An international design brand of “Made in Italy” perfection and excellence.

Poltrona Frau is an Italian furniture maker founded in Turin, Italy in 1912 by Sardinian-born Renzo

Frau, who, over time, has successfully taken the “made in Italy” style and quality beyond national

confines. Poltrona Frau nowadays is a worldwide company with a leading position in the luxury

furniture market, present in more than 65 countries with more than 70 mono-brand stores and 23

DOS (Directly Owned Stores). In 2005 the Poltrona Frau Group was founded which in addition to

the homonym Brand, Poltrona Frau, includes also Cassina, Cappellini, Gebrüder Thonet Vienna,

Gufram and Nemo. The Group’s core business is mainly focused in three segments: residential

furniture and covering for homes and offices, Contract providing furniture for public areas and

collectivity (Restaurant, Theatres, Cinemas, etc.) and Interiors, designing and providing interiors for

cars (Maserati, Bugatti, Audi, Fiat, Infiniti, BMW, etc.), planes and yachts.

Poltrona Frau History

There have been a great many important moments in the history of the Group and they have all

contributed in some way to creating the legend of this company, today a citizen of the world.

1912 Renzo Frau registers the trademark with the Chamber of Commerce of Turin.

1926 Poltrona Frau is appointed official supplier to the “Royal House”.

1962 Poltrona Frau is acquired by the Nazareno Gabrielli Group and Franco Moschini.

1990 Franco Moschini, through a leverage buy-out, acquires the entire company shareholding.

2001 Poltrona Frau acquires Gebrüder Thonet Vienna.

2003 The Charme fund headed by L. C. di Montezemolo acquires 30% of Poltrona Frau’s capital.

2004 The creation of the “Polo del Bello” Poltrona Frau takes over Cappellini.

2005 The first flagship stores are opened in Milan, Rome and Naples.

2005 Poltrona Frau acquires Cassina S.p.A.: the International design becomes Italian once again.

2005 Nemo also join the Poltrona Frau Group with Cassina.

2006 Poltrona Frau Group is quoted on the Star market segment of Italian stoke exchange.

2011 Poltrona Frau Group declared the intention to rebuy their own shares

2012 Poltrona Frau Group recorded a 1,8% decrease in revenue, largely due to the decline of the

Residential business (9,4%). This contraction was caused by the recession in major European

countries which are still important markets for the Group. In particular, Italy which represents more

than 30% of total turnover for the segment, recorded a 19% drop in revenues compared to 2011.

Fortunately the other markets (US and Asiatic) were able to offset this drop in demand on mature

markets.

2014 Poltrana Frau, Charme Investments and Moschini Srl have reached an agreement with

Haworth about a shareholding transfer of 58.6% of the company to the US Company.

The CEO of Haworth, Bianchi confirmed that the agreement will be effective by the end of April

2014 after the final approval by the pertinent authority. With this agreement, Poltrona Frau Group

has the possibility to continue its expansion in the North American Market increasing its awareness

and consideration there. The purpose for the Group with this deal for the next years is to grow up

and consolidate its position abroad, especially focusing their attention on the Asian and American

Market.

Evolution of a key variable: Operating revenue (Turnover) (2003 - 2012)

General Overview on the Luxury Furniture Industry

Italy is the leading furniture exporter and the second largest furniture manufacturer in the world.

Among the competitive factors determining the success of Italian furniture is the fact that the Italian

furnishings industry is at the forefront in terms of quality of planning and product aesthetics, and

Italian design has a clear role as a global trend setter. Italian design is a by-product of a virtuous

circle composed of quality workmanship, a winning manufacturing model (the industrial furniture

districts), constant technological innovation and a strong creative attitude to the marketplace. This is

an important success factor for the furniture related sectors (furniture components, woodworking

machinery, and household appliances) and is fundamental for the image of Italian furniture. Italy

used to be extremely successful because of its small companies and their artisans, but today the

global market requires to be seen as big. Italy is still the sixth largest economy in the world, but

