Source: Hong Kong Economic Times

Date: 2024.04.12

Entering the post-pandemic era, companies not only have to face post-pandemic problems but also address the challenges brought about by market changes, leading to difficulties in business operations. However, leveraging a high-quality and globally diversified business portfolio spanning four major segments, Fosun International Limited (00656, hereinafter referred to as “Fosun International”) achieved a 8.6% year-on-year increase in its total revenue in 2023, reaching RMB198.2 billion. Meanwhile, its total debt continued to reduce, reflecting the Group's effective response to the challenging market environment over the past two years through its global operations and optimized debt structure strategy.

As a global innovation-driven consumer group, Fosun International has been deeply engaged in four major business segments: Health, Happiness, Wealth, and Intelligent Manufacturing, providing high-quality products and services to families worldwide. In 2023, the Group further focused on its core businesses and actively enhanced the operational capabilities of its advantageous industries. According to its annual results announced at the end of last month, the Group achieved a total revenue of RMB198.2 billion during the period, representing a year-on-year increase of 8.6%; the industrial operation profit reached RMB 4.9 billion, representing a year-on-year increase of 20%; the profit attributable to owners of the parent saw a significant year-on-year growth, reaching RMB1.38 billion. Fosun International successfully realized both revenue and profit growth in 2023.

Steady revenue growth backed by four major business segments

Speaking of the growth drivers of the Group's results last year and the development of its four major business segments, Chen Qiyu, Co-CEO of Fosun International, stated that in response to the varying impact of the receding pandemic on different business segments, the Group actively adopted various strategies to enhance its competitive advantages.

“In the first year of the post-pandemic era, due to the impact of pandemic-related products, the Group’s Health segment indeed saw a decline in its revenue, but non-pandemic-related products still experienced healthy growth.” Chen Qiyu cited, for example, benefitting from the return to normalcy in the post-pandemic era, the Happiness segment witnessed a rapid revenue growth, “various businesses such as gold & jewelry, tourism, and liquor demonstrated solid growth.”

Regarding the Wealth and Intelligent Manufacturing segments, although their association with the pandemic was limited, both segments experienced revenue growth driven by economic conditions and industry changes. Taking the Wealth segment as an example, Chen Qiyu pointed out that the global interest rate hike in 2023 brought considerable profits to the European financial market and financial corporations, which also drove profit growth for Fosun Insurance Portugal, Peak Reinsurance, and Banco Comercial Portugues (BCP). “The Intelligent Manufacturing segment is closely linked to the industry, much like our subsidiary, Easun Technology, an automation solution provider in the automotive industry, it benefited from the restructuring of the global automotive industry chain in the past two years, resulting in a relatively high growth rate in order volume.”

The complementarity and support among the four major business segments have undoubtedly fueled the steady growth of Fosun International’s revenue. However, from the overall operational perspective, the Group’s globalization strategy and emphasis on innovation are key elements supporting its revenue growth.

Build a comprehensive global operational network through domestic and overseas strategies

Since the listing of Fosun International in 2007, the Group has swiftly further implemented its globalization strategy. Over the past 17 years, the Group has established a profound business presence in over 35 countries and regions worldwide and its “global organization + local operations” model has become increasingly mature. According to Chen Qiyu, Fosun is one of the few Chinese companies that has been dedicated to building global business system capabilities. In 2023, Fosun International's overseas revenue amounted to RMB89.2 billion, representing a year-on-year increase of 6% and accounting for 45% of the total revenue. “In particular, the Happiness and Wealth segments have reaped the greatest benefits from the Group’s globalization strategy.”

In recent years, Fosun International has been actively building its global operational capabilities through the two-pronged strategy of “being rooted in China and serving the world.” Chen Qiyu explained that many of the Group's products and services are developed and manufactured in China and then distributed through global sales networks. For example, Wansheng’s fine chemicals are developed and manufactured domestically and then distributed globally. In the pharmaceutical sector, leveraging its mature sales network in Africa, Fosun Pharma has become a widely recognized Chinese pharmaceutical brand in Africa. Meanwhile, Club Med in the Happiness segment operates 68 resorts in more than 40 countries and regions across six continents.

In addition to expanding overseas markets through sales networks, Fosun International also adopted the strategy of acquiring overseas companies to enhance its global presence. “This can be described as a dual development. When we acquire overseas companies, we not only capture their business opportunities in local and global markets, but also introduce their business to China and develop them in China.” Chen Qiyu took Fosun Portugal Insurance as an example, pointing out that the company has benefited from the growth of its Latin American business, with international business accounting for 32.7% of its total revenue in 2023. As for Gland Pharma’s Contract Development and Manufacturing Organization (CDMO) business in Europe, Gland Pharma's acquisition of the French pharmaceutical company Cenexi has further strengthened the company's competitiveness in Europe.

