On November 17-18, 2016, the "China Investment Annual Conference Beijing", co-sponsored by China Investment Information and China Capital, and co-organized by China Net, was held at the JW Marriott Hotel in Beijing. At this meeting, the different demands of listed companies, vc/pe and innovative enterprises overlapped and collided, building an investment and M&A ecosystem in which different spaces blended with each other, which had a profound impact on the innovation and development of the capital market.
Zheng Xiaodong, President of Leo Co., Ltd. (002131, Buy), shared the experience of the transformation of listed companies in traditional industries. Leo shares from a listed company in a traditional industry, in two years to transform into a digital marketing company, Zheng Xiaodong believes that the first step of success is to judge the industry trend.
The following are the wonderful views shared by "Investment China Net":
Thank you all for coming together to discuss the issue of transformation. Earlier we saw a lot of well-known companies and funds in the primary market. The secondary market is the channel for enterprises to realize, and more and more enterprises realize realization through the secondary market and mergers and acquisitions to A-share listed companies. We have communicated with many enterprises that have transformed into listed companies, and everyone has their own thinking and their own mental journey.
Today I would like to share my thoughts on the transformation of public companies. Leo was transformed from early 2014 from traditional manufacturing to digital marketing. When we do transformation, the first question we often think about is whether to "make profits" or "merge industries", and how to choose the industry.
From the perspective of the industrial layout of the entire transformed enterprise, I first want to transform any listed company, and first consider which industry to transform. In the past three years or the last five years or ten years, the entire TMT industry has been the direction of transformation. From the earliest games to digital marketing, there were dozens of businesses transforming. I believe that in the future, in the field of big data, artificial intelligence, and the entire pan-TMT field, there will be more enterprise exploration. Thinking about which industry you want to turn to, first look at this industry has great potential for development and a huge market. In the whole of China's Internet (,,), there are three kinds of money-making fields, the first is games, and now there are too many game listed companies, which are also transformed. The second is digital marketing and advertising, whether it is bat, or Sina, Sohu, and NetEase are all monetized by advertising. The entire marketing industry is a target of a more typical transformation in 2015. Of course, there will be more TMT industry in the future in a wide range of fields. We are good at digital marketing.
The industrial chain layout of the entire transformation enterprise, my mental journey is a few steps. The first is to do horizontal layout, and the second is to do vertical deep excavation. Of course, all the processes are not set in stone, and it is difficult to predict three years ago what the state of Internet marketing is today. We must closely follow the development of the times, the development of the industry, and focus on the future to do the layout.
Let's start with the industry. There are also many digital marketing A-share brother companies below, all in this field, there are creative, content, accurate, search engines, technologies, big data mining. For a transformation company, this digital marketing market is a 200 billion market, and the future may be 3, 400 billion market. Everyone is in the broad market, as a transformation company, has the ability to go from 100 million profits to 2 billion profits. How to find the direction suitable for their own enterprises in the upstream and downstream of the complex industrial chain, how to gradually merge the entire industrial chain into the company's own ecological field through mergers and acquisitions or through endogenous in a two- or five-year planning process. This may be something that each of us should think about after the transformation of each enterprise, or before the transformation. Of course, we can't expect ourselves to think about what happens after three years before the transformation, at least before the transformation, think about the first step, any industrial chain in any field, whether the industrial chain is basically complete, to provide customers with 60% to 80% of the service, which is the first step in the transformation of Leo shares.
We acquired the first enterprise in early 2014, which is also the first step of the merger and acquisition we did, more is to shift the digital marketing industry chain from the agent to the upstream creative strategy, to the agency downstream social marketing, to the entire system, we can say that we can provide one-stop service. Any customer comes over, I can say that the digital marketing budget, 80% through the more excellent ideas, more complete media delivery system, better social marketing methods, better landing. We believe there are many of you here. The entire Chinese transformation enterprises do marketing field, many are along this path, we first build a horizontal industrial chain, the industrial chain to do a complete.
