Fosun International Issues a Letter to Shareholders

HONG KONG, March 31, 2021 /PRNewswire/ -- Fosun International (00656) today released a letter to shareholders, the full text of which is provided below.

Dear distinguished shareholders,

In 2020, the raging pandemic of novel coronavirus pneumonia ("COVID-19") imposed tremendous challenge to the world. Consequently, during the Reporting Period, the Group's operating revenue decreased by 4.44% year-on-year to RMB136.63 billion while the profit attributable to owners of the parent fell by 45.83% year-on-year to RMB8.02 billion.

Although Fosun's globalized businesses underwent a number of tests, the Company continued to maintain a sound financial position with ample liquidity. During the past few years, we have been keeping a stable leverage. As at the end of the Reporting Period, the total debt to total capital ratio was 54.3%. Meanwhile, we keep optimizing and expanding our financing channels, with a view to offering our global investors high-quality assets with long-term and stable returns. Fosun stands out for its diversified business portfolio, globalized asset allocation and complementary development model of "Industry Operations + Industrial Investment", which have enabled Fosun to withstand market risks and help it grasp opportunities during this time of crisis and uncertainty.

China was the first country which rode out the crisis and saw its economy and daily life returning to normal. As a result, Fosun's operations in the country recorded a strong rebound. Quite a few brands under Fosun, such as Fosun Pharma and Yuyuan, bucked the weak trend and recorded high-speed growth during the pandemic. FTG, which was greatly affected by the pandemic, continued to control costs and expenses and actively facilitated the resumption of business operations. Its revenue from domestic business improved significantly in the second quarter of 2020 compared with that in the previous quarter.

To express our gratitude to all the shareholders for their long-term support and trust, our entire Fosun staff will remain committed to excellence in performance.

Global battle against the pandemic, every minute counts

The COVID-19 pandemic has ruthlessly affected society, economy and daily life worldwide. Fortunately, the majority of the world has gradually moved from raging outbreaks to more collaborative control and preventive measures, thanks to the joint efforts of each individual and organization. As a global enterprise rooted in China, Fosun took the initiative in joining the frontline fight against the pandemic leveraging its global advantages and solid industry resources. Fosuners worldwide have also unified their efforts which exemplified the strength of our organization. Upon the pandemic outbreak in late January 2020, Fosun initiated its first global collaboration to work around the clock and took the initiative in supporting the frontline battle against the pandemic in China by pooling protective supplies, leveraging on its global resources. As COVID-19 escalated into a global pandemic, Fosun immediately gathered relevant anti-pandemic supplies to support the cause in the rest of the world to help combat the pandemic. Fosun's efforts were also extensively recognized and supported by the governments and the public both at home and abroad as Fosun has fully demonstrated its capacity to mobilize its global resources during the most difficult time.

Now, the pandemic continues to rage around the world. In order to win the war against COVID-19, I believe the vaccine remains the key to the victory. It is certainly encouraging to see that global research and development ("R&D") of the vaccines is being conducted at an unprecedented pace. Thanks to the combination of global collaboration and technology innovation, various types of vaccines have come into use and have given us a ray of hope. As one of the worldwide vaccine development participants, we are pleased to see that the first batch of Fosun/BioNTech vaccine - COMIRNATY® has been delivered to Hong Kong and Macau in late February 2021 while the vaccination has already started in March 2021. We hope COMIRNATY® and Fosun can have opportunity to contribute more to the anti-pandemic work in the future.

Fosun upgraded its strategy in the most challenging year

Looking back to 2020, we think it may be the most difficult year for Fosun: the pandemic severely affected Fosun's business operations including offline retailing, overseas tourism and insurance. This has been reflected in the Company's financial data. Amid difficulties and challenges, Fosun adheres to its business strategy of "making stable yet bold progress for sustainable growth". Through the upgrade of our strategy with new priorities, we will explore new opportunities in the challenges.

I have been often asked by investors this question: "Why does Fosun change its strategy frequently?" In fact, over the years, Fosun has a consistent strategy that encompasses globalization, technology innovation, C2M (Client to Maker) model, and profound industry operations + industrial investment. The strategy has already been internalized by the entire organization of Fosun and has thus become the group's strengths and traits.

Undoubtedly, in order to adapt to dynamic market changes, Fosun has different strategic priorities during each phase of its development. It also has different strategic priorities according to the changes in the market. From its focus on the pharmaceutical business during the earlier period of its establishment, to its frequent participation in the mixed ownership reform of state-owned enterprises, followed by its globalization to its move to ride on the "insurance + investment" twin-drivers, all of these are different strategic priorities decisions made by Fosun after careful consideration of the situations of the various phases of the economic cycle.

No choice is absolutely correct or perfect. Each choice has its limitation, especially when you pursue a long-term goal and may do so at the expense of short-term profit. However, I always believe that "You may need to give up something in order to gain something." Fosun persists in doing the right and difficult things and things that need time to develop so as to attain high-quality growth in the future.

