CHINA MILK PRODUCTS GROUP LIMITED

(Incorporated in the Cayman Islands with registration number CT-155106)

Unaudited Second Quarter and Half Year Financial Statements and Dividend Announcement for the
Year Ending 31 March 2010 (“FY2010”)

PART I - INFORMATION REQUIRED FOR ANNOUNCEMENTS OF QUARTERLY (Q1, Q2 &Q3),

HALF-YEAR AND FULL YEAR RESULTS

1(a) An income statement (for the group) together with a comparative statement for the corresponding
period of the immediately preceding financial year.

Group Group
Unaudited Unaudited Unaudited Unaudited
Three months Three months Six months Six months
ended ended ended ended
30.09.2009 30.09.2008 % Increase / 30.09.2009 30.09.2008 % Increase /
RMB'000 RMB'000 (Decrease) RMB'000 RMB'000 (Decrease)
(Restated) (Restated)
Revenue 41,140 165,867 (75.20%) 152,386 324,311 (53.01%)

Fair value of agricultural produce on initial

recognition less estimated point-of-sale costs 66,917 170,241 (60.69%) 223,266 333,582 (33.07%)
Gains arising from changes in fair value less
estimated point-of-sale costs of dairy
livestock, net 19,775 14,513 36.26% 34,784 29,026 19.84%
86,692 184,754 (53.08%) 258,050 362,608 (28.83%)

Other income 2,682 3,667 (26.86%) 5,343 17,694 (69.80%)

Raw materials and consumables used ( 17,392) ( 23,503) (26.00%) ( 55,960) ( 60,273) (7.16%)
Sub-contacting expenses ( 19,117) ( 3,869) 394.11% ( 38,234) ( 5,337) 616.39%
Staff costs (including directors' remuneration
and retirement scheme contributions) ( 5,027) ( 4,073) 23.42% ( 10,028) ( 8,006) 25.26%
Depreciation and amortisation expenses ( 10,983) ( 6,051) 81.51% ( 21,962) ( 12,031) 82.55%
Minimum lease payments under operating
leases for land and buildings ( 2,575) ( 4,658) (44.72%) ( 4,876) ( 6,908) (29.42%)
Other operating expenses ( 8,180) ( 10,108) (19.07%) ( 16,786) ( 17,718) (5.26%)

Profit from operations 26,100 136,159 (80.83%) 115,547 270,029 (57.21%)

Change in fair value of derivative
financial instruments 28,700 ( 4,739) (705.61%) 26,971 ( 13,714) (296.67%)
Gain on repurchase of convertible bonds - - N/A 2,901 - N/A
Finance costs ( 25,340) ( 23,124) 9.58% ( 50,498) ( 46,495) 8.61%

Profit before taxation 29,460 108,296 (72.80%) 94,921 209,820 (54.76%)

Taxation - - N/A - - N/A

Profit for the period 29,460 108,296 (72.80%) 94,921 209,820 (54.76%)

Statement of Comprehensive Income

Profit for the period 29,460 108,296 (72.80%) 94,921 209,820 (54.76%)
Other comprehensive income/(loss)
for the period, net of tax - ( 1,739) N/A 1,659 7,894 (78.98%)
Total comprehensive income for the period 29,460 106,557 (72.35%) 96,580 217,714 (55.64%)

1
Note:

1. The Group's profit before taxation is arrived at after charging:-

Group Group
Unaudited Unaudited Unaudited Unaudited
Three months Three months Six months Six months
ended ended ended ended
30.09.2009 30.09.2008 30.09.2009 30.09.2008
RMB'000 RMB'000 RMB'000 RMB'000
Cost of agricultural produce sold 41,140 165,867 152,386 324,311
Amortisation of land use rights 1,585 1,462 3,169 2,924
Depreciation 9,398 4,589 18,793 9,107

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1(b)(i) A balance sheet (for the issuer and group), together with a comparative statement as at the end of the
immediately preceding financial year.
Group Company
Unaudited Audited Unaudited Audited
30.09.2009 31.03.2009 30.09.2009 31.03.2009
RMB'000 RMB'000 RMB'000 RMB'000
ASSETS

