and Non-controlling interests share of loss for the year ended
December 31, 2019 and 2018
Revenue
Expenses
Loss for the year
Other comprehensive income
Total comprehensive loss for the year
Loss allocated to NCI – 49%
OCI allocated to NCI
Cash flow provided by operating activities
Cash flow used in investing activities
Cash flow used in financing activities (dividends to NCI: nil)
2019
2018
10,163 8,201
(10,581) (8,540)
(418)
37
(339)
57
(381)
(205)
18
1,530
(1,188)
(282)
(166)
28
179
(543)
(603) —
3
General principles for the preparation of the consolidated financial statements
(a) Compliance with IFRS
The consolidated financial statements of the Natuzzi Group have been prepared in accordance with International Financial
Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) applicable to
companies reporting under IFRS. The consolidated financial statements comply with IFRS as issued by the International
Accounting Standards Board (IASB).
Details of Group’s accounting policies are included in note 4.
This is the first set of the Group’s consolidated financial statements in which IFRS 16 “Leases” has been applied. The related
changes to significant accounting policies are described in note 5.
(b) Historical cost convention
The consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets and
liabilities (including derivative instruments) measured at fair value.
F - 9
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(c) Basis of preparation
The consolidated financial statements consist of the consolidated statement of financial position, the consolidated statement of
profit or loss, the consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated
statement of cash flows and the notes to the consolidated financial statements.
The consolidated statement of financial position has been prepared based on the nature of the transactions, distinguishing:
(a) current assets from non-current assets, where current assets are intended as the assets that should be realised, sold or used
during the normal operating cycle, or the assets owned with the aim of being sold in the short term (within 12 months); (b)
current liabilities from non-current liabilities, where current liabilities are intended as the liabilities that should be paid during
the normal operating cycle, or over the 12-month period subsequent to the reporting date.
The consolidated statement of profit or loss has been prepared based on the function of the expenses.
The consolidated statement of cash flows has been prepared using the indirect method.
The consolidated financial statements are presented in Euro (the Group’s presentation currency) and all amounts are rounded to
the nearest thousands of Euro, unless otherwise stated. They also present comparative information in respect to the previous
period.
(d) Functional and presentation currency
These consolidated financial statements are presented in Euro, which is the Natuzzi S.p.A.’s functional currency. All amounts
have been rounded to the nearest thousand, unless otherwise stated.
(e) Use of estimates and judgement
The preparation of consolidated financial statements requires the use of accounting estimates. Actual results may differ from
these estimates. Management also needs to exercise judgement in applying the Group’s accounting policies.
This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are
susceptible to adjustment in the event actual results are materially different than the estimates. Detailed information about each
of these estimates and judgements is included in other notes together with information about the basis of calculation for each
affected line item in the consolidated financial statements.
The areas involving significant estimates or judgements are:
(a)
impairment of property, plant and equipment, notes 4(i) and 8;
(b)
impairment of right-of-use-assets, notes 4(i) and 9;
(c)
estimated goodwill impairment, notes 4(i) and 10;
(d)
estimation of fair value of the investment in a joint venture recorded as such after loss of control, note 11;
(e)
impairment of trade receivables, notes 4(n), 15 and 30;
(f)
assessment of the lease term of lease liabilities depending on whether the Group is reasonably certain to exercise the
extension options, notes 4(f), 9 and 20;
(g)
estimation of provision for warranty claims, notes 4(r) and 23;
(h)
estimation of fair values of contingent liabilities, notes 4(r), 23 and 42;
F - 10
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(i)
(j)
estimated fair value of derivative financial instruments, notes 29 and 30;
recognition of deferred tax assets, notes 4(aa) and 38.
Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including
expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the
circumstances.
(f) Going concern assumption
The consolidated financial statements have been prepared on a going concern basis, which assumes that the Group will be able
to meet its obligations as they fall due within one year from the date of the approval of these consolidated financial statements.
Negative events and conditions, management’s plans and Directors’ conclusions on the Group’s going concern assumption as at
December 31, 2019 are reported below.
(i) Negative events and conditions
The Group has a history of incurring substantial operating losses. In particular, the Group has recognised a net loss after tax of
33,680 and an operating loss of 22,488 for the year ended December 31, 2019 and, as at that date, current assets exceed current
liabilities by 4,905 and total equity is of 104,818.
In addition, due to the loss for the year, it was unable to generate sufficient cash flows from operating activities during the year
which adversely affected its net working capital and net financial position as at December 31, 2019. Net working capital
decreased to 4,905 at year end compared to 38,757 as at December 31, 2018 as a result of the above-mentioned loss for the year
and the first-time adoption of IFRS 16 – Leases (see note 5 (A)). The principal reason for the loss for the year ended
December 31, 2019 is the approximate 10% contraction in the Group’s revenue, down from 428,539 for 2018 to 386,962 for
2019.
Furthermore, during the four-month period ended as at April 30, 2020, the COVID-19 outbreak (see also note 44) has negatively
affected Group’s revenue and cash flows mainly due to the following reasons: (a) reduction in the consumers’ demand;
(b) significant business interruption arising from the closure of the manufacturing facilities and directly operated stores due to
the “lockdown” measures applied by the public authorities; (c) supply chain and logistic disruptions; and (d) travel restrictions
and unavailability of personnel. However, at the date of the approval of these consolidated financial statements, all the
lockdown measures in Italy and in many other countries have been lifted and the Group’s business has started the so-called
“phase 2” which heralds a return to normality.
(ii) Management’s plans
Management’s plans to mitigate the adverse effects of such events and conditions that raise substantial doubt as to the Group’s
ability to continue as a going concern for a reasonable period of time, are included in: (i) the business plan 2020-2024 approved
by the Parent’s Board of Directors on October 11, 2019; (ii) the updated business plan 2020-2026 approved by the Parent’s
Board of Directors on May 22, 2020; (iii) the annual budget for 2020 approved by Parent’s Board of Directors on December 16,
2019; and (iv) the updated annual budget for 2020 and 2021, supplemented with a sensitivity analysis, approved by the Parent’s
Board of Directors on May 22, 2020.
F - 11
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Such plans, listed in order of importance based on their weight in cash flow forecasts for the years ending December 31, 2020
and 2021, are as follows.
—
Implementation, due to COVID-19, of stricter procedures to manage liquidity and working capital balances to generate
sufficient operating cash flows to meet its obligations as they fall due. The Group aims to maintain the level of its cash
and cash equivalents at an amount in excess of expected cash outflows for financial liabilities over the next 60 days. The
Group also monitors the level of expected cash inflows from trade and other receivables together with expected cash
outflows for trade and other payables.
— Receipt of financial support from the Parent majority shareholder. In particularly, in light of the extraordinary challenges
imposed by COVID-19 on the Group, on February 28, 2020, the Parent’s majority shareholder entered into an agreement
with it setting forth its undertaking, should the Parent so request, to make advance payments of up to 15,000 to satisfy
the subscription price of a future rights issue. On February 28, 2020, the Parent requested an initial payment of 2,500
which was received on March 2, 2020.
— Access to COVID-19 long-term bank borrowing based on the measures to support business approved by the Italian
Government with Law Decree no. 23/2020 (the “Liquidity Decree”). The Parent applied for such loan on April 29, 2020
and should receive it during the third quarter of 2020. Specifically, the requested loan is 90% guaranteed by a State
agency and has a nominal amount of 65,000 with installments repayable on a quarterly basis starting from 2022, after the
two-year interest-only period, and ending in 2026. The interest rate will be based on an Italian variable index plus a
spread to be defined.
— Use of social security procedures that allow the Parent and other subsidiaries to pay workers and employees a reduced
salary for a certain period.
—
Savings in selling and administrative expenses mainly through: (a) cutting certain costs chiefly related to marketing,
travel, facilities management and professional services; (b) layoff of redundant employees of business support offices
mainly located in the Parent’s headquarters in Italy pursuant to individual written agreements that will provide for one-
off termination benefits.
— Manufacturing footprint optimisation in order to reduce the cost of sales through: (a) the relocation of part of the
production capacity among the existing Group’s plants; (b) the outsourcing of production of certain finished products,
that are positioned in the mid-low range selling price, to third-party manufacturers located in low cost countries such as
Vietnam; (c) the management of production excess capacity in Italy with the layoff of redundant workers pursuant to
individual written agreements that will provide for one-off termination benefits; (d) the outsourcing and/or insourcing,
depending on the location of the manufacturing facility, of the production of certain semi-finished products (i.e.,
polyurethane and wood) in order to optimise the structure of the cost of sales.
— Deferral of certain capital expenditures that had been scheduled for 2020 due to COVID-19 negative event.
— Obtainment of suspension and deferral of the instalments of the long-term borrowings due in 2020 provided by COVID-
19 measures adopted by the Italian and other governments.
— Use of suspension and deferral of tax payments, VAT payments, payments to public administrations, payments of
withholding tax on wages, payments of social security contributions, payments of mandatory insurance premium and of
related obligations, as provided by the COVID-19 measures adopted by the Italian Government with the Cure Italy
Decree.
F - 12
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
— Cash receipts related to government grants of 7,144 and subsidized loans of 9,755 related to benefits that the Parent
obtained in 2019 from the Italian Government as part of the incentive programs for under-industrialised regions in
Southern of Italy. Such grants and subsidized loans will be received over the next few years for the purchase of certain
items of property, plant and equipment necessary to upgrade the Italian manufacturing facility and for certain innovative
research and development expenses. Such grants will be cashed as soon as the Parent presents the application to the
government agency with details of the expenditures.
— Closure of not profitable wholesalers, renegotiation of sale prices and other commercial conditions for other customers
thanks to benefits due to the outsourcing of manufacturing of certain products in low cost countries.
— Rationalization of branded and unbranded product models in order to reduce their complexity and improve margins.
— Closer monitoring of franchised operated store performances.
— New opening of stores directly operated by the Parent (directly operated stores) and franchised stores operated by third
parties (franchised operated stores).
— Disposal of some non-strategic assets such as land, buildings and operations of two subsidiaries (tannery and foam
operations), with a total carrying value of 26,745 as at December 31, 2019. The estimated fair value of such disposal
assets is significantly higher than the carrying value as at December 31, 2019.
— Request to lessors for the majority of the lease contracts of rent concessions or deferral payments to compensate the
closure of the Group’s stores due to COVID-19 “lockdown”.
Furthermore, management has prepared the updated cash flow forecasts for the years ending December 31, 2020 and 2021
taking into account the effects of COVID-19 on the Group’s revenue and cash flows as at April 30, 2020 and the above plans. In
particular, such cash flow forecasts take into consideration the Group’s actual results of operation for the four months ended
April 30, 2020 and are based on the following key assumptions: (a) reduction of revenue for 2020 by approximately 20%
compared to 2019 revenue; (b) reduction of variable costs for 2020 in line with the decrease in revenue; (c) increasing of
revenue for 2021 by approximately 20% compared to 2020; (d) increasing of variable costs for 2021 in line with the increase in
revenue; (e) cut-down of certain fixed costs by approximately 10% in 2020 and 5% in 2021 compared to 2019; (f) receipt in
2020 of COVID-19 long-term financing of 65,000 from banks based on the measures to support business approved by the Italian
Government with the “Liquidity Decree”; (g) receipt of financial support of 15,000 from the Parent’s majority shareholder; (h)
deferral of certain capital expenditures that had been scheduled for 2020, while others will be financed with the government
grants already received as at December 31, 2019; (i) access to the COVID-19 and other social security procedures that allow the
Parent and other subsidiaries to pay workers and employees a reduced salary for a certain period; and (j) layoff of redundant
workers pursuant to individual written agreements that will provide for one-off termination benefits.
Such cash flows forecasts, even in several worst-cases scenario prepared by management, indicate that, taking into account all
management’s plans, the Group will have sufficient funds to meet its liabilities as they fall due within one year from the date of
the approval of these consolidated financial statements.
(iii) Directors’ conclusions
The Directors believe that the above plans, many of which have already been implemented, combined with the cash and cash
equivalents and unused credit facilities as at December 31, 2019 will be sufficient to allow the Group to meet its obligations as
they fall due within one year from the date of the approval of these consolidated financial statements.
As at December 31, 2019, the Group’s cash and cash equivalents amount to 39,799, while its long-term borrowings are of
18,412, including the current portion of 4,321, and its bank overdrafts and short-term borrowings are 24,170. Furthermore, as at
December 31, 2019, the unused portion of credit facilities available to the Group, for which no commitment fees are due,
amounts to 24,251. Such unused portion is related to a non-recourse factoring agreement for export-related trade receivables
(18,080), borrowings to be secured with trade receivables (3,577) and bank overdrafts (2,594).
F - 13
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
However, the Directors note that the above cash flow forecasts for the years ending December 31, 2020 and 2021 are heavily
dependent, in particular, on the key assumption about the receipt during the third quarter of 2020 of COVID-19 long-term bank
borrowing of 65,000. Although they are confident that such long-term bank borrowing will be received for the requested amount
and during the third quarter of 2020, since the Parent meets all the conditions specified by article 1 of the “Liquidity Decree”,
there is uncertainty about the amount of the loan that will actually be disbursed by the banks as well as the timing of this
disbursement.
This circumstance represents a material uncertainty that raises substantial doubt on the Group’s ability to continue as a going
concern for a reasonable period of time and, therefore, to continue realising its assets and discharging its liabilities in the normal
course of business. Nevertheless, in consideration of the procedures performed to assess the uncertainty described above, such
as the sensitivity analysis performed on the cash flows forecasts for 2020 and 2021, as well as alternative plans that management
may implement to mitigate this uncertainty, the Directors have a reasonable expectation that the Group has adequate sources of
funding to meet its liabilities as they fall due within one year from the date of the approval of these consolidated financial
statements. For these reasons, the Directors have adopted the going concern assumption as a basis of preparation of the
consolidated financial statements as at December 31, 2019.
4
Summary of significant accounting policies
This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial
statements. These policies have been consistently applied to all the years presented, unless otherwise indicated. The accounting
policies have been applied consistently by Group’s entities.
(a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to
direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group.
They are deconsolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Group.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies
of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of financial
position, consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of
changes in equity, respectively. Non-controlling interests are measured initially at their proportionate share of the fair value
acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a
loss of control are accounted for as equity transactions.
(ii) Associates
Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the
case where the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the
equity method of accounting (see (v) below), after initially being recognised at cost.
F - 14
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(iii) Joint arrangements
Under IFRS 11 “Joint Arrangements” investments in joint arrangements are classified as either joint operations or joint ventures.
The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint
arrangement.
(iv) Joint ventures
Interests in joint ventures are accounted for using the equity method (see (v) below), after initially being recognised at cost in
the consolidated statement of financial position. Natuzzi S.p.A. has only one joint venture as at December 31, 2019 and 2018
(see note 11).
(v) Equity method
Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the
Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in
other comprehensive income of the investee. Dividends received or receivable from associates and joint ventures are recognised
as a reduction in the carrying amount of the investment.
When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any
other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made
payments on behalf of the other entity.
Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the
Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to
ensure consistency with the policies adopted by the Group.
The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in note 4
(i).
(vi) Changes in ownership interests
The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity
owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling
and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the
adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity
attributable to owners of Natuzzi S.p.A..
When the Group ceases to consolidate or equity account for an investment because of a loss of control or significant influence,
any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss.
This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an
associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in
respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean
that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
F - 15
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
If the ownership interest in a joint venture or an associate is reduced but significant influence is retained, only a proportionate
share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.
(b) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker.
(c) Group Companies
(i) Foreign operations that have a functional currency different from the presentation currency
The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that
have a functional currency different from the presentation currency (Euro) are translated into the presentation currency as
follows: (a) assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of
that statement of financial position; (b) revenues and expenses for each statement of profit or loss and statement of
comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case revenues and expenses are translated at the dates of the
transactions); (c) and all resulting exchange differences are recognised in other comprehensive income.
Since January 1, 2017, the Group’s date of transition to IFRSs, such differences have been recognised in the translation reserve.
When a foreign operation is sold, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss
on sale.
(ii) Foreign operations that have a functional currency that is the presentation currency
Two foreign subsidiaries are considered to be an integral part of Natuzzi S.p.A. (the Parent Company) due to the primary and
secondary indicators reported in IAS 21 paragraphs 9 and 10. Therefore, the functional currency for these foreign subsidiaries is
the functional currency of the Parent, namely the Euro. As a result, all monetary assets and liabilities are remeasured, at the end
of each reporting period, using Euro and the resulting gain or loss is recognised in profit or loss. For all non-monetary assets and
liabilities, share capital, reserves and retained earnings historical exchange rates are used. The average exchange rates during the
year are used to translate non-Euro denominated revenues and expenses, except for those non-Euro denominated revenues and
expenses related to assets and liabilities which are translated at historical exchange rates. The resulting exchange differences on
translation are recognised in profit or loss.
(d) Foreign currency transactions
Transactions in foreign currencies are translated into functional currency using the exchange rates at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the
exchange rate at the reporting date. Non-monetary items that are measured based on historical cost in a foreign currency are
translated at the exchange rate at the date of the transaction. Foreign currency exchange gains and losses are recognised in profit
or loss and presented within net exchange rate gains/(losses).
F - 16
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(e) Property, plant and equipment
Items of property, plant and equipment (PPE) are measured at cost, which includes capitalised borrowing costs, less
accumulated depreciation and any accumulated impairment losses. The cost of certain buildings as at January, 1 2017, the
Group’s date of transition to IFRS, was determined with reference to its deemed cost at that date.
If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as
separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss.
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will
flow to the Group.
Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values
using the straight-line method over their estimated useful lives, and is recognised in profit or loss. Land is not depreciated.
The estimated useful lives of property, plant and equipment (see note 8) for current and comparative periods are as follows:
(a) buildings, 10–50 years; (b) machinery and equipment, 4–10 years; (c) office furniture and equipment, 5–10 years; (d) retail
gallery and store furnishing, 3–4 years; (e) leasehold improvements, 5–10 years.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
(f) Leases
The Group has applied IFRS 16 “Leases” using the modified retrospective approach, under which comparative information is
not restated. The Group reports below the accounting policies under both IFRS 16 (for the current period) and IAS 17 (for the
comparative period presented) in order for users to understand the current period as well as comparative information and
changes in significant accounting policies. As at January 1, 2019 and December 31, 2019 the Group does not act as lessor in any
lease contracts.
(i) Policy applicable from January 1, 2019 as a lessee
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess
whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the
contract to each lease component on the basis of its relative stand-alone prices.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset
or to restore the underlying asset or the site on which it is located, less any lease incentives received.
F - 17
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the
lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of
the right-of-use asset reflects that the Group will exercise a purchase option. In that case, the right-of-use asset will be
depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and
equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-
measurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, which is generally the case for
leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay
to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment
with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group: (a) where possible, uses recent third-party financing received by the
individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;
(b) uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group, which
does not have recent third party financing, and (c) makes adjustments specific to the lease to reflect for instance the term of the
lease, type of the asset leased, country, currency and security.
Lease payments included in the measurement of the lease liability comprise the following: (a) fixed payments, including in-
substance fixed payments; (b) variable lease payments that depend on an index or a rate, initially measured using the index or
rate as at the commencement date; (c) amounts expected to be payable under a residual value guarantee; (d) the exercise price
under a purchase option that the Group is reasonably certain to exercise; (e) lease payments in an optional renewal period if the
Group is reasonably certain to exercise an extension option; and (f) penalties for early termination of a lease unless the Group is
reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in
future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount
expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a
purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-
use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Group presents right-of-use assets and lease liabilities in specific captions in the consolidated statement of financial
position.
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term
leases, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a
straight-line basis over the lease term.
F - 18
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(ii) Policy applicable before 1 January 2019 as a lessee
For contracts entered into before 1 January 2019, the Group determined whether the arrangement was or contained a lease based
on the assessment of whether fulfilment of the arrangement was dependent on the use of a specific asset or assets and the
arrangement had conveyed a right to use the asset.
An arrangement conveyed the right to use the asset if one of the following was met: (a) the purchaser had the ability or right to
operate the asset while obtaining or controlling more than an insignificant amount of the output; (b) the purchaser had the ability
or right to control physical access to the asset while obtaining or controlling more than an insignificant amount of the output; or
(c) facts and circumstances indicated that it was remote that other parties would take more than an insignificant amount of the
output, and the price per unit was neither fixed per unit of output nor equal to the current market price per unit of output.
In the comparative period, as a lessee the Group classified leases that transferred substantially all of the risks and rewards of
ownership as finance leases. When this was the case, the leased assets were measured initially at an amount equal to the lower of
their fair value and the present value of the minimum lease payments. Minimum lease payments were the payments over the
lease term that the lessee was required to make, excluding any contingent rent. Subsequent to initial recognition, the assets were
accounted for in accordance with the accounting policy applicable to that asset.
Assets held under other leases were classified as operating leases and were not recognised in the Group’s statement of financial
position. Payments made under operating leases were recognised in profit or loss on a straight-line basis over the term of the
lease. Lease incentives received were recognised as an integral part of the total lease expense, over the term of the lease.
(g) Business combinations
(i) Acquisitions on or after January 1, 2017
The Group accounts for business combinations using the acquisition method when control is transferred to the Group (see
4(a)(i)). The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets
acquired. Any goodwill that arises is tested annually for impairment (see 4 (i)). Any gain on a bargain purchase is recognised in
profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are
generally recognised in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration
that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for
within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent
changes in the fair value of the contingent consideration are recognised in profit or loss.
(ii) Acquisitions prior to January 1, 2017
As part of its transition to IFRS, the Group elected to restate only those business combinations that occurred on or after
January 1, 2017. In respect of acquisitions prior to January 1, 2017, goodwill represents the amount recognised under the
Group’s previous accounting framework, Italian GAAP. Such goodwill has been tested for impairment at the transition date
January 1, 2017.
F - 19
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(h)
Intangible assets and goodwill
Expenditure on research activities is recognised in profit or loss as incurred.
Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically
and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to
complete development and to use or sell the asset. Otherwise, it is recognised in profit or loss as incurred. Subsequent to initial
recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment
losses.
Other intangible assets, including software, trademarks and patents, that are acquired by the Group and have finite useful lives
are measured at cost less accumulated amortisation and any accumulated impairment losses.
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. In respect of
acquisitions prior to January 1, 2017, goodwill is included on the basis of its deemed cost, which represents the amount recorded
under previous GAAP.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific intangible
asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised
in profit or loss as incurred.
Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line
method over their estimated useful lives, and is recognised in profit or loss. Goodwill is not amortised.
The estimated useful lives for current and comparative periods are as follows: software 3-5 years, trademarks and patents 3–5
years, others 2–5 years.
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
(i)
Impairment of non-financial assets
At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than inventories and deferred
tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable
amount is estimated. Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing
use that are largely independent of the cash inflows of other assets or Cash Generating Units (hereinafter also CGUs). Goodwill
arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of
the combination.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is
based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.
F - 20
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill
allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that
the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
(j)
Interests in equity-accounted investees
The Group’s interests in equity accounted investees comprise interests in associates and a joint venture. Associates are those
entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A
joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the
arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and the joint venture are accounted for using the equity method. They are initially recognised at cost,
which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s
share of the profit or loss and other comprehensive income (OCI) of equity accounted investees, until the date on which
significant influence or joint control ceases.
(k)
Inventories
Raw materials are stated at the lower of cost (determined under the specific cost method for leather hides and under the
weighted-average method for other raw materials) and net realizable value.
Goods in process and finished goods are valued at the lower of production cost and net realizable value. Production cost
includes direct production costs and production overhead costs. The production overhead costs are allocated to inventory based
on the manufacturing facility’s normal capacity.
Finished goods acquired for reselling (e.g., home furnishings accessories) are stated at the lower of cost, determined under the
weighted-average method, and net realizable value.
The provision for slow moving and obsolete raw materials and finished goods is based on the estimated realizable value net of
the costs of disposal.
(l)
Trade and other receivables
Trade receivables and other receivables are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method, less allowance for doubtful accounts.
In particular, trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of
business. They are generally due for settlement within 90 days and therefore are all classified as current. Trade receivables are
recognised initially at the amount of consideration that is unconditional unless they contain significant financing components,
when they are recognised at fair value. The Group holds the trade receivables with the objective to collect the contractual cash
flows and therefore measures them subsequently at amortised cost using the effective interest method. Details about the Group’s
impairment policies and the calculation of the loss allowance are provided in note 4n(i).
F - 21
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
The Group derecognises trade receivables when the contractual rights to the cash flows from such financial asset expire, or it
transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of
ownership of such financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks
and rewards of ownership and it does not retain control of such financial asset.
(m) Cash and cash equivalents
For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes cash on hand,
deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three
months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in
value, and bank overdrafts. Bank overdrafts are shown within bank overdrafts and short-term borrowings in current liabilities in
the statement of financial position.
Cash and cash equivalents are recorded at their nominal amount as it substantially coincides with the fair value.
(n)
Impairment of financial assets
The Group has the following types of financial assets that are subject to the expected credit loss model: (i) trade receivables for
sales of goods and services; (ii) other receivables; (iii) cash and cash equivalents.