Pressing on with globalization and further deepening global cooperation

Let's take the globalization of our business as an example. Globalization is one of the expertise of Fosun. Fosun has been implementing its globalization strategy for more than ten years, focusing on our core industries and accumulating industry resources. In 2020, the world mired in the COVID-19 pandemic became a hotbed of dissenting voices against globalization. However, Fosun kept forging ahead with globalization as we firmly believe the international business environment has become so open and globalized today that global cooperation and the sharing of technology have become inexorable trends. Technological advancement and the tackling of global challenges depend on the cooperation of all human beings.

We believe the whole world has once again realized the importance of globalization as different countries joined hands to fight the pandemic. Since the pandemic outbreak, all the anti-pandemic efforts that range from the sourcing and deployment of protective supplies to the research and development of vaccines have been conducted through global cooperation. During the development of the vaccines, the humanity made remarkable breakthroughs in such a short time mainly because of global cooperation, although technology innovation is also indispensable.

Pushing forward with technology innovation, building up core competitiveness for the future

Fosun believes innovation is the driving force behind its development. I am also happy to see many fruitful technology innovations in our various businesses in 2020.

Fosun Pharma is a case in point. Over a decade, Fosun Pharma continued to optimize its pharmaceutical operations across both innovative and generic drugs with R&D innovation as core driving factor, and has become a leading healthcare group in China. Shanghai Henlius, which is another example, entered the "World Cup" of the pharmaceutical industry as China's representative by launching trastuzumab in the European Union ("EU") with the approval of the authorities there, making that product the first Chinese-made monoclonal antibody drug which has succeeded in entering the EU market. Furthermore, Chongqing Fochon Pharmaceutical Research Co., Ltd. is also in the preparation stage of phase I clinical trial of its independently developed selective small-molecule inhibitors.

We have also given much thought to innovation in our businesses. Fosun aims to help people live in a healthier, happier and wealthier life to the age of 121. To fulfil the mission, Fosun will conduct in-depth R&D of cutting-edge technologies in multiple fields that can raise people's happiness index. To achieve this goal, we have to understand the industries well and be visionary and patient. At present, we have investment teams and have built up R&D projects of strategic importance in such fields as artificial intelligence, smart transportation, disease prevention biotechnology and blockchain, etc. Being bold to explore possibilities but cautious in verification, we are building up Fosun's core competitiveness for the future and aim to create more value for the world.

Adhering to the C2M strategy, further prioritizing the "C-end"

C2M strategy remains the core of Fosun's operation of its various businesses. The primary logic is being client-centered (C-end), providing them with better products from manufacturers/makers (M-end), and connecting them by the supply chain (To/2). Such strategy enables Fosun to provide the best products and services to families worldwide. As such, we keep looking around the world and providing excellent products and services to our clients, so as to further expand our clientele and to serve more families.

As a family-oriented consumer group, we are determined to profoundly develop our businesses and dedicate ourselves to improving operating efficiency. By optimizing our asset allocation, focusing on our core industries, observing closely our operational benchmarks, we aim to develop each of our core businesses into a market leader in their respective industries. In the past, we were concerned more about the Group's and portfolio companies' financials; now, in addition to that, we put more emphasis on their respective operational benchmarks. In particular, we will pay more attention to the respective operational benchmarks of our core portfolio companies including online sales amount, sales amount in the ecosystem, number of C-end customers and members. In the future, we are putting together the operational benchmarks as our tool to further enhance the ecosystem of our businesses.

In the previous C2M strategy, we have paid more attention to the excellent product development (the "M-end"). However, there is an old Chinese saying that "A fragrant wine would not be known if it is stored deep down an alley". Therefore, we will now put "C-end" as our top priority. We will invest in and fully implement this "C-end Top Priority" strategy in order to make good use of the resources of our family consumption businesses and achieve the multiplier effect within our ecosystem. As we have accumulated a lot from "0" to "1" in various industries in the past, we now have abundant resources to establish more traffic entrances (to draw more customers) in each vertical market.

Adhering to "Industry Operations + Industrial Investment" twin-driver strategy, grasping opportunities for taking controlling stakes in complementary businesses

We will press on with the twin-driver strategy of "Industry Operations + Industrial Investment" to drive development, thus enabling our core businesses and enterprises to grow rapidly and achieving the multiplier effect by means of a product matrix. We regard investment capability as a key strength of Fosun which has helped us establish our footholds in our current industries and geographical markets. After years of practice, our way of investing by taking controlling stakes in complementary businesses and investing by allocating capital through insurance funds have been improving and becoming one of our mature tactics that help to better serve our "Focus" strategy.

We have appreciated that taking controlling stakes in complementary businesses is the only way to bolster the development of our various businesses. For example, in order to bolster its business of Happiness, Yuyuan has completed the acquisition of 38% equity interest in Jinhui Liquor in October 2020 and won a bid for 70% equity interest in Sichuan Tuopai Shede Group Co., Ltd. at an auction in December 2020. Investment in the liquor industry, which is also a symbol of the Chinese culture, enabled Yuyuan to enhance its business portfolio and fit in with Yuyuan's business strategy. By holding controlling stakes in the two well-known liquor companies, Fosun has strengthened its consumption business and attained better synergy and multiplier effect in terms of its reserves of different types of premium base wines, coordination of various distribution channels and the formation of the brand matrix.