Italy is less and less dominant in each industry. It's the Italian ability to understand, worldwide,

what will be successful globally. Italians have an image of being particularly good at defining style

in a way that is appreciated worldwide. The Italian furniture tradition occupies a special place in the

overall history of furniture with Italy being the birthplace of the classical Renaissance and the

Italian Renaissance furniture that came from it had an immeasurable effect on world furniture, with

its echoes of the classical empires of antiquity, Rome and Greece, the foundation stones of the

western furniture tradition. While much of the furniture industry in modern day Europe has declined

into obscurity or narrow experimentalism the modern Italian furniture industry remains

comparatively robust and capable of producing marketable, popular, yet still stylish, furniture for

contemporary homes.

Most countries in Europe have a "country" or rustic furniture tradition and in Italy we find it best

expressed in exceptional furniture.

Market Trend 2009-2012

In 2009 the luxury furniture industry was affected by a consistently drop in its activity, especially in

the European and North American market, due the explosion of the global economic crisis with a

remarkable decrease in the purchasing activity from the mature market. While the 2009 for the

European and American markets was a black year, the Asian market still growing up constantly. In

particular the all sector has registered in 2009 a fall in turnover reaching the amount of 16.1B€ (-

12% vs 2008) with a decrease of 14% for the home/office furniture and covering, -7% for the

bathroom, -12% for the kitchens, -9% for the outdoor furniture and -9% for the illumination sector.

In short, the luxury furniture industry in 2009 entered in a transaction period with a global drop of

8% compared to the previous year due to the economic crisis that stricken the mature market. The

venture of the economic crisis has confirmed the leadership of the big/medium size companies over

the small ones that have saw their activity failed or drastically reduced. The reason of this scenario

finds its explanation in the fact that big companies have a global footprint that helped them to be

more flexible in facing the fluctuating trend of the market. Despite the persisting of the economic

crisis, in 2010 the industry trend was characterized by an inversion of the course with the global

turnover that increased of 9% (17.5B€) compared to the previous year (important factor for the

grown was the change in the international value exchange).

General Overview of the Market during the Economic Crisis

• Europe stricken by the economic crisis in 2009 (-9% vs 2008) shown an increasing in the activity

in 2010 (+6% vs 2009) due the extension of the business in the emergent markets, China first;

• USA in 2009 affected by a fall in the luxury furniture sector (-15% vs 2008) shown a consistently

recovery in 2010 (+7% vs 2009) thank to a re-stocking strategy;

• Japan was affected by a drop in the luxury furniture in 2009 (-12% vs 2008) and this drop

continued also in 2010 (-8% vs2009);

• Pacific area of Asia contrarily with the global trend performed an increasing in the luxury

furniture industry both in 2009 (+10%) and 2010 (+22%). China was the main protagonist of this

period with an increasing of 20% in 2009 and 30% in 2010 with a global turnover of 9.2B€.

Considering with the China also Hong Kong, Taiwan and Macao, in 2010 the entire luxury sector

produced a turnover of 17,5B€ becoming the third luxury market beyond USA (46,5 B€) and

Japan (18 B€).

In 2011 thank to a grown of the investments in the emergent markets, especially Brazil and China,

the industry faced an increasing of 6% compared to the 2010 reaching a turnover of 18B€.

In 2012 the turnover of the luxury furniture and complements of luxury, product lines drawn by the

stylists included, reached 18.54 € million, with an increase of 3% compared to the previous year.

The 50% of the sales were absorbed by furniture for living room and sleeping room, 15% for

bathroom, 14% for illumination, 10% for kitchen and 10% for the furnishings for external areas.

The 3% of general growth however is inferior compared with the luxury personal good sector in its

complex that increased of 10% reaching 212 million in 2012. The results performed can be

reinforced considering the fact that the emergent markets, China first, don't have yet completely

discovered the pleasure of furnishing the house, and that the consumption in the mature market is

suffering from the economic crisis.