(i) Trade receivables
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade receivables. In particular, the Group adopted the practical expedient to use a provision matrix that it is
based on its historical credit loss experience, adjusted for forward looking factors specific to the debtors and the economic
environment.
To measure the expected credit losses, trade receivables are grouped based on shared credit risk characteristics and the days past
due.
The expected loss rates are based on the payment profiles of sales over a period of 36 months before December 31, 2019 or
January 1, 2019, respectively, and the corresponding historical credit losses experienced within this period. The historical loss
rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the
customers to settle the receivables.
The Group measures the expected credit losses for individual receivables which are known to be uncollectible based on the
financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or late
payments.
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group and a
failure to make contractual payments for a period of greater than 180 days past due.
Impairment losses on trade receivables are presented as net impairment losses within operating profit/(loss). Subsequent
recoveries of amounts previously written off are credited against the same line item.
(ii) Other receivables
Other receivables are considered to have low credit risk and the impairment loss is measured on a 12–months expected credit
losses basis. Management considers other receivables to have a low credit risk if they have a low risk of default and their
counterparties are able to meet its contractual cash flow obligations in the short-term.
F - 22
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(iii) Cash and cash equivalents
The cash and cash equivalents are held with financial institutions which have external credit risk ratings that are “investment
grade”. Impairment of cash and cash equivalents is measured on a 12-months expected credit losses basis and reflects the short-
term nature of the exposures. The Group considers cash and cash equivalents to have “low credit risk” based on the external
credit ratings of the financial institutions.
(o) Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are
unpaid. The amounts are unsecured and are usually paid within 90 days of recognition. Trade and other payables are presented
as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their
fair value and subsequently measured at amortised cost using the effective interest method. The Group derecognises trade and
other payables when its contractual obligations are discharged or cancelled or expired.
(p) Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at
amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit
or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are
recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In
this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of
the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the
facility to which it relates.
Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged,
cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or
transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is
recognised in profit or loss as finance income or finance costs.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for
at least 12 months after the reporting period.
Further, general and specific borrowing costs that are directly attributable to the acquisition, construction or production of a
qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or
sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation.
Other borrowing costs are expensed in the period in which they are incurred.
(q) Employees’ leaving entitlement
The Group provides its Italian employees with benefits on the termination of their employment. The benefits fall under the
definition of defined benefit plans whose existence and amount is certain but whose date is not. The liability is calculated as the
present value of the obligation at the reporting date, in compliance with applicable regulations and adjusted to take into account
actuarial gains or losses. The amount of the obligation
F - 23
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
is remeasured annually based on the “projected unit credit” method. Actuarial gains or losses are recorded in full during the
relevant period. Actuarial gains/(losses) are stated under “Other comprehensive income” (OCI) in accordance with IAS 19.
(r) Provisions
Provisions for legal claims, service warranties and one time termination benefits for certain employees are recognised when the
Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be
required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating
losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to
any one item included in the same class of obligations may be small.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present
obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to
the passage of time is recognised as interest expense.
(s) Derivative financial instruments and hedging activities
Derivatives financial instruments are accounted for in accordance with IFRS 9, except for hedging activities that are treated in
accordance with IAS 39 (see note 5 (C)).
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured
to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether
the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain
derivatives as hedges of a particular risk associated with the cash flows of recognised assets (trade receivables) and highly
probable forecast transactions (sales orders) (cash flow hedges).
At inception of the hedge relationship, the Group documents the economic relationship between hedging instruments and
hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash
flows of hedged items (trade receivables and/or sales orders). The Group documents its risk management objective and strategy
for undertaking its hedge transactions.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the
hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged
item is less than 12 months.
(i) Cash flow hedges that qualify for hedge accounting
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised
in the cash flow hedge reserve within equity. The gain or loss relating to the ineffective portion is recognised immediately in
profit or loss, within net exchange rate gains/(losses).
When forward contracts are used to hedge forecast transactions, the Group generally designates only the change in fair value of
the forward contract related to the spot component as the hedging instrument. Gains or losses relating to the effective portion of
the change in the spot
F - 24
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
component of the forward contracts are recognised in the cash flow hedge reserve within equity. The change in the forward
element of the contract that relates to the hedged item (“aligned forward element”) is recognised within OCI in the costs of
hedging reserve within equity. In some cases, the Group may designate the full change in fair value of the forward contract
(including forward points) as the hedging instrument. In such cases, the gains or losses relating to the effective portion of the
change in fair value of the entire forward contract are recognised in the cash flow hedge reserve within equity.
Amounts accumulated in equity are reclassified in the periods when the hedged item affects profit or loss.
When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting,
any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast
transaction occurs, resulting in the recognition of a non-financial asset such as inventory. When the forecast transaction is no
longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately
reclassified to profit or loss.
(ii) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that
does not qualify for hedge accounting are recognised immediately in profit or loss and are included in net exchange rate
gains/(losses). The fair value of derivative instruments is disclosed in note 30.
(iii) Derivative financial instruments and hedge accounting – Policy applicable before January 1, 2018
The policy applied in the comparative information presented as at December 31, 2017 is in accordance with the previous Italian
GAAP. For additional details refers to note 5.
(t) Revenues from contracts with customers
The Group has adopted IFRS 15 “Revenue from Contracts with Customers”, effective for reporting periods starting from
January 1, 2018, using the full retrospective approach, without any of the practical expedients indicated by IFRS 15 C5.
(i) Sale of upholstered furniture and home furnishings accessories – wholesale
The Group sells a wide range of upholstered furniture (upholstered sofas and beds) and home furnishing accessories (for
instance coffee tables, lamps, rugs, wall units) in the wholesale market (Natuzzi branded products and private label products).
The upholstered furniture is manufactured in the plants located in Italy, Romania, China and Brazil. Sales are recognised when
control of the products has transferred, being when the products are delivered to the wholesaler, the wholesaler has full
discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the wholesaler’s
acceptance of the products. Delivery occurs when the products have been dispatched from the Group’s warehouse or shipped to
the location specified by the wholesaler, the risks of obsolescence and loss have been transferred to the wholesaler, and the
Group has objective evidence that all criteria for acceptance have been satisfied.
The goods are often sold with retrospective volume discounts based on aggregate sales over a 12 months period. Revenue from
these sales is recognised based on the price specified in the contract, net of the estimated volume discounts. Accumulated
historical experience is used to estimate and provide for the discounts, using the expected value method, and revenue is only
recognised to the extent that it is highly probable that a significant reversal will not occur. A refund liability is recognised for
expected volume discounts payable to wholesalers in relation to sales
F - 25
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
made until the end of the reporting period. No element of financing is deemed present as the sales are made with a credit term of
60-90 days, which is consistent with market practice. The Group’s obligation to repair or replace faulty products under the
standard assurance warranty terms is recognised as a provision (see note 23).
A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional
because only the passage of time is required before the payment is due.
It is the Group’s policy not to sell its products to the wholesaler with a right of return.
(ii) Sale of upholstered furniture and home furnishings accessories—retail
The Group operates a chain of retail stores (Natuzzi Italia stores, Natuzzi Edition stores and Divani & Divani by Natuzzi stores)
selling a wide range of upholstered furniture (upholstered sofas and beds) and home furnishing accessories (for instance coffee
tables, lamps, rugs, wall units). The upholstered furniture is manufactured in the plants located in Italy, Romania, China and
Brazil.
Revenue from the sale of the goods is recognised when the products are delivered and have been accepted by the customer in
store or at its premise.
Payment of the transaction price is due immediately when the product is delivered to the customer. The Group’s obligation to
repair or replace faulty products under the standard assurance warranty terms is recognised as a provision (see note 23).
It is the Group’s policy not to sell its products to the end consumer with a right of return.
(iii) Sale of polyurethane foam and leather by-products – wholesale
The Group sells polyurethane foam, because the facility’s production is in excess of the Group’s needs, and leather by-products
in the wholesale market. Such sales are recognised when control of the products has transferred, being when the products are
delivered to the wholesaler, the wholesaler has full discretion over the channel and price to sell the products, and there is no
unfulfilled obligation that could affect the wholesaler’s acceptance of the products. Delivery occurs when the products have
been dispatched from the Group’s warehouse or shipped to the location specified by the wholesaler, the risks of obsolescence
and loss have been transferred to the wholesaler, and either the wholesaler has accepted the products in accordance with the
sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have
been satisfied.
Revenue from these sales is recognised based on the price specified in the contract. No element of financing is deemed present
as the sales are made with a credit term of 60-90 days, which is consistent with market practice. The Group’s obligation to repair
or replace faulty products under the standard assurance warranty terms is recognised as a provision (see note 23).
A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional
because only the passage of time is required before the payment is due.
It is the Group’s policy not to sell these products to the wholesaler with a right of return.
F - 26
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(iv) Sale of Natuzzi Display System and related slotting fees
The Group sells the Natuzzi Display System (NDS) to retailers, used to set up their stores. Revenue from such sales is
recognised over time based on the length of the distribution contract signed with the retailer. Revenue is accounted based on the
price specified in the contract. No element of financing is deemed present as the sales are made with a credit term of 60-90 days,
which is consistent with market practice. The deferred revenue for the sales of Natuzzi Display System is included under
contract liabilities.
The Group recognises to retailers slotting fees as contributions to prepare the retailer’s system to accept and sell the Group’s
products. Slotting fees are recognised over time based on the length of the contract signed with the retailers and are treated as a
reduction of revenue. Deferred slotting fees are included under other assets.
(v) Service-type warranty
Customers who purchase the Group’s products may require a service-type warranty. The Group allocates a portion of the
consideration received to the service-type warranty. This allocation is based on the relative stand-alone selling price. The
amount allocated to the service-type warranty is deferred, and is recognised as revenue over time based on the validity period of
such warranty. The deferred revenue is included in contract liabilities.
(vi) Financing components
The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the
customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction
prices for the time value of money.
(u) Cost of sales, selling expenses and administrative expenses
Cost of sales consist of the following expenses: change in opening and closing inventories, purchases of raw materials, labor
costs (included one-time termination benefit accruals), third party manufacturing costs, depreciation expense of property, plant
and equipment and right-of-use-assets used in the production of finished goods, impairment of property, plant and equipment
and right-of-use-assets, energy and water expenses (for instance light and power expenses), expenses for maintenance and
repairs of production facilities, distribution network costs (including inbound freight charges, warehousing costs, internal
transfer costs and other logistic costs involved in the production cycle), rentals and security costs for production facilities, small-
tools replacement costs, insurance costs and other minor expenses.
Selling expenses consist of the following expenses: shipping and handling costs incurred for transporting finished products to
customers, advertising costs, labor costs for sales personnel, rental expenses for stores, commissions to sales representatives and
related costs, depreciation expense of property, plant and equipment and right-of-use-assets used in the selling activities,
amortization of intangible assets that, based on their usage, are allocated to selling expenses, impairment of property, plant and
equipment and right-of-use-assets, sales catalogue and related expenses, exhibition and trade-fair costs, advisory fees for sales
and marketing of finished products, expenses for maintenance and repair of stores and other trade buildings, insurance costs for
trade receivables and other miscellaneous expenses.
Administrative expenses consist of the following expenses: costs for administrative personnel, advisory fees for accounting and
information-technology services, traveling expenses for management and other personnel, depreciation expense related to
property, plant and equipment and right-of-use-assets used in the administrative activities, amortization of intangible assets that,
based on their usage, are allocated to administrative
F - 27
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
expense, impairment of property, plant and equipment and right-of-use-assets, postage and telephone costs, stationery and other
office supplies costs, expenses for maintenance and repair of administrative facilities, statutory auditors and external auditors
fees and other miscellaneous expenses.
As noted above, the costs of the Group’s distributions network, which include inbound freight charges, warehousing costs,
internal transfer costs and other logistic costs involved in the production cycle, are classified under the “cost of sales” line item.
(v) Shipping and handling costs
Shipping and handling costs incurred to transport products to customers are expensed in the periods incurred and are included in
selling expenses. Under IFRS 15 shipping and handling costs related to activities before the customer obtains control of the
finished goods, are accounted as fulfillment costs under the caption “other assets” of the consolidated statement of financial
position. Such costs are recognised in profit or loss consistent with the pattern of transfer of the finished goods. Shipping and
handling expenses recorded for the years ended December 31, 2019, 2018 and 2017, are 35,513, 40,765 and 40,952, respectively
(see note 34).
(w) Advertising costs
Advertising costs are expensed in the periods incurred and are included in selling expenses. Advertising expenses recorded for
the years ended December 31, 2019, 2018 and 2017 are 7,145, 12,687 and 15,407, respectively (see note 34).
(x) Commission expense
Commissions payable to sales representatives and the related expenses are recorded at the time revenue from sale of products
are recognised and are included in selling expenses. Commissions are not paid until payment for the related sale’s invoice is
remitted to the Group by the customer. Under IFRS 15 sale commissions are considered costs of obtaining a contract and the
Group has elected to apply the practical expedient under which such costs are expensed in the profit or loss, as the amortisation
period is less than one year. Commissions expenses recorded in the profit or loss for the years ended December 31, 2019, 2018
and 2017 are 8,393, 10,225 and 9,512, respectively.
(y) Government grants
Grants from the government are recognised at their fair value when there is a reasonable assurance that the grant will be
received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and
recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate.
Government grants relating to the purchase of property, plant and equipment are deferred and credited to profit or loss on a
straight-line basis over the expected lives of the related assets. The amortisation of the deferred grant is recognized in the profit
or loss as reduction of cost of sales, selling expenses or administrative expenses.
(z) Net finance income/(costs)
The Group’s net finance income/(costs) include: interest income, interest expense, dividend income, net gain or loss on
derivative financial instruments, foreign currency gain or loss on financial assets and financial liabilities, gain on the
remeasurement to fair value of interest in a joint venture as a consequence of the lost of control, hedge ineffectiveness
recognised in profit or loss.
F - 28
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Interest income or expense is recognised using the effective interest method. Dividend income is recognised in profit or loss on
the date on which the Group’s right to receive payment is established.
The “effective interest rate” is the rate that exactly discounts estimated future cash payments or receipts through the expected
life of the financial instrument to the gross carrying amount of the financial asset or the amortised cost of the financial liability.
In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when
the asset is not credit-impaired) or to the amortised cost of the liability. However, for financial assets that have become credit-
impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised
cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross
basis.
(aa) Income tax
Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a
business combination, or items recognised directly in equity or in other comprehensive income.
The Group has determined that interest and penalties related to income taxes, including uncertain tax treatments, meet the
definition of income taxes, and therefore accounted for them under IAS 12 “Income Taxes”.
(i) Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to
the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of
the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax
rates enacted or substantively enacted at the reporting date.
Current tax assets and tax liabilities are offset when the entity has a legally enforceable right to offset and intends either to settle
on a net basis, or to realise the asset and settle the liability simultaneously.
(ii) Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: (a) temporary differences on
the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting
nor taxable profit or loss; (b) temporary differences related to investments in subsidiaries, associates and joint arrangements
(mainly unremitted earnings and withholding taxes) to the extent that the Group is able to control the timing of the reversal of
the temporary differences and it is probable that they will not reverse in the foreseeable future; and (c) taxable temporary
differences arising on the initial recognition of goodwill.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent
that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are
determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is
insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary
differences, are considered, based on the business plans for individual subsidiaries in
F - 29
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable
that future taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax
rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects,
at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities
and when the deferred tax balances relate to the same taxation authority.
(ab) Operating profit
Operating profit/(loss) is the result generated from the continuing principal revenue-producing activities of the Group as well as
other income and expenses related to operating activities. Operating profit/(loss) excludes net finance income/(costs), share of
profit/(loss) of equity-accounted investees and income tax expense.
(ac) Fair value measurement
“Fair value” is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group
has access at that date. The fair value of a liability reflects its non-performance risk.
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-
financial assets and liabilities.
When one is available, the Group measures the fair value of an instrument using the quoted price in an active market for that
instrument. A market is regarded as “active” if transactions for the asset or liability take place with sufficient frequency and
volume to provide pricing information on an ongoing basis.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant
observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors
that market participants would take into account in pricing a transaction.
If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long
positions at a bid price and liabilities and short positions at an ask price.
The best evidence of the fair value of a financial instrument on initial recognition is normally the transaction price – i.e. the fair
value of the consideration given or received. If the Group determines that the fair value on initial recognition differs from the
transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability
nor based on a valuation technique for which any unobservable inputs are judged to be insignificant in relation to the
measurement, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair
value on initial recognition and the transaction price.
F - 30
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later
than when the valuation is wholly supported by observable market data or the transaction is closed out.
(ad) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to owners of the Company, excluding any costs of
servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial
year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after
income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and the weighted
average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential
ordinary shares.
(ae) Standards, amendments and interpretations issued but not yet effective
The standards, amendments and interpretations issued by the International Accounting Standards Board (“IASB”) that will have
mandatory application in 2020 or subsequent years are listed below.
In May 2017 the IASB issued IFRS 17 - Insurance Contracts which establishes principles for the recognition, measurement,
presentation and disclosure of insurance contracts issued as well as guidance relating to reinsurance contracts held and
investment contracts with discretionary participation features issued. IFRS 17 is effective on or after January 1, 2023 with early
adoption allowed if IFRS 15 - Revenue from Contracts with Customers and IFRS 9 - Financial Instruments are also applied. The
Group does not expect any impact from the adoption of such standard.
In October 2018 the IASB issued narrow scope amendments to IFRS 3 - Business Combinations to improve the definition of a
business. The amendments aim to help companies determine whether an acquisition made is of a business or a group of assets.
The amended definition emphasizes that the output of a business is to provide goods and services to customers, whereas the
previous definition focused on returns in the form of dividends, lower costs or other economic benefits to investors and others.
In addition to amending the definition of a business, supplementary guidance is provided. These amendments are effective on or
after January 1, 2020. The Group does not expect any material impact from the adoption of these amendments.
In October 2018 the IASB issued amendments to IAS 1 - Presentation of Financial Statements and IAS 8 - Accounting Policies,
Changes in Accounting Estimates and Errors to clarify the definition of “material”, as well as how materiality should be applied
by including in the definition guidance that is included elsewhere in IFRS standards. Furthermore, the explanations
accompanying the definition have been improved and the amendments ensure that the definition of material is consistent across
all IFRS standards. These amendments are effective on or after January 1, 2020. The Group does not expect any material impact
from the adoption of these amendments.
In September 2019 the IASB issued amendments to IFRS 9 - Financial Instruments, IAS 39 - Financial Instruments:
Recognition and Measurement and IFRS 7 - Financial Instruments: Disclosures, collectively the “Interest Rate Benchmark
Reform”. These amendments modify certain hedge accounting requirements in order to provide relief from potential effects of
the uncertainty caused by the interbank offered rates
F - 31
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(IBOR) reform and require companies to provide additional information to investors about their hedging relationships that are
directly affected by these uncertainties. These amendments are effective on or after January 1, 2020. The Group does not expect
any material impact from the adoption of these amendments.
In January 2020 the IASB issued amendments to IAS 1 - Presentation of Financial Statements: Classification of Liabilities as
Current or Non-Current to clarify how to classify debt and other liabilities as current or non-current, and in particular how to
classify liabilities with an uncertain settlement date and liabilities that may be settled by converting to equity. These
amendments are effective on or after January 1, 2022. The Group does not expect any material impact from the adoption of
these amendments.
In March 2018 the IASB revised the Conceptual Framework for Financial Reporting, effective immediately for the IASB and
the IFRS Interpretations Committee when setting future standards, and effective for annual reporting periods on or after
January 1, 2020 for companies that use the Conceptual Framework to develop accounting policies when no IFRS Standard
applies to a particular transaction, with early application permitted. Key changes include (i) increasing the prominence of
stewardship in the objective of financial reporting; (ii) reinstating prudence as a component of neutrality, defined as the exercise
of caution when making judgements under conditions of uncertainty; (iii) defining a reporting entity; (iv) revising the definitions
of an asset and a liability; (v) removing the probability threshold for recognition, and adding guidance on derecognition;
(vi) adding guidance on the information provided by different measurement bases, and explaining factors to consider when
selecting a measurement basis; and (vii) stating that profit or loss is the primary performance indicator and income and expenses
in other comprehensive income should be recycled where the relevance or faithful representation of the financial statements
would be enhanced. The Group does not expect a material impact from the adoption of the revised Conceptual Framework.
5
Changes in significant accounting policies
(A) IFRS 16 “Leases”
The Group initially applied IFRS 16 “Leases” from January 1, 2019 (date of initial application). The Group applied IFRS 16
using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained
earnings as at January 1, 2019. Accordingly, the comparative information presented for 2018 is not restated – i.e. it is presented,
as previously reported, under IAS 17 and related interpretations.
As at January 1, 2019 and December 31, 2019 the Group does not act as lessor in any lease contracts.
The details of the changes in accounting policies are disclosed below. Additionally, the disclosure requirements in IFRS 16 have
not generally been applied to comparative information.
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4
“Determining whether an Arrangement contains a Lease”. The Group now assesses whether a contract is or contains a lease
based on the definition of a lease, as explained in note 4(f).
On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions
are leases. The Group applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not
identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease under IFRS 16. Therefore, the
definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after January 1, 2019.
F - 32
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
As a lessee, the Group leases many assets including property, vehicles, IT and office equipment. The Group previously
classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the
risks and rewards incidental to ownership of the underlying asset to the Group. Under IFRS 16, the Group recognises right-of-
use assets and lease liabilities for most of these leases – i.e. these leases are on-balance sheet.
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the
contract to each lease component on the basis of its relative stand-alone price. However, for leases of property the Group has
elected to separate non-lease components.
Previously, the Group classified property leases as operating leases under IAS 17. On transition, for these leases, lease liabilities
were measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate as at
January 1, 2019 (see description on impact of transition below).
Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued
lease payments. The Group applied this approach to all leases.
The Group used a number of practical expedients when applying IFRS 16 to leases previously classified as operating leases
under IAS 17. In particular, the Group: (a) did not recognise right-of-use assets and liabilities for leases for which the lease term
ends within 12 months of the date of initial application; (b) did not recognise right-of-use assets and liabilities for leases of low
value assets (e.g. IT equipment); (c) excluded initial direct costs from the measurement of the right-of-use assets at the date of
initial application; and (d) used hindsight when determining the lease term.
On transition to IFRS 16, the Group recognised additional right-of-use assets and additional lease liabilities, recognising the
difference of nil in retained earnings. The impact on transition is summarised in the tables reported below.
Impact on the consolidated statement of financial position as at January 1, 2019
Right-of-use assets
Decrease of right-of-use assets for lease incentives
Decrease of other liabilities for lease incentives
Lease liabilities
Retained earnings
56,758
(960)
960
(56,758)
—
Due to adoption of IFRS 16 as at January 1, 2019, lease incentives of 960 were reclassified from other liabilities to right-of-use
assets (see note 25).
Reconciliation of operating lease to lease liabilities as at January 1, 2019
Operating lease commitments as at December 31, 2018 as disclosed
under IAS 17 in the Group’s consolidated financial statements
Effect due to discounted using the incremental borrowing rate as at January 1, 2019
Effect due to recognition exemption for leases of low-value assets
Effect due to recognition exemption for leases with less than 12 months of lease term at transition
Effect due to extension options and other
Lease liabilities recognised as at January 1, 2019
80,740
63,320
(33)
(1,744)
(4,785)
56,758
F - 33
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using
its incremental borrowing rate as at January 1, 2019. The weighted-average rate applied is 5.04%.
For the impact of IFRS 16 on profit or loss for the year, see note 9. For the impact of IFRS 16 on Adjusted EBITDA, see note
41. For the details of accounting policies under IFRS 16 and IAS 17, see note 4(f).
(B) Other standards
A number of other new standards are also effective from January 1, 2019 but they do not have a material effect on the Group’s
financial statements. Further, the Group’s existing accounting policy for uncertain income tax treatments is consistent with the
requirements in IFRIC 23 “Uncertainty over Income Tax Treatments”, which became effective on January 1, 2019.
(C) IFRS 9 “Financial Instruments”
IFRS 9 “Financial Instruments” sets out requirements for recognising and measuring financial assets, financial liabilities and
some contracts to buy or sell non-financial items. This standard replaces IAS 39 “Financial Instruments: Recognition and
Measurement”.
The Group has applied this new standard from January 1, 2018 (date of initial application), but has elected not to restate
comparative information, which continued to be reported under previous Italian GAAP, and not to apply the new requirements
for hedging accounting. Therefore, the cumulative effect of adopting IFRS 9 has been recognised as an adjustment to the
opening balance of retained earnings as at January 1, 2018.
As a result of the adoption of IFRS 9, the Group has adopted consequential amendments to IAS 1 “Presentation of Financial
Statements”, which require impairment of financial assets to be presented in a separate line item in the statement of profit or loss
and OCI. Previously, the Group’s approach was to include the impairment of trade receivables in selling expenses.
Consequently, the Group reclassified impairment losses amounting to 1,475, recognised under previous Italian GAAP, from
“selling expenses” to “impairment loss on trade receivables” in the consolidated statement of profit or loss for the year ended
December 31, 2017.
