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1998 Annual Report

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Enhancing Shareholder Value

All our strategies start with how we create shareholder value. At Champion, our keys to achieving this all-important goal include maintaining discipline in managing the business and our balance sheet, building and investing in core technologies, creating new applications, and protecting our intellectual capital.


Paul KAN Man Lok (Chairman)
Sunny LAI Yat Kwong
Leo KAN Kin Leung
James CARTER *
Jennifer CHEUNG Mei Ha *
Terry John MILLER *
* Non-executive Directors

Company Secretary
Jennifer CHEUNG Mei Ha

Principal Place of Business
The Penthouse
Kantone Centre
1 Ning Foo Street
Hong Kong

Registered Office
P.O. Box 1787
Second Floor
One Capital Place
Grand Cayman
Cayman Islands
British West Indies

Deloitte Touche Tohmatsu

Principal Bankers
Dao Heng Bank
Midland Bank plc
National Westminster Bank PLC
Standard Chartered Bank
The Hongkong and Shanghai Banking
Corporation Ltd.
The Sanwa Bank Ltd.
The Sumitomo Bank Ltd.

Share Registrars
Cayman Islands:
The Harbour Trust Co. Ltd.
P.O. Box 1787
2nd Floor
One Capital Place
George Town
Grand Cayman
Cayman Islands
British West Indies

Hong Kong:
Secretaries Limited
5th Floor
Wing On Centre
111 Connaught Road Central
Hong Kong

Citibank, N.A.
American Depositary Receipts
111 Wall Street, 5th Floor
New York, NY 10043

Information and Enquiries
Investor Relations
Champion Technology Holdings Ltd.
Kantone Centre
1 Ning Foo Street
Hong Kong


It Starts with an Idea!

Deep in the heart of every entrepreneur resides the dream of improving the world, turning an idea into commercial reality, giving birth to a product that inspires people to exclaim " Great!" or "Incredible!" . Few can make it happen.

At Champion, we are fortunate, because we possess the entrepreneurial spirit, the vision, and the ability to turn an idea into reality.

By constantly refining and redefining the state-of-the-art, combining expertise in a number of related high-tech fields, having clearly defined goals and applying low cost mass-production techniques, we open the doors that separate the world from a better tomorrow.

When vision, ambition, and ability are combined, there are no limits to future developments.

Chairman's Statement

To Our Shareholders:

It is now over a year since the Asian economic crisis hit the region, and in recent months, the problems have become global as the financial crisis spreads to Russia and Latin America. There are growing concerns that the world could be heading towards an economic downturn. No company can escape from the slowdown. But good companies are able to reduce such negative impact to a minimum. We believe Champion is one of them, as we have once again demonstrated with our latest set of results, summarised below:

Turnover 1,277
Operating profit before exceptional items 293
Cashflow from operations 225
Total assets 2,285
Shareholders' funds 1,614

These numbers bespeak the consistent and predictable performance of Champion for the last eleven years, qualities which we can all be proud of. More significantly, these results were achieved amidst one of the worst economic crises in the region, which brought with it corporate bankruptcies, sinking revenues, plummeting profits, and negative economic growth, even recession, in many of our neighbouring countries. Our strategy, in particular, business focus, investment in intellectual property, geographical diversification, and prudent management, is steering us in the right direction, as it has done throughout the years. Analysts used to question our conservative approach to business, especially in a fast moving industry like telecom and infotech. Now investors appreciate our model of not having over-extended ourselves.

Weathering the Asian Financial Storm

The Group was able to maintain its business momentum in a difficult environment. China, in particular, has shown much resilience even in the face of economic hardship, and is widely regarded as the potential growth engine to drive the region's economic growth. Consumer demand for a broad range of products and services remained steady. There was, however, slower growth in the second half, as the Asian contagion intensified, and both the Group and its customers adopted a more cautious attitude.

European operations were little affected by the Asian situation during the period in terms of sales. The Group continued its programme of heavy investment in technology development to prepare for future growth. We have always recognised that strategic moves impact earnings in the short term. That's the nature of investment, especially in the IT (information technology) industry. Without such investment, our future would not be as promising.

Meanwhile, strict adherence to cost control and inventory management have combined to maintain our operating margins, producing a net cash position. At the same time, low gearing has cushioned the Group's position against the prevailing interest rate volatility.

For fiscal 1998, in light of the economic uncertainties, a provision of HK$88 million (inclusive of HK$29 million from Kantone) was made for certain investments and projects in the region. The Group has no exposure to the trading of properties and shares. As such, the provisions are related to investments in telecom projects in the Asian region. Due to a combination of factors such as changing market conditions and project delays, the Directors, after careful consideration of the performance of such investments over this difficult period, are of the view that the return does not justify further pursuit. Inclusive of the exceptional items, profit attributable to the shareholders was HK$180 million.

Enough about last year's performance. I want to turn to the more interesting topic of how we position ourselves for the New Digital Age, and what our newly defined strategic growth initiatives are for the next century. While the economic uncertainties have slowed down the decision making processes of many corporations, Champion, being in the forefront of the IT industry, is prepared to capitalise on the current industry consolidation and push forward its strategic plans originally intended for the new millennium. It is becoming increasingly obvious to the Directors that pursuit of intellectual capital, more than geographical diversification, is the key to successfully withstanding any economic storm and spearheading earnings growth.

New Horizons within and beyond Wireless Messaging

Champion tends to be a bit misinterpreted. The investment community prefers to treat us as a paging company, full stop. In fact, our strength has always been in wireless messaging and information technology. By combining the two, we launched multi-lingual message paging in the early years, which proved to be a hit. It is therefore fair to say that message paging has provided us the entree to other telecom and information businesses, and we have demonstrated our capability in building new horizons and providing integrated solutions. With the corporate restructuring and spin-off of Kantone Holdings in early 1997, the Group is focusing more sharply on strengthening its microelectronics, software, and technology development capabilities, fully cognizant of the fact that the future of IT is software driven. We'll share with you Champion's software vision later in this report.

Within paging, we have seen some exciting developments in recent years. There was indeed a brief period when wide area public radio paging services in the developed countries experienced a decline in demand in the early 1990s, battered by the surging success of cellular. But emerging markets presented a totally different picture. China, for example, has experienced compound annual growth rate of 100% or more for the last ten years, reaching over 60 million paging subscribers by mid 1998, making it the world's largest paging market, ahead of the US. Industry sources have forecast a 10% penetration by 2005. Further afield, in the US and Europe, radiopaging has staged a remarkable recovery, and has once again become a mainstream mobile communications technology with a bright future, thanks to the introduction of advanced technologies and new applications in recent years. Message paging and information services, for which Champion is a pioneer, combined with other wireless technologies, including the Internet, has long pushed the pager beyond simply the "bleep on the belt".

While Champion is working on the continued evolution of message paging to embrace new functionality and upgrading our messaging networks to provide enhanced services beyond paging, we have also been extending our reach to other wireless activities, which include cellular, cordless, mobile radio, mobile data over PMR, satellite applications, Internet connectivity, multi-media, and manufacturing of infrastructure equipment. In a later chapter of this report, "Unfolding Champion's Wireless Capabilities", you will hear more about our product continuum.

