Kyowa Hakko Q1 Operating Income Up 3.6%, Forecasts Unchanged

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%.
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*T
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.
*T

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.