A Detailed Look at Interim Results 2023: How did Fosun Set Sail Again After the “Perfect Storm”?

Sep 1, 2023 | Business

In March this year, Guo Guangchang, Chairman of Fosun International, used the “perfect storm” as a metaphor for Fosun’s encounters in 2022 at the annual results presentation. The market is generally concerned about how this consumer group will navigate the new economic cycle after winning out over the “perfect storm”?

On 31 August, Fosun International held its 2023 interim results presentation. Guo Guangchang said at the presentation, “It is very clear that we have won out over the cycle and Fosun’s liquidity pressure has been well managed. From now on, we will focus on the development of businesses where we boast clear competitive advantages. Development is the key solution to all issues.”

According to the interim results announced on 30 August, in the first half of 2023, Fosun achieved total revenue of RMB97.06 billion, representing a year-on-year increase of 10.9%; profit attributable to owners of the parent was RMB1.36 billion. The key indicator reflecting a company’s endogenous growth capabilities – industrial operation profit surged 66% (excluding the effects of asset disposed) year-on-year to RMB3.37 billion. After further sorting out the balance sheet, cash flow statement, and operational figures of each segment, it is evident that Fosun, which has been firmly implementing the business streamlining and core business-focused strategy, has successfully unloaded its debt burden, enhanced the development of core industries, and laid a stronger foundation to usher in a new round of development.

Business streamlining: reduced more than RMB40.0 billion debt in a year, liquidity pressure has been lifted

In 2022, due to the impact of the epidemic and fluctuations in the global capital market, coupled with the rumors, there were once concerns about Fosun’s debt issue.

According to the interim results announced on 30 August, as of 30 June 2023, Fosun International’s total debts at the consolidated level was RMB220.9 billion, a significant decrease of RMB40.2 billion compared to RMB261.1 billion as of 30 June 2022. Total debts to total capital ratio further dropped to 51.8%, and the average cost of debt was 5.32%, demonstrating Fosun’s ability to manage financing costs amid sharply rising global interest rates.

In addition, on 30 June, Fosun International arranged to redeem the USD700 million offshore bond due on 2 July. Therefore, total debts at the consolidated level narrowed to RMB216.4 billion, and if excluding the debts of its consolidated listed subsidiaries such as Yuyuan, Fosun Pharma, and Fosun Tourism Group (FTG) Fosun’s debt at the holding company level narrowed to RMB90.2 billion accordingly.

Data shows that during the reporting period, Fosun redeemed onshore bonds of RMB6.73 billion as well as USD offshore debt and syndicated loans with an amount of more than USD2.7 billion, and it had no material offshore bonds due in the next 12 months. As of 30 June 2023, cash and bank balances and term deposits were abundant, reaching RMB114.68 billion.

Since last year, through business streamlining, Fosun has not only navigated through the “maturity wall” but also built a stronger foundation for sustainable development.

According to the interim results announcement, Fosun has continued to firmly push forward the implementation of the divestment of non-strategy and non-core assets in 2023. In the first half of the year, cash received from divestment at the consolidated level exceeded RMB20.0 billion. Meanwhile, Fosun has further expanded its domestic and overseas financing channels. In January, Fosun obtained a syndicated loan of RMB12 billion led by the five major state-owned banks. Fosun maintained an extensive collaboration network of domestic and foreign banks, executed an offshore syndicated loan in April 2023, amounting to no less than USD500 million as of 30 June. In terms of open-market financing channels, it issued super short-term commercial papers of RMB1 billion each in January and July 2023 respectively.

The significant credit support received continuously and the successful issuance of financing bonds reflect domestic and foreign financial institutions’ full recognition of Fosun’s financial strategy and business-focused strategy. Previously, the international credit rating agency S&P Global Ratings had noticed Fosun’s stable development, and issued a report on 30 May, lifting Fosun’s rating outlook to “stable”.

Analysts believe that in the face of the complex and volatile international political landscape, the weakening momentum of global economic recovery, and challenges such as insufficient demand in the domestic economy, China’s private enterprises have experienced a high incidence of defaults since the beginning of this year. “Against the backdrop of such an external environment, Fosun’s ability to reduce debt and risk resilience are even more remarkable.”

Focused development: industrial operation profit jumped 66%, with core businesses stimulating endogenous growth

The industrial operation profit disclosed in Fosun’s results announcement has always been highly concerned by the market and investors. This indicator includes the profit contribution of industrial operation subsidiaries of the Group and associates and joint ventures accounted by equity method. Compared with the profit attributable to owners of the parent, which is greatly influenced by capital market fluctuations, industrial operation profit can better portray the performance of Fosun’s core businesses.