Non-current assets
Interests in subsidiaries - - 318,949 319,587
Property, plant and equipment 586,917 569,847 - -
Land use rights 248,934 252,103 - -
Dairy livestock 347,334 351,269 - -
1,183,185 1,173,219 318,949 319,587
Current assets
Inventories 104,452 33,151 - -
Trade receivables 64,692 119,288 - -
Prepayments and other receivables 52,832 370,327 - 275,109
Amount due from a subsidiary - - 1,222,895 976,972
Cash and bank balances 2,017,952 1,633,887 1,889 1,852
2,239,928 2,156,653 1,224,784 1,253,933

Total assets 3,423,113 3,329,872 1,543,733 1,573,520

EQUITY AND LIABILITIES

Equity attributable to equity holders of the parent
Issued capital 381,587 381,587 381,587 381,587
Reserves 1,903,702 1,807,122 53,746 78,347
Total equity 2,285,289 2,188,709 435,333 459,934

Current liabilities
Trade payables, accrued liabilities and
other payables 49,961 46,962 20,537 19,385
Derivative financial instruments 39,599 68,358 39,599 68,358
Convertible bonds 1,048,264 1,025,843 1,048,264 1,025,843
Total liabilities 1,137,824 1,141,163 1,108,400 1,113,586

Total equity and liabilities 3,423,113 3,329,872 1,543,733 1,573,520

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1(b)(ii) Aggregate amount of group’s borrowings and debt securities.

Amount repayable in one year or less, or on demand

As at 30.09.2009 As at 31.03.2009
Secured Unsecured Secured Unsecured
RMB’000 RMB’000
- 1,048,264 (Note) - 1,025,843 (Note)

Amount repayable after one year

As at 30.09.2009 As at 31.03.2009
Secured Unsecured Secured Unsecured

- - - -

Note: The unsecured borrowing represents the liability component of the USD150 million convertible
bonds issued by the Company on 5 January 2007. Details of the convertible bonds are set out in
paragraph 1(d)(ii).

Details of any collateral

Not applicable.

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1(c) A cash flow statement (for the group), together with a comparative statement for the corresponding
period of the immediately preceding financial year.

Group Group
Unaudited Unaudited Unaudited Unaudited
Three months Three months Six months Six months
ended ended ended ended
30.09.2009 30.09.2008 30.09.2009 30.09.2008
RMB'000 RMB'000 RMB'000 RMB'000
Cash flows from operating activities
Profit before taxation 29,460 108,296 94,921 209,820
Adjustments for:
Interest income ( 1,538) ( 2,548) ( 2,974) ( 5,759)
Gains arising from changes in fair value less estimated
point-of-sale costs of dairy livestock, net ( 19,775) ( 14,513) ( 34,784) ( 29,026)
Amortisation of land use rights 1,585 1,462 3,169 2,924
Depreciation 9,398 4,589 18,793 9,107
Change in fair value of derivative financial instruments ( 28,700) 4,739 ( 26,971) 13,714
Gain on repurchase of convertible bonds - - ( 2,901) -
Interest on convertible bonds 25,340 23,124 50,498 46,495
Operating profit before working capital changes 15,770 125,149 99,751 247,275

Working capital adjustments :

Increase in inventories ( 33,607) ( 5,203) ( 71,301) ( 4,671)
Decrease/(increase) in trade receivables 10,698 ( 12,988) 54,596 ( 3,431)
Decrease/(increase) in prepayment and other receivables 31,745 ( 711) 42,386 ( 3,144)
Increase in trade payables, accrued liabilities
and other payables 173 1,439 2,999 2,470
Net cash generated from operating activities 24,779 107,686 128,431 238,499

Cash flows from investing activities

Purchase of property, plant and equipment ( 35,662) ( 103,783) ( 35,863) ( 132,077)
Deposits refunded - 46,298 2,420 46,298
Purchase of dairy livestock - ( 67,200) ( 1,823) ( 75,657)
Proceeds from disposal of dairy livestock 21,929 26,358 40,542 50,889
Interest received 1,538 2,548 2,974 5,759
Net cash (used in) / generated from investing activities ( 12,195) ( 95,779) 8,250 ( 104,788)

