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Dear valued shareholders,
I am very happy to announce that we had another good year in FY2008. We again delivered a superb year-on-year growth rate of almost 100% in revenue and 127% growth in profit after tax this financial year, thus, accomplishing our commitment to you, our shareholders to deliver long term sustainable growth.

Economic & Business Environment

The world economy is facing numerous challenging and uncertainties. The global economy has been affected by sharp increased in the oil price as well as commodity and food price. The subprime mortgage loan crisis in US has affected not only its local economy but globally.

Although economy outlook in Asian, especially India and China remain favorable, inflationary pressure may affect their domestic demand. This Global development would also affect Malaysia being an open economy and highly export oriented country.

Notwithstanding, the Malaysia economy remains strong, and will continue to record sustainable growth, the strong fundamental, diversified and resources-based economy, coupled with the increased in domestic demand had resulted in the Gross Domestic Product (GDP) achieved a growth of 6.7% for the first half of 2008. The Services sector continued to be the main catalyst to the growth, registering a growth of 7.9% in first quarter and 7.6% in the second quarter of 2008. The growth was driven by strong expansion in the Wholesale and Retail Trade sub-sector which increased by 12.6%.

The recent Budget 2009 proposed various strategies to further strengthen our economic resilience to mitigate the adverse impact of an increasingly challenging of external environment. A number of programmes to improve the country's business environment should help ensure economic growth remains robust. Among the broad range of measures, the proposed measures to alleviate consumers' diminishing purchasing power with lower marginal tax rate, more tax rebate for employees welfare etc, will help to increase the disposable income for "People" which will mitigate the negative impact to the current challenging business environment.

In addition, the prevailing political uncertainties in Malaysia is also a key factor concerned by investors. Holding back some infrastructure spending and mega projects by Government had affected the domestic demand. Hence, a series of downgrade of corporate earnings are expected to be happened.

According to Frost & Sullivan, the Malaysian healthcare sector has been expanding at modest but relatively stable annual growth rates of 8% to 12% over the past few years supported by higher healthcare spending by the government and the private sector. The country's ageing population and growing personal wealth are main drivers of the steady growth in the Malaysian healthcare sector. Growing awareness among Malaysians of the importance of healthcare and lifestyle changes will further boost healthcare spending in Malaysia. Going forward, both the pharmaceutical and private healthcare segments face common challenges such as growing competition and the risk of a global economy slowdown.

Financial Overview

For the financial year under review, Hai-O Group recorded a thumbs-up financial performance by posting more than 127% growth in profit after tax of RM 48.54 million (2007: RM 21.38 million), backed by a higher revenue of RM 373.82 million (2007: RM 189.35 million), an increase of 97.4%. The improvement in revenue was attributable to effective marketing strategies that successfully penetrate into the non-traditional market for our MLM division.

The Group's FY2008 financial position remains intact. As about 70% of the group business is dealing in cash term, thus it had generated total annual net cash from operations about RM 53 million for financial year under review. The Group's net cash position and short term investment soared further to RM 80 million as of 30 April 2008 (2007: RM 39 million). Shareholders' fund had also increased to RM 140.6 million with net asset per share of RM 1.76 due to resilient earning growth.

Business Division Overview

Multi-Level Marketing

Another wonderful year for the MLM division (Hai-O Marketing), it is the largest contributor to the Group's sales and profit. This FYE 30 April 2008, the MLM division had contributed a staggering turnover of RM 281.59 million and operating profit of RM 46.79 million respectively, representing an increase of 182% in sales and 237% in profit as compared to the previous financial year. Effective training programs are identified as one of the key contributors of the favorable increase in sales, having cultivated a "Sense of Belonging" and the "Hai-O, My Choice for Life" culture among Hai-O MLM distributors. Aggressive member recruitment scheme and A&P sponsorships of 3 episodes of the "Jom Heboh" TV programme on TV3 had created awareness and impact among the MLM industry and had attracted many new members into Hai-O MLM. Currently, we have an average of about 2,000 new members joining Hai-O MLM on a monthly basis, and year-to-date, we have over 70,000 distributors and of which 20% are actively involved in the business. Efforts to put up more corporate billboards along several major highways and advertisements in various lifestyle magazines are also key in creating greater awareness. Continuous launching of new products have contributed additional sales to the MLM division.

