Yuan Yafei

 

Jan.25, 2019

 

I am very pleased that this year we remained unaffected, and are holding this conference as we always did in the past. When Zhang Juyang, Director of Xuzhou Third People’s Hospital, was delivering his annual work report, he said something that impressed me a lot - “one can either cry through a day or laugh through a day. I choose to laugh through it.”

 

Part 1

Work in 2018

2018 was a year in the Wu Xu stem/branch. As everyone knows, every 6 decades make up a Jia Zi (sexagenary cycle). 1838 was also a Wu Xu year, and that was before the Opium War. The next Wu Xu year was 1898, when the Hundred Days’ Reform took place. Then in 1958, came the Great Leap Forward movement, followed by three years of Great Famine. And then there was the year that just passed, when the national economy went through an unprecedented readjustment, in which Sanpower also had a hard time dealing with the liquidity crisis. Therefore, I would like to define this year as “the doom of the supreme dragon”. This phrase is taken from the 3000-year-old Book of Changes, meaning that when things reach a certain stage in development, they should be readjusted.

1. Liquidity Crisis

So, how did our liquidity crisis come into being in 2018?

Firstly, it was due to my subjective personal reasons. My personal knowledge level failed to catch up with the development of the enterprise. I came from a humble educational background, merely a graduate from a vocational college. I have never worked in any large-scale enterprise and organization, and have not seen much of the world. I started by leaving Yuhuatai District and selling computers on Zhujiang Road, and from there I became who I am today step by step. Therefore I was having great cognitive issues when it comes to specialization, management and the business reality. Plus, I was overconfident and way too full of myself. To make it sound better, I could say that I had visions and ambitions; to make it sound worse, I was having my head in the clouds. Usually when I point out the direction, and everyone follows that direction, making me delusional, thinking that I am invincible and capable of everything. I always say this - if the direction is right, then there is no need to fear the distance of the journey. However, I did forget the fact that one needs to eat during the journey. So the distance matters as well, since one cannot starve to death halfway. Do we have professionals and specialists? Do we have enough money? Can we make it till the end? I did not give these questions an overall consideration. In addition, there was also not enough authorization to operational management and senior executives. We had been talking many years about co-partnership without actually establishing it.

So, today I would like to again emphasize that, a lot of problems Sanpower is going through today have been caused by me personally. I am responsible for those issues, of which I am aware. As for those that I am unaware of, I should still take the blame without complaints and regrets.

On the other hand, there were objective factors contributing to these issues as well. For the past 25 years ever since I quit my job from Yuhuatai government to start my business, the country has been moving forward in a fast lane, and so have we. The country believed in “Black cat or white cat, if it catches mice, it is a good cat”. And we grew wildly, not caring if we are a “black cat or white cat”. Every progress was considered a good progress without concerning the cost. But now the rule in this world has changed, so has the development model of the country. On the surface, it may seem like we are facing a liquidity crisis, but essentially we are experiencing a historical change. A few days ago, the central government held a seminar for leading officials at the provincial and ministerial levels on how to handle major risks, which means the country at large is also faced with many issues that they are trying to cope with. I do believe that for President Xi it is many times harder than us, but he is facing up to these issues more boldly, which we should really learn from as an example.

The general environment can be regarded as the “weather”. Since the weather has changed, there is no point in wearing only one shirt stubbornly. Put on a jacket if it’s necessary. Before 18 years old, one is growing in height, and needs to come up with ways to grow taller. After 18 years old, it is time to put on some muscle. It is in the same way that we came to face with the liquidity issue. This is the macro-background.

Objectively speaking, there were also accidental factors. Until last July, Sanpower had not owed anyone a penny in 25 years, and had zero credit problem. However, after July, a number of financial institutions sued us in advance for outstanding debts, and our liquidity suddenly solidified. Later, I learned that these financial institutions have an “inequality clause”, that is, if one thinks you are at risk, they may sue you ahead of time; If one sues and the others do not, it’s even considered a mistake. If they keep on doing this, who can survive this? We have repaid nearly 12 billion yuan in net debt since last year. Any given company will have problems under such a circumstance.

But from a holistic point of view, over the past 25 years, our achievements have been overwhelming our problems. Just like in China today, some people say that there are problems one after another, but it is already much better than 25 or 30 years ago, when we were still struggling out of poverty. Today, the United States is willing to sit down to talk with us because China is the world’s second largest economy and we are now their rival. Were we able to compete 25 years ago? Back then they could destroy us easily as long as they wished.

