To all shareholders of Fosun:
Fosun will celebrate its 25th anniversary in 2017. Every Fosuner and I would like to express our thanks to you all for your trust and being here all these years to share every precious moment with us.
In the past year, Fosun maintained its strong growth momentum of development and made significant breakthroughs in its business performance. As of 31 December 2016, the Group’s consolidated assets grew by 19.5% to RMB 486.78 billion and the equity attributable to the owners of the parent increased by 21.9% to RMB 92.37 billion in 2016 compared with that in 2015. The compound annual growth rate (“CAGR”) of net assets was 23.7% for the recent five years. Profit attributable to the owners of the parent reached RMB 10.27 billion, representing a year-on-year increase of 27.7% or a CAGR of 24.7% in the past five years. Fosun’s net profit hit a record high above RMB 10 billion, signifying Fosun has embarked on a new chapter in its business endeavours and development. The Board resolved to recommend payment of a final dividend of HKD0.21 per ordinary share for the year ended 31 December 2016.
The financial figures highlight our effective implementation of business strategy, yet we always resist complacency that has made us continue to excel our ultimate objective. To draw an analogy between a company’s evolution and human growth, I would say after 25 years of development, we have grown from children into charismatic adolescents and now blossoming youths. We have been increasingly aware that the most important aspect of a company’s development is its capability to bring long-term growth in shareholders’ value. We have attached great importance to our customers’ needs, and we regard customers as the foundation for a long-term growth in enterprise value. Fosun’s mission is “Creating a happiness ecosystem for success, bringing a healthy, happy, and wealthy life to families around the world”.
Surmounting the ups and downs in the economic cycle and creating value for shareholders consistently
In the past five years, our business mix has shown the characteristics of “high growth, light asset and capability to withstand cyclical risks”. For instance, we have quickly put in place Fosun’s medical and senior care businesses. This has resulted in the consistent increase of the proportion of the “health, happiness and wealth” business in Fosun’s total assets and profit. As of 31 December2016, the total assets of “health, happiness and wealth” business were increased by 28.8% compared with that in 2015, accounting for more than 80.0% of the Fosun Group’s total assets. In addition, the “health, happiness and wealth” business has become the most important source of Fosun’s profit, contributing more than 76.0%.
Developing business while effectively controlling financial risks, optimizing the balance sheet consistently
While maintaining organic and external growth, Fosun has paid more attention to risk control, especially effective control of financial risks through proactive management. Specifically, the overall maturity period of liabilities has increased. Debts with duration of three years and longer periods accounted for more than 38.7% of the total liabilities. The financing cost kept on decreasing, with the average financing cost continuously decreasing from 5.7% per annum in 2013 to 4.5% per annum in 2016 (5.0% per annum in 2015). The proportion of assets with high liquidity kept on increasing. Both the net gearing ratio and the capital debt ratio continued to decrease.
Great potential for appreciation in the value of assets
I am very proud to learn, work and grow together with many intelligent and diligent colleagues at Fosun. Thanks to everyone's efforts, we have been able to live through the ups and downs of the economic cycle and fostered the development of many high-quality projects. As a result, we have built up huge potential for appreciation in the value of assets and can expect a harvest season. This can best be illustrated by successful investments and operations such as Focus Media, Cainiao, YUNDA Holding Co., Ltd. and Atlantis Sanya.
At this moment, I can sum up Fosun’s development in the past 25 years in the following words: to achieve long-term growth in shareholders’ value and bring a happier life to customers, we have been working conscientiously and earnestly everyday as if we were skating on thin ice and standing on the brink of an abyss. These are the values we have been insisting since the first day that Fosun was founded, and Fosun will continue to practise what it believes in.
