Fosun’s implementation of the Buffett model accomplished significant impact
HONG KONG, March 26, 2015 /PRNewswire/ — Fosun International Limited (together with the subsidiaries, "Fosun" or the "Group", SEHK stock code: 00656) announced its results of 2014. For the year ended 31 December 2014, Fosun’s net assets attributable to owners of the parent reached RMB 49.408 billion, up 24.7% from end-2013. Profit attributable to owners of the parent was RMB 6.854 billion, up 24.2% year on year from 2013.
With the "insurance + investment" twin-driver core strategy, Fosun has accomplished major improvements on both the financing end and asset end as well as the optimization of the overall asset structure. The twin-driver empowered by the "Insurance-oriented Comprehensive Financial Capability" and "Global Industrial Integration Capability Taking Roots in China" has been much strengthened than ever and has established advantages unique to ourselves, like all other world-class investment groups.
Persistent efforts on the financing end: Insurance float approached RMB100 billion, improving ROIC-WACC and EVA generation capability
In 2014, insurance segment profit grew significantly, and the scale of insurance float surpassed the RMB100 billion mark (attributable investible assets at RMB 79.8 billion). Benefiting from the contribution of a large scale of insurance float, ROIC-WACC (after adjustment) and capital employed (after adjustment) started to widen, Economic Value Added ("EVA") of investible assets continued to enlarge and it will become a critical growth engine for Fosun in the future.
Fosun continued to speed up its development on the foundation comprising Yong’an P&C Insurance, Pramerica Fosun Life Insurance and Peak Reinsurance. In May 2014, Fosun completed its acquisition into an 80% interest in Fosun Insurance Portugal (comprising the three insurance companies namely Fidelidade, Multicare and Cares), the leading insurer in Portugal with a 30% local market share, at a consideration of EUR1.038 billion. In early 2015, Fosun further increased its equity interest in Fosun Insurance Portugal to 84.986%. This is one of the most important acquisitions for Fosun over the last 23 years, adding more than EUR 13 billion of new total assets to our Group, including in excess of EUR12 billion of investible assets. With the same logic, from the second half of 2014 to date, Fosun invests in the global insurer Ironshore which specializes in specialty insurance, and an US P&C insurer Meadowbrook Insurance Group (NYSE:MIG) which has rich experiences in labor insurance businesses.
As at 31 December 2014, the assets of insurance segment under management by Fosun exceeded RMB 113.085 billion, comprising 34.8% of the Group’s total assets. Upon completion of the Ironshore and MIG transactions, this proportion and scale are expected to climb up further.
Insurance has become the most important segment for Fosun and has exerted a fundamental impact on the overall business operation and profit generation for the Group. In 2014, the operating revenue from the insurance segment hit RMB 7.868 billion, up 2,742.3% year-on-year, and contributed to 12.7% of the Group’s total revenue. Profit attributable to owners of the parent generated from the insurance segment stood at RMB1.149 billion, up 119.4% and contributed to 16.8% of the Group’s profit attributable to owners of the parent. Fosun’s ratio of net debt over shareholder equity declined to 73.3% in 2014 from 86.0% in 2013, and it is anticipated that it will decline stably in the future.
In 2014, Fosun’s attributable investible assets generated from the insurance segment reached RMB 79.81 billion in 2014, up 1,335.6% year-on-year. Thus, the investible capital (after adjustment) was also increased to RMB 214.703 billion, up 57.2% year-on-year. Meanwhile, the ROIC-WACC (after adjustment) reached 2.2% in 2014, up 0.6 percentage point year-on-year. In the future, as insurance assets eligible for consolidation for the year expanded, the ROIC-WACC (after adjustment) and investible capital (after adjustment) is expected to continue to increase, so EVA generation is also expected to expand.
Thanks to the efforts made by the insurance business team and the rapid, deep and persistent impact of Fosun’s investment capabilities on the return on assets of the invested insurance enterprises, the invested insurance enterprises saw their premium income and return on assets grow rapidly and healthily. Taking Fosun Insurance Portugal as an example, its consolidated return on assets climbed to 8.4% in 2014 from 4.3% in 2013. For the domestic invested insurance enterprise, Yong’an P&C Insurance, its consolidated return on assets also climbed to 12.6% in 2014 from 5.4% in 2013.
It is worth mentioning that the increased return on assets had not only been a result of any aggressive asset allocation that Fosun has adopted. In fact Fosun had been a bit biased towards the conservative end. For instance, 81.3% of Fidelidade’s assets were allocated to fixed income investments and cash last year. Only the remaining 18.7% were appropriated to equity and infrastructure real estate assets.
Investments focused health and happy & fashionable lifestyle industries, rolled out ecosystem planning and sped up participation in industry consolidation around the world with China momentum
In 2014, Fosun focused more on planning the ecosystem layout for the healthcare and happy & fashionable lifestyle and participate in consolidation of industries around the world, including cases like the privatization of Chindex, our acquisition into the whole of Luz Saude healthcare group of Portugal, the establishment of Studio 8 as a controlling shareholder, the privatization of Club Med and our investment in Thomas Cook which have just been concluded. These famous enterprises are all in the healthcare and happy & fashionable lifestyle industry ecosystem.