I would also like to report to you that the creditor’s committee has hired a third party to do due diligence and found out that we still have a net worth of 10-20 billion yuan. This is not a number that we came up with on our own, but a number presented by a third party. So I urge you not to lose faith in yourselves, and to look at Sanpower from an objective point of view over the past 25 years. Our overall direction has been correct, our strategies have been effective and our achievements have been greater than our mistakes.

It is no more than normal that historical development and social development both follow this pattern of ups and downs. It is also normal for a company that is worth hundred-billion RMB, such as Sanpower, to have these issues. President Xi has called for new thinking in the new era, which means that we should make adjustments as well. The most important thing is that we need to proceed our work after careful summary and reflection.

2. Management

In the face of unprecedented challenges, our management in 2018 emphasized on maintaining stability and slimming down.

In regards to stability maintenance, the finance department was on the very frontline. Our Executive Yang, Chen Jun, Tan Jiamin, Mao Jing and many others, were facing unprecedented pressure. In the face of difficulties and pressure, we should all have confidence and perseverance to solve problems. In regards to judicial stability, in addition to the legal department led by our Li Shengming, we also had DeHeng Law on our side. We were not deprived of any of our property, which was not easy at all. Additionally, the administrative departments have done a lot in seeking government support and ensuring work order.

In the slimming aspect, we used to hesitate, but now we are bold enough to admit our errors and correct them, and we just took this opportunity to get rid of them. In the second half of last year, we did a lot of slimming down and debt reduction work, selling out House of Fraser (UK), Brookstone (US), as well as Zijin Trust, PY Credit, etc. Besides industry slimming, we also completed a lot of slimming on the organizational level. The original eight industrial groups have been made into four business platforms, namely, Nanjing Cenbest, Hiteker, a business development company and an industrial city operation company. Group headquarters also downsized from 25 departments to 13 departments, with the number of employees reduced from 600 to 200. In this process, some people took the initiative to leave, the company expressed understanding. Some were asked to leave by the company, for which we apologize. And to those who remain faithful and trusting the company, we would like to express our gratitude to you. Here, I once again express my heartfelt thanks to all those who stayed with us. Here is a bow to everyone.

Particularly our core management team as well as our key members chose to stay, so Sanpower did not end up with a mess. Old comrades, including our Executive Yang, Tan Jiamin and many others, are all staying here with us with no complaints. These people are the backbone of Sanpower. A group of newcomers and young people have also withstood the test, growing continuously and stepping up onto more important leadership positions. Yue Lei has been promoted from one of my personal secretaries to the Executive CEO, and Chen Jun, Gao Gang, Lu Xifeng, Yan Keya, Zhang Lei, Shao Long, Gao Yuan and many other new and young members have been trained for further success.

So, in terms of management, we did run into issues in 2018, but we quickly adapted ourselves into a “war state”, and did a good job of being proactive. Executive Yang has talked a lot concerning the company group’s daily work, so I am not going into the details here.

3. Industrial Work

Executive Yang has also talked about our industrial work earlier. The changing circumstances have affected each and every industry, but we grasped the nettle and did many wonderful jobs.

In terms of consumption, sales of the Cenbest central store exceeded 4.5 billion RMB, having increased by 5% in comparison with the previous year. The company maintained growth last year despite an overall decline in China’s department store and retail business. As for House of Fraser China, last year, we particularly need to praise Kong Jun. In the past year, under the leadership of Wu Gang, we adjusted our business in House of Fraser China by 80%. Our performance increased by 50%-60%, and our profit increased by over 60%, without demanding one penny from the group, while managing to downsize.

In terms of the medical sector, the general situation is applaudable. However, the performance of Find Gene has decreased. Even though there have been various factors contributing to the decline, the results are apparent - the performance has declined. We all work together under the same sky, and are all faced with problems. I hope that we do not put the blame on circumstances, but instead strive to survive and progress in adverse situations.

Just now, Liu Jianping from the medical construction company has also made a speech. At that time, the medical construction company was faced with shutdown, along with government investigation, asset recovery. Such problems came one after another. Our executive Wu Gang himself went to negotiate with all the suppliers personally. He drank a quarter kilogram of liquor in one gulp, getting himself in the hospital for oxygen transmission, but he made time for the company to delay the payment of 20 million RMB.

Jinpeng is far away in Guangzhou, and went through a major personnel makeover last year. I think they have made it. Wang Danyang and Yang Wei still managed to reach the performance budgets, and are still proactively continuing to seek ways upward. Fujitsu Electronics has also managed to cease the loss and began profiting. These were both noteworthy progress.  