Cash flows from financing activities

Repayment to a director - - - ( 19,457)
Refund of advancement for repurchase of convertible bonds - - 250,330 -
Dividend paid - ( 11,579) - ( 11,579)
Net cash generated from / (used in) financing activities - ( 11,579) 250,330 ( 31,036)
Net increase in cash and cash equivalents 12,584 328 387,011 102,675
Effect of foreign exchange rates changes, net - 2,556 ( 526) ( 14,255)
Cash and cash equivalents at beginning of period 2,005,368 1,822,260 1,631,467 1,736,724
Cash and cash equivalents at end of period 2,017,952 1,825,144 2,017,952 1,825,144

Analysis of balances of cash and cash equivalents

Cash and bank balances 2,017,952 1,825,144 2,017,952 1,825,144

5
1(d)(i) A statement (for the issuer and group) showing either (i) all changes in equity or (ii) changes in equity
other than those arising from capitalisation issues and distributions to shareholders, together with a
comparative statement for the corresponding period of the immediately preceding financial year.

Group - Unaudited
For the six months ended 30 September 2008

Issued Share Capital Merger Retained Translation

capital premium reserve reserve profits reserve Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000

Balance at 1 April 2008 381,587 218,365 94,511 ( 267,245) 1,380,375 11,056 1,818,649

Profit for the period - - - - 209,820 - 209,820

Currency translation - Net income/(expense)
recognised directly in equity - - - - - 7,894 7,894
Total comprehensive income for the period - - - - 209,820 7,894 217,714

Interim dividend declared - - - - ( 20,681) - ( 20,681)

Balance at 30 September 2008 381,587 218,365 94,511 ( 267,245) 1,569,514 18,950 2,015,682

Group - Unaudited
For the six months ended 30 September 2009

Issued Share Capital Merger Retained Translation

capital premium reserve reserve profits reserve Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000

Balance at 1 April 2009 381,587 218,365 94,511 ( 267,245) 1,742,164 19,327 2,188,709

Profit for the period - - - - 94,921 - 94,921

Currency translation - Net income/(expense)
recognised directly in equity - - - - - 1,659 1,659
Total comprehensive income for the period - - - - 94,921 1,659 96,580

Balance at 30 September 2009 381,587 218,365 94,511 ( 267,245) 1,837,085 20,986 2,285,289

6
C ompa ny - Unaudited
F or the s ix m onths ended 30 September 2 00 8
Retained
pro fits/
Is su ed Sh are (accu mul ated Tran slation
cap ital prem iu m los ses ) res erve To tal
RM B'0 0 0 RM B'0 00 RM B'0 00 RM B'0 00 RM B'0 00
Balance at 1 Ap ril 2 00 8 3 8 1,5 8 7 2 59 ,3 25 ( 22 ,6 36 ) ( 8 0,8 76 ) 5 37 ,4 00
Pro fit for th e p erio d - - 17 ,2 08 - 17 ,2 08
Cu rrency tran slation - N et in com e/(ex pen se)
reco gn ised directly in equ ity - - - ( 1 1,1 95 ) ( 11 ,1 95 )

T otal co mpreh ens iv e in co me fo r the period - - 17 ,2 08 ( 1 1,1 95 ) 6 ,0 13

In terim divi den d declared - - ( 20 ,6 81 ) - ( 20 ,6 81 )

Ba la nce at 3 0 September 2 00 8 3 8 1,5 8 7 2 59 ,3 25 ( 26 ,1 09 ) ( 9 2,0 71 ) 5 22 ,7 32

C ompa ny - Unaudited
F or the s ix m onths ended 30 September 2 00 9
Retained
pro fits/
Is su ed Sh are (accu mul ated Tran slation
cap ital prem iu m los ses ) res erve To tal
RM B'0 0 0 RM B'0 00 RM B'0 00 RM B'0 00 RM B'0 00
Balance at 1 Ap ril 2 00 9 3 8 1,5 8 7 2 59 ,3 25 ( 88 ,3 55 ) ( 9 2,6 23 ) 4 59 ,9 34
L os s fo r the p erio d - - ( 23 ,6 83 ) - ( 23 ,6 83 )
Cu rrency tran slation - N et in com e/(ex pen se)
reco gn ised directly in equ ity - - - ( 9 18 ) ( 9 18 )

