OVERVIEW
In 2002 I am pleased to report that Intec has been able to deliver positive cash flow, increased EBITDA and turnover, and greater market share in our core business areas. We have brought to market several high-quality new products, and increased the degree of commitment to Intec technology in many of our larger accounts through cross-selling. We added almost 70 new companies to our customer base, and completed another successful acquisition by taking over the OSS products business of ICL. In addition we have completed a review of our entire product line and product development processes, creating a more efficient and capable organisation that will deliver the leading-edge, next-generation OSS products our customers need. These are all key objectives of our strategy, and their successful execution has allowed Intec to prosper during 2002, and create the foundation for continuing success in coming years.

STRATEGY
In 2002 Intec has become an increasingly focused company as a result of substantial effort aimed at refining our strategy. We have critically examined every aspect of the business, from initial product research and development all the way through to post-sales customer support, and made numerous decisions and changes as a result. In part this was driven by the need to find greater efficiency and business advantage in a market that has become much more competitive. But Intec has also matured as a business, learning to focus its resources on the most productive areas and developing strategic business processes to meet the undoubted challenges in the market. The result has been another year of growth, at a time when many competitors have cut back significantly, and a stronger position for the future.

Our future strategy is based on the following objectives:

• Profitable growth within our key markets of mediation and billing through increased market share
  
• Expansion of our core product lines through targeted acquisitions or internal development
  
• Continuing, critical review of business performance and future potential of all product offerings
  
• Targeted investment in markets and technologies that have the highest potential for good returns
  
• Continuous improvement in quality, performance and efficiency of all aspects of the business
  

Looking forward, we see positive signs in the longer term in our sector. Intec is a true market leader in its key areas, and we are very well positioned to benefit from a return to better market conditions. The products we sell remain vitally important to any telecoms company, and Intec has OSS technology that is proven to meet the demands of the largest and the most sophisticated operators. However, we are not simply waiting for this to happen. I believe that the strategy we have developed in 2002 will allow Intec to actively improve its competitive performance in 2003 and to fulfil the goals we set ourselves just over five years ago when Intec was founded.

2002 RESULTS
In 2002 the financial uncertainties faced by telecoms companies have severely impacted many of their suppliers, as major capital expenditure projects were delayed or even eliminated. Expenditure has continued to receive much higher levels of scrutiny, and purchasers have been more aggressive in pursuing more favourable prices and terms. The impact on suppliers has been clear, with many experiencing falling revenues and sharply reduced margins. This has naturally made for much more difficult trading conditions, as some OSS vendors pursued business at any price, regardless of the longer term consequences to their businesses and their customers.

At the start of the year, mindful of the competitive pressures ahead, Intec set itself targets that were both ambitious but, we believed, achievable. In the event, Intec has almost exactly met its growth target of a 20% increase in revenues. We have also delivered both positive cash flow and increased EBITDA, as a result of a strong focus on cash collections and cost management.

The overall balance of business has been very encouraging, with both new licence revenues and revenues from professional services showing steady growth. New business has been the weakest area across the OSS industry, with a reduction in the rate of new contracts awarded to many vendors quite evident. Therefore, Intec’s ability to find and win new customers is particularly pleasing. Recurring revenues have also grown again, underlining the stability of our business model, and Intec’s ability to generate high levels of customer satisfaction.

As Intec’s product portfolio has developed, we have continued to focus on cross-selling opportunities within our existing customer base. A good proportion of the new business we have won in 2002 has come from existing customers, although we have also been successful in selling into many new, high-profile accounts.

PRODUCTS
A review of product developments can be found on page 24. This year’s Annual Report to shareholders will also include a copy of our new company overview, and further product details are given there. In summary, we have taken the opportunity in 2002 of thoroughly reviewing our entire product portfolio with a view to aligning development expenditure more closely with the marketplace opportunities. As a result a couple of minor products have been removed from our development roadmap, while others have been promoted to a higher level of investment. All products are subject to an ongoing return on investment-based business case analysis and this is paying dividends in both cost management and product roadmaps.

BUSINESS REVIEW
Intec develops and supplies Operations Support Systems (OSS) software to communications companies in two main areas: convergent mediation and intercarrier settlements. We also have a number of associated products which fall broadly into the OSS sector known as ‘revenue assurance,’ and a new product, Inter-activatE, which offers service activation and provisioning facilities. These products can be sold individually or, increasingly often, with each other to meet wider customer needs. We have also noted this year much greater attention from customers on vendor performance and long term financial stability. Carriers making substantial, business-critical OSS investments want to contract with companies they can trust to be around in future to support them and to develop products. Intec, as a public company with very sound finances and a good trading record, is an attractive partner and we have made numerous financially-oriented presentations to support product bids.

