Fanpep <4881>'s performance and financial situation

1. Business Performance Sales revenue decreased by approximately 4.3 billion yen due to the sale of consolidated subsidiaries engaged in mobile businesses during the period, but revenue from the main water business increased by approximately 4.1 billion yen and sales gross profit increased by 3.4% compared to the previous year, despite the pressure of rising prices for raw materials and resources in sales costs. By improving factory operating rates and reducing costs, including various costs related to the creation of the company's own logistics network that contributes to stabilization of logistics costs, selling, general, and administrative expenses (including other expenses and revenues) increased by only 0.2% relative to the previous year. As a result, the company achieved its highest operating profit since the July 2016 corporate merger. The operating margin was 11.7%, the first time it has reached double digits.

(1) Overview of the cumulative performance for the 2nd quarter of the fiscal year ending December 2024

The consolidated performance for the 2nd quarter of the fiscal year ending December 2024 is as follows: Operating income remained flat year-on-year at 0.5 million yen, operating loss was 395 million yen (loss of 622 million yen in the same period of the previous year), ordinary loss was 382 million yen (loss of 589 million yen in the same period of the previous year), and quarterly net loss attributable to the parent company shareholders was 379 million yen (loss of 585 million yen in the same period of the previous year).

Operating income comes from sales revenue of functional peptides for the cosmetic field. In terms of expenses, research and development expenses decreased by 225 million yen year-on-year to 226 million yen due to a decrease in non-clinical trial expenses for 'FPP005'. On the other hand, sales and administrative expenses decreased by 1 million yen year-on-year to 170 million yen. The consolidated number of employees at the end of the 2nd quarter was 20 (including 5 temporary employees, with 14 in the research and development department), an increase of 2 from the previous year (including an increase of 3 temporary employees). Other non-operating income and expenses worsened by 20 million yen, primarily due to a decrease in subsidy income (decreased by 21 million yen to 14 million yen).

(2) Performance outlook for the fiscal year ending December 2024

Regarding the performance outlook for the fiscal year ending December 2024, the business income of the company group may fluctuate significantly depending on the progress of research and development and negotiation status with potential partners, thus it is currently undecided. In terms of cost planning, research and development expenses have been increased from the initial plan of 500 million yen to 600 million yen. This increase is anticipated due to the cost increase associated with the implementation of 'SR-0379' phase 02 trial. Sales and administrative expenses are expected to remain at 300 million yen as planned initially. Therefore, unless there are new contract signing fees or milestone events in the future, business income is expected to be approximately the same level as the previous period, and operating losses are expected to slightly decrease due to the reduction in research and development expenses. However, in the fiscal year ending December 2025, with the commencement of the 'SR-0379' phase 02 trial and the phase 1 clinical trial of 'FPP004X', research and development expenses are expected to increase to around 1.1 billion yen, and operating losses may also expand.

To secure business working capital for approximately 2 to 3 years, appropriate funding will be implemented

2. Financial situation. When looking at the financial situation of Inaboholdings <7539> as of the end of the second quarter of the fiscal year ending September 2024, the current assets increased by 1,954 million yen compared to the previous period end, reaching 32,121 million yen. In major subjects, cash and deposits decreased by 33 million yen, while the receivables from bills and unfinished construction work and other unearned income increased by 1,946 million yen, and construction costs of incomplete construction increased by 28 million yen. Fixed assets decreased by 700 million yen to 13,134 million yen. The breakdown is that tangible fixed assets decreased by 30 million yen to 6,575 million yen, intangible fixed assets increased by 231 million yen to 449 million yen (including goodwill increased by 223 million yen), and investment and other assets decreased by 901 million yen to 6,109 million yen. As a result of these, the total assets increased by 1,253 million yen to 45,255 million yen.

As of the end of the second quarter of the fiscal year ending December 2024, the total assets increased by 197 million yen compared to the end of the previous period, reaching 2,688 million yen. In current assets, cash and deposits increased by 167 million yen, while tangible fixed assets decreased by 1 million yen and goodwill and contract-related intangible assets related to Fan Pep Health Care decreased by 19 million yen in fixed assets.

The total liabilities increased by 351 million yen compared to the end of the previous period, reaching 541 million yen. In addition to recognizing a contract lump sum payment of 300 million yen from Shionogi related to the 'FPP004X' option contract as prepaid income, the increase in accounts payable by 38 million yen also contributed to this increase. Furthermore, the total net assets decreased by 154 million yen compared to the end of the previous period, amounting to 2,146 million yen. While recording a quarterly net loss attributable to parent company shareholders of 379 million yen, capital stock and capital surplus increased by 111 million yen each due to third-party allotment of new shares and exercise of subscription rights at Shionogi.

The balance of cash and deposits at the end of the second quarter of the fiscal year ending December 2024 was 1,961 million yen. The company intends to secure funds for research and development activities for the next 2-3 years based on the ongoing development stage, issuing the 11th subscription rights (with exercise price adjustment clause) via third-party allotment in July 2024 following this policy. The potential number of shares is 6.4 million shares (dilution rate 24.6%), with an initial exercise price set at 179 yen and a lower limit exercise price of 90 yen. If exercised at the initial exercise price, it would raise 1,139 million yen, all of which is planned to be used for the development expenses of 'SR-0379' (expenditure period: the third quarter of the fiscal year ending December 2024 to the fiscal year ending December 2027). As of August 19, 2.76 million shares have been exercised (exercise rate 43%), raising 368 million yen.

(Written by FISCO guest analyst, Jo Sato)