To all shareholders of Fosun:

Thank you for your trust in Fosun all these years!

With our “insurance + investment” twin-driver core strategy, Fosun has accomplished major improvements on both the financing-end and asset-end as well as the optimization of our overall asset structure. Our twin-driver empowered by the “Insurance-oriented Comprehensive Financial Capability” and “Global Industrial Integration Capability Taking Roots in China” has been continually strengthened and we have established competitive advantages, like all other world-class investment groups.

Let us start by discussing our performance. As at 31 December 2014, all major financial indicators of Fosun for the year achieved significant improvements, of which equity attributable to owners of the parent recorded RMB49.408 billion, representing an increase of 24.7% from the end of 2013. Profit attributable to owners of the parent for the year reached RMB6.854 billion, representing an increase of 24.2% from the same period in 2013. As such, the Board has resolved to recommend the payment of a final dividend of HKD0.17 per ordinary share for the year ended 31 December 2014.

I wish to emphasize that capitalizing on market opportunities and leveraging on our capabilities accumulated over the years, the record-high results for 2014 is expected to signal the beginning of Fosun’s even more rapid growth in the future. Fosun has undeniably entered a high-growth superhighway.

As a professional investment group, we have been considering three issues: one is how to persistently secure the supply of stable, long-term and low-cost capital while optimizing and innovating our financing-end; second is how to continuously strengthen our investment-end and enhance our return on assets while identifying opportunities from mismatches in different asset classes around the world as we adhere to our value investing principle; third is to strike a good balance between risk and growth, achieving stable and persistent growth as our only objective.

Fosun’s performance on the financing-end was outstanding in 2014.

   
Insurance: Insurance is the most important business segment for Fosun. In 2014, profit from the insurance segment grew significantly, and the scale of insurance float surpassed the RMB100 billion (attributable investible assets at RMB79.8 billion). Benefiting from the contribution of a large scale of insurance float, ROIC-WACC (after adjustment)Note and capital employed (after adjustment) started to widen, economic value added (“EVA”) of investible assets continued to enlarge and it is expected to become a critical growth engine for Fosun in the future.

We continued to speed up our development of Yong’an P&C Insurance, Pramerica Fosun Life Insurance and Peak Reinsurance. In May 2014, we completed our acquisition of 80% interest in Fosun Insurance Portugal (comprising the three insurance companies namely Fidelidade, Multicare and Cares), the leading insurer in Portugal with a 30% local market share, at a consideration of EUR1.038 billion and at a price-to-book ratio of approximately 1.0 time. In early 2015, Fosun further increased its equity interest in Fidelidade to 84.986%. This is one of the most important acquisitions for Fosun over the last 23 years, adding more than EUR13 billion of new total assets to the Group, in excess of EUR12 billion of investible assets. Applying the same strategy, since the second half of 2014, Fosun has invested in the global insurer Ironshore, which specializes in specialty insurance, and an US P&C insurer MIG which has rich experiences in labor insurance businesses.

As at 31 December 2014, the assets of insurance segment under management by Fosun exceeded RMB113.085 billion, comprising 34.8% of the Group’s total assets. Upon completion of the Ironshore and MIG transactions, this proportion and scale are expected to climb up further.

Insurance has become the most important segment for Fosun and has exerted a fundamental impact on the overall business operation and profit generation for the Group. In 2014, the operating revenue from the insurance segment hit RMB7.868 billion, up 2,742.3% year-on-year, and contributed to 12.7% of the Group’s total revenue. Profit attributable to owners of the parent generated from the insurance segment stood at RMB1.149 billion, up 119.4% and contributed to 16.8% of the Group’s profit attributable to owners of the parent. Fosun’s ratio of net debt over shareholder equity declined to 73.3% in 2014 from 86.0% in 2013, and it is anticipated that it will decline stably in the future.

