NATUZZI S P A [NTZ] Filings

20-F 1 ntz-20221231.htm 20-F 20-F

Natuzzi S.p.A

Annual Report on Form 20-F

2022

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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, 2022

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	Trading Symbol	Name of each exchange on which registered
American Depositary Shares, each representing five Ordinary Shares	NTZ	New York Stock Exchange
Ordinary Shares, with a par value of €1.00 each*		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:

As of December 31, 2022: 55,073,045 Ordinary Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

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.

Yes ☐ No ☒

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 ☐

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 definition 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. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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 ☒ Other ☐

by the International Accounting Standards Board

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.

☐ Item 17 ☐ Item 18

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).

Yes ☐ No ☒

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		Page
PART I		3
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		3
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE		3
ITEM 3. KEY INFORMATION		3
	Risk Factors	3
ITEM 4. INFORMATION ON THE COMPANY		13
	Business Overview	13
	Organizational Structure	14
	Strategy	14
	Manufacturing	18
	Supply-Chain Management	21
	Products	22
	Innovation	23
	Advertising	24
	Retail Development	25
	Markets	26
	Customer Credit Management	30
	Incentive Programs and Tax Benefits	30
	Management of Exchange Rate Risk	31
	Trademarks and Patents	31
	Regulation	32
	Environmental Regulatory Compliance	32
	Insurance	33
	Description of Properties	33
	Capital Expenditures	33
ITEM 4A. UNRESOLVED STAFF COMMENTS		35
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		35
	Non-GAAP Financial Measures	35
	Results of Operations	36
	2022 Compared to 2021	37
	2021 Compared to 2020	41
	Liquidity and Capital Resources	41
	Research and Development	44
	Trend information	44
	Critical Accounting Estimates	45
	New Accounting Standards under IFRS	47
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		50
	Compensation of Directors and Officers	52
	Statutory Auditors	54
	Employees	54
	Share Ownership	55
	Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation	55
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		56
	Major Shareholders	56
	Related Party Transactions	57
ITEM 8. FINANCIAL INFORMATION		57
	Consolidated Financial Statements	57
	Export Sales	57
	Legal and Governmental Proceedings	57
	Dividends	58
ITEM 9. THE OFFER AND LISTING		58
	Trading Markets	58

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ITEM 10. ADDITIONAL INFORMATION		59
	By-laws	59
	Material Contracts	64
	Exchange Controls	65
	Taxation	66
	Documents on Display	70
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		71
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		72
ITEM 12A. DEBT SECURITIES		72
ITEM 12B. WARRANTS AND RIGHTS		72
ITEM 12C. OTHER SECURITIES		72
ITEM 12D. AMERICAN DEPOSITARY SHARES		73

PART II		74
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		74
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		74
ITEM 15. CONTROLS AND PROCEDURES		74
ITEM 16. [RESERVED]		74
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT		74
ITEM 16B. CODE OF ETHICS		75
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES		75
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		75
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		76
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		76
ITEM 16G. CORPORATE GOVERNANCE		76
ITEM 16H. MINE SAFETY DISCLOSURE		79
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS		79
ITEM 16J. INSIDER TRADING POLICIES		79

PART III		80
ITEM 17. FINANCIAL STATEMENTS		80
ITEM 18. FINANCIAL STATEMENTS		80
ITEM 19. EXHIBITS

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this annual report on Form 20-F (the “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.

The consolidated financial statements of Natuzzi S.p.A. as at December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020 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 and the notes thereto included in Item 18 of this Annual Report are referred to collectively as 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.

In this Annual Report “revenue” is also referred to as “net sales”.

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.

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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 coronavirus (COVID-19) pandemic and of new variants, the potential negative impact of resurgences of COVID-19 cases on the global economy, consumer demand, our supply chain and the Company’s financial condition, business operations and liquidity, the geopolitical tensions and market uncertainties resulting from the ongoing conflict in Ukraine and the inflationary environment and increases in interest rates. 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.

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

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.

Uncertain global macro-economic and political conditions could materially adversely affect our business, operations and economic and financial position — Our results of operations are materially affected by economic and political conditions in Italy, in the European Union and in the world, which may be influenced by several factors, most of which are beyond our control. Such factors include public health outbreaks (including the spread of new variants of COVID-19), geopolitical issues (including tensions between the U.S. and China regarding trade relations and tariffs), stock market performance, interest and exchange rates, inflation, economic and political uncertainty (such as uncertainties related to the long-term impacts of the UK withdrawal from the EU), the availability of consumer credit, tax rates and unemployment levels. Deteriorating general economic conditions and generalized increased inflation may reduce consumers’ disposable incomes and, therefore, client demand, which may negatively impact our profitability and put downward pressure on our prices and volumes. Moreover, sales of home furnishing goods tend to be significantly affected during recessionary periods or times of increased interest rates, when the level of disposable income tends to be lower or when consumer confidence is low.

