Kyowa Hakko Announces 67% Increase in Full-Year Operating Income

TOKYO, May 12, 2004 (BUSINESS WIRE) -- Kyowa Hakko Kogyo Co., Ltd. (Kyowa Hakko) today announced that consolidated operating income for the fiscal year ended March 31, 2004 surged 66.8 percent to 26.8 billion yen following increased profits at its Pharmaceuticals, Bio-Chemicals, Chemicals and Food Businesses. Consolidated net sales declined 2.9 percent to 348.8 billion yen after the Company sold its alcoholic beverages operations in September 2002, while net income rose 18.1 percent to 10 billion yen.

During the year under review, Kyowa Hakko prepared to move to an operating holding company structure in 2005. "All our businesses performed well even as we made profound changes to our corporate structure and continued to raise operating efficiencies," said Dr. Yuzuru Matsuda, President of Kyowa Hakko. "We are focusing on areas that take advantage of our unique strengths in biotechnology and fermentation, and pharmaceuticals, and aim to drive growth in value for our customers and shareholders over the long term."

For the year ending March 31, 2005, net sales are forecast to decline 4 percent to 335 billion yen, and operating income is expected to grow slightly to 27 billion yen as an expected increase in operating income in the Pharmaceuticals Business offsets a decline in operating income in the Bio-Chemicals Business. Net income is forecast to rise almost 50 percent to 15 billion yen.

Segmental Review

Sales in the Pharmaceuticals Business rose 2.2 billion yen to 142.8 billion yen, while operating income rose 800 million yen to 11.9 billion yen. Although the business's operating environment came under severe pressure because of increased competition from overseas drug makers and government policies to reduce medical costs, it was able to increase sales and operating income because of higher sales of Allelock, an antiallergic agent, and Durotep Patch, which is used to relieve cancer pain.

Despite an unexpected slowdown in the anti-allergy market during the fourth quarter of the fiscal year, sales of Allelock rose 15 percent, boosted by an increase in the number of sales representatives and the Company's SMART (sales and marketing transformation) program. Sales of Durotep Patch also rose as Kyowa Hakko positioned the brand to become the top product in its market. Despite increased competition, sales of Coniel, a treatment for hypertension, remained similar to the year before.

Sales in the Bio-Chemicals Business rose 400 million yen and operating income climbed almost 4.5 times to 8.4 billion yen. During the year under review there was significant demand for Kyowa Hakko's pharmaceuticals-, food-, and industrial-use fermented raw materials, in particular for high value-added amino acids used in health and nutrition products. Kyowa Hakko also liquidated its subsidiary in Mexico, which produced feed-grade amino acids, to enable Kyowa Hakko to focus more resources on high value-added amino acids.

Sales in the Chemicals Business grew 1.7 billion yen and operating income grew 1.7 billion yen because of higher sales of high performance solvents, functional and specialty products, despite increases in prices of raw materials. Improved economic growth overseas also helped to raise exports.

In the Food Business segment, sales fell 15.6 billion yen after Kyowa Hakko sold its alcoholic beverage business in October 2002. Although BSE and avian flu prompted widespread consumer concern about food safety and negatively affected consumption, a thorough review of costs helped to support operating income, which rose 2.3 billion yen to 2 billion yen.

During the year, Kyowa Hakko also took steps to strengthen profitability, cutting costs and raising operating income. Cost of goods sold fell almost 6 percent to 219.3 billion yen, while sales, general and administrative expenses declined nearly 7 percent to 102.7 billion yen.

These improvements in Kyowa Hakko's business performance and profitability helped to boost its net income by 18 percent to 10 billion yen, even as the Company recorded an extraordinary loss following a one-time write off of unrecognized actuarial losses after it closed its employee pension trust. An extraordinary gain from the sale of investment securities also lifted net income.

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