Many secondary market people ask me, will your industry be clustered or decentralized in the future? I'm sure it's agglomeration, because there are only six big advertising groups in the world. So many countries, so many enterprises, so many needs, how to gather? There are a few points, first of all, the choice of people, any marketing department of the enterprise, when choosing a network company, if the following people recommend a company, this enterprise ranks 25th in China, it will definitely be beaten back, if it is the top 10 or the top 5 is more reliable. Second, from the perspective of service or media agency or industry, the larger the volume, the more premium ability it has. We do 2b industry, the ability to control resources determines the ability to control downstream enterprises. From the perspective of agglomeration, the volume of 5 billion and 10 billion control resources determines your right to speak in the entire industry, and also determines the gross profit margin of the enterprise. In terms of larger logic, the first step is that agglomeration is indisputable. Any transformation of the enterprise, the industry will gather, in order to change from one to five to ten after the transformation, this is the first relatively clear idea, we must do an overall layout along the industry.
Second, the industry layout is basically complete, what is the next layout thinking? This may be difficult to think clearly at the beginning of the transformation, we can follow the development of the times, the development of the industry, the changes in the entire Internet. After we made a parallel industrial chain layout in 2014, the state launched "Internet +" in early 2015. In the first half of 2015, many enterprises began to transform, "Internet +". All enterprises hope to enhance the profits, stories and even future industry upgrades of their original enterprises through grafting with the Internet. What do all businesses need? What does internet marketing need? It is for these enterprises to give traffic and ingress support. No matter what kind of enterprise it is, everyone does mobile Internet, to have apps, to have their own websites, to have their own Internet systems, to need entrances, and to occupy a better position in the application market. The second needs traffic, the app has downloads, and it needs to have a large number of downloads in a short period of time. In the first half of 2015, a large number of funds spent money in the field of mobile Internet and o2o, and they got money to be users and would buy users, whether directly or indirectly. All this money generates huge traffic demands. In this context, leo shares' second approach is to cater to this trend. We acquire companies that can provide a large amount of entrance and traffic in the market, and with such mergers and acquisitions that are in line with the development trend of the industry, one is to enjoy the dividends brought by this wave of primary market funds, and the other is to enjoy the entire secondary market or the entire seller and buyer market for the future.
In 2015, two companies were acquired, which is actually a better layout in the field of traffic and entrance. At that time, I communicated with the market, we catered to the trend of "Internet +", we catered to the needs of enterprises, catered to the needs of the primary market, and at the same time catered to the needs of buyers and sellers in the secondary market for strategic deployment. Relatively speaking from the enterprise itself, after the merger and acquisition, the performance rises with the tide, the performance is exceeded, and the secondary market gives the merger and acquisition a higher premium.
In the future, more layouts have been made in vertical fields. We have been thinking that after any enterprise has made a certain scale horizontal and vertical layout, we must think about what is the core competitiveness of the future enterprise. Since we can go public, we have our own core competitiveness in each specific field. It must be an enterprise with core competitiveness in a certain field that can be listed, or have a certain scale. After the transformation, in addition to your financial advantages, how to establish your core competitiveness, what is your core competitiveness? Can you make the enterprise have a certain core competitiveness in the transformed industry after one or two mergers and acquisitions? From Leo's point of view or my point of view, after two mergers and acquisitions, I hope that the core competitiveness that Leo shares will establish is first and foremost customers. Marketing companies have customers, every merger and acquisition, each field is different, unique areas have unique customers. Second, I try to grasp a certain media control ability through the traffic entrance of the merger and acquisition mentioned earlier, or the traffic company and the entrance company of the merger. Because the control of media can be reused, we acquired two companies in 2015, which can control 5,000 small and medium-sized media, including PC and mobile, and the first 5 must be excellent enterprises. Everyone who makes the website is their own business, and they all want to grow fast. After we had some traffic, in 2015 we chose to study abroad to compare the cattle company. Why can we get in? For example, New Oriental, CYTS (600138, buy), we can support, our support is traffic. We give traffic support to the invested enterprises, you need to download I give you download, you need daily active I can give you support, this is the traffic in addition to advertising reuse again. This reuse can last many times, so Leo shares have a layout in addition to the 6 companies acquired and acquired, more than a dozen investment companies, new energy vehicles (,), health, and medical care. In addition to the platform of listed companies, how to compete with the first-level market? We have traffic, we can provide you with traffic support, this traffic itself is not excluded from the original advertising operation, because now through big data, through the Internet precision delivery, you can make the last website the first time to see the normal advertising, the second time you can see the advertising of our enterprise, the third time can see the accurate advertising, without increasing additional costs.