Of particular relevance in the global macro-economic environment are the uncertainties relating to the impact of the sanctions levied by NATO and European Union as a result of Russia’s invasion of Ukraine. While our operations in Russia and Ukraine are not significant, the sanctions imposed on Russia have had a significant general impact. These include a ban of gas imports from Russia and a commitment by certain countries and the EU to remove selected Russian banks from the Society for Worldwide Interbank Financial Telecommunications, or SWIFT, payment system. Such sanctions have led to a devaluation of the ruble, severe disruptions in the supply chain of certain raw materials and a significant increase in oil price (and, consequently, in the cost of production of electricity). The resulting increase in fuel and electric energy price may further affect clients’ disposable incomes, who may decide to delay or reduce purchases of our products, and reduce our margins by increasing our production costs.

Moreover, the Russia/Ukraine conflict, the related international response and the resulting uncertain economic environment is determining a worsening in global macro-economic conditions. In particular, inflation rates have recently reached levels not seen in decades and may continue to create economic volatility as central banks adjust interest rates in an attempt to manage the inflationary environment. The heightened inflation and increases in interest rates during 2022 resulted in more expensive mortgages, and, therefore, in a weakening of the housing market, which adversely impacted and may in the future impact our results. In addition, such factors have affected clients’ disposable incomes, thus causing consumers to delay or decrease investments in their existing homes and making them more price conscious, resulting in a shift in demand to less expensive products.

Adverse economic conditions may also affect the financial health and performance of our franchises and large distributors in a manner that will affect sales of our products or their ability to meet their commitments 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, results of operations and liquidity would likely be adversely impacted.

The price of the raw materials we use is difficult to predict and material increases to such prices and our energy production costs have had, and may continue to have, a material adverse effect on our results of operations — Prices of the raw materials we use in our production processes are generally dependent on a number of factors beyond our control, including: macroeconomic factors that may affect commodity prices; changes in supply and demand; energy and transportation costs, general economic conditions; significant political events; labor costs; competition; import duties, tariffs, anti-dumping duties and other

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similar costs; currency exchange rates and government regulation; and events such as natural disasters and widespread outbreaks of infectious diseases.

In 2022, 63% of our total upholstered and home furnishings net sales came from leather-upholstered furniture sales. The acquisition of cattle hides represented approximately 13% of the total cost of goods sold for the year ended on December 31, 2022. 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.

During the first half of 2022, we experienced an increase in the price of certain raw materials, including leather, wood, iron, aluminum, steel, cardboard packaging and polyethylene, due to, among other factors, an increase in energy and transportation costs. While prices of raw materials generally decreased in the second half of 2022, costs for materials (such as fabrics) that require significant use of energy for their production continue to be higher than in the past. As a result, in 2022 our consumption of raw materials, semi-finished and finished products represented 40.9% of revenue compared to 39.9% in 2021.

Higher energy prices have also led to an increase in item “Other manufacturing costs” to Euro 19.2 million compared to Euro 15.9 million in 2021, mainly due to the increase in energy costs necessary to run our industrial operations worldwide.

In addition, during the first half of 2022, we experienced a significant increase in transportation costs, mainly due to the increase in global demand, not offset by a proper offer by naval carriers in particular, as well as the increase in fuel costs resulting from sanctions levied against Russia, including the ban of gas imports from Russia and restrictions on the use of certain routes, such as the one across the Black Sea. While transportation costs started to decrease in the second half of 2022 (especially in connection with the routes between Asia and North America), they remain higher on average than in the past.

The profitability of our business depends in part upon the margin between the cost to us of certain raw materials and our production costs associated with converting such raw materials into assembled products, as compared to the selling price of our products. Although we have offset part of our increased costs with increased pricing for our products or by means of specific transport surcharges, any unrecovered increased operating costs could adversely impact our margins and, therefore, have a material adverse effect on our results of operations. Moreover, the increase in our product prices could negatively affect our business by making consumers more price conscious, thus resulting in a shift in demand to less expensive products.

The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business, results of operations and financial condition — The global spread of COVID-19, which was declared a pandemic by the World Health Organization in March 2020, continues to affect our business and operations. From the end of March 2022 and continuing into most of the second quarter of 2022, following a record-breaking level of local COVID-19 cases, various regions in China, including regions where our subsidiary Natuzzi (China) Ltd (“Natuzzi China”) operates, were subjected to lockdowns imposed by governmental authorities.
Specifically, operations at our production plant in Shanghai were initially suspended from March 28, 2022 to May 3, 2022 and later resumed at a lower production capacity given stringent limitations on the number of employees allowed to access the plant. Only at the beginning of June 2022, most of the workforce of Natuzzi China was allowed to return to work. Our plant in Shanghai manufactures upholstery products for North America and the APAC region. In 2022, revenues of the Group’s Chinese upholstered furniture plant accounted for 22% of the Group’s consolidated revenue of upholstery and home furnishings, compared to 26% in 2021. The restrictions adopted by the governmental authorities also resulted in the closure of 18 points of sales from the end of March through the end of May, whose sales were not material in 2022. Additionally, store traffic declined as customers shop less frequently to minimize potential exposure to the COVID-19 pandemic. The overall duration and impact, as well as possible reoccurrence, of these lockdowns or other measures aimed at containing and mitigating the effects of the COVID-19 pandemic in China or other regions where we operate remain uncertain and may adversely impact our results of operations and cash flows in future periods.