Strategic Growth Initiatives for the New Era

Outstanding financial performance is one of management's most important goals. For more than 10 years, we have operated within a framework that is uncommon in the wireless industry and long-term strategies that have delivered consistent results for our customers, employees, shareholders and suppliers. The goal of delivering consistent results year-on-year is a tall order, and at Champion, it has been achieved with a lot of balancing acts between the two opposing objectives of short-term profitability and long-term sustainable growth. Our long-term commitment will not change. In fact, these strategic initiatives have been developed with careful and thoughtful review of the recent past as well as current conditions, and are expected to enable the Group to maintain robust performance while improving our operating income growth and shareholder value.

Central to our new strategy formulation is the consistent focus on information technology and high value-added services, which the Chief Executive of the Hong Kong Special Administrative Region, Tung Chee Hwa, described in his second Policy Speech as the lifeline of Hong Kong, and which is going to pull the territory out of the current economic doldrums.

Defend our IP and protect shareholders' wealth

As we move from an industrial economy into the Information Age, intellectual property (IP) often proves to be a company's most valuable asset. For over a decade, Champion has made substantial investments in innovative messaging products and information software development, which form the foundation of the Company, and represent a major source of our competitive advantage. In particular, the patent in China, pertaining to Champion's invention of the world's first Chinese character and multi-lingual wireless transmission systems and devices, alone carries a value of HK$3 billion, according to professional valuers' estimates.

Successful products beget imitators. In recent years, there has been widespread infringement of our patent, and management is taking active steps to safeguard and enforce the Company's rights. After all, the IP system seeks to protect and reward innovations and creative activities. The basic mechanism for achieving this is the creation of IPRs (intellectual property rights) which confer monopoly rights over the invention, which often involves substantial investment and front-end costs. Without adequate protection, imitation and copying would quickly compete away any profits associated with such niche products, and the level of innovation would fall below that deemed socially optimal.

Globally, there is increasing awareness of IPR and lawsuits for damages often result in claims of millions, even billions, of dollars. In the U.S. in particular, pioneering innovations are generally given broad-based protection, and this encourages advances in technology development, the key driver and common factor of global competitiveness and economic growth. Technology companies in the software, computer, electronics, semi-conductor, and biotech industries regard IP portfolio management as a core business activity which has a significant revenue opportunity. A case in point is Honeywell Inc. taking on the world camera industry in the early 1990s, which provided a total return of nearly US$500 million in damages and licensing fees from other companies in the camera industry.

It is interesting to note that China has often been accused of not respecting the IP system, of being a place where foreign technologies and copyrights are often being pirated. Champion's Chinese pager with its unique Chinese character display system, on the other hand, has been imitated by multinational technology companies, which have produced similar products for an increasingly large customer base. In September this year, China announced the creation of the Copyright Protection Centre, a sign that it is taking a pro-active approach towards grappling with its IP problems, and safeguarding the rights and interests of owners of patents and related rights. The Group is working closely with the authorities to pursue its own rights and seek damages. Hopefully we shall be in a position to report the progress in the not too distant future.

Management believes that the greatest wealth of the Company lies in its intellectual capital, and we are committed to developing new ideas and beefing up our portfolio of IP to boost return on investment. According to a U.S. based consulting firm, "The currency of the 21st century is going to be intellectual assets, so not investing is not an option, just as not investing in technology 25 years ago was not an option." With that paradigm shift, global investors are increasingly basing their valuation on intellectual assets. This is well reflected on Wall Street, where software and technology companies dominate the ranks in terms of greatest market value.

Reduce marginal operations

Management will continue to monitor the Group's various businesses, and where individual operations are underperforming or certain investments are not bringing the intended return, decisive action will be taken to close or discontinue those operations and write down their value. In Hong Kong, for example, we have reduced the number of retail outlets, and in China, the local offices providing back-up services have been further streamlined. This is expected to have a positive effect on future operating profits and margins for the Group.

Non-recurring charges and provisions

The Company adopts an aggressive and precautionary approach in making provisions and writing off costs incurred in selected telecom projects, which are clouded by uncertainty due to project delays or change in market conditions.

In the past few years, Champion has been trying hard to diversify its operations geographically in order to hedge against volatilities in different markets. However, such diversification strategy has its risks and rewards. For example, in 1995, the Group had to make a provision for its Russian investment due to initial sluggish sales and complications involved in operating the paging joint-venture in Moscow. In fiscal 1998, we took a charge of HK$88 million against investments in telecom projects in the Asian markets which were negatively impacted by natural events and the regional financial crisis. The Group also deemed it prudent to write off against expenses investment during the year in certain activities which could involve a very long payback cycle. The key to this provisioning initiative is to balance the Group's short-term gain and long-term growth.

Meanwhile, in the UK, a high level of technology development and support activities involved in developing customised solutions is regarded as investment necessary to build the foundation for the Group's future growth. Without such investment, our future would not be as promising.

Enhance margins

Management will continue to aggressively reduce costs to offset the challenges of competitive discounting and pricing pressures. Margin initiatives include rationalising marketing expenses, streamlining operating and administrative costs at all levels, maintaining strict controls over inventory management, and on-going emphasis on value-added services such as using our wireless messaging paging networks to provide call centre and hotline services to corporate customers, in addition to serving the subscriber base. We have also been aggressive in acquiring new distributorships for other communications products.

Focus on software development

Recognising that the future of technology is software driven, management has decided to devote more resources to strengthening the Group's microelectronics, software, and technology development capabilities, in order to enable us to produce a continuing stream of new products and enhanced services cost-effectively. The evolution of the Kantone message receiver into a full-fledged mobile information terminal capable of showing graphics and pictures, for example, represents a major breakthrough in paging technology using software application.

Systems integration and customised solutions for commercial applications using the Group's proprietary radio transmission and location technologies will be a key area of development, especially in today's sophisticated business environment, which is often engulfed in different communications networks. In addition, as security is a key issue in the optimum use of information technology and online services, Champion expects to focus on developing encryption technologies and verification techniques, with special emphasis on pattern recognition such as biometric identification.

To speed up the Company's pace of software development, we will be actively seeking to partner with other software developers, as well as tapping the research capabilities of academic institutions, both in Hong Kong and overseas. You will read more about our software vision in a later chapter.

Forge strategic alliances and joint ventures

Since the early days, Champion has teamed up with international partners to pursue various telecom projects in different parts of the world. Management intends to accelerate the pace of these strategic alliances, especially in markets where the Group has presence, in order to stimulate cross selling and to expand our range of products and service offerings.

Diversify into new businesses to broaden earnings base

As mentioned in our last Annual Report and this year's Interim Report, management will explore new businesses and seize opportunities which will provide high growth and profitable returns to shareholders. In particular, management is keen to pursue the areas of environmental and healthcare services, which are evolving with the advance of new technologies. The Group's strategy for growth is in line with the global trend of people demanding more information and faster communication, and as people become more conscious of the environment and their health.

