[Post-IPO] Continued Growth Through Product Diversification at Pharmsville

[Asia Economy Reporter Yoo Hyun-seok] Health functional food company Farmsville continues its growth trend. This is interpreted as a result of a successful product portfolio diversification strategy aligned with market trends.

Farmsville was established in 2000. Based on its own brand and products, it operates businesses in health functional foods, diet, and inner beauty. Its representative products include the 'Apple Tree Kim Yaksa-ne' health supplements and the 'Akma Diet' series. These are sold through various distribution channels including domestic home shopping, online, and offline.

When it entered the KOSDAQ market in 2019, the desired public offering price was between 11,000 and 14,000 KRW. The final offering price was set at 14,000 KRW, raising 25.4 billion KRW. Farmsville planned to use the raised funds for land purchase (2 billion KRW), building construction (5.3 billion KRW), facility equipment purchase (800 million KRW), machinery (1.5 billion KRW), logistics center establishment (8 billion KRW), operating funds (1.4 billion KRW), and others (4.7 billion KRW) by March 2022.

However, according to the Q3 report, Farmsville had only used 7.2 billion KRW of the total public offering amount. Detailed information was not disclosed. The company explained that the remaining funds are held in deposits and other forms. It holds 2.9 billion KRW in cash equivalents, 9.2 billion KRW in short-term financial products, and 29 billion KRW in fair value through profit or loss financial assets. A company representative said, "We continue to generate profits, and before listing, we were able to self-finance parts related to the company building, so we are currently holding the public offering funds in deposits and similar forms."

Performance has been steadily growing. Sales increased from 19.8 billion KRW in 2018 to 30 billion KRW in 2019, and 39.4 billion KRW last year. However, operating profit has fluctuated: 5.6 billion KRW in 2018, 7.1 billion KRW in 2019, and 4.3 billion KRW last year. Selling and administrative expenses rose from 9.1 billion KRW in 2019 to 23.1 billion KRW last year, lowering profit margins.

This year, both sales and operating profit grew compared to last year. As of Q3 on a consolidated basis, cumulative sales and operating profit were 32.4 billion KRW and 5.9 billion KRW, respectively, up 10.0% and 48.6% year-on-year. By product, sales of diet and inner beauty products decreased, but immune and antioxidant products showed growth. The proportion of diet and inner beauty products, which accounted for 71.09% (20.9 billion KRW) of total sales as of Q3 last year, sharply dropped to 24.1% (7.8 billion KRW). Conversely, immune and antioxidant products increased from 7.19% (2.1 billion KRW) to 41.6% (13.5 billion KRW).

Product portfolio diversification is cited as the cause of sales improvement. Recently, interest in immune-related products has increased due to COVID-19 and other factors. The company has released products accordingly. A company representative said, "Sales improved as products aligned with trends like immunity sold well."

The factor behind profitability improvement is diversification of sales channels. The home shopping share, which was 72.60% as of Q3 last year, decreased to 60.7%. Meanwhile, online sales increased from 5.09% to 8.6%, and offline sales rose from 21.90% to 30.5%. A company representative explained, "Competition intensified in home shopping, leading to higher commissions. As sales increased through other channels, operating profit improved."

However, exports remain insufficient. The export ratio in Q3 this year was 0.2%, down from 0.41% last year. COVID-19 had a significant impact. A company representative said, "We have not been able to enter overseas markets due to COVID-19, but we have staff handling overseas matters and are in contact with buyers. With the advent of the 'With Corona' era and other countries reopening, sales could increase rapidly."