Further, as a result of the adoption of IFRS 9, the Group has recognised additional impairment on the Group’s trade receivables
of 37, which resulted in a decrease for the same amount in trade receivables and retained earnings as at January 1, 2018 (tax
effect has been considered and it was nil).
Additionally, the Group has adopted consequential amendments to IFRS 7 “Financial Instruments: Disclosures” that are applied
to disclosures about 2018 but have not been generally applied to comparative information.
(i) Classification and measurement of financial assets and financial liabilities
IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value to other
comprehensive income (FVOCI) and fair value to profit and loss (FVTPL). The classification of financial assets under IFRS 9 is
generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. IFRS 9
eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9,
derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead,
the hybrid financial instrument as a whole is assessed for classification. IFRS 9 largely retains the existing requirements in IAS
39 for the classification and measurement of financial liabilities.
F - 34
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
The adoption of IFRS 9 has not had a significant effect on the Group’s accounting policies related to financial liabilities and
derivative financial instruments.
For an explanation of how the Group classifies and measures financial instruments and accounts for related gains and losses
under IFRS 9, see notes 4(l), 4(m), 4(n), 4(o), 4(p) and 4(s).
The following tables show the original measurement categories under previous Italian GAAP and the new measurement
categories under IFRS 9 for each class of the Group’s financial assets and financial liabilities as at January 1, 2018.
Financial assets
Other non-current receivables
Trade receivables
Other current receivables
Cash and cash equivalents
Gains on derivative financial instruments
Total financial assets
Financial liabilities
Long-term borrowings
Bank overdrafts and short-term borrowings
Trade payables
Other payables
Losses on derivative financial instruments
Total financial liabilities
Original
classification
under previous
GAAP
New
classification
under
IFRS 9
Original
carrying
amount under
previous GAAP
New
carrying
amount under
IFRS 9
Amortised cost Amortised cost
Amortised cost Amortised cost
Amortised cost Amortised cost
Amortised cost Amortised cost
FVTPL
FVTPL
1,402
37,549
12,910
55,035
339
1,402
37,512
12,910
55,035
339
107,235
107,198
Original
classification
under previous
GAAP
New
classification
under
IFRS 9
Original
carrying
amount under
previous GAAP
New
carrying
amount under
IFRS 9
Amortised cost Amortised cost
Amortised cost Amortised cost
Amortised cost Amortised cost
Amortised cost Amortised cost
FVTPL
FVTPL
25,717
25,967
76,035
27,587
267
25,717
25,967
76,035
27,587
267
155,573
155,573
As shown in the above tables, the only effect of adopting IFRS 9 is on the carrying amount of trade receivables as at January 1,
2018, due solely to the new impairment requirements.
(ii) Impairment of financial assets
IFRS 9 replaces the “incurred loss” model in IAS 39 with an “expected credit loss” (ECL) model. The new impairment model
applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in
equity instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39. For assets in the scope of the IFRS 9
impairment model, impairment losses are generally expected to increase and become more volatile.
The Group has determined that the application of IFRS 9’s impairment requirements as at January 1, 2018 resulted in an
additional accrual of 37 for impairment of the trade receivables. Therefore, the allowance for impairment of trade receivables
has changed from 10,775 to 10,812 as at January 1, 2018 (see note 15).
F - 35
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
As at December 31, 2017 and January 1, 2017, under the previous accounting policy Italian GAAP the impairment of trade
receivables was assessed based on the incurred loss model. The Group estimated the losses using consistent methods that took
into consideration, in particular, insurance coverage in place, the creditworthiness of its customers, historical trends and general
economic conditions. Individual receivables which were known to be uncollectible were assessed for impairment and the losses
were recognised in a separate provision for impairment. The other receivables were assessed collectively to determine whether
there was objective evidence that an impairment had been incurred but not yet been identified. For these receivables, the
estimated impairment losses were recognised in a separate provision for impairment. The Group considered that there was
evidence of impairment if any of the following indicators were present: (a) significant financial difficulties of the debtor;
(b) probability that the debtor will enter bankruptcy or financial reorganisation; and (c) default or late payments. Receivables for
which an impairment provision was recognised were written off against the provision when there was no expectation of
recovering additional cash.
(iii) Hedge accounting
At the date of initial application, all of the Group’s existing forward exchange contracts were not eligible to be treated as
hedging relationships, since hedge effectiveness is not constantly monitored (see note 29). This approach is consistent with
previous Italian GAAP. Changes in the fair value of derivatives are therefore recognised in profit or loss.
6
Operating segment
The Group operates in two operating segments, “Natuzzi brand” and “Private label”. The Natuzzi brand segment includes net
sales from the “Natuzzi ltalia”, “Natuzzi Editions” and “Divani&Divani by Natuzzi” product lines. Segment disclosure is
rendered by aggregating the operating segments into one reporting segment, that is the design, manufacture and marketing of
leather and fabric upholstered sofas, beds and home furnishings accessories. It offers a wide range of upholstered furniture for
sale, manufactured in production facilities located in Italy and abroad (Romania, China and Brazil).
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker.
The two operating segments have been aggregated into a single reporting segment as the two segments have similar
characteristics, and are similar in each of the following respects: (a) the nature of the products; (b) the nature of the production
processes; (c) the type of customer for their products; (d) the methods used to distribute their products.
Reference should be made to note 31 “Revenue” for details on revenue streams and disaggregation of revenue from contracts
with customers by types of goods, geographical markets, geographical location of customers, distribution channels, brands and
timing of revenue recognition.
7
Business combinations
(i) Business combinations occurred in 2019 and 2018
No business combinations have occurred in 2019 and 2018.
F - 36
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(ii) Business combinations occurred in 2017
In January 2017 Natmex S.DE.R.L.DE.C.V., a subsidiary of the Parent, acquired 100% of a business composed by the three
“Natuzzi” stores and twelve “Natuzzi” point of sales, located in Mexico, for a consideration of 4,123. This business was
operating as a Natuzzi franchisee. At the date of the acquisition, the franchise agreements between Natuzzi and the original
business were terminated. The primary reason for this acquisition was the opportunity to maintain the market presence in
Mexico. The main factor that contributed to the determination of the purchase price was the presence of the stores and point of
sales in key locations. The acquisition was accounted for using the acquisition method of accounting, in accordance with IFRS
3, and it resulted in the recognition of goodwill of Euro 2,041, which represents the excess of the purchase price over the fair
value of assets acquired and liabilities assumed. The following table summarizes the fair value of the assets acquired and
liabilities assumed at date of acquisition.
Inventory
Other assets
Total identifiable net assets acquired
Goodwill arising on acquisition
Consideration transferred
1,895
187
2,082
2,041
4,123
The goodwill is attributable mainly to the presence of the stores and points of sale in key locations. The results of this business
acquisition have been included in the consolidated statement of profit or loss from the date of the acquisition.
8
Property, plant and equipment
Changes in the carrying amount of property, plant and equipment and accumulated depreciation for the years ended
December 31, 2019 and 2018 are analysed in the following tables.
Cost as at December 31, 2017
Additions
Disposals
Effect of translation adj.
Cost as at December 31, 2018
Additions
Disposals
Reclassifications
Effect of translation adj.
Cost as at December 31, 2019
Machinery
and
equipment
Land
and
buildings
169,273 132,240
2,320
(7,905)
(301)
646
(27)
153
170,045 126,354
1,510
(522)
183
(60)
560
(3)
—
213
Office
furniture
and
equipment
Retail
gallery
and store
furnishing
15,412
365
(725)
27
15,079
126
(114)
—
32
32,586
881
(20,329)
356
13,494
285
(4)
—
(43)
Leasehold
improvements
Constr.
in
progress
Total
272 369,233
19,450
660 7,160
2,288
(917) — (29,903)
130
(20)
(85)
20,736
1,671
912 346,620
38 4,190
(643)
(728) —
598
— —
545
423
33
170,815 127,465
15,123
13,732
23,375
255 350,765
F - 37
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Accumulated depreciation as
at December 31, 2017
Depreciation
Disposals
Effect of translation adj.
Accumulated depreciation as
at December 31, 2018
Depreciation
Disposals
Effect of translation adj.
Accumulated depreciation as
at December 31, 2019
Land
and
buildings
Machinery
and
equipment
Office
furniture
and
equipment
Retail
gallery
and store
furnishing
Leasehold
improvements
Constr.
in
progress
Total
(81,888) (114,485)
(3,381)
7,588
484
(4,018)
23
(100)
(14,252)
(204)
369
4
(31,821)
(140)
20,060
(357)
(11,597) — (254,043)
(2,411) — (10,154)
501 — 28,541
122
91 —
(85,983) (109,794)
(3,221)
462
(1,120)
(3,984)
—
(2,338)
(14,083)
(381)
112
66
(12,258)
(535)
3
(206)
(13,416) — (235,534)
(2,848) — (10,969)
577
(2,316)
— —
1,282 —
(92,305) (113,673)
(14,286)
(12,996)
(14,982) — (248,242)
Net book value as at December 31, 2017
87,385
17,755
1,160
765
7,853
272 115,190
Net book value as at December 31, 2018
84,062
16,560
Net book value as at December 31, 2019
78,510
13,792
996
837
1,236
7,320
912 111,086
736
8,393
255 102,523
Annual rate of depreciation for
2019 and 2018
0%-10% 10%-25% 10%-20% 25%-35% 10%-20% —
As at December 31, 2019, properties with a carrying amount of 47,865 (as at December 31, 2018 26,932) are subject to
registered mortgages to guarantee the long-term borrowings (see note 19).
The following tables show property, plant and equipment by country.
Italy
Romania
United States of America
Brazil
China
Europe
Other countries
Total
31/12/19
31/12/18
57,035 61,271
19,831 23,406
17,800 17,830
4,250 4,552
2,334 2,562
1,260 1,463
2
13
102,523 111,086
As at December 31, 2019 and 2018, the carrying amount of property, plant and equipment not in use is of 10,468 and 10,795,
respectively. The Company plans to sell such assets in the next years.
In 2019 and 2018, the Company performed an impairment test in accordance with its accounting policy over those property,
plant and equipment for which events and changes in circumstances indicated that the carrying amount of certain assets or Cash
Generating Units (CGUs) may not be recoverable.
For property, plant and equipment in use, the Company determined the recoverable amount as value in use using the discounted
cash flow method, at the lowest level for which identifiable cash flows are independent of other cash flows, and compared it
with the carrying value. Cash flow projections have been derived from the budget approved by the Board of Directors. Forecasts
have been developed taking into consideration the track records of actual results reported by the Company.
F - 38
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
For property, plant and equipment not in use, the fair value less costs to sell was estimated through independent third-party
appraisals, which assessed the fair value of land and buildings using the comparable market method and assessed the fair value
of machinery and equipment using the depreciated replacement cost method, adjusted for an obsolescence rate and a
marketability rate.
As a result of the 2019 and 2018 impairment review of the Company’s property, plant and equipment, no impairment losses
have emerged.
9
Right-of-use-assets
The Group leases buildings for its retail stores, warehouses and factory facilities. These leases typically run for a period of five
to ten years. Some leases include an option to renew the lease for an additional period of the same duration after the end of the
contract term. Some of such leases provide for additional rent payments that are based on changes in local price indices. For
certain of these leases, the Group is restricted from entering into any sub-lease arrangements. Retail stores, warehouse and
factory facilities leases were entered into several years ago. Previously, these leases were classified as operating leases under
IAS 17.
The Group leases vehicles under a number of leases, which were classified as operating lease under IAS 17. The contract lease
term of such leases run for a period of two to four years.
The Group leases also IT and office equipment with contract terms of one to three years. These leases are short-term and/or
leases of low-value items. The Group has elected not to recognise right-of-use assets and lease liabilities for these leases.
Some property leases contain extension options exercisable by the Group up to one year before the end of the non-cancellable
contract period. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility.
The extension options held are exercisable only by the Group and not by the lessors. The Group assesses at lease
commencement date whether it is reasonably certain to exercise the extension options. The Group reassesses whether it is
reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control.
The Group has estimated that the potential future lease payments, should it exercise the extension option, would result in an
increase in lease liability of 20,709.
In 2019 the Company performed an impairment test in accordance with its accounting policy over those right-of-use assets for
which events and changes in circumstances indicated that the carrying amount of the CGU may not be recoverable. The
Company determined the recoverable amount as value in use using the discounted cash flow method, at the lowest level for
which identifiable cash flows are independent of other cash flows, and compared it with the carrying value. Cash flow
projections have been derived from the budget approved by the Board of Directors. Forecasts have been developed taking into
consideration the track records of actual results reported by the Company. As a result of such impairment review of the Group’s
right-of-use assets no impairment losses emerged.
Information about leases for which the Group is a lessee is presented below.
F - 39
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(i) Right-of-use assets
Cost as at January 1, 2019
Additions
Effect of translation adjustments
Cost as at December 31, 2019
Accumulated depreciation as at January 1, 2019
Depreciation
Effect of translation adjustments
Accumulated depreciation as at December 31, 2019
Net book value as at January 1, 2019
Net book value as at December 31, 2019
Buildings
55,159
10,786
922
Vehicles
Total
639 55,798
395 11,181
925
3
66,867 1,037 67,904
—
(12,926)
42
(12,884)
—
—
(301) (13,227)
41
(302) (13,186)
(1)
55,159
639
55,798
53,983
735
54,718
(ii) Amounts recognized in profit or loss under IFRS 16 for the year ended December 31, 2019
Depreciation charge of right-of-use assets
Interest on lease liabilities
Expenses relating to short-term leases
Expenses relating to leases of low-value assets, excluding short-term leases of low-value
Total
13,227
2,635
1,090
132
17,084
(iii) Amounts recognized in profit or loss under IAS 17 for the years ended December 31, 2018 and 2017
Lease expenses recognised in profit or loss under IAS 17 for the years ended December 31, 2018 and 2017 amount to 17,705
and 17,215, respectively.
(iv) Amounts recognized in statement of cash flow for the year ended December 31, 2019
Lease payments recognised in statement of cash flows for the year ended December 31, 2019 amount to 14,251 and include
interests paid for 2,291 (see note 20).
10
Intangibles assets and goodwill
Changes in the carrying amount of intangible assets, goodwill, and accumulated amortization for the years ended December 31,
2019 and 2018 are analysed in the following tables.
F - 40
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Cost as at December 31, 2017
Additions
Disposals
Effect of translation adjustments
Cost as at December 31, 2018
Additions
Disposals
Effect of translation adjustments
Cost as at December 31, 2019
Accumulated amortization as at December 31, 2017
Amortisation
Disposals
Effect of translation adjustments
Accumulated amortization as at December 31, 2018
Amortisation
Disposals
Effect of translation adjustments
Accumulated amortization as at December 31, 2019
Net book value as at December 31, 2017
Net book value as at December 31, 2018
Net book value as at December 31, 2019
Trademarks
patents and
other
Software
Goodwill
Total
13,896 28,926 3,846 46,668
880
(45)
82
711
(42)
22
169
(3)
(41)
—
—
101
14,021 29,617 3,947 47,585
913
—
127
847
—
7
—
—
121
66
—
(1)
14,086 30,471 4,068 48,625
— (40,831)
(13,579) (27,252)
(910)
—
(752)
43
—
42
5
—
(22)
(158)
1
27
(13,709) (27,984)
(767)
—
(219)
(150)
—
225
— (41,693)
(917)
—
—
—
6
—
(13,634) (28,970)
— (42,604)
317 1,674 3,846 5,837
312 1,633 3,947 5,892
452 1,501 4,068 6,021
Goodwill in the amount of 2,147 is related to the 2017 acquisition of a Natuzzi Mexico franchisee by the subsidiary Natmex
S.DE.R.L.DE.C.V., as previously commented in note 7, and additionally in the amount of 1,921 is related to the 2016
acquisition of four “Divani&Divani by Natuzzi” stores, located in the North East of Italy. The latter acquisition was performed
with a related party at arm’s length conditions.
Impairment tests have been performed on goodwill in 2019 and 2018. No impairment loss has been recorded as a result of the
tests performed.
The key inputs and assumptions that were used in performing the 2019 and 2018 impairment tests for goodwill are as follows.
December
31, 2019
CGU
Italy – retail stores
Mexico – retail stores
Total goodwill
Net book value
after impairment test
1,921
2,147
4,068
Growth
rate
1.0%
3.4%
WACC
9.05%
13.92%
Sales
CAGR
2020-2024
8.5%
9.3%
F - 41
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
December 31, 2018
CGU
Italy – retail stores
Mexico – retail stores
Total goodwill
Net book value
after impairment test
1,921
2,026
3,947
Growth
rate
0.5%
0.5%
WACC
11%
18%
Sales
CAGR
2019–2023
6%
8.5%
Further, the cash flows included specific estimates for five years and a terminal growth rate thereafter. Cash flows projections
have been derived from the budget approved by the Board of Directors. The estimated recoverable amount of each CGU
significantly exceeded its carrying amount.
Research and development costs recognised as an expense for the years ended December 31, 2019, 2018 and 2017 amount to
3,700, 3,362 and 4,508, respectively.
11 Equity-method investees
Changes in the carrying amount of equity-method investees for the years ended December 31, 2019 and 2018 are analysed as
follows.
Balance as at December 31, 2017
Acquisition of non-controlling interests
Elimination of intercompany profit
Share of profit/(loss) for the year
Share of other comprehensive income
Effect of translation adjustments
Balance as at December 31, 2018
Share of profit for the year
Share of other comprehensive income
Balance as at December 31, 2019
Other
Salena
S.r.l.
Nars
Miami
LLC
Natuzzi
Trading
Shanghai
Total
—
79
45 —
48,024 — — — 48,024
(7,350) — — — (7,350)
(290)
(246)
3
(34)
(295)
(246) — — —
3 — —
39 —
—
34
40,133
992
111 — — —
87 — — 40,220
19 — — 1,011
111
41,236
106
—
—
41,342
As at December 31, 2019 and 2018 equity-method investees mainly include: (a) the 49% remaining stake in Natuzzi Trading
Shanghai; (b) the 49% stake in Nars Miami LLCC; (c) the 49% interest in Salena S.r.l., whose carrying value was totally
impaired in 2014 in consideration of some legal disputes among shareholders.
All such investments are accounted for using the equity method.
(i) Disclosures on Natuzzi Trading (Shanghai) Co. Ltd., Joint Venture of Natuzzi S.p.A.
On March 22, 2018, the Company signed a Joint Venture Agreement and a Share Purchase Agreement with Kuka Group
(Kuka), a leading distributor of upholstered furniture in China. Such agreements, which aim to expand the Company’s retail
network on the Chinese market, provide for an investment by Kuka in the Group of 65,000, of which: (a) a 35,000 capital
injection into the subsidiary Natuzzi Trading (Shanghai) Co. Ltd. (Natuzzi Trading Shanghai), increasing the share capital of the
latter, in exchange for a 27.46% interest; and (b) 30,000 for the purchase of an additional 23.54% interest in the subsidiary,
Natuzzi Trading Shanghai, which is owned by Natuzzi.
F - 42
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Such agreements were finally completed on July 27, 2018, after obtaining the necessary authorizations and approvals. Following
such agreements, the Company and Kuka own, respectively, a 49% and a 51% interest in Natuzzi Trading Shanghai.
Both the Joint Venture Agreement and the Share Purchase Agreement incorporated some conditions precedent, including:
(a) the stipulation of a license contract between Natuzzi and Kuka for the use of the exclusive and permanent rights to Natuzzi
trademarks, for a total consideration of 15,000; (b) the stipulation of the distribution contracts between Natuzzi and Kuka, in
accordance with which Natuzzi Trading Shanghai is to exclusively distribute Natuzzi Italia and Natuzzi Editions branded
products, to be purchased mainly by Natuzzi Group, through a network of directly-operated single-brand stores and franchises in
China, as well as through online stores. Such contract was signed on March 22, 2018 and became effective on July 27, 2018.
Following the transaction, Natuzzi lost control over its former subsidiary Natuzzi Trading Shanghai, reducing its shareholding to
49%. At the date of loss of control, July 27, 2018, based on IFRS 10 paragraphs 25 and B98 of the Application Guidance, the
Company has: (a) derecognised assets and liabilities of Natuzzi Trading Shanghai at their carrying amounts (net assets
amounted to 2,613) at the date of loss of control; (b) recognised the fair value of the consideration received from Kuka of 30,000
for the transfer of a 23.54% interest in Natuzzi Trading Shanghai; (c) recognised the 49% retained interest in Natuzzi Trading
Shanghai at its fair value, amounting to 48,024, at the date of the loss of control; (d) reclassified to profit or loss all the amounts
recognised in other comprehensive income of Natuzzi Trading Shanghai; (e) recognised the resulting difference as a gain in the
consolidated statement of profit or loss, in the amount of 75,411.
The fair value of the retained interest in Natuzzi Trading Shanghai, amounting to 48,024, has been estimated by applying a
discounted earnings technique, and is based on significant inputs that are not observable in the market (level 3). The fair value
estimate is based on an assumed discount rate of 14.25% and a terminal value, calculated assuming a nil growth rate.
The cash consideration paid by Kula Group, amounting to 65,000, for the acquisition of the 51% stake in Natuzzi Trading
Shanghai reflects the strategic factors associated with applicable synergies in relation to market, products and distribution for
such counterparty. Since those factors were deemed to be specific to the counterparty, the Company has determined appropriate
to estimate the fair value of the retained investment in Natuzzi Trading Shanghai upon the results of a third-party independent
appraisal. The fair value was estimated in the amount of 48,024 and has appropriately taken into consideration the sensitivity
factors included in the appraisal.
The fair values of the identifiable assets and liabilities of Natuzzi Trading Shanghai as at the date control was lost were the
following:
F - 43
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Assets
Property, plant and equipment
Intangible assets
Other non-current assets
Deferred tax assets
Inventories
Trade receivables
Other current receivables
Restricted cash for capital contribution
Cash and cash equivalents
Total assets (a)
Liabilities
Deferred tax liabilities
Trade payables
Other payables
Liabilities for current income tax
Total liabilities (b)
Total identifiable net assets at fair value c = (a-b)
49% interest measured at fair value (c x 49%)
Goodwill arising on the transaction
Fair value of the retained 49% interest
Details of the net cash flows deriving from the transaction are as follows:
Cash received for the disposal of the 23.54% interest
Chinese withholding tax
Cash and cash equivalents of Natuzzi Trading Shanghai
Net cash flows as per cash flows statement
541
9,397
271
167
851
243
388
35,000
4,886
51,744
2,349
992
3,710
31
7,082
44,662
21,884
26,140
48,024
30,000
(2,958)
(4,886)
22,156
Until the date control was lost, Natuzzi Trading Shanghai contributed 13,500 of revenue and 1,603 to profit before tax of the
Group.
As at December 31, 2019 and 2018, the investment retained by Natuzzi in Natuzzi Trading Shanghai is therefore accounted for
using the equity method.
The following table shows the reconciliation of the fair value of the retained interest in Natuzzi Trading Shanghai at the date of
loss of control with the carrying amount as at December 31, 2018 included in the consolidated statement of financial position.
F - 44
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Fair value at the date of loss of control
Elimination of intercompany profit from licensing Natuzzi trademarks
Group’s share of profit for the year
Elimination of amortisation of Natuzzi’s trademarks
Elimination of intercompany profit on inventories
Amortisation of intangibles assets
Reversal of deferred tax liabilities
Group’s share of loss for the year, net of equity method adjustments
Group’s share of other comprehensive income
Carrying amount as at December 31, 2018
48,024
(7,350)
311
153
(597)
(216)
54
(295)
(295)
(246)
40,133
The elimination of the intercompany profit from licensing Natuzzi’s trademarks refers to the stipulation of a license contract
between the Company and Natuzzi Trading Shanghai for the use of the exclusive and perpetual rights to Natuzzi’s trademarks
for a cash consideration of 15,000. The Company concluded that such revenue from licensing its trademarks to Natuzzi Trading
Shanghai has to be recognised over time as the transaction satisfies all the criteria in IFRS 15 B58 (“license with the right to
access”) and to the extent of the unrelated investor’s (i.e., Kuka’s) interest in Natuzzi Trading Shanghai. Therefore, the
Company while applying the equity method has eliminated the 49% intercompany profit arising from this transaction, in the
amount of 7,350. Further, the Company has recorded the deferred revenue of 7,650 under contract liabilities (see note 22) and
such amount will be recognised in profit or loss over the useful life of the licensed trademarks.
The following table shows the reconciliation of the carrying amount of the retained interest in Natuzzi Trading Shanghai as at
December 31, 2018 with the carrying amount as at December 31, 2019 included in the consolidated statement of financial
position.
Carrying amount as at December 31, 2018
Group’s share of profit for the year
Elimination of amortisation of Natuzzi’s trademarks
Elimination of intercompany profit on inventories
Amortisation of intangibles assets
Reversal of deferred tax liabilities
Group’s share of profit for the year, net of equity method adjustments
Group’s share of other comprehensive income
Carrying amount as at December 31, 2019
40,133
1,684
368
(671)
(519)
130
992
992
111
41,236
Summarised financial information of the Joint Venture Natuzzi Trading Shanghai, based on its IFRS financial statements, and
reconciliation with the carrying amount of the Group’s share in equity and in profit or loss as reported in the consolidated
financial statements are set out below.