Corporate moves

Two years ago, Champion underwent a corporate restructuring, which saw the Group being divided into three distinct business operations, and which led to the subsequent spin-off of the manufacturing and distribution arm under Kantone Holdings. That corporate exercise represented the right move at the time, but changes brought by the new era of infotech and the Asian financial turmoil have altered the competitive landscape, and exposure to emerging markets is viewed in a different light. The financial turmoil has also affected the telecom markets where we have had plans to participate, as witnessed by the easing off of enthusiasm of some sectors of the investment community.

At this juncture, we believe that the Group's corporate structure needs to be revamped to accommodate our renewed focus on information technology and intellectual capital which are expected to provide a platform on which Champion will be able to enjoy further strong, sustained growth in the years to come.

We are currently examining possible alternatives, and have, with advice from investment bankers and legal counsel, developed a plan designed to more fully reflect the market value and potential represented by the existing businesses, including that of Kantone Holdings. Some form of group reorganisation will be involved. Management will keep you posted on the latest developments.

Optimistic about the Future

These are challenging times for Champion, both in terms of the revolutionary nature of the IT industry, and the weak economic conditions brought by the Asian crisis, which may persist for some time. The Y2000 issue and the new European Monetary Union (EMU), which are around the corner, pose further challenges. Despite all these, we are more excited than ever about the future of integrated wireless communications and information technology, and our role in it.

With global awakening to the importance of an information-based community, people are forever demanding more services and information in order to conduct transactions, download banking statements, or access a database. Such activities require powerful microprocessing power and systems integration, which is Champion's strength. Our initiatives will focus on all major aspects of the wireless data communications market, from basic paging to sophisticated LAN-based networking system for electronic commerce applications. Leveraging our software expertise and radio experience, we will also provide enhanced services to corporate networks and the booming Internet. To speed up our pace of development, we will invest in, or partner with, companies that have the potential to expand and complement our computing, telecom, and software capabilities.

As technology development is capital intensive and may involve a long payback cycle, we intend to use equity to finance our IT plans. As this report goes to print, we are finalising a proposed Rights Issue of shares of approximately HK$200 million. With the additional funding, the Group will be favourably placed to pursue the many new opportunities that the future holds.

In closing, I would like to thank you, my fellow shareholders and investors, for the trust and confidence you have shown in us throughout the years. In our quest to pursue an integrated IP strategy for the new millennium, I must seek your continuing support and encouragement in the years ahead.

Paul KAN Man Lok
November 1998

Financial Highlights

  As at 30 June
1994 1995 1996 1997 1998
Balance Sheet (HK$M)          
Shareholders' funds 801 982 1,317 1,443 1,614
Long term borrowings 12 12 27 119 40
Total assets 1,205 1,494 1,871 2,075 2,285
  As at 30 June
1994 1995 1996 1997 1998
Profit and Loss Account (HK$M)          
Turnover 553 766 1,025 1,157 1,277
Operating profit before exceptional items 182 208 261 293 293
Profit before exceptional items, interest, depreciation, amortisation and tax 238 322 431 510 504
Dividends 64 42 55 313 8
1994 1995 1996 1997 1998
Financial Ratio          
Sales/Assets 0.46 0.51 0.55 0.56 0.56
Assets/Equity 1.50 1.52 1.42 1.44 1.42
Current assets/Current liabilities 1.94 1.82 1.94 3.19 2.67
NAV per share 30 cents 36 cents 42 cents 43 cents 48 cents
Earnings per share 6.9 cents 7.4 cents 8.1 cents 8.4 cents 5.4 cents
Cash flow* per share 8.9 cents 10.9 cents 12.7 cents 14.7 cents 11.5 cents
P/E ratio 20 4.73 5.65 5.99 4.91
Cash flow* multiple 15.4 3.2 3.6 3.4 2.3

* Cash flow = Profit after taxation before minority interests + Depreciation + Amortisation


Champion's Software Vision

Strength in Wireless Messaging and Information Services

Eleven years ago when Champion was founded, the backbone of its operation was a systems house, made up of a core team of computer analysts and programmers. By integrating ASIC (application specific integrated circuits) technology with state-of-the-art computer software, hardware, radio engineering, language processing, and electronics engineering, Champion has developed the revolutionary multilingual pager and paging systems, which gained worldwide recognition and won the Company many awards. Patents for the Group's products and innovative software design have been obtained from all the major jurisdictions, including the U.S., U.K., China, Hong Kong, Singapore, Canada, Australia, and even Japan, where the difficulty of obtaining patents for pioneering innovations is well known.

The definition of a pager is worth examining. After all, a pager is a radio signal receiver, and the paging system is a radio communication system controlled by a computer-based system. Continued development of software technologies has added new functionalities and features to the Group's Kantone pager and paging system. Not only has Champion been able to turn the pager into a powerful mobile information terminal (MIT) with full function multilingual messaging and comprehensive information services using its software expertise, the Company has also demonstrated its success by integrating paging technology with other wireless platforms, such as cordless, cellular, and private mobile radio, to provide tailor made solutions for customers. Such applications cover a wide range of industries, including hospitals, supermarkets, security services, chemical plants, fire brigades, airports, despatch vehicles, and hotels.

Recognising that the future of technology is software driven, and in order to speed up the pace of development, Champion underwent a corporate restructuring in 1996, which resulted in the spin-off of Kantone Holdings, adding a second listed vehicle to the Group. Management has since been able to focus more sharply on strengthening its electronics, software and technology development capabilities. In addition to expanding the Group's offerings and services through inhouse endeavours, management has also been actively seeking opportunities on a global basis.

Software Targets for Growth

Software calls for an entrepreneurial approach, and the most appropriate way to go about it is to partner with software houses by providing some investment. Of interest to Champion are companies and development projects involved in three areas: embedded software (utilities, systems software); content (broadcast, information services, educational software); and services (Internet access, network connectivity, e-commerce, and data warehousing). In our opinion, the killer applications in the coming few years would be mobile Internet and mobile commerce, followed by information services and location services.

In an increasingly online world, security is a key issue. We are currently working on proprietary encryption technologies and integrated verification techniques to provide seamless security for e-commerce, e-banking, e-tailing (retailing), and remote network access. Particular emphasis is placed on biometric identification, which involves the use of mathematical or engineering representations of human characteristics that, when matched against previously registered data, provide an effective method of verifying identities. These characteristics can be anything from the standard physical identification of fingerprints, iris and retina patterns to voice frequencies and brain wave patterns, which will replace awkward passwords, PINs and plastic cards.

Champion's target is to build a portfolio of software companies, each focusing on a special niche. In the last year, we have evaluated several interesting technologies from companies from Israel, Japan, Canada, China, and the U.S. We are also working closely with the local universities on a number of LAN-based applications with multi-media functionality. We have seen the benefits of vertical integration on our paging business; now we want products that are more horizontal, and software will be the key to achieving this newly-defined vision.

