KMG Chemicals 2005 Net Income Up 73% on 36% Sales Increase

KMG Chemicals, Inc. (NASDAQ: KMGB), a global provider of specialty chemicals in carefully focused markets, today announced unaudited financial results for the fiscal fourth quarter and year ended July 31, 2005.

Fiscal 2005 Financial Highlights – versus fiscal 2004

— Net sales rose 36% to a record $59.2 million.

— Net income grew 73% to $3.1 million or $0.39 per basic share

and $0.37 per diluted share versus $1.8 million or $.23 per

basic and diluted share in fiscal 2004. Net earnings per

diluted share were calculated on 8% more shares outstanding

principally due to the successful completion of a 1.2

million-share private equity placement in April 2005.

Fourth Quarter Financial Highlights – versus fiscal 2004 fourth quarter

— Net sales increased 24% to $17.7 million.

— Net income was $890 thousand or $0.10 per basic and diluted

share versus $934 thousand or $0.12 per basic and diluted

share in the fourth quarter of 2004. Net earnings per diluted

share were calculated on 21% more shares outstanding than in

the 2004 quarter principally due to the aforementioned private

equity placement.

The Company closed the year with total assets of $61.1 million, a 41% increase over $43.2 million a year earlier. Cash and cash equivalents on July 31, 2005 totaled approximately $8.8 million, up from $974 thousand at the end of last year. Long-term debt increased to $17.6 million from $11.2 million last year. In fiscal 2005, the Company acquired from Occidental Chemical pentachlorophenol assets formerly owned by Vulcan Chemicals. The acquisition was partially funded by a $10.0 million note payable to the seller, which accounted for the increase in the Company’s long-term debt. The note is to be repaid over a five-year term and bears interest at a fixed 4% rate.

David Hatcher, Chairman and CEO of KMG Chemicals, said, “We are very pleased with the 2005 financial results, which we achieved in the face of record high raw material prices. Sales were up in all product lines, with wood treating chemical sales particularly strong as we benefited from a full year’s contribution from two acquisitions completed during fiscal 2004. Our acquisition program is continuing to deliver growth and build value for our shareholders. We completed a highly strategic acquisition in the fourth quarter of fiscal 2005 when we acquired pentachlorophenol assets from Occidental Chemical, which solidified our position as the largest commercial provider of industrial wood treating chemicals in North America. Fourth quarter earnings were unimpressive, but we anticipate attractive growth in fiscal 2006, principally in the second half of the year.”

Hatcher continued, “As I have stated previously, the variables most difficult to predict are our costs for raw materials, particularly chlorine and phenol, which are currently at all-time high levels. These feedstocks are commodity chemicals that historically have been quite cyclical. With this latest acquisition, KMG is positioned for significant bottom-line growth should these commodity chemical feedstocks return to their long-term average price levels. We anticipate, however, that these high raw material prices will continue through 2006, exerting pressure on our margins. Additionally, while our facilities were spared any serious damage by Hurricanes Katrina and Rita, we are continuing to incur additional expenses particularly related to maintaining the supply of wood treating chemicals to our customers in the aftermath of these disasters. These factors will impact results in fiscal 2006, particularly in the first quarter, during which EPS may be down slightly versus the first quarter of 2005. Still, we expect low double digit growth in EPS from our current business for 2006 overall.”

Hatcher concluded, “We finished fiscal 2005 with an $8.8 million cash position and a conservative debt level, after completing the biggest acquisition in the Company’s history. We closed our first equity offering in April, raising $6.0 million and expanding the institutional ownership of our stock. We are well positioned to grow the Company with additional accretive acquisitions, and are hard at work to continue to implement that strategy.”

                           KMG Chemicals, Inc.                         Selected Financial Data                    (In thousands, except share data)                               (UNAUDITED)                              Three Months Ending  Twelve Months Ending                                   July 31               July 31                            ——————— ———————                                 2005       2004       2005       2004                            ———- ———- ———- ———- Net sales                    $17,743    $14,278    $59,168    $43,610 Gross profit                   4,972      4,080     18,066     12,751 Pre-tax income                 1,333      1,506      4,820      2,844 Net income                       890        934      3,052      1,763 Earnings per basic share       $0.10      $0.12      $0.39      $0.23 Earnings per diluted share     $0.10      $0.12      $0.37      $0.23 Weighted average shares:       basic                8,785,581  7,550,019  7,898,448  7,543,441       diluted              9,213,038  7,609,640  8,253,270  7,631,174 Net working capital           12,217      8,023     12,217      8,023 Total assets                  61,104     43,240     61,104     43,240 Long-term debt                17,644     11,235     17,644     11,235 Shareholders’ equity          32,888     24,590     32,888     24,590 

KMG Chemicals, Inc., through its subsidiaries, produces and distributes specialty chemicals to carefully focused markets. The company grows by acquiring and managing stable chemical product lines and businesses with established production processes. Its wholly owned subsidiary, KMG Bernuth, Inc. is a global provider of products to the wood treating and agricultural industries. For more information, visit the company’s web site at www.kmgchemicals.com.

The information in this news release includes certain forward-looking statements that are based upon assumptions that in the future may prove not to have been accurate and are subject to significant risks and uncertainties, including statements as to the future performance of the company. Although the company believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Factors that could cause results to differ include, but are not limited to, successful performance of internal plans, product development acceptance, the impact of competitive services and pricing and general economic risks and uncertainties.