Reaping benefits from the rapid development of our insurance business, Fosun saw simultaneous growth in both its ROIC-WACC (after adjustment) and capital employed (after adjustment). The EVA profit growth model (the adjusted ROIC-WACC x the adjusted investible capital) is expected to evolve into a critical engine for Fosun’s growth in the future. Fosun’s attributable investible assets generated from the insurance segment reached RMB79.809 billion in 2014, up 1,355.6% year-on-year. Thus, the investible capital (after adjustment) was also increased to RMB214.703 billion, up 57.2% year-on-year. Meanwhile, the ROIC-WACC (after adjustment) reached 2.2% in 2014, up 0.6 percentage point year-on-year. In the future, as insurance assets eligible for consolidation for the year expands, the ROIC-WACC (after adjustment) and investible capital (after adjustment) is expected to continue to increase, so EVA generation is also expected to expand.

Thanks to the efforts made by the insurance business team and the rapid, profound and persistent impact of Fosun’s investment capabilities on the return on assets of the invested insurance enterprises, the invested insurance enterprises saw their premium income and return on assets grow rapidly and healthily. Taking Fosun Insurance Portugal as an example, its consolidated return on assets climbed to 8.4% in 2014 from 4.3% in 2013. For the domestic invested insurance enterprise, Yong’an P&C Insurance, its consolidated return on assets also climbed to 12.6% in 2014 from 5.4% in 2013.

It is worth mentioning that we have not achieved the increased return on assets as a result of any aggressive asset allocation that we have adopted. In fact we had been a bit biased towards the conservative end. For instance, 81.3% of Fidelidade’s assets were allocated to fixed income investments and cash last year. Only the remaining 18.7% were appropriated to equity and infrastructure real estate assets.

The persistent low interest environment in the US, Europe and Japan made the liability-end of insurance institutions relatively secure. Leveraging Fosun’s globalized and professional insurance operations and investment teams, we envisage emergence of more opportunities in investing in local leading insurance institutions at reasonable prices and expanding our insurance assets in coming years. We also strive to discover more innovative models when making our investments. On top of generally investing in insurance companies, it is expected that we will participate in investments in Run-Off insurance assets in near future, focusing our edge in the light-asset investment model.

Fosun’s performance on the investment-end was equally outstanding in 2014.

Investment: We focused on planning our ecosystem for the healthcare and happy & fashionable lifestyle, continue to take roots on the China’s growth momentum and participate in consolidation of industries around the world through our core platforms.

In the past we had been repeatedly saying that Fosun is an investor taking roots in China with deep industrial management capabilities. That was because we had the ability to develop businesses from scratch (such as the pharmaceuticals and properties businesses in the past and the senior living and care business lately). We have the capability in distinguishing who the strongest and best participant in an industry is. We invested in overseas enterprises and helped them realize rapid growth in China, implementing the true form of “Combining China’s Growth Momentum with Global Resources”.  As an industrial investor, we have the capability in creating value and we have the highly recognized capability in investing at a reasonable price.

Now we are saying Fosun will adopt a more user-centric perspective, paying more attention to user experiences and needs, focusing more on the future detailed planning of an ecosystem for the two major needs of healthcare and happy & fashionable lifestyle that everybody likes and needs in the long-term and forever.  We will proactively and thoughtfully plan our ecosystem and put great efforts in the global industrial integration. For instance, the ecosystem planning surrounding the five areas of the need for healthcare of the humankind, Fosun is currently engaged in the healthy environment, healthy nutrition, healthy way of living, to curing the sick: the pharmaceutical industrial chain (research and development, production, logistics, wholesale, retail), healthcare (training, hospitals), senior care and living and healthcare financial services.

Apart from insurance, I guess the most exciting investments we have made in the past year were the privatization of Chindex, our acquisition of the entire Luz Saúde healthcare group of Portugal, becoming a controlling shareholder of Studio 8, the privatization of Club Med and our investment in Thomas Cook which have just been concluded. These famous enterprises are all in the healthcare and happy & fashionable lifestyle industry ecosystem.

The healthcare and happy & fashionable lifestyle business achieved a revenue of RMB11.94 billion in 2014, up 20.3% year-on-year and contributed to 19.3% of the Group’s total revenue. Profit attributable to owners of the parent reached RMB1.702 billion, up 53.6% year-on-year and contributed to 24.8% of the Group’s profit attributable to owners of the parent. Net assets of the business reached RMB26.747 billion, up 19.5% year-on-year and contributed to 35.3% of the Group’s net assets.

