After a year of ups and downs, can Fosun spark a new round of growth by continuing its strategy of “streamlining the organization and focusing on core businesses”? Fosun International released its 2022 annual results on 29 March, revealing some clear signals.
Fosun International reported both growth and declines in its annual results announcement. The total revenue for the year was RMB175.39 billion, representing a year-on-year increase of 8.7%; the net profit attributable to owners of the parent was RMB0.54 billion as compared to RMB10.08 billion in the same period of 2021. The sharp decline in net profit attributable to owners of the parent was mainly due to the recurrent outbreak of COVID19 pandemic in 2022 and the turmoil and downturn of the international capital markets, resulting in high business costs and an increase in floating losses in secondary capital market investment. By sorting out data such as balance sheets, cash flow statements, asset disposals, and business changes, it is clear that the “transient” impact of the pandemic fades away, Fosun, which has accelerated its focus on core businesses in the household consumption sector, is poised to usher in a new round of growth.
Complementing the financial figures, Guo Guangchang, Chairman of Fosun International, published a Letter to Shareholders on 29 March. In the letter, Guo Guangchang candidly responded to questions such as debt, business, and strategy that investors are highly concerned about.
“This year, the Company decided to further ‘streamline the organization’, focusing on businesses in the household consumption sector and devoting the limited resources to industries with growth potential.” Guo Guangchang said in the letter, “changes in economic and social development and the birth of emerging technologies will definitely have an impact on consumers’ choices, and consumption sentiment usually depends on the individual’s confidence in income, economic growth and the consumption environment. However, I believe that people’s aspirations for a better life and the fundamentals of China’s long-term sound economic growth will remain unchanged. Therefore, we remain committed to our vision of bringing healthier, happier, and wealthier lives to families worldwide.”
Fosun International significantly eases its debt pressure with a cash inflow of nearly RMB30.0 billion from divestment during the period
Both the results announcement and the Letter to Shareholders disclosed on 29 March indicated that the impact of the domestic pandemic and fluctuations in the global capital market in 2022 brought great challenges to Fosun International’s financial structure. Coupled with the disturbance of market rumors, Fosun’s debt issue was once questioned.
In response to the challenges of external force majeure factors, Fosun has adopted “multiple measures to optimize its funds and capital structure” since the second half of last year.
First of all, Fosun has stepped up its efforts in the divestment of non-strategic and non-core assets to consolidate its liquidity cushion. The results announcement showed that the divestment at the group level was far greater than the investment in 2022. The amount based on the consideration set out in the disposal agreements exceeded RMB40.0 billion, bringing a cash inflow of nearly RMB30.0 billion at holding company level.
Fosun’s divestment of assets in 2022 included the systematic divestment of the iron and steel asset, the transfer of partial equity interests in Yong An Insurance, and the sale of all equity interests or substantial reduction of shareholding in Tsingtao Brewery, Zhaojin Mining, Zhongshan Public Utilities, etc.
While stepping up its efforts in the divestment of non-strategic and non-core assets, Fosun has also made continuous efforts in financing. In 2022, the Group completed syndicated loans of US$875 million and RMB1.66 billion, completed the issuance and resale of domestic bonds equivalent to RMB10.2 billion, and redeemed several offshore bonds in advance.
In 2023, Fosun successfully obtained a loan of RMB12.0 billion from a domestic syndicate, which was the largest private corporate loan led by five major state-owned banks in cooperation with policy banks and joint-stock banks since the announcement of “encouraging and supporting the development of the private economy and private enterprises” at the Central Economic Working Conference held in December 2022.
According to outside commentators, this move reflects the confidence of financial institutions, especially state-owned commercial banks, in Fosun’s capital and business strategies, and further reduces Fosun’s reliance on public market financing, increasing its risk tolerance to cope with fluctuations in the international capital market.
Through the above-mentioned series of actions, Fosun has established a satisfactory risk tolerance strategy. Its ratio of total debt to total capital was 53.2%, down 3.6 percentage points from mid-2022; the average cost of debt was at a low level of 4.7%; the adjusted NAV was HK$21.6 per share; the duration of existing interest-bearing debt has also been extended to more than two years. As of the end of the Reporting Period, cash and bank balances and time deposits were relatively abundant, amounting to RMB100.56 billion.
It is worth noting that the above-mentioned liability figures are still based on the consolidated statement at the group level. If the liabilities of its consolidated listed subsidiaries such as Yuyuan, Fosun Pharma, and Fosun Tourism Group (FTG) are excluded, the actual decline in liabilities attributable to Fosun International is even greater.
Analysts believe that based on the financial figures for 2022, it is evident that Fosun’s debt structure has been further optimized in the past six-plus months, and it has remained at a relatively healthy level as a whole, while the quality of assets has been greatly improved during the same period. As a result, its adjusted NAV remained solid at HK$21.6 per share.
“In the future, Fosun will continue to prioritize ‘sustainable growth’. As the external environment is gradually picking up, I believe that Fosun has survived the most difficult time. In the future, we will continue to achieve sustainable growth,” Guo Guangchang said in the Letter to Shareholders.
