China Healthcare Business

Hutchison Healthcare engages in the research and development, manufacture and sale of Western and TCM health supplement products. Hutchison Healthcare's health supplement products are largely generic in nature and many of their formulations are based on the WHO's recommended daily intakes of various active ingredients.

Chi-Med's HHL subsidiary grew 27% to $7.0 million in 2009 (2008: $5.5m), and operating profit grew 273% to $1.0 million (2008: $0.3m).

All of HHL's sales were accounted for by its ZLT infant and pregnant mother supplements brand, which we have successfully developed in partnership with our exclusive distributor into a strong hospital and mother/baby store distribution model across China. At the end of 2009, we operated 13 sales offices across China and sold products in more than 130 cities either through over 80 wholesalers or direct to over 50 national supermarket chains, over 30 drug store chains, and approximately 3,600 mother/baby shops and 1,200 hospitals.

In late 2009, we secured 100% ownership of HHL through the acquisition of our minority partner's 15% share in HHL at a total consideration, including share transfer price and current accounts payments of about $0.6 million, which was equivalent to a multiple of approximately 15 times the partner's share of 2008 EBIT. Because of the rapid growth of HHL this multiple equated to 4 times the partner's share of HHL's 2009 EBIT.

HHL sells three ZLT licensed health supplement products. Sales of the largest, ZLT DHA capsules, an omega-3 product for use by pregnant and lactating women to promote brain and retinal development in babies, grew 46% to $5.7 million in 2009 (2008: $3.9m). Pregnancy supplementation is an emerging market in China, thanks in part to China's one-child policy and the importance a mother and family places on her single pregnancy. We believe we are one of the biggest players in this field in China, being one of the first to enter this market.

In addition to the ZLT DHA capsules we also sell calcium and probiotic products under the ZLT brand name. Securing 100% ownership of HHL has brought with it full control and ownership of the ZLT brand, which HHL has now licensed to our HHOH to be co-branded with Earth's Best® to launch a range of organic infant foods in China. As a result, in addition to working actively to broaden the ZLT range of premium quality infant and pregnant mother health supplement products, we are working now to expand the brand into organic infant foods through HHOH and the Earth's Best® co-branding project.

http://www.hhcl.com.cn