Natuzzi SpA (NTZ) reported its Q3 2024 financial performance, revealing a slight increase in sales but continued operational losses due to restructuring efforts. The company's stock fell sharply by 11.37%, reflecting investor concerns over financial losses and restructuring costs.
Key Takeaways
- Natuzzi's Q3 2024 sales increased by 0.5% compared to Q3 2023.
- The company reported a €3.8M operating loss in the first 9 months of 2024.
- Significant restructuring costs of €4.8M impacted financial results.
- Stock price dropped by 11.37% following the earnings announcement.
- New retail concepts and digital tools launched to boost performance.
Company Performance
Natuzzi experienced a slight increase in sales for Q3 2024 compared to the same period last year. Despite this, the company faced challenges with an operating loss of €3.8M in the first nine months, compared to a €2.2M loss in the previous year. The restructuring efforts, including plant closures and workforce reductions, have been significant but are aimed at improving long-term efficiency.
Financial Highlights
- Revenue: Sales increased by 0.5% in Q3 2024 compared to Q3 2023.
- Operating loss: €3.8M for the first nine months of 2024.
- Gross margin: 35.8%, unchanged from the previous year, but would have been 37.4% without restructuring costs.
- Cash position: €70.1M at the end of September, down from €103.7M at the beginning of the year.
Market Reaction
Natuzzi's stock price fell by 11.37% following the earnings announcement, reflecting investor concerns over the company's financial losses and restructuring costs. The stock's decline is significant compared to its 52-week range, highlighting the market's negative sentiment.
Company Outlook
Looking ahead, Natuzzi is targeting an additional €10-20M in revenue from its new commercial division and expects a 200-300 basis points improvement from relocating production to China. The company is also focusing on retail transformation and digital integration to drive future growth.
Executive Commentary
CEO Antonio Aquile emphasized the team's commitment to achieving positive results, stating, "We're working very seriously. Be confident that everyone, personally in our team, is really highly committed to achieve the result that this company deserves." Founder Pasquale Natuzzi expressed optimism, saying, "I'm confident that despite the challenging environment everywhere in the world, we are confident that considering our plan, our program, we will improve our business."
Q&A
During the earnings call, analysts inquired about the potential impacts of U.S. tariff changes, the efficiency improvements from the Shanghai plant closure, and the growth potential of the new commercial division. The company highlighted its strategic initiatives and confidence in achieving profitability with revenue growth.
Risks and Challenges
- Continued financial losses pose a risk to the company's stability.
- High restructuring costs may impact short-term profitability.
- Market uncertainties, including potential U.S. tariff changes, could affect operations.
- The company's cash position has decreased significantly, which could limit flexibility.
- Global economic conditions and consumer spending trends remain uncertain.
Full transcript - Natuzzi SpA (NTZ) Q3 2024:
Kevin, Call Moderator: Call for the 3rd Quarter and First 9 Months 20 24 Financial Results. As a reminder, interested parties can join the call live via telephone by pressing plus 1-four twelve 717-nine thousand six hundred and thirty three, then passcode 39,2502,103 pound in addition to the link already rebounded to join via the webcast. Once again, if you'd like to join via telephone, please press plus 1-fourtwelvesevenonesevennine,633, then passcode 39 252,103 pound in addition to the link already provided to join via the webcast. At this time, all participants are in a listen only mode. Following the introduction, we will conduct a question and answer session.
And instructions will be provided at that time for you to queue up for questions. Joining us on today's call are Mr. Antonio Aquile, Natuzzi's Chief Executive Officer Mr. Pasquale Natuzzi, Founder and Executive Chairman of the Board of Directors Mr. Carlos Vestri, Chief Financial Officer Mr.
Diego Babbo, Chief Retail Officer and Piero Dorenzo, Investor Relations. As a reminder, today's call is being recorded. I'd now like to turn the conference call over to Piero. Please go ahead.
Piero Dorenzo, Investor Relations, Natuzzi: Thank you, Kevin. Good day to everyone and thank you for joining the Natuzzi's conference call for the 2024 Q3 and 1st 9 months. After a brief introduction, we will leave room for the Q and A session. Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward looking statements under the United States Securities Laws. Obviously, actual results might differ materially from those in the forward looking statements because of risks and uncertainties that can affect our results of operations and financial condition.