Unfolding Champion's Wireless Capabilities

From Paging, Cellular, DECT, and WLL to Satellite, E-Commerce, and the Internet

With its roots in multi-lingual message paging and information based services, Champion has been extending its reach to other wireless activities. The increasing convergence of voice, data, video and different technologies, has highlighted the need for systems integration, and this is where Champion's strength lies.

A New Chapter in the Information Industry in


Restructuring of the Telecom Industry

Early this year, a major reorganisation was announced by the State Council, which resulted in the merger of the former Ministry of Posts and Telecommunications and the Ministry of Electronics Industry into the Ministry of Information Industries (MII). The new Ministry has also taken up information network administration responsibilities for the Ministry of Radio, Film, and Television, Aviation Industries of China and the China National Aerospace Industry Corporation. This strategic decision represents a significant move on China's part to push its information industry towards the next century.

As digital technology is increasingly bringing together telecoms, information technology and broadcasting, the creation of the new Ministry, with responsibility for mapping out plans, policies and regulations for the industry, is fully in line with overseas thinking on how to handle the implications of growing convergence in the information sector. By grasping this paradigm, China has emerged as one of the first countries to attempt regulation for a new age. Another purpose of the restructuring is to insulate government functions from corporate management so as to promote fair competition, especially in the telecoms sector. Committed to joining the World Trade Organisation (WTO), China is taking steps to make its economy more market-oriented, and opening up further to foreign investment. In WTO membership talks in July this year, China went even further to make public its intention to open up its mobile-telephone and pager markets, which have so far prohibited foreigners from owning equity or taking part in the operation.

IT Consumption Soaring

According to ministry sources, as part of Beijing's investment in infrastructure projects to stimulate economic growth and offset the effects of the regional downturn and domestic floods, it is planned that 450 billion yuan (about US$55 billion) will be spent on telecommunications over the next three years. Expenditure will be concentrated mainly on mobile telephone facilities, data communications networks and software development in order to build up the country's information infrastructure. The potential of China's IT market requires no further explanation. Already China boasts the world's largest paging market, with over 60 million subscribers; the second largest fixed network after the US; and the world's third largest cellular market, with 20 million subscribers. All of these have been achieved largely from internal resources. With further opening up and a more level playing field, the opportunities are enormous. The previous forecast for 10% paging penetration by 2005 and 4% cellular penetration by 2002 may need to be re-examined. Even the latest restructuring of the state-owned enterprises may lead to opportunities for foreign and domestic investors to acquire stakes in the local firms. Many of these enterprises are short of capital and may need to seek outside partners.

Andy Grove, Intel's chairman and the celebrated "father of PCs", was excited by what he saw during his visit earlier this year to China, where individuals and businesses are embracing personal computing with great enthusiasm. A popular saying in China goes: "After people have a TV, a washing machine, and a refrigerator, the PC is the next thing they want." Last year, China bought three million PCs, 40% more than in 1996, according to International Data Corporation. IDC predicts that the China market will grow 29% a year through 2002, when PC sales will reach 11 million, beating Japan as the world's No. 2 PC market, trailing only the U.S. This phenomenal growth prompted Grove to remark, "At the highest level of the Chinese government, technology is seen as very, very strategic."

Thanks to our early roots in China, our focus on telecoms and information technology, and the successful introduction of our pioneering Chinese character message paging and digital wireless technologies, Champion is well positioned to expand its market share in China.

Champion Sees Silver Lining in the Asian

Economic Turmoil

Impact of the Asian Economic Turmoil

Much has been said about the economic turmoil in Asia and its lasting effects on the regional, even global economy. Many countries are experiencing liquidity problems, currency devaluations of 50% or more, high debt ratios on bank loans, and a general shakeout in their financial sector. In some of our neighbouring countries, governments have changed ruling parties and appointed new financial policy leaders, or reviewed their operating practices.

All of these things impact on the progress and telecom investment levels across Asia. The current volatility will lead to a short-term slowdown of the tremendous economic growth rates enjoyed during the decade, and many projects, even major developments, will be frozen.

Opportunities in the IT Industry

In his latest Policy Address, the Chief Executive of the Hong Kong Special Administrative Region, Tung Chee Hwa, highlighted IT as the one bright spot amidst a gloomy backdrop, and there is room for optimism. Across the region, there is a general awakening to the importance of IT as a catalyst for economic growth and strengthened competitiveness, in particular in Singapore, Malaysia, China and Hong Kong. We have all seen the constructive effects on the US economy of the Information Superhighway project proposed by President Clinton in 1993. The project was defined as "a seamless network constituted by communications networks, computers, databases and electronic appliances, providing large amounts of information". The US government regarded the project as the core of its technology and industry policy, hoping that it would help to vitalize the country's economy. Indeed, it has worked wonders, and the US economy is now enjoying some of the best fundamentals in many years, which are expected to bring the country long term and sustained growth.

The regional economies are all putting much effort in building and developing the information industry. In fact, the economic crisis has pushed forward such development. In Hong Kong, the SAR government is actively promoting the development of high tech industries and IT services aimed at improving the efficiency and competitiveness of the local economy. With the termination of Hong Kong Telecom's exclusive international license, the local telecom markets have been liberalised, and are being led by a totally market-driven approach. In September this year, further proposals were put forward to open up pay TV and VOD (video-on-demand) markets to competition, at the same time mandating interconnection between telecom and broadcasting networks.

The Government has also committed to speed up the use of IT for internal communication as well as provision of services to the public. At the same time, it will invest significantly in education and human resources development in these areas. The Information Technology and Broadcasting Bureau (ITBB) has been specially set up to look after the IT-related matters. According to K.C. Kwong, Secretary of ITBB, "In the not too distant future, we will be able to transact business with government on-line and on a seamless basis through the use of information kiosks." These kiosks will be installed at convenient public locations. Personal computers at home or in the office, telephones through interactive voice response systems, and interactive TV will all be part of the system. This open and common information infrastructure adopted for the electronic service delivery scheme as proposed by the Government could also be readily used by the public sector.

Similar developments, as described in earlier chapters, are taking place in China. As mentioned in our Interim Report in March this year, our management was encouraged by the fact that Champion's long-term strategy to focus on telecom and information technology found resonance among decision makers both on the mainland and in Hong Kong. In fact, Champion was singled out in a publication in the Hong Kong Economic Studies Series, as one of the three home-grown technology companies cited for its contribution to technology awareness in Hong Kong and for producing innovative design-intensive products that are necessary to improve our competitive edge. In just about a decade, Champion has grown from a small Hong Kong company into a major international group with a global distribution network. Champion has developed advanced communications products and services in the area of wireless multilingual messaging, and has continued to introduce new offerings through the integration of different technologies. In fact, the course that the Group has taken over the years has many of the characteristics of the new direction proposed for Hong Kong by the SAR Government, namely, strategic focus on innovation and technology, and close co-operation with the mainland in all areas, as China is emerging as one of the largest economic entities in the world in the 21st century.

