Fanhua Responses To Certain Research Report
The Company’s management reiterates that all business planning and operational decisions made by the management are intended for the long-term and healthy development of the Company, so as to maximize shareholders’ interests and ensure continuous dividend distribution to our shareholders. The Report was a deliberate attempt to ‘impact the Company’s share price and profit from the loss of other shareholders. It lacked basic knowledge of the insurance industry, made deliberate out-of-context misinterpretation and misrepresented facts so as to mislead the public. In order to defend the interests of its shareholders, the Company hereby provides its response to the key allegations raised in the Report as below:
1. The Company’s divestiture of its property and casualty (the “P&C”) insurance subsidiaries is a correct and proper strategic decision. The positive operation results that
As a result of the persistently intense competition in the P&C insurance market, the gross margin of the Company’s P&C insurance agency business dropped from 22% in 2013 to approximately 8% in 2017, while the back office operating expense ratio related to P&C insurance business exceeded 8% in 2017, which meant that the profit from this business line dropped to breakeven. The gross margin of the Company’s P&C insurance business was expected to further deteriorate due to sustained fierce competition.
The Company’s operation results in the first nine months of 2018 clearly demonstrated the positive effect of the divestiture of its P&C subsidiaries, as shown below:
|（RMB. In Million ）||2017 9M||2018 9M||%|
|Income from operation||211||342||62.1||%|
Upon completion of the transfer transaction described above, there has been a clear separation of legal and financial relationship between
Cheche is a leading internet-based auto insurance platform in
The Report confuses two individuals who share the same name. It has been shown that Yang, who is the shareholder of
The divested subsidiaries are P&C insurance agencies while the Report estimated their business value by benchmarking the net margin of a company that is primarily engaged in the distribution of life insurance products. This inconsistency shows a clear lack of basic understanding of the insurance distribution business in
2. The management firmly believes that the next five years will witness a rapid expansion of middle class families in
The 521 plan is not unique nor a new invention by
The 521 plan is legal and we have obtained prior approval from our board of directors (the “Board”) for its implementation. It is a business development tool for the Company as well as a stock ownership plan for our key employees and sales team leaders. Details about the 521 development plan have been made available to the public in our periodic filings. Sources of the stock pool for the 521 development plan consist of both purchase of existing shares and new share issuance. The existing shares were purchased at fair market price and relevant disclosure has been made public.
On the announcement date of the 521 development plan, the stock of the Company closed at
3. The Company has maintained strong cash reserve, enabling the effective implementation of its quarterly dividend policy, share repurchase program and 521 development plan.
From 2013 to 2017, our total cash position (consisting of cash and cash equivalents, short term investments and short term loan receivables) has steadily grown as we have consistently generated profits. Our principal sources of cash reserve have been cash generated from operating profits in the past decade, in addition to the proceeds from our initial public offering and a follow-on offering. We have gradually increased allocation of our cash position to investments in short-term financial products since 2013, in order to increase yields from our cash.
Changes in Cash Position
|(RMB: in Million )||2013.12.31||2014.12.31||2015.12.31||2016.12.31||2017.12.31||2018.09.30|
|Cash and cash equivalent||2,285||2,099||1,115||237||364||661|
|Short Term Investments||254||689||2,026||2,798||2,498||1,681|
|Short Term Loan Receivable||144||210||37||32||500||50|
In 2018, the Company spent a total of
Our strong cash position is the key reason that we are able to successfully implement quarterly dividend payments, share repurchase program and 521 development plan.
4. The removal of the VIE structure enabled our global investors to directly invest in China’s largest insurance intermediary group, and cleared obstacles for offshore dividend distribution.
Our organizational structure and the changes in the organization structure used to be quite complicated, due to many historical reasons, such as the changes in legal environment, market competition and different development stages of our Company. Especially prior to 2012, only regional agencies were allowed pursuant to laws and regulations prevailing at the time. Therefore, we had to either acquire or set up new agencies in each province in order to expand our market presence. At the peak time we had over 40 agency subsidiaries. In 2012, we obtained several national operating licenses and we immediately initiated conversion of our regional agency subsidiaries into branches of our subsidiaries with national operating licenses. After several years’ efforts, our organizational structure has simplified and become clearer, which has been presented clearly on the Company’s 2017 20-F.
5. The Company never provided “guarantee” to Chengchuang’s products
Neither Fanhua’s Board members nor management have any financial or equity connection with Chengchuang Investment. The Company has no knowledge of Chengchuang’s business operation and it is impossible for the Company to provide “guarantee” to any of Chengchuang’s products.
6. The relocation of the head office of the Company’s life insurance operation and its intended establishment of a back office center are normal business activities.
As previously announced, as part of Tianfu New Area’s investment introduction project,
As a result of the relocation, on
In 2016, the Renshou County Government expressed its support for
Our management is saddened that the Report aimed to cast doubts on the integrity of the management. Our management has and will continue to prove that they have faithfully carried out their fiduciary duties to shareholders with continued profit growth and increasing dividend distribution. Our management firmly believes that the Company’s profit will speak for them and the Company’s continued strong results and sustainable dividend payment will prove the emptiness of the mistaken Report.
Our management has full confidence in achieving solid growth in the Company’s operating profit in 2019. As such, our management will submit a proposal to the Board to increase the dividend per ADS for fiscal year 2019.
Our management would like to extend its sincere gratitude to investors for their continued support and the Company will reward them for their trust with its best performance.
For more information about
This press release contains statements of a forward-looking nature. These statements, including the statements relating to the Company's future financial and operating results, are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "believes," "anticipates," "intends," "estimates" and similar statements. Among other things, management's quotations and the Business Outlook section contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about Fanhua and the industry. Potential risks and uncertainties include, but are not limited to, Fanhua’s ability to attract and retain key personnel and productive agents, its ability to maintain existing and develop new business relationships with insurance companies, its ability to execute its growth strategy, its ability to adapt to the evolving regulatory environment in the Chinese insurance industry, its ability to compete effectively against its competitors, quarterly variations in its operating results caused by factors beyond its control and macroeconomic conditions in China and their potential impact on the sales of insurance products. All information provided in this press release is as of the date hereof, and Fanhua undertakes no obligation to update any forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although Fanhua believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results. Further information regarding risks and uncertainties faced by Fanhua is included in Fanhua's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F.
For more information about Fanhua Inc., please visit http://ir.fanhuaholdings.com/.
CONTACT: Oasis Qiu
Investor Relations Manager
Tel: (8620) 83883191
Source: Fanhua Inc.