The fi nancial year ended 31 December 2008 ("FY2008") was our most challenging year since the Company's listing in 2003. Not only did we see poor performance in our Downstream Biochemical Business, the Group, like many other businesses, had to endure the unfavorable operating environment brought about by the unprecedented global fi nancial crisis and the consequential global economic recession.

The Group reported a revenue of $107.2 million in FY2008, 15% higher than the $92.9 million in FY2007. The increase was attributed mainly to the higher revenue from active carbon business and water business, partially offset by lower contribution from membrane process and engineering business. Profit attributable to shareholders declined by 91% from $30.6 million in FY2007 to $2.9 million in FY2008, due mainly to one-off provisions and impairments of $15.7 million and weak performance in our downstream business and membrane process and engineering business, despite strong contribution from the water business. In addition, the Group recognized a dilution gain of $12.2 million in FY2007 arising from the listing of a subsidiary, which did not recur in FY2008.

In FY2008, our water business delivered solid performance with sales increasing by 311% from $6.3 million in FY2007 to $26.0 million in FY2008. This business segment's contribution to profit before tax surged 92% to $12.9 million. During the year, four additional municipal waste water treatment plants commenced operation, bringing the total number of operating water plants to fi ve compared to only one in FY2007. The four newly added operating water plants comprise two TOTs, namely Jilin Gongzhuling and Shandong Juyie, and two BOTs, namely Jiangxi Xinyuan and Henan Dengzhou. We also started construction for another nine new BOT projects in FY2008, namely Jilin Dongfeng, Jilin Tongyu, Jilin Meihekou, Jilin Yitong, Jilin Taonan, Hubei Xuchang, Hubei Yicheng, Jiangxi Yushan, and Fujian Wuping.

Impacted by the global economic recession, our clients reduced their capital expenditure, which in turn led to lower demand for our products. Our membrane process and engineering business saw revenue declining 35% to $28.4 million and profi t contribution down 31% to $7.9 million in FY2008. Despite the diffi culties, our membrane material business performed well in FY2008 due to strong demand for our new products such as MBR, ceramic membrane etc.

Our R&D efforts in membrane business also yielded good results. In FY2008, our R&D team successfully developed new production process for our ceramic membrane, which improved our production yield from 70-80% to over 90%. This will signifi cantly reduce our production cost and enable us to offer competitive selling price in the market. In addition, our R&D team also developed unique ceramic membrane which combines extremely high fi ltration effi ciency and low cost. We see huge potential in the application of such ceramic membrane in domestic water fi ltration products.

While the revenue of the downstream biochemical business increased by 22% from $36.2 million in FY2007 to $44.1 million in FY2008 due to higher active carbon sales, the division reported a loss of $11.4 million compared with $9.5 million profi t in FY2007 mainly due to the poor performance of our 52% owned listed subsidiary, Reyphon Agriceutical, and lower profi t contribution from rosin business. Despite the unfavorable operating environment, our 30% owned Shandong Tianli Biochem did extremely well. Its profi t contribution to our Group increased by 24% from $2.1 million in FY2007 to $2.6 million in FY2008 due to competitive advantage achieved through better economy of scale and roll out of new products.

In response to global economic recession, we have tightened our credit policy and strengthen the collection of receivables in membrane process and engineering business. This has directly contributed to the strong operating cash fl ow in FY2008. In addition, we partially early redeemed $30 million face value of convertible bond at a 10% discount to face value. The above measures have enabled us to end FY2008 with a net cash of $10.7 million.

There is as yet no clear sign that the global economic recession has hit bottom. We therefore expect a weaker demand for our membrane process and engineering products and services. In view of this, we will focus more on cost management to realign our operations to the market environment. While the membrane material business is also expected to be impacted by global economic recession, the impact is alleviated by strong demand for MBR modules in western European countries and relatively resilient demand for replacement membrane materials which have accounted for more than half of our materials sales.

The Chinese government is implementing a RMB4 trillion economic stimulus package to speed up the economic recovery. A large part of the package is for investment in environment protection sector, including water and wastewater treatment. We expect the demand for the wastewater solutions to remain strong in China. In addition, our nine BOT projects currently under construction will provide a good underpinning for our water business's performance in FY2009.

The outlook for the Group's downstream business will remain challenging due to weak demand as well as management issues at the operating subsidiary. Management is taking steps to address the issues at the operating subsidiary with the view of improving its operating performance.