While in the near term, there may be a decline in IT spending in the region, industry sources are forecasting a strong rebound in expenditure for the period 1999-2002, as it is widely recognised that the savings and increased productivity brought about by the new IT applications are enormous.

The race is on to develop new ways of upgrading communications networks and introduce new applications and features that will streamline work processes and increase efficiency. Champion is striving hard to be the frontrunner in this race, where the convergence of IT, telecommunications, and broadcasting is ushering in many exciting opportunities. We may even want to increase investment during the downturn, when the right opportunity presents itself. Experience tells us that the best time to invest is when the business cycle is down. When you invest while on top of the business cycle, you are faced with the downturn. But if you invest during the downturn, you are ready for the boom when it happens. We are convinced that it will happen.

Review of Operations

Results for the Year

Turnover for the year ended 30 June 1998 was HK$1.3 billion, representing an increase of 10% over the corresponding period. Approximately half of the turnover was contributed by Kantone Holdings, with the balance split almost equally between Telecommunications Operations and Microelectronics, Software, and Technology. The Group's audited consolidated profit for ordinary activities before exceptional items and taxation was HK$293 million, which showed a modest increase compared to the previous year. After exceptional items and minority interests, profit attributable to the shareholders was HK$180 million. Earnings per share was HK5.4 cents. The exceptional items of HK$88 million represent provisions for certain investments in telecom projects in the region which may have been affected by the Asian crisis.

Consistent with Group policy, Champion has maintained a very low gearing, with debt to equity ratio at 0.24 as at 30 June 1998. Adhering to its tradition of conservative financial planning, the Group has maintained a comfortable level of working capital and cash resources to fund capital projects in an uncertain economic environment, which is characterised by interest rate volatility and limited liquidity.

Final Dividend

Directors have recommended a final dividend of 0.125 cents per share, subject to the approval of shareholders at the forthcoming Annual General Meeting. This, together with the interim dividend of 0.125 cents (after adjustment for the 1-for-1 bonus issue in April 1998) paid on 19 June 1998, gives a total dividend of 0.25 cents per share for the year. Shareholders will have the option of receiving the dividend in cash or in the form of new shares in the Company. It is expected that the scrip shares and/or dividend warrants will be despatched to those entitled on or about 10 February 1999.

Operations Review

In Hong Kong, the sharp correction in the local economy has pushed management to review its business model. We intend to focus more on business applications, which are less affected by economic volatilities. In addition to serving the subscriber base, the Group is planning to use its existing messaging network to provide call centre and hotline services to corporate customers. The Group is currently promoting a custom-designed wireless office solution using DECT technology, a trunked radio system for fleet management, and other related services. Our target customers are the SMEs (small and medium sized enterprises), the financial institutions and the hospitality industry, whereby the Kantone pager and messaging systems can be integrated and used for online banking transactions and passenger location, building on the Group's existing network infrastructure.

In China, the Group's wireless telephony is progressing as planned. To enhance the return on investment, management is working closely with the local authorities to incorporate wireless local loop (WLL) services, which are capable of providing wireless transaction functions including point-of-sale and online banking transactions. The local population can also benefit from the WLL system for use as a residential phone network, as in some areas, the waiting time for a fixed phone is still long and cost of installation high.

Champion owns valuable IPRs in relation to its invention of the pioneering multilingual wireless transmission system and display device, which form the foundation of the Company's product development, and represent a major source of our competitive edge. According to a professional valuer's estimate, Champion's patent on Chinese character paging in China alone carries a value of HK$3 billion. In recent years, there has been widespread infringement of our patents, and management is taking active steps to defend and enforce the Company's rights.

The opportunities in China remain exciting, as China is committed to joining the World Trade Organisation, and is taking steps to open up its economy further to foreign investment. The latest restructuring of the state-owned enterprises may also lead to opportunities for foreign and domestic investors to acquire stakes in the privatisation of such firms. Both of these developments are expected to result in increasing demand for telecommunications products and services.

In Russia, the Group announced a strategic merger in February 1998 with another leading paging company, SEGOL RadioPage (a US-based corporation), to exploit further growth opportunities in the fledgling markets in Russia and other parts of the former Soviet Union. The merged entity is the largest paging company in Moscow with about 30% of the market share. The participation of TUSRIF (The U.S. Russia Investment Fund) as a shareholder, together with a multi-million cash injection for expansion of the networks, is a strong endorsement and puts the new company on course for further development. TUSRIF is backed by the U.S. Government, and its investment objective is to provide financial and management support in the form of equity investment, loans, and technical assistance grants to firms operating in the Russian Federation.

The Group views its exposure to Russia as long-term investment. The country has a large population of 150 million, but the paging industry is still in the early stages of development. The strategic merger by two leading paging operators will create a position of strength for more solid participation in the development of a large potential market. There are additional benefits as the merged company will act as the exclusive distributor for Multitone's products in Russia.

The recent political upheavals and financial turmoil in the Russian economy are expected to have little effect on the Group's performance. Champion's holding in the new joint venture is about 13%, and the results of the Russian venture will not be consolidated in the accounts at the holding company level. In addition, the carrying value of the investment has already been fully provided for. Nevertheless, management has adopted a more cautious approach, and will continue to monitor closely the developments in Russia.

During the period, the Group's European operations were little affected by the Asian situation. Indeed, the Group was able to maintain its position as a leading manufacturer of equipment to the on-site paging and mobile communications market in Europe. In May this year, Multitone was awarded the Security Industry Award 1998 by the British Security Industry Association, in recognition of the Group's innovative products and high standard of excellence in the field of security.

Meanwhile, new projects using the Group's proprietary wireless transmission and location technologies for commercial applications are making good progress. Directors believe there is great potential in the international markets for customised solutions using location technologies, which can be implemented in different environments.


We face many challenges ahead. The economic slowdown in the region is expected to persist for some time, and the emerging markets on which we focus may suffer from slower growth and weak consumer demand. We will continue to sharpen our competitive edge and our customer focus by offering quality products and services; by growing our markets at home and overseas; by forging strategic alliances and partnerships; and by continuing innovation. We are ready and able to expand our vision of communications and computing beyond data communications and wireless telephony to other areas of digital information, for this century and the next.

Meanwhile, we are taking a pro-active approach towards developing an integrated IP strategy that dovetails with business goals. Effective management of IP assets — patents, trademarks, copyright, and trade secrets — which are our primary corporate resources, and enforcement of our rights, will be a major initiative to boost return on investment.

Defining a New Championship

As we move from an industrial economy into the Information Age, intellectual property (IP) often proves to be a company's most valuable asset. At Champion, we are taking a pro-active approach to develop an integrated IP strategy that dovetails with business goals. E Effective management and development of IP asets — patents, trademarks, copyrights, and trade secrets — which are our primary corporate resources, will be a major initiative to enable us to move into the New Digital Age.