Other than these production interruptions in China, our manufacturing facilities were not impacted by prolonged shutdowns directly resulting from the COVID-19 pandemic in 2022. However, the impact that the possible spread of new COVID-19 cases has on the possibility of adequately planning our production remains significant due to a significant increase in the rate of absenteeism among our staff, due to, among others, stay-at-home periods imposed by current regulations in connection with contagions.

Furthermore, as the vaccination campaigns have begun to prove effective and the remote working policies implemented by many companies around the world and the stay-at-home orders imposed by governmental authorities have continued to be lifted around the world, there has been a shift in consumers’ demand for home furnishings, whose demand increased in 2021 through early 2022, toward demand for different products and experiences, such as those related to travel, leisure time and dining. Additionally, the

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salary and wage subsidy programs introduced by the governments of Italy and other countries in 2020 and 2021 in response to the COVID-19 pandemic have not been reconfirmed.

As of the date of this Annual Report, our management continues to apply and improve the stricter procedures introduced at the beginning of the COVID-19 pandemic outbreak in an effort to manage liquidity and working capital to generate sufficient operating cash flows to meet its obligations as they fall due. See Note 3(f) to the Consolidated Financial Statements.

The ultimate magnitude of the impact of the COVID-19 pandemic (including recent and potential future COVID-19 variants) on our business, results of operations and financial condition will depend on future events outside of our control, including a resurgence of COVID-19 cases, future new closure requirements and other operational restrictions which could affect our operations or the ability of our third-party business partners to meet their obligations to us, the success of containment measures, vaccination campaigns and other actions taken by governments around the world, as well as the overall condition and outlook of the global economy. We cannot at this time predict the ultimate impact of the COVID-19 pandemic on our business, liquidity, results of operations and financial condition beyond what is discussed within this Annual Report, but it may be material and adverse.

The COVID-19 pandemic may also exacerbate 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 energy costs, inflation and labor costs, disruption in supply-chain, loss of key employees, our indebtedness, general economic conditions and our international operations.

We have recently returned to profitability but have a history of operating losses and cannot assure you that we will continue to be profitable in the future; our future profitability, financial condition and ability to maintain adequate levels of liquidity depend, to a large extent, on our ability to overcome operational challenges — We have a history of operating losses having recorded an operating loss of €10.6 million in 2020, €22.5 million in 2019, €25.5 million in 2018 and €24.0 million in 2017. Although we achieved an operating profit of €8.5 million in the year ended December 31, 2022 and €4.9 in the year ended December 31, 2021, we may not be able to achieve or sustain profitable operations in the future or generate positive cash flows from operations.

Our strategy of expanding our retail network of mono-brand stores, both directly and franchised operated, has required, and might require in the future, significant upfront costs at both the regional and headquarter level. The newly opened mono-brand stores are not fully productive during the first months following their openings and, therefore, investments in the retail and marketing organization are, at the beginning, not adequately returned by sales. While we expect that 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.

In addition, since 2014, we have been restructuring our operations, including by reducing our Italian workforce. As a result, we may face operational challenges going forward.

Furthermore, during the last eleven years, we have incurred aggregate financial obligations in the amount of €50.7 million (€0.1 million, €0.3 million, €3.8 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 2022, 2021, 2020, 2019, 2018, 2017, 2016, 2015, 2014, 2013 and 2012 respectively), almost entirely in connection with our efforts to reduce redundant workers. See “—We have redundant workers at our Italian operations, which remains an unresolved issue, and have benefited in 2022 and in previous years from temporary work force reduction programs; if we continue to be unable to reduce our redundant workers and/or if such temporary work force reduction programs are not continued; our business, results of operations and liquidity may continue to be impacted or may be impacted at a greater extent.”

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 improve profitability in the future could adversely affect the trading price of our ADSs 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, results of operations and financial condition.

We have redundant workers at our Italian operations, which remains an unresolved issue, and have benefited in 2022 and in previous years from temporary work force reduction programs; if we continue to be unable to reduce our redundant workers and/or if such temporary work force reduction programs are not continued, our business, results of operations and liquidity may continue to be impacted or may be impacted at a greater extent — Our Italian operations employ redundant workers. In recent years, the Company has entered into a series of agreements with Italian trade unions pursuant to which government funds have been used to pay a substantial portion of the salaries of such redundant workers, who are subject to either temporary layoffs, as in the case of the Cassa Integrazione Guadagni Straordinaria (“CIGS”), or reduced work schedules, as in the

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case of the Solidarity Facility (as defined below). The use of such temporary work force reduction programs has also resulted in a series of lawsuits brought against the Company.

In May 2017, the Italian Supreme Court (Corte di Cassazione) rejected the Company’s appeal of a lawsuit brought by two former employees of the Company relating to the implementation of the CIGS, an Italian temporary lay-off program, ruling in favor of the plaintiffs. As a result of this decision, several additional workers have brought lawsuits against the Company over time for alleged misapplication of the CIGS. Since then, the Company has accordingly increased its provision for legal claims. As of December 31, 2022, provision for legal claims amounted to €8.6 million, of which €7.1 million referred to the probably contingent liability related to the legal proceedings initiated for the alleged misapplication of the CIGS. For additional information, see Note 23 to the Consolidated Financial Statements.