T otal co mpreh ens iv e in co me fo r the period - - ( 23 ,6 83 ) ( 9 18 ) ( 24 ,6 01 )

Ba la nce at 3 0 September 2 00 9 3 8 1,5 8 7 2 59 ,3 25 ( 1 12 ,0 38 ) ( 9 3,5 41 ) 4 35 ,3 33

7
1(d)(ii) Details of any changes in the company’s share capital arising from rights issue, bonus issue, share buy-
backs, exercise of share options or warrants, conversion of other issues of equity securities, issue of shares
for cash or as consideration for acquisition or for any other purpose since the end of the previous period
reported on. State also the number of shares that may be issued on conversion of all the outstanding
convertibles, as well as the number of shares held as treasury shares, if any, against the total number of
issued shares excluding treasury shares of the issuer, as at the end of the current financial period reported
on and as at the end of the corresponding period of the immediately preceding financial year.

Share capital
There were no movements in the Company’s share capital during the three months ended 30 September 2009
(“FY10 2Q”). The Company currently has no shares held as treasury shares, and the total number of issued
shares (excluding treasury shares) as at 30 September 2009 was 738,600,000.

Share options
The Company has a share option scheme named as Yinluo Employee Share Option Scheme (the “ESOS”) which
was approved by the shareholders of the Company on 29 December 2005. The ESOS complies with the relevant
rules as set out in Chapter 8 of the Listing Manual of SGX-ST.

During the three months ended 30 September 2009 and up to date, no share options have been granted. There are
also no outstanding share options which had been previously issued under the ESOS.

Convertible bonds
On 5 January 2007, the Company issued US$150 million principal amount zero coupon direct, unconditional,
unsubordinated and unsecured convertible bonds (the “Convertible Bonds”) due on 5 January 2012 (the
“Maturity Date”) with rights attaching thereto to convert into new ordinary shares in the capital of the Company
(each, a “New Share”) at the conversion price of S$2.00 per New Share (the “Conversion Price”). The
Conversion Price represented approximately a 45% premium over the closing price per share in the capital of the
Company on the SGX-ST on 7 December 2006. Based on the Conversion Price and assuming full conversion of
the Convertible Bonds, up to approximately 115.4 million New Shares are expected to be allotted and issued to
the holders of the Convertible Bonds. However, under the terms and conditions of the Convertible Bonds, the
Conversion Price is subject to adjustments upon the occurrence of certain events including but not limited to any
sub-division and consolidation of shares as well as the issuance of new shares and securities convertible into new
shares in the capital of the Company.

Unless previously redeemed, converted or purchased and cancelled, the Convertible Bonds will be redeemed by
the Company at 129.58% of their principal amount on the Maturity Date.

Further details on the Convertible Bonds were set out in the Company’s announcement dated
8 December 2006.

1(d)(iii) To show the total number of issued shares excluding treasury shares as at the end of the current financial
period and as at the end of the immediately preceding year.

The total number of issued shares (excluding treasury shares) for the immediately preceding year was
738,600,000. As such, there were no sales, transfers, disposal or cancellation and/or use of treasury shares as at
the end of the current financial period reported on.

1(d)(iv) A statement showing all sales, transfers, disposal, cancellation and/or use of treasury shares as at the end
of the current financial period reported on.

Not applicable.

2. Whether the figures have been audited or reviewed and in accordance with which auditing standard or
practice.

The figures have neither been audited nor reviewed by the Company’s auditors, Messrs Grant Thornton.

8
3. Where the figures have been audited or reviewed, the auditors’ report (including any qualifications or
emphasis of a matter).

Not applicable.

4. Whether the same accounting policies and methods of computation as in the issuer’s most recently audited
annual financial statements have been applied.

Except as disclosed in item 5 below, the Group has applied the same accounting policies and methods of
computation for the financial statements for the three months ended 30 September 2009 as those used in the most
recently audited financial statements for the year ended 31 March 2009.

5. If there are any changes in the accounting policies and methods of computation, including any required by
an accounting standard, what has changed, as well as the reasons for, and the effect of, the change.