Racing into New Frontiers

Over its 11-year history, Champion has grown from a fledgling business built around a revolutionary invention into a global communications company. Today the Group owns valuable intellectual property over proprietary technologies which range from radio transmission, multi-lingual messaging, information processing, wireless decoding and spread spectrum analysis, to frequency synthesis, giving us the platform from which to continue our race into new frontiers and endeavour for further profit growth.

Keeping Our Edge

Gaining a competitive advantage is only half the battle. Sustaining growth over a long period of time is the way to win the war. At Champion, we continue to see exciting potential in the extensions of our core technologies. But we do not count on inhouse endeavours or organic growth alone. Throughout the years, we have demonstrated our aggressive approach towards capturing new opportunities by forming strategic partnerships and technology alliances to broaden our business base and geographical footprint.

Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the annual general meeting of Champion Technology Holdings Limited (the "Company") will be held at 3rd Floor, Kantone Centre, 1 Ning Foo Street, Chaiwan, Hong Kong on 28 December, 1998 at 10:10 a.m. for the following purposes:-

  1. To receive and consider the audited financial statements and the reports of the directors and auditors for the year ended 30 June, 1998.

  2. To declare a final dividend of 0.125 cents per share for the year ended 30 June, 1998.

  3. To elect directors and to authorise the board of directors to fix their remuneration.

  4. To appoint auditors and to authorise the board of directors to fix their remuneration.

  5. As special business, to consider and, if thought fit, pass the following resolutions as ordinary resolutions:-

    1. "THAT:-

      1. subject to paragraph (c), the exercise by the directors of the Company during the Relevant Period of all the powers of the Company to allot, issue and deal with additional shares in the capital of the Company and to make or grant offers, agreements and options which might require the exercise of such power be and is hereby generally and unconditionally approved;

      2. the approval in paragraph (a) shall authorise the directors of the Company during the Relevant Period to make or grant offers, agreements and options which might require the exercise of such power after the end of the Relevant Period;

      3. the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the directors of the Company pursuant to the approval in paragraph (a), otherwise than pursuant to a Rights Issue or the exercise of the subscription rights under the share option scheme of the Company shall not exceed 20 per cent of the aggregate nominal amount of the share capital of the Company in issue as at the date of this resolution and to be issued pursuant to a rights issue of the Company announced on 20 November, 1998, and the said approval shall be limited accordingly; and

      4. for the purposes of this resolution:-
        "Relevant Period" means the period from the passing of this resolution until whichever is the earlier of:-

        1. the conclusion of the next annual general meeting of the Company;

        2. the expiration of the period within which the next annual general meeting of the Company is required by the articles of association of the Company or any applicable law to be held; and

        3. the revocation or variation of this resolution by an ordinary resolution of the shareholders of the Company in general meeting; and

        "Rights issue" means an offer of shares open for a period fixed by the directors of the Company to holders of shares on the register of members of the Company on a fixed record date in proportion to their then holdings of such shares (subject to such exclusion or other arrangements as the directors of the Company may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory body or any stock exchange in any territory outside Hong Kong)."

    2. "THAT:-

      1. the exercise by the directors of the Company during the Relevant Period of all powers of the Company to purchase its own shares, subject to and in accordance with all applicable laws, be and is hereby generally and unconditionally approved;

      2. the aggregate nominal amount of shares of the Company purchased by the Company pursuant to the approval in paragraph (a) during the Relevant Period shall not exceed 10 per cent of the aggregate nominal amount of the share capital of the Company in issue as at the date of this resolution and the said approval be limited accordingly; and

      3. for the purposes of this resolution:-
        "Relevant Period" means the period from the passing of this resolution until whichever is the earlier of:-

        1. the conclusion of the next annual general meeting of the Company;

        2. the expiration of the period within which the next annual general meeting of the Company is required by the articles of association of the Company or any applicable law to be held; and

        3. the revocation or variation of this resolution by an ordinary resolution of the shareholders of the Company in general meeting."

    3. "THAT conditional upon resolution no. 5B above being passed, the aggregate nominal amount of the number of shares in the capital of the Company which are repurchased by the Company under the authority granted to the directors as mentioned in resolution no. 5B above shall be added to the aggregate nominal amount of share capital that may be allotted or agreed conditionally or unconditionally to be allotted by the directors of the Company pursuant to resolution no. 5A above."

    4. "THAT the authorised share capital of the Company be and is increased from HK$800,000,000 to HK$1,200,000,000 by the creation of an additional 4,000,000,000 shares of HK$0.10 each of the Company.

    By Order of the Board
    Jennifer Cheung Mei Ha
    Company Secretary

    Hong Kong, 20 November, 1998.

    Principal Office:
    The Penthouse
    Kantone Centre
    1 Ning Foo Street
    Hong Kong

    1. A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint proxies to attend and, in the event of a poll, vote in his stead. A proxy need not be a member of the Company. In order to be valid, the form of proxy must be deposited at the Company's principal office in Hong Kong together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, not less than 48 hours before the time for holding the meeting or adjourned meeting.

    2. The register of members of the Company will be closed from 21 December, 1998 to 28 December, 1998, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for the final dividend to be approved at the annual general meeting, all transfers accompanied by the relevant share certificates must be lodged with the Company's branch share registrars in Hong Kong, Secretaries Limited at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong not later than 4:00 p.m. on 18 December, 1998.

Financial Section


Directors' Report

The directors present their annual report and the audited financial statements of the Company and its subsidiaries (hereinafter collectively referred to as the "Group") for the year ended 30 June 1998.

The Company is an investment holding company. Its subsidiaries are principally engaged in the development of software and proprietary technologies; provision of telecommunications services and operation of telecommunications networks; and manufacture of telecommunications equipment.

The Group's turnover and contribution to profit from ordinary activities before taxation are mainly derived from the sales of telecommunications equipment and the provision of telecommunications services, software and licensing to customers.

The Group's turnover and contribution to profit from ordinary activities before taxation analysed by principal activities are as follows:

Contribution to profit from ordinary activities before taxation
Sales of telecommunications equipment 863,479 169,291
Provision of telecommunications services, software and licensing    413,082 123,681
Exceptional items    (88,005)
The Group's turnover and contribution to profit from ordinary activities before taxation by geographical location of operations are as follows:
Contribution to profit (loss) from ordinary activities before taxation
People's Republic of China, including Hong Kong 873,668 276,430
Europe 296,162 (12,821)
Others    106,731 29,363
Exceptional items    (88,005)

The results of the Group and appropriations of the Company for the year ended 30 June 1998 are set out in the consolidated profit and loss account and in the accompanying notes to the financial statements. An interim dividend in scrip form equivalent to 0.125 cents per share (after adjusting for the 1-for-1 bonus issue), with a cash option, were distributed to the shareholders during the year. A final dividend in scrip form equivalent to 0.125 cents per share, with a cash option, is proposed by the directors. Movements of the retained profits are set out in note 19 to the financial statements.

A financial summary of the Group for the past five financial years is set out.

Movements in the share capital and warrants of the Company during the year are set out in note 18 to the financial statements.