F - 45
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Summarised statement of financial position of Natuzzi Trading Shanghai and Group’s share in equity as at
December 31, 2019 and 2018
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity
Group’s share in equity – 49%
Intangible assets
Goodwill
Elimination of intercompany profit from licensing Natuzzi’s trademarks
Elimination of intercompany profit on inventories
Deferred tax liabilities
Group’s carrying amount of the investment
31/12/19
48,910
23,166
(25,663)
(5,004)
41,409
20,290
3,870
26,140
(6,829)
(1,268)
(967)
41,236
31/12/18
42,288
15,785
(20,328)
—
37,745
18,495
4,389
26,140
(7,197)
(597)
(1,097)
40,133
As at December 31, 2019 and 2018 cash and cash equivalents, bank overdrafts and borrowings, lease liabilities current and non-
current are set out below.
Cash and cash equivalents
Bank overdrafts and borrowings
Lease liabilities current
Lease liabilities non-current
Total, net
31/12/19
37,049
—
(1,982)
(5,004)
30,063
31/12/18
32,845
(360)
—
—
32,485
Summarised statement of profit or loss of Natuzzi Trading Shanghai and Group’s share of profit for the year ended
December 31, 2019 and for the period July 27, 2018 – December 31, 2018
Revenue
Cost of sales
Other income and expenses, net
Selling expenses
Administrative expenses
Net finance income
Profit before tax
Income tax expense
Profit for the period
Other comprehensive profit/(loss)
Total comprehensive profit for the period
Group’s share of profit for the period – 49%
Elimination of amortisation of Natuzzi’s trademarks
Elimination of intercompany profit on inventories
Amortisation of intangible assets
Deferred tax liabilities
Group’s share of profit/(loss) for the period, net of equity method adj.
Group’s share of other comprehensive income/(loss) for the period
Group’s share of total comprehensive income/(loss) for the period
F - 46
2019
2018
52,714 13,836
(33,754) (8,197)
919
41
(13,570) (5,141)
(632)
(1,883)
1,194
350
4,742 1,135
(500)
(1,304)
635
3,438
(503)
227
132
3,665
311
1,684
153
368
(597)
(671)
(216)
(519)
54
130
(295)
992
(246)
111
(541)
1,103
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
For the year ended December 31, 2019 depreciation and amortization, interest income, interest expense and income tax expense
amount to 2,916, 1,419, 257 and 1,304, respectively.
For the 5 months period ended December 31, 2018 depreciation and amortisation, interest income, interest expense and income
tax expense amount to 427, 356, 13 and 500, respectively.
(ii) Disclosures on Nars Miami LLCC
Nars Miami LLCC is engaged in the sale of the Group’s upholstery furniture and home furnishings accessories to end
customers, under a franchisee agreement. The principal place of business of such associate is in Miami, Florida (USA).
12 Other non-current receivables
Other non-current receivables consist of the following:
Security deposits for lease contracts
Receivable from disposal of assets
Total
31/12/19
31/12/18
3,920 3,984
549
599
4,519 4,533
The receivable from extraordinary disposal of assets is the long-term portion of receivables derived from the sale of the security
and doorkeeping services branch to a third-party which occurred in 2014.
13 Other assets (non-current and current)
Other assets are analysed as follows:
Advances to suppliers
Deferred costs for Natuzzi Display System
Deferred costs for slotting fees
Delivery and commission costs for sales derecognised
Deferred costs for Service-Type Warranty
Prepaid expenses and accrued income
Total other assets
Less current portion
Non-current portion
31/12/19
31/12/18
4,507 3,471
2,580 2,617
1,951 1,922
2,302 1,839
389
452
408 1,165
12,137 11,466
(9,241) (8,107)
2,896 3,359
“Advances to suppliers” represent advance payments for raw materials, services and general expenses.
“Deferred costs for Natuzzi Display System” refer to the deferred costs incurred by the Company to purchase store fittings,
which are then sold to retailers and used to set up their stores (“Natuzzi Display System” – NDS). Such costs are recognised
over the life of the distribution contract signed with the retailer (usually five years).
“Deferred costs for slotting fees” refer to contributions made by the Company to retailers to prepare the retailer’s system to
accept and sell the Group’s products. Such fees are recognised over the life of the contract signed with the retailers (usually five
years).
F - 47
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
“Delivery and commission costs for sales derecognised” are related to the deferral of shipping and handling costs and
commission expenses for finished goods that had not been delivered at year-end.
“Deferred costs for Service-Type Warranty” refer to the deferral of costs incurred by the Company for the sale of a service-type
warranty to end customers, considering that this insurance is provided by a third-party. Such costs are recognised over the life of
the contractual insurance period, which is five years.
14
Inventories
Inventories are analysed as follows:
Leather and other raw materials
Goods in process
Finished goods
Total
31/12/19
24,088
8,800
36,797
69,685
31/12/18
30,568
10,815
42,844
84,227
The following tables summarise the changes to the provision for slow moving and obsolete raw materials and finished goods
included in inventories for the years ended December 31, 2019 and 2018.
Balance at beginning of year
Additions
Reductions
Balance at end of year
There are no pledged inventories that could be limited in their availability.
15 Trade receivables
Trade receivables by geographic region are analysed as follows:
Domestic customers
European customers
North American customers
South American customers
Chinese customers
Other foreign customers
Gross trade receivables
Allowance for doubtful accounts
Total trade receivables
31/12/19
9,341
2,892
(378)
11,855
31/12/18
8,464
1,564
(687)
9,341
31/12/19
14,401
4,348
4,986
5,703
4,055
4,393
37,886
(8,699)
29,187
31/12/18
20,247
7,815
3,573
3,531
7,233
8,195
50,594
(9,627)
40,967
Trade receivables are due primarily from distributors and retailers who sell directly to end customers.
Trade receivables due from related parties amount to 5,235 as at December 31, 2019 (9,333 as at December 31, 2018).
Transactions with related parties are conducted at arm’s length (see note 43).
F - 48
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
As at December 31, 2019 and 2018 and for each year of the two-year period ended December 31, 2019, the Group had
customers who exceeded 5% of trade receivables as follows:
Year
2019
2018
No. of customers
—
2
% of trade receivables
—
21%
In 2019, 2018 and 2017 no customer has exceeded 5% of revenue.
The following tables provide the movements in the allowance for doubtful accounts for the years ended December 31, 2019 and
2018.
Balance at beginning of year
Effect of the adoption of IFRS 9 (see note 5(C))
Charges – bad debt expense
Reductions – write off of uncollectible amounts
Balance at end of year
31/12/19
31/12/18
9,627 10,775
37
—
2,389
745
(3,317) (1,930)
8,699
9,627
Information about the Group’s exposure to credit risk and impairment losses for trade receivables is included in note 30(C)(ii-a).
Trade receivables denominated in foreign currencies as at December 31, 2019 and 2018 amount to 19,807 and 26,490,
respectively.
16 Other current receivables
Other current receivables are analysed as follows:
VAT
Receivables from National Institute for Social Security
Other
Total
31/12/19
3,939
2,004
1,780
7,723
31/12/18
4,217
1,533
3,757
9,507
The “VAT” receivables include value added taxes and related interest reimbursable to the various companies of the Group.
While currently due at the reporting date, the collection of the VAT receivable may extend over a maximum period of up to two
years.
The “Receivables from National Institute for Social Security” represent the amounts anticipated by the Company on behalf the
governmental institute related to salaries for those employees subject to temporary work force reduction.
The “Other” caption primarily includes certain receivables related to green incentives for photovoltaic investment.
17 Cash and cash equivalents
Cash and cash equivalents are analysed as follows:
F - 49
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Cash on hand
Bank accounts
Total
31/12/19
31/12/18
439
39,611 61,692
188
39,799 62,131
As at December 31, 2019 the Chinese subsidiary Italsofa Shanghai Ltd has a deposit of 13,090 with a domestic bank. The
remittance of such cash to the Parent in Italy could take 3 to 4 months due to the local requirements that need to be complied
with before this can take place.
Cash and cash equivalents denominated in foreign currencies as at December 31, 2019 and 2018 amount to 36,031 and 49,413,
respectively. Furthermore, the following tables show the Group’s cash and cash equivalents broken-down by region.
Europe
China
North America
South America
Other
Total
31/12/19
31/12/18
21,168 40,479
16,572 18,290
1,317 2,857
318
187
575
167
39,799 62,131
For the purpose of the statement of cash flows, cash and cash equivalents comprise the following:
Cash and cash equivalents in the statement of financial position
Bank overdrafts repayable on demand
Cash and cash equivalents in the statement of cash flows
31/12/19
39,799
(1,974)
31/12/18
62,131
(1,762)
37,825
60,369
31/12/17
55,035
—
55,035
Bank overdrafts repayable on demand form an integral part of the Group’s cash management.
18
Share capital, reserves and retained earnings
As at December 31, 2019, 2018 and 2017 the equity attributable to owners of the Company is analysed as follows:
Share capital
Reserves
Retained earnings
Total
31/12/19
54,853
17,147
31,126
31/12/18
54,853
17,198
64,496
31/12/17
54,853
16,398
31,244
103,126
136,547
102,495
As at December 31, 2019 and 2018, the Company’s share capital, which is totally authorized and issued, is composed of
54,853,045 ordinary shares with par value of Euro 1 each, for a total of 54,853.
Ordinary shareholders have the right to receive dividends, as approved by shareholders’ meetings, and to express one vote per
each share owned.
Share capital is owned, as at December 31, 2019, 2018 and 2017, as follows:
F - 50
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Mr. Pasquale Natuzzi
Mrs. Anna Maria Natuzzi
Mrs. Annunziata Natuzzi
Other investors
Total
An analysis of “Reserves” is as follows:
Legal reserve
Majority shareholder capital contribution
Foreign operations translation reserve
Remeasurement of defined benefit plan
Total
31/12/19
56.5%
2.6%
2.5%
38.4%
31/12/18
56.5%
2.6%
2.5%
38.4%
31/12/17
56.5%
2.6%
2.5%
38.4%
100.0% 100.0% 100.0%
31/12/19
31/12/18
31/12/17
10,971 10,971 10,971
488
5,846 5,282 5,055
(116)
(158)
457
488
488
17,147 17,198 16,398
The “Legal reserve” is connected to the requirements of the Italian law, which provide that 5% of net income of the Parent
Company is retained as a legal reserve, until such reserve is 20% of the issued share capital. The legal reserve may be utilized to
offset losses; any portion which exceeds 20% of the issued share capital is distributable as dividends. The legal reserve totaled
10,971 as at December 31, 2019, 2018 and 2017.
The “Majority shareholder capital contribution” is one of the Parent Company’s reserves, which is restricted for capital grants
received.
The “Foreign operations translation reserve” relates to the translation of foreign subsidiaries’ financial statements for those
subsidiaries which have assessed their functional currency being different from Euro.
The “remeasurement of defined benefit plan” refers to the calculation of the present value of the employees’ leaving entitlement
at each reporting date, in compliance with applicable regulations and adjusted to take into account actuarial gains or losses. In
particular, such actuarial gains or losses are reported in OCI (see note 4 (q)).
The disaggregation of changes of OCI by each type of reserve in equity is shown in the tables below.
Year ended December 31, 2019
Exchange difference on translation of foreign operations
Share of OCI of equity-method investees
Actuarial losses on employees’ leaving entitlement
Total
Year ended December 31, 2018
Exchange difference on translation of foreign operations
Share of OCI of equity-method investees
Actuarial gains on employees’ leaving entitlement
Total
Foreign operations
translation reserve
Remeasurement of
defined benefit plan Total
475
111
—
586
— 475
— 111
(615) (615)
(615) (29)
Foreign operations
translation reserve
Remeasurement of
defined benefit plan Total
— 497
— (246)
573 573
497
(246)
—
251
573 824
F - 51
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Year ended December 31, 2017
Exchange difference on translation of foreign operations
Actuarial gains on employees’ leaving entitlement
Total
Foreign operations
translation reserve
Remeasurement of
defined benefit plan
Total
(7,778)
—
(7,778)
— (7,778)
116 (116)
116 (7,894)
The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain
future development of the business. Management monitors the return on capital, as well as the level of dividends to ordinary
shareholders.
The Group monitors capital using a ratio of “net debt” to “equity”. Net debt is calculated as total liabilities (as shown in the
consolidated statement of financial position) less cash and cash equivalents. Equity comprises all components of equity. The
Group’s policy is to keep the ratio below 2.20.
The Group’s net debt to equity ratio as at December 31, 2019 and 2018 is as follows:
Total liabilities
Less cash and cash equivalents
Net debt (a)
Total equity (b)
Net debt to equity ratio (a/b)
19 Long-term borrowings
Long-term borrowings as at December 31, 2019 and 2018 consist of the following:
6-months Euribor (360) plus a 3.9% spread long-term debt with final payment due August 2019
6-months Euribor (360) plus a 2.5% spread long-term debt with final payment due August 2021
3-months Euribor (360) plus a 4% spread long-term debt with final payment due June 2021
6-months Euribor (360) plus a 2.9% spread long-term debt with final payment due December 2020
3-months Euribor (360) plus a 2.2% spread long-term debt with final payment due February 2022
3-months Euribor (360) plus a 3.5% spread long-term debt with final payment due March 2022
3-months Euribor (360) plus a 1.9% spread long-term debt with final payment due November 2022
2.3% fixed long-term debt with final payment due July 2025
0.210% fixed long-term debt with final payment due December 2030
80% of 6-months Euribor (360) plus a 0.95% spread long-term debt with final payment due Jan. 2035
Total long-term debt
Less current installments
Long-term borrowings, excluding current installments
31/12/19
31/12/18
264,576 234,527
(39,799) (62,131)
224,777 172,396
104,818 138,181
1.25
2.14
31/12/19
31/12/18
893
—
4,601 6,631
1,500 2,500
83
628
1,125 1,625
42
428
1,191 1,583
6,075 7,000
3,105 —
345 —
18,412 20,943
(4,321) (10,582)
14,091 10,361
In August 2014, the Company incurred long-term debt for a 5,000 nominal amount with installments payable on a monthly
basis. The final payment occurred in August 2019. This loan was collateralized by a mortgage on the properties located in
Matera (Italy), for an amount of 10,000.
F - 52
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
A loan of nominal 10,000 was incurred in 2015 by the Romanian subsidiary. The loan was payable on a monthly basis starting
from August 2015. In August 2017 and July 2019, the subsidiary negotiated a rescheduling of the loan’s repayment with the
bank. In particular, the loan, remaining at year-end in the amount of 4,601 is due by August 2021, and the new amortization
schedule provides for 19 monthly installments of 103 and a lump sum repayment of 2,644, due on maturity. The loan is
guaranteed by a mortgage on the Romanian plant for an amount of 16,628, and is subject to the following covenants: (a) cash
receipts >= 60% turnover; (b) earnings before interest, taxes, depreciation and amortization (EBITDA) >= 4.5%; (c) net
debt/EBITDA <= 3; (d) debt service cover ratio >= 1.35.
In 2015 the Company incurred long-term debt for nominal amount of 5,000 with installments payable on a quarterly basis and
with final payment due in June 2021. This long-term floating-rate debt, of which 1,500 remains at year-end, provides variable
installments depending on the 3-months Euribor (360) plus a 4% spread. This loan is guaranteed by mortgage on the properties
located in Matera and Altamura (Italy) for a total amount of 10,000, and is subject to financial covenants, which are measured at
year-end as follows: (a) net financial position/earnings before interest, taxes, depreciation and amortization (EBITDA) <= 2.0;
(b) net financial position/equity <= 0.25.
In 2015, one of the Italian subsidiaries incurred long-term debt for a 200 nominal amount with installments payable on a
monthly basis and with final payment due December 2020. The interest rate is based on the 6-month Euribor (360) plus a 2.9%
spread. This loan, of which 42 remains at year-end, is guaranteed by a mortgage on some Italian properties for a total amount of
300.
In 2017, one of the Italian subsidiaries incurred long-term debt for a 1,000 nominal amount, with installments payable on a
monthly basis and with final payment due February 2022. This long-term floating-rate debt, of which 428 remains at year-end,
provides variable installments depending on the 3-months Euribor (360) plus a 2.2% spread.
In January 2017, the Company incurred long-term debt for a 2,500 nominal amount with installments payable on a quarterly
basis and with final payment due March 2022. This long-term floating-rate debt, of which 1,125 remains at year-end, provides
variable installments depending on the 3-months Euribor (360) plus a 3.5% spread, and is subject to financial covenants, which
are measured at year-end as follows: (a) net financial position/earnings before interest, taxes, depreciation and amortization
(EBITDA) <= 2.0; (b) net financial position/equity <= 0.25.
In November 2017, the Company incurred long-term debt for a 2,000 nominal amount with installments payable on a monthly
basis and with final payment due November 2022. This long-term floating-rate debt, of which 1,191 remains at year-end,
provides variable installments depending on the 3-months Euribor (360) plus a 1.9% spread.
In July 2017, the Company incurred long-term fixed rate debt for a 7,000 nominal amount with installments payable on a
monthly basis and with final payments due July 2025. This long-term fixed-rate debt, of which 6,075 remains at year-end, is
assisted by a mortgage on the properties located in Matera (Italy) for an amount of 14,000.
In December 2019, the Company incurred long-term debt for a 4,181 nominal amount with installments payable on semi-annual
basis and with final payment due December 2030. This long-term fixed-rate debt, of which 3,105 remains at year-end, is
guaranteed by a mortgage on the properties located in Ginosa, Laterza and Santeramo in Colle (Italy) for a total amount of
13,936.
In December 2019, one of the Italian subsidiaries incurred long-term debt for a 435 nominal amount with installments payable
on semi-annual basis and with final payment due January 2035. This long-term floating-rate debt, of which 345 remains at year-
end, provides variable installments depending on the 80% of 6-months Euribor (360) plus 0.95% spread. Such loan is
guaranteed by a mortgage on the properties located in Pozzuolo del Friuli (Italy) for a total amount of 3,000.
F - 53
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
During 2019 and 2018, the Company made all installment payments related to the aforementioned long-term borrowings.
Interest expense related to long-term borrowings for the years ended December 31, 2019, 2018 and 2017 is 454, 636 and 738,
respectively. Interest due is paid with the related installment.
20 Lease liabilities (non-current and current)
The non-current and current portion of the lease liabilities as at December 31, 2019 is as follows:
Non-current portion of the lease liabilities
Current portion of the lease liabilities
Total
46,053
11,314
57,367
Changes in the carrying amount of the lease liabilities for the year ended December 31, 2019 is reported in the following table.
Balance as at January 1, 2019
Additions for new leases
Interest expenses
Lease payments
Effect of translation adjustments
Balance as at December 31, 2019
56,758
11,544
2,291
(14,251)
1,025
57,367
As at December 31, 2019 the incremental borrowing rate is within the range of 3% and 12%.
The maturity analysis of the contractual undiscounted cash flows of the lease liabilities as at December 31, 2019 is reported in
the table below.
Less than one year
One to five years
More than five years
Total undiscounted lease liabilities as at December 31, 2019
13,928
36,540
17,760
68,228
As at December 31, 2019 lease liabilities denominated in foreign currencies amount to 38,844.
21 Employees’ leaving entitlement
Changes to employees’ leaving entitlement occurring during 2019 and 2018 are analysed as follows:
Balance at beginning of year
Current service cost
Interest expense
Benefits paid
Actuarial gains/(losses)
Balance at end of year
31/12/19
31/12/18
17,181 18,820
148
235
(2,039) (1,449)
(573)
111
253
615
16,121 17,181
F - 54
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
The employees’ leaving entitlement refers to a defined benefit plan provided for by the Italian legislation due and payable upon
termination of employment, assuming immediate separation (see note 4(q)).
The principal assumptions used in determining the present value of such defined benefit obligation (“DBO”) related to the
employee benefit obligation are reported as follows:
Annual discount rate
Annual future salary increase rate
Annual inflation rate
Annual DBO increase rate
Mortality
Inability
Retirement
Annual frequency of turnover
Annual frequency of DBO advances
31/12/19
0.77%
0.00%
1.20%
2.400%
31/12/18
1.57%
0.00%
1.50%
2.625%
RG48 mortality tables published by the General State Accounting
National Institute for Social Security tables, by age and sex
100% upon achievement of AGO requisites
4.00%
2.00%
4.00%
2.00%
A quantitative sensitivity analysis for significant assumptions impacting the DBO as at December 31, 2019 and 2018 is reported
as follows:
+1% on turnover rate
-1% on turnover rate
+0.25% on annual inflation rate
-0.25% on annual inflation rate
+0.25% on annual discount rate
-0.25% on annual discount rate
31/12/19
31/12/18
(68)
75
259
(256)
(402)
417
(111)
123
231
(227)
(360)
373
The sensitivity analysis above has been determined based on a method that extrapolates the impact on the defined benefit
obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity
analysis is based on a change in a significant assumption, keeping all other assumptions constant. Such analysis may not be
representative of an actual change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in
isolation from one another.
The following are the expected payments of the employees’ leaving entitlement in future years:
Within 1 year
Between 2 and 5 years
31/12/19
1,203
3,704
31/12/18
1,065
4,181
The average duration of the defined benefit plan as at December 31, 2019 and 2018 is 10.00 years and 10.63 years, respectively.
22 Contract liabilities (non-current and current)
Contract liabilities as at December 31, 2019 and 2018 consist of the following:
F - 55
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Advance payments from customers
Deferred income from licensing of Natuzzi’s trademarks
Deferred revenue for Natuzzi Display System
Deferred revenue for Service-Type Warranty
Total contract liabilities
Less non-current portion
Current portion
31/12/19
31/12/18
11,821 10,312
7,108 7,491
3,369 3,399
897
805
23,103 22,099
(9,089) (9,934)
14,014 12,165
“Advance payments from customers” are related to considerations received by the Group upon sale of the Group’s products,
and before their delivery to end customers.
“Deferred income from licensing Natuzzi’s trademarks” refers to the deferral of revenue deriving from licensing Natuzzi’s
Trademarks, to the former subsidiary Natuzzi Trading Shanghai, as part of the transaction with Kuka previously described in
note 11. Such revenue, in the amount of 7,108 (net of the elimination of intercompany profit on the transaction), has been
deferred over the useful life (20 years) of the licensed trademarks.
“Deferred revenue for Natuzzi Display System” refers to the deferral of revenue deriving from the sale of store fittings to
retailers, which are used to set up their stores (“Natuzzi Display System” – NDS). Such revenue is recognised over time based
on the length of the distribution contract signed with the retailer (usually five years).
“Deferred revenue for Service-Type Warranty” refers to the deferral of revenue deriving from the sale of a service-type
warranty to end customers, which is recognised over time based on the contractual length of the insurance period (five years).
The amount of revenue recognised for the years ended December 31, 2019, 2018 and 2017 that was included in the opening
contract liabilities balance amounts to 12,165, 12,973 and 10,647, respectively.
23 Provisions (non-current and current)
Provisions as at December 31, 2019 and 2018 consist of the following:
Provision for legal claims
Provision for tax claims
Provision for warranties
Termination indemnities for sales agents
Other provisions
Total provisions
Less current portion
Non-current portion
31/12/19
31/12/18
10,469 10,926
641 1,098
4,489 4,476
1,197 1,141
659 1,337
17,455 18,978
(4,489) (4,476)
12,966 14,502
The provision for legal claims includes the amounts accrued by the Group for the probable contingent liability related to legal
procedures initiated by several third parties as result of past events.
F - 56
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
The provision for tax claims refers to the amounts accrued by the Company for the probable liability that will be paid to settle
some tax claims.
The provision for warranties includes the estimated liabilities for the Group’s obligation to repair or replace faulty products
under the standard assurance warranty terms (see note 4(t)). The warranty claims for the finished product sold are estimated
based on past experience of the level of repairs, faulty products and disputes with customers. The Company expects that these
costs will be incurred mainly in the next financial year. Main assumptions used to calculate the provision for such assurance
type warranty are the warranty period for all products sold, current sales levels and historical information available about
repairs, faulty products and dispute with customers.
The termination indemnities for sales agents refer to termination indemnities, provided for by Italian law, due to the Group’s
agents upon termination of their agreement with the Company or relevant subsidiary.
Changes in the above provisions for the years ended December 31, 2019 and 2018 are analysed as follows:
Balance as at December 31, 2017
Provisions made during the year
Reductions of the year
Balance as at December 31, 2018
Provisions made during the year
Reductions of the year
Balance as at December 31, 2019
Provision
for legal
claims
13,008
1,225
(3,307)
Provision
for tax
claims
1,912
—
(814)
Provision
for
warranties
5,957
1,180
(2,661)
Termination
indemnities
for sales
agents
1,196
177
(232)
Other
Provisions
Total
599 22,672
1,792 4,374
(1,054) (8,068)
10,926
1,941
(2,398)
1,098
267
(724)
4,476
2,370
(2,357)
10,469
641
4,489
1,141
115
(59)
1,197
1,337 18,978
3,905 8,598
(4,583) (10,121)
659 17,455
As at December 31, 2019, the provision for legal claims refers for 9,804 (9,287 as at December 31, 2018) to the probable
contingent legal liability related to legal procedures initiated by 159 workers against the Company for the misapplication of the
social security procedure “CIGS—Cassa Integrazione Guadagni Straordinaria”. According to the “CIGS” procedure, the
Company pays a reduced salary to the worker for a certain period of time based on formal agreements signed with the Trade
Unions and other Public Social parties. In particular, these 159 workers are claiming in the legal procedures that the Company
applied the “CIGS” during the period from 2004 to 2016 without foreseeing any time rotation. In May 2017, the Company
received from the Italian Supreme Court of Justice (“Corte di Cassazione”) an adverse verdict for the above litigation related
only to two workers. Based on this unfavorable verdict, the Company, with the support of its legal counsel, has assessed that the
liability for legal procedures initiated by all the 159 workers is 9,804.