Please refer to our most recent annual report on Form 20 F filed with the SEC for a complete review of those risks. The company assumes no obligation to update or revise any forward looking matters discussed during this call. And now I would like to turn the call over to the company's Chief Executive Officer.
Antonio Aquile, Chief Executive Officer, Natuzzi: Please ask for me. Thank you, Kevin, for opening the meeting and thank you, Piero, for reminding our the performance of our branded business, this confirmed to be stronger than the average. In fact, it's been growing 6.9 6.3 versus 202320.8 from 2029. This is really the growth of the U. S.
And the growth of branded sales confirm our direction to become a branded retail company. When we look at the, let's say, P and L information, it's important that in reading them, we highlight that there's been, from a P and L perspective, in the 1st 9 months of the year, €4,800,000 of 1 off severance restructuring cost. You're reading the P and L correctly. You need to remember that according to IFRS rule, out of those €4,800,000 €4,100,000 are in the cost of sales. So in reading the margin, you have to remember that they include that these are one off restructuring and 0.7% is accruing selling and administration expensive because they refer to several for a quarter people.
The restructuring is the other side of our story. We focus very much on becoming a brand retailer company. At the same time, we need to deal with the legacy from the time when Natuzzi had a much stronger industrial footprint because it was operating more in the volume business. In the 1st 9 months of the year, we let go 538 people, leading to a total reduction since the beginning of 2021 on 11.10 person, equivalent to 26% of the total workforce. So in a very ethical manner and I would say quite a way, we let go 1 fourth of our people in a very selective way because this is regarded mostly our industrial footprint.
When we look at the margin, the gross margin for the 1st 9 months has been of 35.8%, which compare to 35.8%, so exactly the same number in 2023 instead in 2019 that we still use as a reference as the sector does to a time not affect from the pre and post COVID dynamics, the margin was of 29%. As I mentioned before, €4,100,000 of severance had impact on cost of sales. So if we look at the margin, excluding the severance cost, the margin for the 1st 9 months of the year would have been of 37.4%, comparing again net of severance to 36.3% in 2023 and 30% in 2019. So if we compare apple with apple, even in a context where and we will comment later, the Q3 has been significantly soft for us. We have 7.4 additional percentage point of margin versus 2019.
This has been achieved by improving the quality of sales because the branded business represent by now 93% and also by the efficiency we mentioned before, they still need to fully deploy their benefit. So moving down on the P and L, in the 1st 9 months of 2024, we reported an operating loss of €3,800,000 which compare to an operating loss of €2,200,000 in 2023 and operating loss of €19,500,000 in 20 19. Again, excluding the €4,800,000 1 off severance, we would have reported an operating profit of €1,200,000 which would have compared with an operating loss of €700,000 in 2023 and operating loss of €15,100,000 sorry, EUR 16,100,000 in 2019. All this number, of course, are apple with apple in the sense that we are comparing net of the severance cost that happened in that period. Moving on the financial cost, the total financial cost being of 7.4 percent, which is a material difference versus 2023 where they were 5 point 6% and they were somehow in line with 2019 where we reported 7.7%.
This is a consequence of the fact that, of course, we use, let's say, finance to for our working capital in as a standard way we have always been using to cover the business in a context where the interest rate have been higher than in the past. Even in 2024, we continue investing in line with our priority. In particular, we invested 5,400,000 dollars primarily in our factory and for the U. S. In U.
S. Where we opened a new store in Denmark. As I mentioned several times, we are keen to free up resourcing divesting from nonstrategic asset. We already shared in the last press release that following a very diligent process with our internal committee, we decided as a Board and the CEO to sell to the shareholders' high point. We received the 1st installment of €3,800,000 for that sale.
I'm happy also to report that we enter and sign a contract for a sale on a non strategic land in Romania, which is nearby to our existing factory, but where we had no plan to do any, let's say, use for our operation. The sales that we are looking to complete will be happening in 2025 and we are looking at a value of €2,900,000,000 to €3,100,000 We already received a first installment as a confirmation by the buyer for also this transaction. And these are 2 already, I would say, almost completed transaction. We continue looking at the way to sell non strategic asset, which I mentioned before include also our tannery and other minor assets that we have in our balance sheet. Looking at the cash, the cash position is significantly lower than the opening position.