In terms of the New Industrial City Projects, the Liuzhou Project has fallen weak and quite disappointed me. However, I received a piece of good news before the conference today, that the business department of the Liuzhou Project has begun their comprehensive strategic cooperation with Wangfujing.

At the same time, in the process of being affected by the crisis, where everyone “lives to die”, we have witnessed a lot that was not usually seen on a daily basis. Hisap’s Yang Fan took the lead to waive his own salary for several months. Funtalk’s CEO Zhu Wei led their entire executive team to waive the wages, pay for goods from their own pockets. These actions have demonstrated how “heroes come in troubled times”. Wu Lanlin of Dendreon China was paying with her own means to keep employees from leaving, while we’ve also had many people who asked to lower their very own wages. If Sanpower has such staff, how can we have no faith? First, we have done wrong things but not bad things, and what’s more to that, we have done many good things. Second, we are diligent and taking the right path. Third, we have great employees, that I still have faith in us even during the worst of times.

What I have said above is the 2018 annual summary of Sanpower Group. This past year we went through what we had not been through in the past, and took on the weight that we had never taken. However, we have made it and stuck it out. In addition, we were being supported by the CPC Central Committee, the State Council, the CBRC, PBOC and CSRC, other central departments, the provincial party committee and government, the municipal party committee and the municipal government, especially the CBRC and the Nanjing municipal government. We also received help and support from individuals from all walks of life and friends from all different professional fields.

And here and now, I must express my thanks to all the employees at the conference or watching this online. Thank you for your tenacity and faith. In 2018, we went through such an enormous change. It would be a lie if I said there was no difficulty. But to our delight, we are still all sitting here at our annual conference. We Sanpowerians, old or new, are still keeping hanging on, fighting on, and hoping on.

Looking back at 2018, if it had not been for these problems we ran into, we would still be cluelessly doing things in our old ways. There would even be completely no way to even save ourselves if our old ways had continued, leading to greater mistakes. Therefore, I feel very lucky that I came to face these problems at the age of 55, which in turns gave me a chance to reflect and summarize what I have done wrong for the past 25 years so as to correct them. Previously, Sanpower had also experienced major challenge and crisis for two to three times, when many thought that we were going to “die”. But eventually we made it. I hope that through the adjustment this time, we will be able to seriously reflect upon ourselves from the bottom of our minds and hearts, so Sanpower can develop in a healthier direction in the coming future.

 

Part 2

Work in 2019

President Xi has said that 2019 will be the 70th anniversary of PRC’s founding, and a crucial year for building a moderately prosperous society in all respects. 2019 will also be a crucial year for Sanpower. In 2019, I would like to define it as “an underwater dragon”, which is also a reference to the Book of Changes. That is to say, in 2019, we need to be ready to adjust, reorganize and restart for a new era, new thinking, and new Sanpower.

For our work in 2019, we must first of all be prepared for harsh and bitter days, and strictly practice economy. In the past, we used to spend at our free will. Now even the country is having a hard life, so why can’t we handle it as well? Now, there is definitely no money to spend. However, even if liquidity is restored, you guys are not to spend the money blindly, and neither am I. So I took the lead in downsizing staff, and I took the lead in lowering costs. As it is known to you all, I used to fly on private jets for the past five years. Now I have sold those jets and travel through civil airlines or by high-speed train. One cannot have an easy life or a hard life for eternity. A little suffering causes no harm. On budgets and costs, the executives and GEVP should pay close attention to controlled spending. There are now more than 200 people in the industrial city operation company, and it proposed a budget of 90 million RMB a year. How many buildings are there in total? Why more than two hundred? 90 million a year? Wu Gang cut it down to 30 million. Therefore, the spirit of “running ten miles with just one steamed bun” should still be carried forward.

Also we should start adjusting. As Dickens put it, “it was the best of times, it was the worst of times”. It all depends on what we do. We must take restructuring as the guide, just as there is no making without breaking. And we must focus on the main business, improve the operation, and a good slim-down, so as to really save ourselves and get back on our feet by the end of 2019 or the beginning of 2020. I have no intention to play games with you. We indeed have some strategies and methods. One is making use of external forces. When encountering problems and difficulties, one needs to turn to outside forces, and cooperation should be introduced. Our conditions are very promising, with two domestic mainboard-listed companies, as well as a lot of quality assets both at home and abroad. We need to think hard about the restructuring and the combination of capital and industry. We need to make adjustments in order to really “stand up”. Strategically, we must make no more mistakes. We need to be sensitive to every situation, and come up with the optimum solution, compromising solution and the back-up solution if both better solutions fail. Everyone face the problems and work with prudence, without trivializing any emerging issues.