Believing in learning, progress, and development, creating a global happiness ecosystem for success
New achievements were made one after another in 2016, but this gives me a deep sense of unease. Why? Because a fast-changing world poses many challenges and people are prone to lose direction in such a fast-changing world. For instance, internet and mobile internet are changing the world, at an even faster pace, and they make their presence increasingly felt in manufacturing industry and the supply chain. Breakthroughs in technological innovations are also happening more rapidly. Notably, the impact of artificial intelligence may surpass those of all other technologies such as mobile internet. Globalized investment, trade, and exchange of ideas about technologies are becoming more frequent, but the voice of anti-globalization movement is growing stronger. As globalization and anti-globalization movement are interwoven, surprises or the so-called “black swan incidents” will become more frequent to such an extent that they will become part of the norm.
Faced with these changes and challenges, we will assume more responsibilities for the well-being of the world, that is, Fosun will help the world change for the better. Therefore, Fosun has to create a happiness ecosystem for families all over the world. The question is how Fosun can attain this goal. I think the key to this undertaking is C2M business model.
C2M - the present and future of Fosun
C2M, or Customer-to-Maker, is a business model that induces the restructuring of the value chains of all the industries in the whole society. C2M enables complete linkage between individual consumers and manufacturer for the first time in the industrial age through mobile internet, high-efficiency logistics management and devices, Fin-Tech and especially such technologies as big data and artificial intelligence. Of course, C2M is not intended to be a means of eliminating all the intermediaries, but only those of no value. For intermediaries of value, C2M can transform itself into C2B2M (Customer-to-Business-to-Maker).
Fosun is one of the first companies to discern the opportunities of C2M in the restructuring of industries. Fosun has also promptly put in place a number of investments and operations, which feature C2M. All such investments and operations have enabled us to gain thorough understanding of C2M.
To begin with, we need to reach the customers with coordinated online and offline efforts so as to fully tap the potential.
We have made the following predictions: the market will become increasingly fragmented and the means of reaching customers will become increasingly diverse in the future. The offline means of reaching customers have become popular again as businesses recognize its value. In the future, any company that only relies on one channel or a third-party channel to reach customers, or only buys access to online traffic, or even does so at a high price in order to stay in business, will be constrained by lack of control over its own business and is doomed to fail.
How can Fosun reach customers directly in such situation? On one hand, we have made investments to strengthen our online channels for reaching customers such as investing in the Weiyi, a leading online portal in the healthcare industry of China, Qinbaobao, a leading online portal in the maternal and nursery healthcare industry of the country and Fosun-Pay, a channel for reaching customers through their online payments and for collecting both cash and data from such customers. On the other hand, Fosun’s offline channels for reaching customers are also gradually showing their value. For example, the value of the Group’s core properties at prime locations are increasing gradually again; and Club Med has used its brand influence and services such as those of Mini Club to switch tourist products that are not frequently purchased into frequently purchased products.
Therefore, Fosun has to combine online and offline channels in the future and reach customers by diverse means. This will enable it to tap the full potential value of the channels. Of course, we are fully aware that it is a very difficult task to build up the capability to reach customers. However, Fosun never evades undertaking challenging task. We will endeavour to persevere.
Secondly, we need to strengthen our capability as a maker of goods or provider of services who are geared towards adaptable and sophisticated production with the spirit of the craftsman and by restructuring the supply chain.
In “C2M”, the letter “M” refers to “Maker” – a manufacturer who is geared towards adaptable and sophisticated production by adopting artificial intelligence, robots and sophisticated supply chain management. I think the concept of “Maker” can be extended to areas beyond manufacturing, for example, the performances of Cirque du Soleil, the film and television productions of Studio 8 and the new business models for commerce and retailing in Hive City. Fosun, as a manufacturer or a producer who is geared towards adaptable and sophisticated production can use the C2M business model to understand and process a massive amount of data about the customers. We will then be well-positioned to conduct research and development and to establish an adaptable work flow and arrange for a more flexible supply of raw materials. All these will enable us to respond swiftly to customers’ personalized needs.
There is always a push-and-pull relationship between a supplier and a customer and whoever is stronger has the upper hand. In other words, if you can produce an amazing product, you need not worry about the customer’s monopoly. At the same time, a customer is always looking for a trustworthy company which can produce good content and strong products.
