LETTER TO SHAREHOLDERS
Dear distinguished shareholders of Fosun:
2017 marked the 25th anniversary of Fosun and our strongest financial year ever. With the support of our loyal shareholders through these years, Fosun has achieved continuous growth from a college student startup with only RMB38,000 of initial capital, to a Forbes Global Top 500 international industry group making over RMB13 billion of profit attributable to owners of the parent and managing over RMB530 billion in total assets. To this, I would like to express my sincerest gratitude for your ongoing support and confidence in Fosun and I am pleased to announce that the Board has recommended an increase in our dividend this year to HK$0.35 per share, driving shareholders’ value continuously.
It’s often said that running a business is similar to conquering a mountain. Over the past twenty five years, Fosun has conquered summits of various industries, one after another. I can proudly report to our shareholders that, through these conquests, Fosun has accumulated extensive experiences across a number of industries. We are enjoying leading positions in industries closely related to family life, such as pharmaceuticals and healthcare, tourism and culture, fashion and happiness, insurance and comprehensive financial services. We place great importance to technological research and development, particularly Fosun’s pioneering technological products, including the CAR-T treatment that can treat and aims to provide a cure to cancer and artificial intelligence to aid lung cancer screening. Furthermore, our Customer-to-Maker (C2M) is now no longer a concept but reality. Fosun now has increasing points of market entry to reach customers and makers providing Fosun’s ecosystem with highly competitive products. In addition, the recently launched Youle Customer Loyalty Program (“youlè”) will be the glue connecting Fosun’s featured products and services. More importantly, with Fosun’s more robust financial strength and the best talents, we can be confident and patient in our growth.
As we keep sharpening our capabilities, I deeply believe that Fosun will move forward and advance to a higher level.
Having roots in China, I have full confidence in the Chinese economy
2018 marks the 40th anniversary of China’s reform and opening-up, and where China is now the world’s second largest economy with a healthier, stable, sustainable and high-quality economic growth. As a result, Chinese companies, including Fosun, are also getting stronger and can now participate in the commercial “World Cup”. For this, we are extremely grateful.
Now, as China crosses the threshold into a new era, I am even more confident for the future.
In my view, China will continue to present plenty of opportunities for the following reasons:
1.China has the single largest consumer market in the world with an expected middle class of 400 million people in the near future, which is unprecedented in the history of mankind. From this, an unimaginable number of opportunities will arise. I believe that demand in China will certainly flourish, and enterprises will enjoy a variety of excellent opportunities. For example, in just eight years, China has become the largest source of customers for Club Med. Such a trend will persist in more industries.
2.China has one of the best environments for scientific innovation in the world. Recently, China’s total investment into research and development has been ranked second in the world, only after the United States. A large amount of investment in science and technology is now being transformed into productive results benefiting industries and customers. Fosun will definitely accelerate and increase its investment in technology and research and development.
3.The future world is a world of artificial intelligence (“AI”). The most important thing about artificial intelligence is not the algorithm, but the data processed through deep learning. In this, China enjoys exceptional advantages, in particular, in the amount of data that it possesses. As long as we concentrate on the scientific research and development of this data, China can enjoy a more advantageous leading position in AI.
Of course, all these opportunities are linked to the acceleration of China’s economic integration into the world economy. The future will be a future driven by China and the world. Not only will the world’s most successful, pioneering and innovative enterprises participate in the development of China in a more active manner, but Chinese companies will also participate more in global development, bringing together the best technologies, brands, and products to bring happiness to families in China and abroad.
This is also our mission.
The mission of Fosun is to create a happy life for a billion families worldwide!
Along the lines of “Self-improvement, Teamwork, Performance and Contribution to Society”, Fosun’s mission has become clearer – to create a happy life for families worldwide. If we have to set a goal for our mission, I hope to serve a billion families around the world.