1. Work in Management

In 2019, we have to make some changes in our management.

First of all, we need to simplify the organizational levels, clarify responsibilities, and grant more power to the business operation, particularly to the top executives, in order to truly implement the BTM mechanism (Business Management Team). The top executives should be fully responsible for the operation, while the functional departments should cooperate with the top executives. This is the first change in management that is coming this year, and it’s very crucial.

At the group level, work should be GEVP-centered, operation-oriented and profit-oriented. The strategic department, budget department, audit department, financial department, personnel department and other functional departments should fully cooperate with the work of GEVP. The work of the group’s functional departments is divided into external and internal parts, where one is facing the society and external in order to create an overall environment for the development of the enterprise, while the other does the job to serve and support the development of industrial operations from within. And as for the workload, it should be more focused on internal work.

Subordinate enterprises should also center around the top executives. Although the financial personnel come from external service, it should also closely serve the executives. Now we are sorting out the new authorization, and the financial line should also implement the system of double reporting and double signature. Of course, although serving the executives, and the executives have the right to make decisions, but the finance personnel still should complete vertical reports on a regular basis. This should not be forgotten.

Besides the financial, other functional departments are also due for dual reporting, but principally speaking work should still be centered around GEVPs and the top executives. Li Shengming from the Legal Department should be very experienced in this. Now I let GEVPs help you manage the cases, which is already better than having the financial department managing them as we did in the past. Why is that? It is not that the financial department is doing it wrongly, but that there is too little information accessible to the financial department. Its only solution is to pay back or not to pay back. With GEVPs in charge of business, they’d  have a larger amount of information. Concerning the cause of the cases, they’d know the connection with the business, and in turns they can find ways to talk with others about operations and cooperations, or come up with alternative solutions. Therefore, in the future, the personnel, money and properties will be the responsibilities of the one who does the operation.

But while delegating power, we should also balance power with responsibilities. The top executives and GEVPs can’t just take power away without getting corresponding responsibilities. In the past, we used to talk about vertical management of group finance, where the reports did not go through you. Now since they do, do you have the ability to manage them? Both functional departments and professional departments cooperate with you, are you yourself able to handle this? When you wanted power, you did ask for it. When we ask for responsibility and ability, do you have them? Therefore, these are the two sides of the coin - more power to you, as well as more responsibility that you need to bear. The leading executives must manage the business in depth and with attention to details, and are asked to be fully responsible for the business performance. The same goes for branding. The workload that needs to be given to the enterprises should be delegated. The branding department of the group is responsible for publicity, handling major events and incidents, monitoring media coverage and establishing the content system. Each enterprise must do a good job in its own branding, public relations, crisis management and so on.

Secondly, we have to be digit-oriented, result-focused, and strict with assessment. This used to be our weakness. Now we have all the tools, including the seven diagrams, as well as various personnel performance assessment systems and methods. This year we are going to take it very seriously. Business without profit is a form of hooliganism, and a form of crime. Each and every executive needs to think about it - if it were your own family’s business, would you do it in the same way? Would you keep these people you have? How much would you pay? While strengthening the system of assessment, we need to also establish the partnership system at the same time.

2. Industrial Work

In terms of industrial development this year, the overall strategy is to emphasize restructuring. No breaking, no making. At the same time, we must resolutely focus on the good operational work that is profit-oriented, not spending one penny on unprofitable business.

In terms of industrial operation and management, we should first pay close attention to the coordination and integration of resources. Once before I held a meeting of department stores, where I heard that Cenbest and House of Fraser did not coordinate well. Just standing on both sides of the same street, they still failed to coordinate well, what do you want me to do? So at the group level, we need to integrate and work together. Second, strategic partners must be brought in. Third, a partnership system needs to be established. Fourth, we have to strengthen assessment and increase incentives. These are the four adjustment directions for the industrial operation and management this year.

In regards to specific work, Madame Yang has already said a lot earlier. I will only emphasize again on the key points.

The two listed companies: Hiteker will take the path of hi-tech, while Nanjing Cenbest the path of medical and health. These are our two major fields in the future.

Consumption: Department stores are our strong suit. We should operate them well.

Retail: Hisap should accelerate its transformation. Funtalk has had hard days for quite long, and must hang in there. “Faith because of perseverance”. The group has its considerations on the strategical level, and will provide the solution. But how will you transform on your own? How do you stand strong? You must think about it carefully.

Tech: No breaking, no making. We need to cut out the non-major industries decisively. Of course, whether to sell them or not, how to sell them - these are the questions left for the group’s strategy department. You do not have to worry too much, and keep focusing on your own work.

