Welcome to China Grand Forestry Green Resources

Chairman's Statement

Dear Shareholders,

On behalf of China Grand Forestry Green Resources Group Limited (formerly known as China Grand Forestry Resources Group Limited) (the “Company”), I would like to express our heartfelt gratitude for your support and confidence in the Company. I am pleased to announce the audited consolidated results of the Company and its subsidiaries (collectively, the “Group”) for the year ended 31 March 2008 together with comparative figures for the year ended 31 March 2007.

For the year ended 31 March 2008, with the steady growth of the economy in the People’s Republic of China (the “PRC”) and buoyant market demand for timber as raw material, a favourable business environment was created for the Group, which continuously added strong impetus to our business development. For the financial year ended 31 March 2008, the Group had seized various opportunities to acquire potential forest resources. As a result, the forest areas under management was further expanded to over 5 million Chinese Mu and the forest resources reserves was increased to approximately 17 million cubic meters, laying a solid foundation for the Group’s future business development.

The positive growth prospect of the macro-economy and timber-consumption industries in the PRC indicates that the demand for timber products in the PRC will continue to grow over the next five years. Meanwhile, the shortfall between supply and demand will continue to increase. As a result, surging timber price is anticipated. Coupled with the PRC government’s emphasis on carbon emission mitigation and encouragement to renewable resources development, the available reafforestation will not only be limited to the plantation of general tree species, but will be further extended to species which can be converted into green energy resources. It improves the species in the forests and substantially raises the value of forest resources. With the favourable industry environment and government policies, plantation of energy-source species and timber is encouraged, bringing golden business opportunity to the Group.

Sustainable development and utilization of forest resources is our business philosophy. Our operation involves plantation of saplings, fast-growing and high-yield plantation and low-yield plantation improvement. Sustainable forest resources will ensure long-term growth of forestry enterprises, and form virtuous cycle for forestry industry. During the year, the Group had commenced its research and development programme on biomass energy and entered into a very substantial acquisition agreement and is looking forward to its completion. Besides, through large-scale forestation, the Group will also contribute to environmental protection undertakings such as carbon emission mitigation. The Group will strive to strengthen its core competitiveness continuously so as to bring added-value to our shareholders.

REMARKABLE PERFORMANCE LEADING TO IMPRESSIVE RESULTS

For the year ended 31 March 2008, the Group recorded net profit attributable to shareholders of HK$2,744 million, equivalent to earnings per share of HK51.03 cents. The profit included an amount of HK$120 million arising from reversal of deferred taxation provided in previous years. Excluding the gains from the change in the fair value of biological assets, net profit attributable to shareholders amounted to HK$647 million (2007: HK$298 million).

The growth of profit from core operating activities was mainly attributed to an increase in the sales volume and the sustained high unit selling price of timber. During the year, the demand for timber was strong, the imbalances arising from scant supply of and excess demand for timber remained, leading to sustained high timber prices, which enabled the Group to achieve good financial results.

However, the cold, rainy and snowy weather at the beginning of year 2008 had damaged, to various extents, part of the Group’s forest resources, made logging more difficult and affected the Group’s transportation work. The Group had made strategic adjustment accordingly with an aim to maintain its competitiveness and lay the foundation for its operation in the coming year.

PRINCIPAL BUSINESSES AND INCOME STREAMS OF THE GROUP

Through accelerating the acquisition of forest resources, forestation, logging and initiation of projects on biomass energy and carbon mitigation, the Group had achieved the objectives of enhancing integrated efficiency of forest resources and maintaining sustainable development and utilization of forest resources.

THE ECOLOGICAL FORESTRY BUSINESS

(i)		Forest resources During the year, the Group actively pursued the opportunity of acquiring forest lands in the PRC. As at 31 March 2008, the Group’s forest land from the long lease-term forest land so acquired, coupled with the forest land previously acquired by the Group had increased from an area of approximately 1,000,000 Chinese Mu last year to over 5,000,000 Chinese Mu, spreading across ten provinces in the PRC. The Group had forest resources amounting to approximately 17,000,000 cubic meters, the majority of which were pine, mixed hard wood, fir and broad leave trees. In addition, the Group had acquired a piece of uncanopied forest with an area of approximately 4,000,000 Chinese Mu in Inner Mongolia to be used as a base for developing biomass energy cultivation during the year. It is expected that the forest land resources of the Group will sustain steady growth. The Group will adopt measures to preserve and operate its forest land according to various conditions.