New sales are made of product licences, implementation, consulting and support services, with a strong recurring revenue stream developing from these sales in future years from support and maintenance, and volume-based licence upgrades. Intec’s pricing model is based on processing volume, providing for a cost to the customer that is closely linked to its own revenues and business operations, yet providing Intec with future revenue streams as traffic expands.

Our results for 2002 are not directly comparable with 2001, as a result of acquisitions in both periods (see page 13 for acquisition details.) However, all revenue streams (new licences, professional services, and recurring income) have shown good growth, particularly in comparison to OSS industry trends this year. In 2002 new licence sales grew by almost 10%, representing 33% of turnover, a strong result in a market that has proved highly competitive for new business. Intec increased its customer base by 69 with 18 of these arising from acquisitions bringing our total customer base to 272. (With the post-year end acquisition of the ‘Settler’ business unit from Ericsson, we now serve around 310 telecoms companies worldwide, with over 400 installations increasing our penetration within some of the world’s largest carriers.) I believe this is an exceptional result. The flow of new contracts announced by many OSS vendors has reduced substantially in 2002, so Intec’s ability to generate new contract wins underlines our belief that sustained investment in products and distribution channels is the correct approach.

We have undoubtedly gained significant market share this year, consolidating the position of InterconnecT as clear market leader and moving Inter-mediatE close to market leadership. InterconnecT now has over 140 installed sites, with new customers such as Maxis in Malaysia, Global Telecom in Brasil, Telus in Canada, VimpelCom in Russia and VSNL in India. Industry estimates put our market share for interconnect billing systems at around 40%, and this has increased considerably with the acquisition of the ‘Settler’ business unit. Our US Carrier Access Billing System, InterconnecT CABS CG, has also been a very strong performer, winning no less than 9 new licences and over 35 service contracts. We substantially upgraded our CABS processing facilities in the US in 2002 to handle this new business, and we also launched a new version of InterconnecT CABS CG with a ‘Carrier Grade’ designation to highlight greatly improved performance, making it suitable for very large US operators. InterconnecT ITU, our version for international settlements according to ITU rules, has continued to be a good revenue earner, with several new clients added in the year, including Maroc Telecom, Sonatel, and Telecom Egypt.

Inter-mediatE, our high performance convergent mediation system has more than fulfilled our expectations, moving towards a dominant position in the industry, with over 110 systems installed. Competition for new mediation contracts has been intense, with many previously strong competitors showing significant downturns in their win rates. Intec won 16 new Inter-mediatE licences in 2002, many of them in combination with either InterconnecT or InterconnecT CABS CG. Notable wins included Centennial, US Cellular and BellSouth in the US, Reliance Infocom in India, Macquarie in Australia, Telecom Egypt, Sonofon in Denmark, and Smartcom in Chile. However, our two most notable mediation contracts this year were with COLT Telecommunications for a pan-European roll-out that replaced four other vendors’ systems, and with one of the world’s largest carriers, SBC Communications in the US, for a single platform usage collection system. Both are multi-million pound contracts which clearly establish Inter-mediatE as the premier platform in high-volume convergent mediation.

After the end of the year we were pleased to reach an agreement with British Telecom plc that successfully concluded a long outstanding legal dispute relating to software patents. Under the agreement Intec and its customers will enjoy freedom from any further litigation by BT in respect of these patents. We have not had to make any alteration to our products, nor make any payments to BT for Intellectual Property Rights at any stage. We also now intend to begin building a commercial relationship with BT and its operations worldwide.

Professional services income rose by 27% in 2002 to £12.3 million, representing over 26% of turnover. This figure primarily comprises revenue from implementations, consulting and training associated with licence sales, and from ongoing professional services that help customers maximise the benefit of their investment, such as customisation work or special reports. There is also a contribution from non-core services in the US communications sector, plus a small contribution from hardware sales. Intec performs many implementations through, or in partnership with, other companies, including IBM, HP Compaq, Accenture and Logica. These partnerships give us substantial additional reach in a global marketplace, and allow us to absorb variations in staff demand for professional services. We have increased our focus on the partner channel in 2002, and we have invested significantly in training partners in selling and supporting our products. Our professional services teams are based from four Centres of Excellence – UK, US (Atlanta & Dallas), Malaysia and Brazil – allowing us to provide highly-trained consultants in all regions.

One of our key business goals is to increase our recurring revenue stream steadily, through ensuring high levels of customer satisfaction and retention, to the point where this income underpins a significant proportion of our basic operating costs. This is an important long-term objective for any mature software company, as it provides high business stability and the opportunity to deliver good operating margins through additional new business sales. We have moved further towards this goal in 2002, with a 23% increase in recurring revenue, representing almost 42% of turnover. Recurring revenue is developed from both support and maintenance contracts, and from volume-based licence upgrades. In 2002 an increased contribution also came from bureau services, as InterconnecT CABS bureau sales grew significantly. In the US we are steadily growing our customer base of CLECs and ILECs using InterconnecT CABS on a bureau basis, and we have seen a pleasing increase in larger carriers turning to our services.

