Business Review

The year under review has been a momentous one for Hong Kong Energy (Holdings) Limited ("HKE" or "the Company", with its subsidiary companies, collectively, "the Group"). In a year in which the name of the Company and the nature of the Group's primary business have changed, the global economy experienced a sharp deterioration towards the end of 2008. As a result, the Group has had to face the impact of the worldwide financial crisis. Although this is not an ideal environment for a fledgling company which has just started building up its alternative energy portfolio, I have many reasons to remain confident in the Group's prospects for the future.

A key date for the Group's development during the year was 10th April 2008, when HKC (Holdings) Limited ("HKC") completed its acquisition of a 74.99% shareholding in J.I.C. Technology Company Limited ("JIC"), thereby gaining management control. On 28th May 2008 the name of JIC was changed to Hong Kong Energy (Holdings) Limited. The acquired company is a software solutions provider. Since HKC's acquisition of a controlling interest, the Group has begun to be transformed into a vehicle for investing in the field of alternative energy. The aim is to eventually develop the Group into a flagship company for HKC's interests in the alternative energy industry while peripherally being a provider of software solutions as well.

To date, HKE has primarily invested in wind power projects, one of which is a 100.5 MW wind farm in Lunaobao in Zhangbei region. Two other promising wind farm projects are currently waiting for various official permits and approvals. In addition, the Group is involved in a joint venture project for producing cellulosic ethanol, another form of alternative energy, in Jiangmen, Guangdong Province, which is still at the testing stage.

The global financial crisis has affected funding liquidity, depressed prices of raw materials, and reduced demand for energy. In response, the Group has been adjusting its strategies and investment plans for alternative energy projects over the coming year. For instance, we have shelved or postponed investment in initiatives that currently do not look as viable as they once did. For projects that we feel having significant merit, we are working hard to ally ourselves with reliable strategic partners who will bring funding, experience and risk-sharing to any venture.

The Group's software solutions business has also felt the effects of the economic slowdown. This has been reflected in a further impairment loss on intangible assets in relation to the Group's customer base recorded for the year under review.

Despite the losses incurred, the Group's cash position remains strong. As of the end of 2008, HKE had net cash of HK$289.10 million, or HK37.9 cents per share.

Prospects

It is commonly believed that the global financial crisis shall adversely impact on the world economies well into 2009, and perhaps drive many countries into recession. The Chinese government has acted quickly to head off domestic decline, announcing a range of economic stimulus packages worth a total of RMB4 trillion that should have the effect of stimulating the market and boosting domestic spending. Other measures introduced or expected include tax deductions on the purchase of fixed assets, cuts in the lending rate, and relaxations of rules on domestic borrowing.

The Group is confident that these government measures will ease the burden on many businesses and help engineering a solid economic recovery. They will also directly benefit the alternative energy sector. Despite the drop in oil prices, environmentally friendly energy remains a high priority on the government's agenda, and new policies remain committed to prioritizing use of alternative energies to cut pollution and reduce reliance on fossil fuels. One obvious effect is that, by comparison with many other industries, the alternative energy sector has much easier access to bank project financing even in today's tougher credit environment. At a wider level, the recent change of President in the US has seen the issue of 'green' energy revived there, while ongoing bad news about global warming is keeping the need for environmentally friendly energy at the forefront of public thinking around the world.

All these represent positive news for the Group and our alternative energy plans in the longer term. While proceeding ultra-cautiously in the coming year when ascertaining the true scale of the global financial crisis, we are optimistic about our long-term prospects. Our competitive advantages, which include significant experience in developing alternative energy projects and rich business connections in the field across China, should enable us to rebound strongly as economies settle and the value of resources such as windpower reassert themselves. The Group will therefore continue exploring sources of future investment, and search carefully for strategic partners ready to provide a sound capital base for future investment projects.

Acknowledgements

On behalf of the Board, I would like to express my greatest thanks to all our business partners, employees, management and shareholders for the dedication and support you have shown in these early days for HKE.

Oei Kang, Eric
Chairman and Chief Executive Officer

Hong Kong, 15th April 2009

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