We opened with €33,600,000 at the end of September, we have €70,100,000 Looking at the way and the main dynamics in the cash, the cash used in operation has been €5,100,000 Of these €6,000,000 is to reduce workforce. Again, the way in which for IFRS principal cash use in severance is accounted for is accounted in operating activity. Hence, the difference between the two is positive or 0.9, which is the cash generating by our operations. So the operation would have been generating cash. Cash used in investment activity, as I mentioned, has been 5.4 percent, cash used in financing activity, 7.1 percent, then we have 0.4 percent, given the change in exchange rate.
And then we have a positive contribution of 1.5 given the different use of bank overdraft. Cash remained a priority. Of course, in these figures, you don't still see the positive impact of the proceeding of a point which happened after September as well the one over Menea. We're also reporting a better deal flow in the last 10 weeks and hence we're continuously monitoring the cash with a weekly cadence both on a 13 weeks in a longer timeframe and we feel no risk on the cash side. The 3rd quarter reflect pretty much the same dynamics in terms of top line in the sense that we are trading exactly in line with 2023, so 0.1 above last year.
Again, branded sales are performing better. What we reported, which we continue monitoring and is already trading up on a better trajectory has been a decline in gross margin given some specific element in the Q3 that our CFO, Carlos, Investor will comment later on in this call. This is the, let's say, specific commentary on figures. Let me give you a bit an update on how myself as a CEO, Pasquale as a Chairman, the Board and our team is dealing with this phase of the market. We're dealing with it remaining very, very focused on our declared priority, which are not, let's say, in a sense affected by the context.
The first one is retail. Retail continue being an important way for us both in terms of U. S. And of OS to improve performances and to improve the brand representation. We have done significant effort in this area which include an evolved retail format for Natuzzi Italia, new IT tools configurator that help to have a better dialogue with final client and architect, very clear and with our mission to define project and not selling individual piece of furniture.
On this, Diego will provide some interesting highlight showing the pace of rollout of those initiative, both in our U. S. And our franchisee. Our U. S.
Are on a way to become really a leading example for the franchisee of what we mean by modern retail. And hence, we really want to show them at best in term of brand representation and performances. During the quarter, during the 1st 9 months, as I mentioned, we opened Denver. Denver has been an opening which took longer than planned really because we want to make sure that the infrastructure fully embed the latest concept, the latest retail format. Considering the last four opening in 2023, in Denver, we added 5 new Natuzzi Italian stores in U.
S. Currently with our commitment to increase the presence of Natuzzi Italia in U. S, which we consider one of the highest priority going forward. When we talk about improving the quality of our relationship with client, the other area where we've been focusing on innovation is world sales. World sales remain and will continue being an important challenge for us.
In some geography like U. S. Structurally is an important way to reach customer in several location. They are very modern and structured partner. And hence, we see these are strategic channel in U.
S. But this is also the case in some geography in rest of Asia Pacific. We have really great partner in Telandia, in other geography in the rest of Asia Pacific. And this is increasingly true also in Europe where historically we had a strong presence in the Benelux, but now we are getting back in business in some important geography like France and Germany. This is in a sense bringing Natuzzi back better because Natuzzi has always been in the wholesale channel.
But now coherently with our what we internally call brand retail religion, which is in essence the fact we don't want to compromise the experience of the customer even in wholesale, we invested and Pasquale Natuzzi has been core to that to reimagine our presence in the wholesale. We came with this reimaging gallery format which is a way to improve performance of our partner and to better represent our brand. We also learned from our experience and this format is very modular and very light in terms of investment because clearly a multi brand partner need to carefully look at the return on investment. Today later, we will focus with Diego on the retail development. In our next analyst call, I will invite our Head for the wholesale business to do an equivalent presentation for the Galleria business.
Moving to another new area where we want to and we are recording very exciting advancement. We want to grow trading contract. We issue a specific press release regarding the Natuzzi Armani House residence which has been opened in term of sales and unveiled in Dubai on November 12. I'm very proud of this achievement and I'm sure later Pasquale will also share his view because he was the guest of honor in that event because he certified he testifies several element. First, he talks about the strengths of our brand because the Natuzzi Armani residence really used the brand of Natuzzi as a way to add value to a real estate development, which happened in one of the most iconic area of Dubai.
