The directors ("Directors") of Tonic Industries Holdings Limited (the "Company") are pleased to announce the audited consolidated results of the Company and its subsidiaries (the "Group") for the year ended 31 March 1998, together with the comparative figures for the previous year, as follows:

Notes:

1. GROUP REORGANISATION AND BASIS OF PRESENTATION

The Company was incorporated in the Cayman Islands under the Companies Law (1995 revision) as an exempted company with limited liability on 24 April 1997. On 30 May 1997, pursuant to a Group reorganisation to rationalise the Group structure in preparation for the listing of the Company's shares on The Stock Exchange of Hong Kong Limited (the "Stock Exchange"), the Company became the holding company of the companies now comprising the Group through the acquisition, for shares, of the entire issued share capital of Tonic Electronics (B.V.I.) Limited, the former holding company of the Group. Further details of the Group reorganisation are set out in the Company's prospectus dated 30 September 1997.

The shares of the Company were listed on the Stock Exchange on 16 October 1997. The Group's consolidated results for the two years presented were prepared on the basis of merger accounting as if the current Group structure had been in existence throughout the two years.

2. TAXATION

Hong Kong profits tax has been provided at the rate of 16.5% (1997: 16.5%) on the estimated assessable profits arising in Hong Kong during the year. Taxes on profits assessable in the People's Republic of China (the "PRC") have been provided at the rates of taxation prevailing in the PRC based on existing legislations, interpretations and practices in respect thereof.

Deferred taxation has been provided under the liability method at the rate of 16% (1997: 16.5%) on the timing differences between taxable profits and profit reported in the financial statements.

Taxation charged to the Group's profit and loss account comprises:

3. DIVIDENDS

The 1997 interim dividend of HK$10,000,000 was paid by a subsidiary to its then shareholders prior to the Group reorganisation completed on 30 May 1997 as set out in note 1.

4. EARNINGS PER SHARE

The calculation of basic earnings per share for the year is based on the net profit attributable to shareholders of HK$41,483,000 and the weighted average of 248,942,466 shares in issue during the year.

The calculation of basic earnings per share for the year ended 31 March 1997 is based on the net profit attributable to shareholders of HK$23,599,000 and the aggregate of 216,000,000 shares comprising 200,000 shares issued on a pro forma consolidated basis and the capitalisation issue of 215,800,000 shares.

The calculation of fully diluted earnings per share is not applicable to the Group.

FINAL DIVIDEND

The Directors have recommended the payment of a final dividend of HK3 cents per share for the year ended 31 March 1998 to shareholders whose names appear on the Company's Register of Members on 16 September 1998 (the "Proposed Final Dividend"). Subject to the approval of the Company's Members at the forthcoming Annual General Meeting, the final dividend will be paid on or before 30 September, 1998.

BONUS ISSUE OF SHARES AND WARRANTS

In addition to the Proposed Final Dividend, the Directors have recommended a bonus issue of new shares (the "Proposed Bonus Share Issue") and a bonus issue of warrants (the "Proposed Bonus Warrant Issue") for the year.

The Proposed Bonus Share Issue will be made on the basis of two bonus shares for every five existing shares held by the shareholders whose names appear on the Register of Members on 16 September 1998. The bonus shares will be credited as fully paid at par and will rank pari passu with the existing shares in all respects, except that they will not rank for the Proposed Final Dividend, the Proposed Bonus Share Issue and the Proposed Bonus Warrant Issue for the year ended 31 March 1998.

The Proposed Bonus Warrant Issue will be made on the basis of one bonus warrant for every five existing shares to the shareholders whose names appear on the Register of Members on 16 September 1998. Each bonus warrant will entitle the holder to subscribe in cash for a new share at an initial subscription price of HK$0.65 per share, subject to adjustments, at any time from the date of issue to 30 September 2000 or such earlier date as provided in the instrument constituting the warrants. The shares to be issued on exercise of the Proposed Bonus Warrants will not rank for the Proposed Final Dividend and Proposed Bonus Share Issue.

CONDITIONS

The Proposed Bonus Share Issue and the Proposed Bonus Warrant Issue are conditional upon:

(a) the passing of the relevant ordinary resolutions to approve the Proposed Bonus Share Issue and the Proposed Bonus Warrant Issue respectively at the annual general meeting of the Company to be held shortly; and

(b) the Listing Committee of the Stock Exchange granting listings of, and permission to deal in on the Stock Exchange , the bonus shares, the bonus warrants and any new shares which may be issued upon the exercise of the subscription rights attaching to the bonus warrants.

Subject to fulfillment of the above conditions, certificates for the bonus shares and bonus warrants are expected to be despatched to shareholders on 30 September 1998. A circular setting out further details of the Proposed Bonus Share Issue and Proposed Bonus Warrant Issue will be despatched to shareholders of the Company as soon as practicable.

