The fastest growth was seen in yoghurt sales, which shot up by 74.7 per cent to CNY641.2 million (€66m), and milk drinks, like the well-known Suan Suan Ru range, which increased 134.7 per cent to CNY2.1 billion (€216m).

The Inner Mongolia-based company's ice cream also performed well, with revenue rising 60.9 per cent over the year to CNY1.2 billion, helped by improved flavours and different packaging, according to the company.

But liquid UHT milk is still the major revenue source for the firm, and with a 35.8 per cent to CNY6.56 billion, helped grow overall sales to CNY10.82 billion (€1.1bn).

"From the very beginning their marketing has been innovative and their latest campaign supporting a TV singing contest has helped them increase the mindshare of Chinese consumers," said Paul Chan, an analyst at Hong Kong broker CSC Securities.

The dairy has also been successful in differentiating its products, he told AP-Foodtechnology.com.

Mengniu said in a statement that it had increased its share of China's liquid milk sales (by volume) by 6.6 percentage points during 2005, giving it a market share of 28.6 per cent at the year-end. This put it ahead of its two closest rivals Jili and Bright Dairy, according to figures from market research firm AC Nielsen.

But the three dairies remain fiercely competitive in China's fast-growing dairy sector.

At a news conference, Yao Tongshan, Mengniu's chief financial officer, said the company will launch new products this year such as new milk beverages, flavoured milk for children and other value-added dairy products in a bid to maintain its growth.

The firm also plans to increase production capacity by 30 per cent in 2006, with capital expenditure set to rise by 30 per cent to CNY1.3 billion, he said.

"When you grow so quickly, the next stage is to look at higher value added products," added Chan.

"Raw material prices are increasing and Mengniu needs to improve its economies of scale to maintain its margins," he continued, noting that the firm no longer benefits from the same tax benefits from the government.

Tax has now increased from 5 per cent to 10 per cent, forcing the firm to keep a close eye on its cost structure.

During 2005, Mengniu managed to post a 43 per cent rise in net profit to CNY456.8 million, despite higher production costs, and its gross profit margin was unchanged from the prior year at 22.3 per cent.

But Yao said Mengniu could face greater pressure on its margin in the coming year as raw milk prices and workers' salaries rise.