2nd, because compared to other branded development, Natuzzi didn't, let's say, only license his name, but it was key in developing the off-site architecture and internal decoration, which fully represent the brand DNA. And really, I would say, stands out from the crowd because this kind of building often seems to be each similar to the other. This one brings a piece of our Mediterranean soul in Dubai and we're receiving terrific feedback. The 3rd element which is very important in this situation of Tutsi not only provide the full assortment which is managed directly by us which clearly include upholstery but also dining and bathroom but also acted as an orchestrator for the remaining furniture which include fixed furniture, cabinet and kitchens. As you know because we discussed previously, this is a strategic area.
We believe we have huge opportunity. And for this reason, we established a new division which has clear targets, but will act in accordance with the rest of the company, leveraging the asset of the rest of the company. So we'll be freedom within a frame in the sense that we'll share all our, let's say, core business function, but we'll have the freedom and the responsibility to hunt for opportunity. On the restructuring, we already tapped on before. We mentioned before is a key area of focus.
In these last 3 months, it happens that we closed as part of our Asian strategy, the Shanghai plant. In China, this plant has been serving a Tutsi for more than 15 years. Shanghai 15 years ago was a very different place than it is today. It was no longer convenient to have a plant in Shanghai. So we moved our production in our city, Quanzhou, which is 3 hours South of Shanghai where we have an efficiency improvement of 30%.
This plant will progressively focus to serve our domestic market where as you know we operate in partnership with KUKA to a JV where Natuzzi owns the 49%. On the divestment of non strategic asset already commented, this is another, let's say, avenue we are happy the way we're closing the year because 2 of the assets which has been for a longer time under our radar screen because we decided not to own them any longer, they eventually found a new owner and this will free up cash from our balance sheet. So all in all, it's really a story that continues in a very coherent way. We feel very confident of what we are building, what we are achieving. The kind of testament we are receiving are multiples, so it's not some something which is derived just from our judgment.
I talk about Dubai. We continue receiving requests for opening new store. We are just projecting a new store in Wuxi, which is an important city in China. It would be a 6 50 meters store, which will be entirely projected designed by us. And this is one of the many example where client seek us for investing in our stores even in situation where as in China not many brand are investing in new retail.
Having said that, I will pass over to Diego. We will share some promises on the retail front before and then Carlo that will provide some commentary on the Q3 9 months gross margin evolution. Please, Diego.
Diego Babbo, Chief Retail Officer, Natuzzi: Thank you, Antonio. Good morning, good afternoon to all the attendees. As Antonio was mentioning, as the Corporate Retail division in Natuzzi, we have spent the last months addressing key goals. We have focused on completing our guidelines, perfecting our model to elevate the customer experience and most importantly, ensuring a high level of adoption of these guidelines. Our efforts have also included enhancing the performances of those stores through the implementation of the new store concept, as Antonio was mentioning.
Let me share with you no more than 3 slides that could help me to describe better the scenario. As you can see on the left side, some image of the new store concept for Natuzzi Italia, which has been already adopted in 9 out of 39 directly operated stores around the world and was also committed to invest for future upgrade on the remaining stores. This has been done with the goal of creating a more engaging shopping environment to retain customers through a more environmentally sustainable and less expensive store concept, which is also aimed to highlight our brand heritage and route by reminding through materials and colors our Apollion landscape where the company is based and ultimately to boost sales and revenues through layouts that encourage higher spending. On the left, we have done you see the other image about Divani Divani in Italy, where we have done we have been through the same journey of upgrading 8 out of 10 directly over the stores in order to develop a cohesive and distinctive store design that not only refracted brand values but also set us apart from competitors, considering that we are facing fierce competition in Italy on that.
And also, we adopted a set of tools embedded in this concept aimed to increase the conversion rate, talking about POP materials, in store communications, watches and so on. But it's not only a matter of in store concept, it's also digital tools. We have invested considerable resources as a company in order to define and implement digital tools through all our network. As you can see on the right, the status is that we have achieved the full completion of all these installations through our network or directly over the stores. We are talking about all the system that are helping us to utilize real time traffic measurements to make informed decision and improve store layout staffing.
