Fosun’s Next Step: “Deep Mining” for Stable Profits

On 27 March 2024, Fosun International (HKG: 0656) announced its 2023 annual results. During the Reporting Period, Fosun’s total revenue amounted to RMB198.2 billion, representing a year-on-year increase of 8.6%; profit attributable to owners of the parent was RMB1.38 billion, representing a significant year-on-year growth.

 

Guo Guangchang, Chairman of Fosun International, said in the annual results conference on 28 March, “For Fosun, these results performance did not come easily. Over the past year, despite the fluctuations in the external economic environment, our industrial operational capabilities have not only withstood the test, but have also improved significantly. Thanks to our focus on core businesses, we have yielded gratifying results.”

 

Over the past three years, globalization headwinds caused by the COVID-19 pandemic, slow economic recovery and geopolitical factors, have put pressure on Chinese companies, including Fosun. Fosun resolutely implemented the business streamlining strategy and focused on its core businesses, successively divesting a number of non-core assets and focusing on the household consumption sector to pursue high quality development growth.

 

With the implementation of the business streamlining strategy, Fosun divested some non-core businesses that had previously provided stable cash flows. The subsequent improvement in cash flow has brought market attention to how Fosun will sustain stable profit growth as it did over the past decade.

 

At the results conference, Guo Guangchang said, “We will push forward with innovation-driven development and global operations. Fosun used to ‘explore and mine’ (which means exploring opportunities and establishing a presence in various industries) globally to look for suitable projects. Now we already have sufficient ‘good mines’ (which means businesses with established presence), we will gradually shift towards ‘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), focusing on building businesses that can sustainably, predictably, and stably generate profits. We will continue to develop the industries where we boast clear competitive advantages, enhancing certainty and making stable profit growth as the core objective of Fosun’s future operations to gradually increase dividends.”

 

“Deep mining” to deepen advantageous industries

The results announcement shows that Fosun’s focus on its core businesses in the household consumption sector has gradually yielded results. In 2023, Fosun’s four core subsidiaries, namely Yuyuan, Fosun Pharma, Fosun Tourism Group (FTG), and Fosun Insurance Portugal, demonstrated steady revenue, contributing 72% of Fosun’s revenue.

 

Specifically, Yuyuan Jewlery & Fashion Group achieved a revenue of RMB36.727 billion, representing a year-on-year growth of 11.05%. Shanghai Henlius, a subsidiary of Fosun Pharma, achieved full-year profits for the first time and an operating income of RMB5.3949 billion, representing a year-on-year growth of 67.8%. Club Med, a subsidiary of FTG, achieved record-breaking performance, with a business volume reaching RMB15.12 billion in 2023, representing a year-on-year increase of 19.2%; Atlantis Sanya’s business volume surged 90.9% year-on-year to RMB1.67 billion. Through providing high-quality services, Fosun Insurance Portugal maintained a 30% market share in Portugal, securing its leading position.

 

For Fosun, these achievements are the results of its continuous strategic evolution. Over the past ten years, Fosun has continued to expand its business presence globally, “prospecting” and “exploration” across various industries, and has rapidly developed into a global enterprise with total assets exceeding RMB800.0 billion and businesses across various industries.

 

In recent years, faced with the complex and volatile economic landscape and pandemic situation, Fosun decisively focused on family consumers, implemented industry-focused strategies in the three major segments of Health, Happiness, and Wealth, “deep mining” to further develop advantageous industries and secure more stable cash flow and profit growth.

 

Today’s Fosun is more focused and its business structure is more streamlined and healthier.

Looking at the financial indicators, Fosun achieved growth in both revenue and profit in 2023, further optimized its capital and asset structure, and maintained sufficient liquidity. As at the end of the Reporting Period, the consolidated interest-bearing debt decreased by RMB15 billion as compared with the end of 2022, interest-bearing debt at the group level decreased by RMB9.2 billion as compared with the end of 2022, total debt continued to reduce both at consolidated statements of the Group and at the Group level. The total debt-to-asset ratio at the consolidated statements of the Group stood at 50.4%, representing a decrease of 2.9 percentage points from 31 December 2022. Cash and bank balances and term deposits reached RMB92.46 billion.

