Chairman' Statement

Extracted from Annual Report 2008

On behalf of the Board of Directors, I am pleased to present the Annual Report and Operations Review of Auric Pacific Group Limited ("APGL") for the financial year ended 31 December 2008.

2008 turned out to be a difficult and challenging year. In the US, the deepening sub-prime mortgage crisis worsened and spread into the wider financial system which led to a collapse of major US financial institutions. This in turn caused a massive seizure of the credit markets which resulted in a worldwide economic and financial crisis on a scale not seen before. The global economic crisis has been particularly hard hitting and wide reaching. The speed and scale of the spread of the crisis has caught many by surprise. No major developed or developing country has been spared.

Singapore and Malaysia, where APGL has most of its investments and derives most of its revenues, have also seen their economies contracting sharply. The Group, as is the case with many companies, has been adversely affected. This is reflected in the 2008 results for APGL.

GROUP RESULTS

The Group's overall results showed a loss before taxation of $30.0 million for FY 2008 which is a sharp cross-over from the profit before taxation of $66.1 million for FY 2007. A loss has resulted despite revenues of $420.6 million for FY 2008, which represents a revenue growth of 51.5% as compared to FY 2007.

The deterioration in results was largely attributable to the realised loss as well as unrealised fair valuation loss arising from the investment securities and investment funds. These accounted for losses of $17.3 million for FY 2008 in contrast to the realised gain and unrealised fair valuation gain of $14.7 million for FY 2007.

In terms of revenue, the acquisition of Delifrance Group (DLF) and Food Junction Holdings (FJH) contributed $100.2 million and $14.5 million respectively. Delifrance Group was acquired on 28 December 2007 whereas the acquisition of additional shareholdings in FJH was completed on 15 September 2008. Existing businesses in food operations contributed an increase of $38.6 million to the revenue while the non-distribution business in China recorded $4.6 million of revenue, which was an increase of $3.2 million on FY 2007. The revenue growth was however affected by reduced turnover in securities investment which fell to $27.4 million from $35.2 million in FY 2007.

Other areas which contributed to the Group's loss before taxation are the food retail segment and the China non-food distribution businesses. The food retail segment, primarily Delifrance, a new addition to the Group, incurred an operating loss of $7.6 million due to high operating expenses, restructuring costs and the closure of non-profitable retail outlets. The loss in the China non-food distribution business was attributed to the lower than expected sales volume.

On discontinued operations, the sale of the Group's property investment, One Phillip Street (OPS) and divestment of investment in an associated company, Robinson and Company Limited (RCL) accounted for profit before tax of $13.7 million for FY 2008, a reduction of $44.2 million from the $57.9 million recorded last year. OPS contributed a profit before tax of $14.7 million as the other portion of the profit before tax of $46.8 million arising from this divestment was already reflected in FY 2007 accounts through a fair valuation exercise. The disposal of RCL shares contributed to a loss before tax of $0.8 million due to equity accounting.

The Group's overall results showed a loss after tax attributable to shareholders of $33.6 million for FY 2008 as compared to $48.8 million recorded in the previous year. Loss per share of 26.71 cents was registered in FY 2008, as compared to earnings per share of 38.86 cents in FY 2007.

Reflecting largely the impairment caused to the fair valuation of the Group's assets by the global economic crisis, Net Asset Value per share decreased by 16.2% to $1.76 from $2.10 recorded last year while Net Tangible Asset per share reduced from $1.57 in FY 2007 to $0.88 in FY 2008.

FOOD-RELATED BUSINESSES

A) Wholesale and Distribution

Revenue from the Singapore-based Marketing & Distribution business (Auric Pacific Marketing or APM) fell by about 14% in FY 2008 compared to FY 2007. This was largely attributable to the termination of the Kraft agency. Nevertheless, the underlying agency business remains healthy as the Group experienced higher revenues from the other brands being carried as well as higher sales for wines & spirits. APM also enjoyed higher revenues from house brands (e.g. SCS) where the margins are higher. This explains why the proportionate fall in gross profit was less than for revenues.

The Malaysian Marketing and Distribution operations (Auric Chun Yip or ACY) on the other hand, enjoyed improved sales and profitability in 2008 by acquiring new business partners in the Agency and Food Service businesses. In relation to house brands, ACY launched Buttercup Gold Canola Spreadable and SCS Cheese in Malaysia. The new product launches, riding on strong established brand names and brand loyalty were highly successful. The volatility and high commodity prices seen earlier in the year for dairy products and potatoes in global markets subsided in the second half of 2008. The restoration of price stability and the normalization of supply for these products were indeed welcoming. These several factors contributed significantly to the overall strong performance by the Group's Malaysian operations.