24 Deferred income for government grants
Changes in the carrying amount of deferred income for government grants for the years ended December 31, 2019 and 2018 are
analysed as follows:
Balance at beginning of year
Additions
Credit to profit or loss
Balance at end of year
31/12/19
31/12/18
13,002 13,771
2,493
292
(1,626) (1,061)
13,869 13,002
F - 57
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Government grants are related to benefits the Group obtained in 2019 and previous years from the Italian government as part of
the incentive programs for under-industrialised regions in Southern Italy. They have been received to compensate the Group for
the purchase of certain items of property, plant and equipment and for certain expenses mainly related to research projects.
There are no unfulfilled conditions or contingencies attached to these grants. Deferred income for grants related to property,
plant and equipment are credited to profit or loss on a straight-line basis over the expected lives of the related assets. Deferred
income for grants related to expenses are credited to profit or loss in the periods in which the costs are recognised.
25 Other liabilities (non-current and current)
Other liabilities as at December 31, 2019 and 2018 are analysed as follows:
Advance payments for government grants
Lease incentives
Other
Total
31/12/19
31/12/18
1,069 —
960
—
159
—
1,069 1,119
Advance payments for government grants are related to considerations received by the Parent for government grants obtained
for next years’ purchases of property, plant and equipment and next years’ expenses related to research projects.
Due to adoption of IFRS 16 as at January 1, 2019, lease incentives were reclassified to right-of-use assets (see note 5(A)).
26 Bank overdrafts and short-term borrowings
Bank overdrafts and short-term borrowings as at December 31, 2019 and 2018 are analysed as follows:
Bank overdrafts
Borrowings secured over trade receivables
Borrowings unsecured
Total
31/12/19
1,974
21,029
1,167
24,170
31/12/18
1,762
29,992
3,394
35,148
As at December 31, 2019 and 2018 bank overdrafts and short-term borrowings denominated in foreign currencies amount to 253
and 254, respectively.
The weighted average interest rates on the bank overdrafts and short-term borrowings for the years ended December 31, 2019
and 2018 are as follows:
Bank overdrafts
Borrowings
2019
4.13%
2.55%
2018
4.35%
2.69%
As at December 31, 2019, the unused portion of credit facilities available to the Group, for which no commitment fees are due,
amount to 24,251. Such unused portion is related to a non-recourse factoring agreement for export-related trade receivables
(18,080), borrowings to be secured with trade receivables (3,577) and bank overdrafts (2,594).
F - 58
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
27 Trade payables
Trade payables as at December 31, 2019 and 2018 are analysed as follows:
Invoices received
Invoices to be received
Total
31/12/19
47,402
21,074
68,476
31/12/18
57,325
20,576
77,901
Trade payables mainly represent amounts payable for purchases of goods and services in Italy and abroad, and include 26,065 as
at December 31, 2019 denominated in foreign currencies (29,155 as at December 31, 2018).
Trade payables include amounts due to related parties amounting to 124 and 1,004, respectively as at December 31, 2019 and
2018 (see note 43).
28 Other payables
Other payables as at December 31, 2019 and 2018 are analysed as follows:
Salaries and wages
Social security contributions
Vacation accrual
Withholding taxes on payroll and on others
Other accounts payable
Total
29 Derivative financial instruments
31/12/19
5,412
4,289
3,889
2,059
6,400
22,049
31/12/18
5,085
6,901
6,408
2,379
6,141
26,914
A significant portion of the Group’s net sales and costs are denominated in currencies other than the euro. Consequently, a
significant portion of the Group’s revenue is exposed to fluctuations in the exchange rates between the euro and other
currencies. The Group uses forward exchange contracts (known in Italy as domestic currency swaps) to reduce its exposure to
the risks of short-term declines in the value of its foreign currency denominated revenue. The Group uses such derivative
instruments to protect the value of its foreign currency denominated revenue, and not for speculative or trading purposes.
Despite being entered into such domestic currency swaps with the intent to reduce the foreign currency exposure risk for trade
receivables and expected sales, the Group’s derivative financial instruments do not qualify for being accounted for as hedging
instruments according to IAS 39 and, also, to former applicable Italian GAAP. Therefore, the Company reflects the positive or
negative changes in the fair value of those derivatives through profit or loss in the captions “Net exchange rate gains/(losses)”.
F - 59
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
The tables below summarise in euro equivalent the contractual amounts of forward exchange contracts used to hedge principally
future cash flows from trade receivables and sale orders as at December 31, 2019 and 2018.
British pounds
Euro
U.S. dollars
Canadian dollars
Japanese yen
Australian dollars
Danish kroner
Swedish kroner
Total
31/12/19
31/12/18
16,947 10,612
11,347 11,407
6,347 14,528
1,937 1,300
1,549 2,318
1,280 2,129
751 1,086
265
208
40,366 43,645
The following tables present information regarding the contract amount in euro equivalent amount and the estimated fair value
of all of the Group’s forward exchange contracts. Contracts with net unrealized gains are presented as “assets” and contracts
with net unrealized losses are presented as “liabilities”.
2019
2018
Assets
Liabilities
Total
Contract
amount
10,419
29,947
Unrealised
gains/(losses)
Contract
amount
145 27,459
(772) 16,186
Unrealised
gains/(losses)
218
(320)
40,366
(627) 43,645
(102)
As at December 31, 2019 and 2018, the forward exchange contracts have a net unrealized expense of 627 and 102, respectively.
These amounts are recorded in net exchange rate gains/(losses), in the consolidated statements of profit or loss (see note 37).
30 Financial Instruments – Fair values and risk management
The effect of initially applying IFRS 9 on the Group’s financial instruments is described in note 5. Due to the transition method
chosen, comparative information has not been restated to reflect the new requirements.
A. Accounting classification
The following tables show the classification and carrying amounts of Group’s financial assets and financial liabilities as at
December 31, 2019 and 2018.
Financial assets
Financial assets measured at amortised cost
Other non-current receivables
Trade receivables
Other current receivables
Cash and cash equivalents
Total (a)
Financial assets measured at fair value
Forward exchange contracts
Total (b)
Total financial assets (a+b)
F - 60
31/12/19
31/12/18
4,519 4,533
29,187 40,967
7,723 9,507
39,799 62,131
81,228 117,138
145
145
218
218
81,373 117,356
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Financial assets measured at amortised cost include trade receivables, other receivables (non-current and current) and cash and
cash equivalents. Financial assets at fair value reflect the positive change in fair value of forward exchange contracts that are not
designated as hedge relationships, but are, nevertheless, intended to reduce the level of foreign currency risk for future cash
flows from accounts receivables and sale orders.
Financial liabilities
Financial liabilities measured at amortised cost
Long-term borrowings
Lease liabilities
Bank overdrafts and short-term borrowings
Trade payables
Other payables
Total (a)
Financial liabilities measured at fair value
Forward exchange contracts
Total (b)
Total financial liabilities (a+b)
31/12/19
31/12/18
18,412 20,943
57,367
—
24,170 35,148
68,476 77,901
22,049 26,914
190,474 160,906
772
772
320
320
191,246 161,226
Financial liabilities measured at amortised cost include long-term borrowings (non-current and current portion), lease liabilities
(non-current and current portion), bank overdrafts and short-term borrowings, trade payables and other payables. Financial
liabilities measured at fair value reflect the negative change in fair value of forward exchange contracts that are not designated
as hedge relationships, but are, nevertheless, intended to reduce the level of foreign currency risk for expected future cash flows
from trade receivables and sale orders.
For the details on “Long-term borrowings”, “Lease liabilities” and “Bank overdrafts and short-term borrowings” reference
should be made to note 19, 20 and 26.
B. Fair value and measurement of fair values
Management has assessed that the fair values of cash and cash equivalents, trade and other receivables, trade and other payables,
bank overdrafts and short-term borrowings approximate their carrying amounts largely due to the short-term maturities of these
instruments.
The following tables show the carrying amount and fair value of Group’s financial assets and financial liabilities as at
December 31, 2019 and 2018, other than those with carrying amount that are reasonable approximation of fair value.
F - 61
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Financial assets
Forward exchange contracts
Financial liabilities
Floating-rate borrowings
Fixed rate borrowings
Total long-term borrowings
Forward exchange contracts
31/12/19
31/12/18
Carrying
amount
Fair
value
Carrying
amount
Fair
value
145
145
218
218
9,232 9,322 13,943 13,943
7,000 7,000
9,180 10,256
18,412 19,578 20,943 20,943
772
772
320
320
As at December 31, 2019 and 2018, the fair value measurement hierarchy of the forward exchange contracts and long-term
borrowings is “significant observable inputs” (level 2).
There were no transfers between level 1 (quoted prices in active markets) and level 2 during 2019 and 2018. There were no level
3 (significant unobservable inputs) fair values estimated as at December 31, 2019 and 2018.
The following methods and assumptions are used to estimate the fair values.
Forward exchange contracts are valued using valuation techniques, which employ the use of market observable inputs. The most
frequently applied valuation techniques include forward pricing using present value calculations. The models incorporate
various inputs, including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the
respective currencies, currency basis spreads between the respective currencies, interest rate curves and forward rate curves of
the underlying commodity.
The fair values of the Group’s interest-bearing borrowings are determined using the discounted cash flow method. The discount
rate used reflects the issuer’s borrowing rate as at the end of the reporting period. The own non-performance risk as at
December 31, 2019 and 2018 is determined to be insignificant.
C. Financial risk management
The main financial risks which the Group is exposed to are reported in the following.
The Group’s principal financial assets, other than derivatives, include cash and cash equivalents, trade and other receivables that
derive directly from operations. The Group’s principal financial liabilities, other than derivatives, comprise of long-term
borrowings, lease liabilities, bank overdrafts and short-term borrowings, trade and other payables. The main purpose of these
financial liabilities is to finance the Group’s operations. The Group also enters into derivative transactions, namely forward
exchange contracts, to protect the value of its foreign currency denominated revenue, not for speculative or trading purposes.
(i) Risk management framework
The Group is exposed to credit risk, liquidity risk and market risk. The management of these risks is performed on the basis of
guidelines set by the Group’s senior management. The main purpose of these guidelines is to balance the Group’s liabilities and
assets, in order to ensure an adequate capital viability. The main financial sources of the Group are represented by a mix of
equity and financial liabilities, including long-term borrowings used to finance investments, bank overdrafts, short-term
borrowings and a non-recourse factoring agreement used to finance the Group’s working capital.
F - 62
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(ii) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations and arises principally from the Group’s receivables from customers.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in this
note.
Impairment losses on financial assets recognised in profit or loss for the years ended December 31, 2019, 2018 and 2017 are
related mainly to trade receivables.
(ii-a) Trade receivables
The Group’s customers are mainly represented by distributors, retailers and end consumers. Customer credit risk is managed on
the basis of the Group’s established policies, procedures and controls relating to customer credit risk management. Credit
quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in
accordance with this assessment. Sales to the end consumers are required to be settled in cash or using major credit cards,
mitigating credit risk.
Outstanding customer receivables are regularly monitored to prevent losses. The Company insures the collections risk related to
a significant portion of trade receivables (about 80%), with a third party insurer and, in case of insolvency, the insurance
company has to refund 85% of uncollected outstanding balances.
For receivables subject to collective valuation an impairment analysis is performed at each reporting date, starting from year-end
2018, using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings
of various customer segments with similar loss patterns (i.e., by customer type and rating, and coverage by credit insurance).
The calculation reflects the probability-weighted outcome based on reasonable and supportable information available at the
reporting date about past events, current conditions and forecasts of future economic conditions.
For individual receivables which are known to be uncollectible an impairment analysis is performed at each reporting date to
measure expected credit losses. The provision is estimated by the Group based on the financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial reorganisation and default or late payments.
The Group evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several
jurisdictions and operate in largely independent markets (see note 15).
In addition, in July 2015 the Company signed a non-recourse factoring agreement with a major Italian financial institution.
Under this agreement, the Company sells certain customer performing receivables to a financial institution in exchange for cash,
for a maximum amount of 47,500. Such agreement is set to expire in July 2020 and the Company expects to renew it.
Given the considerations above, the credit risk is full for non-insured trade receivables, in the limit of 15% for insured
receivables and nil for receivables included in the non-recourse factoring agreement.
Therefore, the allowance for doubtful accounts is estimated by the Group based on the insurance in place, the credit worthiness
of its customers, historical trends, as well as current and future general economic conditions.
F - 63
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
As at December 31, 2019 and 2018 the ageing of trade receivables is as follows:
Current (not past due)
From 1 to 29 days past due
From 30 to 60 days past due
From 61 to 90 days past due
More than 90 days past due
Gross trade receivables
Allowance for doubtful accounts
Net trade receivables
31/12/19
15,179
8,570
1,298
2,531
10,308
37,886
(8,699)
29,187
31/12/18
24,251
8,614
1,409
1,274
15,046
50,594
(9,627)
40,967
Set out below is the information about the credit risk exposure on the Group’s trade receivables using a provision matrix as at
December 31, 2019, 2018 and January 1, 2018, further to the adoption of IFRS 9.
December 31, 2019
Trade receivables subject to collective valuation
Trade receivables subject to specific valuation
Total gross carrying amount
Default rate
Expected credit loss
December 31, 2018
Trade receivables subject to collective valuation
Trade receivables subject to specific valuation
Total gross carrying amount
Default rate
Expected credit loss
January 1, 2018
Trade receivables subject to collective valuation
Trade receivables subject to specific valuation
Total gross carrying amount
Default rate
Expected credit loss
(ii-b) Other receivables
Days past due
<30 days
30-60 days
61-90 days
> 91 days
4,936
387
—
309
Total
5,632
32,524
0.13%
6
1.42%
5
3.83%
—
37,886
27.07% —
95
84
Days past due
<30 days
30-60 days
61-90 days
9,288
1,323
88
0.10%
9
0.99%
13
2.90%
3
Days past due
<30 days
11,661
30-60 days
61-90 days
651
254
0.11%
13
1.04%
7
2.99%
8
> 91 days
669
Total
11,368
39,226
50,594
5.80% —
64
39
> 91 days
173
Total
12,739
35,585
48,324
5.33% —
37
9
As at December 31, 2019 and 2018 other receivables current and non-current amount to 12,242 and 14,040, respectively. Such
receivables are considered to have a low credit risk and the impairment loss has been measured on a 12-months expected credit
losses basis. Management considers its other receivables to have a low credit risk as they have a low risk of default and their
counterparties are able to meet their contractual cash flow obligations in the short-term. As at December 31, 2019 and 2018 the
identified impairment loss of other receivables is immaterial.
F - 64
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(ii-c) Cash and cash equivalents
As at December 31, 2019 and 2018 the Group has cash and cash equivalents of 39,799 and 62,131, respectively. The cash and
cash equivalents are held with financial institutions, which have external credit risk ratings that are equivalent to the understood
definition of “investment grade”. Impairment of cash and cash equivalents has been measured on a 12-months expected credit
losses basis and reflects the short-term nature of the exposures. The Group considers its cash and cash equivalents to have a low
credit risk based on the external credit ratings of the financial institutions. As at December 31, 2019 and 2018 the identified
impairment loss of cash and cash equivalents is immaterial.
(ii-d) Derivative financial instruments
Domestic currency swaps (see note 29) are entered into with financial institutions that have outstanding external credit ratings
(“investment grade”). As at December 31, 2019 and 2018 the identified impairment loss of the favourable domestic currency
swaps is immaterial.
(iii) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure,
as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group aims to maintain the level of its cash and cash equivalents at an amount in excess of expected cash outflows on
financial liabilities over the next 60 days. The Group also monitors the level of expected cash inflows on trade and other
receivables together with expected cash outflows on trade and other payables.
Therefore, the Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank
overdrafts, short-term borrowings, long-term borrowings and a non-recourse factoring agreement of export-related trade
receivables.
The tables below summarize the remaining contractual maturities of financial liabilities as at December 31, 2019 and 2018. The
amounts are gross and undiscounted, and include contractual interest payments and exclude the impact of netting agreements.
December 31, 2019
Long-term borrowings
Lease liabilities
Bank overdrafts and short-term borrowings
Trade and other payables
Losses on derivative financial instruments
Total financial liabilities
1 to 2
years
2 to 5
years
2 to 12
months
Less than
2 months
512 4,222 6,568 5,389
More than
5 years
Total
3,525 20,216
3,341 10,587 9,972 26,568 17,760 68,228
— 24,170
— 90,525
772
—
24,170 — — —
22,049 68,476 — —
772 — — —
50,844 83,285 16,540 31,957 21,285 203,911
F - 65
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
December 31, 2018
Long-term borrowings
Bank overdrafts and short-term borrowings
Trade and other payables
Losses on derivative financial instruments
Total financial liabilities
Less than
2 months
2 to 12
months
1 to 2
years
2 to 5
years
899 10,019 3,416 6,158
35,148 — — —
26,914 77,901 — —
320 — — —
More than
5 years
Total
1,358 21,850
— 35,148
— 104,815
320
—
63,281 87,920 3,416 6,158
1,358 162,133
As disclosed in note 19, the Group has secured bank loans that contain covenants. A future breach of covenants may require the
Group to repay the loan earlier than indicated in the above table. Under the agreement, the covenants are monitored on a regular
basis by the treasury department and regularly reported to management to ensure compliance with the agreement.
The interest payments on variable interest rate loans in the tables above reflect market forward interest rates at the reporting date
and these amounts may change as market interest rates change.
Except for these financial liabilities, it is not expected that the cash flows included in the maturity analysis could occur
significantly earlier, or at significantly different amounts.
In addition, the following is to be considered: (a) as at December 31, 2019, the Group has unused credit lines of 24,251 (see note
26); (b) the Company can use the credit facilities of its subsidiaries adhering to the cash pooling contract in place; from time to
time, the Company evaluates the adequacy of such credit facilities, requesting additional facilities as needed; (c) the Group
holds cash at foreign subsidiaries, that can be withdrawn by the Company subject to the approval of a dividend distribution;
some of these dividends are subject to withholding taxes; (d) the Company can apply for long-term borrowings to sustain long-
term investments; (e) there are no significant liquidity risk concentrations, both on financial assets and on financial liabilities.
(iv) Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market prices (e.g., interest rates, foreign exchange rates). Market risk, mainly, depends on the trend of the demand for furniture
and other finished products, the trend in raw materials and the fluctuation of interest rates and foreign currencies.
The market demand risk is managed by way of a constant monitoring of markets, performed by the commercial division of the
Group, and a product diversification in the different brands.
In order to manage the raw materials risk, the Group constantly monitors procurement policies and attempts to diversify
suppliers while respecting the quality standards expected by the market.
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-
term borrowings obligations with floating interest rates. The Group manages its interest rate risk by having a portfolio of fixed
and variable rate borrowings. As at December 31, 2019, approximately 49.9% of the Group’s borrowings were at a fixed rate of
interest (2018: 33.4%). No derivative financial instruments were entered into by the Group to manage the cash flow risk on
floating interest-rate borrowings.
F - 66
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
The following tables demonstrate the sensitivity to a reasonably possible change in interest rates on that portion of loans and
borrowings affected. With all other variables held constant, the Group’s profit before tax is affected through the impact on
floating rate borrowings as follows:
December 31, 2019
December 31, 2019
December 31, 2018
December 31, 2018
December 31, 2017
December 31, 2017
Increase/
decrease
in basis points
Effect on profit
before tax
(51)
51
(71)
71
(90)
78
+45
-45
+45
-45
+45
-45
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in
foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s
operating activities (when revenue or expense is denominated in a foreign currency) and the Group’s net investments in foreign
subsidiaries. In particular, the Group purchases a significant portion of raw materials in U.S. Dollars, and sells a significant
amount of finished products in Euro. As a consequence, the Group is exposed to a foreign currency risk, which is managed by
forward exchange contracts.
When a derivative is entered into for the purpose of being a hedge, the Group negotiates the terms of the derivative to match the
terms of the hedged exposure. For hedges of forecast transactions, the derivative covers the period of exposure from the point
the cash flows of the transactions are forecasted up to the point of settlement of the resulting receivable that is denominated in
the foreign currency.
The following tables demonstrate the sensitivity to a reasonably possible change in foreign exchange rates, with all other
variables held constant.
December 31, 2019
December 31, 2019
December 31, 2018
December 31, 2018
December 31, 2017
December 31, 2017
Change in
foreign exchange rates
+5%
-5%
+5%
-5%
+5%
-5%
Effect on profit
before tax
3,155
(3,486)
2,776
(3,183)
3,023
(3,449)
As at December 31, 2019 and 2018 the Group’s financial assets and financial liabilities denominated in foreign currency are as
follows:
Financial assets
Trade receivables
Cash and cash equivalents
Total financial assets
31/12/19
19,807
36,031
55,838
31/12/18
26,490
49,413
75,903
F - 67
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Financial liabilities
Lease liabilities
Bank overdraft and short-term borrowings
Trade payables
Total financial liabilities
31/12/19
31/12/18
38,844 —
254
26,065 29,155
253
65,162 29,409
As at December 31, 2019 and 2018, the summary quantitative data about Group’s exposure to currency risk as reported to the
management of the Group is as follows:
December 31, 2019
Chinese Yuan
U.S. dollars
British pounds
Brazilian Reais
Canadian dollars
Mexican pesos
Romanian Leu
Other
Total
December 31, 2018
Chinese Yuan
U.S. dollars
British pounds
Brazilian Reais
Canadian dollars
Mexican pesos
Romanian Leu
Other
Total
Financial
Assets
(a)
Financial
liabilities
(b)
20,592 12,071
15,524 26,995
5,984 12,482
2,012
5,975
124
3,758
910
984
6,673
528
3,895
2,493
Net Exposure
(c) = (a)-(b)
8,521
(11,471)
(6,498)
3,963
3,634
74
(6,145)
(1,402)
55,838 65,162
(9,324)
Financial
Assets
(a)
27,101
19,661
8,696
6,211
3,696
3,344
886
6,308
Financial
liabilities
(b)
9,726
8,841
2,482
2,250
236
43
4,976
855
Net Exposure
(c) = (a)-(b)
17,375
10,820
6,214
3,961
3,460
3,301
(4,090)
5,453
75,903 29,409
46,494
(v) Changes in liabilities arising from financing activities
The following tables show the changes in financial liabilities arising from financing activities for the three years ended
December 31, 2019, 2018 and 2017.
F - 68
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
December 31, 2019
Long-term borrowings
Lease liabilities
Bank overdrafts and short-term borrowings
Losses on derivative financial instruments
Total liabilities from financing activities
December 31, 2018
Long-term borrowings
Bank overdrafts and short-term borrowings
Losses on derivative financial instruments
Total liabilities from financing activities
December 31, 2017
Long-term borrowings
Bank overdrafts and short-term borrowings
Losses on derivative financial instruments
Total liabilities from financing activities
31 Revenue
(i) Revenue streams
Jan. 1, 2019 Cash flows
Changes in
fair value
Other
20,943
56,758
35,148
320
(1,365)
(11,960)
(10,978)
—
changes Dec. 31, 2019
18,412
57,367
24,170
772
— (1,166)
— 12,569
— —
452 —
113,169
(24,303)
452 11,403
100,721
Changes in
Jan. 1, 2018 Cash flows
25,717
25,967
267
(4,774)
9,181
—
fair value Dec. 31, 2018
20,943
35,148
320
—
—
53
51,951
4,407
53
56,411
Changes in
Jan. 1, 2017 Cash flows
17,961
24,427
1,293
7,756
1,540
—
fair value Dec. 31, 2017
25,717
25,967
267
—
—
(1,026)
43,681
9,296
(1,026)
51,951
The Group generates revenue primarily from the sale of leather and fabric upholstered furniture and home furnishing accessories
to its customers. Other sources of revenue include sale of polyurethane foam, sale of leather-by products, sale of Natuzzi
Display System and sale of Service Type Warranty.
Therefore, all the Group’s revenue is related to revenue from contracts with customers.
(ii) Disaggregation of revenue from contracts with customers
In the following tables, revenue from contracts with customers are disaggregated by types of goods, primary geographical
markets, geographical location of customers, distribution channels, brands and timing of revenue recognition.
Types of goods
Sale of upholstery furniture
Sale of home furnishing accessories
Sale of polyurethane foam
Sale of other goods
Total
F - 69
2019
329,162
39,623
9,665
8,512
386,962
2018
365,346
41,733
14,958
6,502
2017
389,528
33,560
15,501
10,291
428,539
448,880
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
The sale of upholstery furniture includes the following categories: stationary furniture (sofas, loveseats and armchairs), sectional
furniture, motion furniture, sofa beds and occasional chairs, including recliners and massage chairs.