We are leveraging on a dashboard like Power BI to track key metrics, identify trends and implement strategic adjustment. We are creating also a free appleasant shopping atmosphere with in store music tailored to the brand identity. And recently, we have also launched a state of the art room configurator to empower customers to personalize their purchases and leading to increased satisfaction and sales. We think that our initiatives have yielded significant progress in establishing a robust framework. However, it's imperative to bring our FOSS stores to the same level of excellence as our DDoS stores in terms of tool adoption and guideline adherence.
To achieve this, we are working on integrating the FOSS stores into our system by implementing all the tools that we have developed. In this last slide, I'm just mentioning some of them. As you can see, starting from January 23 up to the end of last quarter, there were stores that were not completely connected to our system and now just to mention a couple of these tools, you can see that 283 stores are now fully connected through the order management system, which means that we can measure much better than before their performances. And you can see that more than 100 stores on top of our doors have now a traffic counter installed, which means that we can measure the traffic. By connecting with our system, we ensure the sharing of more informed business choices, and these initiatives are designed to foster acquisitive, high performing retail environment that aligns our partners and enhance overall operational efficiency.
Our commitment to these objectives underscores our dedication to providing exemplary service and maintaining the highest standards. More available to answer to your question, if any, in the future.
Antonio Aquile, Chief Executive Officer, Natuzzi: Thank you, Diego. This again is intended to go beyond what is the, let's say, standard package, which is providing a press release because we really want you to get to know our management. Diego has been a pillar of the retail transformation we are implementing. He's overseas now the full retail business which include for us DOS and franchisee. As we mentioned, franchisee for us are the U.
S. Managed by 3rd party in the sense that we really want the customer to fully have a consistent experience. And we also want to help our partner with all the knowledge we have by managing 6 hundred stores. So really want to integrate them. I will pass over now to Carlo, which will provide some commentary on the Q3 9 months evolution of gross margin and profitability that as you know remain for us an absolute priority which we will continue focusing on.
So he will explain some of the dynamic reported more recently. Please, Carlo. Carlo, you're
Carlos Vestri, Chief Financial Officer, Natuzzi: you're mute. Can you hear me? Yes, sorry. So I will give you some insights about the Q3. Starting from our sales, as Antonio did mention, was the overall Q3 was affected by a weak business trend during the summer period.
But overall, our sales were 0.5% over the Q3 2023 and with the branded sales that slightly increased in proportion versus 2023. What did change was the mix among our brands with Natuzzi Vision and Divani Divani that compensated the decrease of Natuzzi Italia. This, of course, had also an impact on our capability for absorption of fixed costs. But let's talk about the gross profit of 2024 with the major impact. So first of all, I would like to discuss in detail about the labor cost.
If we talk about absolute number, we see an increase of SEK 1,800,000 compared to the same period of last year. But as already anticipated, the exit of 2,076 people in China due to the closure of our plant in Shanghai and the move to Qingzhou had an impact direct on our cost of labor because we did pay $2,900,000 severances. This of course impacted directly in our cost of goods sold. Then what happened in terms of trend, we did also also some inventory exit to clear some stock and in terms of decrease of stock since the beginning of the year, we had a positive impact on our cash of 4,800,000 and on top of that, of course, the moving of the production of from Shanghai to Pinjang had some impact in terms of extra cost during the period. But if we exclude, as I mentioned before, the impact of the severances also for the period, the gross margin would have been 35 point 7% versus the 31.8% reported, that would have compared to the 35.5% of last year, but most importantly versus the 30.5% which reported in the Q3 2019 with an increase on improvement of more than 5 percentage points.
Now talking about the other factor that did impact on our P and L to add a more coherent lecture of our numbers, I will go to the selling expenses to explain that what we see in our report is a decrease from 21.6% versus 20.3% this year. To better understand our numbers, we need to also consider that this decrease of selling expenses was also due to the portfolio management that we continuously do in our DOS. So in this period, we did close 2 stores in 1 in Spain, 1 in Switzerland, but at the same time, we have the impact of the new opening of last year, the 4 stores in U. S, plus this year, the store in Denver. So we have less cost but improved portfolio.
