China Mengniu Dairy : Mengniu’s 2016 Annual Revenue Amounted to Approximately RMB53,780 Million - Enhanced Value of Its Brands, Strengthened up and Downstream Business Deployment

[Press Release] MENGNIU'S 2016 ANNUAL REVENUE AMOUNTED TO APPROXIMATELY RMB53,780 MILLION * * * * * ENHANCED VALUE OF ITS BRANDS STRENGTHENED UP AND DOWNSTREAM BUSINESS DEPLOYMENT 2016 Annual Results Highlights:

For the Year Ended 31 December	2016	2015
	RMB million	RMB million
Revenue	53,779	49,027
Gross Profit	17,635	15,375
Profit/(Loss) Attributable to Owners of the Company	(751)	2,367
Earnings/(Losses) per Share (RMB)
- Basic	(0.193)	0.609
- Diluted	(0.193)	0.607

• Mengniu focuses on product quality and innovation, and is in the vanguard of the premium product consumption trend. During the year, Mengniu's liquid milk and chilled dairy products continued to lead the market with the largest market share.

• Continued with integration of the milk formula business, drawing on the resources support of Danone Group and the research and development expertise of Dumex Baby Food Co., Ltd. ("Dumex China") to improve its product development capabilities and augment the positioning of its product portfolio.

• Implemented new reforms for its business divisions in order to develop the independent room temperature, chilled, milk formula and ice cream product business segments. This has facilitated resource coordination and risk control, and thereby enabled the Group to achieve a balanced development.

• Entered into cooperative relations with international brands such as Shanghai Disney and NBA China to enhance the value of the Mengniu brand.

• Visionary deployment of upstream and downstream resources by increasing Mengniu's shareholding in China Modern Dairy Holdings Ltd. ("Modern Dairy"; stock code: 1117) in 2017, which is expected to help the Group to build smoother cooperative ties between upstream and downstream and ensure the supply of quality raw milk.

~ More ~

(Hong Kong, 30 March 2017) China Mengniu Dairy Company Limited and its subsidiaries ("Mengniu" or the "Group", Stock Code: 2319), a leading dairy product manufacturer in China, today announced its audited annual results for the year ended 31 December 2016.

Benefiting from the upgraded product structure and brands as well as active promotion and marketing efforts, the Group's total revenue for 2016 increased by 9.7% year-on-year to RMB53,779.3 million. With the average price of raw milk on the down trend during the year and an optimized product mix, the Group's gross profit increased to RMB17,635.4 million and gross profit margin was up by 1.4 percentage points to 32.8%. Affected by the provision for goodwill impairment due to deterioration of operating performance of Yashili, sale of inventory of raw milk powder and a significant loss incurred by an associate company, loss attributable to owners of the Company amounted to RMB751.2 million (2015: a profit of RMB2,367.3 million). Basic loss per share was RMB0.193 (2015: basic earnings per share of RMB0.609).

Mr. Jeffrey, Minfang Lu, Chief Executive Officer of Mengniu, said, "In 2016, Mengniu actively embraced innovation and changes, continued to push forward its two-pronged "internationalization + digitalization" development strategy to fully enhanced the value of its brands and optimized business deployment. During the year, Mengniu completed together with Yashili the acquisition of Dumex China from Danone, which has given its milk formula business a stronger brand portfolio. And, through cooperating with international brands such as Shanghai Disney and NBA China, Mengniu has effectively boosted the value of its brands. In addition, Mengniu also started to implement a new business division system that comprises independent business segments including room temperature, chilled, milk powder and ice cream products, thereby strengthened the synergies from coordinated resources allocation and risk management, enabling to achieve balanced development of its different businesses. At the beginning of 2017, Mengniu increased its shareholding in Modern Dairy thereby has been able to ensure access to quality raw milk supply and that also is expected to smoothen upstream and downstream cooperation. We believe it has laid a solid foundation for the long-term development of Mengniu."