The Group has adopted the applicable new/revised International Financial Reporting Standards (“IFRSs”) that
are effective for the financial periods beginning on or after 1 April 2009. For the current reporting period ended
30 September 2009, the adoption of the applicable new/revised IFRSs did not give rise to significant changes to
the financial statements.

The value of the Group’s dairy livestock and agriculture produce as at 30 September 2009, which is derived with
reference to the market transaction records of dairy livestock and agriculture produce with similar characteristics
and properties, was reviewed by independent valuers.

However, the Board of Directors wishes to add that the Company monitors the changes in the fair value of the
dairy livestock and agricultural produce with reference to the market value and the latest sales and purchase price
for the respective categories. Should there be any material changes in the fair value, the Company will have them
adjusted at each balance sheet date. No material changes in the market value of the dairy livestock and
agriculture produce were noted during the three months ended 30 September 2009. Further, the Company has
adopted a policy of engaging an independent valuer to perform a review every 6 months.

6. Earnings per ordinary share of the group for the current financial period reported on and the
corresponding period of the immediately preceding financial year, after deducting any provision for
preference dividends.

E arn ing s p er sh are Gr ou p

U na udited U naud ited U na udi ted U n au dit ed
Three mo nth s Th ree mo nth s Six mon ths Six m on ths
ended en ded end ed end ed
3 0.0 9.2 00 9 3 0.0 9.2 00 8 3 0 .0 9 .2 0 09 30 .09 .20 08
RMB RM B RM B RM B
B asic 0.0 4 0 .1 5 0 .1 3 0 .28

D il uted 0.0 3 N /A N/A N /A

Notes:
The calculation of basic earnings per share is based on the profit attributable to the equity holders of the
Company for the three months ended 30 September 2009 of approximately RMB29,460,000
(2008: approximately RMB108,296,000) and the six months ended 30 September 2009 of approximately
RMB94,921,000 (2008: approximately RMB209,820,000) and on the 738,600,000 (2008: 738,600,000)
ordinary shares in issue during the period.

Diluted earnings per share for the three months ended 30 September 2008, and the six months ended 30
September 2009 and 30 September 2008 were not presented as the impact of the exercise of the convertible
bonds was anti-dilutive.

9
7. Net asset value (for the issuer and group) per ordinary share based on issued share capital of the issuer at
the end of the:-

(a) current financial period reported on; and

(b) immediately preceding financial year.

Group Company
30.09.2009 31.03.2009 30.09.2009 31.03.2009
RMB RMB RMB RMB

Net assets value per ordinary share 3.09 2.96 0.59 0.62

Net asset value per ordinary share as at 30 September 2009 and 31 March 2009 were both based
on issued share capital of 738,600,000 ordinary shares of HK$0.50 each.

8. A review of the performance of the group, to the extent necessary for a reasonable understanding of
the group’s business. It must include a discussion of the following:-

(a) any significant factors that affected the turnover, costs, and earnings of the group for the
current financial period reported on, including (where applicable) seasonal or cyclical factors;

For FY10 2Q, the Group’s revenue decreased by approximately RMB124.7 million or 75.2% as
compared with the three months ended 30 September 2008 (“FY09 2Q”). Profit from operations
decreased by 80.8% to RMB26.1 million from RMB136.2 million in FY09 2Q.

Profit for the FY10 2Q amounted to RMB29.4 million, after taking into consideration the change in
fair value of derivative financial instruments and the finance costs, compared to a profit of RMB108.3
million for the same period last year.

The decline in our profit from operations in the three months ended 30 September 2009 was mainly
attributable to the lowering of the selling prices of our pedigree bull semen and our raw milk, and the
rising feeds costs. More detailed analyses are set as below.

The derivative financial instruments and the finance costs, appearing in our Financial Statements, arose
as a result to the issuance of our Convertible Bonds on 5 January 2007 (as previously announced on the
website of the SGX-ST at www.sgx.com).

In accordance with the International Accounting Standards (the “IASs”) on the accounting of the
convertible bonds, the derivative component of the convertible bonds, at initial recognition, is
measured at fair value and presented as part of derivative financial instruments. Any excess of proceeds
over the amount initially recognised as the derivative component is recognised as the liability
component.