This is indeed a very difficult goal. However, Fosun has a profound accumulation of both customers and makers. We have strong confidence in doing the right things, the difficult things, and doing things with patience. This is also the very meaning of Fosun’s existence. We are willing to forge ahead amid numerous challenges.
1.Strategy is the first step of broader, higher and deeper development
The most important step in doing the right things, the difficult things, and doing things with patience is to formulate a good strategy. Fosun’s strategies are also the “engines” of business development. We now have four important “engines”, helping Fosun expand the scope of development to a broader, higher and deeper level:
1)????? Adhering to globalization to achieve industry development driven by China and the world
Firstly, Fosun benefits from the reform and opening-up in China as well as the globalization pattern in the past decade. Besides, Fosun’s globalization strategy has also gained recognition and support from the governments and regulatory authorities from countries around the world.
Secondly, “Growth is Driven by China and the World” evolved from “Combining China’s Growth Momentum with Global Resources”. Fosun not only integrates and brings the best products to China to meet the needs of Chinese families, but also helps its portfolio companies expand globally. For example, last year, Fosun and Sanyuan Foods jointly acquired St Hubert, a centennial healthy food brand in France. The acquisition will help Sanyuan Foods achieve rapid industrial upgrade in terms of healthy food and product structure, so as to stay ahead of other domestic competitors.
Thirdly, the most important aspect in the globalization of Fosun is talent. Fosun is a global company from China, so we firmly believe in the importance of being Glocal (Global + Local). We do not provide opportunities only to Chinese people. Every Fosuner shares equal opportunities in promotion regardless of their nationalities because the local teams in different countries around the world will present broader prospects for Fosun.
2)????? Centering around families and focusing on their core needs such as health, happiness
To make families in the world happier is the mission of Fosun, so the strategy of Fosun also centers on families through building three family-focused ecosystems rooted in China. We pay attention to the needs of every family member at different stages of life and discover that health, happiness and wealth are the common and eternal needs of all people. Therefore, Fosun must achieve breakthroughs in these three areas.
Firstly, with respect to the integration of health, happiness and wealth ecosystems, the most important aspect for Fosun is the competitiveness of our products. I am more and more convinced that good products can speak for themselves, especially in this era of extensive channel development. Good products and content become more precious. Why was Sanya Atlantis Resort packed with people during its soft opening? This is because it offered products that were truly competitive. For example, the huge aquarium tank of the hotel lobby is thrilling to children, while young people are fascinated by new experiences such as enjoying meals at the underwater restaurants and staying in the underwater suites. Therefore, all Fosuners should be product experience officers, and I am of course obliged to become the chief product experience officer of Fosun.
At the same time, I also believe that good products must be created. Fosun will pay more attention to companies that have unique or exceptionally strong capabilities in production, and will continuously enhance the awareness of each brand of Fosun, such as Tsingtao Brewery, Gland Pharma in India, Lanvin1 in France, and Wolford1 in Austria, in order to further deepen and expand the “moat” of Fosun in the manufacturing sector.
Secondly, Fosun’s competitive edge is the closed-loop system of one-stop services across different boundaries based on verticals. The biggest advantage of Fosun is the profound accumulation of world-class makers. We now also concentrate on accumulating customers, and integrating customer traffic through platforms such as Qinbaobao and Dongjia. Today, Fosun serves over 35 million families around the globe. Fosun will use various platforms as its points of market entry, such as focusing on the special needs of young families, to line up markets to provide targeted products and services, including baby and maternal products, healthcare, and tourism and vacations, to create a closed-loop system of one-stop service across different boundaries for young families.
In addition, Fosun also actively engages in social projects such as the Hangzhou-Taizhou Highspeed Railway project, Besino Environment project, CN-NL Waste Solution and Spring to bring benefit to society. We are committed to building quality infrastructure for a better life of every family.