After the logic is verified, we hope to continue to reuse traffic and data as core competencies. We have invested in two more companies. In these two areas, after completing the 2015 merger and acquisition, the 2016 merger and acquisition we have a purpose, I know what I can give him when the company comes in, what he can give me. Our original resources, in addition to selling to e-commerce, can be sold in the game, as well as medical treatment. We generated additional excess profits in addition to the profits from the original mergers and acquisitions throughout the system. Our entire group should eventually exceed the amount of tens of millions to 100 million in 2016. Any acquired enterprise, itself will not exceed the amount when selling, all performance commitments are related to income, must be reported against the ceiling. Many of the acquired companies must conscientiously complete the performance bet. If it can provide customers, or provide additional profits, this integration is all-round and will last until the end of the bet after three years. We now have 20 to 30 percent of our customers, two or three businesses serving, and hopefully 60 percent of the businesses in the future have multiple companies to serve together. A company's performance fluctuations are relatively small, and it will also improve the culture and team in disguise, especially reduce the resistance to the transformation of corporate culture and team building, which will make our team building easier.
From my experience, after the transformation of an enterprise, one must have relative layout capabilities, and the second is to find out its core competitiveness. You can use your core competitiveness to bring different places or other advantages to enterprises in the future merger and acquisition process. Because there are many transformation enterprises, there are a large number of low-market value companies in A shares, which are shells and hope to transform. As a transformed enterprise, you must put forward the difference between your own enterprise and other enterprises, why sell excellent landmark land to you? I believe that this must be a problem that plagues all transformed enterprises, and it is also something that all enterprises to be transformed should think about. In 2015, many companies, the first step to acquire the company, in 2016 there was no movement, the stock price from the top of the mountain back to the valley, is equivalent to the efforts in vain. Any transformation enterprise also needs to have a continuous plan, a three-year or five-year plan.
Of course, the industry is changing rapidly. As mentioned earlier, you seem to think very well, and every aspect of the front has been done, but the industry is changing, and the industry itself is undergoing fundamental changes. For example, all of China's box office records were broken in 2015. You should also know that there was a huge change in the summer of 2016, usually the traditional TV ratings still rose in the summer, and this year it is down, indicating that the entertainment environment in this industry is changing. Originally, I thought that 30 yuan a movie ticket was quite expensive, but in the past two years, when it was a very cheap entertainment, the entertainment industry was improving. And with the popularity of network broadcasting like "Strange Story" and "Old Nine Doors", ordinary young consumers are increasingly shifting their entertainment time from the original TV to the Internet and to new media, and the entire entertainment industry is changing.
In the past, in the Internet industry, we said that the platform represents traffic, and the platform is the entrance. But at the beginning of 2016, everyone thought that content was the entrance, whether it was live broadcasting or Internet celebrities, it was all content. Many of our companies today invest in Internet celebrities and invest in live broadcasting because they value the agglomeration effect of traffic in the future. In addition to the game, advertising is the core of traffic monetization, so we have to see changes in traffic. In 2016, the strategy of the entire Leo shares, in addition to the field of digital marketing, launched Leo Interactive Entertainment, and established Leo Film and Television Company, Web Drama Company, Serial Drama Company. The goal is not to make light, but I think content is an important entry point into traffic. We invested in network companies, traffic companies, the core logic is to grasp the traffic direction of content. So our strategy throughout 2016 is content. The big logic is still to say that no matter in which industry to do the transformation, we must keep up with the development of the industry, see the latest and most representative of the future direction of the industry, we participate, to ensure that in the forefront, at least will not fall behind.
