Press Release

Guo Guangchang's letter to shareholders in 2020: More focus and more evolution in a pandemic era

Dear shareholders,

 

During the reporting period, the group’s operating revenue reached RMB 143 billion, with a year-on-year increase of 31%; the profit attributable to the shareholders of the parent company reached RMB 14.8 billion, with a year-on-year increase of 10%, achieving the eighth year of continuous growth and reaching a new record. I would like to thank you for your long-term support. All colleagues of Fosun will continue to work hard to repay our shareholders’ trust with greater performance.

 

At the beginning of 2020, a global COVID-19 outbreak brought great challenges to the world. This global disaster affected all individuals and enterprises. Therefore, at the beginning of the outbreak, Fosun, through its global resource advantages, urgently dispatched protective materials to aid China’s anti-pandemic frontline. However, unfortunately, the COVID-19 epidemic finally evolved into a pandemic, so we are now supporting more anti-pandemic efforts in other countries. Fosun’s anti-pandemic actions, and especially Fosun’s capability to integrate global resources, have been highly acknowledged and greatly supported by governments and all sectors of society at home and abroad.

 

 

Doctor Giovanni from Sardinia, Italy, received masks Fosun sent to Italy. As of March 31, Fosun had provided more than 2.5 million medical supplies to foreign countries to help fight against the pandemic.

 

This crisis caused by the virus not only threatened everyone’s lives and health, but also had a huge impact on the world’s society, economy, and life.  Fosun is also studying and judging the potential risks and opportunities brought by the crisis to our industries. We are preparing to combat risks using various means. At the same time, we will fully utilize Fosun’s advantages in global industrial integration and investment, quickly seize the opportunities in the crisis, and make all industries bigger and stronger. In the 28 years since its incorporation, Fosun has experienced many business cycles. However, we overcame each crisis and became stronger instead, so we are confident that Fosun will become a better global enterprise after this crisis.

 

 

In the post-pandemic era

We will make efforts to upgrade China’s family consumption

 

According to the present situation, among the world’s major economies, China will be the first to walk out of the crisis.  As a global enterprise rooted in China, Fosun has always adhered to the globalization strategy of China and the world underpinned by twin drivers, and has prospectively introduced many world-class industries to China in advance. After the pandemic, China will also use the stimulation of domestic demand as the main driver for economic growth, which coincides with Fosun’s previous established concept of becoming an innovation driven family consumption group. Therefore, Fosun will also increase its efforts in family consumption with special focus on enhancing family, health, and online products to bring superior products and services to more families.

 

For example, parent-child travel and family travel have always been Fosun Tourism Group’s most significant features.  With a series of activities loved by all members of families, such as Atlantis water world, The Cove, The Lost Chambers Aquarium, and C Show, Atlantis Resort, Sanya has become the benchmark of Hainan tourism destination upgrade version 3.0. In 2019, Atlantis Resort, Sanya achieved a revenue of RMB 1.31 billion, with a year-on-year growth of 74.2%. Meanwhile, the occupancy rate increased to 68.5% and there were as many as 5.2 million visitor visits in 2019.

 

Atlantis Resort, Sanya has become the benchmark of Hainan tourism destination upgrade version 3.0.

 

Another example is that Fosun Healthcare has been using its industrial resources to develop health insurance with special characteristics in Fosun’s insurance sector. In 2019, the premium revenue of Fosun United Health Insurance, which had been established for only three years, exceeded RMB 1.81 billion, with a year-on-year growth of about 250%.  As an emerging commercial health insurance company with special characteristics, Fosun United Health Insurance is committed to building a digital and intelligent health service ecosystem. At present, it has achieved a premium revenue of RMB 714 million in Internet insurance in 2019, with a year-on-year increase of 154%, accounting for 39.5% of the company’s total premium revenue.

 

In addition, Fosun is constantly strengthening its online marketing.  For example, in 2019, it has continuously strengthened its online member community marketing for Happy Flagship of Fosun and the key traffic port of C-end - Yuyuan. The total number of registered members increased by 103% to 8.75 million, the number of consumer members increased by 136% to 1.89 million, and the amount of member re-purchases amounted to RMB 500 million. Shang Hai Laomiao Jewlery under Yuyuan also cooperated with Baihelove, an online platform of Fosun, to jointly release Mai Lingling’s "Fortune Promotion Product" gold jewelry and Baihelove emotional service products, creating explosively popular products in that year..

 

 

Optimize asset allocation and

focus on core industries

 

At the beginning of this year, Fosun defined “Focus” as its keyword for growth in 2020.  In the past ten years, Fosun has done a lot of pioneering and exploratory things, including regional exploration, investment exploration, and industrial exploration.  We have now basically completed the development in this stage and need to enter a new stage of development, that is, optimizing asset allocation, focusing on core industries, and making each of our core industries one of the best in their respective industries.  In this regard, we also proposed the Fosun Business System (FBS) to further empower and support the development of our core industries.

 

Point 1: Streamline management to improve operation efficiency.

 

I have always believed that enterprises do not need to pursue absolute scale. Many enterprises that blindly pursue scale at the cost of profits, desperately increasing their leverage to that end, will eventually suffer a crisis.  However, in all outstanding enterprises, streamlined management is one of the indispensable secrets of success. Therefore, what we want to pursue is the highest per capita benefit, the highest operation efficiency, and the highest profit margin in the industry. For example, Nanjing Nangang’s per capita steel production is ranked second and its per capita profit is ranked third among China’s iron and steel enterprises. It is not the largest iron and steel company in China, but it is one of the best in China.