While reducing its debts, Fosun also enhanced its asset-light operational capabilities.

 

Developing a more flexible and efficient asset-light operational capabilities have become part of Fosun’s strategic adjustments. In March this year, Fosun Pharma, together with seven investors including Shenzhen FoF planned to jointly establish a RMB5.0 billion biopharmaceutical fund, with the entire raised funds to be invested in fields of biopharmaceuticals, cells, and genes. Shanghai Fujian Equity Investment Fund Management Co., Ltd., a subsidiary of Fosun Pharma, won the bid through the public selection process in Shenzhen to exclusively manage the fund.

 

Since the second half of last year, Guo Guangchang has publicly stated several times that Fosun will continue to reduce debt, maintain asset-light operation, focus on research and development and innovation, and allocate its competitive resources to its advantageous industries to reap high-quality growth. At the results conference, he also expressed that in the future, Fosun will remain committed to the strategy of further reducing the proportion of heavy assets and enhancing its asset-light operational capabilities.

 

Fosun leverages its profound innovation and industrial operational capabilities to cooperate with local governments to jointly promote technology innovation and commercialize the scientific research achievement, which has become Fosun’s new approach to asset-light operations. With the establishment of the RMB5.0 billion target fund, Fosun is poised to leverage Shenzhen as a platform to expand its presence in the domestic and global biopharmaceutical and healthcare industries. Fosun will focus on strengthening its research and development efforts and business presence in innovative products and technologies.

 

In 2023, FTG’s tourism operation accounted for 93% of its revenue, demonstrating a further improvement in asset-light operational capabilities. For example, Club Med’s resorts that adopt the leasing and management model accounted for 85%, while the proportion of self-owned resorts dropped to 15%. In October 2023, Club Med opened its first urban resort – Club Med Urban Oasis Nanjing Xianlin Resort, opening up the new field of urban vacations; in November, Taicang Alps Resort, dedicated to providing ice and snow vacations, also opened with great success, creating a pure Alpine ice and snow vacation experience.

 

Strengthen innovation and globalization advantages

Leveraging on the two core growth drivers of innovation and globalization, Fosun has continued to deepen its efforts in advantageous industries and reap more stable profits.

 

Fosun has integrated innovation into its corporate DNA since the development of hepatitis B PCR reagents at its establishment. Over the years, Fosun has continued to increase its investment in innovation year by year. In 2023, Fosun’s investment in technology innovation for the year reached RMB7.4 billion.

 

In recent years, Fosun’s innovation strategy has continued to bear fruit, with a number of new products and new indications approved for marketing. Shanghai Henlius’ independently developed HANSIZHUANG (serplulimab injection), the world’s first anti-PD-1 monoclonal antibody approved for first-line treatment of small cell lung cancer (SCLC), has obtained approvals for four indications, benefiting more patients and becoming a “star product” in the domestic biopharmaceutical industry. Its independently developed HANQUYOU (trastuzumab injection), used for the treatment of breast cancer, is expected to become the first domestic-produced biosimilar drug approved for marketing in China, the European Union and the United States.

Since its establishment in 2010, Shanghai Henlius has adhered to the path of independent research and development. With 13 years of continuous investment in funds, talent, and technology, as of the end of 2023, Shanghai Henlius had 5 products launched in China, 2 launched in overseas markets, marking a historic turning point in its business performance as the first profitable Hong Kong-listed “18A” biopharmaceutical company.

 

In addition, Fosun Pharma’s subsidiary Guilin Pharma’s second-generation artesunate for injection became the first injectable artesunate presented with a single solvent system approved by the World Health Organization (WHO-PQ); since its launch more than two years ago, Yi Kai Da, China’s first CAR-T cell therapy product developed by Fosun Kite has been used to treat hundreds of patients with relapsed or refractory large B-cell lymphoma (r/r DLBC) and has received conditional approval from the National Medical Products Administration (NMPA) for a new second-line indication.