Currently, Hai-O Marketing has total of 43 outlets inclusive of 30 stockists and 13 branches to strive for greater customer focus, to bring the image and products of Hai-O closer to customers through an expansion of our existing distribution channel and enhanced service support. Hai-O Marketing plans to open another 5 to 8 new stockists for the coming financial year in Peninsular Malaysia especially Southern Part and East Coast. In order to complement the existing flagship "Beauty" products, Hai-O Marketing has plan to launch a new skincare series products in the coming financial year. The inclusion of these new products will provide additional opportunities for distributors to market wider range of "Beauty" products.

Also, Hai-O Marketing has introduced an Online Stockist / Distributor System enabling stockists and distributors to manage their business more efficiently. With the online system, distributors' sales and commission tracking information can be made available immediately once a transaction is completed by either the distributor or the distributor's downline. With such a fierce competition in the Network Marketing business, it is critical that we have a system that is capable of providing relevant and upto- date information instantly in order to achieve greater effi ciency and productivity.

We believe Hai-O Marketing will continue to grow due largely to the aggressive and entrepreneurial spirit of the distributor force. And last but not least, we are in the midst of setting up a MLM operation in regional markets such as Indonesia, this will provide a greater opportunity for new and existing distributors to expand their business network.

Wholesale

Our wholesale division is the second largest contributor to the Group for this financial year under review. It contributed 13% to Group sales and 24% to Group operating profit. 2007 was the year when Pu-er tea prices took a tumble. There was speculative craze in the Pu-er tea market and speculators were not limited to the Chinese in China but also to Hong Kong and Taiwan. Reports by the Chinese media on the ability of Pu-er tea to appreciate in value over time eventually led to excessive hype and heavy speculation. This led to a significant rise in Pu-er prices beyond what it could reasonably sustain. As a result, the price had been adjusted to the fundamental value and it will take some time to recover to meet to the balance of market demand and supply. We remain cautious and will continue to promote the tea especially target on the consumption market.

Other main products such as medicated tonic and health food also registered growth in sales and profit. Overall, effective marketing strategies and A&P activities such as advertising on 8TV, NTV7 and ASTRO and the sponsorship of "Star Idol" on NTV7 had created brand awareness and product exposures among family and teen viewers.

Retailing

Revenue from our retailing division (Hai-O Raya) increased marginally to RM 39.34 million for FYE 30 April 2008, and operating profit had increased by 21% to RM 2 million. Profit margin improved due to new marketing strategy focusing on the sale of house-branded products. There will be more house-branded products launching this year, and will also focus on further developing the housebrand image. The aggressive promotion of the Hai-O Raya Customer Loyalty Program also contributed to the increase in sales. Hai-O Raya Customer Loyalty Program is an in-house "Customer Membership" program whereby members can enjoy exclusive discounts and privileges. We also organize Member's Privileges Sales event twice a year, and had been receiving very good response from our valued members. Currently, Hai-O Raya has over 70,000 active members who provide constant revenue to it, which accounts for almost 50% of sales to the retailing division.

In order to tap into the younger generation of customers from high traffic flow shopping centres, Hai-O Raya has added 2 new retail outlets in Jusco Seberang Prai City Shopping Centre, Bandar Perda, Bukit Mertajam, Penang and Carrefour Sutera Mall, Taman Sutera Utama, Skudai, Johor. Currently, Hai-O Raya has a total of 56 outlets throughout Malaysia and will continue to look for strategic locations to establish new outlets.

Joint Venture Companies

Peking Tongrentang (M) Sdn. Bhd.

A joint venture company between Hai-O and Beijing Tongrentang Co. Ltd, which is the largest producer of traditional Chinese medicine in China. It is also one of the oldest and most respected practitioners in traditional Chinese medicine. It is a well known name widely among Chinese and Asians worldwide. Through the joint venture, Hai-O is able to tap into the wealth of experience and knowledge accumulated by Beijing Tongrentang from its more than 330 years of operation, and deliver to our customers in Malaysia the best available clinical and pharmaceutical services in traditional Chinese medicine.

Peking Tongrentang (M) Sdn. Bhd. opened its 3rd outlet in SS2, Petaling Jaya on 1 April 2008. The grand opening ceremony was officiated by Transport Minister, Datuk Ong Tee Keat and People's Republic of China Ambassador to Malaysia, Cheng Yonghua.