In addition, in October 2016, the Company laid off 176 Italian workers as part of an organizational restructuring, 166 of whom were then re-employed as the Bari Labor Court deemed the dismissals to have been carried out improperly. In March 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 Labor and Social Politics in 2015 to reduce working hours per day (the “Solidarity Facility”) in order to lessen the impact of re-employments in 2018. Pursuant to the Solidarity Facility, 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 and 2019, the Company and the relevant trade unions and Italian authorities agreed to extend the scope of the Solidarity Facility, which was later suspended following the COVID-19 outbreak. Indeed, from March 2020 to June 2021, in agreement with trade unions, the Company adopted certain social safety nets made available by the Italian Government to mitigate the impacts of the COVID-19 pandemic on the cost of labor. As a result, the scope of the Solidarity Facility was extended until November 2021. In November 2021, the Company and the relevant trade unions and Italian authorities agreed to extend the scope of the Solidarity Facility through November 2023. Additionally, starting from December 2018, the Company and the relevant trade unions and Italian authorities agreed on the use by the Company of CIGS in order to support the Company’s reorganization process. From January 1, 2019 until March 2020, the Company benefitted from CIGS for up to 487 workers employed at the plant located in Altamura. From March 2020 to June 2021, in agreement with trade unions, the Company adopted certain social safety nets made available by the Italian Government to mitigate the impacts of the COVID 19 pandemic. As a result, CIGS was extended until February 2022. In February 2022, the Company and the relevant trade unions and Italian authorities signed an agreement allowing the Company to benefit from CIGS for up to 463 workers employed at the plant located in Altamura until mid-February 2023. In January 2023, the Company and the relevant trade unions and Italian authorities signed an agreement allowing the Company to benefit from CIGS for up to 449 workers employed at the plant located in Altamura until December 31, 2023. If these temporary work force reduction programs are not continued in the future, our business, results of operations and liquidity may be significantly impacted.

Furthermore, since 2021, we and the other parties involved have agreed to set up an incentive plan for workers who voluntarily terminate their employment relationship, that will continue to apply in 2023. If this or other efforts to reduce redundant workers are not successful, the labor cost associated with such redundant workers will continue to have an adverse effect on our business, results of operations and financial condition.

Our 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, depend 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 “—We have recently returned to profitability but have a history of operating losses and cannot assure you that we will continue to be profitable in the future; our future profitability, financial condition and ability to maintain adequate levels of liquidity depend, to a large extent, on our ability to overcome operational challenges.” 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 persisting nature of the COVID-19 pandemic, which is still perduring in some Asian countries, such as China, the geopolitical tensions caused by the ongoing conflict in Ukraine, the spike in inflation on a global basis, the resulting increases in

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the interest rates by major central banks in major economies to curb inflation, and the resulting impacts on financial markets and the economy as a whole, the monetary uncertainty and the rising inflation, there is an enhanced degree of uncertainty regarding our capital position and availability of capital to fund our liquidity requirements. Recognizing the significant threat to the liquidity of financial markets posed by these factors and the increased inflation, resulting in reduced consumer purchasing power, most of the central banks all over the world have taken significant actions to return inflation levels to their respective expected targets. There can be no assurance that these interventions will be successful and that the financial markets will not experience significant contractions in available liquidity. Additionally, the instability due to the geopolitical tensions caused by the ongoing conflict in Ukraine and the imposition of sanctions, taxes and/or tariffs against Russia and Russia’s response to such sanctions has resulted, and may result in the future, in diminished liquidity and credit availability in the market, which could impair our ability to access capital if needed.

At December 31, 2022, we had €29.3 million of bank overdrafts and short-term borrowings outstanding and €54.5 million of cash and cash equivalents. 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, results of operations and financial condition.

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 2020, the Company renewed its accounts receivables securitization facility (the “Securitization Facility”) with an affiliate of Intesa Sanpaolo S.p.A. (the “Assignee”) for an additional 5-year period. Originally entered into in July 2015, the Securitization Facility allows the Company to assign trade receivables to the Assignee for a maximum amount of €40.0 million, on a revolving basis, retaining substantially all of the risks and rewards (“pro-solvendo”) in the assigned trade receivables, in exchange for short-term credit. Therefore, the Securitization Facility continues to provide the Company with an important and stable source of liquidity. Notably, under the Securitization Facility, as renewed, the Company is entitled to assign a wider range of trade receivables, thus adding flexibility to the Company’s funding capacity. 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 Facility may be terminated, thereby depriving the Company of an important tool for managing liquidity risk.

Our operations may be adversely impacted by strikes, slowdowns and other labor relations matters — Many of our employees, including many of the workers 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 and 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 cash flows, results of operations and financial condition.