Geographical markets
Europe, Middle East and Africa
Americas
Asia-Pacific
Total
Geographical location of customers
United States of America
Italy
United Kingdom
China
Canada
Spain
Brazil
Australia
France
Belgium
Germany
Korea
Other countries (none greater than 5%)
Total
Distribution channels
Wholesale (distributors and retailers)
Directly operated stores (end consumers)
Total
Brands
Natuzzi Editions
Natuzzi Italia
Private label
Other
Total
Timing of revenue recognition
Goods transferred at a point in time
Goods and services transferred over time
Subtotal
2019
183,794
137,665
65,503
386,962
2018
212,481
137,452
78,606
2017
218,896
153,647
76,337
428,539
448,880
2019
97,723
48,557
39,416
39,258
18,355
14,846
12,120
8,668
8,493
7,809
7,234
5,626
78,857
2018
94,393
53,261
43,501
47,099
17,371
17,334
16,332
9,903
11,179
8,682
11,455
8,232
89,797
2017
107,262
55,379
48,266
41,369
20,030
17,077
16,182
9,738
9,999
8,214
12,462
9,847
93,055
386,962
428,539
448,880
2019
320,263
66,699
386,962
2019
160,136
135,500
73,149
18,177
386,962
2018
365,499
63,040
2017
392,332
56,548
428,539
448,880
2018
167,925
144,953
94,201
21,460
2017
183,838
134,740
104,509
25,793
428,539
448,880
2019
2018
2017
385,510 427,493 448,206
674
1,452 1,046
386,962 428,539 448,880
F - 70
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(iii) Contract balances
The following table provides information about receivables and contract liabilities from contracts with customers.
Trade receivables
Contract liabilities
31/12/19
29,187
23,103
31/12/18
40,967
22,099
31/12/17
37,549
15,533
Reference should be made to note 15 “Trade receivables” and note 22 “Contract liabilities” (non-current and current) for details
about such contract balances.
(iv) Performance obligations and revenue recognition policies
Revenue is measured based on the consideration specified in the customer contract. The Group recognises revenue when it
transfers control over a good or service to a customer at an amount that reflects the consideration to which the Group expects to
be entitled in exchange for goods or services. The Group has generally concluded that it is the principal in its revenue
arrangements, because it controls the goods or services before transferring them to the customer.
In determining the transaction price for its contracts with customers, the Group considers the effects of variable consideration
and the existence of significant financing components.
The Group considers whether there are other promises in the contract that are separate performance obligations to which a
portion of the transaction price needs to be allocated. The allocation of the transaction price to the Group’s performance
obligations is performed using the relative stand-alone selling price method.
For detailed information about the nature and timing of the satisfaction of performance obligations in contracts with customers,
including significant payment terms, and the related revenue recognition policies see note 4(t).
The transaction price allocated to the remaining performance obligations (partially unsatisfied) as at December 31, 2019, 2018
and 2017 is as follows:
Sale of Natuzzi Display System
Within a year
More than a year
Total
Sale of Service-Type Warranties
Within a year
More than a year
Total
Sale of the licence-for Natuzzi trademarks
Within a year
More than a year
Total
F - 71
31/12/19
31/12/18
31/12/17
1,416 1,138
758
1,953 2,261 1,878
3,369 3,399 2,636
394
411
332
565
805
897
278
682
960
383
383 —
6,725 7,108 —
7,108 7,491 —
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(v) Variable considerations
If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be
entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and
constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will
not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the sale
of furniture provide customers with volume rebates, which give rise to variable consideration.
In particular, the Group provides retrospective volume rebates to certain customers once the quantity of products purchased
during the period exceeds a threshold specified in the contract. Rebates are offset against amounts payable by the customer.
Accumulated experience is used to estimate and provide for the rebates, using the expected value method. A refund liability is
recognised for expected volume discounts payable to customers in relation to sales made until the end of the reporting period.
(vi) Financing components
For information about financing components, reference should be made to note 4(t)(vi).
(vii) Warranty obligations
The Group typically provides warranties for general repairs of defects that existed at the time of sale, as required by law. These
assurance-type warranties are accounted for under IAS 37. Refer to the accounting policy on warranty provisions in note 4(r).
Customers who purchase the Group’s upholstered furniture may require a service type warranty. As disclosed in note 4(t)(v), the
Group allocates a portion of the consideration received to the service type warranty, based on the relative stand-alone selling
price. The amount allocated to the service type warranty is deferred, and is recognised as revenue over the time based on the
validity period of such warranty.
(viii) Cost to obtain a contract
The Group pays sales commission to its agents for each contract that they obtain. For information about the accounting policy
elected by the Group on sales commissions, reference should be made to note 4(x).
32 Cost of sales
Cost of sales is analysed as follows:
Opening inventories
Purchases
Labour costs
Third party manufacturers costs
Other manufacturing costs
Government grants related to PPE
Closing inventories
Total
2019
84,227
139,205
86,209
3,919
29,519
(1,463)
(69,685)
271,931
2018
91,077
177,591
89,827
6,039
29,004
(1,061)
(84,227)
308,250
2017
91,014
180,872
92,330
8,725
37,605
(1,068)
(91,077)
318,401
The line item “Other manufacturing costs” includes the depreciation expenses of property plant and equipment used in the
production of finished goods. The depreciation expenses amount to 11,709, 7,455 and 8,565 for the years ended December 31,
2019, 2018 and 2017, respectively.
F - 72
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
33 Other income and other expenses
Other income is analysed as follows:
VAT relief
Reimbursement
Release of provisions for contingent liabilities
Other
Total
2019
2018
2017
1,216 1,392 —
519 — 1,650
332 1,700 —
3,095 2,852 —
5,162 5,944 1,650
During 2019 and 2018 the Brazilian subsidiary obtained a VAT relief of 1,216 and 1,392, respectively, connected to local tax
rules on VAT payments.
During 2019 and 2017, the Company recorded a refund of 519 and 1,650, respectively, related to the positive outcome of
litigation started in previous years and fully settled at year-end.
During 2018 and 2019, the Company released provisions for legal claims by 332 and 1,700, respectively, further to the positive
settlement of some legal disputes with suppliers.
Other expenses include some minor costs incurred by the Group and not related to cost of sales, selling and administrative
expenses.
34
Selling expenses
Selling expenses are analysed as follows:
Shipping and handling costs
Labour costs
Depreciation and amortization
Custom’s duties
Commissions
Advertising
Utilities
Fairs
Commercial insurance cost
Promotion
Leases
Credit insurance cost
Samples
Consultancy
Other
Total
2019
2018
2017
35,513 40,765 40,952
23,782 24,772 26,210
11,805 2,274 2,124
9,261 2,860 —
8,393 10,225 9,512
7,145 12,687 15,407
2,457 2,394 2,301
1,864 2,308 2,896
532
496
700
651
920 1,252
649 12,553 11,946
563
579
591
995 1,295
519
630 1,020
305
503 2,280
1,615
105,250 114,997 118,254
F - 73
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
35 Administrative expenses
Administrative expenses are analysed as follows:
Labour costs
Consultancies
Non deductibles and indirect taxes
Travel expenses
Depreciation and amortization
Directors and auditors—fees
Mail & Phone
Printing & Stationery
Cars costs
Electronic data processing
Government grants related to PPE
Other
Total
36 Finance income and costs
Finance income is analysed as follows:
Interest income from financial institutions
Other interest income
Total
Finance costs are analysed as follows:
Interest expenses due to financial institutions
Interests expenses from lease liabilities
Other interest expenses
Financial institution commissions
Total
37 Net exchange rate gains/(losses)
Net exchange rate gains/(losses) are analysed as follows:
Net realised gains/(losses) on derivative instruments
Net realised gains/(losses) on trade receivables and payables
Total net realised gains (a)
Net unrealised gains/(losses) on derivative instruments
Net unrealised gains/(losses) on trade receivables and payables
Net unrealised gains/(losses) on non-monetary assets
Total net unrealised losses (b)
2019
19,060
4,761
2,261
2,226
1,585
831
622
381
236
12
(163)
2,214
34,026
2018
20,023
4,076
2,022
2,712
1,301
801
675
457
487
96
—
2,694
35,344
2017
19,364
4,089
2,331
3,210
1,668
734
745
500
507
118
—
2,839
36,105
2019
121
279
400
2018
191
188
379
2017
325
927
1,252
2019
2,864
2,635
431
1,998
7,928
2018
3,298
—
498
1,784
5,580
2017
3,140
—
1,499
1,650
6,289
2019
(737)
1,600
863
(638)
(531)
(2,034)
(3,203)
2018
(906)
3,353
2,447
(57)
(5,437)
(867)
(6,361)
2017
1,912
445
2,357
943
(48)
(2,219)
(1,324)
Total realised and unrealised exchange rate gains/(losses) (a+b)
(2,340)
(3,914)
1,033
F - 74
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
“Net unrealised gains/(losses) on non-monetary assets” refers to the remeasurement of non-monetary assets of the subsidiaries
Italsofa Romania and Natuzzi China, since such entities have the same functional currency of the Parent, namely the Euro.
38
Income tax expense
Italian companies are subject to two enacted income taxes at the following rates:
IRES (state tax)
IRAP (regional tax)
2019
24.00%
4.82%
2018
24.00%
4.82%
2017
24.00%
4.82%
IRES is a state tax and is calculated on the taxable income determined on the income before taxes modified to reflect all
temporary and permanent differences regulated by the tax law. The 2016 budget law (Law n. 208 of December 28, 2015) was
passed by the Italian Parliament on December 22, 2015 with significant changes relating to Italy’s corporate income tax. In fact,
the Italian tax rate has been reduced from 27.5% to 24.0% starting from fiscal year 2017.
IRAP is a regional tax and each Italian region has the power to increase the current rate of 3.90% by a maximum of 0.92%. In
general, the taxable base of IRAP is a form of gross profit determined as the difference between gross revenues (excluding
interest and dividend income) and direct production costs (excluding interest expense and other financial costs). The enacted
IRAP tax rate due in Puglia region for 2019, 2018 and 2017 is 4.82% (3.90% plus 0.92%).
Total income taxes for the years ended December 31, 2019, 2018 and 2017 are allocated as follows:
Current:
- Domestic
- Foreign
Total (a)
Deferred:
- Domestic
- Foreign
Total (b)
Total (a + b)
2019
2018
2017
(585)
(1,400)
(1,985)
(387)
37
(350)
(4,504)
(3,052)
(7,556)
270
(143)
127
(40)
(3,777)
(3,817)
(310)
1,241
931
(2,335)
(7,429)
(2,886)
Consolidated profit/(loss) before income taxes and Non-controlling interests of the consolidated statement of profit or loss for
the years ended December 31, 2019, 2018 and 2017, is analysed as follows:
Domestic
Foreign
Total
2019
(24,808)
(6,537)
2018
40,822
(274)
2017
(28,358)
399
(31,345)
40,548
(27,959)
The effective income taxes differ from the expected income tax expense (computed by applying the IRES state tax, which is
24% for 2019, 2018 and 2017, to income before income taxes and Non-controlling interests) as follows:
F - 75
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Expected tax benefit (expense) at statutory tax rates
Effect of:
- Tax exempt income
- Aggregate effect of different tax rates in foreign jurisdictions
- Italian regional tax
- Non-deductible expenses
- Tax effect on unremitted earnings
- Non taxable gain from disposal and loss of control of a subsidiary
- Chinese withholding tax on income not recoverable
- Tax audit settlement for other taxes
- Effect of net change in deferred tax assets unrecognised
Actual tax charge
2019
7,523
2018
(9,732)
2017
6,710
3,297
(139)
(78)
(4,521)
(430)
—
(139)
—
(7,848)
1,665
208
(46)
(2,667)
(1,252)
17,193
(4,458)
—
(8,340)
952
25
(39)
(1,972)
(1,998)
—
—
930
(7,494)
(2,335)
(7,429)
(2,886)
The effective income tax rates for the years ended December 31, 2019, 2018 and 2017 are 7.45%, 18.32% and 10.32%,
respectively.
The income tax payable recorded as at December 31, 2019 and 2018 is 1,283 and 880, respectively. Whereas, the current
income tax receivable recorded as at December 31, 2019 and 2018 is 1,082 and 1,986, respectively.
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as at December 31, 2019
and 2018 are presented below:
Deferred tax assets
Deferred costs
Provision for contingent liabilities
Inventories obsolescence
Intercompany profit on inventories
Other temporary differences
Total deferred tax assets
Deferred tax liabilities
Deferred revenue (IFRS 15)
Unrealised net gains on foreign exchange rate
Withholding tax on unremitted earnings of subsidiaries
Other temporary differences
Total deferred tax liabilities
31/12/19
845
677
297
59
96
31/12/18
—
621
152
1,162
92
1,974
2,027
31/12/19
31/12/18
(934)
(396)
(430)
(131)
(716)
(735)
—
(143)
(1,891)
(1,594)
The following tables show the reconciliation of deferred tax assets and deferred tax liabilities with the balances included in the
consolidated statements of financial position as at December 31, 2019 and 2018.
F - 76
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Deferred tax assets
Deferred tax liabilities compensated
Net deferred tax assets
Deferred tax liabilities
31/12/19
1,974
(1,461)
513
(430)
31/12/18
2,027
(1,552)
475
(42)
Movements in deferred tax balances occurred during 2019, 2018 and 2017 are analysed as follows:
Balance as at January 1, 2017
Recognised in profit or loss
Recognised in OCI
Balance as at December 31, 2017
Recognised in profit or loss
Recognised in OCI
Balance as at December 31, 2018
Recognised in profit or loss
Recognised in OCI
Balance as at December 31, 2019
Def. tax assets
2,557
99
—
Def. tax liabilities
(3,174)
832
(8)
2,656
(629)
—
2,027
(53)
—
1,974
(2,350)
756
—
(1,594)
(297)
—
(1,891)
Total
(617)
931
(8)
306
127
—
433
(350)
—
83
The deferred taxes reported above have been calculated considering the tax rate reduction from 27.5% to 24.0% approved by the
Italian Parliament and starting from 2017. Therefore, the tax rate applied to calculate each of the Italian deferred tax assets and
liabilities has been set considering the estimated period in which each of the related temporary differences will be reversed.
Deferred tax assets recognised are mainly related to deferred costs recorded by the Company and provisions for contingent
liabilities and inventories obsolescence recorded by Natuzzi China Ltd.
In assessing the reliability of deferred tax assets, management considers whether it is probable that some portion or all of the
deferred tax assets will not be realised. The ultimate realisation of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible and the tax loss carry-forwards are
utilised.
Given the cumulative loss position of the domestic companies and of some of foreign subsidiaries as at December 31, 2019 and
2018, management has considered the scheduled reversal of deferred tax liabilities and tax planning strategies, in making their
assessment. After an analysis as at December 31, 2019 and 2018, management has not identified any relevant tax planning
strategies prudent and feasible available to increase the recognition of the deferred tax assets. Therefore, as at December 31,
2019 and 2018 the realisation of the deferred tax assets is primarily based on the scheduled reversal of deferred tax liabilities,
except in certain historically profitable jurisdictions.
Based upon this analysis, management believes that the Natuzzi Group will realise the deferred tax assets of 1,974 as at
December 31, 2019 (2,027 as at December 31, 2018).
Deferred tax assets have not been recognised in respect of the following items, because it is not probable that future taxable
profit will be available against which the Group can use the benefits therefrom.
F - 77
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
Unrecognised deferred tax assets
Tax loss carry-forwards
Provision for contingent liabilities
Inventory obsolescence
Allowance for doubtful accounts
Intercompany profit on inventories
Provision for warranties
Impairment of property, plant and equipment
Goodwill and intangible assets
IAS 19 adjustment - employees’ leaving entitlement
Deferred costs
Other temporary differences
Total unrecognised deferred tax assets
31/12/19
97,544
5,839
2,336
2,296
1,643
1,419
984
483
389
—
1,124
31/12/18
99,133
3,234
2,055
2,145
1,040
1,343
1,228
569
470
541
1,304
114,057
113,062
As at December 31, 2019 and 2018, taxes that will be due on the distribution of the portion of shareholders’ equity equal to
unremitted earnings of some subsidiaries are 2,626 and 2,901, respectively. The Group has not provided for such taxes as at
likelihood of distribution is not probable.
As at December 31, 2019 and 2018 the tax losses carried-forward of the Group expire as follows:
Expire in five years
Expire after five years
Never expire
Total
2019
26,180
34,078
339,563
399,821
Expire date
2020-2024
> 2024
—
2018
25,647
39,333
328,650
393,630
Expire date
2019-2023
> 2023
—
In Italy all tax losses carried-forward no longer expire, with the only limitation being that such tax losses carried-forward can be
utilised to off-set a maximum of 80% of the taxable income in each following year.
The Company operates in many foreign jurisdictions. With no material exceptions, the Company and its major subsidiaries
located in Romania and China are no longer subject to examination by tax authorities for years prior to 2015.
39 Earnings/(losses) per share
Basic and diluted earnings/(losses) per share is analysed as follows:
Weighted average number of ordinary shares
Basic earnings/(losses) per share
Diluted earnings/(losses) per share
2019
54,853,045
2018
54,853,045
2017
54,853,045
(0.61)
(0.61)
0.61
0.61
(0.55)
(0.55)
Basic earnings/(losses) per share is calculated by dividing earnings/(losses) for the year, attributable to ordinary equity holders
of the Parent Company, by the weighted average number of ordinary shares outstanding during the year.
F - 78
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
The weighted-average number of ordinary shares equals the number of ordinary shares issued as at December 31, 2019, 2018
and 2017 since there have been no transactions involving ordinary shares both in 2019, 2018 and 2017.
Diluted earnings/(losses) per share as at December 31, 2019, 2018 and 2017 equals the basic losses per share, since the Parent
Company has not issued any financial instruments convertible to ordinary shares, and there are therefore no dilutive impacts.
On February 8, 2019 the Company announced a change in the ratio of its American Depositary Receipts (ADRs) to ordinary
shares, from 1 ADR representing 1 share to 1 ADR representing 5 shares. The effective date of the ratio change was
February 21, 2019. No new shares have been issued in connection with the ratio change.
40 Expenses by nature
The following table shows the expenses by nature for the years ended December 31, 2019, 2018 and 2017 as required by IAS
1.104.
Changes in inventories
Raw materials and consumables
Services
Employee benefits expense
Depreciation and amortization, net of government grants
Other
Total cost of sales, selling and administrative expenses
2019
14,542
139,205
91,526
129,051
23,487
13,396
411,207
2018
6,850
177,591
107,074
134,622
10,003
22,451
458,591
2017
(63)
180,872
118,681
137,904
11,362
24,004
472,760
The following tables show in which caption is included the depreciation and amortization, net of government grants.
Included in cost of sales
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
Government grants
Total (a)
Included in selling expenses
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
Total (b)
Included in administrative expenses
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
Government grants
Total (c)
2019
7,867
3,842
14
(1,463)
10,260
2,721
9,084
—
11,805
381
301
903
(163)
1,422
2018
7,455
—
34
(1,061)
6,428
2,274
—
—
2,274
425
—
876
—
1,301
2017
8,565
—
73
(1,068)
7,570
1,818
—
306
2,124
478
—
1,190
—
1,668
Total depreciation and amortization (a+b+c)
23,487
10,003
11,362
F - 79
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
The following tables show in which caption is included the employee benefits expense.
Included in cost of sales
Salary and wages
Social security costs
Employees’ leaving entitlement
Other costs
Total (a)
Included in selling expenses
Salary and wages
Social security costs
Employees’ leaving entitlement
Other costs
Total (b)
Included in administrative expenses
Salary and wages
Social security costs
Employees’ leaving entitlement
Other costs
Total (c)
2019
60,756
17,251
3,704
4,498
86,209
18,736
3,800
557
689
23,782
13,725
3,502
664
1,169
19,060
2018
62,815
18,310
3,827
4,875
2017
57,401
18,854
3,710
12,365
89,827
92,330
19,754
4,019
350
649
20,475
4,376
660
699
24,772
26,210
14,585
3,638
635
1,165
13,843
3,570
831
1,120
20,023
19,364
Total employee benefits expense (a+b+c)
129,051
134,622
137,904
41 Adjusted earnings before interest, tax, depreciation and amortisation (Adjusted EBITDA)
Management supplementally has presented the performance measure Adjusted EBITDA because it monitors this performance
measure at a consolidated level and it believes that this measure is relevant to an understanding of the Group’s financial
performance. Adjusted EBITDA is calculated by adjusting profit or loss from continuing operations to exclude the impact of
taxation, net finance income/(costs), depreciation, amortisation, government grants related to depreciation and share of profit of
equity-method investees.
Adjusted EBITDA is not a defined performance measure in IFRS. The Group’s definition of Adjusted EBITDA may not be
comparable with similarly titled performance measures and disclosures by other entities.
The following tables show the reconciliation of Adjusted EBITDA to profit/(loss) for the years ended December 31, 2019, 2018
and 2017.
Profit/(loss) for the year
Income tax expense
Profit/(loss) before tax
Adjustments for:
- Net finance income/(costs)
- Share of profit/(loss) equity-method investees
- Depreciation
- Amortisation
- Government grants
Adjusted EBITDA
F - 80
2019
(33,680)
2,335
(31,345)
9,868
(1,011)
24,196
917
(1,626)
999
2018
33,119
7,429
40,548
(66,296)
290
10,154
910
(1,061)
(15,455)
2017
(30,845)
2,886
(27,959)
4,004
—
10,861
1,569
(1,068)
(12,593)
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
The Group initially applied IFRS 16 as at January 1, 2019 (see note 5(A)). In applying IFRS 16, in relation to the leases that
were classified as operating leases, the Group recognises depreciation and interest costs, instead of operating lease expense. In
relation to those leases, the Group recognised 13,227 of depreciation charges and 2,635 of additional interest costs from leases
in 2019. Further, the Group used the modified retrospective approach when initially applying IFRS 16 and under such approach
comparative information is not restated.
42 Commitments and contingent liabilities
As at December 31, 2019, the Group is not committed to investing in significant property, plant and equipment, intangibles
assets and other capital expenditure.
Certain financial institutions have provided guarantees as at December 31, 2019 to secure payments to third parties amounting
to 6,770 (1,620 as at December 31, 2018). These guarantees are unsecured and have various maturities extending through
December 31, 2025.
The Group is involved in a number of certain and probable claims (including tax claims) and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of these matters, after the provision accrued, will not
have a material adverse effect on the Group’s consolidated financial position or results of operations (see note 23).
43 Related parties
Related parties of the Group include mainly associates and joint ventures of the Group and the Group’s key management
personnel.
The following tables provide the total amount of transactions that have been entered into with related parties for the relevant
financial year.
(i) Compensation of key management personnel of the Group
The compensation of key management personnel of the Group is analysed as follows:
Directors’ fee
Short-term employee benefits
Social security contributions and defined contribution plans
Employee Benefit Obligations
Total
2019
400
1,704
563
118
2,785
2018
387
1,875
500
110
2,872
2017
270
1,853
500
133
2,756
The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key
management personnel. No loans and/or guarantees have been provided for or agreed to with key management personnel.
(ii) Transactions with associates, joint ventures and other related parties
The following tables provide the total amount of transactions that have been entered into with such related parties for the
relevant financial year. Such transactions have been conducted at arm’s length.
F - 81
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
December 31, 2019
Natuzzi Trading Shanghai Co, Ltd.
Nars Miami LLCC
Natuzzi Design S.a.s.
Natuzzi Arredamenti S.r.l.
Natuzzi Sofa S.r.l.
Total
December 31, 2018
Natuzzi Trading Shanghai Co, Ltd.
Nars Miami LLCC
Natuzzi Design S.a.s.
Natuzzi Arredamenti S.r.l.
Natuzzi Sofa S.r.l.
NA.FO. S.r.l.
Total
December 31, 2017
Nars Miami LLCC
Natuzzi Design S.a.s.
Natuzzi Arredamenti S.r.l.
Natuzzi Sofa S.r.l.
NA.FO. S.r.l.
Total
44
Subsequent events
Sales
36,442
646
1,686
842
249
39,865
Expenses
124
—
—
—
—
124
Amounts owed by
related parties
3,619
169
1,013
367
67
Amounts due to
related parties
124
—
—
—
—
5,235
124
Sales
12,589
776
1,750
1,010
291
—
16,416
Expenses
1,001
—
—
—
—
—
1,001
Amounts owed by
related parties
Amounts due to
related parties
7,383
191
1,338
343
78
—
9,333
1,001
—
—
—
—
3
1,004
Sales
742
1,591
946
310
4
3,593
Expenses
—
—
—
—
—
—
Amounts owed by
related parties
70
930
329
78
—
Amounts due to
related parties
—
—
—
—
8
1,407
8
The following events have occurred in the period between the reporting date and the date of authorisation of these consolidated
financial statements.
(i) Financial support from the Parent’s majority shareholder
In light of the extraordinary challenges imposed by COVID-19 on the Group, on February 28, 2020, the Parent’s majority
shareholder entered into an agreement with it setting forth its undertaking, should the Parent so request, to make advance
payments of up to 15,000 to satisfy the subscription price of a future rights issue. On February 28, 2020, the Parent requested an
initial payment of 2,500 which was received on March 2, 2020.
