Kobayashi Pharmaceutical Reports Results for the First Half Ended September 30, 2005.

Osaka, Japan, Nov 14, 2005 - (JCN Newswire) - Kobayashi Pharmaceutical, Ltd. (TSE: 4967), a leading importer and distributor of medical equipment and pharmaceutical and consumer goods wholesaler, today announced consolidated financial results for the full first half ended September 30, 2004. In a term showing loose signs of recovery with rising capital investment and improvements in personal consumption, the Kobayashi Group runleashed the spirit expressed in its management policy of "Creativity and Innovation," and reported a 13.8% year-on-year gain in sales, a 10.7% increase in operating income and 13.2% growth in ordinary income.

The term was characterised by meeting latent customer needs through introducing new products and services to cultivate new markets while invigorating existing markets by offering products and services with new added value. At the same time, vigorous promotion of brand item buyouts, business partnerships, and overseas development resulted in sales of 125,076 million yen, an increase of 15,169 million yen over the previous interim.

The Company cut costs by thoroughly reducing manufacturing costs, employing more efficient and effective sales promotions, and other measures, leading to operating income of 8,664 million yen, an increase of 840 million yen on the previous interim. Ordinary income also rose to 7,978 million yen, an increase of 932 million yen, owing to good performance at equity-method affiliate Medicon Inc. However, a one-time impairment loss on land came to 1,632 million yen, resulting in a net income of 3,558 million yen, or a decrease or 4.7% on the previous interim.

Consolidated Financial Summary (April 1, 2005 - September 30, 2005)

(1) Consolidated Operating Results

                                                 (Millions of Yen)
                           First Half ended Sept. 30,      FY 3/31
                             2005     %      2005     %      2005

Net Sales                 125,076   1.4   109,907   1.4   215,708
Operating Income            8,664  10.7     7,824  (0.2)   15,698
Ordinary Income             7,978  13.2     7,046   0.5    14,159
Net Income                  3,558  (4.7)    3,732  11.2     6,730
Net Income per Share (y)    85.49           89.66          160.64
Net Income per Share,
 diluted (yen)              85.48              --              --

(2) Consolidated Financial Position

Total Assets               154,453         135,079        134,629
Shareholders' Equity        62,902          56,740         60,116
Shareholders' Equity Ratio   40.7%           42.0%          44.7%
Shareholders' Equity
 per Share (Yen)          1,511.36        1,363.21       1,443.30

(3) Consolidated Cash Flows

Cash Flows from
 Operating Activities        1,127             798          8,364
Cash Flows from
 Investing Activities       (4,882)         (1,664)       (3,936)
Cash Flows from
 Financing Activities        3,339          (1,590)       (3,369)
Cash and Cash Equivalents,
 End of term                18,645          15,386         19,035

Summary Performance by Business Segment

=Consumer Products Business Review

This spring, Kobayashi Pharmaceutical Group launched seven new products (excluding nutritional supplement food products) in an effort to create new markets and expand existing markets in this business segment. In addition to favorable sales of Shoshu Gen, a major brand of aromatic deodorizer, and Keshimin Cream, which went on the market last spring, we further expanded our product line of nutritional supplement food products sold through our mail order and drug store channels. These additions helped to spur sales growth. Moreover, the acquisition of sole distributorship of the female menopausal relief supplement Inochi-no-Haha A from Sasaoka Yakuhin Corp. contributed significantly to sales growth. As a result, sales amounted to 45,863 million yen, an increase of 2,030 million yen, or 4.6%, compared to the previous interim period.

In terms of profits, operating income was 8,067 million yen, an increase of 1,054 million yen, or 15.0%, over the previous interim period owing to a high profit ratio from a boost in sales of brand name items and an overall overhead reduction resulting from a decrease in manufacturing costs.

=Wholesale Business Review

With the acquisition of the over-the-counter medication business from Suzuken Co., Ltd. on April 1st, sales in this business segment amounted to 82,485 million yen, an increase of 15,103 million yen, or 22.4%, compared with the previous interim period.