Additionally, we renegotiate these collective bargaining agreements at routine intervals and may be unable to renew these collective bargaining agreements on the same or similar terms, or at all.

We may not execute our budget 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 January 2023, the Company’s Board of Directors approved the budget plan for 2023 (the “Budget”), which considers among other factors, the potential impact on our business, at least in the short term, of the current geopolitical uncertainty, inflation, financial market volatility, and related economic downturn. The Budget focuses on several cornerstones including, among others: a) an increased focus on controlled distribution through mono-brand stores, both directly owned and franchised, in priority markets; b) a rationalization of the business model for the wholesale channel; c) continued attention to margins; d) a constant revision of our production structure, including the completion of the “Factory 4.0” workflow organization, starting with the Italian factories, with the aim to improve the overall efficiency, as well as any potential collaboration with external industrial partners to add flexibility to our industrial operations and support the wholesale business; e) streamlining of our processes and overhead optimization; and f) focus on working capital management in an effort to improve the cash flow from operations.

The Company continues to implement initiatives to divest non-strategic assets, particularly in the U.S. and Italy, with the aim of increasing the flexibility of our operational structure. Failure to do so may result in the postponement of some investment programs in the Italian factories and the DOS expansion.

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The profitability of our business depends on the successful and timely execution of the Budget. Failure to successfully and timely achieve the objectives included in the Budget could result in a failure to reduce costs and improve sales, which could result in losses for the Group.

A business plan for the 2023-2027 period has not been prepared, given the current uncertainty and volatility surrounding the markets in which we operate.

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 — Our 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. Our potential inability 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 our ability to generate future earnings.

In addition, with a significant portion 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. Should current economic conditions worsen (including as a result of current geopolitical tensions), the current rate of housing continue to decline, or rising inflation persist, consumer confidence and demand for home furnishings could deteriorate, which may have an adverse effect on our business, results of operations and financial condition. See “—Uncertain global macro-economic and political conditions could materially adversely affect our business, operations and economic and financial position”. Additionally, as various stay-at-home orders imposed by governmental authorities have continued to be lifted in some countries during 2022, we started experiencing a slowdown in the upward trend in consumers’ demand for home furnishings. See “—The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business, results of operations and financial condition.”

The furniture market is highly competitive — We operate 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. We mainly compete 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 us. Some of our 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. In November 2021, we launched our e-commerce service for online sales which is currently active in the U.S. only. Therefore, we compete with other retailers offering consumers the ability to purchase home furnishings via the internet for home delivery and expect such competition to increase in the future. As a result of the actions and strength of our competitors and the inherent fragmentation in some markets in which we compete, we are continually subject to the risk of losing market share, which may lower our sales and profits. Market competition may also force us to reduce prices and margins, thereby negatively affecting our cash flows, or prevent us from raising the prices of our products in response to current 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 our results of operations — We conduct a substantial part of our business outside of the Euro-zone and are 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 we operate has in the past, and may in the future, reduce the relative value of the revenues from our operations in those countries, and therefore may adversely affect our operating results or financial position, which are reported in Euro. Additionally, we are subject to currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. In 2022, in the ordinary course of business, about 72% of the payments we received and about 37% of the payments we made were denominated in currencies other than the Euro. We also hold a substantial portion of our cash and cash equivalents in

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currencies other than the Euro. Therefore, we are exposed to the risk that fluctuations in currency exchange rates may adversely affect our results, as has been the case in recent years.

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 pandemic, of the rising inflation and of the ongoing conflict in Ukraine on financial markets.

In the normal course of business, we also face 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 Qualitative Disclosures about Market Risk.”

We face risks associated with our international operations — We are exposed to risks arising from our international operations, including changes in governmental regulations, tariffs or taxes and other trade barriers (as has been the case for import duties imposed by the U.S. and Canadian administrations for home furnishings imported from some Asian countries), price, wage and currency exchange controls, political, social, and economic instability in the countries where we operate (including as a result of the ongoing conflict in Ukraine), inflation, exchange rate and interest rate fluctuations, extended lead time in ordering and, more recently, disruptions in the supply chain due to shortage of raw materials, plant shut-downs and shipping delays resulting from surges in COVID-19 cases in some parts of the world. Any of these factors could have a material adverse effect on our results of operations.

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.

Our past results and operations have significantly benefited from government incentive programs, which may not be available in the future — In the past, we used to benefit from 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 has replaced these incentive programs with an investment incentive program for all under-industrialized regions in Italy, which we are currently benefitting from, that includes grants, research and development benefits. There can be no assurance that we will continue to be eligible for such grants, benefits or tax credits for our current or future investments in Italy.

In 2021 and 2020, we received benefits from certain governments in the form of grants, incentives and tax credits intended to mitigate the adverse effects of the COVID-19 pandemic. There can be no assurance that we will be able to be eligible for such grants, incentives or tax credits in the event of a new wave of the COVID-19 pandemic.

We have started manufacturing operations in China, Brazil and Romania and in some cases we were granted tax benefits and export incentives by the relevant governmental authorities in those countries. There can be no assurance that we will benefit from such tax benefits or export incentives in connection with future investments.