Businesses in consumer and tourism sectors see robust rebound as “one-off” impact fades away
Due to the impact of the pandemic, especially the violent fluctuations in the global capital market, Fosun International’s net profit attributable to owners of the parent was greatly affected. Its annual results announcement indicated that, the Group’s net profit attributable to owners of the parent fell 94.7% year-on-year to RMB0.54 billion in 2022.
However, it is a total different story if we take a closer look at Fosun International’s total revenue.
Against the backdrop of a complex macroeconomic environment in 2022, Fosun’s total revenue still maintained growth, reaching RMB175.39 billion, representing a year-on-year increase of 8.7%. Focusing on the needs of global families for health, happiness, and wealth, the four core subsidiaries, namely Yuyuan, Fosun Pharma, Fosun Insurance Portugal, and FTG contributed 72% of the Group’s total revenue.
Market analysts believe that the sharp decline in profits is mainly resulted from the “one-off” impact caused by external force majeure factors in 2022. Once the force majeure factors are gone, the “one-off” impact will also fade away. In 2023, Fosun’s core businesses in the household consumption sector may usher in an important period of opportunity for rebound, and its forward-looking layout in the anti-epidemic field will gradually yield results. It is worth noting Fosun’s rebound following a period of strategic deployment.
In fact, since the beginning of 2023, Fosun’s businesses in consumer and tourism sectors have shown a remarkable upward trend. In 2023, the Yuyuan Garden Lantern Festival, which received wide recognition in Chinese mainland and overseas, attracted more than 4 million visits, effectively driving consumption in the area. Fosun’s tourism business has rebounded rapidly, the occupancy rate of Atlantis Sanya, a subsidiary of FTG, has fully recovered and surpassed the level before the pandemic, recording a business volume of RMB399 million, representing an increase of 10% over the same period in 2022, the average room occupancy rate reached 96%; the business volume of Club Med increased by 55% compared to the same period in 2022; the business volume of FOLIDAY Town Lijiang increased by 149% compared to the same period in 2022.
It is worth noting that FTG has demonstrated a robust momentum of recovery since the second half of 2022. Its annual results announced on 26 March showed that the business volume of tourism operations in 2022 increased by 85% year-on-year relative to the same period last year. Adjusted EBITDA turned positive by a notable extent, up from RMB213 million in 2021 to RMB2,345 million in 2022. Loss attributable to equity holders narrowed significantly from RMB2,719 million in 2021 to RMB545 million in 2022. Among them, the business volume of Club Med reached RMB12,011 million in 2022, representing a year-on-year surge of 108%.
Growth momentum: twin drivers of global operations and technology innovation
In the Letter to Shareholders, Guo Guangchang said, “In 2022, Fosun divested some non-core assets and further focused on core businesses in the household consumption sector, which has created space and built momentum for future business rebound and rapid development.” Global operations and innovation are the two driving forces for future endogenous growth.
According to the annual results announcement, Fosun has established businesses in more than 35 countries and regions (based enterprises with revenue exceeding RMB 100 million in such year) during the year. In 2022, Fosun’s global operations capabilities has been further improved, and its overseas revenue amounted to RMB77.4 billion, representing a year-on-year increase of 14% and accounting for 44% of its total revenue. As of the end of the Reporting Period, it had 43 overseas brand enterprises with more than 45,000 overseas employees.
Guo Guangchang set the year 2022 as a new starting point for the third stage of Fosun’s globalization to foster cross-regional, cross-cultural, and cross-organizational operation capabilities of Fosun’s global business ecosystem through “global organization + local operations”, thereby providing new impetus for the improvement and expansion of Fosun’s industry operations.
Taking Lanvin, a French couture house, as an example, after joining Fosun, Lanvin has maintained robust growth. On 15 December 2022, Lanvin Group was listed on the New York Stock Exchange under the ticker symbol LANV. In 2022, Lanvin Group achieved an unaudited revenue of EUR425 million, representing a year-on-year increase of 38%, of which the revenue of its flagship brand Lanvin increased by 67% year-on-year. Lanvin Group became one of the fastest growing companies in the global luxury goods industry.
While its global operations capabilities continue to improve, Fosun is gradually ushering the harvest period after years of dedication and continuous investment in technology innovation.
Taking Shanghai Henlius’ self-developed HANSIZHUANG as an example, since its launch in March 2022, it has been approved in China for the treatment of three indications and has become the world’s first anti-PD-1 mAb approved for the first-line treatment of small cell lung cancer. Since its launch nine months ago, it has generated a revenue of RMB300 million.
The annual results announcement showed that, Fosun’s R&D investment reached RMB10.4 billion in 2022, representing a year-on-year increase of 17%; as of the end of 2022, it had a total of 1,771 patents for intention.
“Both business and economy have cycles, and innovation is our core capability to win out. In between the ups and downs of the cycle, we must step up investment in innovation. Looking ahead in 2023, we will continue to increase investment in innovation to ensure that innovation is driving growth continuously and efficiently,” Guo Guangchang said.