Movements in the reserves of the Group and the Company during the year are set out in note 19 to the financial statements.

The Company's reserves available for distribution represent the share premium, special reserve and retained profits. Under the Companies Law (Revised) Chapter 22 of the Cayman Islands, share premium of the Company is available for paying distributions or dividends to shareholders subject to the provisions of its Memorandum or Articles of Association and provided that immediately following paying the distribution or dividend the Company is able to pay its debts as they fall due in the ordinary course of business. In accordance with the Company's Articles of Association, dividends can only be distributed out of the retained profits of the Company of HK$136,938,000.

During the year, the Group incurred an aggregate of approximately HK$209 million in the acquisition of additional plant and machinery and telecommunications networks including equipment and pagers on loan for business expansion and upgrading of paging facilities. Existing telecommunications networks with an aggregate carrying value of approximately HK$25 million were written off during the year after considering the expected economic benefits to be derived from these networks.

Details of these and other movements in fixed assets of the Group during the year are set out in note 10 to the financial statements.

Details of the Company's principal subsidiaries at 30 June 1998 are set out in note 32 to the financial statements.

Borrowings which are repayable within one year or on demand are classified as current liabilities. Repayment analyses of the maturity of bank borrowings and obligations under finance leases and sale and lease back arrangements are set out in notes 20 and 21 to the financial statements respectively.

No interest was capitalised by the Group during the year.

During the year, the Group made charitable and other donations totalling HK$83,000.

The directors of the Company during the year and up to the date of this report were:

Executive directors:

Paul Kan Man Lok
Sunny Lai Yat Kwong
Leo Kan Kin Leung

Non-executive directors:

Terry Miller*
James Carter
Jennifer Cheung Mei Ha*

*  Being independent non-executive directors

James Carter retired as an executive director on 23 December 1997 and remains as a non-executive director with effect from the same date.

In accordance with Article 99 of the Company's Articles of Association, Leo Kan Kin Leung and Jennifer Cheung Mei Ha retire and, being eligible, offer themselves for re-election. All other directors continue in office.

No director being proposed for re-election at the forthcoming annual general meeting has a service contract with the Company or any of its subsidiaries which is not determinable by the Group within one year without payment of compensation (other than statutory compensation).

The non-executive directors have been appointed for a term subject to retirement by rotation as required by the Company's Articles of Association.

During the year, the Company and its subsidiaries other than Kantone Holdings Limited, a 57% owned subsidiary of the Company, and its subsidiaries ("Kantone Group") had the following transactions with the Kantone Group:

Nature of transactions HK$'000
Purchases of pagers and paging systems from the Kantone Group 301
Sales of refurbished pagers to the Kantone Group 3,150
Fees received from the Kantone Group for the provision of office premises and facilities, and management services 1,200

In addition, the Kantone Group also sold finished goods amounted to HK$5,458,000 to Multi-Page during the period from 1 July 1997 to 5 January 1998. The Group held a 40% interest in the issued capital in Multi-Page, a company incorporated in Russia which was engaged in the provision of paging services.

In the opinion of the directors of the Company, the above transactions were carried out in the usual course of business and on normal commercial terms.

Save as disclosed above, no contracts of significance to which the Company or any of its subsidiaries was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

The Company and Kantone Holdings Limited, each has an executive share option scheme which enables the directors of the Company and Kantone Holdings Limited to grant to directors and employees options to subscribe for shares in the Company and Kantone Holdings Limited respectively. Details of the share option scheme of the Company are set out in note 18 to the financial statements.

The share options granted by Kantone Holdings Limited are exercisable at any time for a period as may be determined by its directors. The subscription price of the option shares is the higher of the nominal value of the shares and an amount which is 80% of the average of the closing prices of the shares on the five trading days immediately preceding the date of grant of the options.

On 17 November 1997, 5,000,000 share options of Kantone Holdings Limited were granted to Sunny Lai Yat Kwong at an exercise price of HK$0.584 per share. These options were subsequently cancelled on 4 February 1998 and on the same date, 5,000,000 share options were granted to Sunny Lai Yat Kwong at an exercise price of HK$0.3712 per share.

Other than the share option schemes described above, at no time during the year was the Company or any of its subsidiaries a party to any arrangement to enable the directors of the Company to acquire benefits by means of acquisition of shares in, or debentures of, the Company or any other body corporate.

Save as disclosed above, none of the directors, or their spouse and children under the age of 18, had any right to subscribe for the securities of the Company, or had exercised any such right during the year.

As at 30 June 1998, the interests of the directors and their associates in the securities of the Company and its associated corporations as recorded in the register maintained under Section 29 of the Securities (Disclosure of Interests) Ordinance ("SDI Ordinance") were as follows:

Securities of the Company  
Name of director Number of shares Corporate interest
Paul Kan Man Lok (Notes 1 and 2) 1,240,000,000
Sunny Lai Yat Kwong (Note 2) -
Leo Kan Kin Leung (Note 2) -
James Carter -
Terry Miller -
Jennifer Cheung Mei Ha -
Securities of Kantone Holdings Limited  
Name of director Number of shares Corporate interest
Paul Kan Man Lok (Note 3) 277,504,187
Sunny Lai Yat Kwong (Note 2) -
Leo Kan Kin Leung (Note 2) -
James Carter -
Terry Miller -
Jennifer Cheung Mei Ha -


  1. These securities are owned by Lawnside International Limited in which Lanchester Limited has a 45.51% interest. Lanchester Limited is a company beneficially owned by a trust, the discretionary objects of which include Paul Kan Man Lok and his family members.

  2. Guardian Angel Limited, a company beneficially owned by a trust, the discretionary objects of which include staff of the Group, including the above directors (except Paul Kan Man Lok) and Chen Yen Ching (the wife of Paul Kan Man Lok), has a 15.29% interest in Lawnside International Limited.

  3. 210,990,117 shares are held by the Company and 66,514,070 shares are held by Lawnside International Limited.

Save as disclosed above and other than certain nominee shares in subsidiaries held by directors in trust for the Company or its subsidiaries, none of the directors or any of their associates had any interest in the securities of the Company or any of its associated corporations as defined in the SDI Ordinance as at 30 June 1998.

As at 30 June 1998, the register of substantial shareholders maintained under Section 16(1) of the SDI Ordinance showed that, other than the interests disclosed above under directors' interests in securities, the Company has not been notified of any other interests representing 10% or more of the Company's issued share capital.

Other than the warrants and share option scheme as set out in note 18 to the financial statements, the Company had no outstanding convertible securities, options, warrants or other similar rights as at 30 June 1998 and there was no exercise of convertible securities, options, warrants or similar rights during the year.

Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the year.

There are no provisions for pre-emptive rights under the Company's Articles of Association on the laws of the Cayman Islands, which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders.

For the year ended 30 June 1998, the aggregate amount of turnover and purchases attributable to the Group's five largest customers and suppliers respectively represented less than 30% of the Group's total turnover and purchases.

