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TONIC INDUSTRIES HOLDINGS LIMITED
(Incorporated in the Cayman Islands with limited liability)

INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1998

FINANCIAL HIGHLIGHTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1998

  • Turnover for 1998 amounted to HK$966,125,000, representing an increase of 43% from 1997;

  • Net profit attributable to shareholders for 1998 amounted to HK$28,638,000, representing an increase of 66% from 1997;

  • Basic earnings per share amounted to HK7.1 cents, representing an increase of 65% from 1997; and

  • Interim dividend per share is HK1.5 cents per share, representing an increase of 114% from 1997.

The Board of Directors ("Directors") of Tonic Industries Holdings Limited (the "Company") is pleased to announce that the unaudited consolidated result of the Company and its subsidiaries (the "Group") for the six months ended 30 September 1998, together with the comparative unaudited figures for the corresponding period in 1997, were as follows:


Notes:

1. Taxation

Hong Kong profits tax has been provided at the applicable rate of 16.0% (1997: 16.5%) on the estimated assessable profits arising in Hong Kong during the period. Taxes on profits assessable in the People's Republic of China ("PRC") have been provided at the applicable rates of taxation.

2. Interim dividend per share

The interim dividend per share for 1997 has been adjusted after the 2 for 5 bonus issue on 30 September 1998.

3. Earnings per share

The calculation of basic earnings per share is based on the net profit attributable to shareholders for the period of HK$28,638,000 (1997: HK$17,242,000) and 403,200,000 ordinary shares in issue after the bonus issue. The basic earnings per share for 1997 have been adjusted accordingly.

The calculation of diluted earnings per share is based on the net profit attributable to shareholders for the period of HK$28,638,000 and the weighted average of 403,279,593 shares, being the weighted average number of shares in issue adjusted by the effect of all dilutive potential shares.

Reconciliation of the weighted average number of shares used in calculating basic earnings per share for the six months ended 30 September 1998 to that used in calculating diluted earnings per share:


INTERIM DIVIDEND

The Directors have resolved to declare an interim dividend of HK1.5 cents per share payable to shareholders whose names appear on the Company's Register of Members at the close of business on 22 January 1999. The dividend warrants will be sent to shareholders on or before 3 February 1999.

CLOSURE OF REGISTER OF MEMBERS

The Register of Members of the Company will be closed from Monday, 18 January 1999 to Friday, 22 January 1999, both days inclusive, during which period no transfer of shares will be registered. In order to qualify for the interim dividend, all transfer documents, accompanied by the relevant share certificates must be lodged with the Company's Branch Registrars in Hong Kong - Tengis Limited, 1601 Hutchison House, 10 Harcourt Road, Central, Hong Kong not later than 4:00 p.m. on Friday, 15 January 1999.

BUSINESS REVIEW AND OUTLOOK

The Group has established itself as a manufacturer of high quality audio products. Management realises the importance of growth to the Group and therefore has a long term plan towards achieving a steady and constant grow in turnover, profit and shareholders fund. This is done by increasing production capacity, improving internal control system thereby improving service standards and product quality, controlling production costs and also continuously promoting new and upgraded products. We believe these are the factors contributing to the success of the Group.

The Group's major production facilities are located in the industrial town of Tang Xia, Dongguan, PRC. The factory complex is comprised of 8 factory buildings, of which 2 factory buildings were completed in August 1998. Total production floor area of the entire factory now exceeds 1,000,000 square feet. In addition, the Group has recently acquired a factory in Qi Shi, Dongguan, PRC, which has over 300,000 square feet of production floor area. The factory primarily produces components and parts for the use of the Group.

During the last few years, the Group has invested considerable amount of capital and manpower to establish various components and parts production departments. The Group now has its own plastic injection and moulding department, metal component department, speaker box factory, printed circuit board factory, silk screen and oil spray department, adaptor department and terminal wire department. Many components and parts of the Group's finished products are now supplied in-house. Vertical integration manufacturing enhances the control on component supply, cost and quality of component, and also allows rapid model development due to the flexibility of components and parts production.

Quality management and effective internal control system are the key factors for the Group to stay competitive. The Group obtained accreditation of ISO9002 within 5 months and was granted the award in October 1998. ISO9002 is a standard to focus on different aspects such as management responsibility, quality system documentation, and purchasing, inspection, training and corrective action.

The development of Mini Disc ("MD") products is near completion. Pre-production is scheduled at December 1998 and mass production is expected to be in the first quarter of 1999. MD products have more advanced features than CD products. For example, MD products are more compact, recordable, have lesser shock proof problem and offer edit functionality to end users. The Group has set up a new product development center to specialise in the research and development of MD products, evidencing the Group's commitment to continuously launching new and upgraded products. The Group's product range covers CD Portables, Portable CD/Cassette/Radio, Mini Hifi under various renowned brandnames including Alba, Bush, Emerson, GPX, Kenwood, RCA, Thomson and Sanyo.

The Group's Year 2000 project is being carried out as originally scheduled. The current computer system is being converted into Year 2000 compliant system and system testing is now in progress. The implementation of the new computer system is expected to be in March 1999.

Looking ahead, the Group plans towards a constant and steady growth as well as to reduce business risks by strategically diversifying into new markets. Facing the risk of the slowdown in global economic market, the Group is taking measures to review its overall production efficiency and effectiveness with a view to achieve cost saving and maintain its competitiveness. Besides, the Group will collaborate with Egana International (Holdings) Limited (a company listed on The Stock Exchange of Hong Kong Limited, engaging in design, manufacture and distribution of fine and fashion consumer products covering timepieces, jewellery and leather products, and holding 18.75% shareholding interests in the Company) to apply advanced electronic technology upon timepieces as well as other consumer products, and to further extend the existing distribution network. On the production side, the Group will continue to strengthen the vertical integration manufacturing process.

I would like to take this opportunity to express my sincere thanks and appreciation to my fellow directors and staff for their commitment and dedication to the Group.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

There has been no purchase, sale or redemption by the Company or any of its subsidiaries of the Company's listed securities during the period.

CODE OF BEST PRACTICE

None of the directors of the Company is aware of any information that would reasonably indicate that the Company is not, or was not for any part of the six month period ended 30 September 1998, in compliance with the Code of Best Practice as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

On behalf of the Board
Simon Ling Siu Man
Chairman

Hong Kong, 16 December 1998


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