09:57     MENGNIU DAIRY<02319> - Announcement (6)                             

    Under the UHT Milk and Milk Beverage Products Inventory Adjustment        
    Agreement, the transferee will make payment to the transferor on          
    a monthly basis for all orders made that month.                           
                                                                              
    (c)   Pricing Standard                                                    
                                                                              
    The UHT milk and milk beverage products will be transferred at an         
    intra-group rate as disclosed in the Prospectus. Such rate is             
    determined by a formula, as follows:                                      
                                                                              
    Intra-Group Rate = Wholesale price of the UHT milk and milk               
    beverage products x (1 -- Y%*)                                            
                                                                              
    *Y = a variable percentage calculated based on the expected amount        
    of general expenses to be allocated to those manufacturing                
    companies in the Group participating in the inventory adjustment          
    arrangement. The general expenses consist of staff wages,                 
    marketing expenses, transport costs, storage costs and                    
    disbursements. As with other inventory adjustment transactions of         
    the Group that are disclosed in the Prospectus, Y is expected to          
    be capped at 3% going forward.                                            
                                                                              
    The UHT milk and milk beverage products are transferred and booked        
    at this intra-group rate for the purposes of the inventory                
    adjustment arrangement. As these transactions are conducted for           
    overall logistics management, there are no universal standards for        
    comparison. There is therefore no market or comparison price for          
    such inventory adjustment arrangements in China.                          
                                                                              
    (d)   Anticipated Annual Figures                                          
                                                                              
    There is no historical data for this transaction but it is                
    anticipated that they will occur after the entering into of the           
    UHT Milk and Milk Beverage Products Inventory Adjustment Agreement.       
    It is anticipated that on an annual basis, the maximum aggregate          
    amounts of the inventory adjustment caps for each of the three            
    financial years ending 31 December 2007 will not exceed                   
    RMB2,000,000, RMB6,000,000 and RMB10,800,000 respectively. Since          
    Mengniu Maanshan has not yet commenced production, these caps are         
    mainly extrapolated from its planned production capacity and by           
    making reference to factors such as the growth rate of turnover           
    of the Group over the past year, sales and expected increase in           
    market share and expected increase in demand and production               
    capacity. In respect of the cap for the year ended 31 December 2005,      
    it has been taken into account that Mengniu Maanshan will only be         
    operation for the second half of 2005. On the contrary, since the         
    majority of the participating subsidiaries in respect of the              
    continuing connected transaction as disclosed under paragraph 4(A)        
    to this announcement have been in operation and that historical           
    transaction data were available, hence, the proposed restated caps        
    are mainly extrapolated from factors such as historical production        
    and sales data and expected growth in production and sales. Other         
    factors taken into consideration are similar to those as for              
    Mengniu Maanshan.                                                         
                                                                              
    Pursuant to Rule 14A.25 of the Listing Rules and as requested by          
    the Stock Exchange, the current proposed caps in respect of these         
    inventory adjustment transactions as mentioned in this paragraph          
    2(B) would have to be aggregated with the proposed restated caps          
    in respect of the continuing connected transaction under paragraph        
    4(A) to this announcement. Such aggregation would result in each          
    of the applicable percentage ratios (other than the profits ratio)        
    for the inventory adjustment transactions being less than 2.5%.           
    In accordance with Rule 14A.34 of the Listing Rules, the inventory        
    adjustment transactions are subject only to reporting and                 
    announcement requirements set out in Rules 14A.45 to 14A.47 of the        
    Listing Rules.                                                            
                                                                              
    (C)   Centralised yogurt products sales arrangement by Mengniu            
    Beijing                                                                   
                                                                              
    (a)   Background                                                          
                                                                              
    As disclosed in page 114 of the Prospectus, the Group implements          
    a centralised sales arrangement for its yogurt products whereby           
    such products are centralised for sale, billing and invoicing to          
    distributors by Mengniu Beijing. As Mengniu Maanshan will                 
    manufacture yogurt products it will sell its yogurt products to           
    Mengniu Beijing for further distribution. These sales do not              
    involve delivery to Mengniu Beijing as these transactions are             
    operational transactions only.                                            
                                                                              
    These transactions occur as a result of the overall logistics             
    management under the centralised sales arrangement which are              
    conducted in the ordinary course of business on normal commercial         
    terms and will benefit the Group as a whole as efficiency is              
    increased.