With regard to profits, while there were improvements in the profit ratio resulting from bulk purchases of products from manufacturers capitalizing on economies of scale, the combined effects of inheriting this business have not yet been reflected fully in the business results, and operating income decreased to 207 million yen, a drop of 114 million yen, or 35.5%, over the previous interim period.

On September 29th, 2005, our subsidiary Kobashou Inc. acquired 100% of the stock of Seiei Co., Ltd.

=Medical Devices OReview

In Japan, the Company endeavored to boost its product line by entering into such specialized segments as orthopedics, surgery, neurosurgery, and otolaryngology. In particular, we concentrated operations and enhanced our product lineup in the field of orthopedics.

Overseas, our three Shield Health Centers increased their numbers of customers through the purchase of customer lists, but the development of this segment this interim period was affected by changes in the California state insurance system.

As a result, sales amounted to 8,052 million yen, an increase of 120 million yen, or 1.5% over the previous interim period, and operating income fell to 68 million yen, a decrease of 183 million yen, or 72.9%, compared to that of the previous interim period.

Equity in earnings at the equity-method affiliate Medicon Inc. amounted to 191 million yen, an increase of 58 million yen, or 43.6%, over the previous interim period.

=Other Business Review

Other operations such as Transportation, Sales Promotion, and Market Research are conducted in support of the three businesses listed above and contribute to the profits of those businesses, although each is intended to be self-supporting. The Group reviewed the transfer values of the materials and services these subsidiaries provide.

As a result, sales totaled 6,658 million yen, an increase of 492 million yen, or 8.0% over the previous interim period, and operating income rose to 276 million yen, an increase of 181 million yen, or 190.5%, over the previous interim period. Segment sales include internal sales and transfers among segments; the value of these amounted to 4,276 million yen in the previous interim period and 4,550 million yen in the current interim period.

Consolidated Projections for the Full Year Ending March 31, 2005

                                      (Millions of Yen)
Net Sales                                 250,000
Ordinary Income                            14,900
Net Income                                  7,100
Net Income per Share (yen)                 169.52

Although loose signs of recovery have fueled expectations of a turnaround in the Japanese economy, the effects of personal consumption on rising crude oil prices, tax increases resulting from tax reform, and other variables continue to perpetuate uncertainty.

Under such conditions, to reinforce its competitiveness so that it is the leader in the fields in which it operates, Kobayashi Pharmaceutical Group will need to implement a strategy aimed at further bolstering existing business and existing brands that form the foundations of the group's management, and at the same time further expand the scope of business operations and carry out a strategy to promote growth.

For Fiscal Year 2005, the Company forecasts sales of 250,000 million yen, an increase of 34,292 million yen, or 15.9%, compared to fiscal year 2004. Due to further reductions in costs such as original costs, we forecast operating income of 16,500 million yen, an increase of 802 million yen, or 5.1%; ordinary income of 14,900 million yen, an increase of 741 million yen, or 5.2%; and net income of 7,100 million yen, an increase of 370 million yen, or 5.5%, compared with fiscal year 2004.

The dividend for this fiscal year is forecast to be 33.00 yen per share as an ordinary allotment.

=Consumer Products Business Outlook

In the fall 2005 we launched seven new products that will fulfill the latent needs of customers. These include Eyebon Trolly Megusuri Dry Eye, eye drops that can be applied to the corneas while wearing contact lenses; Hippa Wrinkle, facial pads equipped with a device to smooth out "crow's eye" wrinkles around the eyes; Mukumi Cure, socks that massage the lymph nodes to relieve swollen feet; and Liquid Bluelet Oku Dake W Liquid, a toilet bowl cleanser consisting of two exclusive liquids combining powerful cleansing action with a high-quality scent. The acquisition of Inochi-no-Haha A and Ashi no Hienai Fushigi na Kutsushita leg-warming socks also contributed to sales.

As a result of these efforts, we estimate that sales of the Consumer Products Operation will increase 3,727 million yen, or 4.2%, compared with fiscal year 2004, to 93,000 million yen. We estimate that cuts in costs such as original costs and increasing efficiency in the Manufacturing Division at our tie-up Itoh Kampo Pharmaceutical Co., Ltd. will lead to 15,200 million yen in operating income, an increase of 708 million yen, or 4.9%, over the previous interim period.