F - 82
Natuzzi S.p.A. and Subsidiaries
Notes to consolidated financial statements
(Expressed in thousands of euros except as otherwise indicated)
(ii) COVID-19 event
On March 11, 2020, the World Health Organisation declared the Coronavirus COVID-19 outbreak to be a pandemic in
recognition of its rapid spread across the globe, with over 150 countries affected. Many governments have taken increasingly
stringent steps to help contain, and in many jurisdictions, now delay, the spread of the virus, including: requiring self-
isolation/quarantine by those potentially affected, implementing social distancing measures, and controlling or closing borders
and “locking-down” cities/regions or even entire countries.
The COVID-19 outbreak is having a significant impact on global markets driven by supply chain and production disruptions,
workforce restrictions, travel restrictions, reduced consumer spending and sentiment, amongst other factors, which are
negatively affecting companies’ financial performances, liquidity and cash flow projections.
Since the outbreak of the Coronavirus pandemic in Italy and worldwide, the Group has been working relentlessly to guarantee
the health and safety of its employees, customers and suppliers, in compliance with the indications provided by the regional and
national health authorities.
The Group promptly developed a specific Crisis Response Plan and immediately put in place a series of measures at all levels of
its organisation both at headquarters and at the foreign subsidiaries, involving all the relevant functions. The Group Crisis Unit
in Italy is in operation 24 hours a day and it constantly liaises with the foreign group companies; it reviews the situation daily
and adjusts the status of the action plan with the CEO.
All travel abroad, to and from risk areas, has been cancelled or reduced to a minimum, and is limited to guaranteeing operational
requirements, also considering that specific limitations may be placed on travelling to and from Italy. The Group has also been
making wide use of the remote work option, which involves almost the entirety of its resources, to ensure seamless continuity
vis-à-vis the requirements of activities currently under execution.
During the four-month period ended as at April 30, 2020, the COVID-19 outbreak has negatively affected Group’s revenue and
cash flows mainly due to the following reasons: (a) reduction in the consumers’ demand; (b) significant business interruption
arising from the closure of the manufacturing facilities and directly operated stores due to the “lock-down” measures applied by
the public authorities; (c) supply chain and logistic disruptions; and (d) travel restrictions and unavailability of personnel.
However, at the date of the approval of these consolidated financial statements, all the lockdown measures in Italy and in many
other countries have been lifted and the Group’s business has started the so-called “phase 2” which heralds a return to normality.
The plans implemented by management to mitigate the above adverse effects of such event are described in note 3(f) to these
consolidated financial statements.
Furthermore, the Group has performed a sensitivity analysis for the impairment of its financial and non-financial assets as at
December 31, 2019 considering the adverse effect of such event and did not identify any material impairment loss.
F - 83
ITEM 19. EXHIBITS
1.1
2.1
English translation of the by-laws (Statuto) of the Company, as amended and restated as of January 24, 2008 (incorporated by
reference to Exhibit 1.1 to the Form 20-F filed by Natuzzi S.p.A. with the Securities Exchange Commission on June 30, 2008,
file number 001-11854).
Deposit Agreement dated as of May 15, 1993, as amended and restated as of December 31, 2001, among the Company, The
Bank of New York, as Depositary, and owners and beneficial owners of ADRs (incorporated by reference to the Form 20-F
filed by Natuzzi S.p.A. with the Securities and Exchange Commission on April 30, 2019, file number 001-11854).
2.2* Description of Securities registered under Section 12 of the Exchange Act.
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Agreement among the Ministry of Economic Development, Ministry of Labour and Social Policy, INVITALIA, the Region of
Puglia, the Region of Basilicata, Natuzzi S.p.A., Confindustria and the Italian trade union and other entities named therein,
dated as of October 10, 2013 (incorporated by reference to Exhibit 4.1 to the Form 20-F filed by Natuzzi S.p.A. with the
Securities and Exchange Commission on April 30, 2014, file number 001-11854).
Addendum among the Ministry of Economic Development, Confindustria of Bari, Natuzzi S.p.A. and the trade unions named
therein dated as of March 3, 2015, to the agreement dated as of October 10, 2013 (incorporated by reference to Exhibit 4.2 to
the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on April 30, 2015, file number 001-
11854).
Two separate agreements, each among the Ministry of Labor, the Ministry of Economic Development, the Puglia Region, the
Basilicata Region, Natuzzi S.p.A., Confindustria Bari and the Italian trade unions and other entities named therein, each dated
as of March 3, 2015(incorporated by reference to Exhibit 4.3 to the Form 20-F filed by Natuzzi S.p.A. with the Securities and
Exchange Commission on April 30, 2015, file number 001-11854).
English translation of the Memorandum of Understanding between the Ministry of Labor and Social Policy, Natuzzi S.p.A.
and the Italian trade unions (incorporated by reference to Exhibit 4.4 to the Form 20-F filed by Natuzzi S.p.A. with the
Securities and Exchange Commission on May 23, 2016, file number 001-11854).
English translation of the Framework Agreement for Assignment of Receivables between Natuzzi S.p.A. and Muttley S.r.l.,
dated July 9, 2015 (incorporated by reference to Exhibit 4.4 to the Form 20-F filed by Natuzzi S.p.A. with the Securities and
Exchange Commission on May 23, 2016, file number 001-11854).
English translation of agreement among the individuals named therein, dated as of March 27, 2017 (incorporated by reference
to Exhibit 4.6 to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on May 1, 2017, file
number 001-11854).
English translation of agreement among the individuals named therein, dated as of March 27, 2017 (incorporated by reference
to Exhibit 4.7 to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on May 1, 2017, file
number 001-11854).
English translation of the Joint Venture Contract between Natuzzi S.p.A. and Jason Furniture (Hangzhou) CO., Ltd., dated
March 22, 2018, portions of which have been omitted pursuant to a request for confidential treatment. Such omitted portions
have been filed separately with the Securities and Exchange Commission (incorporated by reference to Exhibit 4.8 to the Form
20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on April 30, 2018, file number 001-11854).
English translation of the Agreement for the Sale and Purchase and Subscription of Shares in Natuzzi Trading (Shanghai) Co,
Ltd., dated March 22, 2018 (incorporated by reference to Exhibit 4.9 to the Form 20-F filed by Natuzzi S.p.A. with the
Securities and Exchange Commission on April 30, 2018, file number 001-11854).
4.10† English translation of the agreement among the Company, certain trade unions, Italian authorities and the individuals therein,
dated December 18, 2018 (incorporated by reference to Exhibit 4.10 to the Form 20-F filed by Natuzzi S.p.A. with the
Securities and Exchange Commission on April 30, 2019, file number 001-11854).
4.11*† English translation of the agreement among the Company, certain trade unions, Italian authorities and the individuals therein,
dated December 18, 2019.
4.12* English summary of the agreement between the Company and INVEST 2003 S.r.l. dated February 28, 2020.
8.1* List of Significant Subsidiaries.
12.1* Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2* Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1* Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101* XBRL Instance Document and related items.
*
†
Filed herewith
Portions of this exhibit (indicated by asterisks) have been omitted pursuant to Regulation S-K, Item 601(b)(10). Such omitted
information is not material and would likely cause competitive harm to the registrant if publicly disclosed.
The registrant, Natuzzi S.p.A., hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly
caused and authorized the undersigned to sign this annual report on its behalf.
SIGNATURE
Date: June 15, 2020
NATUZZI S.p.A.
By /s/ Pasquale Natuzzi
Name: Pasquale Natuzzi
Title: Chief Executive Officer
DESCRIPTION OF SECURITIES REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT
As of December 31, 2019, Natuzzi S.p.A. (the “Company,” “we,” “us,” and “our”) had the following classes of securities registered
pursuant to Section 12(b) of the Exchange Act:
Exhibit 2.2
#
I.
II. American Depositary Shares, or ADSs,** each representing five Ordinary Shares
Ordinary Shares, with a par value of €1.00 each*
Title of each class
Trading symbol
Name of each exchange
on which registered
NTZ
NYSE
NYSE
Not for trading, but only in connection with registration of ADSs.
*
** Evidenced by American Depositary Receipts, or ADRs.
Capitalized terms used but not defined herein have the meanings given to them in our annual report on Form 20-F for the fiscal year
ended December 31, 2019, unless otherwise indicated herein.
I.
ORDINARY SHARES
The following description of our share capital and certain material provisions of our corporate rules is a summary and does not purport
to be complete. It is subject to, and qualified in its entirety by, our By-laws (statuto) and Italian corporate law.
A copy of our By-laws is attached to our annual report as Exhibit 1.1. We encourage you to read our By-laws and the applicable
sections of our annual report for additional information.
Share Capital
Our capital stock is composed of Ordinary Shares with a par value of €1.00 each. As of December 31, 2019, our issued share capital
consisted of 54,853,045 Ordinary Shares. All issued shares are fully paid, non-assessable and in registered form.
Form and Transfer of Shares
The Company’s Ordinary Shares are in certificated form and are freely transferable by endorsement of the share certificate by or on
behalf of the registered holder, with such endorsement either authenticated by a notary, in Italy or elsewhere, or by a broker-dealer or
a bank in Italy. The transferee must request that the Company enters his name in the register of shareholders in order to exercise his
rights as a shareholder of the Company.
Dividend Rights
Payment by the Company of any annual dividend is proposed by the board of directors and is subject to the approval of the
shareholders at the annual shareholders’ meeting. Before dividends may be paid out of the Company’s unconsolidated net income in
any year, an amount at least equal to 5% of such net income must be allocated to the Company’s legal reserve until such reserve is at
least equal to one-fifth of the par value of the Company’s issued share capital. If the Company’s share capital is reduced as a result of
accumulated losses, no dividends may be paid until the capital is reconstituted or reduced by the amount of such losses. The Company
may pay dividends out of available retained earnings from prior years, provided that, after such payment, the Company will have a
legal reserve at least equal to the legally required minimum. No interim dividends may be approved or paid.
Dividends will be paid in the manner and on the date specified in the shareholders’ resolution approving their payment (usually within
30 days from their annual general meeting). Dividends that are not collected within five years of the date on which they become
payable are forfeited to the benefit of the Company. Holders of ADSs will be entitled to receive payments in respect of dividends on
the underlying shares through BNY, as ADR Depositary, in accordance with the Deposit Agreement.
Voting Rights
Registered holders of the Company’s Ordinary Shares are entitled to one vote per Ordinary Share.
As a registered shareholder, the Depositary (or its nominee) will be entitled to vote the Ordinary Shares underlying the ADSs. The
Deposit Agreement requires the Depositary (or its nominee) to accept voting instructions from holders of ADSs and to execute such
instructions to the extent permitted by law. Neither Italian law nor the Company’s By-laws limit the right of non-resident or foreign
owners of the Company’s Ordinary Shares to hold or vote shares of the Company.
Pre-emptive Rights
Pursuant to Italian law, holders of Ordinary Shares or of debentures convertible into shares, if any exist, are entitled to subscribe for
the issuance of shares, debentures convertible into shares and rights to subscribe for shares, in proportion to their holdings, unless such
issues are for non-cash consideration or pre-emptive rights are waived or limited and such waiver or limitation is required in the
interest of the Company. There can be no assurance that the holders of ADSs may be able to exercise fully any pre-emptive rights
pertaining to Ordinary Shares.
Liquidation Rights
Pursuant to Italian law and subject to the satisfaction of the claims of all other creditors, shareholders are entitled to a distribution in
liquidation that is equal to the nominal value of their shares (to the extent available out of the net assets of the Company). Holders of
preference shares, if any such shares are issued in the future by the Company, may be entitled to a priority right to any such
distribution from liquidation up to their par value. Thereafter, all shareholders would rank equally in their claims to the distribution or
surplus assets, if any. Ordinary Shares rank pari passu among themselves in liquidation.
II. AMERICAN DEPOSITARY SHARES
The following description of the ADSs and certain material provisions of our corporate rules is a summary and does not purport to be
complete. It is subject to, and qualified in its entirety by the Deposit Agreement (as defined below), the form of ADS, which contain
the terms of the ADSs, and any applicable law, as amended from time to time. In the following description, an “Owner” is the person
in whose name an ADR is registered on the books of the Depositary (as defined below).
A copy of the Deposit Agreement is attached to our annual report as Exhibit 2.1. Copies of the Deposit Agreement are also available
for inspection at the offices of our Depositary.
We encourage you to read the Deposit Agreement, the ADS form and the applicable sections of our annual report for additional
information.
General
In the U.S., we trade ADSs representing our Ordinary Shares, which are evidenced by ADRs. Our ADSs, each representing five
Ordinary Shares, are traded on the NYSE, under the ticker symbol NTZ.
The Bank of New York Mellon acts as depositary for our ADSs (the “Depositary”). In its capacity, the Depositary will register and
deliver the ADSs, each representing an ownership interest in (i) five Ordinary Shares deposited with the custodian, as agent of the
Depositary, under the deposit agreement dated May 15, 1993, as amended and restated on December 23, 1996 and December 31,
2001, between us, the Depositary, and Owners and beneficial owners from time to time of the ADSs (the “Deposit Agreement”), and
(ii) any other securities, cash or other property which may be held by the Depositary.
The principal executive office of the Depositary and the office at which the ADSs will be administered is currently located at 240
Greenwich Street, New York, New York 10286, United States.
Voting
Owners are not entitled to vote Ordinary Shares directly. They may only vote by providing instructions to the Depositary according to
the voting procedures described below.
As soon as practicable after receipt of notice of any meeting or solicitation of proxies of holders of Ordinary Shares or other deposited
securities, if requested in writing by the Company, the Depositary will, as soon as practicable thereafter, mail to the Owners of ADRs
a notice, the form of which notice will be in the sole discretion of the Depositary, which will contain (a) such information as is
contained in such notice of meeting (or, if requested by the Company a summary of such information provided by the Company), (b) a
statement that the Owners of ADRs as of the close of business on a specified record date will be entitled, subject to any applicable
provisions of Italian law and of the Articles of Association of the Company (which provisions, if any, shall be summarized in such
notice to the extent that such provisions are material), to instruct the Depositary as to the exercise of the voting rights, if any,
pertaining to the amount of Ordinary Shares or other deposited securities represented by their respective ADSs, (c) a statement as to
the manner in which such instructions may be given, (d) a statement that beneficial owners on the specified record date may attend,
but not vote or speak at, such meeting and (e) a statement as to the manner in which such beneficial owners may request from the
Depositary an admission ticket for such meeting. Upon the written request of an Owner of an ADR on the specified record date,
received on or before the date established by the Depositary for such purpose, the Depositary will endeavor insofar as practicable to
vote or cause to be voted the amount of Ordinary Shares or other deposited securities represented by such ADSs evidenced by such
ADR in accordance with the instructions set forth in such request.
The Depositary will not itself exercise any voting discretion over any deposited securities. Upon the written request of an Owner (or if
DTC is the Owner, a participant in DTC’s book-entry system) on behalf of a beneficial owner on the specified record date, received on
or before the date established by the Depositary for such purpose, the Depositary will (a) as early as practicable prior to such meeting
issue to such beneficial owner an admission ticket (in the form provided by the Company) for such meeting and (b) notify the
Company of the identity of such beneficial owner as promptly as practicable thereafter (but in any case at least two business days prior
to such meeting).
Subject to the rules of any securities exchange on which ADSs or the deposited securities represented thereby are listed, if requested
by the Company, the Depositary will, at least two business days prior to the date of such meeting, deliver to the Company, to the
attention of its Secretary, copies of all instructions received from Owners in accordance with which the Depositary will vote, or cause
to be voted, the deposited securities represented by the ADSs evidenced by such ADRs at such meeting.
Share Dividends and Other Distributions
We may make various types of distributions with respect to our Ordinary Shares, as detailed below. The Depositary will pay to
Owners the dividends or other distributions it or the custodian receives on Ordinary Shares in the following manner:
• Cash. Whenever the Depositary or, on its behalf, its agent receives any cash dividend or other cash distribution on any
deposited securities, the Depositary will, if at the time of receipt thereof any amounts received in a foreign currency can
in the judgment of the Depositary be converted on a reasonable basis into U.S. dollars transferable to the U.S, and
subject to the Deposit Agreement, convert or will cause its agent to convert, as promptly as practicable after its receipt of
such dividend or distribution (unless otherwise prohibited or prevented by law), such dividend or distribution into dollars
and will, as promptly as practicable, distribute the amount thus received (net of the applicable expenses of the
Depositary) to the Owners of ADRs entitled thereto, provided, however, that in the event that the Company or an agent
of the Company or the Depositary is required to withhold and does withhold from such cash dividend or other cash
distribution in respect of any deposited securities an amount on account of taxes, the amount distributed to the Owners
shall be reduced accordingly.
•
Shares. If any distribution consists of a dividend in, or free distribution of, Ordinary Shares, the Depositary may or will,
if the Company so requests, distribute, as promptly as practicable to the Owners of outstanding ADRs entitled thereto,
additional ADRs evidencing an aggregate number of ADSs representing the amount of Ordinary Shares received as such
dividend or free distribution subject to the terms and conditions of the Deposit Agreement, including the withholding of
any applicable tax or other governmental charge and the payment of the applicable fees of the Depositary.
In lieu of delivering ADRs for fractional ADSs in any such case, the Depositary will sell the amount of Ordinary Shares
represented by the aggregate of such fractions and distribute the net proceeds, all in the manner and subject to the
conditions set forth in the Deposit Agreement. If additional ADRs are not so distributed, each ADS shall thenceforth also
represent the additional Ordinary Shares distributed upon the deposited securities represented thereby.
• Rights. In the event that the Company offers or causes to be offered to the holders of any deposited securities any rights
to subscribe for additional Ordinary Shares or any rights of any other nature, the Depositary, after consultation with the
Company, will have discretion as to the procedure to be followed in making such rights available to any Owners or in
disposing of such rights on behalf of any Owners and making the net proceeds available to such Owners or, if by the
terms of such rights offering or for any other reason it would be unlawful for the Depositary either to make such rights
available to any Owners or to dispose of such rights and make the net proceeds available to such Owners, then the
Depositary will allow the rights to lapse. If at the time of the offering of any rights the Depositary determines that it is
lawful and feasible to make such rights available to all or certain Owners but not to other Owners, the Depositary may,
and at the request of the Company will, distribute to any Owner to whom it determines the distribution to be lawful and
feasible, in proportion to the number of ADSs held by such Owner, warrants or other instruments therefor in such form
as it deems appropriate. The Depositary will not be responsible for any failure to determine that it may be lawful or
feasible to make such rights available to Owners in general or any Owner in particular.
If the Depositary determines that it is not lawful or feasible to make such rights available to all or certain Owners, it
may, and at the request of the Company will, use its best efforts that are reasonable under the circumstances to, sell the
rights, warrants or other instruments in proportion to the number of ADSs held by the Owners to whom it has
determined it may not lawfully or feasibly make such rights available. In each such instance, (a) the Depositary will
solicit a bid for all such rights, warrants or other instruments from each of at least five firms that regularly participate in
the international securities markets and that are registered as brokers or dealers in Italy or the United Kingdom and
(b) after soliciting such bids, the Depositary will (i) inform Mr. Pasquale Natuzzi, Mrs. Annunziata Natuzzi and
Miss Anna Maria Natuzzi of the identity of the highest bidder responding to such solicitation (if any) and (ii) offer all
such rights, warrants or other instruments to Mr. Pasquale Natuzzi, Mrs. Annunziata Natuzzi and Miss Anna Maria
Natuzzi (acting as a group) at a price equal to the bid of such highest bidder (or if the Depositary shall obtain no bids in
response to its solicitation, at such price as Mr. Natuzzi, Mrs. Natuzzi and Miss Natuzzi (acting as a group) will bid. The
Depositary will allocate the net proceeds of such sales (net of the applicable fees of the Depositary, any expenses in
connection with such sale and all taxes and governmental charges payable in connection with such rights and subject to
the terms and conditions of the Deposit Agreement) for the account of such Owners otherwise entitled to such rights,
warrants or other instruments, upon an averaged or other practical basis without regard to any distinctions among such
Owners because of exchange restrictions or the date of delivery of any ADR or otherwise. Such proceeds shall be
distributed as promptly as practicable in accordance with the procedures set forth in the Deposit Agreement regarding
cash distributions.
• Other Distributions. Whenever the Depositary receives any distribution other than those described above, the
Depositary will, as promptly as practicable, cause the securities or property received by it to be distributed to the Owners
of ADRs entitled thereto, in any manner that the Depositary may deem equitable and practicable for accomplishing such
distribution; provided, however, that if in the opinion of the Depositary such distribution cannot be made proportionately
among the Owners of ADRs entitled thereto, or if for any other reason the Depositary deems such distribution not to be
feasible, the Depositary may, after consultation with the Company, adopt such method as it may deem equitable and
practicable for the purpose of effecting such distribution, including, but not limited to, the public or private sale of the
securities or property thus received, or any part thereof, and the net proceeds of any such sale (net of the applicable fees
of the Depositary and any expenses in connection with such sale) shall be distributed by the Depositary to the Owners of
ADRs entitled thereto as in the case of a distribution received in cash, all in the manner and subject to the conditions set
forth in the Deposit Agreement.
Procedures for Transmitting Notices, Reports and Proxy Soliciting Material
The Depositary will make available for inspection by Owners at its office any reports, notices and other communications, including
any proxy soliciting material, received from the Company which are both (a) received by the Depositary, the custodian, or a nominee
of either as the holder of the deposited securities and (b) generally transmitted to the holders of such deposited securities by the
Company.
The Depositary will also make available for inspection by Owners at its office copies of reports, notices and communications
furnished by the Company regarding any meeting of holders of Ordinary Shares or other deposited securities, or of any adjourned
meeting of such holders, or of the taking of any action in respect of any cash or other distributions (other than an offering of rights).
The Depositary will also make available for inspection by Owners at the Depositary’s office, at the office of the custodian and at any
other designated transfer offices: (i) a copy of the provisions of or governing the Ordinary Shares and any other deposited securities
issued by the Company or any affiliate of the Company, as amended from time to time; and (ii) a copy of the financial statements
upon which holders of the Ordinary Shares are to vote at an annual general meeting of such holders.
Any and all notices to be given to any Owner will be deemed to have been duly given if personally delivered or sent by mail or cable,
telex or facsimile transmission confirmed by letter, addressed to such Owner at the address of such Owner as it appears on the transfer
books for ADRs of the Depositary, or, if such Owner will have filed with the Depositary a written request that notices intended for
such Owner be mailed to some other address, at the address designated in such request. Delivery of a notice sent by mail or cable,
telex or facsimile transmission will be deemed to be effective at the time when a duly addressed letter containing the same (or a
confirmation thereof in the case of a cable, telex or facsimile transmission) is deposited, postage prepaid, in a post-office letter box.
Amendment and Termination
The form of the ADRs and any provisions of the Deposit Agreement may at any time and from time to time be amended by agreement
between the Company and the Depositary in any respect they may deem necessary or desirable. Any amendment that imposes or
increases any fees or charges (other than taxes and other governmental charges, registration fees and cable, telex or facsimile
transmission costs, delivery costs or other such expenses), or that otherwise prejudices any substantial existing right of Owners, will,
however, not become effective as to outstanding ADRs until the expiration of 30 days after notice of such amendment is given to the
Owners of outstanding ADRs. Every Owner of an ADR at the time any amendment becomes effective will be deemed, by continuing
to hold such ADR, to consent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby. In no
event will any amendment impair the right of the Owner of any ADR to surrender such ADR and receive therefor the deposited
securities represented thereby except in order to comply with mandatory provisions of applicable law.
The Depositary at any time, at the direction of the Company, will terminate the Deposit Agreement by mailing notice of such
termination to the Owners of all ADRs then outstanding at least 30 days prior to the date fixed in such notice. The Depositary may
likewise terminate the Deposit Agreement by mailing such notice of termination to the Company and the Owners of all ADRs then
outstanding, such termination to be effective on a date specified in such notice not less than 30 days after the date thereof, if at any
time 60 days will have expired after the Depositary will have delivered to the Company a written notice of its election to resign and a
successor depositary will not have been appointed and accepted its appointment as provided in the Deposit Agreement. On and after
the date of termination, the Owner of an ADR will, upon (a) surrender of such ADR at the office of the Depositary, (b) payment of the
fee of the Depositary for the surrender of ADRs referred to in the Deposit Agreement, and (c) payment of any applicable taxes or
governmental charges, be entitled to delivery, to the Owner or upon the Owner’s order, of the amount of deposited securities
represented by the ADSs evidenced by such ADR. If any ADRs remain outstanding after the date of termination, the Depositary
thereafter will discontinue the registration of transfers of ADRs, will suspend the distribution of dividends to the Owners thereof, and
will not give any further notices or perform any further acts under the Deposit Agreement, except that the Depositary will continue to
collect dividends and other distributions pertaining to deposited securities, will sell rights as provided in the Deposit Agreement, and
will continue to deliver deposited securities, together with any dividends or other distributions received with respect thereto and the
net proceeds of the sale of any rights or other property, in exchange for ADRs surrendered to the Depositary (after deducting, in each
case, the fee of the Depositary for the surrender of an ADR, any expenses for the account of the Owner of such ADR in accordance
with the terms and conditions of the Deposit Agreement, and any applicable taxes or governmental charges). At any time after the
expiration of one
year from the date of termination, the Depositary may sell the deposited securities then held under the Deposit Agreement and may
thereafter hold uninvested the net proceeds of any such sale, together with any other cash then held by it thereunder, unsegregated and
without liability for interest, for the pro rata benefit of the Owners of ADRs that have not theretofore been surrendered, such Owners
thereupon becoming general creditors of the Depositary with respect to such net proceeds. After making such sale, the Depositary
shall be discharged from all obligations under the Deposit Agreement, except to account for such net proceeds and other cash (after
deducting, in each case, the fee of the Depositary for the surrender of an ADR, any expenses for the account of the Owner of such
ADR in accordance with the terms and conditions of the Deposit Agreement, and any applicable taxes or governmental charges) and
except as otherwise provided the Deposit Agreement. Upon the termination of the Deposit Agreement, the Company will be
discharged from all obligations under the Deposit Agreement except for its obligations to the Depositary with respect to
indemnification, charges, and expenses.