In the opinion of the directors, the Company had complied throughout the year ended 30 June 1998 with the Code of Best Practice as set out in Appendix 14 of the Rule Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

The Year 2000 (Y2K) issue arises from computer systems and electronic devices which store date information based on a two-digit year and are unable to process dates for the year 2000 and beyond. The Group adopted the British Standards Institution (BSI) definition in DISC PD2000-1, reproduced in full:
Year 2000 conformity shall mean that neither performance nor functionality is affected by dates prior to, during, and after the year 2000. In particular:
Rule 1.

No value for current date will cause any interruption in operation.

Rule 2.

Date-based functionality must behave consistently for dates prior to, during, and after year 2000.

Rule 3.

In all interfaces and data storage, the century in any date must be specified either explicitly or by unambiguous algorithms or inferencing rules.

Rule 4.

Year 2000 must be recognized as a leap year.

The Group is engaged in Information Technology and hence is fully aware that Y2K, if left unresolved, may impact business and operations. Most of the Group's systems are internally developed or outsourced under the Group's control, and constantly reviewed and enhanced. As the Group has actively engaged the Y2K issue since 1996, the risk of any significant operational problem as a result of its self-developed system is minimal.

The major uncertainty is the compliance of vendors, suppliers, and service providers which is beyond the Group's direct control. To minimize this risk, the Group has issued survey questionnaires regarding their Y2K compliance. Identified non-compliant systems and equipment are upgraded or replaced. Contingency plans are in place to deal with late-identified non-compliant products. Therefore, the Group anticipates that this issue will not cause any significant operational problem.

The Group's Year 2000 Compliance Project, started in late 1996, is managed by senior management. Regular update reports are issued. The project concentrates on products and services; management of suppliers compliance; system software, application software, and computer hardware; network equipment and interface; and other equipment.

The project adheres to the following milestones:

  • inventories of potential Y2K related areas (completed)

  • assessment of materiality and risks, identification of conversion and upgrade (completed)

  • conversion and upgrade completion, testing, suppliers and service providers compliance (in 1998)

The plan has progressed as scheduled and full Y2K compliance is expected to be achieved by mid 1999. Although conversion and modifications are fully tested to ensure conformity, contingencies will be in place in 1999 to rectify problems that may arise.

The costs associated with the Y2K project are:

Opportunity costs of management overseeing the project; sundry expenses such as postage for survey questionnaires.

Internal Modification
Software systems developed internally are enhanced and maintained on an ongoing basis. As such, Y2K compliance work is minimal. Products developed in the last few years were Y2K compliant as the Group's developers were aware of the problem. Thus the Y2K work associated with product and services was only re-checking to ensure compliance.

Conversion of Systems and Equipment Provided by External Suppliers
All the Group's hardware and equipment are managed by a normal repair/replace maintenance plan. It is impractical to identify costs associated with the Y2K project.

In essence, the direct costs attributable to the Y2K project have been included in normal operating costs. The Group has accounted for this costs in the financial statements. Following the Group's accounting policy, maintenance and modification costs are expended as incurred; costs of new and replacement systems and enhancements are capitalized and amortized over the estimated useful life of the asset. Since the expenditures associated with Y2K compliance are not material, the Group anticipates that the compliance project will have no significant impact on the Group's operating profits, based on current progress.

Details of post balance sheet events, are set out in note 31 to the financial statements.

Messrs. Deloitte Touche Tohmatsu have acted as auditors of the Group for the preceding three years. A resolution will be submitted to the annual general meeting of the Company to re-appoint them as auditors.

On behalf of the Board

Paul KAN Man Lok

Hong Kong
20 November 1998

Auditors' Report

(incorporated in the Cayman Islands with limited liability)

We have audited the financial statements which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective responsibilities of directors and auditors
The Company's directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.

Basis of opinion
We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and the Group, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 30 June 1998 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Deloitte Touche Tohmatsu
Hong Kong, 20 November 1998

Consolidated Profit and Loss Account
For the year ended 30 June 1998

TURNOVER   1,276,561
Continuing operations excluding exceptional items   292,972 292,533
Exceptional items      (88,005)     (3,980)
    204,967 288,553
TAXATION             140          373
MINORITY INTERESTS        24,627      17,361
8.4 cents

Consolidated Balance Sheet
At 30 June 1998
FIXED ASSETS   521,882 444,686
NET CURRENT ASSETS      818,465    858,999
Financed by:      
SHARE CAPITAL   333,509 166,680
RESERVES   1,280,496 1,276,466
SHAREHOLDERS' FUNDS   1,614,005 1,443,146
MINORITY INTERESTS   140,131 116,734
DEFERRED TAXATION           1,924        3,772

The financial statements were approved by the Board of Directors on 20 November 1998 and are signed on its behalf by:

Paul KAN Man Lok Sunny LAI Yat Kwong
Director Director

Balance Sheet
At 30 June 1998
INTEREST IN SUBSIDIARIES   1,212,227 918,967
NET CURRENT ASSETS          4,501    302,781
Financed by:      
SHARE CAPITAL   333,509 166,680
RESERVES      849,679    954,448
SHAREHOLDERS' FUNDS   1,183,188 1,121,128

Paul KAN Man Lok Sunny LAI Yat Kwong
Director Director

*   Notes to the Financial Statements are contained in the Annual Report, copy of which can be obtained from the Company's Registered Office.

Five Year Financial Summary

  Year ended 30 June
TURNOVER 553,229
Continuing operations excluding exceptional items 181,600 207,866 261,203 292,533 292,972
Exceptional items               -               -  (16,027)    (3,980)  (88,005)
  181,600 207,866 245,176 288,553 204,967
SHARE OF LOSS OF AN ASSOCIATED COMPANY               -      (4,607)               -               -               -
PROFIT FROM ORDINARY ACTIVITIES BEFORE TAXATION 181,600 203,259 245,176 288,553 204,967
TAXATION       1,283       2,869      (1,207)           373         140
PROFIT BEFORE MINORITY INTERESTS 180,317 200,390 246,383 288,180 204,827
MINORITY INTERESTS               -               -               -      17,361    24,627
  Year ended 30 June
TOTAL ASSETS 1,205,174 1,494,284 1,870,557 2,075,242 2,285,355
TOTAL LIABILITIES AND MINORITY INTERESTS    404,027    512,315    553,446    632,096    671,350

Champion's Global Reach

Worldwide Offices

Registered Office
P.O. Box 1787
Second Floor
One Capital Place
Grand Cayman
Cayman Islands
British West Indies

Corporate Headquarters
Champion Technology
Holdings Limited

Kantone Centre
1 Ning Foo Street
Hong Kong

European Headquarters
Multitone Electronics PLC
Kimbell Road
Lister Road Industrial Estate
RG22 4AD

Manufacturing Facilities
King's Lynn, Norfolk

West Malaysia
Regional Offices



Macau Malaysia

New Delhi


Basingstoke, Hampshire
King's Lynn, Norfolk











Czech Republic





The Hague




Kuala Lumpur






Saudi Arabia





United Arab Emirates

New Jersey

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