3) ?????????? With advanced technology, Fosun will become a leader in global research and development to gain a competitive advantage
We firmly believe in the importance of research and development and the role it plays in corporate development since Fosun was founded. Although Fosun hasn’t always had strong financials in the past, we have always insisted on increasing our investment into research.
In particular, Fosun has an accumulated investment of nearly RMB4.66 billion over the past five years with respect to the pharmaceutical sector. Nine years ago, Fosun set up a laboratory in Silicon Valley to create a 24/7 research and development network in the United States and China.
The research and development network has achieved initial results. For example, Shanghai Henlius has obtained investigational new drug (“IND”) approvals for 11 indications of six products in the mainland China, leading the research and development of monoclonal antibody drugs in China. Fosun Pharma has also achieved breakthroughs in various technologies, including the applications for two new type I chemical drugs and obtained a clinical approval from China Food and Drug Administration, and the application of a new drug to the Food and Drug Administration in the United States.
As we move into the future, we promise Fosun will continue to increase its investment in technological innovation.
In particular, Fosun will continue to strengthen cooperation with the top research and development companies in the world, such as Fosun Kite Biotechnology Co., Ltd. (復星凱特 生物科技有限公司, “Fosun Kite”), whose CAR-T cell immunotherapy aims to provide a cure for cancer, and the joint investment was made with Intuitive Surgical SARL, the owner of the technology and products of Da Vinci surgical robotic system, in establishing a joint venture, namely Intuitive Surgical-Fosun Medical Technology (Shanghai) Co., Ltd. (直觀復 星醫療器械技術（上海）有限公司), and completed the relevant business registration, which accelerates the development and popularization of high-end medical technology in China.
At the same time, Fosun will also strengthen the accumulation of independent research and development. For example, the Proxima team is a proprietary project that makes use of artificial intelligence technology to assist in tuberculosis film reading, which greatly enhances the accuracy of lung cancer diagnosis and was awarded first place in the List of “LUNA16”.
Fintech is also an area of technological innovation in which Fosun is paying more attention. For example, the Naga Group AG in Germany has become the first listed Fintech company on the German stock exchange. Also, Fosun is actively helping Israeli Fintech company Bond I.T. Ltd. develop a more extensive Chinese market.
Of course, in addition to technological innovation in healthcare and Fintech, Fosun will also continue to pay greater attention to innovation in emerging areas such as big data, artificial intelligence, blockchain and the internet of things. Fosun will never stop learning and always concentrate on creation and innovation.
4)????? “Industry + Investment” to keep on enhancing the power of Fosun in the industry
I know that for many, the first impression of Fosun is that it is good at investing. Indeed, investment is a very important component of Fosun. However, investment is not the only goal of Fosun, but also an important way to supplement the industrial development of Fosun. Investment is only the first step in value creation, the real value is created from what we do after we invest.
After making an investment, Fosun often formulates a “hundred-day plan” for post-merger integration, involving professional capabilities, human resources, legal affairs, finance and others to achieve mutual empowerment through comprehensive streamlining and coordination.
For Fosun, vertical depth of industrial development and the continuous enhancement of operational capability are now more important than investment. As the operating income from our core business has achieved stable growth, we expect that this will provide one of the most important sources of income for Fosun in the future.
Our strong results in 2017 are a combination of improving core industrial operations and disciplined asset allocation. In 2017, we saw significant growth in core operations including Fosun Pharma, Club Med, Yuyuan, BCP and Nanjing Nangang. Furthermore, we executed our C2M strategy and maintained a disciplined asset allocation strategy, including investments in over 100 new projects balanced with over 50 accretive divestments and 10 successful initial public offerings (“IPOs”).
Moreover, benefiting from our history and our unique asset accumulation at Fosun, we are now more confident and capable in seizing the ability to turn around a company in the industry.
Fosun not only can make a company better, but also can bring in opportunities of value creation for all companies by leveraging an even broader understanding of the industry, a global platform of talent, and an accumulation of experiences with companies that have 9 encountered difficulties and have found a solution. This is the unique ability of Fosun that differentiates itself from others.