Industrial City Operation Company: They should still emphasize health-related constructions and operations. Meanwhile, we must guarantee that the new hospital in Xuzhou should open up in a timely manner. In order to build up the hospital and operate it well, we need to do everything possible, including introducing new cooperation partners.

 

Part 3

Requirements for the Leaders

2019 is the year of “the underwater dragon”, a year to adjust, to restructure, and to tough it up. What I ask of the leaders, is firstly the “3 no-fears” spirit, which is “no fear of hardship, no fear of exhaustion, and no fear of complexity”. Sanpower strives to set an example as a Chinese privately owned enterprise successful in self salvation. I will list a few requirements for all of you here:

Firstly, 2019 is a year when each one of us has to stay humble and learn.

A few years ago we were developing rapidly. Then we were “running”. But now our task is to learn to “stand up” again. 25 years ago, we “stood up” by taking advantage of the Reform and Opening Up, without really understanding what exactly we were doing. Now with the large scale of Sanpower, each one of us is inexperienced and unlearned when it comes to how to “stand up” again step by step from the very bottom. We need to stay humble, to learn, to think hard how we can make it happen.

Second, calm your minds.

When problems were arising for the group last year, I was having a terrible mood as well all the time. I had never experienced incidents such as official closedowns myself. I was so disturbed that I was unable to eat and drink. From July to August, I lost almost 10 kilograms. Then I thought about it, why not just live the bad days the same way that I live the good ones? I got through these days, and starting from August and September, I was able to dine and drink normally again and regained the lost weight. In addition, I gradually got off sleeping pills, on which I once depended on to fall asleep. So a calm mind matters a lot.

Certainly, it will be not practical to say that we are developing so well and our mood is excellent. But life goes on. It is normal that we encounter difficulties in the course of life, and we should not always spend time thinking how tough it is for us. We need to calm our minds down and stop terrifying ourselves. Our work used to be about development, and we had our problems. Now our work is about restructuring, slimming down and introducing strategic investments, so the difficulty is nothing more than having a different new set of problems. Life is about facing problems and solving them. What is there to be afraid of? There are always more solutions than problems.

Zeng Guofan once said, “Good people mostly come from a miserable background, and do not seek the easy way out. One makes mistakes when too busy, but gets calmer afterwards.” “Good people mostly come from miserable background”, just like most of us have experienced hardship in the past, and never plan to take advantages for our own convenience. “One makes mistakes when too busy”, just like we used to be too ambitious, wanting to do too much, and have made many mistakes, but now we are calmer and more at ease.

Zheng Banqiao once wrote in a poem, “enduring thousands wears and hits, remaining strong against winds from any way”. What does it mean? It means no matter how the eternal world is, everyone has to stick to their goals internally. In this aspect, we need to learn from the Israelis. As Nimord mentioned just now in the speech, Israelis are a people that wandered for over 2000 years without a homeland, but they were tough and remained as the nation with the most wealth in the world.

Meanwhile, we need to think about something else that Zeng Guofan said, which I also often mention - “we have to live with the fear of hell, but when we are met with adversary, we need to stay strong and unapologetic, and to learn how to get back on our feet”. We should take this opportunity to test ourselves, learning to be a better person and do a better job.

Third, be respectful and mindful

When Bu Jiangyong made the annual report, he mentioned that we need to “be respectful and mindful”. I have realized it too. Now it is time for us to readjust and solve problems, but some people are still slacking and careless at work. Before saying and doing anything, they do not consider it first, which is shallow, disrespectful and unmindful. I hope that everyone will face the issues we have with a serious attitude. Be respectful and mindful to work and career.

Lastly, “faith because of perseverance”

Many like to say “perseverance because of faith”. But I like to say it backwards, “faith because of perseverance”, because the cognitive capability of many cannot even reach the step of “faith”, so perseverance comes first. When there is perseverance in what you do, you will also have faith in what you do. Sanpower had such great issues last year, but it only survived but also grew better and better. This was not expected by many, and is still unbelievable to them. But we had perseverance, so many began to slowly have the faith.

 “The harder the times, the more important it gets to work on the mind.” We are having a tough time now, and I hope that everyone should take the time to work on the mind. There is no problem that has no solution. What makes you cry now will make you laugh one day. What doesn’t kill you makes you stronger. A big show is about to start in our own hands. This will be a precious experience that we will have in our lives.

So, in 2019, Sanpower will be that “underwater dragon”. We need to be ready at all time to “roll out again”. I will end it with the same sentence as last year - “in spite of steep mountains and endless hills, there is no return before the destination is reached.”

Thanks to everyone!