(ii)		Forest biomass energy The strong demand for energy in the PRC had created good conditions for the development of green, clean and renewable energy. The PRC government had issued policies to support the development of renewable energy and promoted the establishment of energy source forests. Seizing the opportunity, the Group had also developed its forest land suitable for plantation of raw material of forest biomass energy into energy-source forests, which were matched up with appropriate acquisition planning to create synergy for its existing forest land resources. Forest biomass energy is presenting a significant opportunity for forestry industry in the PRC as forest resources can be converted to raw materials of forest biomass energy. For example, branches and bushes in energy-source forests can be used as raw material for generating biomass electricity while fruits from oil energy forests for biodiesel refinery. There are also other species that can be used as raw materials for bioethanol. Biodiesel is a clean alternative fuel, produced from renewable resources. Biodiesel can be blended with any petroleum as a mixed diesel. It can be used in normal diesel engines with few or no modifications. The Group considers that Jatropha is one of the most promising non-edible crops for biodiesel production. It is very undemanding with regard to soil quality, thus it would not compete farmland with food crops. During the year, the Company entered into an Acquisition Agreement and Supplemental Acquisition Agreements to acquire Shenyu New Energy Group Limited (“Shenyu New Energy”). Shenyu New Energy is principally engaged in the research and development of Jatropha Curcas L based biological energy, such as biodiesel. It had set up large scale planting bases of Jatropha Curcas L in Yunnan, which was in line with the Group’s business philosophy. As some of the existing forest land of the Group in Yunnan is suitable for plantation of Jatropha, the Group believes this acquisition has synergy effect on its ecological forestry business and will assist the Group to achieve sustainable profit growth. The Group is now actively preparing for its forest biomass energy project, out on its piece of uncanopied forest with an area of 4,000,000 Chinese Mu in Inner Mongolia. The Group has also entered into technological cooperation with related enterprises for plantation experiments.

(iii)		Sales of Timber Timber supply in the PRC fails to satisfy the country’s demand. In the future, the Group will continue its strategy of integrated development and resources saving and utilization whereby on one hand, raw timbers are further processed into standard timbers with higher add-on value; on the other hand, splinters from logging, cutting and processing are recycled as raw materials for pulpwood and supplied to our customers.

(iv)		Plantation of genetically modified paper mulberry and pulp business The domestic wood pulp supply has not fully satisfied the growing demand resulting from the paper production boom, mainly due to the pulpwood deficit in the PRC. The Group believes that a stronger emphasis on forest plantation is required so as to lessen the imbalance between low domestic production and high imports of wood pulp. During the year, the Group planted the genetically modified paper mulberry in various saplings centre and forest lands with an area of approximately 50,000 Chinese Mu and accumulated plantation area of approximately 100,000 Chinese Mu. On 16 October 2007, the Company entered into a strategic cooperation agreement regarding the supply of paper-making raw materials with Lee & Man Paper Manufacturing Limited, pursuant to which both parties can capitalize on respective advantages edges. The Group planned to sell the mature genetically modified paper mulberry together with pulpwood to customers in the second half of the financial year ended 31 March 2008. However, the plan was postponed due to the fact that transportation was affected by the continuous rain and snow in January and February 2008. The Group has started selling the bark and trunk of genetically modified paper mulberry in May 2008. In consideration of the fact that focusing on the upper stream plantation business will be more beneficial to the Group and having conducted prudent and in-depth research, the Group will only operate as the raw material supplier of pulpwood in the short run. There is no specific plan to build wood pulp plant or paper pulp plant for the time being.

(v)		Carbon emission mitigation Climatic deterioration is a burning issue for the global village in the 21st century. Facing the intensifying greenhouse effect, the Group will step up its forestation efforts resolutely and improve our environment. The Group has started carbon credit trading project through co-operation with China CDM Exchange Centre Limited. The Group is applying for approval for a carbon credit trading trial project with a forest area of approximately 300,000 Chinese Mu. The project is located in Shanxi Province.

THE GARMENT BUSINESS

The Group’s core garment business consists of the design, manufacture and sale of a range of highend apparel and uniforms. During the year, the revenue and loss of the Group generated from its garment business amounted to HK$81,246,000 and 27,136,000 respectively. The Group had disposed of its garment business during the year and focused all its resources on the development of the above ecological forestry projects.

PROSPECT

The Group is optimistic about the prospect of its ecological forestry business as sufficient forest reserve can provide the Group with steady cash flow in next few years. In view of potential risk of general unstable economic condition, the Group is closely monitoring the market condition of forestry products as well as the consolidation of existing forest resources. The expansion of the carbon development mechanism business and initiation of bio-mass energy project of the Group can broaden the income base, increase the overall efficiency of resources of the Group and assist the Group to achieve a sustainable profit growth. The Group is determined to be the supplier of forest resources and intends to capitalize on respective strengths through strategic cooperation with enterprises in related industries. The Group will also speed up its development of renewable and sustainable forest resources for the pursuit of a green, environmentally friendly and pleasant ecological environment, so as to increase shareholders’ return.

APPRECIATION

On behalf of the board, I would like to express our gratitude to the shareholders, customers, suppliers and professional advisors for their support over the past year, and to sincerely thank our management and staff for their dedication and diligence.

Ng Leung Ho
Chairman

Hong Kong, 25 July 2008