B) Manufacturing

The Group's main manufacturing facility in Singapore, Sunshine Bakeries (SB), delivered better results in 2008 compared to the previous year. SB achieved a profit of $1.4m (before interest and tax) due to a combination of higher selling prices, the regaining of market share from a predator competitor who has since exited the market and significant improvement made in the management of bread returns.

C) Retail

As with most of the Group's other retail businesses, a significant proportion of revenues for our Delifrance retail business are derived from the last quarter of the year. As the economic downturn was felt most severely towards the end of FY 2008, it had a major impact on Delifrance's annual revenue.

A number of initiatives were launched towards the end of FY 2008. The Dial Delifrance Direct (DDD) delivery service was launched in September 2008. Some cross-synergy projects were also initiated in September. These projects seek to eliminate duplication of activities within the Group and increase efficiency of Delifrance operations. A review and rationalisation of their general operations and overall manpower was also conducted towards the end of 2008. The gains from these initiatives are expected to be more fully realized in FY 2009.

HEALTH & PERSONAL CARE (Based in China)

The China market remains a challenge for a newcomer. As mentioned last year, it has taken the Group much longer than expected to penetrate the Chinese healthcare and retail market. The Group is focusing its efforts and resources on drugs distribution (Jian Sheng) as it regards this area to have better prospects. However, the drugs distribution business was made difficult by the Sichuan earthquake in May 2008, which saw the government providing a significant amount of free drugs to hospitals but the Group accepts it as a welcoming social responsibility in response to a disaster.

INVESTMENT ACTIVITIES

In line with the Group's strategy to build a significant core presence in the food and retail industries, the Group successfully completed a voluntary conditional partial offer for FJH shares on 15 September 2008. FJH is now a 50.5% subsidiary of the Group.

As at end-December 2008, FJH manages and operates 17 food courts and an American café chain in Shanghai. FJH intends to continue to look for suitable sites to expand its food court business and explore new F&B life-style concepts in Singapore and other countries in Asia.

CHANGES TO THE BOARD

Mr Sin Boon Ann resigned as an Independent Non- Executive Director effective 31 July 2008 to have more time for his expanding legal practice. The Board expresses thanks and gratitude for his invaluable contributions and counsel to the Group.

In his place, the Board welcomes Mr Jan Gert Vistisen who joined as an Independent Non-Executive Director effective 2 October 2008. Jan brings with him wide international experience in a variety of roles and businesses, including the distribution business. His membership will add to the strength and diversity of the board.

PROSPECTS

Against the backdrop of the global economic crisis, the outlook for 2009 is very challenging indeed. It is hard to predict how long the financial turmoil will last and whether it will further worsen. The broad view is that this crisis will be enduring. Nevertheless, it is encouraging to see that governments around the globe have taken concerted actions to address the crisis by taking fiscal steps to stimulate the economy, measures to bolster the banking system and initiatives to restore confidence to the markets.

The 2009 forecasts for Singapore and Malaysia, where the Group derives most of its revenues, is further economic contraction. The Group is hopeful that our core food related businesses should remain fairly resilient, with food being a basic necessity, but nevertheless expects that consumers will be prudent in their spending in the face of a gloomy economy and receding job market.

Much will depend on Government efforts in Singapore and Malaysia to moderate the severity of the recession. The authorities in both countries have announced initiatives to stimulate growth and help businesses weather the downturn. These initiatives are indeed welcomed and the hope is that they can succeed. The Group takes these turbulent times as a reminder of the need to continue with its efforts to achieve further synergies and cost savings throughout the Group.

DIVIDEND

An interim dividend of 2 cents per ordinary share (onetier tax exempt) in respect of financial year ended 2008 was declared on 14 August 2008. However, in view of the overall loss for FY 2008 and the difficult economic outlook ahead, the Board has decided against making any further dividend payment for the year as it will be more important for the Group to retain cash for future working capital needs.

ACKNOWLEDGEMENTS

On behalf of the Board of Directors, I would like to express our gratitude to our shareholders, customers, principals, union and business associates for their continued support. I would also like to thank my fellow Directors for their dedication, wise counsel and guidance. Last but not least, I extend our appreciation to the Management and Staff for their hard work, contributions and commitment, especially in this turbulent period. As a team, we are confident of facing the challenges ahead.