CEO's Statement

Extracted from 2007 Annual Report

FY2007 was a year characterised by the continued rise in commodity prices that affected a number of manufacturers in the food and beverage industry. In particular, the soybean based products industry was impacted by the rise in average soybean prices in the region of 36%, compared to the preceding year. Added to the rise in soybean prices, we also witnessed a rise in food prices, specifically meat products such as pork. This was the result of a reduced supply of live pigs as corn feed prices affected the cost of pig rearing.

For soybean based nutraceutical product manufacturers like Pine, the eventual reduction in pig supply meant that our core product, soy protein isolates ("SPI"), a key ingredient in the production of pork meat products, saw a marginal drop in domestic sales volume. However, international demand from Eastern Europe and South East Asia for SPI was strong and provided some ballast against the decline in domestic sales volume.

All in all, the Group's business and financial performances in FY2007 remained fundamentally positive.

Review of FY2007

In FY2007, the key priorities of the Board and management of Pine were to preserve the Group's financial and business fundamentals, as we sought to overcome numerous challenges posed by the wider economic environment in the People's Republic of China ("PRC").

Revenue rose 2.7% from RMB1,619.6 million in FY2007 to RMB1,577.7 million in FY2006 as a result of higher sales in SPI and soybean oil, offset by lower sales in soy oligosaccharide syrup ("SOS").

SPI sales increased 4.3% to RMB734.4 million in FY2007 from RMB704.1 million in FY2006, largely due to the increase in export sales to Eastern Europe and South East Asia countries which helped to offset decline in SPI demand domestically. Soybean oil sales also surged by 69.1% to RMB220.7 million in FY2007 from RMB130.5 million the year before, due to higher average selling prices driven by strong demand.

Our most urgent challenge for FY2007 was the significant drop in the sales volume of SOS from RMB682.6 million in FY2006 to RMB580.5 million in FY2007. Orders from our master distributor came in substantially lower in the year. New store openings hit a saturation point whilst other channels such as supermarket sales were slow to pick up.

SOS sales contributed a smaller 35.8% to the Group's revenue in FY2007, compared to 43.3% in FY2006. The resultant drop in the sales contribution from the higher margined SOS led to a decline in overall gross margin of 40.3% in FY2007, compared to 44.3% the year before. A 36% rise in average soybean prices from RMB2.35 per kilogram in early 2007 to RMB3.20 per kilogram in late 2007 put even more pressure on our gross margin.

The Group also incurred higher selling and distribution expenses with more advertising and promotional activities on our Tiansong brand of SOS as well as to support the launch of two new products - Tineng brand soybean peptide and Ditang health product for Type II diabetes sufferers.

The combination of a decrease in gross profit with the increase in operating expenses resulted in a lower net profit for the year of RMB435.5 million, compared to RMB538.0 million the year before.

Preserving Our Fundamental Strengths

Despite these recent challenges, Pine is the largest producer of SPI in the PRC today . We have a diversified suite of soybean based nutraceutical products, a growing distribution network, steadily rising brand awareness, and last but not least, a healthy balance sheet to meet the demands of consumers and industrial customers for years to come.

As the top producer of SPI in the PRC, our SPI capacity stood at 90,000 tonnes per annum at the end of 2007 and a second fully integrated flexible production plant is expected to come on stream partially in the coming year, FY2008.

We launched Tineng soybean peptide in September 2007 and have since witnessed a steady, though small, contribution of RMB24.9 million in sales revenue from this product. Our Ditang health supplement for Type II diabetes sufferers is beginning to find its way into hospitals and clinics for trials and approvals.

Our balance sheet remains healthy in several aspects. Trade receivables decreased by RMB218.5 million from RMB254.3 million in FY06 to RMB35.8 million in FY07, which was attributed to overall improvement in the monitoring and collection of outstanding receivables. Inventories increased from RMB201.8 million in FY06 to RMB252.5 million in FY07, due to additional stocking up of soybean in anticipation of the uptrend in soybean cost in the coming year.

Cash and bank balances rose from RMB334.6 million as at end of December 2006 to RMB2,367.9 million as at end of December 2007, mainly attributed to the proceeds received from the issue of convertible bonds of RMB 2,000 million in July 2007.

The Future

With these fundamental business and financial strengths, we are ready to embrace a new period of sustained growth. We remain positive in our outlook for our suite of soybean based nutraceutical products.

SPI which contributed the largest share of our Group's revenue, is expected to remain a strong staple ingredient for our industrial customers because of its inherent health benefits when blended with processed meat products. In the coming year, the larger processed meat product manufacturers are taking positive steps to stabilise and achieve a sustainable long term supply of pork.

Just as we have become a leading producer of SPI in the PRC, our aim for SOS is to develop a long-term sustainable uptake amongst our broad industrial customer and consumer bases.

Therefore, we view brand building as the next critical stage in the growth of the Group. Although we expect SOS growth to normalise in the coming year, we will continue to invest in the brand assets and value of our products for the long term future.

Hence, we intend to intensify the awareness and education campaign for all our products (Tiansong SOS, Tineng soybean peptide and Ditang health suppement) through active advertising and promotion programmes. These will be supported by intensive direct marketing efforts to supermarket chain stores.

With these programmes in place, we remain cautiously optimistic of an eventual pick up in SOS demand that is more reflective of the underlying consumer demand.

Innovation is the bedrock of our long term future. Last year, our innovation drive led to the development and launch of Tineng soybean peptide and Ditang health supplement for Type II diabetes sufferers. These innovation programmes are to set in motion new products that will follow on from the successes of SPI and eventually, SOS.

Appreciation

In closing, we would like to express our sincere appreciation to the management and staff of Pine who have embraced our call for innovation and quality in the past year. Their efforts have helped to preserve fundamental value for shareholders despite the challenges faced.

We would also like to thank the shareholders, business associates, partners and directors of Pine for their commitment and support to the Group. It is our sincere wish that we will together, lift Pine to new levels of achievement in the years ahead.