Kyowa Hakko Q1 Operating Income Up 3.6%, Forecasts Unchanged.

TOKYO -- Kyowa Hakko Kogyo Co., Ltd. (Kyowa Hakko) (TOKYO:4151) today announced its first quarter results for the three-month period from April 1, 2006, to June 30, 2006. Net sales declined by 3.1% despite a strong performance from core pharmaceutical products and increased sales in the Bio-chemicals and Chemicals Businesses, but operating income increased mainly due to reduced SG&A expenses in the Pharmaceuticals Business.

For the three-month period ended June 30, 2006, consolidated net sales were JPY 85.6 billion, down JPY 2.7 billion, or 3.1%, compared to the first three months of the previous fiscal year. Operating income was JPY 8.1 billion, up JPY 0.2 billion, or 3.6%, and recurring income was JPY 8.4 billion, an increase of JPY 0.5 billion, or 7.0%. As a result of extraordinary losses from the sale of equity in related companies of JPY 2.6 billion, net income for the period was JPY 2.0 billion, a decrease of JPY 2.2 billion or 51.8%.

Full year forecasts for sales, operating income, recurring income and net income were maintained at the levels forecast in April 2006.

Mr. Yuzuru Matsuda, President of Kyowa Hakko, commented: 'Our core businesses had a strong first quarter broadly in line with plan. In particular the Pharmaceuticals Business performed well, despite the adverse effects of price reductions in Japan and the termination of the Itrizole distribution agreement.'

Segmental sales

In the Pharmaceuticals Business, against the background of reductions in National Health reimbursement prices implemented in April 2006 at an average of 6.7% across the industry, sales continued to be robust, due to higher volume sales of core products including Coniel, a treatment for hypertension and angina pectoris, and Depakene, an anti-epileptic agent, and additional indications for Navelbine, an anti-cancer drug resulting in improved sales. However, due to a JPY 6.5 billion decline in sales of Itrizole, an anti-mycological agent, following the termination of a distribution agreement at the end of March 2006, overall sales in the Pharmaceutical Business decreased compared to the first quarter of fiscal 2005. In the Bio-Chemicals Business, sales of amino acids, nucleic acids, and related compounds for pharmaceuticals and industrial-use, and mail-order sales of the Remake series of healthcare products performed well and overall sales were up from the previous comparable period as sales of industrial-use alcohol increased following deregulation in April 2006. In the Chemicals Business, increased product prices following increases in raw material and fuel prices led to a rise in sales driven in particular by higher sales of core solvents products. In the Food Business, sales of umami seasonings increased but overall sales remained at similar levels to the first three months of the previous fiscal year.

Group profits

With regard to profits, the effects of increased raw materials and fuel prices were especially felt in the Chemicals Business but a decrease in SG&A expenses such as Pharmaceuticals Business R&D expenses and personnel costs resulted in first quarter operating income of JPY 8.1 billion, up JPY 0.2 billion, or 3.6% from the previous comparable fiscal period. Recurring income was JPY 8.4 billion, an increase of JPY 0.5 billion, or 7.0% from the first quarter of the previous fiscal year. As a result of extraordinary losses including the loss on sales of equity in related companies of JPY 2.6 billion, net income for the period was JPY 2.0 billion, a decrease of JPY 2.2 billion or 51.8%.

Results for the three months ended June 30, 2006
                 (amounts less than one million yen have been ignored)
                                                     (Millions of Yen)

                             Three       Three             (Reference)
                            Months to   Months to           FY ended
                            June 30,    June 30,   Change  March 31,
                               2006        2005      (%)       2006
                           -------------------------------------------
Net sales                      85,692      88,403    (3.1%)   353,439
Operating income                8,168       7,886     3.6%     25,534
Recurring income                8,442       7,893     7.0%     28,219
Net income                      2,054       4,260   (51.8%)    16,273
Net income per share (JPY)   JPY 4.86   JPY 10.07   (51.7%) JPY 38.36
----------------------------------------------------------------------
Fully diluted net income per share for the three months to June
30, 2006 was JPY 4.86.



Forecasts for the fiscal year ending March 31, 2007

                                        (Millions of Yen)

                             April 1, 2006 to      April 1, 2006 to
                             September 30, 2006      March 31, 2007
                           -------------------------------------------
Net Sales                          165,000               340,000
Operating income                    11,000                26,000
Recurring income                    10,500                25,000
Net Income                           4,000                13,000
Net income per share (JPY)             --               JPY 30.75

(1) The above forecasts are based on information available to
    management on the day of their announcement. Actual results may
    differ materially from these projections for a wide variety of
    reasons.

For further information please access: http://ir.kyowa.co.jp/english/index.cfm.

This document is an English translation of parts of the Japanese-language original. All financial information has been prepared in accordance with generally accepted accounting principles in Japan. It contains forward-looking statements based on a number of assumptions and beliefs made by management in light of information currently available. Actual financial results may differ materially depending on a number of factors, including fluctuations in exchange rates, changing economic conditions, legislative and regulatory developments, delays in new product launches, and pricing and product initiatives of competitors.