While on the administrative expenses, the cost of $8,500,000 does include €5,000,000 cost of redundancy package that we need to provide to decrease our workforce in, as I mentioned before, Spain and Switzerland. So even in this case, if we did exclude that, we will have had a saving in this. All of this to say that if we exclude all these factors in our numbers, the operating profit would have been a loss of €400,000, will that be compared to a loss of €1,100,000 in
Pasquale Natuzzi, Founder and Executive Chairman, Natuzzi: the Q3
Carlos Vestri, Chief Financial Officer, Natuzzi: 2023. Talking about the finance cost, adding just a slightly comment of what Antonio mentioned and in his previous comments, the net exchange rate I would like to underline is only related to trade receivable and payable is not related to the change of our policies in hedging from the risk of exchange rates, so just due to the fluctuation of the exchange rate. This is my comments on the Q3. Now I will leave the floor for questions.
Kevin, Call Moderator: Thank you. We'll now be conducting a question and answer session. You may ask a question at any time. By jumping into the ask a question feature on your screen. One moment please.
We do have a question coming from Kirby (NYSE:KEX) Newburger. Your line is now live.
Piero Dorenzo, Investor Relations, Natuzzi: Yes. I don't know if you can speculate on this, but there is talk that the next presidential administration in the United States is going to implement some tariffs. Do you all have a feel for how that might affect you?
Antonio Aquile, Chief Executive Officer, Natuzzi: Thank you for the question. I will take it. Of course, we have no way to predict what decision the new administration will take. What I can assure you that we are definitely preparing ourselves for dealing in an optimal way is potential evolution of logistic and tariff. Let me elaborate because I believe this is an intrinsic plus than Natuzzi has because it doesn't rely on just one source of production but is establishing multiple area really to navigate this circumstance.
For instance, we are progressively using Vietnam and we have a plan starting for Q1 2025 to open in Vietnam really to make sure it is another platform where we can, let's say, serve geography like U. S. As we're already doing for large clients. As you know, Vietnam doesn't have any tariff compared to China to U. S.
Producing out of China in term of net impact of tariff will have a disadvantage with the current duty of 14 percentage point. We have to remind that we also have Italy as a production where we might consider if tariff might become an issue to serve certain geography like North America. So I cannot say where eventually the administration will add to. What I can say is that Natuzzi, given its footprint, is equipped to deal as we did in the past, for instance, where there's been spike in logistics to edge this negative phenomenon by moving production to 1 plant from 1 plant to the other.
Piero Dorenzo, Investor Relations, Natuzzi: Thank you. Pleasure.
Kevin, Call Moderator: Thank you. Next (LON:NXT) question is coming from David Kanan. Your line is now live.
Antonio Aquile, Chief Executive Officer, Natuzzi: I'm afraid, Dave, you're on mute, Dave. I still see mute. Kevin, is there any way you can unmute Dave? Okay, now you're on.
Kevin, Call Moderator: I apologize, sir. It seems like you're having some connectivity issues, David. I do apologize, sir. Please rejoin, David. Just give me the message that you're having a little WiFi issue on your end.
Antonio Aquile, Chief Executive Officer, Natuzzi: You need to mute Dave.
David Kanan, Analyst: Are you guys able to hear me?
Kevin, Call Moderator: No, I can. Please go ahead, David.
David Kanan, Analyst: Okay. Well, first of all, thank you for taking the time to answer my questions. I have a few and then I'll go back into queue to allow other people to pose questions. The first one, Antonio, is you referenced order flow improvements in Q4 subsequent to quarter end Q3. Could you just comment on that a little bit?
We heard the same thing from RH (NYSE:RH) in their call yesterday. So if you could just give us a little color what you're seeing.
Antonio Aquile, Chief Executive Officer, Natuzzi: Sure. So since week, let's say, 14, which means the last 10 week,
Kevin, Call Moderator: we are
Antonio Aquile, Chief Executive Officer, Natuzzi: reporting an interesting positive trend versus the previous weeks. I will not over speculate on that as we didn't do in our press release because the situation outside still remain, let's say, at least volatile, not to say fragile. So but as a matter of fact, last 10 weeks systematically reported a better performance than the previous one. As you know, we're still hoping we discuss about potential evolution of the new administration in terms of tariff. We're still waiting and hoping that there will be specific measure more referred to the real estate of furniture industry because clearly one of the trigger point that we are still hoping to see in 2025 is a steep comparison in the interest rate.