Increased expectations relating to environmental, social and governance factors may expose us to new risks — The focus from certain investors, customers and other key stakeholders relating to environmental, social and governance (“ESG”) matters, including environmental stewardship, social responsibility, diversity and inclusion, racial justice and workplace conduct, has increased in recent years. As a result, our brand and reputation may be damaged in the event that our corporate responsibility procedures or standards do not meet such increased expectations and/or we do not adapt to and comply with new laws and regulations or changes to legal or regulatory requirements concerning ESG matters. Additionally, in the event that we communicate certain initiatives and goals regarding ESG matters, we could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could be criticized for the scope of such initiatives or goals. Any failure to meet the expectations of our

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investors and other key stakeholders or our initiatives are not executed as planned could materially and adversely affect our reputation and financial results.

Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our financial condition and business operations — Our manufacturing facilities are located in Italy, Romania, China, and Brazil and are engaged in manufacturing processes that, by using energy, produce greenhouse gas emissions (“GHGs”), including carbon dioxide. Some of such jurisdictions are considering implementing, or have already implemented, legislation on climate change and schemes addressing the regulation of carbon emissions. Such regulations on climate change may not be consistent across these countries. As a result, adaptation to such provisions may cause compliance burdens and costs to meet the regulatory obligations and economic and regulatory uncertainty. Any laws or regulations that are adopted to reduce emissions of GHGs could (i) increase our costs for raw materials, (ii) increase our costs to operate and maintain our facilities, (iii) increase costs to administer and manage emissions programs, and (iv) have an adverse effect on demand for our products.

Climate change resulting from increased concentrations of GHGs and carbon dioxide could present risks to our future operations from natural disasters and extreme weather conditions, such as hurricanes, tornadoes, wildfires or flooding. Such extreme weather conditions could pose physical risks to our facilities and disrupt operation of our supply chain and may increase operational costs. In particular, our timber inventory could be affected by such weather conditions with the risk of changes in timber growth cycles, fire damage, insect infestation, disease, prolonged drought and natural disasters, causing a reduction in our timber inventory and adversely affecting our raw material sourcing. Climate change may also subject our business to significant increases or volatility in the prices of certain commodities, including but not limited to electronic componentry, fuel, oil, natural gas, rubber, cotton, plastic resin, steel and chemical ingredients used to produce foam.

Furthermore, any adverse contractual disputes arising from climate change-related disruptions, could result in increased litigation, costs and could also have a negative impact on our business and reputation.

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.

We rely on information technology to operate our business, and any disruption to our technology infrastructure could harm our 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 our global technology infrastructure or to that of our service providers, including malware, insecure coding, “acts of God”, attempts to penetrate networks, data theft or loss and human error, could have adverse effects on our operations. A cyber-attack to our systems or networks that impairs our information technology systems could disrupt our business operations and result in loss of service to customers. 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. Due to the political uncertainty following the Russian invasion of Ukraine, there is a possibility that the escalation of tensions could result in cyberattacks that could either directly or indirectly affect our operations. While we have invested and continue to invest in information technology risk management, cybersecurity and disaster recovery plans, these measures cannot fully insulate us from technology disruptions or data theft or loss and the resulting adverse effect on our operations and financial results.

The measures we adopted in response to the COVID-19 pandemic and that may be adopted in the future in response to resurgences of the COVID-19 pandemic, including working-from-home arrangements, have resulted and may result in 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 results of operations and financial conditions. Furthermore, the risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased, including due to the Russia-Ukraine conflict.

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In addition, we are subject to data privacy and other similar laws in various jurisdictions, which require, among other things, that we undertake costly notification procedures in the event we are the target of a cybersecurity attack resulting in unauthorized disclosure of our customer data. If we fail to implement appropriate safeguards or to detect and provide prompt notice of unauthorized access as required by some of these laws, we could be subject to potential claims for damages and other remedies, which could have a material adverse effect on our results of operations.

In 2023, we will continue our strategy of migrating core business applications to the cloud, starting from our enterprise resource planning (ERP) system, which we expect to be completed within one year. Although we anticipate that these cloud migrations will increase efficiency and functionality, such migrations entail risks in implementation and make the Company more reliant on third party service providers. Any material disruption or slowdown of the Company’s information systems could result in the loss of critical data, the inability to process and properly record transactions and the material impairment of the Company’s ability to conduct business, leading to cancelled orders and lost sales.

We are dependent on qualified personnel — Our ability to maintain our competitive position will depend to some considerable degree upon the personal commitment of our founder and Executive Chairman of the Board of Directors, Mr. Pasquale Natuzzi, as well as on our 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 our 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.

Recently, certain jurisdictions in which we are subject to income taxes, including Italy, have enacted changes in tax laws and procedures in response to the outbreak of COVID-19 and its consequences. We continue to evaluate the impact of such changes on our operations and no material impact has arisen for the 2021 and 2022 financial statements.

In August 2022, the US Inflation Reduction Act of 2022 introduced a minimum tax of 15%, effective for tax years beginning in 2023. The Company currently does not expect the Inflation Reduction Act to have a material impact on our financial results.