Analysing this data and considering the emergent markets, the good news for the Italian companies

is that in those markets, the made in Italy, is considered as the first choice, followed by Germany

(25%), Japan (17%), Spain and USA (14%) and it is the first exporter of luxury furniture in China

with a value of 177 Million Dollars (Data provided by ICE, Agency for the promotion to the foreign

countries and the internationalization of the Italian enterprises). Nevertheless, even if the made in

Italy represents the preference for the emergent markets, China is become the greatest producer and

world exporter of global luxury furniture with a turnover in 2012 of 183 million of dollars.

In 2013, the analysis realized by Bain & Company concerning the luxury market evinced a grown

of 2% reaching 217 million of euros. The main fact observed analysing the 2013 performance is

represented by a changing of the course in the market leadership with the American market that

return leader in the luxury import (+4% vs 2012) bypassing the China that instead stopped is period

of grown (+2.5%) starting a period of position consolidation.

Index Analysis

Measures on firm’s profitability

ROE

(Net Income/Equity)

Considering the 2010-2012 period, the overall performance ratio shows a low value in the first year,

a huge increase in 2011 and a drop in 2012, staying however higher than 2010 level.

The Ebit trend in the period is positive:

+ 70% in 2011

+ 11% in 2012

But a big part of the amount is used to cover the financial losses, that affect all period long, and the

high taxation level:

82% in 2010

58% in 2011

32% in 2012

2012 2011 2010

1,25% 6,60% 1,05%

Looking at this data, it is expected to find a higher Net Income value in 2012, but there is an

elevated value that affects negatively the extraordinary area and make the Net Income going back to

the 2010 level.

The ROE 2011 and 2012 could have been even higher than ROE 2010 if the company did not

augment its own Equity level in 2011, when they start a process to re-buy their own shares from

shareholders.

ROA

[Ebit*(1-t)]/Net Assets

The index illustrate a negative trend across all the examined period. ROA is calculated as a net

profit margin of the asset turnover and it indicates the ability of the management to use assets

effectively. The index is 10% inferior in 2011 and 16% inferior in 2012. The constant reduction

could be explained analyzing the company strategy in business expansion over emerging markets

and designing of new distribution channels. The assumption seems confirmed by an increasing of

the invested capital.

ROS

[Ebit*(1-t)]/Sales

Analysing the ROS it is possible to notice a constant decrease through the years. The negative trend

could be associated to a problem of efficiency in manufacturing level or analysing the market trend

and the strategy of the company.

In fact, in 2011, the company starts a business expansion in US and some virgin markets, and in

2012 the firm face a negative industry trend.

Sales increase from 2010 to 2011, but they strongly decrease in 2012 of 22 millions, following the

stagnant situation in mature markets where Poltrona Frau is strongly active:

2010: € 256.277.000

2011: € 260.886.000

2012: € 238.497.000

There could be a contrast between strongly negative ROS trend and the material costs, which show

a reduction from 2010 to 2011, suggesting that the company has maybe obtained more favourable

raw materials supplying conditions and/or some economies of scale or economy of group, but it

seems that the company has failed to take advantage from it.

Another consideration might be done analysing the ROS considering the Net Income after tax, that

shows a value around 2-3%, through which it is possible to observe as a variation of 2% on sales

expenses (i.e. interests) could put the company in a situation of loss.

2012 2011 2010

7,70% 23,33% 33,33%

2012 2011 2010

5,55% 16,30% 23,10%

NET ASSETS TURNOVER RATIO

Sales/Net Assets

The asset management shows a regular trend in the first two considered years, but a reduction

comes out in 2012, mainly due to a strong decrease in sales.

NET OPERATING WORKING CAPITAL TURNOVER

Sales/Net Operating Working Capital

Net Operative Working Capital:

2010: € 69.236.000

2011: € 72.527.000

2012: € 53.562.000

This index explains how the firm is using the net operative working capital to generate sales in a

specific period of time.

Despite an increase of the Net Operative Working Capital in 2011, the turnover shows a reduction

in that year: this could be explained by the possibility that the company is incrementing the

inventory. In fact, in 2012, a lower level of stocks appears in the balance sheet, and it causes a

better value in the Net Operative Working Capital. If the increasing sales level doesn’t seem to

confirm this hypothesis, another explanation might be found in the possibility that the company is

receiving payments from its own customers in a long time period.

