【Record】Mr. Zou Feng, Managing Partner of Tourism Capital Gives a Speech in the In-Depth Discussion on "Reorienting Tourism Investment and Recasting the Industry"

Moderator: Distinguished guests, panelists will conduct an in-depth discussion on "Reorienting Tourism Investment and Recasting the Industry". Three parts will be included, such as self-introduction, Q&A and a short summary section.

The first section is about self-introduction. Please briefly introduce yourself and the institution that you are working for. Besides, your feeling and expectation towards the conference should be given. All these should be stated in 2 minutes.

Mr. Zou Feng, Secretary-General of WTCF Investment Committee and Managing Partner of Tourism Capital

Zou Feng: Good afternoon! I'm Zou Feng, Managing Partner of Tourism Capital. I've been working in tourism for many years. I have 10 years of experience in managing a large travel agency group. Before I set foot in investment, I was the vice chairman and CFO of China Travel Service and the president of China Comfort Travel for 7 years. It has been 7 years since I left a managerial position in 2013 and started my career of investment. I spent 3 years working for CITIC Capital on takeover and merger. In 2016, we established Tourism Capital. The company focuses on tourism-related buyouts. Types of business in the industry attract our attention, including tourist attractions, transportation, hotels, and travel agencies. In 2018, we bought out a cruise company near the Three Gorges Dam named Vitoria (hereinafter referred to as Victoria Cruise). It has undergone a tough time this year because of the pandemic. Eight months of shutdown finally ended. It just starts sailing. The guests and we have the same feeling. All of us have encountered great losses. Basically, we didn't get paid in the last 8 months. We hope the pandemic would be successfully restrained, and tourism would recover. Thank you!

Moderator: Now, let's give the floor to Mr. Zou Feng, Managing Partner of Tourism Capital. Dr. Zou, you specialize in investment and acquisitions in the tourism industry at home and abroad. I have three questions.

Firstly, COVID-19 has brought a huge challenge to the industry. Plenty of tourism companies have encountered a slump in sales and even bankruptcy, which has brought scarce opportunities for investment, mergers, acquisitions and industrial integration. The forum focuses on "Reorienting Tourism Investment and Recasting the Industry". Could you tell us how to distinguish whether it is an opportunity or not for reorienting tourism investment, investing in, merging and acquiring companies at home and abroad in the context of regular epidemic control?

Secondly, could you please give some suggestions on dos and don'ts for tourism investment, mergers and acquisitions in the coming years?

Thirdly, as the secretary-general of WTCF Investment Committee which was one of the six WTCF committees, could you please tell us the committee's plans on strengthening the cooperation among institutions and improving tourism investment service for member cities? Thank you.

Zou Feng: Thank you, Dr. Li. The first two of the three questions are challenging. Now, I’d like to answer the first one. Let's see supply and demand of global tourism before the outbreak. I've sorted out some information about supply and demand of the world tourism in the last five years. In general, a glut existed from the perspective of amount before the outbreak. However, unbalanced supply and demand could be seen from the perspective of structure. There was large demand to be met.

This is noticeable in China. Piles of cash have been invested in tourism every year in our country, but only a little investment will transfer to effective supply. That means many products fail. The problem was inconspicuous before the outbreak. However, companies' demand has become zero since COVID-19 appeared. Supply has become greatly in excess of demand. Under such circumstances, the pandemic might be conducive to improving the quality of supply when tourism develops. In addition, the epidemic increases the opportunities for mergers, acquisitions and integration. It's hard to fight for the market share, and merge, acquire and integrate companies when the market's prosperous and everyone can earn some money. Opportunities of mergers, acquisitions and integration increase because of the pandemic.

Since the outbreak, we have contemplated from two aspects. Firstly, let's look into the overall supply status. Most companies completely or partially suspend operations. Some firms even undergo bankruptcy or semi-bankruptcy. Most people are living a tough life. I have visited a dozen cities and tens of tourism companies across China since May. I talked with their presidents. Only about 10 companies could make money in our country, except for those exempted from taxes according to policies. The number of market-oriented companies is less than 5. More than 95% and even 99% of enterprises are running at a loss. This is the supply status.