The derivative component was subsequently remeasured in accordance with the Group’s accounting
policy on derivative financial instruments, which sets out as follows:

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered
into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair
value is positive and as liabilities when the fair value is negative. Any gains or losses arising from
changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to the
income statement.

The liability component is subsequently carried at amortised cost. The interest expense recognised in
the income statement on the liability component is calculated using the effective interest method.

For more details, please also read IAS 32 - Financial Instruments: Disclosure and Presentation and
IAS 39 - Financial Instruments: Recognition and Measurement.

10
The breakdown of the revenue is as follows:

Group
Unaudited Unaudited
Three months Three months
ended ended
30.09.2009 30.09.2008
RMB’000 % RMB’000 %

Raw milk 32,140 78.1 39,792 23.9

Pedigree bull semen 9,000 21.9 107,450 64.8
Pedigree cow embryos - - 18,625 11.3

41,140 100.0 165,867 100.0

During the period under review, the total revenue has decreased by RMB124.7 million or 75.2%. It
was mainly attributable to the decrease in the selling prices of our pedigree bull semen and raw milk by
57.1% and 10.5%, respectively; and the sluggish demand for bull semen as a whole within the industry.

With raw milk production amounting to approximately 11,241 tonnes in FY10 2Q

(FY09 2Q: 12,456 tonnes), and with the raw milk prices having gone down by more than 10%
compared to a year ago, revenue generated from raw milk had declined by 19.2% to RMB32.1 million.
The lower production of raw milk was mainly due to the smaller number of cows compared to the same
period of last year. The slight drop in our herd size was mainly due to the natural elimination or cycle
of our cows.

Our production of pedigree bull semen amounted to approximately 1,493,000 straws in FY10 2Q
(FY09 2Q: 1,533,000 straws). Despite there being only a small drop in our production of pedigree bull
semen in FY10 2Q, revenue derived from the sale of our pedigree bull semen dropped by
approximately 91.6% to RMB9 million (FY09 2Q: RMB107.5 million). The significant drop was
mainly attributable to:
i.) the sluggish demand for bull semen as a whole in China;
ii.) increased competition from cheaper imported bull semen; and
iii.) an increasing number of dairy-cow farmers in China exiting the dairy industry.

By and large, with the outbreak of the melamine scandal in the PRC last September, there has been
increased pressure for lots of dairy farmers in China as the quality of raw milk was now constantly
under very close scrutiny and leading to the raw milk prices to drop.

The drop of the raw milk price was mainly attributable to the raw milk buyers/milk processers
exercising more testing/quality procedures which have led to their costs going up and that they are
reluctant to absorb such costs; and on the other hand, the influx of cheaper imported milk powder.

Increase in cheaper imported milk powder was mainly caused by excess supply of milk powder from
overseas which resulted from excess raw milk being produced in overseas countries. This has also
caused the decrease in the raw milk prices abroad too.

There are also some advantages that milk powder possesses over raw milk, for example,
i.) as long as you have bought the milk powder from a reputable source, then there would not be any
quality issues;
ii.) easier shipping and transportation; and
iii.) longer shelf-life as compared to raw milk which is significantly more perishable.

With the above inter-linked factors causing a general downward trend for several aspects of the dairy
industry as a whole, the selling price for our pedigree bull semen has dropped by 57.1%.

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There was no sale of our pedigree cow embryos in FY10 2Q. The reason was that there was only
limited demand and that our customers demanded a significant price reduction beyond what we
considered minimally justifiable sale prices for our pedigree embryos. Given the nature of our
husbandry products which are kept frozen and hence can be kept for a very long period of time, we did
not feel that we had to accede to our customers’ demands at this point in time, under the current
conditions.

Other income, which is mainly comprised of bank interest income and sale of fertiliser, has decreased
by 26.9% to RMB2.7 million. The decrease was mainly due to the changes in the interest rates for
bank deposits and that, in this quarter, no material exchange difference was recorded as there were
minimal settlements of foreign currency payments.