FIXED ASSETS TURNOVER

Sales/Fixed Assets

This index indicates how well the business is using its fixed assets to generate sales. Due the

negative trend, could be that the company is collocating an highest amount of money in assets for

each unit of sales.

The 2012 index is influenced by the increase of assets in 2012 ( from 135.000.000 to 145.000.000)

and the decrease of sales ( from 261.000.000 to 238.000.000).

Finanacial Management

FINACIAL LEVERAGE

[Net Income/Ebit*(1-t)] * (Net assets/Equity)

2012 2011 2010

1,387 1,431 1,443

2012 2011 2010

4,453 3,597 3,701

2012 2011 2010

1,638 1,930 1,905

2012 2011 2010

0,163 0,283 0,032

The Financial Leverage increases in 2011 compared to the previous year, but it goes down again in

2012. Values are very low and it means the financial policy has a negative impact on company’s

profitability. Anyway, analyzing deeply the index we can evince that the company generates more

internal resources than debts allowing it to have less interests charge on the PL.

Test of Liquidity

CURRENT RATIO

Current Assets/Current Liabilities

2012 2011 2010

1,159 1,314 1,229

A low current ratio value appears in all of the examined years. The company shows a low value of

working capital, maybe due to the fact of keeping an high level of stocks or because it has a quite

high level of money to collect (as debtor value shows) and pay in the short term period. It might be

a very difficult situation to face to, if creditors’ payment should arrive before the debtors’ payment.

QUICK RATIO

(Current Assets-Inventory)/Current Liabilities

2012 2011 2010

0,693 0,820 0,833

The index shows that cash and near-cash resources of the company have a low value in all the

considered periods. Comparing the quick ratio with the current ratio, is possible to understand that

the company has either an high level of inventory and an high uncertainty of the timing of cash

flows from its sale. If the company will not change the cash flow management, probably it is going

to experience problems in paying its own current liabilities.

Test of Solvency

DEBT TO EQUITY

Debt/Equity

This index shows that the company is reducing its level of debts. The situation seems to be going in

a good way but this performance is influenced by an increase of the equity. Anyway, the level is

decreasing in the last year period.

NET CURRENT ASSETS COVERAGE

(Equity + Long-term Liabilities)/Non-Current Assets

2012 2011 2010

1,129 1,278 1,226

2012 2011 2010

1,428 1,590 1,834

The index shows that the company has a decent coverage of Non-Current Assets by using long-term

sourcing of financing. The value is higher but no so far from 1, and it shows a dangerous negative

trend.

TOTAL ASSETS RATIO

Total Assets/Equity

The index explains that the company has a good financial leverage based on his own equity. It

means that the company has a well capacity to cover the new investments done through the period

with its own equity resources, which are not charged with interests as the other financial resources.

Benchmarking

All the benchmarking analysis has been made using the same formulas used to calculate the indexes

for Poltrona Frau.

In order to have a quick overview of the companies and the market we can have a quickly look at

the sales:

2012 2011 2010

Poltrona Frau € 238.497.000 € 260.886.000 € 256.277.000

Natuzzi € 457.586.991 € 480.576.408 € 514.931.855

Ekornes € 368.742 € 355.559 € 365.638

Sales

The Sales level shows an increasing value for Poltrona Frau in 2011 and a decrease of the two

competitors in the same period. Natuzzi still decrease in 2012 and it seems show a difficult period

for the company; Poltrona Frau also experiences a decrease in this year.

Looking at the table we can understand that in this case the difference between values is mainly

made by the size of the company: Poltrona Frau and Natuzzi are big international companies active

in serving wide markets with a large portfolio of products and activities, while Ekornes is a smaller

and younger company more oriented to serve niche markets.

Natuzzi has the highest sales level, more or less double of Poltrona Frau and a thousand time bigger

than Ekornes.

