CEO's Statement

Extracted from 2008 Annual Report

2008 was challenging for the Group as we sought to overcome the challenges posed by both the wider economic environment and the operating environment we are in. While the Group reported significantly lower sales of its soy oligosaccharide syrup (“SOS”) product compared to the preceding year, sales of other products like soy protein isolates (“SPI”), soybean oil as well as the new Tineng brand peptide have been encouraging.

Soybean cost which rose sharply in 2007 showed a stabilising trend and a gradual decline towards the end of FY2008. Pork prices which had also been on the rise in 2007 decreased gradually in the period under review and the stabilising demand situation for SPI amongst domestic meat products manufacturers in the PRC resulted from an improved pig supply situation overall.

Financial Performance

The challenging business environment continued from 2007 into 2008. In FY2008, the Group focused on preserving its business and financial fundamentals, despite the lower revenue and profit levels.

The Group’s FY2008 revenue declined 11.1% from RMB1,619.6 million to RMB1,439.2 million year-on-year. This was the result of higher sales in SPI, soybean oil, peptide and other by-products which were offset by the lower sales recorded for SOS.

Aside from the lower sales of our high-margined SOS product, higher soybean cost also added pressure to our gross margin. Soybean cost rose from an average price of RMB3.23/kg in FY2007 to an average price of RMB3.90/kg in FY2008. A lower net profit of RMB182.8 million in FY2008 was reported, compared to RMB435.5 million in FY2007.

Segmental Product Performance in FY2008

Let me review our segmental product performance. SPI sales climbed 13.6% from RMB734.4 million in FY2007 to RMB834.1 million in FY2008, largely due to the steady increase in export sales to Eastern Europe and South East Asian countries and the stabilising demand situation for SPI amongst the PRC meat products manufacturers. Soybean oil sales also rose 25.6% from RMB220.7 million to RMB277.3 million year-on-year, due to a rise in the average selling price of the soybean oil. Sales of the new Tineng brand peptide, launched in September 2007, provided a full year contribution of RMB31.6 million in sales, compared to RMB24.9 million in FY2007.

SOS sales declined significantly from RMB580.5 million in FY2007 to RMB156.8 million in FY2008. After the termination of our master distribution contract with Shenji in February 2008, we took on our own direct distribution efforts, including distributing to supermarket chains in the PRC. We have been and will continue to monitor SOS sales performance regularly.

Preserving Our Financial and Busines Fundamentals

Our balance sheet has remained healthy in FY2008. The Group’s cash and bank balances stood at RMB2.56 billion as at 31 December 2008 compared to RMB2.37 billion the year before.

Trade receivables decreased by RMB26.9 million from RMB35.8 million in FY2007 to RMB8.9 million in FY2008, which was attributable to the overall improvement in the monitoring and collection of outstanding receivables. Inventories, on the other hand, climbed marginally from RMB252.5 million to RMB283.7 million in FY2008 due to higher soybean stock levels as at 31 December 2008.

As at 31 December 2008, net cash generated from operating activities amounted to RMB279.5 million, compared to RMB593.9 million as at 31 December 2007.

The Year Ahead

The current uncertainty surrounding the global economy will inevitably bring about conservative consumer sentiment and result in tightened consumer spending. The PRC government stimulus package and incentive measures, if tailored accordingly, are expected to lift sentiments and help to achieve the desired effect of spurring domestic consumption.

Segmental outlook, however, varies amongst the different products. Sales of SPI are expected to remain steady, as domestic demand should be sufficiently robust and that will mitigate reductions in overseas or export sales. Sales of SOS, on the other hand, are not expected to rebound quickly, as discretionary spending on health promoting products such as SOS tend to be reduced in times of economic uncertainties.

Tineng soybean peptide and Ditang health product are also not expected to experience a quick upsurge in demand as these products are still new in the market place and more enhancements would have to be made to the products in order to raise the acceptance level amongst target customer groups.

Stringent control will be exercised over both direct and indirect costs, and non-essential expenditure will be kept to a minimum whilst operating expenses will keep pace with revenue performance. The Group’s priority will be to strengthen balance sheet, preserve cash and improve cash flow in this tough economic climate.

In Appreciation

On behalf of the Board, I would like to express my sincere appreciation to the management and staff for their unwavering dedication which has seen the Group through this difficult period of time.

I wish to also thank our shareholders, business associates, partners and the Board for extending their continued support to the Group. And it is with this encouragement that we march forward together as a Group to face the challenges and opportunities in the new year ahead.