Continuous technology innovation leads the way for business growth

Regarding innovation, technology innovation has always been another key driver of Fosun International's continuous development. “For example, Shanghai Henlius and Fosun Pharma in the Health segment have been investing vigorously in innovative research and development (R&D) every year.” Chen Qiyu said that the Group invested RMB7.4 billion in technology innovation in 2023, representing a year-on-year increase of 14%. In particular, over RMB5 billion of this investment was allocated to the R&D of new drugs, including the in-depth development of HANSIZHUANG, an anti-PD-1 monoclonal antibody for the treatment of extensive-stage small cell lung cancer and the R&D of new antibody drugs such as antibody-drug conjugates (ADCs).

Chen Qiyu added that several years ago, Fosun International established an incubation fund focusing on innovative drugs and has set up 11 incubation platform companies. “These 11 companies focus on different therapeutic areas, including liver diseases, eye diseases, and mRNA-based gene therapies, and have achieved significant breakthroughs in technology innovation.” In addition to the Health segment, he also mentioned that Fosun has also invested in technology innovation in the Intelligent Manufacturing and Happiness segments, covering industries such as liquor, tourism, and finance.

“For example, in the field of Intelligent Manufacturing, last year we started building a production line for the upstream lithium hydroxide in the new energy battery industry and acquired upstream lithium resources to establish a new energy industry chain.” Chen Qiyu pointed out that Fosun's subsidiary, Fusionride, has been developing a 4D millimeter-wave radar for use in new energy vehicles in the past two years or so, serving as a crucial component for intelligent driving and autonomous vehicles. Meanwhile, Easun Technology optimized the 2.5D advanced sensor for precise and intelligent matching system of the vehicle body, reducing the cost of core component costs by 30% and increasing transmission speed and response time by 20%.

In the Happiness segment, Fosun International established new mechanisms in the catering and liquor industries by introducing external consultants to drive technology innovation. Regarding the Wealth segment, such as the insurance sector, Fosun International has also been promoting investment in technology innovation, including the application of artificial intelligence (AI) technology to drive the Group’s product advancement and development. 

Optimize industry structure and enhance asset-light operational capabilities

The Group’s global business composed of four major segments has become an important cornerstone for Fosun International's steady development. However, facing a rapidly changing market environment, Chen Qiyu acknowledges the challenges it encounters. “Changes in China's demographic dividend and structure have led to a decline in export growth and higher costs. Both the Group’s headquarters and its subsidiaries are encountering the problem of cost growth outpacing market growth.” He pointed out that in order to address these challenges, the Group began to implement cost reduction and efficiency enhancement last year, aiming to enhance competitiveness by adapting to future changes in the industry and socioeconomic landscape at the Group level.

After more than 30 years of development, Fosun International has accumulated profound operational capabilities. Through the securitization of real estate assets, divestment of heavy assets, and promotion of industry funds to foster the “multiplier growth” of industries, the Group has achieved remarkable results in its asset-light operation. For example, in March this year, Fosun Pharma, together with Shenzhen FoF and seven other investors, planned to jointly establish a RMB5 billion biopharmaceutical industry fund, with all proceeds to be invested in biopharmaceuticals, cells, genes and other industries. Leveraging its operational strengths, FTG achieved a full recovery in its global business with a full-year revenue of RMB17.15 billion, representing a year-on-year increase of 24.5%. Meanwhile, its profit attributable to equity holders turned around to RMB310 million.

“The Group will remain committed to pursuing business development in its four major segments in the long term. Regarding individual heavy assets, such as certain real estate properties, we will take measures to divest and dispose of businesses that rely on investments in heavy assets, lack profitability, have poor profit-generating ability, and weak cash flow.” Chen Qiyu emphasized that Fosun International will further enhance its asset-light operational capabilities to seize new development opportunities. “In the future, the Group will concentrate on businesses with good profitability, strong cash flow, and sustainable growth, while reducing investments in heavy assets and fixed assets.”

By implementing the strategy of reducing heavy assets and enhancing asset-light operations, Fosun International has successfully optimized its debt structure. According to the Group's 2023 annual results, Fosun International’s consolidated interest-bearing debt decreased by RMB15.0 billion in comparison with the end of 2022, while the interest-bearing debt at the group level decreased by RMB9.2 billion year-on-year, representing a continuous decline in the total debt at both the consolidated and group levels. In addition, the consolidated total debt-to-capital ratio stood at 50.4%, representing a decrease of 2.9 percentage points compared to the end of 2022. In May 2023, international credit rating agency S&P raised Fosun's rating outlook to “stable,” recognizing Fosun’s financial strategy and the sustainability of future development.