 

Point 2: Increase investment in scientific innovation research and development to create world-class products.

 

In order to become one of the best in the industry, we must always keep our products competitive, which requires more investment in scientific innovation and R&D.  For example, in the healthcare industry, Fosun has a deep industrial accumulation, and Fosun Pharma is also one of the top ten pharmaceutical companies in China. Therefore, we are also increasing investment in scientific innovation in the field of healthcare. On the one hand, we are strengthening independent R&D efforts, and on the other hand, we are cooperating with more top scientific research institutions through our global resource integration capability. In the face of COVID-19, the group’s affiliated company, Fosun Pharma, took the lead by working with BioNTech SE to jointly develop COVID-19 vaccine products through the world’s leading mRNA technology platform. The COVID-19 nucleic acid detection kit developed by Fosun Pharma has passed the European Union CE certification and the emergency approval of the National Medical Products Administration.



Fosun Pharma and BioNTech worked together to speed up the research and development of vaccine products for COVID-19.

 

Point 3: Strengthen the integration of vertical industries and establish technical barriers.

 

All the best enterprises in any industry have more than one popular product and have industrial integration capabilities.  For example, in terms of industrial integration capability, Fosun continuously seeks investment opportunities for its industries to strengthen them through its global investment capability. In May 2019, the fund managed by the group acquired 100% equity of FFT, a benchmark enterprise of German industry 4.0. As a long-term supplier of turnkey engineering, flexible automation production line technology and products for Daimler, BMW, Volkswagen, Boeing, Airbus, COMAC (Commercial Aircraft Corporation of China, Ltd.) and other world-class production enterprises, the addition of FFT makes Fosun’s development in the smart manufacturing sector more powerful.

 

Point 4: Pay attention to ecological collaborations and create superior products through internal business development (BD).

 

As a group with multiple industries, Fosun’s greatest advantage is that it can generate synergistic effects where 1 + 1 > 2 through the collaboration among different internal sectors.  For example, Fosun’s IDERA platform in Japan, with its years of real estate investment and assets management experience, not only settled in Japan’s Tomamu Hokkaido ski resort, but also successfully completed the construction and reconstruction of properties and introduced the Club Med brand of Fosun Tourism Group. Through streamlined management and Fosun’s global marketing capabilities, the annual number of guests at the Tomamu ski resort has increased by 50% compared to before the acquisition, and the gross operating profit has also tripled.

 

 

 

In the crisis,

more attention should be paid to the evolution of organizational mechanisms

 

 

In the face of challenge from the unprecedented pandemic, Fosun has searched for opportunities in the crisis, as well as business innovation and breakthroughs. We have also paid more attention to how the whole organization has been tempered by the crisis.  Facing the sudden outbreak of COVID-19, Fosun established a wartime mechanism immediately and organized global resources to proactively respond to the epidemic. This operation improved Fosun’s organization and made Fosun more aware of our advantages in globalization and ecological organization. Furthermore, we saw the energy that Fosun generated under the wartime mechanism. Therefore, in order to further focus on our businesses and develop each of our core industries into leaders in their respective industries, Fosun will also continue to evolve its organizational mechanisms, improve operation efficiency, and optimize asset allocation this year.

 

Fosun’s senior management structure had changed not long ago.  Wang Qunbin was promoted to co-chairman, and Chen Qiyu and Xu Xiaoliang became Co-CEOs of the group. In addition, Gong Ping and Pan Donghui, two senior managers in front-line operations, were transferred back to the headquarters to assume the posts of chief financial officer (CFO) and chief human resources officer (CHO), respectively. At the same time, Tang Bin was appointed as the chief investment officer (CIO). This formed the initial deployment of Fosun management. These changes will enable Fosun to, from the top-level management, better arrange and strengthen existing industries and sectors and make the organization of Fosun more dynamic and effective. At the same time, after the tempering received in the wartime state, Fosun will demolish the comfort zone of the organization and improve the efficiency of operations from the headquarters to various industries. In particular, by strengthening the "271 management mode", we will further deepen our talent coopetition mechanism and enable all colleagues of Fosun to achieve greater value on the Fosun platform.

 

Global partners are determined to focus on the industries by reviewing and summarizing the anti-pandemic actions.

 

In the 28 years since its incorporation, Fosun has always planned for crises in times of safety and has been developing steadily. In the past few years, we have continuously reduced the ratio of assets to liabilities. As of the end of the reporting period, the ratio of total liabilities to total capital was 53.5%. At the same time, we have been constantly optimizing and expanding financing channels. In 2019, we successfully issued the first Chinese high-yield public Euro bonds, putting our usual financing concepts of diversification, internationalization and decentralization into practice, and provided high-quality assets with long-term and stable returns for global investors.

 

In the face of this once-in-a-century global crisis, we firmly believe that Fosun will be able to calmly resolve all problems that may arise, as well as turn crises into opportunities by increasing innovation, deepening reforms, and hard training. Fosun will identify the best opportunities in this round of crisis through forward-looking judgment and global resources, actively speed up asset optimization and industrial integration, and strive to become a world-class family consumption group.

 

I would like to express my gratitude again to our shareholders and everyone who has supported and helped Fosun, as well as appreciation of their trust and support.  We will continue to create greater value for all shareholders!

 

Guo Guangchang

 

END