For example, after Club Med entered China, its customers continued to grow. With Fosun, the number of Club Med customers in the Greater China region has increased 10 fold. At the same time, their success in the Chinese market also fostered their development outside China. Last year, we helped Club Med open a new ski resort in Tomamu, Hokkaido, Japan. The resort has become highly popular, not only among local and international visitors, but particularly amongst Chinese tourists.
The above are the core strategies Fosun has built up over the past quarter century and will continue to enhance and implement in the future, so as to continuously enhance Fosun’s business strengths in relevant industries. We are fully confident that through Fosun's core operations, innovative technologies and ONE Fosun ecosystem spanning over 35 million families, our C2M strategy will drive the next stage of operational growth. Our ultimate vision is therefore to significantly enhance the value of any company that enters our C2M ecosystem, helping them gain greater access to customers while producing better products and services.
Of course, our strategy will always align closely and flexibly with business cycles and the macro economy. We will never make the ultimate mistake of setting a rigid strategy that cannot be adjusted to changing conditions.
2.youlè, linking up the high-value businesses of Fosun
C2M enables a direct linkage between customers and makers through technological advancement. Specifically, it allows the different needs of customers to be met instantly with personalized design and adaptable manufacturing. As long as we are 0.01 second faster and 0.01% more responsible than others, Fosun will stand out over time.
In the past, Fosun’s ecosystem in which the connections among enterprises and between customers and our makers were weak. Fosun is now tirelessly focused on empowering our ecosystems to build strong connections between our companies.
Accordingly, we keep on improving customer loyalty and enhancing products produced by our makers. We have set up a C2M front line office, and all companies within the ecosystem of Fosun have also set up C2M front line office. We also take the research and development of “2Link technology” between customers and makers very seriously. We have also officially released the youlè.
Fosun is determined to implement its global C2M strategy, where through technology, we can create a happiness ecosystem that serves a billion families worldwide.
I am very excited about our youlè, which was launched less than 6 months ago. Fosun possesses numerous high-value businesses in different industries that make unique products and customer platforms, and over the years, we have searched for the right medium to connect the different businesses. Today, we are proud to present youlè.
Of course, the youlè membership scheme is still at its preliminary development stage. youlè does not cover everything and needs to evolve and improve quickly. Currently, the top priority of youlè is to develop a set of united, recognized standards based on Fosun’s ecosystem. By applying this set of standards, the processing functions of the membership schemes of various brands will start sharing information. Hence, the value of youlè will be gradually unlocked. In the coming five to ten years, youlè will become the single most important infrastructure within Fosun, which empowers every single enterprise under our ecosystem by providing insights into family consumption and behavior, providing accurate and important feedback to the companies and a global database on how to make the best products and services.
I sincerely ask for your tolerance and patience with Fosun and your support for the development of youlè. I am more eager than anyone else to see the success of youlè.
3.Continuously consolidating and enhancing our financial strengths
Over the past 25 years, there have been enterprises that have overtaken us in respect of business development. However, enterprises ahead of Fosun are now fewer and fewer. I think this is because of our stable and solid growth and not because of any explosive performance. In other words, Fosun balances speed of development with stability, yet will not lag behind its industry peers. It is vital to maintain such a balance for Fosun.
This can be clearly reflected in our financial performance. In 2017, Fosun recorded very strong results. Profit attributable to owners of the parent jumped to a record high, growing 28% in 2017. More importantly, our 5-year compound annual growth rate (“CAGR”) for profit attributable to owners of the parent is nearly 30%. I believe our shareholders are satisfied with this result and in order to share the fruits of growth with all shareholders, we are pleased to announce a significant increase of 67% in our dividends this year.