Therefore, any company which can become a target of investment by Fosun has to meet certain criteria – it must have the spirit of a craftsman, produce competitive products and have the ability to meet customers’ new requirements. For example, we have invested in AHAVA, which is regarded as a national treasure of Israel and is the only skin care brand that has been permitted by the Israeli government to tap the resources of the Dead Sea and Sanyuan Foods, which is one of China’s best dairy product companies in terms of quality and quality control. These are the kind of companies that Fosun has always been seeking to invest in.
All of the companies that Fosun has invested in have to restructure and improve according to the standards and requirements of the C2M business model. This means that they have to be able to enhance the use of data, increase investment in product development, improve manufacturing processes and be geared towards adaptable production with the advent of mobile internet. The supply chain should be more scientific, more efficient, and geared towards the adaptable and sophisticated production.
C2M enables the integration of flows of capital, information and materials, and thus the formation of a closed-loop system for customer service in creation of a happiness ecosystem for success
When Fosun and all of its subsidiaries have adopted the C2M business model, the flows of capital, information and materials will be integrated into one. The integration of the three flows need not to happen in a single business entity. It is more important that the integration takes place in one ecosystem of businesses and enables the formation of a closed-loop system for customer service. In the future, the closed-loop system has to be established in each of Fosun’s businesses. The closed-loop system will enable the businesses to provide one-stop customer services and to cooperate with external parties. These closed-loop systems will feature prominently in the happiness ecosystem that Fosun has built intelligently. For example:
Fosun has preliminarily built a closed-loop system for its healthcare business, which covers health insurance, medical care and health management, and is supplemented by retail pharmacies and development of pharmaceuticals and medical devices. In addition, we will have to make two breakthroughs in 2017. Firstly, having put Fosun United Health Insurance and Star Healthcare into operation, we must form a closed-loop system to include health insurance, health management, and medical care. In that closed-loop system, Fosun’s health insurance and health management will prevent its customers from illnesses. Secondly, we should take advantage of the Star Castle Living’s and Star eHealth's capabilities to provide senior care and combine them with Fosun’s senior care facilities and senior insurance to establish an advantageous closed-loop system for “senior community and happy old age”. Meanwhile, Fosun will also invest more in the innovation and research and development in the healthcare industry, including the move to step up the research and development of drugs and the innovation in medical devices so as to provide technological support to the establishment of closed-loop system for its healthcare business.
We will also establish a closed-loop system for our maternal and nursery healthcare business. We have invested in a leading portal in the industry such as Qinbaobao that can draw online traffic, and we are strengthening its operation by sourcing the best products for maternal and nursery healthcare in the world. The portal also features gynaecological and obstetric services such as United Family Healthcare. Fosun has the capabilities to establish a closed-loop system to meet the needs for maternal and nursery healthcare.
Fosun will also establish a closed-loop system for its tourism business. Although many agents are selling their products through various channels, but the products, such as the tourist services provided by Club Med and Atlantis are not frequently engaged. We need to search for more channels to reach customers directly. For example, we can leverage Thomas Cook’s advantageous distribution system in Europe to connect with the customers directly. We believe that tourism products can be delivered directly to the customers. We will integrate all of the resources to establish a closed-loop system.
All these closed-loop systems are centered on products and services. In addition, Fosun has several advantageous core capabilities to establish other types of closed-loop systems such as those of “Finance +”, “Properties +” and “Internet +”.
What is the concept of “+”? It is about integrating Fosun’s advantages and making the best out of various resources to establish a closed-loop system. To that end, we start with a single point, a single product, or a single service business and then integrate it with other industries. “Finance +”, for example, is about creating opportunities to reach customers frequently through financial service. As an example, we started with health insurance, the wealth management of H&A and Fosun-Pay, then link and integrate them with other industries to establish closed-loop systems. Hive City is an important offline portal to attract traffic, so “Properties +” is about starting with the real estate business and integrate it with other industries one by one to establish a closed-loop system. All these closed-loop systems have to be enabled by the internet, but they cannot be confined to the internet; they should be profoundly integrated with other industries.