Talking about China, China is implementing a stimulus package, which has some specific facility also for the furniture. And in fact, in China as well, we are reporting in the last weeks a better inflow of orders. So Dave, I will not over stipulate, but I thought that was important as we share very transparently headwinds to also share this initial green spore that we are witnessing.
David Kanan, Analyst: Okay. Thank you for that. The second question is you called out specifically the move from Shanghai South and that there was an approximate 30% savings. Can you just remind us of the timeframe when was that done and when we will see the impact of that in the P and L?
Antonio Aquile, Chief Executive Officer, Natuzzi: So the official closing of Shanghai was end of September. That's the reason why we're discussing it during this conversation on the 1st 9 months, which means that we close our factory, we let go the workers. The Quangzhou factory was already operational with fuel lines. Now it's ramping up capacity. The figures I was referring in terms of potential improvement.
Normally, we see that the factory takes 12 months to reach a full efficiency. So we should see that materializing during 2025.
David Kanan, Analyst: Okay. Do you expect so what is the impact that you expect on production from China in terms of cost of goods or gross margin? How many if you could quantify for us what is the improvement that you expect year over year
Kevin, Call Moderator: specifically on that geography to gross margin? Are we
David Kanan, Analyst: talking 100 basis points? Different
Antonio Aquile, Chief Executive Officer, Natuzzi: variables. I cannot be extremely precise. I different variables. I cannot be extremely precise because when we look to the transformation cost, it's not only the cost of labor and the rents that, of course, are more in our control, but it's also the cost of material and other factor. But I believe given the latest estimate we have done, we're talking about between 200 basis points, 300 basis points, 2%, 3% improvement.
David Kanan, Analyst: Okay. Thank you. I appreciate that. And then you spoke again about this new commercial division, in particular, Dubai. Could you extrapolate for us over the next year or 2, what do you think the size of that opportunity is?
This seems like it's potentially incremental to us. So if you could quantify on an annual basis what your internal goals are for this division?
Antonio Aquile, Chief Executive Officer, Natuzzi: So here, I will directionally and transparently tell what we are doing. As you know, we don't provide specific guidance going
Kevin, Call Moderator: forward.
Antonio Aquile, Chief Executive Officer, Natuzzi: We got Alunort as part of our business. So the division has been very recently established. It's really reporting encouraging wins and I would be maybe ask later to our President to share what has been his experience of being in Dubai in November. We have definitely a golden vision. We have developed a 5 year business plan for the division which is looking to, as you said, build incremental business on the contract.
The trade there is another market business which would be developed by this division. This debt is already will be accounted in there. There is a bit of rebound. If you Kevin, why I reply? Can you unmute Dave?
Yes, sorry.
Kevin, Call Moderator: Well, he's at the podium. I cannot control his microphone. I'm sorry. If you could self mute David while Nacireno is speaking, that'd be great.
Antonio Aquile, Chief Executive Officer, Natuzzi: Sorry. Just to make sure the answer is clear to you and to the other step by step. So we have established this new division. The business will be incremental. Absolutely, yes.
We're looking at a different channel because here we are serving not final customer or architect or designer, but we're doing material partnership with real estate developer, with hotel, potential with lender from airport hospital. So the space is very huge. We believe that we're bringing really differential capability because we don't only bring the brand, we don't only bring superior product, but I'm really amazed by the transformation to the architectural project that our team of designer has been able to achieve. So I'm very, very optimistic and confident. We developed a 5 year business plan including top line cost to support this division.
I will not be able to disclose number because we don't give, let's say, guidance. But at the end of the period, it's supposed to support quite significantly our business with incremental business. If we look at the other company that started this business, Italian company before us, I will name some, but just illustratively like Molteni and others, they're doing a significant proportion of their business in content business. For us, it will not be the same percentage because here we're talking in the case of Molteni with 30%, 40%, 50% of the business, almost the majority because we have 6 80 stores. So the contract would be an overdrive on top.
But I'm optimistic and we're really equipping this division to do a material contribution on our revenue.