Books of Depositary
The Depositary will keep books for the registration and transfers of ADRs, which at all reasonable times will be open for inspection
by the Owners, provided that such inspection will not be for the purpose of communicating with Owners for an object other than the
business of the Company, including, without limitation, a matter related to the Deposit Agreement or the ADRs.
The Depositary may close the transfer books after consultation with the Company to the extent practicable, at any time or from time to
time, when deemed expedient by it in connection with the performance of its duties under the Deposit Agreement or at the request of
the Company, provided that any such closing of the transfer books shall be subject to the provisions of the Deposit Agreement that
limit the suspension of withdrawals of Ordinary Shares.
Withdrawal and Cancellation
Upon surrender at the office of the Depositary of an ADR for the purpose of withdrawal of the deposited securities represented by the
ADSs evidenced thereby, and upon payment of the fee of the Depositary provided in such ADR, and subject to the terms and
conditions of the Deposit Agreement, the Owner of the surrendered ADR is entitled to delivery, to him or upon his order, of the
deposited securities at the time represented by the ADSs for which the surrendered ADR is issued. Delivery of such deposited
securities may be made by the delivery of (a) certificates in the name of such Owner or as ordered by him or certificates properly
endorsed or accompanied by proper instruments of transfer to such Owner or as ordered by him and (b) any other securities, property
and cash to which such Owner is then entitled in respect of the surrendered ADR to such Owner or as ordered by him. Such delivery
will be made at the option of such Owner, either at the office of the custodian or at the office of the Depositary, as provided in the
Deposit Agreement; provided that the forwarding of certificates for Ordinary Shares or other deposited securities for such delivery at
the office of the Depositary will be at the risk and expense of such Owner.
As a condition precedent to the execution and delivery, registration of transfer, split-up, combination or surrender of any ADR, the
delivery of any distribution thereon, or withdrawal of any deposited securities, the Company, the Depositary, the custodian or the
registrar may require payment from the depositor of Ordinary Shares or the presenter of the ADR of a sum sufficient to reimburse it
for any tax or other governmental charge and any stock transfer or registration fee with respect thereto (including any such tax, charge
or fee with respect to Shares being deposited or withdrawn) and payment of any applicable fees of the Depositary, may require the
production of proof satisfactory to it as to the identity and genuineness of any signature and may also require compliance with such
reasonable regulations the Depositary may establish consistent with the provisions of the Deposit Agreement or the ADR.
The delivery of ADRs against deposits of Ordinary Shares generally or against deposits of particular Ordinary Shares may be
suspended, or the transfer of ADRs in particular instances may be refused, or the registration of transfer of outstanding ADRs or the
combination or split-up of ADRs generally may be suspended, during any period when the transfer books of the Depositary are closed,
or if any such action is deemed necessary or advisable by the Depositary or the Company at any time or from time to time because of
any requirement of law or of any government or governmental body or commission, or under any provision of the Deposit Agreement
or the ADRs, or for any other reason.
Notwithstanding the provisions of the Deposit Agreement and the ADRs, the surrender of outstanding ADRs and withdrawal of
deposited securities may be suspended only for:
•
•
•
•
temporary delays caused by closing the transfer books of the Depositary or the Company or the deposit of Ordinary
Shares in connection with voting at a shareholders’ meeting, or the payment of dividends;
the payment of fees, taxes and similar charges;
compliance with any U.S. or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of the
deposited securities; or
any other reason that may at any time be specified in paragraph I(A)(1) of the General Instructions to Form F-6, as from
time to time in effect, or any successor provision thereto.
Limitations on Obligations and Liability of the Company and Depositary
Neither the Depositary nor the Company will incur any liability to any Owner or beneficial owner:
•
•
if by reason of any provision of any present or future law or regulation of the U.S. or any other country, or of any other
governmental or regulatory authority, or by reason of any provision, present or future, of the Articles of Association of
the Company, or by reason of any act of God or war or other circumstances beyond its control, the Depositary or the
Company will be prevented or forbidden from or be subject to any civil or criminal penalty on account of doing or
performing any act or thing which by the terms of the Deposit Agreement it is provided shall be done or performed;
by reason of any non-performance or delay, caused as aforesaid, in the performance of any act or thing which by the
terms of the Deposit Agreement it is provided will or may be done or performed, or by reason of any exercise of, or
failure to exercise, any discretion provided for in the Deposit Agreement.
Neither the Company nor the Depositary assumes any obligation or will be subject to any liability under the Deposit Agreement to
Owners or beneficial owners of ADRs, except that they agree to perform their obligations specifically set forth in the Deposit
Agreement without negligence or bad faith. The Depositary shall not be subject to any liability with respect to the validity or worth of
the deposited securities.
Neither the Depositary nor the Company shall be under any obligation to appear in, prosecute or defend any action, suit, or other
proceeding in respect of any deposited securities or in respect of the ADRs, which in its opinion may involve it in expense or liability,
unless indemnity satisfactory to it against all expenses and liability will be furnished as often as may be required, and the custodian
will not be under any obligation whatsoever with respect to such proceedings, the responsibility of the custodian being solely to the
Depositary.
Neither the Depositary nor the Company will be liable for any action or nonaction by it in reliance upon the advice of or information
from legal counsel, accountants, any person presenting Ordinary Shares for deposit, any Owner or beneficial owner of an ADR, or any
other person believed by it in good faith to be competent to give such advice or information.
The Depositary will not be responsible for any failure to carry out any instructions to vote any of the deposited securities, or for the
manner in which any such vote is cast or the effect of any such vote, provided that any such action or nonaction is in good faith. The
Depositary will not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or
omission of the Depositary or in connection with a matter arising wholly after the removal or resignation of the Depositary, provided
that in connection with the issue out of which such potential liability arises, the Depositary performed its obligations without
negligence or bad faith while it acted as Depositary.
No disclaimer of liability under the Securities Act of 1933 is intended by any provisions of the Deposit Agreement.
Certain information in this document, marked by [***], has been excluded because it is not material and would likely cause
competitive harm to the registrant if publicly disclosed.
Exhibit 4.11
RECORD OF AGREEMENT
On 18 December 2019, at the Department of Labour and Social Politics, a meeting was held to carry out the joint examination
requested by NATUZZI SPA aimed to be granted an extension of payments from the CIGS (Cassa Integrazione Guadagni
Straordinaria, Extraordinary Redundancy Benefit Fund), after the conclusion of a “defensive solidarity contract” under Section 22-bis
of Legislative Decree 148/2015.
The following parties appeared:
-
-
-
-
The Department of Labour and Social Politics, represented by Mr Andrea Annesi of the VI Division of the Direzione
Generale dei rapporti lavoro e delle relazioni industriali (General Directorate for labour and industrial relationships).
The Region of Puglia, represented by Mr Stefano Basile.
NATUZZI S.p.A., represented by Mr Michele Onorato and Ms Patrizia Ragazzo, assisted by Mr Claudio Schiavone,
solicitor.
Mr Fabrizio Pascucci, Mr Salvatore Federico, Mr Gianni Fiorucci, Ms Tatiana Fazi, Ms Emanuela Loretone,
respectively as national representatives of FENEAL UIL and UILTUCS, FILCA CISL, FILLEA CGIL, FILCAMS
CGIL, along with the regional and territorial RSU (unified trade union representations) and RSA (corporate trade union
representations).
WHEREAS
-
-
Natuzzi SpA, following the ministerial agreement of December 18, 2018, submitted a request for an extension after the
conclusion of a “defensive solidarity contract” under Section 22-bis of Legislative Decree 148/2015;
Since the expiration of the aforementioned period during which the Company is allowed to receive payments from the CIGS is
approaching, the Company applied to this office for a joint examination of its new request and the parties were convened on the
date of this record;
-
During the meeting, the Company declared as follows:
o
o
Natuzzi S.p.A. (VAT No 03513760722), with registered office in Santeramo in Colle, via Iazzitiello, No 47 is the
leading Italian company in the furniture industry;
The Company is classified in the industrial sector for social security purposes. The Company’s relations with its
employees are regulated by the following agreements:
The CCNL (Contratto Collettivo Nazionale di Lavoro, collective bargaining agreement) for employees working in the
Wood and Furniture industries.
The CCNL for employees working in the Distribution and Services industries.
o
As of 30 November 2019, the Company’s staff totalled 2,003 employees (excluding Top Managers—Dirigenti)
and was made up as follows:
-
-
◾ 95 Middle Managers (Quadri);
◾ 372 Clerks;
◾ 99 Foreman and Supervisory Workers;
◾ 1,437 Factory Workers.
o
The above personnel works in the following production units:
Units
Middle
Managers
(Quadri)
Clerks
Foreman and
Supervisory
Workers
Factory
Workers
Total
Santeramo In Colle (BA) Via Iazzitiello No 47
Santeramo In Colle (BA) SS 271 for Matera Km 50.2
Laterza (TA) Contrada Madonna della Grazie
Matera (MT) Via Appia Antica s.c. Km 13.5
Matera (MT) Zona Industriale La Martella
Altamura Graviscella (BA)
Total
89
1
2
2
1
95
301
10
25
3
15
18
372
12
17
27
9
4
30
99
104
255
391
186
75
426
1,437
506
283
445
200
95
474
2,003
o
The Company took measures aimed to increase its competitiveness and strengthen its position on the market, and
consequently to maintain its employment levels. The above measures included substantial industrial reconversion
activities aimed to attract the Italian “living room” (furniture) district to “high end” production with the purpose of
meeting market demand, which perceives the “Made in Italy” production as more valuable, provided that
qualitative and design standards are above the market average;
2
o
o
o
o
In line with the agreements concluded on December 14, 2018, December 18, 2018, July 4, 2019 and November 7,
2019 at the Task Force of the Region of Puglia and at the Department of Labour, in compliance with the Business
Plan submitted on November 23, 2018 by the Trade Union Organizations to the Institutions and undersigned on
June 28, 2018, as amended from time to time, which provides, among other things, for a burdensome and complex
process of industrial re-organisation, investment and requalification of the surplus staff, an articulated organization
of the production structure was put in place, as necessary to rationalize the production and logistic units as well as
the offices devoted to the “living room perimeter” already included in the scope of the extension of the “defensive
solidarity contract” under Section 22-bis of Legislative Decree 148/2015 during 2019;
The measures implemented so far by the Company have led to a decrease in the declared surpluses from 850 FTE
to the current 360 FTE working units;
Nevertheless, as of today, there is still the need to keep implementing the measures planned pursuant to the
Business Plan in order to ensure the continuity of the business activities and the protection of employment levels;
These purposes shall also be pursued through a series of institutional measures, as announced at the meeting for
the periodic monitoring of the implementation of the Business Plan along with the trade union organizations held
on November 14, 2019 at the Ministry of Economic Development; these measures are designed to foster the
relaunch of the Company, carried out together with the Regions, in order to enable the Company to fulfil its
obligations aimed to ensure the competitiveness of the business and the protection of employment levels in the
territories.
-
-
-
•
•
Therefore, the Parties considered it necessary to further extend payments from the CIGS, after the conclusion of a “defensive
solidarity contract” under Section 22-bis of Legislative Decree 148/2015, by way of derogation from the time limits set forth by
Sections 4 and 22 of Legislative Decree 148/2015;
The Region of Puglia acknowledges the strategic commercial relevance of Natuzzi Spa and confirms what has already been
shared with the Company as regards the implementation of active policies for the workers;
The Region of Basilicata has submitted its notice (attached hereto) by means of which it acknowledges the strategic commercial
relevance of the Company and undertakes to arrange active policy initiatives related to workers with the Company.
Section 1, paragraph 133 of Act No 205/2017, which introduces Section 22-bis of Legislative Decree 148/2015, as amended by
Section 25 of Law Decree 119/2018;
Section 26-bis of Law Decree 4/2019 introduced by the conversion law 26/2019;
HAVING REGARD TO
• Ministerial Circular No 6 of April 3, 2019.
• Ministerial Circular No 2 of February 7, 2018.
• Ministerial Circular No 16 of October 29, 2018.
3
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS
1)
The above recitals form an integral part of this agreement.
2) Under Section 22-bis of Legislative Decree 148/2018, introduced by Section 1, paragraph 133, of Act No 205/2017, as
amended by Section 25 of Law Decree 119/2018, NATUZZI SPA will apply for an extension of payments from the
CIGS (Cassa Integrazione Guadagni Straordinaria, Extraordinary Redundancy Benefit Fund) scheme after the
conclusion of a “defensive solidarity contract” to the benefit of a maximum of 360 FTE working units within the
maximum number of 1,529 working units, as specified below:
Units
Middle
Managers
(Quadri)
Clerks
Foreman and
Supervisory
Workers
Factory
Workers
Santeramo In Colle (BA) Via Iazzitiello No 47
Santeramo In Colle (BA) SS 271 for Matera Km 50.2
Laterza (TA) Contrada Madonna della Grazie
Matera (MT) Via Appia Antica s.c. Km 13.5
Matera (MT) Zona Industriale La Martella
Total
89
1
2
2
1
95
301
10
25
3
15
354
12
17
27
9
4
69
104
255
391
186
75
1,011
Total
506
283
445
200
95
1,529
3)
The Company will request payments from the CIGS from January 1, 2020 to September 23, 2020 (pursuant to the
calculation carried out at the beginning of the new five-year period).
4) Working hours will be reduced by an average not higher than 30% on a monthly basis in consideration of a 40-hour
work week and in any event in compliance with limits provided for by the applicable law. Working hours will be
reduced, depending on corporate needs, vertically (single days) and/or horizontally.
5) Without prejudice to the corporate average reduction of working hours of no more than 30%, the maximum individual
reduction will be implemented in such a way as to guarantee compliance with the percentage set forth in Legislative
Decree 148/2015 for the reduction of the individual average by 70% over the period of extension of the “defensive
solidarity contract.”
6) Without prejudice to the agreed reduction percentage, in compliance with the technical, organisational and production
requirements and with the trend of the order flow compared to market demand, and taking into account the specific
needs of the single unit that will be shared with the unitary trade union representatives to guarantee a fair distribution of
the working hour reduction, different reduction solutions may be requested, both vertically (single days) and/or
horizontally (hourly reduction on a daily basis); this will also take place with reference to the production rationalizations
and the different needs of the departments, as well as specific production needs (models, versions and organizational,
technological and production features), as expressed by single sites in terms of productivity, quantity and quality and
product features.
4
7)
Section 21, paragraph 5 of Legislative Decree 148/2015 allows for a decrease in the reduction of working hours to meet
temporary needs of increased workloads.
8) As a result of the above reduction of working hours, the direct, indirect and deferred remuneration, as well as the
contractual and/or statutory schemes will be determined and paid in proportion to the actual work performance in
compliance with applicable law. The severance indemnity fund will be paid under Section 21, paragraph 5, of
Legislative Decree 148/2015.
9)
The Company will advance the salary supplementation payments to the employees concerned at their usual pay dates.
10)
In order to rationalise inspections and make them more efficient, the Company will request their centralisation at the ITL
(Ispettorato Nazionale del Lavoro, National Labour Inspectorate) of Bari.
11) The Company quantified the cost for the extension of the payments from the CIGS scheme after the conclusion of the
“defensive solidarity contract” as a total expenditure of [***].
12) The measures envisaged by the Plan submitted by the Company will be discussed during special meetings between the
Parties at the Company’s headquarters on a three-monthly basis or upon request. This will allow the Parties to monitor
the management of the “defensive solidarity contract” and the evolution of the corporate situation.
13) The measures necessary to implement the resolutions of the Region of Puglia and of the Region of Basilicata regarding
the Agreement on the “Area Murgiana” for the upholstered furniture sector will be adopted.
By signing this record, the Parties acknowledge that they concluded their joint examination and reached the agreement under
Section 22-bis of Legislative Decree 148/2015.
The Department of Labour and Social Politics acknowledged the agreement between the Parties and declared that the joint
examination procedure under Section 24 of Legislative Decree 148/2015 was concluded with a positive outcome.
Having concluded its mediation activity, this Office will forward this record promptly to the IV Division of the Direzione Generale
degli Ammortizzatori Sociali e della Formazione (Directorate-General for Social Safety Nets and Training) for its preliminary
inquiries and decision.
This record was read, confirmed and signed as a true and correct record.
DEPARTMENT OF LABOUR AND SOCIAL POLITICS
/S/[ILLEGIBLE]
REGION OF PUGLIA
/S/ Stefano Basile
5
NATUZZI SPA
/S/ Michele Onorato
/S/ Patrizia Ragazzo
/S/ Claudio Schiavone
TRADE UNION ORGANISATIONS
/SS/[ILLEGIBLE]
RSU/RSA
/SS/[ILLEGIBLE]
6
Summary Translation of the
Agreement with Invest 2003 S.r.l.
dated February 28, 2020
Exhibit 4.12
Parties
• Natuzzi S.p.A. (the “Company”)
•
Invest 2003 S.r.l. (the “Shareholder”)
Whereas
•
•
The coronavirus pandemic resulted in a revision of the Company’s business plan approved by the Company’s board of
directors in October 2019 (the “Plan”) and in the adoption by the Company of certain actions to mitigate the impacts on
production levels and cash flow, including the overall revision of operating expenses, the deferral of some investments
and the shift of part of the production from the plant located in China to other plants within the Group.
In order to support the financial needs of the Company resulting from these extraordinary challenges, the Shareholder
intends to guarantee to the Company that it will make advance payments for a future rights issue up to a total amount of
Euro 15,000,000.00 (fifteen million/00), pending the approval and execution of a rights issue for a minimum amount of
Euro 15,000,000.00 (fifteen million/00) (the “Rights Issue”).
Amount and Purpose of the Payments
The Shareholder undertakes to make advanced payments to the Company for the Rights Issue to be approved by the Company’s
shareholders and executed by the Company, in one or more instalments at the request of the Company, for an amount of up to Euro
15,000,000.00 (fifteen million/00) to cover the actual and current economic and financial needs of the Company during the period of
implementation of the Plan and until the deadline set for the approval of the Rights Issue and its execution.
Disbursements
Disbursements shall be made by the Shareholder within five working days of the receipt of a written communication from the
Company containing details of the actual financial needs of the Company and the related amount of the Shareholder’s contribution
deemed necessary, specifying the bank and the account number to which the bank transfer shall be made.
The transfer of the amount of each disbursement to the specified bank account shall be deemed equivalent, to all intents and purposes,
to the payment of such amount to the Company, which shall, at the same time, issue a receipt of the payment.
Rights Issue
The Company undertakes to do everything in its power to ensure that, by no later than September 30, 2020 (the “First Term”), a
shareholders’ meeting will be held to approve the Rights Issue reserved for subscription by all shareholders for a minimum amount
(including any share premium) of Euro 15,000.000.00 (fifteen million/00), to be fully paid by December 31, 2020 (the “Second
Term”), even in several tranches, by means of a cash payment, and to grant the Company’s board of directors all the powers necessary
to carry out the Rights Issue according to the terms and conditions that will be determined by the Company’s board of directors.
By signing the agreement, the Shareholder expresses his intention to vote in favor of the Rights Issue and to subscribe it for the
amount necessary to reach the minimum total amount of Euro 15,000,000.00 (fifteen million).
Condition Subsequent and Reimbursement
The advanced payments are to be considered payments for the future Rights Issue and, therefore, are subject to the condition
subsequent consisting in the failure to approve the Rights Issue by the First Term and to execute it by the Second Term.
Consequently, if by the First Term the Rights Issue will not have been approved or if by the Second Term the Rights Issue will not
have been executed, the sums paid by the Shareholder shall be immediately reimbursed by the Company to the Shareholder, in whole
or in part, to the extent they exceed the amount of the Rights Issue actually executed by the Second Term.
After each advanced payment has been made, such payments must be recorded by the Company in a special reserve.
Non-material Terms
The agreement contains terms concerning the following non-material matters, which have been omitted from this summary:
•
•
•
amendments;
law application and jurisdiction;
novation.
Exhibit 8.1
Percentage of
31/12/2018
Share/
quota capital
Ownership
Activity
registered office
(1)
100.00 RON 109,271,750 Baia Mare, Romania
(1)
100.00 CNY 106,414,300 Shanghai, China
(1)
100.00 BRL 157,654,283 Salvador de Bahia, Brazil
(2)
Santeramo in Colle, Italy
99.99 EUR 4,420,000
(3)
Bari, Italy
100.00 EUR 1,000,000
(4)
Santeramo in Colle, Italy
100.00 EUR 2,800,000
Santeramo in Colle, Italy
100.00 EUR 10,000
(4)
High Point, N. Carolina, USA (4)
100.00 USD 89
(4)
Madrid, Spain
100.00 EUR 386,255
(4)
Dietikon, Switzerland
100.00 CHF 2,000,000
(4)
Köln, Germany
100.00 EUR 25,000
(4)
100.00 JPY 28,000,000
Tokyo, Japan
(4)
100.00 GBP 25,349,353 London, UK
(4)
Cardiff (UK)
(4)
(4)
High Point, N. Carolina, USA (4)
(4)
(4)
(4)
(4)
(5)
(6)
(6)
(6)
100.00 RUB 8,700,000 Moscow, Russia
100.00 INR 16,200,000 New Delhi, India
51.00 USD 4,955,186
99.00 MXN 69,195,993 Mexico City, Mexico
100.00 EUR 200,100
96.50 CNY 100,000
100.00 AUD 320,002
100.00 EUR 34,605,000 Amsterdam, Holland
100.00 EUR 20,000
96.50 CNY 124,154,580 Shanghai, China
100.00 EUR 14,000,000 Santeramo in Colle, Italy
Paris, France
Shanghai, China
Sydney, Australia
Santeramo in Colle, Italy
— GBP 100
List of Significant Subsidiaries:
Name
Italsofa Romania S.r.l.
Natuzzi (China) Ltd
Italsofa Nordeste S/A
Natco S.p.A.
I.M.P.E. S.p.A.
Nacon S.p.A.
Lagene S.r.l.
Natuzzi Americas Inc.
Natuzzi Iberica S.A.
Natuzzi Switzerland AG
Natuzzi Germany Gmbh
Natuzzi Japan KK
Natuzzi Services Limited
Natuzzi UK Retail Limited
Natuzzi Russia OOO
Natuzzi India Furniture PVT Ltd
Natuzzi Florida LLC
Natmex S.DE.R.L.DE.C.V
Natuzzi France S.a.s.
Softaly (Furniture) Shanghai Co. Ltd
Natuzzi Oceania PTI Ltd
Natuzzi Netherlands Holding
New Comfort S.r.l.
Italsofa Shanghai Ltd
Natuzzi Trade Service S.r.l.
Percentage of
31/12/2019
100.00
100.00
100.00
99.99
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
70.00
100.00
100.00
51.00
99.00
100.00
96.50
100.00
100.00
—
96.50
100.00
Intragroup leather dyeing and finishing
(1) Manufacture and distribution
(2)
(3) Production and distribution of polyurethane foam
(4) Services and distribution
(5)
Investment holding
(6) Dormant
Exhibit 12.1
I, Pasquale Natuzzi, certify that:
1. I have reviewed this annual report on Form 20-F of Natuzzi S.p.A.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in
this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control
over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
company’s internal control over financial reporting.
Date: June 15, 2020
/s/ Pasquale Natuzzi
Name: Pasquale Natuzzi
Title: Chief Executive Officer
Exhibit 12.2
I, Vittorio Notarpietro, certify that:
1. I have reviewed this annual report on Form 20-F of Natuzzi S.p.A.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in
this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control
over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
company’s internal control over financial reporting.
Date: June 15, 2020
/s/ Vittorio Notarpietro
Name: Vittorio Notarpietro
Title: Chief Financial Officer
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of
Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18,
United States Code), each of the undersigned officers of Natuzzi S.p.A. (the “Company”) does hereby certify, to such officer’s
knowledge, that:
The Annual Report on form 20-F for the year ended December 31, 2019 (the “Form 20-F”) of the Company fully complies with
the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly
presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 13.1
Dated: June 15, 2020
Dated: June 15, 2020
/s/ Pasquale Natuzzi
Pasquale Natuzzi
Chief Executive Officer
/s/ Vittorio Notarpietro
Vittorio Notarpietro
Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Natuzzi S.p.A. and will be retained by
Natuzzi S.p.A. and furnished to the Securities and Exchange Commission or its staff upon request.