=Wholesale Business Outlook

In addition to the expansion of geographical coverage for the increasingly wide-ranging operations of drug stores, a major customer segment, the Company will reinforce the differentiated health food product line, which is a growing market, and actively endeavor to develop new categories of products for the elderly. Accordingly, we estimate that sales will increase 32,644 million yen, or 25.4%, to 161,000 million yen, and operating income will fall 299 million yen, or 37.4%, to 500 million yen compared to fiscal year 2004.

=Medical Devices Business Outlook

The Kobayashi Medical Company will further expand product lines from overseas manufacturers in areas such as orthopedics and, at the same time, actively pursue the development of the company's own Kobamed brand of products. The three Shield Healthcare companies that operate in the US will strive to expand the number of customers by acquiring customer lists and thoroughly cutting business costs. The Company anticipates that these endeavors will raise sales of the Medical Devices Operation 944 million yen, or 5.9%, compared with fiscal year 2004, to 17,000 million yen, and operating income will increase 211 million yen, or 111.6%, compared with fiscal year 2004, to 400 million yen.

Financial Position

Summary of Cash Flows for the First Half Ended September 30,2005

Although total assets increased 19,824 million yen compared with the end the previous fiscal year, the shareholders' equity ratio fell by 4.0 points due to the peaking of shareholders' equity at 2,788 million yen.

The greatest differences were an increase of 10,980 million yen in notes receivable and accounts receivable among circulating assets resulting from the formation of new parent-subsidiary consolidations, and an increase of 2,565 million yen in inventories. Similarly, notes payable and accounts payable among circulating assets increased by 10,189 million yen. Earned surplus also increased by 2,263 million yen.

Cash flows from operating activities:

Net cash provided by total operating activities increased 329 million yen to 1,127 million yen compared to the previous interim period. This was primarily attributable to impairment losses without cash outlays, although net income before taxes and other adjustments fell 125 million yen.

Cash flows from investing activities:

Net cash used in investing activities totaled 4,882 million yen, an increase of 3,218 million yen over the previous interim period. This was mainly due to the acquisition of investments in securities through capital tie-ups, the purchase of metallic molds for new product development, and other activities.

Cash flows from financing operations:

Net cash resulting from financing operations totaled 3,339 million yen. This was mainly due to short-term borrowing and the receipt of investments in the subsidiary Kobashou, although dividend payments increased. Accordingly, the term-end balance of cash and cash equivalents increased 3,259 million yen over the previous interim period to 18,645 million yen.

Fiscal Year 2005 Cash Flow Forecasts (Ended March 31, 2006)

The operating environment is severe, but we will strive to reduce inventories and accounts receivable so as to improve the KOVA (Kobayashi Value Added) management index, which takes the efficiency of capital into account.

Among cash flows from operating activities, net earnings before taxes are expected to increase over the previous fiscal year.

Regarding cash flows from investing activities, stable investments in plants and equipment are expected to average those of the previous fiscal year owing to stable investments in plants and equipment. Expenses are anticipated to increase over the previous year due to the acquisition this interim period of investments in securities through capital tie-ups.

Cash flow from financing activities is forecast to increase over the previous fiscal year resulting from short-term borrowing and the receipt of investments in our subsidiary Kobashou.

Dividends

One of the Company's most important management policies is returning a profit for our shareholders, and thus placing emphasis on aspects of our operations to make this possible.

To this end, the basic policy is one of ensuring adequate internal reserves needed for high growth-oriented business development and a sound corporate structure, while at the same time maintaining stable dividend payments. Thus, the Company's efforts are directed toward incorporating this dividend policy into the consolidated results. Internal reserves will be utilized for M&A to expand operations in consumer products and medical-related areas and for proactive investment in the overseas arena.

A regular annual dividend of 33 yen per share is scheduled for the March 2006 term based on the above-mentioned policy. The regular dividend for the March 2005 term was 33 yen.

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