Raw materials and consumables used have decreased by 26.0% which was partly due to a slight
decrease in our herd size from 21,626 as at 30 September 2008 to 20,079 as at 30 September 2009.
The larger decline in raw materials and consumables (compared to the decline of our herd size) was
mainly attributable to the introduction of sub-contracting expenses. Sub-contracting expenses mainly
represent the expenses that we paid for the costs of feeds being sourced for us, and also for the support
of labour. This gives us the advantage to expand the dairy cow’s facilities in a very timely and flexible
manner and that we can be more flexible in supplying our raw milk customers by locating closer to
them. As sub-contracting expenses started to increase and most substantially in the last quarter of
FY2009, hence, for the full year ended 31 March 2009, we had decided to reclassify this growing
expense into an item of its own. And that is the reason why the sub-contracting expenses of
RMB19 million (for the three months ended 30 September 2009) being proportionately higher than the
same quarter last year.

The increase in staff costs is considered to be in line with our growth in our staff count, especially since
we have been running the milk-processing factory with minimal staff. In relation to the completion of
our milk-processing factory and our new cow sheds, depreciation has to be commenced and thus
leading to the depreciation and amortisation expenses increased to approximately RMB11.0 million or
by 81.5%.

The decrease in other operating expenses, by 19.1% to RMB8.2 million, was mainly attributable to the
Group’s effort in tightening one-off expenses, such as overseas business meetings/travelling/site visits,
etc., in view of the weakening global economy.

The arising of the change in fair value of derivative financial instruments was as a result of the
accounting treatment of the convertible bonds. In accordance with the requirements of IAS 32 and 39,
the bond contract is separated into two components: a compound derivative component consisting of
the conversion option and the redemption option, and a liability component consisting of the straight
debt element. The compound derivative component is carried at fair value on the balance sheet with
any changes in fair value being charged or credited to the income statement in the period when the
change occurs.

The fair value of the derivative component of the Convertible Bonds was calculated using the Binomial
model. Any changes in the major inputs into the model will result in changes in the fair value of the
derivative component. The change in the fair value of the derivative component for the current
financial year resulted in a fair value gain of approximately RMB28.7 million, which has been
recorded as the “Change in fair value of derivative financial instruments” in the income statement for
FY10 2Q. The initial carrying amount of the liability component is the residual amount after deducting
the issuance cost of the Convertible Bonds allocated to the liability component and the fair value of the
derivative component as at 5 January 2007, and is subsequently carried at amortised cost.

Interest expense is calculated using the effective interest method by applying the effective interest rate
of 10.1% to the adjusted liability component.

12
 (b) any material factors that affected the cash flow, working capital, assets or liabilities of the group
during the current financial period reported on.

The increase in inventories by approximately RMB71.3 million was mainly attributable to the
sluggish sale of our pedigree bull semen and pedigree cow embryos. Sale of our pedigree bull semen
and pedigree cow embryos has decreased by 91.6% and 100%, respectively, when comparing to the
same quarter last year; and has decreased by approximately 87.1% and 100%, respectively, when
comparing to the preceding quarter. Please refer to 8(a) above for the reasons affecting the sale of our
pedigree bull semen and pedigree cow embryos. However, as we are able to store deep frozen
pedigree bull semen and pedigree cow embryos over a long period of time, we are of a view that
obsolescence will not be a major problem; and for the valuation of our inventories, the Company
monitors the changes in the value of our inventories regularly, should there be any further material changes
in their valuation, the Company will adjust and make appropriate actions accordingly in a timely manner.

The decrease in trade receivables by approximately RMB54.6 million was mainly attributable to our
customers paying up the bills. There were no major changes in our credit policy and credit period
granted.

The decrease in prepayments and other receivables was mainly due to the refund of the unused
portion of the US$40 million that were advanced to our bankers for the partial buy-back of our
Convertible Bonds and also due the prepaid sub-contracting expenses being expensed.

The increase in the trade payables, accrued liabilities and other payables of approximately
RMB3.0 million was considered to be in line to our operations.

9. Where a forecast, or a prospect statement, has been previously disclosed to shareholders, any variance
between it and the actual results.

No forecast or prospect statement had been previously disclosed to shareholders.

10. A commentary at the date of the announcement of the significant trends and competitive conditions of the
industry in which the group operates and any known factors or events that may affect the group in the
next reporting period and the next 12 months.

