09:58     MENGNIU DAIRY<02319> - Announcement (8)                             

    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 they represent an          
    efficient use of excess inventory whilst allowing the respective          
    Mengniu Subsidiary to meet delivery orders.                               
                                                                              
    (b)   Agreement and Terms                                                 
                                                                              
    The inventory adjustment transactions are covered by the Yogurt           
    Products Inventory Adjustment Agreement entered into by Mengniu           
    Maanshan and all the Mengniu Subsidiaries which manufacture yogurt,       
    Mengniu and Mengniu Beijing on 18 May 2005. It is for an initial          
    period commencing on the date of this agreement ending 31 December        
    2007.                                                                     
                                                                              
    Under the inventory adjustment agreement, the transferee shall            
    make payment on a monthly basis for all orders made that month.           
                                                                              
    (c)   Pricing Standard                                                    
                                                                              
    The yogurt 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 yogurt 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 yogurt 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           
    inventory adjustment agreement. It is anticipated that on an              
    annual basis, the maximum aggregate amounts of the centralised            
    sales, the caps, for each of the three financial years ending 31          
    December 2007 will not exceed RMB12,000,000, RMB43,200,000 and            
    RMB77,760,000 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(B) 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(D) would have to be aggregated with the revised caps in respect         
    of the continuing connected transaction as set out under paragraph        
    4(B) 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 greater than 2.5%.        
    Hence, these transactions constitute continuing connected                 
    transactions under Rule 14A.35 of the Listing Rules and are subject       
    to reporting and announcement requirements and will require               
    independent shareholders' approval and must comply with                   
    requirements set out in Rules 14A.45 to 14A.48 of the Listing             
    Rules.