Business performance in 2016

1. Liquid Milk (Revenue: RMB48,102.9 million, accounting for 89.4% of Mengniu's total revenue) UHT milk, milk beverages and yogurt recorded revenue of RMB23,851.9 million, RMB9,380.2 million and RMB14,870.8 million, accounting for 49.6%, 19.5% and 30.9% of the liquid milk segment revenue, respectively. During the year, Mengniu maintained a leading share in the liquid milk market. Its chilled dairy products continued to triumph the largest market share, and the market share of room temperature products had a slight increase. Milk Deluxe, Just Yoghurt and Mengniu Pure Milk were the main contributors of revenue growth of the Group.

   In the UHT milk segment, Milk Deluxe and Mengniu Pure Milk had a full upgrade in nutritional standards; XinYangDao and Miao Miao Kid Growth Milk in the Future Star series mounted cross-selling effort joining hands with the movies "Warcraft" and "Ice Age: Collision Course" respectively to release limited edition packaging milk products, aiming to enhance image of the brands. Regarding milk beverages, Yoyi C launched an innovative cross-segment product - the Live Tea series - and tying marketing with the variety gourmet show "Chef Nic". For its yogurt segment, Just Yogurt was the title sponsor of the variety show "Run for Time" of Hunan TV and its brand presence was instilled into the movie "The Mermaid" to convey the brand concept, helping to promote sales growth. Bio launched a new product series that embodies French-style ease and leisure and contains more Danone-patented B-Probiotics, promising to nourish and invigorate consumers.

   ~ More ~

2. Ice Cream business (Revenue: RMB2,179.9, accounting for 4.1% of Mengniu's total revenue) Mengniu constantly strives for product upgrades and innovation and has been active in introducing new products that agree with consumption trends. Deluxe launched another industry-leading product in 2016, the only fruit yogurt ice cream in the market; Suibian and Ice+ released added innovative products to the series respectively featuring brand new flavor combinations. Mengniu also created eight classic Disney cartoon characters inspired ice creams for the Shanghai Disney Resort.

3. Milk Formula business (Revenue: RMB3,150.9, accounting for 5.9% of Mengniu's total revenue) Mengniu is committed to producing milk powder of international standard, hence has worked hard at consolidating its milk formula business. During the year, Yashili's Super α-Golden, which is directly canned in New Zealand, was launched for sale in China and New Zealand simultaneously. And, Oushi Mengniu continued to expand its organic product offerings to optimize the positioning of its product portfolio.

4. Other Products business (Revenue: RMB345.6, accounting for 0.6% of Mengniu's total revenue) The plant-based beverage brand Silk ZhiPuMoFang jointly developed by Mengniu and WhiteWave refined the existing walnut and almond flavor beverages and launched the Mellow Soy Milk series, which features low sugar content that agrees with consumers' quest for healthy diets today.

Strengthened Strategic Cooperation and Optimized Business Deployment

Inner Mongolia Mengniu Danone Dairy Co., Ltd. ("Mengniu Danone"), a joint-equity company held by Mengniu and its second largest strategic shareholder Danone Group continued to lead in the domestic chilled dairy products market holding the largest market share. Mengniu Danone improved cost management effectiveness by using PET bottles and optimizing product formula. At the same time, its Jinhua plant began operation, adopting the unified global food safety and quality standards of Danone Group, giving the plant the highest level of digitalization among all production plants of the Group. Furthermore, Mengniu and Arla Foods continued to exhume more synergies on the research and development and production fronts, pushing for product innovation in categories including room temperature products, high-end organic milk formula and cheese products. Such endeavors have enabled Mengniu to pilot consumption upgrade.