How long will the situation last? It's hard to say. However, most regions haven't recovered yet. Three regions are in relatively good conditions. The first is the vicinity of metropolitans. The second is well-known tourist destination in China, such as Hainan and Xiamen. The third is tourist destination near metropolitan though it is not a city cluster. Therefore, the overall status of recovery is uneven. I think the situation will continue.

Secondly, let's look into the demand status. Demand has been changing since the outbreak. Some guests said in the morning that demand might rebound. I agree with them, but the demand in the past might be different from the demand in the future. I have two thoughts.

1. People's ways to travel will change. Less and less tourists will travel in large groups. We often count the number at the entrance of tourist attractions and seldom notice groups of travel agencies. Most people travel with their family and friends. My colleagues and I frequent tourist attractions and hotels to find out how tourists travel. Therefore, people's ways to travel will change.

2. Tourist destinations will change. Intercontinental destinations will receive few Chinese tourists in the coming years. Intracontinental destinations will recover faster, such as Japan, South Korea and South East Asia. Inbound tourism will recover at the fastest speed. In the future, tourists might flood into tourist destinations near large city clusters and popular tourist destinations, such as the Yangtze River Delta and Hainan. For example, we own an enterprise in Hainan. The occupancy rate of the high-end hotel was merely 30% last year. We checked the rate from May to August this year. However, the occupancy rate was over 90% in August when the price each night was RMB 2,000. That means customers changed drastically. Demand has changed.

According to the changes of supply and demand, some industries will have more opportunities to draw investment in the future. Where do these opportunities come from? They are from mergers, acquisitions and integration of existing companies, and transformation and upgrade of tourism products. We will turn invalid things to effective ones through transformation and upgrade.

Different countries are disparate. China will recover at the earliest opportunity. Southeast Asia will recover faster than other foreign countries for it relies on foreign tourists. Hence, companies in Southeast Asia will have more opportunity to be merged and acquired for Chinese frequent there. This is my answer to the first question.

Now, the second question is about my suggestions on the future investment, mergers and acquisitions. Working on mergers and acquisitions for 7 years, I've encountered numerous projects and conducted a dozen due diligence, but I have only succeeded in investment 4 or 5 times. I'd like to share with you what I have learnt.

1. It is better to hold shares, invest in majority holding rather than minority holding, and wholly-own if possible.

2. Investment should be put into the core areas, focus on crucial industrial chains and types of business. Not all segments but some crucial chains of an industry can produce profits. Investment might be invalid. Only a few regions in a country, such as China, might earn profits. We invest tourist destinations near metropolitans in South and East China along the Yangtze River. Except for Beijing, destinations in North China aren't in our list because it’'s hard to investing in and earing profits in those places. That's my opinion.

3. It is better to merge useful programs at a reasonable price. If investors buy a dodgy company, they might get themselves into trouble. Even when investors encounter natural or man-made disasters, they will be able to deal with those problems. Disasters often occur in the industry, but seldom last long. I've been the chairman of a travel agency for 10 years, so I know that well. We have to tackle various problems. Accidents often kill people. It’'s normal. However, the pandemic is not the case. Hence, an outstanding company means the efficient management, a satisfactory cash flow, smooth operation and fast recovery. However, a dodgy company might get investors into trouble.

4. Investors should manage their investment carefully and rationally after purchase. According to our experience, there are three things to do after purchase. Firstly, investors should renew their strategies. Secondly, investors should manage their teams’' shortages. Thirdly, investors should standardize their incentive mechanisms. As an investor and a major shareholder, I think these three things are necessary.

I'll briefly introduce two plans of Investment Committee because I'm running out of time. Since the establishment of the committee, it has made great progress under Dr. Li, Mr. Zhang and WTCF's guidance. The committee mainly focuses on advancing exchanges among members. We plan to draw more members, including institution members and city members. We hope more international institutions will join us because we have few foreign members. In addition, we plan to hold some events online which are convenient. People are able to communicate without the limits of space. We can help some of the city members attract capitals and investment through the events. Most cities pay attention to tourism, but professionals are scarce. Some provincial governments even spend hundreds of billions on the industry every year, but fail at the end. Cash turns invalid and flows into the real estates.

Therefore, WTCF Investment Committee will ask institutions to do it favors. We will fulfill our social responsibilities. Thank you, Dr. Li.