The healthcare and happy & fashionable lifestyle segment achieved revenue of RMB11.94 billion in 2014, up 20.3% year-on-year and contributed to 19.3% of the Group’s total revenue. Profit attributable to owners of the parent reached RMB1.702 billion, up 53.6% year-on-year and contributed to 24.8% of the Group’s profit attributable to owners of the parent. Segment net assets reached RMB26.747 billion, up 19.5% year-on-year and contributed to 35.3% of the Group’s net assets.
Currently, the healthcare industry of Fosun consists of strong and industry-leading participants, including Fosun Pharma, Alma Lasers, Luz Saude, United Family Hospital, Chancheng Hospital, Multicare Healthcare Insurance, all of which Fosun has controlling interests in. Fosun is also joint venture partners in Sinopharm, Starcastle Senior Living and Pramerica Fosun Life Insurance. Enterprises on Fosun’s happy & fashionable lifestyle industry platform include strong and industry-leading players including Yuyuan, tourism destination enterprises such as Club Med, Atlantis in Sanya, the creative film producer Studio 8, etc. In early of this year, Fosun shall put particular emphasis on supporting participation of these platform enterprises in consolidation of industries around the world. Fosun seeks to bridge the value mismatches between the robust China’s consumption momentum and these brands and services preferred by customers around the world. Fosun seeks to integrate resources, meet the need for good life from customers around the world, especially those in China, with the best products and services, building a healthcare and happy & fashionable lifestyle ecosystem that is based on the China’s growth momentum and the capability of integrating industries around the world.
Asset allocation: the health and happy & fashionable lifestyle businesses of high growth and weak cyclicality had taken over the dominant position
Following years of determined transformation, Fosun’s integrated financial segment assets expanded rapidly. Apart from enhancing investment in insurance business, Fosun acquired Hani Securities of Hong Kong last year, invested in 2 financial leasing companies, i.e. Chuangfu Financial Leasing and Hangzhou Financial Investment Leasing. Ali Small Loan, which Fosun had participated in its establishment and operation for many years, has become a showcase model of clientele expansion driven by scalable internet financial services. In 2014 the China Banking Regulatory Commission (CBRC) officially approved Fosun’s eligibility as one of the main co-founders of the Internet commercial bank "Zhejiang Internet Commerce Banking Co., Ltd."
In early 2015, Fosun has announced that the Group has collaborated with Fidelidade to invest EUR 59.14 million to increase its interests in RHJI (which wholly owns BHF-Bank, one of the largest independent private banks in Germany and the UK time-honored private bank Kleinwort Benson specialized in commercial banking). Upon approval by relevant regulatory authorities, Fosun will hold indirectly a 28.61% interest in RHJI versus previous 19.49%, enabling the Group to bring to customers in China the world’s best-in-class private banking services and allow the invested enterprises to reap benefits from prosperity and growth of the financial market in China.
The growth in integrated financial businesses, together with the previously mentioned healthcare and happy & fashionable lifestyle businesses, constitute two segments of high growth and weak cyclicality. These two segments achieved revenue of RMB 20.954 billion in 2014, up 95.1% year-on-year and contributed to 33.9% of the Group’s total revenue. Profit attributable to the owners of the parent was RMB 5.279 billion, up 73.4% and contributed to 77.0% of the Group’s profit attributable to owners of the parent.
To develop "Insurance + Industry + Hive 1+1+1" cross-industry integration innovation closed loop
Leveraging Fosun’s established capabilities in healthcare, happy & fashionable lifestyle, logistics and commodity industries, the Group encouraged cross-industry integration and proactively promoted connection of industries with insurance and finance, capabilities of creating environment that facilitated integration of industries and insurance into hive cities, creating one cross-industry integration operation platform unique to Fosun after another.
In 2014, Fosun put great efforts in pursuing the establishment and development of Hive cities and sped up the transformation of upgrading traditional property businesses. Hive cities is a product integrating Fosun’s industrial resources to assist local governments in the construction of core urban functions, with a key feature of "industry-backed urban development and urban-industry integration". Through providing core urban functions required by the cities, Fosun is able to take a lead in introducing its core industrial resources and to further introduce ancillary industries that support the core industries, with a view to promoting "Urban-Industry integration" by establishing a 24-hour plus 3-in-1 vibrant community for work, consumption and living, as well as introducing living and consumption services industries.
As at 31 December 2014, Fosun launched a cumulative total of 12 hive cities in 5 major categories. The Group initiated the five city functions with multi-industry operations including the healthcare hive, culture & entertainment, travel & leisure, logistics & trade and financial services. Total construction areas for hive cities invested by our managed funds and participating and controlling companies exceed 4.7 million sqm.