In the future, we will continue to make use of the core platform enterprises in which we have controlling interests, our established global capabilities, combining the rapid growth of the consumer market in China to actively participle in consolidation of industries around the world. Our healthcare industry consists of strong and industry-leading participants, including Fosun Pharma, Alma Lasers, Luz Saúde, United Family Hospital, Chancheng Hospital, Multicare Healthcare Insurance, all of which we have controlling interests in. We are also joint venture partners in Sinopharm, Starcastle Senior Living and Pramerica Fosun Life Insurance. Enterprises on our happy & fashionable lifestyle industry platform include strong and industry leading players including Yuyuan, tourism destination enterprises such as Club Med, Atlantis in Sanya, the creative film producer Studio 8, etc. Earlier this year, we put particular emphasis on supporting participation of these platform enterprises in consolidation of industries around the world. We seek to bridge the value mismatches between the robust China’s consumption momentum and these brands and services valued by customers around the world. We seek to integrate resources, meet the need for better lifestyle from customers around the world, especially those in China, with the best products and services, building a healthcare and happy & fashionable lifestyle ecosystem that is based on the China’s growth momentum and the capability of integrating industries around the world.

This focus strategy can be accumulated rapidly and we see our user count grow rapidly, achieving successes in both riding on the momentum and gaining territories. The vast financial market in China has enabled many industry-leading enterprises focusing on local businesses to become the world’s top 10 in terms of market capitalization. China’s massive consumption will become the world’s largest or second largest in middle class lifestyle driven consumption. China’s local industry leading enterprises in this domain will also be included the world’s top 10 enterprises in terms of market capitalization in the sector. Our ambition is to work hard and become the industry-leading enterprise in the healthcare and happy & fashionable lifestyle industries and the leading enterprise in these two industries with our capabilities in deep integration globally.

Fosun’s performance in optimizing its asset structure in 2014 deserves special mention.

Asset allocation: the integrated finance, healthcare and happy & fashionable lifestyle segment assets of high growth and weak cyclicality have taken over the dominant position.

Following years of determined transformation, our integrated financial segment assets expanded rapidly. Apart from the afore-mentioned growing insurance assets, we acquired Hong Kong Hani Securities last year, invested in 2 financial leasing companies, i.e. Chuangfu Financial Leasing and Hangzhou Financial Investment Leasing. Ali Small Loan, which we had participated in its establishment and operation for many years, has become a showcase model of clientele expansion driven by scalable Internet financial services. It was selected by the China Banking Regulatory Commission officially as one of the main co-founders of the Internet commercial bank “Zhejiang Internet Commerce Banking Co., Ltd.” We have recently announced that the Group has collaborated with Fidelidade to invest EUR59.14 million to increase our interests in RHJI (which wholly owns BHF-Bank, one of the largest independent private banks in Germany and the Kleinwort Benson specialized in commercial banking with deep heritage in the United Kingdom). Upon receiving approval from the relevant regulatory authorities, Fosun’s indirect interest in Kleinwort Benson will increase from 19.49% to 28.61%, enabling us to bring to customers in China the world’s best-in-class private banking services and allow the invested enterprises to reap benefits from prosperity and growth of the financial market in China.

The growth in integrated financial businesses, together with the previously mentioned healthcare and happy & fashionable lifestyle businesses constitute two segments of high growth and weak cyclicality. These two segments achieved the revenue of RMB 209.54 billion in 2014, up 95.1% year-on-year and contributed to 33.9% of the Group’s total revenue. Profit attributable to the owners of the parent was RMB5.279 billion, up 73.4% and contributed to 77.0% of the Group’s profit attributable to owners of the parent.

In 2014 Fosun placed a lot of efforts in increasing industry synergies, cross-industry innovation and unrelenting integration with the Internet. There were many highlights:

Innovation: Building on the Hive City foundation, we developed the “Insurance + Industry + Hive 1+1+1” product cross-industry integration closed loop, instilling unique competitiveness to our healthcare and happy & fashionable lifestyle industries, insurance and finance, logistics and commodities and hive properties. We had been relentlessly integrating mobile Internet into ourselves and had become one of the largest investors in the industry. We had been pursuing O2O transformation across all fronts, established user terminals and enterprise clouds vigorously, pursuing transformation of the vast offline users to Internet users.

