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China Milk posts 1QFY10 net profit

of RMB65.5 million
• Reports 29.8% and 35.5% decline in revenue and net profit respectively against a
more competitive business landscape
• Intensifies marketing and promotional activities to promote its Yinluo brand of
products and fine tune marketing strategies before official launch

Financial Highlights 3 months ended 30 June

(RMB’ million) 1QFY10 1QFY08 Growth
Revenue 111.2 158.4 -29.8%
Profit from Operations 89.4 133.9 -33.2%

Net profit 65.5 101.5 -35.5%

EPS* (RMB) 0.09 0.14 -35.7%

*Based on 738,600,000 ordinary shares in issue in 1QFY10 and 1QFY09

SINGAPORE – 13 August 2009 – China Milk Products Group Limited ( 嵘燊集团有限

公司) (“China Milk” or “The Group”), one of the largest companies in the People’s Republic
of China (“PRC”) specialising in the production of pedigree bull semen, pedigree dairy cow
embryos and raw milk, today reported a net profit of RMB65.5 million and revenue of
RMB111.2 million for the three months ended 30 June 2009 (“1QFY10”), against an
increasing challenging business landscape.
China Milk’s 1QFY10 Results Page 2 of 6

This represented a drop of 35.5% in net profit from RMB101.5 million in the corresponding
period last year (“1QFY09”), and a decline of 29.8% in revenue from RMB158.4 million in
1QFY09.

During the quarter in review, the Group was faced with a myriad of challenges which
inevitably affected the demand for its bull semen and cow embryo products. These challenges
include:
i) intense price competition by local and overseas producers of bull semen and cow
embryos;
ii) stiffer competition from imported milk powder which has become more
affordable, presenting itself as an alternative to raw milk for milk processors; and
iii) higher feed costs and more stringent government controls on the quality of raw
milk arising from the melamine incident in China, forcing farmers to reduce or
stop the rate of increase in their herd size.

Segmental review of 1QFY10 financial results

Sales Breakdown
RMB’ million 1QFY10 1QFY09 Growth
Raw Milk 32.4 37.8 -14.3%
Pedigree Bull Semen 70.0 102.9 -32.9%
Pedigree Cow Embryos 8.9 17.8 -50.0%
TOTAL 111.2 158.4 -47.2%

Production and Sales

1QFY10 1QFY09 Growth
Raw Milk (tonnes)
- Produced 10,595 11,830 -10.4%
- Sold 10,595 11,830 -10.4%
Pedigree Bull Semen (straws)
- Produced 1,500,392 1,476,536 1.6%
- Sold 1,000,000 1,470,000 -32.0%
Pedigree Cow Embryos (straws)
- Produced 7,580 8,876 -14.6%
- Sold 3,550 7,100 -50.0%
China Milk’s 1QFY10 Results Page 3 of 6

On a segmental basis, the sale of pedigree bull semen remained the Group’s most significant
core business, representing 62.9% of total revenue in 1QFY10. Sale of raw milk, the second
largest revenue contributor, accounted for 29.1% of total revenue while sale of pedigree cow
embryos made up the remaining 8.0%.

The sale of bull semen and cow embryos fell by 32.9% and 50.0% respectively in this quarter
due to the drop in sales volume. The fall in demand was largely caused by intense price
competition from local and overseas producers of bull semen and cow embryos in the recent
months.

In addition, small-scale local farmers, who contribute the bulk of China’s raw milk supply,
were forced to reduce or stop the rate of increase in their herd size due to the following
reasons: i) higher operating costs due to more stringent government controls on quality, lower
economies of scale and rising feed costs; ii) stiffer competition as milk processors in China
now have the choice to process milk products by using imported milk powder, which has a
longer shelf life and is now cheaper, instead of purchasing raw milk from the farmers and
processing it immediately. All these factors have inevitably affected the demand for the
Group’s pedigree bull semen and dairy cow embryos.

Due to lower production, sale of raw milk in 1QFY10 declined 13.9% year-on-year to
RMB32.4 million. During the quarter, the Group produced and sold 10,595 tonnes of raw
milk, a decline of 10.4% as compared to 1QFY09. The fall in production volume is in line
with the increase in number of mature dairy cows that were pregnant and within one month of
their delivery due dates during this quarter. It is a normal practice to let these dairy cows rest
instead of milking them during this period.

Commenting on the Group’s 1QFY10 results, Mr Liu Hailong, CEO of China Milk, said,
“The first quarter was a testing period for us. While our Group was not directly affected by
the melamine incident, our customers and the dairy industry as a whole have felt its impact.
The competitive landscape for China’s dairy industry, due to governmental reforms and
intense price pressures from imported products, has led to a decrease in the demand of our
products.”
China Milk’s 1QFY10 Results Page 4 of 6

Continued herd size expansion

As at 30 June 2009, China Milk’s total herd size grew to 21,074, representing a 14.6% rise
from 18,396 a year ago. This comprised 368 pedigree bull sires, 212 young sires, 20,396
dairy cows and 98 other males.