In order to confirm these differences we can analyze the Equity level in 2012:

Poltrona Frau: 70.810.000

Natuzzi: 283.660.558

Ekornes: 231.962

The Ebit table shows an increasing performance for Poltrona Frau compared to a negative trend of

the two competitors. Natuzzi in particular shows an alarming Ebit level.

2012 2011 2010

3,991 4,156 4,755

2012 2011 2010

Poltrona Frau € 19.439.000 € 17.924.000 € 10.745.000

Natuzzi -€ 17.922.112 -€ 24.903.910 -€ 2.233.741

Ekornes € 47.445 € 49.872 € 68.168

Ebit

The Ebit is influenced by the taxation level, which presents huge differences between companies as

we can see in the following table(expressed in %):

2012 2011 2010 2012 2011 2010 2012 2011 2010

32 57,9 81,8 20,3 35,6 318 30,8 29,7 29

Poltrona Frau Natuzzi Ekornes

In order to better compare these companies, a deeply ratios analysis is needed.

ROE

2012 2011 2010 2012 2011 2010 2012 2011 2010

1,25% 6,6% 1,05% -9,18% -6,02% -3,38% 19,66% 16,52% 21,83%

Poltrona Frau Natuzzi Ekornes

The general situation shows that Ekornes has the greatest ROE level across all the period, thanks to

the different business orientation which allows the company to be less affected by the industry

crisis. Natuzzi is experiencing a very difficult company period while Poltrona Frau shows a positive

performance which is influenced by an higher Net income value in 2011.

The Poltrona Frau Net Income fall down again in 2012 because affected by a € 7.581.000 loss in the

Extraordinary area.

ROA

2012 2011 2010 2012 2011 2010 2012 2011 2010

7,70% 23,33% 33,33% -4,12% -4,23% -1,32% 14,16% 16,39% 21,74%

Poltrona Frau Natuzzi Ekornes

The index illustrates positive values for Poltrona Frau, negative for Natuzzi and a decreasing value

for Ekornes. It shows that Poltrona Frau has the highest ability in using assets effectively in order to

generate a good level of Ebit.

ROS

2012 2011 2010 2012 2011 2010 2012 2011 2010

5,55% 16,3% 23,10% -3,12% -3,34% -0,95% 8,91% 9,86% 13,24%

Poltrona Frau Natuzzi Ekornes

It shows a decreasing trend for all of the companies: it could be explained by the fact that maybe

they are facing a strong competition in the industry and changing strategy in order to adapt

themselves to the change. Even if the value is still positive for Poltrona Frau, it is strongly

decreasing. Natuzzi has a very negative value because maybe it is reducing its price in order to face

new market challenges.

Test of liquidity

2012 2011 2010 2012 2011 2010 2012 2011 2010

Current Ratio 1,16 1,31 1,23 2,27 2,63 2,74 3,1 2,92 2,93

Quick ratio 0,69 0,82 0,83 1,64 1,84 1,9 2,32 2,23 2,26

Poltrona Frau Natuzzi Ekornes

Ekornes has the best Liquidity ratios level, showing that the company is able to afford an eventual

short term payment, even using only the ready to cash resources without considering the inventory.

The increasing difference in time between Current and Quick ratio explain that the company is

augmenting its inventory level: this could be both a strategy of the company or a mix of reduction

of sales in 2011 and a higher production level, as shown by the increasing value of Material cost

and Costs of employees on all period long.

Natuzzi is ready for an eventual short period payment crisis, but presenting a decreasing values

trend, getting close to the standard reference for the Current Ratio(2) and the Quick Ratio(1) values.

Poltrona Frau does not show the capacity to be fast in collecting enough cash on time to repay a

short term debt.

Debt to Equity ratio

2012 2011 2010 2012 2011 2010

1,4 1,6 1,8 0,2 0,2 0,1

Poltrona Frau Natuzzi

The analysis of this index shows that Poltrona Frau was able to well reduce its debt to equity ratio

from 1.8 to 1.4, but it needs to continue improving more the index in order to avoid in the future

any financial risk. Natuzzi instead is financing its assets mainly using its equity resources.