 

The Da Vinci Surgical Robot, a star product at previous China International Import Expos (CIIEs), has also successfully achieved localization. Intuitive Fosun’s domestically-produced Da Vinci Xi Surgical System was successfully approved by the NMPA and officially commenced production, truly realizing “made in China, joint R&D and global sales”. At present, more than 360 units of Da Vinci Surgical Robot have been installed in China, benefiting more than 420,000 patients to date.

“Globalization” serves as another core competitive advantage of Fosun and is a significant attribute linked to its external recognition. Since Fosun International’s listing in 2007, Fosun’s globalization journey has spanned nearly 17 years. It has now established business presence in over 35 countries and regions, and its “global organization + local operation” model has become increasingly mature.

 

In 2023, Fosun International’s overseas revenue amounted to RMB89.2 billion, representing a year-on-year increase of 6%, accounting for 45% of total revenue. Many products of Fosun have entered overseas markets. For example, Shanghai Henlius’s independently developed HANQUYOU (trastuzumab injection) has been approved for marketing in more than 40 countries and regions worldwide, making it the domestically-produced biosimilar drug with the highest number of market approvals; in December 2023, Shanghai Henlius’ first innovative drug HANSIZHUANG (serplulimab injection) was approved for marketing in Indonesia, becoming the first domestically-produced anti-PD-1 monoclonal antibody successfully approved for marketing in a Southeast Asian country.

 

In the tourism sector, which naturally boasts “globalization genes”, Club Med, a subsidiary of FTG, witnessed growth in its global business in 2023. In particular, Club Med’s business volume in the Americas increased by 24% compared with the same period in 2022; with the recovery of tourism market in Brazil, Brazil became the second worldwide sales market in terms of business volume; the business volume of Club Med’s Europe, the Middle East and Africa (EMEA) region grew 7% and 11% in 2023 compared to that of 2022 and 2019 respectively.

Shede Spirits, a subsidiary of Fosun, has also accelerated its overseas expansion, with overseas revenue increasing by 86.94% in 2023 and significant breakthroughs in both overseas distribution channels and duty-free channels. It has entered 31 countries and regions and established its presence in 45 duty-free shops.

 

Fosun’s globalization means more than just “two-way engagement” between the global and Chinese markets. It also encourages Fosun’s overseas subsidiaries to actively expand their businesses in local and overseas markets. For example, Fosun Insurance Portugal has continued to expand its presence in overseas markets such as South America and Africa. In 2023, its international business reported an overall gross written premiums of EUR1,703 million, representing a year-on-year growth of 10.6%. Hainan Mining completed its investment in KOD and KMUK, and obtained a controlling stake in the lithium mine asset of Bougouni in Mali, Africa, marking a critical step in its new energy industry layout and internationalization strategy.

In addition to the “hard power” of its businesses, Fosun’s “soft power” accumulated in its globalization journey is equally invaluable. From late 2023 to early 2024, the Yuyuan Garden Lantern Festival, a national intangible cultural heritage, made its overseas debut. Designated as part of the opening festivities celebrating the 60th anniversary of the establishment of diplomatic relations between China and France, as well as the China-France Year of Culture and Tourism, the Festival Dragons et Lanternes held in Paris, France for 72 days attracted nearly 200,000 local visitors.

 

By continuing to promote innovation and globalization strategies, Fosun is building a moat of competitive advantages in multiple industries such as healthcare and tourism to ensure stable profit growth in the future.

 

In the letter to shareholders, Guo Guangchang expressed that, “In the future, we will continue to focus on core businesses, leveraging our unique strengths to enhance our capabilities and strengthen our foundation, and actively invest and expand in advantageous sectors. Through forward-looking planning, we will deeply explore the capabilities and value of the Fosun ecosystem, endeavoring to create more good products and services for one billion families worldwide.”

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