CLOSURE OF REGISTER OF MEMBERS

The Register of Members of the Company will be closed from Monday, 14 September 1998 to Wednesday, 16 September 1998, both days inclusive, during which period no transfer of shares will be effected. All transfer documents accompanied by the relevant share certificates must be lodged with the Company's Branch Registrars in Hong Kong, Tengis Limited at 1601 Hutchison House, 10 Harcourt Road, Hong Kong not later than 4:00 p.m. on Friday, 11 September 1998 in order to qualify for the Proposed Final Dividend, the Proposed Bonus Share Issue and the Proposed Bonus Warrant Issue.

BUSINESS REVIEW AND OUTLOOK

The Group has been able to achieve a record high result for the year ended 31 March 1998, despite the instability of the Asian financial markets and the downturn of the economic situation in Hong Kong. Turnover and profit attributable to shareholders for the year ended 31 March 1998 amounted to approximately HK$1,524.4 million and HK$41.5 million respectively, both representing an increase of approximately 76% as compared to the year ended 31 March 1997.

During the year under review, the Group has successfully expanded its market share despite severe competition in the Audio Products industry. Sales to customers such as Kenwood, Sanyo, Emerson, GPX, Bush, Thomson and RCA are widely diversified in the markets over the world. Demand for products from countries in America and Europe was strong and contributed to about 80% of the Group's turnover.

The turmoil in the Asian countries has so far had little effect on the business of the Group. Instead we note that as a result of the instability of these Asian countries, buyers from Europe and Americas have favoured the Group for its timely delivery and product quality. On the other hand, many Asian factories are tight in working capital and short of bank credit. Thus, although the currencies of these Asian countries have devalued, they may not be able to enjoy a low production cost because major components of audio products are mainly imported overseas.

The Group was able to expand its production capacity and invested in capital expenditure like plants and machineries as well as factory premises in Dongguan, the PRC to meet the continuous growth in production demand from our customers. The construction of the two new factory blocks in the Dongguan factory complex completed earlier this month and more than 70% additional production area have been generated. The factory complex now provided more than 1,000,000 square feet production area. The expanded facilities would be able to reinforce our expansion plan to increase the production capacity as well as to leave room for our development of new products range and collections.

The Group has also maintained a team of experienced staff who has been with the Group for years, and operated under the supervision of a team of senior and knowledgeable Japanese consulting engineers who design and develop models for mass production to cater for changes in consumer trends as well as technical innovations.

The Group's development of the next generation audio product, the Mini-Disc ("MD"), is approaching completion. Orders from large OEM customer have been secured and production is expected to commence by the end of 1998. The particular features of a MD are its small size, its recordable and random access function, no shock proof problem and its edit function. We believe the demand for MD products will increase rapidly, starting from Japan, Europe and finally in the Americas when the price of the products is lowered to an attractive level as a result of mass production. The Group has also acquired an office unit just adjacent to the design and engineering department in the Hong Kong Head Office as a new product development and research center for the development and research of the MD products. It is believed that it can bring to the Group a successful product line to complement the CD type products.

Egana International (Holdings) Limited ("Egana"), a company listed on the Hong Kong Stock Exchange holding 18.75% interest in the Company, is primarily engaged in the design, assembly and distribution of timepieces and jewellery. The Group has been benefiting from and will continue to benefit from its association with Egana. The synery and anticipated benefits include the possibility of enjoying the use of the extensive brandname portfolio, global distribution network, and access to the advanced technology possessed by the partners/associates of Egana.

The Group is currently upgrading its computer system with a view that the new system is Year 2000 compliant, it is expected that the new system would be fully operational before March 1999. The Group is also carrying out a review of the Group's other systems to ensure Year 2000 compliance. Whilst the Group's current products do not have any Year 2000 problems, the Group has implemented procedures to ensure that any future product development will be Year 2000 compliant. The Group has also started to communicate with its business partners to make sure they will not have Year 2000 problem affecting the Group.

Looking ahead, the Group will continue to expand its production capacity in order to secure a larger market share. This will be done, however, in a cautious and steady manner together with constant review of the changing market situation . The Group will further strengthen its vertical manufacturing process by looking into opportunities for producing more components in-house in order to improve the profit margin and product quality. Finally, the Group will continue to develop on its already widely diversified customers portfolio and to research new audio products in order to sustain a healthy growth in its business.

PURCHASE, SALE OR REDEMPTION OF SHARES

During the year ended 31 March 1998, there was no purchase, sale or redemption of the Shares by the Company or any of its subsidiaries.

CODE OF BEST PRACTICE

In the opinion of the Directors, the Company has complied with the Code of Best Practice as set out in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange throughout the accounting period under review.

On Behalf of the Board
Simon Ling Siu Man
Chairman

Hong Kong, 5 August 1998

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