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As at 31 December 2008, Devotion Energy Group Limited has 5 subsidiaries: Guangzhou Devotion Thermal Facility Co., Ltd("GDTF"), Guangzhou Devotion Domestic Boilers Manufacturing Co., Ltd("GDD"), Guangzhou Devotion Energy Technology Co., Ltd("GEDT"), Guangzhou Devotion Engineering Installation Co., Ltd("GDEI") and Shaoxing Aike Electric Co., Ltd("Shaoxing Aike").

Revenue

Group revenue for 2008 grew by RMB 33.5 million or 10.9% to RMB 340.5 million compared to that of RMB 307.0 million in 2007, the growth was contributed by domestic wall hung boiler business and industrial boiler business & LNG, which achieved approximately RMB 196.3 million and RMB 107.7 million in 2008 respectively compared with that of RMB 180.0 million and RMB87.3 million in 2007 respectively.

Cost of Sales & Gross Margin

Gross margin of the Group decreased from 27.1% in 2007 to 20.0% in 2008, the sharp fall in margin was mainly caused by the following factors:

• The rising petroleum coke price and higher depreciation expenses of production facilities of energy projects, which turned energy sector's gross profit margin from 31.8% in 2007 into negative this year.
• Higher steel price, which dropped profit margin of industrial boiler products significantly in 2008.

As a result the Group's gross profit decreased by RMB 15.1 million or 18.1% to RMB 68.2 million compared with that of RMB 83.3 million in 2007.

Distribution, Administrative and Finance expenses

Distribution costs in 2008 decreased by approximately RMB 2.0 million compared with 2007, which was due mainly to reduction in staff cost, for some of salespersons converted into independent sales agents. Administrative expenses relatively unchanged compared with 2007. Finance expenses in 2008 increased RMB 1.9 million compared with that of RMB 7.06 million in 2007, which was due to unrealised exchange loss of RMB 1.32 million and an increase of RMB 0.5 million in bank borrowing interest.

Other Operating Income

Other operating income decreased by RMB 4.0 million compared with 2007, as a Government subsidy of RMB 4.2 million was granted in 2007 to support Group's renewable energy business development.

Other Operating Expense

The increase in other operating expense was due to following factors:

• Additional provision for doubtful debts of RMB 1.9 million;
• Additional provision for slow moving inventory of RMB 1.4 million;
• Breakdown cost of one of EGC plant of RMB 2.5 million, which was due to low production demand.

Minority interests

Minority interests refers to 49% of equity interest in Shaoxing Aike Electric Co., Ltd, which the Company acquired its 51% of equity interest in April 2008 through its wholly owned subsidiary, Guangzhou Devotion Domestic Boiler Manufacturing Co., Ltd ("GDD").

Balance Sheet

The Group's receivables in 2008 reduced by RMB 29.9 million compared with that in 2007, which was due mainly to the following:

• Cooperation with more independent sales agents to supplant direct sales in 2008 for industrial boiler and domestic wall hung boiler business, which contributed better payment terms and shorter debt aging;
• Lower order received and sales executed in Quarter 4 of 2008 than that in the same period of 2007 as a result of recent financial crisis.
• There was a subsidy of RMB 4.2 million receivable in 2007 from PRC government for motivation of renewable energy business development.

The Group's payables in 2008 reduced by RMB 18.4 million compared with that in 2007, which was mainly due to lower level of raw material purchased in Quarter 4 of 2008 as a result of relatively lower sales order in hand compared with the same period in 2007.

Current global financial crisis has direct impact on the Group business, the Group's export sales of domestic wall hung boilers is expected to slow down, and industrial boiler business will be negatively affected by the slump of current PRC property market. The development of the Group's energy business will be largely depending on the fuel price and cost of petroleum coke. Despite the aforesaid challenging factors, the Group believes that it will benefit from PRC Government's strategies of expanding domestic demand. In addition, the Group will continue to exercise tighter management control to weather the economic crisis.

Barring unforeseeable circumstances, the Board expects the Group to be profitable in 2009.