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.

One shareholder has a controlling stake in the Company — Mr. Pasquale Natuzzi, founder of the Company and Executive 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 56.2% of the Ordinary Shares outstanding (61.3% 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.

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Past and future grants of share-based awards may have an adverse effect on our financial condition and results of operations and have dilutive impact to your investment — In 2022, we adopted the Natuzzi 2022-2026 Stock Option Plan (the “SOP”) to grant share-based compensation awards to key employees and directors to incentivize their performance and align their interests with ours. The maximum number of Ordinary Shares we are authorized to issue pursuant to SOP is 5,485,304 Ordinary Shares. As of March 31, 2023, we have granted stock options for the purchase of a total of 2,812,560 Ordinary Shares (equivalent to 562,512 ADSs), of which 220,000 Ordinary Shares (equivalent to 44,000 ADSs) have been subscribed for. See “Item 6. Directors, Senior Management and Employees—Compensation of Directors and Officers—Natuzzi 2022-2026 Stock Option Plan.” If we grant more stock options to attract and retain key personnel, our expenses associated with share-based compensation may increase, which may have an adverse effect on our financial condition and results of operations and have a dilutive impact to your investment. However, if we do not grant stock options or reduce the number of stock options that we grant, we may not be able to attract and retain key personnel.

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 11 member states initially (Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia, Slovakia and Spain). Following Estonia’s formal withdrawal on March 16, 2016, 10 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 mentioned 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. Since the Company has been included in the list issued by the Italian Ministry of Economy and Finance of companies having an average market capitalization lower than €500 million in the month of November 2022, the IFTT would not apply on transfers of Ordinary Shares or ADSs made in 2023. See “Item 10. Additional Information—Taxation—Other Italian Taxes—Italian Financial Transaction Tax.”

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ITEM 4. INFORMATION ON THE COMPANY

Business Overview

History and development of the Company — Founded in 1959 by Pasquale Natuzzi, Natuzzi S.p.A. is one of the most renowned brands in the production and distribution of design and luxury furniture. With a global retail network of 703 mono-brand stores and 508 galleries as of December 31, 2022, and with manufacturing plants in Italy, China, Romania and Brazil to efficiently serve different markets, Natuzzi distributes its collections worldwide. Natuzzi products embody the finest spirit of Italian design and the unique craftmanship details of the “Made in Italy”, as a predominant part of its production takes place in Italy. Natuzzi 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.”

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.

In the early 2000s, to respond to a global competition based mainly on price, the Company began to reposition its brand by introducing a total living concept in its offer, producing sofas and armchairs not only in leather but also in fabric, together with living room furniture and beds. At the same time, Natuzzi is accelerating its retail expansion worldwide, leveraging on a global manufacturing footprint in Italy, China, Romania and Brazil to strategically support the development of its brands. This is a crucial step as the Company begins to lay the foundations for its transformation from a pure “B2B” manufacturer to a retailer, which has required investments in organization, marketing, R&D and product for more than a decade.

Committed to social responsibility and environmental sustainability since its inception, Natuzzi S.p.A. is ISO 9001 and 14001 certified (Quality and Environment), ISO 45001 certified (Safety in the Workplace) and FSC® Chain of Custody, CoC (FSC-C131540). The Company first targeted the U.S. market in 1983 and subsequently began entering other markets. In 2022, the Company distributed its products in 105 countries on five continents.

The brand portfolio of the Group includes two main brands: Natuzzi Italia and Natuzzi Editions. For a detailed description of each brand and its target markets, see “Strategy—The Brand Portfolio and Merchandising Strategy” and “Products” below.

As of December 31, 2022, the Group distributed its branded products as follows:

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Natuzzi Italia branded products are distributed through 247 Natuzzi Italia stores (of which 34 mono-brand stores directly operated by the Group) and 133 Natuzzi Italia galleries (store-in-store points of sales managed by independent partners), in addition to three Natuzzi Italia concessions, i.e., galleries directly managed by the Mexican subsidiary of the Group. The Natuzzi Re-vive recliner is included in the Natuzzi Italia offering.

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Natuzzi Editions branded products are distributed through 380 Natuzzi Editions stores (of which six directly operated by the Group), 364 Natuzzi Editions galleries and 8 Natuzzi Editions concessions managed by the Mexican subsidiary of the Group. Natuzzi Editions products are distributed in Italy under the brand Divani&Divani by Natuzzi through additional 76 mono-brand stores, of which 12 directly operated by the Group. Natuzzi Editions 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).

The Group also offers unbranded products (also referred to as “private label” products in this Annual Report) within a dedicated business unit to meet the specific needs of key accounts globally. The Group intends to focus on fewer selected large accounts selling unbranded products and serve them with a more efficient go-to-market model.

Every year, the Group usually presents its products at the world’s leading furniture fairs, such as Il Salone del Mobile in Milan, Italy, and the Furniture Market in High Point, North Carolina, U.S.

In June 2022, Natuzzi Italia took part in the Fuori Salone, a special event of the Salone del Mobile in Milan, in the Clerkenwell Design Week in London and, for the first time, in the Dubai Design Week.