Manufacturing

Sales contribution from this division is relatively small in relation to the Group's turnover. It had recorded external sales of about RM 1.2 million and operating profit of RM 0.45 million for the year under review. The new setup, QIS Research Laboratory Sdn. Bhd. has kick started operations in the year under review. It is a full service analytical laboratory, complied with the requirements of the Department of Standards Malaysia (DSM), offering a wide range of testing services in the areas of the microbiology and chemical analysis in traditional medicine and food products.

On 30 January 2008, SG Global Biotech Sdn. Bhd. ("SG Global") secured an exclusive five-year contract to manufacture a natural sweetener under the brand name, Greenlite, from PureCircle Sdn. Bhd. ("PureCircle"). SG Global will be responsible for manufacturing a zero calorie natural sweetener using Stevia rebaudiana for PureCircle. PureCircle is the world's largest producer of natural high-density sweetener from stevia plants. It has been listed on London Stock Exchange's Alternative Investment Market in December 2007.

Prospect

Our transfer to the Main Board of Bursa Malaysia signifies a next step forward for us in this new millennium. Hai-O started out with just RM 168,000 way back in 1975, and for the past 33 years has grown steadily to a multimillion Ringgit company it is today. Looking back, the journey was no bed of roses, the Company came face-to-face with many ups and downs over the years, yet we weathered through the tough times and each time bounced back stronger than before. Over the years, we have nurtured a culture of a wholesome lifestyle within and outside the Company, like the seagull that lives in harmony with nature. Hai-O also "lives" in harmony with its community; our promotion of a wholesome lifestyle is best reflected through our corporate social responsibility and through our range of consumer products.

Hai-O's financially sound foundation is partly due to its strong earnings and cash flow, our comprehensive and ever expanding range of branded health products. This results in our adherence to the policy of paying out 50% dividends to our shareholders.

We encourage more people who work with us both inside and out to be part of the Hai-O family. And with the acquisition of BATA's 28 acres of land in Jalan Kapar, Klang, this will open up new possibilities for our future business expansion. We hope to increase our MLM distributor base, retail customer base and wholesale customer base. Our MLM division's stellar performance is showing that it has the capability to do much better in years to come.

Human Resources

At Hai-O, we recognize the human capital is our most important asset. Our human resource culture centered on 3 core values: Sense of Belonging, Teamwork and Equal Opportunity. We encourage our staff to excel and value their careers in Hai-O as their own undertaking. In Hai-O, we all work together as a team and strive to inculcate a sense of ownership to our company. We provide equal opportunity to our staff to make contributions and in return to enjoy a rewarding career. With such philosophy in mind, Hai-O is committed to bringing out the best in our staff and to build the success together.

For Board of Directors & Senior Management:
As part of the CEP (Continuous Education Program) for our directors, the training department organized a seminar entitled "Risk Management", conducted by Dr. Malick Sy, a well-known International business consultant and trainer. Topics discussed include the real challenges in implementing enterprise-wide Operational Risk Management and the methods to overcome some of these challenges, an insight to various Good Operational Risk Management Practices, and ways of managing Operational Risk from formally defining Operations Processes.

The directors and managers were also given a seminar on, "Due Diligence – Is Your Company Creating Shareholder Value?" with the aim of gaining the insight into the best practices of strategic financial and marketing management that helps to maximize shareholders' value in a prudent and ethical approach.

Another seminar entitled, "Director's Responsibility, Code of Ethics & Case Study" was organized with the aim in creating an environment that fosters the development of conscientious ethically-minded people who are committed to integrity and fairness. Areas covered include confidentiality, conflict of interest, and insider information.

For Mid-Level Management, Sales Personnel and Others:
We conducted numerous product trainings (by our qualified in-house Chinese physicians) for our wholesale and retail sales team, enabling them to gain better product knowledge and its competitive advantage so that they can serve our customer better. We have conducted a "Customer Care" workshop for the wholesale division. The workshop gives staff who are involved in customer service the core skills to build customer relationships, create a positive business image and recognize customers' demands.

Acknowledgment

On behalf of the Board of Directors, please allow me to express my sincerest gratitude and appreciation to our valued customers, suppliers, shareholders, business associates and bankers for their continued support and trust. A big thank you is also extended to the government and relevant authorities and officers for their assistance.

We are very lucky to be supported by an incredible group of men & women who run our operating units on all levels, without them, we wouldn't have been where we are today. Therefore, from the bottom of my heart, you all have my thanks.

Tan Kai Hee
Managing Director