Ekornes is this table is not represented because the company is facing an atypical situation with no

loans or long term debts that generate interests in its income statement.

Inventory turnover ratio

2012 2011 2010 2012 2011 2010 2012 2011 2010

4,3 4,4 4,9 5,3 4,9 5,7 8,6 10,4 9,6

Poltrona Frau Natuzzi Ekornes

The table, made using Sales on Inventory, measures how well a company is turning its own

inventory into sales: the index gets better when its value gets higher and it shows a more efficient

management of the warehouse linked to a more frequently stoke turnover.

Data are coherent with the sales decreasing that are associated with a longer storage time.

Considering the warehouse as a liquidity absorber, it is better to minimize the storage time.

Ekornes presents the highest level even if the value is decreasing during the last year while Poltrona

Frau and Natuzzi are slower in transforming stocks in sales.

Conclusion

Porter's Five Forces

Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter

of Harvard Business School as a simple framework for assessing and evaluating the competitive

strength and position of a business organisation. This theory is based on the concept that there are

five forces that determine the competitive intensity and attractiveness of a market and that could

help identify where the power lies in a business situation. This analysis is useful both in

understanding the strength of an organisation’s current competitive position, and the strength of a

position that an organisation may look to move into.

1. Supplier power. The luxury furniture industry requires raw materials, labour, components

and other supplies which lead to a buyer-supplier relationship between the company and the

firms that provide the raw materials used to create products. In Italy, there are many related

companies specialized in luxury furniture that work together (cooperation) to apply a strong

bargaining power over the suppliers. Recently the industry has seen a growth of emerging

markets with new suppliers able to stretch the prices, generating both an increase of the

competitiveness among suppliers and reinforcing the power of the companies in the

bargaining negotiations.

2. Buyer power. Even if many new firms are coming from emerging markets offering lower

prices and improving their quality, the Italian luxury furniture industry contrary to a lot of

other industries is not facing an increase in bargaining power exercised by the buyers

because the quality of Italian furniture remains recognized and well appreciated throughout

the world as the best, allowing companies such as Natuzzi and Poltrona Frau to be able to

maintain a leading position in this market. Considering the Luxury Furniture Industry as a

niche segment inside the furniture industry, we can find that inside this market there are

mainly two kind of customers, those not sensitive to price and those demanding plus

selective so for the luxury furniture the buyers’ power is not strong enough to influence a

changing in the prices policy.

3. Competitive rivalry. Poltrona Frau being a worldwide luxury furniture company has many

competitors not only in its country but also in the whole world. Emerging markets such as

Brazilian and Chinese are becoming true threats for the furniture industry in the world

because of their capability to reach good levels of quality still offering lower cost. The

presence of many competitors in this market increases the rivalry among companies because

they are competing for the same customers and resources, generating also a struggle for

market leadership. Considering this, Poltrona Frau has to sell a large quantity of their

products focusing their sales strategy on the quality of their products and the history of the

group both in terms of experience and guarantee of excellence. Seeing as the luxury

furniture industry is a niche segment of the whole furniture industry, the rivalry among firms

is not just based on the price but is mainly focused on the Brand identification. The

customers buying a product consider the name and quality rather than the price and this

drives the rivalry on other levels different from the price. Considering also the data collected

concerning the ROS of some players of this market performed in the last years, Poltrona

Frau included, we can observe that the trend decreased drastically and this could be

explained by the augmented number of competitors and also by the economic crisis that

affected the main market for this kind of business, North American and European.

4. Threat of substitution. As more substitutes become available, the demand becomes more

elastic since customers have more alternatives. Where close substitute products exist in a

market, it increases the likelihood of customers switching to alternatives in response to price

increases. This reduces both the power of suppliers and the attractiveness of the market.