Competitive landscape
The operating landscape within the dairy industry continues to be increasingly challenging 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.

During the quarter under review, the Group was faced with a host of challenges which, when
compounded together, significantly affected the demand for its bull semen and cow embryo products.
These challenges included:
i.) intense price competition by local and overseas producers of bull semen and cow embryos, which
resulted in a significant slide in the prices of China Milk’s bull semen and a large fall in demand
for the Group’s 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 even more farmers to reduce or stop the rate of increase
in their herd size, hence reducing the demand for the Group’s products.

The Group expects these challenges to persist in the coming quarters. Intense price pressure from local
and overseas producers of bull semen and cow embryos will continue to keep the prices of China Milk’s
bull semen down and the demand for the Group’s cow embryos low.

Competition from imported milk powder, as well as rising feed costs and stringent government controls,
will continue to affect the entire dairy industry, with small-scale dairy farmers taking the brunt of the
impact due to lower economies of scale. The Group has observed signs of consolidation as smaller
farmers were forced to exit the dairy industry.

Nevertheless, the Group remains steadfast in its belief that its quality bull semen and cow embryos of

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 Canadian breed will continue to play an important role in cattle genetics as well as milk yield
improvement in China, given the shortage of good quality cows 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 standardised 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.

Herd size expansion

With this in mind, China Milk plans to focus on its herd size expansion strategy. As a first step, the
Group is currently sourcing for suitable land in the Heilongjiang province to expand its farms and
facilities, before it acquires additional dairy cows. The Group has earmarked RMB200 million in order
to facilitate this plan.

In the meantime, 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.

Cost management
The Group intends to adopt an effective cost management strategy as it envisions lower revenue and
smaller margins ahead, in view of the challenging business environment. Besides monitoring its costs
closely, the Group is sharpening its focus on costing and expenditure budgeting, and pursuing stronger
initiatives to tighten control on non-operating costs, such as travelling and entertainment expenses.

Updates on own brand strategy

The Group continues to make good progress in its milk processing business. In the past few months, it
has actively participated in marketing events such as food fairs, sampling booths at supermarkets and
promotional activities at shopping malls to showcase its Yinluo brand of dairy products and gather
consumer feedback.

Going forward, the Group will intensify its efforts on marketing research and continue to fine-tune its
marketing strategies before officially rolling out the products in Heilongjiang.

Save as disclosed above, the Executive Directors are not aware of any further significant trends and
competitive conditions in the industry in which the Group operates and any known factors or events that
may affect the Group in the next reporting period and the next 12 months.

11. Dividend

(a) Current Financial Period Reported On

Any dividend declared for the current financial period reported on?

None

(b) Corresponding Period of the Immediately Preceding Financial Year

Any dividend declared for the corresponding period of the immediately preceding financial year?

None

(c) Date payable

Not applicable

(d) Books closure date

Not applicable

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12. If no dividend has been declared/recommended, a statement to that effect.

No dividend has been declared or recommended for the three months ended 30 September 2009.

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PART II - ADDITIONAL INFORMATION REQUIRED FOR FULL YEAR ANNOUNCEMENT
(This part is not applicable to Q1, Q2, Q3 or Half Year Results)

13. Segmented revenue and results for business or geographical segments (of the group) in the form presented
in the issuer’s most recently audited annual financial statements, with comparative information for the
immediately preceding year.

Not applicable.

14. In the review of performance, the factors leading to any material changes in contributions to turnover
and earnings by the business or geographical segments.

Not applicable.

15. A breakdown of the total annual dividend (in dollar value) for the issuer’s latest full year and its
previous full year.

Not applicable.

CONFIRMATION BY THE BOARD PURSUANT TO RULE 705(5) OF THE LISTING MANUAL OF THE
SGX-ST

The Board of Directors of China Milk Products Group Limited confirms that, to the best of their knowledge, nothing
has come to their attention which may render the Unaudited Second Quarter and Half Year Financial Statements and
Dividend Announcement for the Year Ending 31 March 2010 to be false or misleading in any material aspect.

By order of the Board

CHINA MILK PRODUCTS GROUP LIMITED

NG JOO KHIN / CHOI HO YAN

JOINT COMPANY SECRETARIES

30 October 2009

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