The “Insurance + Industry + Hive 1+1+1” cross-industry integration innovation closed loop

Leveraging on our established capabilities in healthcare and happy & fashionable lifestyle, logistics and commodity industries, we encouraged cross-industry integration and proactively promoted connection of industries with insurance and finance, capabilities of creating environment that facilitated integration of industries and insurance into hive cities, creating one cross-industry integration operation platform unique to Fosun after another.

In 2014, Fosun placed great efforts in pursuing the establishment and development of Hive cities and sped up the transformation and upgrading of traditional property businesses. Hive cities is a product integrating Fosun’s industrial resources to assist local governments in the construction of core urban functions, with a key feature of “industry-backed urban development and urban-industry integration”. Through providing core urban functions required by the cities, Fosun is able to take a lead in introducing its core industrial resources and to further introduce ancillary industries that support the core industries, with a view to promoting “Urban-Industry integration” by establishing a 24-hour plus 3-in-1 vibrant community for work, consumption and living, as well as introducing living and consumption services industries. The Hive Community products, therefore, provide clear and distinctive functions with active dispersal of peripheral services. They also provide adequate and diverse job opportunities through forming functional communities that drive employment by industries (no more dormant cities, ghost cities). As such, a new model of communities which is self-sufficient and built with flexible combination of modules comprising different functions are established.

As at 31 December 2014, we, together with our managed funds and investees, launched a total of 12 hive cities in 5 major categories, with total construction areas for hive cities exceeding 4.7 million sqm. We have tried to incorporate multi-industry operations in our hive cities, including the healthcare hive, culture & entertainment, travel & leisure, logistics & trade and financial services.

 
As for Fosun’s travel & leisure hive project in Sanya, Hainan, the world’s third Atlantis hotel that integrates tourism, properties and financial industries, the total construction area around 510,000 sqm. By the end of 2014, we already invested RMB2.35 billion in the project. The construction work has been progressing smoothly and is expected to be completed by the end of 2016. It is expected to become the benchmarking product as a 3.0 upgrade version of tourism resort in Hainan. Meanwhile, we have also facilitated the cooperation of Starcastle Senior Living, Forte, Pramerica Fosun Life Insurance in the Shanghai Starcastle Zhonghuan Community, in establishing a senior living community of the highest quality in Shanghai with medical and senior care services. Furthermore, Fosun will also make use of its “Fosun healthcare + Insurance + Leasing + StarHealth Hive” cross-industrial integration model to promote a countrywide healthcare and senior care system. It will launch a pilot scheme of “Club Med + Insurance + Overseas properties” cross-industrial integration to promote development of tourism destinations around the world on both a sale or rental basis. It will also launch a pilot scheme of the “Overseas properties + Insurance + Industry (rental by function)” cross industrial integration model to promote office properties ownership around the world.

In the future, with the healthcare, happy & fashionable lifestyle products as the core, through integration of insurance funds and our property development capability, we seek to launch our products or services to the market to achieve and duplicate our rapid growth. We are seeing integration of our advantages in these three areas including “Insurance + Industry + Hive 1 + 1 + 1”, which when integrated with Fosun’s global resources, will establish a competitive ecosystem close loop unique to Fosun.

We had not been lagging behind the mobile Internet innovation trend.

The mobile Internet, with its vast user base, accessibility, connectivity with the rapidly developing Internet of the Things, has caused everything around us to change. We firmly believe that mobile Internet will allow the Chinese market to perform on par, if not better, than the US market. Mobile Internet will force every traditional industry to make a choice between pursuing full integration into mobile Internet, or to delineate completely from the mobile Internet. Every industry is focused to find an ultimate way of survival under the mobile Internet environment.

In 2014, our Internet investment team and venture capital platform continued to focus on innovations on traditional industries brought about by mobile Internet and mobile Internet related technologies (Internet Plus), persisting in “first or unique in the industry” as the guideline in identifying projects. Its existing investment portfolio has already covered digital healthcare, Internet finance, Internet tourism, online education, mobile social industries, etc. Our showcase projects including Ali Small Loan, Perfect World, Linekong Interactive, guahao.com, Ali’s Dream Castle and My Money, etc. As at 31 December 2014, Fosun has invested HKD836 million in the venture capital area, and more than USD500 million in the entire Internet area over the year.