Of the dairy cows, the Australian breed recorded the highest growth, from 2,867 previously
to 5,866 as the Group took delivery of over 3,000 Australian Holsteins from China in July
2008.

Effective herd management is important to China Milk’s business as it helps to maintain or

even raise productivity. As such, the Group will remain focused on continuously improving
its herd structure to ensure optimal productivity.

Per share data

In 1QFY10, China Milk’s basic earnings per ordinary share was 9 RMB cents, based on
738,600,000 ordinary shares. Net asset value per ordinary share rose to RMB3.05 as at 30
June 2009, from RMB2.96 as at 31 March 2009.

Business prospects
The dairy industry continues to face challenges due to more stringent government controls on
the quality of raw milk arising from the melamine incident in China. These have led to higher
costs of rearing cattle for farmers across the board.

The Group has observed signs of consolidation where major dairy companies and farms are
expanding their herds via acquisitions, while small-scale dairy farmers continue to be
affected by lower economies of scale, rising feed costs and intense competition from
imported milk powder.

“Taking into account the challenging operating environment and downward pricing pressure
from local and overseas producers of bull semen and cow embryos, we are of the view that
we may have to carefully reduce the selling prices of our pedigree bull semen and cow
embryos to retain our competitiveness,” said Mr Liu.
China Milk’s 1QFY10 Results Page 5 of 6

On a brighter note, given the shortage of good quality cows in China, the Group believes that
its quality bull semen and cow embryos of Canadian breed will continue to play an important
role in cattle genetics as well as milk yield improvement in China. This is supported by
positive government initiatives to raise the standards of China’s dairy industry.

The PRC government has set goals for extensive industry reforms, including enacting a
sound legislation and standardized system on dairy products by October 2010, and improving
overall milk yield to 5.5 tonnes per annum, increasing the number of large-scale farms to
support 30% of China’s total raw milk supply and requiring dairy processors to obtain 70%
of their raw milk from their own farms by October 2011.

The Group will remain focused on raising its efficiency via continuous improvement of its
herd structure and expansion of its Canadian and Australian dairy cows via internal breeding.

Updates on own brand strategy

The Group has made good headway in its milk processing business. In July 2009, it
participated in a food and beverage exhibition held in Daqing to showcase its Yinluo brand of
dairy products. Sales and feedback from consumers about the taste and quality of its dairy
products have been very positive and the Group is optimistic about the launch and prospects
of its own brand products.

“We are greatly encouraged by the positive response that we received from the exhibition.
In addition to the heartening sales, we were also happy to note that many consumers
appreciated the fact that we produce our own raw milk and our melamine-free track record.

“We are making good progress on the milk processing front and will continue to actively
participate in marketing events such as food fairs, sampling booths at supermarkets and
promotional activities at shopping malls in the coming months. These activities will not only
enable us to raise the awareness of our Yinluo products, but also allow us to gather consumer
feedback to fine-tune our products and marketing strategies before officially rolling out the
products in Heilongjiang,” added Mr Liu.
China Milk’s 1QFY10 Results Page 6 of 6

Joint Venture – Pending completion of administrative procedures

The Group’s joint venture with government-owned Heilongjiang Animal Breeding Centre
( 黑龙江省家畜繁育指导站) (“HABC”) and an independent third party is still pending
administrative procedures to be completed.

###
About China Milk
Based in Heilongjiang Province, China Milk’s primary operating subsidiary, Daqing Yinluo Dairy
大庆市银螺乳业有限公司
Co., Ltd. ( ) is a National Leading Enterprise and has 13 dairy farms, with
a combined land area of approximately 2.23 million square metres. It is one of the largest companies
in the PRC that specialises in the production and sale of pedigree bull semen, pedigree dairy cow
embryos and raw milk.

As at 30 June 2009, China Milk has a total herd size of 21,074 including Holsteins of Canadian,
Australian and Chinese origins. Holsteins are renowned for their ability to produce more milk than
other breeds, particularly the highly-prized Canadian Holsteins with an annual production capacity
of 8 to 10 tonnes of raw milk per cow. China Milk owns one of the largest herds of Canadian
Holsteins in the PRC. Through its modern animal husbandry expertise, China Milk has expanded its
herd of pedigree dairy cows through artificial insemination and embryo transplantation techniques.

Over the years, Daqing Yinluo Dairy Co., Ltd. has received several industry and government
accolades such as:
- Milk Production Promising Enterprise (2004) from the China Milk Industry Association;
High-Technology Expertise award (2003) from the Heilongjiang Science and Technology
Committee
- National Leading Enterprise in the agricultural and farming industry, conferred by the Central
Government in 2002, 2005, 2007 and 2009.
- Provincial Leading Enterprise from the Heilongjiang Province People’s Government in 2002,
2005 and 2007.

For more information on China Milk, please visit www.chinamilkgroup.com.