China healthcare business

Chi-Med's China healthcare business is currently comprised of three pharmaceutical and health supplement joint venture businesses with over 4,100 staff, about 1,500 of these in two large-scale factories in Guangzhou and Shanghai and about 2,600 in sales, marketing, and distribution operations in over 200 cities in China, up from 2,300 in 2008. These three businesses are:

• Hutchison Baiyunshan, a joint venture in which Chi-Med holds a 37.5 per cent (through a 75 per cent equity interest in an intermediate holding company which holds 50 per cent of Hutchison Baiyunshan). Hutchison Baiyunshan is primarily focused on OTC and prescription TCM drugs;
• Shanghai Hutchison Pharmaceuticals, a 50 per cent owned joint venture, primarily focused on prescription TCM drugs; and
• Hutchison Healthcare a 100% wholly-owned company, which produces health food products.

Chi-Med's China Healthcare Division grew sales 26% to $102.0 million. The strong revenue growth was all organic and reflected the growth in demand for both prescription and over-the-counter ("OTC") drugs in China, as well as the quality and strength of our brands, distribution channels and sales and marketing programmes.

Operating profit was up 43% to $13.1 million, reflecting increasing scale synergies. Net profit attributable to equity holders increased 58% to $9.3 million, resulting from the division's strong growth and the buy-out of the last of our minority partners in HHL.

Since 2005, the year before flotation, our China Healthcare Division has managed an impressive 29% compound average annual sales growth and has multiplied operating profit by over 24 times. Each of its three operating businesses has grown ahead of the rapidly expanding China market, and we believe each is well placed to continue this momentum in 2010. In 2009, we succeeded in securing a highly competitive position for our main products on the new Essential Medicines List that mandates distribution of drugs in China, and the NMC for drug reimbursement. We believe this positions our China Healthcare Division well to benefit from the Chinese Government's healthcare reforms.

To illustrate the scale of our China Healthcare Division's operations in China, in 2009, it manufactured and sold over 4.6 billion doses of medicine through its OTC and prescription channels, with combined domestic sales of HBYS, SHPL and HHL in 2009 of $197.0 million. Under International Financial Reporting Standards accounting rules, Chi-Med consolidates 50% of the two jointly owned entities within the China Healthcare Division, HBYS and SHPL, and 100% of its now wholly-owned HHL operation.