Adhering to our core strategies while bringing innovations and changes

After years of practice, the four core strategies mentioned above have gradually developed into our core capabilities. From the macro perspective, domestic industries such as consumer industry, property sector and environmental protection have entered a new round of industry consolidation since 2019. As the expansion phase has been completed, increasing market concentration has become prominent in those industries, providing fertile grounds for acquisitions of controlling stakes in businesses. As to consumer habits, tiering of spending has become more prominent as well. As the demands for consumer products have become more differentiated, customized and personalized, the traditional one-size-fits-all product development model no longer works. Instead, the younger generation favors products that can connect with them emotionally.

From a micro perspective, the current development of Fosun largely attributes to our previous strategic planning, especially the globalization since 2013, which has enabled us to explore different industries and regions, and established footholds. Therefore, since 2020, we have emphasized the importance of "Focus" in our strategy, putting our focus on our existing established industries and regions. While we have completed building our pillars from "0" to "1", we are now having the goal of rapid development from "1" to "N" in this stage.

Another major change this year is that apart from Health, Happiness and Wealth segments, we have made Intelligent Manufacturing segment as one of our separate, core business segments. In the Intelligent Manufacturing segment, smart innovation is our key focus. Nanjing Iron & Steel, as an example, continues to increase investment in R&D in such areas as technology innovation, ultra-low emission reduction and reduction of carbon emissions. It also focuses on new materials and industrial chain extension in new industries to realize industrial upgrading. We are committed to nurturing a number of leading companies and hidden champions in different industries.

Meanwhile, we are also aware that Fosun's relationships with other market players should always be characterized by "cooperation + competition", with cooperation prevailing over competition. In respect of C2M strategy, we will cooperate with other companies in our inclusive C2M ecosystem. In particular, we will connect our C-end good products with the external manufacturers/makers (M-end) and also introduce external C-end products to our logistics platforms which enable us to form the complementary relationships with the external manufacturers/makers. It is the same from the perspective of the strategy of "Industry Operations + Industrial Investment". We expect to strengthen the cooperation with external industrial companies with our investment capability as our important strength. As a family-oriented consumer group, we hope to use our industrial capability so as to generate growth for both Fosun and our external business partners.

Honing skills and evolving organization and mechanism comprehensively

Since its establishment 29 years ago, Fosun has come through numerous economic cycles and challenges, yet we have always come out stronger every time.

2020 was a very difficult year, but from another perspective, it is also the best one for Fosun. The pandemic has given us a wonderful opportunity for introspection and refining Fosun's strategies. The pandemic also drove the upgrading and enhancement of Fosun's organizational structures, operating models, investment strategies and strategic focuses. This allowed Fosun to blossom into an exemplary family-oriented consumer group following the pandemic.

As we have undergone the pandemic, I am most delighted to see every Fosuner has maintained the fighting spirit and continued with the "wartime mechanism" which they have developed during the combat against COVID-19. Through the test of the pandemic, everyone understands the importance of prompt response, continuous improvement and agile organization. "Wartime mechanism" does not mean that everyone is working aimlessly day and night. Its essence is to help the Group and its subsidiaries to identify their respective "key battles" in a timely and systematic manner, like setting monthly and quarterly targets for each key project. On the execution level, we demand our "commanders in chief" to timely enhance or correct their decisions and accomplish each task down to the level of each person and each day. The wartime mechanism can motivate one's potential, enabling efficiency and, at the same time, allowing our frontline staff to work with a sense of purpose through a flatter organizational structure. A sound wartime mechanism, complemented by a clear and timely mechanism for reward and punishment and adjustment of organizational structure, is Fosun's most important asset after the pandemic.

Talents are the key to winning each combat. This year Fosun promoted more than 60 new global partners^[1], bringing the total number to over 110. The faster expansion of the global partner team has provided strong organizational support to Fosun. The status of Fosun's global partners is not only an honor but also represents the capability to lead a team as a "warrior" in the "combats". Today Fosun has already built diverse businesses in various industries and in different regions of the world. Metaphorically speaking, this will call for the collaboration of various "branches of the army" and multiple "army groups" across different regions in a "war" in the future.

Meanwhile, Fosun assesses all its global partners annually in terms of cultural values, operating performance indicators, the capability for attaining synergy within Fosun's ecosystem and team development. Fosun will keep on promoting new global partners according to the performances of its various ecosystems of businesses through this mechanism which is modelled on natural selection, thus injecting vitality into Fosun's development.

Having faced the once-in-a-century global crisis, we firmly believe we not only can calmly cope with problems that may arise but also can turn adversities into opportunities by evolving our strategy continually, stepping up our technology innovation and the reform of our organization. With vision and its globalized resources, Fosun will spare no effort to create more good products and enhance customer operations while identifying good opportunities in the market and accelerating the optimization of its assets and integration of its various businesses, with a view to becoming a world-class family-oriented consumer group.

Once again, I would like to thank all the distinguished shareholders, our customers and friends for their support and help to Fosun as well as their trust in the Group. We will continue to create more value for all the shareholders!

Guo Guangchang
30 March 2021

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