Mengniu and Yashili completed the acquisition of Dumex China from Danone Group on 31 May 2016. After the acquisition, Yashili integrated the advanced manufacturing facilities of Dumex China with its own and optimized those facilities. Furthermore, Yashili also has access to the research and development capabilities of Dumex China, enabling it to raise its product development standards. In January 2017, Mengniu announced the purchase of 965,465,750 additional shares of Modern Dairy, representing approximately 15.7% of the total issued share capital of Modern Dairy upon completion of the relevant share purchase agreement, at a consideration of approximately HK$1.9 billion. When the acquisition is completed, Mengniu will beneficially hold approximately 37.7% of the total issued share capital of Modern Dairy, and as such will trigger that conditional mandatory cash offer to acquire all the issued shares and all outstanding options of Modern Dairy ("Offers"). As of the close of the Offers on March 21, Mengniu held an aggregate of about 61.3% of the issued share capital of Modern Dairy, and the listing status of Modern Dairy was maintained. The further equity investment in Modern Dairy will enable Mengniu to smoothen upstream and downstream cooperation, further assure Mengniu of quality milk source supply and fortify its leadership in the high-end dairy products market.

~ More ~

Enhanced information foundation and quality control

The synergistic operation of the Laboratory Information Management System ("LIMS") and SAP system has enabled Mengniu to effective control quality along the entire industrial chain that accommodates back and forth tracking of operational information thus supports overall improvement, qualitatively and quantitatively. Empowered by its "Real-time Food Safety and Quality Monitoring and Control Platform" and "Food Safety Cloud", Mengniu has realized informatization of its entire industrial chain and built an international grade quality and safety management system. Regarding milk source management, Mengniu actively enhanced its self-inspection capability. During the year, all milk samples from milk suppliers of Mengniu's various business divisions passed the inspection and tests. Mengniu also continued to strengthen traceability of products from the time they leave the plant to the points-of-sale, effectively tracking key products and markets, which in turn significantly enhanced sales quality.

Enhanced development of milk sources and aligned with international standards

Mengniu has forcefully implemented the "2020 Sustainable Ecosystem of Milk Sources", working hard on strengthening its milk sources foundation in areas including deployment, structure, quality and technology, so as to raise milk quality and minimize food safety risks. During the year, the percentage of Mengniu's milk sourced from standardized ranches and scaled farms reached 100%. And by adopting the advanced ranch management SOP standard from Denmark-based Arla Foods, Mengniu fortified the foundation for establishing standardized ranches and strengthening its ability to apply delicacy management of technologies. Mengniu aligned its system with the advanced assessment management system of Arla Garden to help milk suppliers effectively enhance profitability and minimize internal operating costs.

Augment strategic layout and raise brand value

Mengniu continued to push for "internationalization" and "digitalization" in its innovative strategic layout targeting to enhance its brand value all-round. During the year, it kicked off aerospace R&D through its "aerospace probiotics program (航天菌種計劃)". It launched a series of aerospace-themed marketing and

promotional activities under the "Support China, Excel in Space (助力中國，牛到太空)" banner, and through integrated online and offline promotions boosted Mengniu's high-tech and high quality brand image. As the

long-standing strategic partner of NBA China, during the NBA Global Game period, Mengniu rolled out "Friends for 10 years, A little happiness matters (十年友你，只為點滴幸福)" promotion. Mengniu was authorized to launch unique milk products with NBA elements in China to strengthen basketball fans' sense

of affiliation to the Mengniu brand.

After being appointed by Shanghai Disney Resort as its official dairy product partner, Mengniu announced on March 24, 2017 that it also became a strategic partner of Universal Beijing Resort, to exclusively supply dairy products and ice cream products to the Resort, an accomplishment that has bolstered the international influence of the Mengniu brand. Furthermore, Mengniu was able to take its promotion through entertainment to a new level. During the year, the Group achieved cross-sector cooperation working with the movies "Independence Day: Resurgence", "Ice Age: Collision Course" and "The Mermaid" and succeeded in capturing the attention of young consumers. It also mounted interactive marketing with the variety shows "Run for Time" and "Chef Nic" to enhance its quality brand image as well as boost product sales.