Considering the luxury furniture industry as a niche segment inside the furniture industry,

we can assume that in this case even if there are many alternatives, the most important thing

that influences the buying decision is the Brand. The Brand name in this sector is more

important than all the other aspects so it is very difficult to substitute the well-known brands

with unknown products and brands. Due the quality and the uniqueness of the luxury

products, we can assume that for the luxury furniture industry there is no real substitute.

5. Threat of new entry. Profitable markets, as the luxury furniture are, attracts new entrants,

which erodes profitability. In this kind of sector, due the venture of new firms coming from

emergent markets, ideas and knowledge that provide competitive advantages are treated as

private property when patented, and prevents others from using the knowledge and thus

creates a barrier to entry. There are plenty of patents in this industry and so profitability is

still high. In the furniture industry lower-cost competitors from emerging markets (China

and Brazil) are improving quality and grabbing market share. The biggest threat to furniture

designers comes from unauthorized copies, Chinese manufacturers and even other Italians,

casually replicating the best designs, increasing the completion inside the market. In

addition to the high entry barriers, it could be difficult for new players to get brand

awareness due to the fact that this market is mainly focussed on the capability of the brand

to be recognised and appreciated by the customers. Another thing that we must consider is

related to the fact that when a new player finds the way to grow and conquer awareness,

often a big player already present in this market comes and buys it. Arguably, regulation,

taxation and trade policies make government a sixth force for many industries. Thus

considering the new market players and their lower price, also leading brands such as

Poltrona Frau and Natuzzi that are facing a decrease in their ROS have to change something

in their pricing strategy without forgetting what makes them different, the quality.

Considerations after Combining Porter’s five forces

From the preceding discussion, Porter’s five forces suggest that the Italian luxury furniture

is competitive as all the forces are in favour of the industry. The profitability of the industry

is high even if new companies from emerging markets are improving and enlarging their

offer. Poltrona Frau, even if it is facing competition that is getting harder year after year

(thanks to its knowledge, its experience in producing made in Italy quality products), it can

easily maintain is leading position and continue increasing its awareness around the world,

especially in the virgin market.

Final financial outcomes

Considering all the data analyzed, Poltrona Frau shows a potential financial risk (i.e.

insufficient quick ratio), which would suggest the adoption of policies able to reduce the

exposure to the financial system and enhancing its ability to meet its obligations.

Considering its debt of 60 € million and a CFO of around 15 € millions in 2012 (without

considering extraordinary expenses, otherwise it would be 7 € million), if the company

during the next year will be able to avoid expenses in extraordinary area, it would generate

enough cash flow to repay the debt.

Poltrona Frau seems to be in the right way producing in 2012 enough resources that allowed

the company to repay a large part of its debts: this is another good signal for the next year

because the company will be able to obtain a lower interest level on Profit.

Moreover, the company shows a high Fixed Assets amount and a high sales turnover, with a

depreciation that represents just a 3% of sales. The highest expenses are mainly related to

the raw materials (40% of sales) and wages (18%).

The working capital has a positive value, but the company needs absolutely a short term

credit line in order to face the short term operations.

For this reason, should be taken in consideration a better management of the working

capital: from the analysis of the income statement emerges that in 2012, a reduction in sales

it has not been assisted by a reduction in operating costs.

This missed consequence affects the working capital, so an important goal that the company

has to achieve is to keep a lower inventory level (it absorbs liquidity) and make sure to

increase inventory turns.

NOF (need of funds for operations: current assets minus currents liabilities non bearing

interests) is 22%, so if thecompany will be able to increase sales consistently, it will need

more resources to keep the business performing well.

Strategy forecast

Basing our assumption also on the recently company release we can consider that the future

strategy for the company will be those to increase its brand awareness in the North

American market. This process will be assisted by the last agreement that the company

subscribed in which was established the acquisition of the group by an American firm,

Haworth.

Considering then the potential of the virgin market we can suggest that another possibility

could be those to invest money in this market with the aim to reach quickly a leading

position and increase its revenues and to limit its dependence on a single market and

asphyxiated by a stagnant European demand.

Realized by Matteo Soren Del Bianco, Chiara Neffat, Luca Flamini, Alessandro Pintore