As for Fosun’s travel & leisure hive project in Sanya, Hainan, the world’s third Atlantis hotel that integrates tourism, properties and financial industries, its GFA of construction area aggregating around 510,000 sqm. By the end of 2014, we already invested RMB 2.35 billion. The construction work has been progressing smoothly and will be completed by the end of 2016. It will become the benchmarking product as a 3.0 upgrade version of tourism resort in Hainan. Meanwhile, we has also facilitated the cooperation of Starcastle Senior Living, Forte, Pramerica Fosun Life Insurance in the Shanghai Starcastle Zhonghuan Community, establishing a senior living community of the highest quality in Shanghai with medical and senior care services. Furthermore, Fosun will also make use of its "Fosun healthcare + Insurance + Leasing + StarHealth Hive" cross-industrial integration model to promote a countrywide healthcare and senior care system. It will launch a pilot scheme of "Club Med + Insurance + Overseas properties" cross-industrial integration to promote development of tourism destinations around the world both on a sale or rental basis. It will also launch a pilot scheme of the "Overseas properties + Insurance + Industries (rental by function)" cross industrial integration model to promote office properties ownership around the world.
Fosun has not been lagging behind the mobile Internet innovation trend
The mobile Internet, with its vast user base, accessibility anytime anywhere, connectivity with the rapidly developing Internet of the Things, has imposed thorough changes to everything in the environment. Fosun firmly believes that mobile Internet will allow the Chinese market to perform on par, if not better, than the US market. Mobile Internet will force every traditional industry to make a choice between pursuing full integration into mobile Internet, or to delineate from mobile Internet. Every industry is forced to find an ultimate way of survival under the mobile Internet environment.
In 2014, the Group’s Internet investment team and venture capital platform continued to focus on innovations on traditional industries brought about by the mobile Internet and mobile Internet related technologies (Internet Plus), persisting in "first or unique in the industry" as the guideline in identifying projects. Its existing investment portfolio has already covered digital healthcare, Internet finance, Internet tourism, online education, mobile social industries, etc. Our showcase projects including Ali Small Loan, Perfect World, Linekong Interactive, guahao.com, Ali’s Dream Castle and My Money, etc. As at 31 December 2014, Fosun has invested HKD 836 million in VC area, and more than USD 500 million in the entire Internet area over the year.
The Group is also building the layout of connecting traditional industries with mobile Internet and Internet of the Things. Fosun proactively pursues connection of Yong’an P&C Insurance, Great China Financial Leasing and Internet P2P business for a pilot P2P Internet financial leasing program under credit insurance; also new scenario O2O app, e.g. guahao.com + Fosun Pharmacy. The Group is also fully prepared to promote Internet financial services based on real-world logistics and warehousing control and connecting with the Internet, such as "Hainan Mining + Finance + Internet Ore Trading Platform + Logistics", "Nanjing Steel + Finance + Internet Steel Trading Platform + Logistics", "Yuyuan Gold + Finance + Internet Gold Trading Platform", "ROC + Finance + Internet Oil Product Trading Platform + Logistics". Accordingly, the Group has invested heavily in medical cold chain logistics, participated in Cainiao Logistics, commissioned construction of Tianmiao Logistics cities, and established cold chain logistics, etc. In the future, Fosun will further promote industries integrating Internet and finance for upgrading and transformation, e.g. environmental transformation of "Nanjing Steel + Environmental Investment + Insurance + Leasing".
In 2014, Fosun persistently implemented its "Mobile Fosun" strategy and successfully developed its instant chatting & communications apps/system, namely "Fosun Chat". Fosun also actively explored its O2O business. Fosun wishes to fully promote and establish its "Cloud + Terminal" within the organization based on this system. Through developing mobile Internet technologies and adopting a mobile Internet mentality and methodologies, Fosun can integrate and survive in mobile Internet era by upgrading and transforming all Fosun staff and businesses and systems with mobile internet technologies. We encourage every enterprise to develop user terminals and improve our product and user experiences, facilitating more frequent transactions among the offline customer results, and getting connected and transformed into online users. With its unreserved integration with mobile internet, Fosun will not be lagging behind the Internet and mobile Internet innovation trend. You will see Fosun on the cutting edge of mobile Internet and Internet of the Things in the future.
Looking ahead: Adhering to investment discipline, persisting in value investing, dancing with cyclicality on the value floor
Adhering to the basic logic and discipline of value investing is always the most important principle of Fosun. Value investing is both you need to be disciplined and also you have to dance with cyclicality. In the future, we need to persistently apply the most stringent investment discipline on ourselves. We need to learn day after day, accumulate and improve so as to become an intelligent vital entity. In the future, Fosun will continue to adhere to its value investing principles, integrate and combine global resources, combining and integrating global resources, continue to strengthen its investments with insurance funds, expand the comprehensive financial assets and health & happy lifestyle industries, and fully embrace with mobile internet, with the aim to becoming a world-class investment group underpinned by the twin drivers of "insurance-oriented comprehensive financial capability" and "industrial-rooted global investment capability". We believe that the world will be different because of Fosun. Life will become better because of Fosun.