Ultimately, these closed-loop systems will all be completed in Fosun’s happiness ecosystem. This is a process of allowing the businesses to empower each other, to enable each other to enhance its own products, and to work out better solutions to address customers’ real needs. They will also serve as a foundation for each other’s development, and their developments will become closely intertwined. Through investments and cooperation, we will add new elements to Fosun’s ecosystem of businesses and make them to reinforce and complement each other. We will seek for opportunities to upgrade the ecosystem of businesses, which will also keep on empowering all the elements within such ecosystem and supporting them in their attempts to form their own closed-loop systems so as to enable them to develop faster and perform better. This is the core philosophy of how Fosun establishes its ecosystem of businesses intelligently.
Fosun’s business ecosystem is growing broader, deeper and stronger in 2017
We have now defined the direction of Fosun’s development in the future, that is, creating a happiness ecosystem for success with the C2M business model. In 2017, we will try every means to make Fosun’s business ecosystem deepen and flourish, that is, to grow broader, deeper and stronger. This will enable all the elements in Fosun’s ecosystem of businesses to develop in synergy and achieve organic growth.
In terms of “growing broader”, it means, on one hand, the capability of Fosun’s ecosystem of businesses for “health, happiness and wealth” to enable all of its elements to integrate with each other, combine their strengths and leverage the broad range of their businesses to develop in synergy and in closed-loop systems. On the other hand, the term “growing broader” also refers to Fosun’s continuing drive for globalization and its pursuit of broader geographical market coverage. While reinforcing our footholds in developed countries, we will focus on emerging markets of such countries and regions as Russia, Brazil, India, and Southeast Asia.
As regards “growing deeper”, Fosun has always emphasized profound industrial accumulation. Both its investments and businesses have to be conducted according to the principle of profound industrial integration. Every closed-loop system that we have proposed must develop their businesses with depth, enhance the competitiveness of their products, which are excellent in quality. At the same time, we need to deepen our understanding of different regions across the world and seek opportunities that fit into Fosun’s strategies in those regions through the local teams. Notably, Fosun, as a global company which was founded and has taken roots in China and specifically in Shanghai, will definitely develop further the local market of Shanghai and other provincial markets of China while pressing ahead with its globalization drive. We firmly believe that leaves cannot be luxuriant without deep roots. We can only conduct our globalization drive well with the profound localization of our operations.
While “growing stronger or reaching a new height”, it refers to Fosun’s ideas about innovation and product development that I would like to share with you.
Fosun must continue to be ahead of the curve in terms of technology and business model, and must occupy high grounds in competition in fast-changing times. It must take initiatives in such areas as research and development of medicines and medical technology, innovation in retail business models, integration of financial service into more situations and more types of industries, the upgrading of various creative products, and the upgrading of Hive City. We must fit product development into the company’s development. Both Fosun and its subsidiaries have to increase investment in research and in creating innovative businesses. For Fosun, innovation and research is not an option, but is a must and priority. Fosun’s development in the future will definitely be driven by technologies.
We propose that Fosun Pharma should be in the same position within the global healthcare industry just like how Huawei is positioned within the telecommunications equipment and service industry. It should take every effort to make faster breakthroughs in gene sequencing, innovative medicine, precision operation, artificial intelligence and other medical services. Fosun aspires to become the world’s pioneer in Fin-Tech, building on the achievements of the giants in the past, through financial innovation in particular. Besides, Fosun will also have to lead the industry in the adoption of C2M business model which will drive the restructuring of traditional manufacturing industry and the supply chain.
Furthermore, we need to emphasize Fosun’s immense worldwide social responsibility in the world. Fosun has preliminarily established a business layout which has a geographical market coverage all over the world. This entails corporate social responsibility on a global scale. For example, we sponsored a Protechting start up accelerating program in Portugal. We should introduce more amazing products to the society, support young people to be innovative and generate more employment opportunities for them. This will increase efficiency and productivity within the society. As a responsible global corporate citizen, Fosun will try its best to help the world change for the better.