From “exploration” to “deep mining” to deepen development of outstanding industries

Regarding Fosun International's future development, Chen Qiyu reiterated that the Group will continue to focus on cost reduction and efficiency enhancement. “Regardless of the segment or industry, we need to collectively enhance gross profit margins and reduce the proportion of expenses to increase our profitability and competitiveness.” In addition, he pointed out that each segment will strengthen its focus on marketing and R&D of core flagship products. This includes the R&D of new drugs such as PD-1 and CAR-T, expediting the commercialization of the Da Vinci Surgical System, and enhancing sales revenue from products such as the Laomiao’s “Guyun Gold” collection and the 4D millimeter-wave radar.

“As Chairman Guo Guangchang mentioned, Fosun International used to engage in ‘prospecting’ and ‘exploration’ across various industries and locations worldwide for more than 30 years. Starting from biopharmaceuticals and real estate, Fosun International gradually expanded into different industries and achieved global expansion and business presence. In the past two to three years, we have reached a point where our ‘exploration’ work is mostly completed. Moving forward, we will shift to ‘deep mining’ (which means focusing on the development of our core industries) and ‘developing good mines’ (which means tapping into industries with high value-added development and growth potential), disposing of some low-output and low-value ‘mines’.” Chen Qiyu explained, “deep mining” signifies the endeavor to unlock the immense value embedded in each industry. For example, in the insurance industry, areas such as medical insurance and pension insurance, which are closely related to the general public, deserve deep cultivation; in the tourism industry, Club Med's renowned ice and snow projects represent an emerging market for Chinese tourists.

Chen Qiyu emphasized that in line with the concept of “deep mining,” Fosun International will solidify and stabilize its financial structure, reduce the Group's leverage ratio, and leverage the Group's global and local operational capabilities to instill confidence in financial institutions and investors. “I believe that the Group still has tremendous potential for business development and share price appreciation. By deepening our operations, we foresee continued progress in our business and financial performance over the next few years.”

Establish an ESG Committee to Drive Sustainable Development from the Top Down

Today, environmental, social, and corporate governance (ESG) has become a focal point for companies worldwide. Fosun International has also been actively integrating ESG into its daily operations. “Fosun International has set up an ESG committee and related working group under the board of directors to deploy and promote the Group's ESG strategy. Moreover, the Group has included ESG-related indicators in the performance appraisal of senior executives.” Chen Qiyu revealed that ESG concepts are implemented in the daily operations of the Group and its subsidiaries. For example, in the manufacturing business, Fosun has been actively adopting high-standard energy-saving and emission reduction measures, while in the chemical raw materials business, Fosun has been focusing on effective material recycling. “These efforts not only align with national environmental policies but also create business value for the Group in the short and medium term, as the processed products may have value for recycling or resale.”

Promote environmental protection and emission reduction, putting the concept of “Contribution to Society” into practice

In April 2023, Fosun issued its first Task Force on Climate-Related Financial Disclosures (TCFD) report, demonstrating its commitment to climate action to the international community. As of the end of December 2023, Fosun maintained an MSCI ESG rating of AA and was the only conglomerate in Greater China with such rating. Its HSI ESG rating was upgraded to AA- and it was selected as a constituent stock of the Hang Seng Corporate Sustainability Index for the first time. It also consistently improved its FTSE Russell ESG rating and was selected as a constituent stock of the FTSE4Good Index Series.

Furthermore, Fosun was included in S&P Global’s Sustainability Yearbook 2024 and recognized as an Industry Mover for the first time. It also successfully converted a syndicated loan into a sustainability-linked loan, marking its implementation of green financing.

“In order to put ESG into practice, it requires a top-down approach and progressive implementation at all levels. When the Group sets a clear schedule, our subsidiaries will also set their own schedules.” Chen Qiyu stated, Fosun International formulates ESG policies and goals annually, ensuring that no individual business is left behind and avoiding situations where some businesses prioritize ESG while others do not. “ESG is not only about environmental protection and carbon emissions. We also attach importance to social responsibility.”

Adhering to the corporate values of “Contribution to Society,” Fosun International has been running the Rural Doctors Program for the past seven years, which has now covered 78 counties nationwide, supporting 25,000 rural doctors and benefiting 3 million grassroots families. Through incentive mechanisms, Fosun aims to attract more individuals to join the team of rural doctors and guide and nurture more healthcare professionals at the grassroots level.