Tonic Industries Holdings Limited

(Hong Kong, December 27, 2000) - Leading audio-visual ODM and OEM manufacturer Tonic Industries Holdings Limited ("Tonic") (Stock Code: 978) today announced its interim results for the six months ended September 30, 2000. Tonic attained a turnover of HK$1,390 million, an increase of 29% over the corresponding period in 1999. Net profit attributable to shareholders was HK$27 million, compared with last year's figure of HK$34 million.

Basic earnings per share were HK 4.6 cents. The Board of Directors recommended an interim dividend of HK 1.0 cent per share for the six months ended September 30, 2000.

Mr. Simon Ling, Chairman of Tonic said, "Despite the intense competition in AV product manufacturing, we managed to maintain steady growth in our turnover. The fact that profit did not show a corresponding growth in the period is mainly attributable to the increasing cost of raw materials, such as IC, RAM and plastic materials. Increases in oil prices have sharply raised the cost of plastic materials, whereas the worldwide shortage of IC and RAM have driven the cost of these components right up. However, the supply of these components recently returned to a more normal level and the prices have dropped accordingly. We expect our profit margins to improve in the second half of the year."

During the period under review, the Group achieved significant growth in the manufacturing of audio products for OEM and ODM customers. In particular, the manufacturing of MD Hi-fi equipment shows outstanding growth, with its share of Group turnover reached 20% in the first half of the financial year. The Group's other products namely Discmans, portable CD/Cassette Recorders and Mini & Micro Compo Systems also recorded steady growth, with their share of the Group's turnover standing at 25%, 20% and 28% respectively.

Mr Ling said, "Our production plans for the different products are progressing smoothly. We have capitalized on our market knowledge and expertise in the manufacturing of high profit margin products, at the same time strategically diversifying our quality product range to advance technology products and home appliance products."

The Group successfully launched its Internet set top box and digital satellite receiver in the 4th quarter of the year. Both products were well received in the United States and Europe. With this successful market presence, the Group also introduced its Internet set top box to the Asian market, achieving a strong foothold through its competitive price and user-friendly design. In the Group's appliance division, its innovative 3 in 1 coffee making machine is enjoying high popularity and a number of new products are in the pipeline, which will further enrich Tonic's product portfolio.

Mr Ling continue, "With our current production plans and the increasing orders being received from customers, our newly established factory block 8 which is equipped with advanced machinery and an additional 5 production lines is expected to reach full capacity soon. Planning for the future, our new factory block 9 and a new staff dormitory are under construction with completion expected in April 2001, when production capacity will increase a further 20%."

To save production costs, the Group has ordered six heavy oil electricity generators and attachments. Two of these will be installed in December 2000 and the other four are expected to be installed before June 2001. HK$50 million is being invested in their purchase and installation. Electricity costs will be reduced by 30 - 40% with an investment pay back within four years.

To grasp the numerous opportunities in the e-commerce era, the Group is developing its B2B platform and logistics system. This will enhance the procurement transaction process and enable the Group to obtain the cheapest components among suppliers. The Group expects this B2B platform to begin operations in March 2001.

Mr. Ling concluded, "After three years of rapid growth since our listing in 1997, we are now in the process of consolidating our existing businesses. We are actively reengineering our existing audio business into a more diversified, technology-advanced and value-driven business. We are committed to spending significant costs on research and development. We have every confidence that together with our management's rich experience, strong leadership and widespread expertise in implementing sound marketing strategies, our business will continue its robust growth to bring better returns for our shareholders."

Tonic is principally engaged in the design, manufacture and marketing of a wide range of consumer AV products. These include MD systems, DVD players, CD portables, MP3 products, Dolby Prologic and digital stereo receivers, portable CD/cassette/radio systems, portable cassette recorders, digital satellite receiver, Internet set top box, CD-RW, mini Hi-fi music centres and other home appliances products. Products are sold on an ODM and/or OEM basis to overseas importers and manufacturers with well-known brandnames such as Alba, Bush, Emerson, GPX, Kenwood, Medion, Pioneer, RCA, Sanyo and Thomson. The Company was listed on the Hong Kong Stock Exchange in October 1997.

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This media release and the other corporate information of Tonic Group can also be accessed through the following website:

http://www.tonic.com.hk