Going forward, we are very eager to help connect traditional industries with mobile Internet and we have proactively pursued connection of Yong’an P&C Insurance, Great China Financial Leasing and Internet P2P business for a pilot P2P Internet financial leasing program under credit insurance; applying O2O app in novel scenarios, e.g. guahao.com + Fosun Pharmacy. We are fully prepared to promote Internet financial services based on real-world logistics and warehousing control and connecting with the Internet, such as “Hainan Mining + Finance + Internet Ore Trading Platform + Logistics”, “Nanjing Steel + Finance + Internet Steel Trading Platform + Logistics”, “Yuyuan Gold + Finance + Internet Gold Trading Platform”, “ROC + Finance + Internet Oil Product Trading Platform + Logistics”. Accordingly, we have invested heavily in medical cold chain logistics, participated in Cainiao Logistics, commissioned construction of Tianmao Logistics cities, and established cold chain logistics, etc. In the future, we will further promote industries integrating Internet and finance for upgrading and transformation to create a model of “Industry + Investment + Finance + Internet”, e.g. environmental transformation of “Nanjing Steel + Environmental Investment + Insurance + Leasing”.

   
In 2014, Fosun persistently implemented its “Mobile Fosun” strategy and successfully developed its instant chatting & communications apps/system, namely “Fosun Chat”.  Fosun also actively explored its O2O business. Fosun wishes to fully promote and establish its “Cloud + Terminal” within the organization based on this system. Through developing mobile Internet technologies and adopting a mobile Internet mentality and methodologies, Fosun can integrate and survive in mobile Internet era by upgrading and transforming all Fosun staff, businesses and systems with mobile internet technologies. Historically Fosun and its invested enterprises have accumulated a large quantity of offline customers, up to and over several hundred millions. We encourage every enterprise to develop user terminals and improve our product and user experiences, facilitating more frequent transactions among the offline customer results, and getting connected and transformed into online users. With its unreserved integration with mobile internet, Fosun will not be lagging behind the Internet and mobile Internet innovation trend. You will see Fosun on the cutting edge of mobile Internet and Internet of the Things in the future.

Adhering to investment discipline: persist in value investing, dancing with cyclicality on the value floor

What I want to share with you all is the most important principle of Fosun – adhering to the basic logic and discipline of value investing. I have a feeling that investment is always like exploring the dark. Darkness stems from our greed and fear that shield the wisdom deep in our heart. How to avoid our heart being shielded by darkness? I guess we have to impose stringent requirements on ourselves. That is why Fosun has chosen to adhere to value investing, persisted in dancing with cyclicality on the value floor.

There are two concepts: one is discipline. Firstly, we need to adhere to value investing, investing for the long term. Fosun needs to be keen on the long-term growth of its enterprises and emphasize on the services and value creation we can provide for its enterprises. Secondly, Fosun will adjust itself with the economic cycle. Although communication has become more transparent with the emergence of the Internet, I believe that the Internet can never change human nature. I believe that market mismatch opportunities will emerge because of the very existence of human beings. Yet it is not easy to identify these market opportunities swiftly. Similarly, it will be equally difficult to adhere to discipline forever and with strength. That is why we need to persistently apply the most stringent investment discipline on ourselves. We need to learn day after day, accumulate and improve day in day out. Through spiritual training, we will be stronger. We will see ourselves improve to the next level. I hope myself and Fosun are such a self-trainer who will persist in learning, accumulation and improve.

Last of all, I wish to extend by heartfelt gratitude to all of you. Fosun’s successes are indispensable from the trust and support from all shareholders and the society, and the hard work of everyone working in Fosun. Allow me to extend my heartfelt gratitude to all shareholders, members of the board of directors, the entrepreneurial team of Fosun, all staff members and all cooperation partners for your unreserved support.

In 2015, we will move forward.

In 2015, we believe that the world will be different because of Fosun. Life will become better because of Fosun.

Guo Guangchang
25 March 2015