The above-mentioned ideas about the direction of the Company’s development in the future resulted from thorough discussions among all members of Fosun’s management. I would like to take this opportunity to keep you posted on the details of Fosun’s work plans for 2017.
One Fosun, further enhancement of management structure, empowerment of the capacity to create value
In order to achieve the target of its globalization drive, Fosun not only improves consistently its capabilities but also enhances both its management structure and corporate culture. Therefore, Fosun is taking efforts to build the One Fosun platform through the upgrading of the management structure. The platform, which will combine the flexible frontline and the strong middle and back offices, will enable Fosun to carry out its strategies with agility at various levels. In addition, the One Fosun platform will be an organization system that enables Fosun to adapt to the market with the advent of mobile internet and new technologies. It will empower the “combat troops” at the frontline through the lean, efficient and strong middle and back offices.
As to the management strategy, not only will Fosun aim for eliminating competition, it will even encourage a certain degree of overlapping of different teams. “Overlap” here means no strict definition of the boundaries between the business scopes of different teams and an appropriate degree of overlapping of different operations. To draw an analogy, I would say that there should be more than one player for each of the position in a football team, and those who ultimately can play in a match are certainly the best players who have proven their abilities by winning their positions through competition. Such individuals and teams are mature and trustworthy.
Continuous improvement of Fosun’s comprehensive financial capability
Fosun’s strong capability to operate various businesses with depth, comprehensive financial capability with insurance as its core operation, and global perspective are the three most dominant genes of Fosun. As Fosun has put in place its financial businesses worldwide, including those of insurance, banking, securities and asset management, we must have the capability to integrate finance with its various businesses seamlessly and continue to improve our comprehensive financial capability.
We will further improve investment capability that allows us to fully deploy the available capital generated from its insurance business, and build up our capability to make investments with fixed returns. The first life insurance package of our German Run-Off platform has started its operation. The insurance companies under Fosun will actively seek to match their operations with Fosun’s resources and capabilities.
We encourage the establishment of special funds for big projects that fit into Fosun’s strategies. We will press ahead with the securitization of our assets, and build up our capability to tap the capital markets.
The “power of three”: Discipline, discipline, discipline
As a global investment group, Fosun has been adhering to value investing. The value of an investment that we pay attention to does not necessarily lie in bargaining the purchase of equity stakes at the lowest price or comparing our valuation of an investment and that done by others, or whether our valuation is lower than or the same as those done by others. We believe in “rediscovering value and rediscovering potential for growth”. We must discern the value of investments and their growth drivers that others have failed to spot. This is the essence of Fosun’s value investing.
At the same time, our investments have to be able to complement to empower each other to create value. They should be able to combine Fosun’s capability to operate businesses with depth, financial capability and globalization capability with all of Fosun’s subsidiaries. We need to give support to all those companies in their development and growth, and hope to find more companies that can empower Fosun’s ecosystem of businesses. However, Fosun does not blindly follow investment fads and the opinions of the so-called “experts”. We must exercise our own judgement to screen out the unsound businesses as targets of investment.
Fosun is an elite organization, and its staff must be faster than competitors by 0.01 second
Over the past 25 years, I appreciate that it was not easy to achieve so many goals. They could not be realized without the elite organization. Thus, Fosun has always been building up an elite organization. The staff members of Fosun must be elites.
I think “0.01” best serves as the standard of being an elite. In other words, we need to find those who are 0.01 second faster than the fastest. We hope to find those who are 0.01 per cent stronger than others in study. Presently, Fosun has a lot of younger talents. With professional expertise, a global perspective and entrepreneurial spirits, they have emerged in all ranks in Fosun and have taken on more responsibility at work. They are Fosun’s most valuable assets and they are also the driving force behind Fosun’s development.
Meanwhile, Fosun cannot tolerate mediocre people. It will weed out those who only have impressive résumés but makes no achievements at work, those who have experience but cannot innovate, and those who fail to learn and grow continuously. The elites we are talking about are those who run faster than their peers and perform more outstandingly and creatively than others in various competences.
