Dear Shareholders,

2008 was a dynamic year for our industry. Despite the many challenges in the past year, Celestial has successfully managed to achieve stability in its business.

Our sales in 2008 grew 27.9% to RMB2.3 billion, up from RMB1.8 billion in 2007. Net profi t attributable to equity holders increased 19.1% to RMB499.2 million in 2008, up from RMB419.0 million in 2007.

In 2008, soybean prices rose sharply due to a global spike in food and commodity prices. Overall, our soybean consumption cost in 2008 was 50.2% higher compared to 2007, putting considerable pressure on our margins. To counter this, we passed on part of the cost increase to our customers by raising selling prices of our products. I'm glad that despite an across-the-board increase in our selling prices, we continued to achieve volume growth for our industrial products. This is a refl ection of the rising market acceptance of our products among our industrial customers.

As a result of our successful efforts to manage our costs and pricing, our overall gross margin remained healthy at 35.0%, 4.0 percentage points lower than 2007, against the over 50.2% jump in our soybean consumption cost.

Apart from high raw material costs, external factors such as the Sichuan earthquake and the deteriorating global economy in the second half of the year are among the other challenges in 2008. Notwithstanding the tough business environment, our fundamentals remain stable and we remain a leading player in the soybean-based products market in the PRC.

Going forward, 2009 is going to be another challenging year. Due to the unprecedented global recession and the resultant impact on China's economy, we expect the retail sector to remain tough as consumers cut back in spending in view of the low visibility of the economic situation ahead.

We are monitoring the market situation closely so as to take timely measures to sustain our competitiveness. We are also hopeful that the PRC government's stimulus packages will boost the domestic economy and stimulate consumer spending.

Hence, we believe in taking a long-term view to the Group's growth prospects and to position ourselves to tap on the upturn in demand. We have therefore decided to proceed with some of the expansion plans which have been in our pipeline.

During the first half of 2009, we will commence the commercial production of two new health food and beverage products - high protein nutrient beverages and high protein nutrient powder. Despite the uncertain economic outlook, we believe there will be demand for these products among PRC consumers. At around the same time, commercial operation for our biodiesel facilities will also commence.

As announced in August 2008, we are investing in new facilities within the Soybean Zone for new products - soya candies and protein milk. This is part of our continuous efforts to widen the range of our soybean products to cater to different customers' tastes and preferences. Construction of the facilities is underway.

Some or all our convertible bonds may be redeemed at the option of the bondholders in June 2009. To plan for the potential cash requirement for the convertible bonds redemption, as well as to ensure that we have suffi cient cash resources for long term business development and working capital, we are in the process of assessing and negotiating for different re-financing options. Appropriate announcements will be made when our Directors have concluded the re-fi nancing plans.

In closing, I would like to express my sincere gratitude to our loyal shareholders who have supported us through the challenges in 2008. My heartfelt thanks also go to our valued customers, business partners and colleagues at Celestial. Thank you for contributing to the growth of the Group.

Mr. Ming Dequan
Executive Chairman & CEO
Celestial NutriFoods Limited