David Kanan, Analyst: Okay. Thank you. So material means at least an 8 figure number, which would be
Antonio Aquile, Chief Executive Officer, Natuzzi: This measure is measuring not 1,000,000 but is measuring the next unit in 10,000,000, 20,000,000 kind of ballpark measure at steady state, okay? Okay.
David Kanan, Analyst: Excellent. That's exciting. And then just one more question before I go.
Antonio Aquile, Chief Executive Officer, Natuzzi: Sorry, the other element I want to mention, one of the parameters we set ourselves is that this division would be margin accruitive. So given the bar of what we're doing, the bar for the vision is to be margin accruitive also because we have a direct channel of the leadership with the developer, so there's no intermediary. There's no real estate to be paid for those. So the target for this division is to be margin accruitive versus the average.
David Kanan, Analyst: Okay. Thank you for sharing that. That's helpful and exciting. And then last question before I go back into queue. You called out in the prepared remarks that without the restructuring charge on an operating basis, we were profitable, I believe, dollars 1,300,000 on $75,000,000 in revenue, which is incredible.
And I appreciate you guys, your hard work in terms of rightsizing the business and taking costs out. So on a go forward basis, is it safe to say with the cost savings that we have that above $75,000,000 $80,000,000 $85,000,000 etcetera, that on an operating basis we should sustain profitability?
Antonio Aquile, Chief Executive Officer, Natuzzi: I mean, you have done the math correctly. We significantly lowered our breakeven. We used to be north of $100,000,000 when we started the breakeven was in the range of $100,000,000 under $10,000,000 per quarter. Now the breakeven is a ballpark where you correctly mentioned. So of course, once you pay the fixed cost, the incremental business will have a much higher EBITDA and cash conversion.
So everything which is on top of the figure you mentioned, you should consider with higher contribution in term of cash generation and marginality. So I don't want to over promise anything. I'm just saying, if we achieve, as I'm confident at one point we will achieve the revenue per quarter that we were used to make and that our retail and condo division will deserve, the conversion to cash would be very noticeable.
David Kanan, Analyst: Okay. Well, we look forward to you getting back to $100,000,000 a quarter. It looks like the profitability
Antonio Aquile, Chief Executive Officer, Natuzzi: will
David Kanan, Analyst: be profound. So good luck to you guys. Have a wonderful holiday season and I look forward to our next conversation.
Antonio Aquile, Chief Executive Officer, Natuzzi: Thank you so much, Dave. Thank you. Kevin, any other question in the queue?
Kevin, Call Moderator: There are no further questions at this time. However, if you'd like to join the queue, please reenter the queue And it appears there are no further questions at this time.
Antonio Aquile, Chief Executive Officer, Natuzzi: Thank you, everyone. I will leave the final remark to Pasquale, which is a fantastic partner in this adventure because really is supporting the integrity of the business of the brand while really supporting us to evolve it. So I will leave the final remark to Pasquale also. I'm sure he will be happy to share his festivity greeting to all of you. I personally thank you for being committed to us.
We're working very seriously. Be confident that everyone, personally in our team is really highly committed to achieve the result that this company deserve and our investment deserve. Please, Pasquale.
Pasquale Natuzzi, Founder and Executive Chairman, Natuzzi: Thanks, Antonio. First of all, thanks to you and Diego and Carlo for the presentation which has been very, very, very clear. Obviously, I'm always together with you guys. Together with you facing all the challenges, I'm very much confident obviously about the future of the company despite the challenging situation, economic situation that is around the world. We have been really investing a lot of money and time this year in improving our retailer system division, our wholesaler division digitalizing, I mean, all the system with the CRM, we created a new product, a new marketing plan that is achieving very good result wherever the product has been delivered.
So again, I can just say I'm confident that despite the challenging environment everywhere in the world, we are confident that considering our plan, our program, we will improve our business. No question about. I want to just obviously, I'm lucky to have a good management team. This is very, very important. And obviously, I also take the opportunity to say thank you very much to our shareholder that still gave us confidence for what we are doing and we will do our best to satisfy their expectation.
Thanks to everyone and happy season, Merry Christmas and wonderful New Year for everyone.
Kevin, Call Moderator: Thank you. That does conclude today's webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Antonio Aquile, Chief Executive Officer, Natuzzi: Thank you, everybody.
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