We need to stress two more points in the establishment of the elite organization: the first one is “Glocal” (i.e. “Global + Local”). We need to build up strong local teams. The second point is Fosun’s global partnership system.
Glocal, the formation of strong local teams.
Over the past few years, Fosun has acquired and built up local companies in Japan, the United Kingdom, Russia, Brazil, and India. They have a wealth of experience and resources on the local markets. Along with the global capabilities of Fosun, the proven combination proves to be a strong and incredible force. For instance, Japan’s IDERA team has joined Fosun for more than two years and completed a number of projects. IDERA and Mitsui jointly established J-REITs, succeeded in listing J-REITs on the Tokyo’s stock market through an initial public offering, and formed a closed-loop system comprising investment, financing, management and the operation of exiting investments. The UK Resolution team has completed the acquisition of Estrella, a grade-A commercial building in Frankfurt after it finished the acquisition of a project of Thomas More Square in London. The Russian Eurasian Capital also achieved outstanding results. This arrangement will be one of the most important models of Fosun’s business development.
Meanwhile, Fosun also strongly encourages teams which have good ideas and entrepreneurial spirit to set up new businesses with Fosun or to do so by itself. It does not matter whether the team members are external scientists or are our own colleagues. We encourage business ideas in the areas of technological research and development and innovation, which require patience and commitment. It is self-explanatory that such teams must consist of members with world-leading talents in the fields and can work efficiently to match Fosun’s strategies and development.
An increasingly dynamic global partnership system
With the Fosun Group, the status as the Group’s global partner is the highest recognition of the Fosun’s elites. The global partnership with Fosun is not only an incentive, but also an honor and responsibility, and represents identification with Fosun’s corporate culture, mission and strategy. At the beginning of this year, Fosun announced a new group of global partners. Meanwhile, the various businesses affiliated to Fosun Group are actively setting up multi-level partnership systems.
Fosun’s global partners are not only our partners in business, but also owners of the enterprises and are responsible for implementing missions and strategies. The global partner team is playing an increasingly vital role in the development of Fosun. Fosun’s partners must be self-motivated to strive for success diligently. They must take initiative to form closed-loop systems and learn how to leverage Fosun’s resources to promote the synergistic development of both Fosun and their operations. Fosun’s partners shall identify themselves with Fosun’s corporate culture, think about the big picture when planning, and give priority to collective interests. Each partner shall not only have the expertise in a certain field, but also can connect and integrate internal and external resources and help to expand Fosun’s ecosystem of businesses in Fosun’s interests.
Fosun’s partnership is not a system of life tenure. Every year, new partners join it, while some existing ones exit it. Fosun hopes to recruit two types of people as its global partners. The first type is people who can work independently and make great contributions to Fosun. The second type is people who identify themselves deeply in line with Fosun’s corporate culture and strategy. They are young and vigorous with huge potential for development and they are willing to take on new challenges and do so bravely. We are eager to foster these two types of people and will give them opportunities for development.
Lastly, I would like to share two mottos with you:
the first one is “What you truly believe is the most powerful”; and
the second one is “Learning is the source of our greatest wisdom, or even the only source of it”.
Therefore, let’s commit ourselves to lifelong learning, and gain a deep understanding of the changes to the world in 2017. We shall care for our country, customers, and seek to enhance our products; keep up the entrepreneurial spirit, remain curious about new things, and stay aware of the developments in our society and the world; do the things which are right, difficult, far-reaching, and challenging and things which can truly create value. We should also be able to leverage science and technology so as to provide better services for our clients.
We have worked closely together for Fosun’s development in the past 25 years. I believe what we have achieved today marks only one of milestones in the history of Fosun. We will scale new heights in the future!
I would like to thank all of you for your continued support. On behalf of Fosun, I would like to wish you fortune and success!
28 March 2017
 The Group’s investments in the steel industry were classified into the investment segment since 1 January 2016. The total assets of “health, happiness and wealth” business of 2015 included that of the steel segment to improve the comparability.
 It refers to the core management of the Group, which is different from the legal concept of “partner” under partnership.