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 Executive Chairman of the Board of

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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 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 a website (www.sec.gov/edgar.shtml) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The Company’s website is www.natuzzi.com.

Organizational Structure

Natuzzi S.p.A. is the parent company (the “Parent Company” or the “Parent”) of the Natuzzi Group. As of December 31, 2022, the Company’s principal operating subsidiaries were:


Name	Percentage of 31/12/2022		Percentage of 31/12/2021		Share/ quota capital	Ownership registered office	Activity
Italsofa Romania S.r.l.		100.00		100.00	RON 109,271,750	Baia Mare, Romania	(1)
Natuzzi (China) Ltd		100.00		100.00	CNY 106,414,300	Shanghai, China	(1)
Italsofa Nordeste S/A		100.00		100.00	BRL 159,300,558	Salvador de Bahia, Brazil	(1)
Natuzzi Quanjiao Limited		100.00		—	CNY 10,000,000	Quanjiao County-Anhui province, China	(1)
Natco S.p.A.		99.99		99.99	EUR 4,420,000	Santeramo in Colle, Italy	(2)
Nacon S.p.A.		100.00		100.00	EUR 2,800,000	Santeramo in Colle, Italy	(3)
Lagene S.r.l.		100.00		100.00	EUR 10,000	Santeramo in Colle, Italy	(3)
Natuzzi Americas Inc.		100.00		100.00	USD 89	High Point, N. Carolina, USA	(3)
Natuzzi Florida LLC		51.00		51.00	USD 4,955,186	High Point, N. Carolina, USA	(3)
Natuzzi Iberica S.A.		100.00		100.00	EUR 386,255	Madrid, Spain	(3)
Natuzzi Switzerland AG		100.00		100.00	CHF 2,000,000	Dietikon, Switzerland	(3)
Natuzzi Services Limited		100.00		100.00	GBP 25,349,353	London, UK	(3)
Natuzzi UK Retail Limited		70.00		70.00	GBP 100	Cardiff, UK	(3)
Natuzzi Germany Gmbh		100.00		100.00	EUR 25,000	Köln, Germany	(3)
Natuzzi Japan KK		74.40		93.00	JPY 28,000,000	Tokyo, Japan	(3)
Natuzzi Russia OOO		100.00		100.00	RUB 8,700,000	Moscow, Russia	(3)
Natmx S.DE.R.L.DE.C.V		100.00		100.00	MXN 68,504,040	Mexico City, Mexico	(3)
Natuzzi France S.a.s.		100.00		100.00	EUR 600,100	Paris, France	(3)
Natuzzi Oceania PTI Ltd		74.40		93.00	AUD 320,002	Sydney, Australia	(3)
Natuzzi Singapore PTE. LTD.		74.40		93.00	USD 7,654,207	Singapore, Republic of Singapore	(3)
Natuzzi Netherlands Holding		100.00		100.00	EUR 34,605,000	Amsterdam, Holland	(4)
Natuzzi Trade Service S.r.l.		100.00		100.00	EUR 14,000,000	Santeramo in Colle, Italy	(5)

(1)

Manufacture and distribution

(2)

Intragroup leather dyeing and finishing

(3)

Services and distribution

(4)

Investment holding

(5)

Dormant

See “Item 18. Financial Statements” of this Annual Report for further information on the Company’s subsidiaries.

Strategy

In recent years, the Group has focused on strengthening its brands, expanding its retail network with Natuzzi monobrand stores in key markets, where the Natuzzi brand is well known, and on its ability to create value by improving the efficiency of its industrial and supply-chain operations. At the same time, the Group has implemented cost control measures to streamline in particular its headquarters-related costs.

With the aim of positioning its offering toward the medium and high end of the market and at the same time differentiating its brand and product proposition from the low end of the market, where price is the main driver, in 2016 the Group started reorganizing its commercial operations on the basis of two divisions (the Natuzzi branded division and the unbranded division) and two business models (retail and wholesale). In 2019, the Group further developed its sales organization by focusing on the distribution channel, in addition to its two divisions: the retail channel, represented by mono-brand stores operated directly by the

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Group and by third-parties, and the wholesale channel, consisting primarily of Natuzzi-branded galleries in multi-brand stores as well as mass distributors selling unbranded products.

During 2021 and 2022, the Group continued the transformation of its business to pursue a positioning of the Natuzzi brand as a life-style brand by further focusing principally on the branded part of its business, which is mainly distributed through the retail channel: in 2022, 89% of the Group’s sale of upholstery furniture and home furnishing accessories came from the sale of its branded products (compared to 87% in 2021 and 85% in 2020. See Note 31 to the Consolidated Financial Statements). In addition, the Group intends to continue to expand its presence in key strategic markets where the Natuzzi brand’s awareness is well established, such as the U.S., Greater China and certain European countries, such as the UK and Italy, in particular.

Coherently with such effort, in November 2021, the Group defined a new organizational model, pivoting in particular on the Group’s two main brands, Natuzzi Italia and Natuzzi Editions. Indeed, the Natuzzi Italia