There is also a direction, what is the growth rate of the digital marketing industry? Mobile growth has been 100 percent over the past few years, with digital marketing growing at 30% and 50 percent. Digital marketing is growing slowly, how do you guarantee growth? I replied that the industry is more based on PCs and mobile, and now PCs are decreasing, mobile growth is slowing down, smartphone penetration has reached 700 million, and there is a huge market. We feel that there are many new smart devices in the future, and everyone has already used LeTV TVs and Xiaomi TVs. Five years later, all home TVs in China will be smart TVs. Will TV advertising be digital advertising or traditional advertising in the future? This is the market that the industry needs to see in the future, and the future is the growth point of our entire new digital marketing industry itself. We also laid out relatively early enterprises, which is the same, we still have to see the development and changes of the industry itself.
What are the new changes in the second half of the year? What are the new judgments? Tencent just publicly tested the Mini Program in the past two weeks, which may also be an opportunity for digital marketing companies. Why? I know a lot of entrepreneurs, a lot of friends in the business, the painful thing is that you have to have a good business model, a good business operation team, find a better iOS team, and then find a better Android team, do a better articulation. So all developers are miserable, and in some areas they limit the development of the enterprise. I believe that if more primary market money is invested in mini programs in the future, will there be distribution companies, channel companies, and running companies in this field? We made a fund last month, specifically for the entire WeChat field of traffic technology and platform to make corresponding investments, this is the big logic, we want to keep up with the development of the industry. This is our current layout, we have both digital and entertainment, and we are moving forward with the development of the industry.
The second point is the brand building and talent mechanism construction of the transformed enterprise, will anyone withdraw after three years? We need corporate brand building. Since you are about to transform, you must increase the profits of the industry in which you are transforming. Leo Digital, which we are now building at the core, has spent a lot of energy to make Leo Digital improve industry profits in the advertising industry. On the one hand, I have done a lot of industry standard things and done a lot of cooperation with the state. On the other hand, we strive for the support of excellent land standard companies to get more awards in the industry. We also need more seniors in the industry to improve our own capabilities, we hired Mr. Lin, one of the godfathers of Chinese advertising, as our consultant, and we have 7 people coming in the second half of this year. We hope that more and more people will improve our position in the entire industry, so that this transformation will be solid, attract more people to enter, attract advertisers to enter, and attract the reputation and reputation of the entire industry.
There is also a point of team building, all of our integration will encounter problems, three years later can not go? We have two logics, the first is that each field only accepts one company, I hope that 6 or 7 companies will serve one customer together, and the impact of human changes will be reduced. Second, we want to develop people and build teams for the whole company over the course of three years. The third is to give the original CEO and entrepreneur of the merger and acquisition company a better development direction. This is our CEO, and I hope he will lead the entire Leo future creative landscape, including the development of China, Southeast Asia and even the world. This is an experience for him to have a vision in addition to money, giving him a better prospect and a better platform to do this thing.
Of course, as mentioned earlier, now everyone in China grabs the team, and the good companies have all robbed it. Are we looking at the Asia-Pacific region? What does Taiwan do? How to cooperate with the Asia-Pacific advertising industry? How to improve the reputation of the whole team in the creative field, attract more people to come over, and replace the loss of local people? Of course, I think our market share in China may reach the ceiling in two years, and overseas mergers and acquisitions are a trend. Before overseas mergers and acquisitions, we must prepare our own management team, and many people manage their own acquired companies like walking on thin ice. You have the ability to do the Chinese circle first, and then it is possible to do the United States and Europe in the future.
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