Additionally, Fosun has particularly focused on enhancing its capital strength over the years. The net gearing ratio dropped to 49.7% from 60.3% in the previous year. This improvement was recognized by credit rating agencies and Moody’s Investors Service upgraded the Company’s rating from “Ba3 Positive” to “Ba2 Stable” in January 2018.
4.Our staff, the most valuable asset of Fosun
Another reason for the continuous growth and evolution of Fosun in the past 25 years is the contribution made by our staff, our most valued asset at Fosun.
We are delighted that our global partner2 system has been operating for three years. This year, there were ten new global partners, including two overseas partners from Japan and Germany, respectively. Fosun attaches great importance to our global teams in carrying out their functions in organizations of different localities. Our new global partners also include the chief technology officer of Fosun, and the leader of Shanghai Henlius, which is a leading company in monoclonal antibody. By having them join our global partnership scheme, the technological background and knowledge of Fosun’s global partner team will be greatly enhanced.
Apart from global partners, Fosun is establishing a multi-layer partnership system. From my point of view, every Fosuner is a partner of Fosun. To become a Fosun partner, the basic requirement is to agree with the cultural value and strategic direction of Fosun. On such basis, we are willing to provide more opportunities for those who are eager to learn, willing to take responsibilities and harbour entrepreneurship. Fosun is not only a platform for entrepreneurs to show their own talents, it is, in a sense, a business school where you can find a full array of real-life commercial cases.
Fosun especially prizes training young talents. One of my rules in manpower management is that young people should take up more tasks, if they are able to bear the related responsibilities, despite the fact that they may lack experience. Fosuners, including myself, are willing to provide recommendation and assistance to young people, helping them grow faster in Fosun. For young people with outstanding performance and high potential, Fosun also offers them a series of incentives such as expediting the promotion process and granting of share options. The reason is simple – they are the future of Fosun.
I have discussed quite a lot about the development of Fosun. What is equally as important, and most important to me, are the efforts Fosun has been taking to give back to society.
I came from a village in Dongyang, Zhejiang province. Ah Wang (Wang Qunbin, CEO of the Company) also came from a village but his family was slightly better off than mine. We were admitted to study at Fudan University due to our hard work. Leveraging opportunities arising from the reform and opening-up, we established Fosun. Therefore, education is the most important factor that changed our lives.
Hence, we always believe that, for a society, fair process and fair chances are more important than fair results. It entails that people should have a fair chance to enjoy education and medical services as well as to innovate and start up their own businesses. The charity work of Fosun is directed towards achieving this goal.
On the last business day of 2017, Fosun commenced a charity campaign called “Village Doctors”. Our global partners joined this campaign. It is proposed to offer assistance to village doctors in 100 counties during the next 10 years, helping them lead a more decent life and protect the health of rural citizens. That is to say, Fosun protects county doctors, which in turn protects the citizens.
At the beginning of 2018, the Protechting Innovation Competition was held after its success for the previous two consecutive years. Through this event, we hope to support young people in realizing their innovation dreams with strong personal growth and bringing more commercial power together to make the world better.
Despite the fact that Fosun has been working hard to support different charity activities, we know that our contribution to society doesn’t surpass the support society has given to Fosun. Therefore, I, together with Fosun’s global partners, will place more efforts in charity works in the future. More attention will be paid to people’s practical needs. Therefore, our charity also work to fulfil the mission of helping our family customers live in a healthier, happier and wealthier life.
Lastly, I would like to extend my gratitude to all shareholders and everyone who has offered support and assistance to Fosun. Fosun has built its success with stability and consistency and I am proud to announce that over the past five years, we have managed to grow our profit on average by nearly 30% every year. I am however, even more excited about what the future holds, as we continue to pursue our C2M strategy, to grow our core industrial operations, to develop our pioneering technology and innovation platform so we can become not just a global company with Chinese roots, but a global operator of world-class products and services. 2017 was a great year, but the future will be even better.
Thank you! I wish all of you a prosperous Year of the Dog!
28 March 2018