In the first half of 2023, the Group’s industrial operation profit reached RMB3.37 billion, excluding the profit of disposed (including transactions yet to be completed) enterprises, representing a significant year-on-year increase of 66%. This reflects the further release of Fosun’s endogenous momentum after stepping up its efforts to focus on household consumption as the top-priority sector.

“We focus on our existing capabilities and further strengthen them. We no longer take expansion as the main direction of development. We invest in industries where we boast clear competitive advantages as our foundation. We have further defined and fine tuned our strategy,” Guo Guangchang said.

In the first half of the year, centering around the needs of global families in Health, Happiness, and Wealth, the four core subsidiaries of Yuyuan, Fosun Pharma, Fosun Insurance Portugal, and FTG continued to improve their products and services, yielded a total revenue of RMB70.76 billion, accounting for 73% of the Group’s total revenue, with increasing profit contribution.

In particular, Yuyuan’s revenue amounted to RMB27.44 billion in the first half of the year, representing a year-on-year increase of 21.86%; net profit attributable to owners of the parent was RMB2.218 billion, representing a year-on-year increase of 225.83%. In the first half of the year, FTG saw a 38.7% surge year-on-year in its revenue to RMB8.90 billion and turned profitable, with a net profit attributable to equity holders of the company of RMB471.8 million. Fosun Pharma’s revenue in the first half of the year was RMB21.395 billion, and the revenue contribution of new and sub-new products further increased. Fosun Pharma’s innovative biopharmaceutical platform, Shanghai Henlius, achieved revenue of RMB2.5005 billion in the first half of the year, representing a year-on-year increase of 93.9%, and turned profitable for the first time in half a year, with a net profit of RMB240 million.

Analysts believe that the growth of Fosun’s core businesses in the first half of the year was attributable to its efforts in seizing the opportunity of consumption recovery, and more importantly, the accumulation of profound industry operations. Its long-term accumulation of innovation and global operational capabilities are continuing to be reflected in its results.

Taking Shanghai Henlius as an example, its revenue growth mainly came from its self-developed core products. In particular, HANQUYOU (trastuzumab of injection) and HANSIZHUANG (serplulimab injection) achieved sales revenue of approximately RMB1.2767 billion and RMB556.3 million respectively. At present, HANQUYOU has been accepted by the U.S. Food and Drug Administration (FDA) for the marketing authorization application (MAA) in the U.S., and it is expected to become the first domestic biosimilar approved in China, the U.S. and Europe; HANSIZHUANG has been approved for three indications in China, and has become the world’s first monoclonal antibody drug targeting PD-1 for first-line treatment of extensive-stage small cell lung cancer. With the empowerment of Fosun’s global ecosystem, Shanghai Henlius has launched five self-developed products on the market, reaching more than 40 markets around the world and benefiting more than 450,000 patients.

Fosun International’s interim results show that Fosun invested RMB4.2 billion in technology and innovation in the first half of the year, representing a year-on-year increase of 20%, injecting impetus to foster more “world’s firsts” and “China’s firsts”.

Meanwhile, based on Fosun’s business presence and profound operations in more than 35 countries and regions, the “global organization + local operations” model has become more mature. Overseas business has become an important driving force for Fosun’s development. In the first half of the year, overseas revenue amounted to RMB44.09 billion, accounting for 45.4% of total revenue, and the 10-year compound growth rate reached 60%.

“Fosun has built global development capabilities through years of hard work. Fosun itself has indeed benefited from its strong global operations, and we will continue to further build up our globalization capabilities,” Guo Guangchang, Chairman of Fosun International said in the interim results conference.

It is worth mentioning that the results of the “mutual empowerment” of Fosun’s global operations have further emerged. In the first half of the year, Easun Technology, headquartered in Shanghai, China, recorded a significant increase in overseas orders. In particular, it saw robust growth in business operations in North America. New orders reached RMB1.38 billion in the first half of 2023, representing a year-on-year increase of 131.2%. Fosun Insurance Portugal, headquartered in Lisbon, Portugal, has made steady progress in its global business, premium income in Peru and Bolivia reached RMB816 million and RMB200 million respectively, representing an increase of 61% and 43% year-on-year respectively.

Looking ahead to the second half of the year, “recovery” will still be the keyword for the global economy. Guo Guangchang said, in the future, Fosun will continue to focus on core businesses, consolidate resources to develop businesses where we boast clear competitive advantages, deepen innovation and global operations, and further promote the high-quality development of our businesses. “Both business and economy have cycles. We must innovate, develop, and better serve customers one step at a time to navigate the cycle.”

Topic: Press release summary

Sectors: Daily Finance

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