REGIONS
During 2002 Intec has worked hard to manage its cost base in a way that is aligned with our ambitions to develop the business, improve our products, and provide high levels of customer satisfaction. We have critically examined all of our operations on a cost/benefit basis, and we have made a number of changes as a result. Some local sales offices have been closed, while offices in India and Italy have been opened or expanded to deal with increased activity. Intec has customers in over 50 countries and it is clearly not realistic to have in-country sales support for them all. Instead, we use a ‘Centre of Excellence’ concept that provides very high levels of local skill and resources in four major centres, one each for EMEA (Europe, Middle East and Africa), North America, Asia-Pacific and the Caribbean/Latin American (CALA) region. Our smaller sales offices, totalling 15, are strongly supported by the Centres of Excellence.

All regions have performed well, especially in a telecoms market that is very difficult worldwide, but particuarly challenging in some areas. Against that is the clear fact that telecoms remains a strong growth industry, especially in high population, developing markets such as India and the Pacific Rim. We have organised the business to address these regional hotspot opportunities and the results in 2002 reflect growing success in these areas.

In the relatively mature markets of Europe, where we generated revenues of £16.9 million or 37% of turnover, the market is still awaiting the arrival of next-generation mobile services, some of which are now expected to enter commercial service in 2003. Many operators are now anticipating these services by upgrading older OSS technology to deal with the more complex, high-value services that are expected. A good example of this is our deal with COLT Telecommunications, one of our best-established customers for InterconnecT, for a pan-European roll-out of Inter-mediatE. This deal, won against strong competition, will see Inter-mediatE replace four older systems and will enable COLT to simplify its software support requirements as well as offering greater capabilities and performance. We also signed notable agreements with Sonofon in Denmark and Swisscom Mobile.

One of the highlights of the year was a groundbreaking contract with VimpelCom, one of Russia’s most dynamic mobile operators, and our first in this country. Communications, particularly mobile services, is a growth industry in the former Eastern Bloc states, and a high-profile win such as VimpelCom is important in helping us generate further success. Africa contributed strong revenues of £1.7 million, attributable to good business in both Southern Africa and in developing northern states like Morocco.

In the Asia-Pacific region, which represented over £5.5 million in revenue or growth of 11%, we have seen some very important new customer wins. These included Maquarie Corporate Telecommunications, an innovative IP-based provider in Australia, Maxis Malaysia, one of the region’s pre-eminent GSM operators, and VSNL and Reliance in India, a very fast-growing market.

In the North American market, which has perhaps been the most challenging for many vendors, Intec had an exceptional 2002, with strong sales for both Inter-mediatE and InterconnecT CABS CG driving revenue growth of 67% to £21.1 million. However, we were also successful in introducing our original InterconnecT product into the region, with sales to several US and Canadian carriers that are increasing their international interconnect business. Our CABS billing operation in Dallas was expanded to cope with much increased customer numbers and traffic levels. A new release of InterconnecT CABS CG targets larger ILECs, CLECs and even the RBOCs, and we have seen a number of wins at this level. US operators have been very cost-conscious this year, so Intec’s message has been focused on the high financial return on investment that new OSS can deliver, in addition to the pure technical and operational benefits. This message has helped us to win substantial accounts, notably SBC, a strong endorsement of the performance and scalability of the Inter-mediatE platform. With these and other contracts, the North America region has become our largest revenue source.

Intec’s CALA (Caribbean and Latin America) region has also grown strongly, with revenues of £3.9 million representing growth of 55%, despite the many political and economic uncertainties in the area. Large populations and low but fast-rising penetration of telephone services in the region are driving the telecoms business in CALA, and Intec is well placed to acquire further customers (The post-2002 acquisition of the Ericsson Settler business also brings us many new customers in the region). In February we announced a major agreement with Cable & Wireless in the West Indies to add InterconnecT ITU to installations of InterconnecT and IntermediatE supporting 14 sites. We also extended our agreement with Digicel in Jamaica to cover its expansion plans into other Caribbean islands, a strong endorsement of the value of InterconnecT to them. Working with Logica, we sold Inter-mediatE to Smartcom PCS in Chile, extending our long relationship with Logica on settlements products to mediation.

BUSINESS DEVELOPMENT
Our sales, marketing and partner operations have also been subject to extensive review in 2002. We have re-organised certain areas of the sales operation to reflect better business opportunities and priorities, both in terms of geography and product offerings. This has included strengthening the management team with several proven individuals. Marketing operations have also been developed, with new programs in branding, marketing literature, PR, and a new, award-winning website. Our Partners operation has continued to expand, with a number of high-profile companies joining the Intec partner program, and extensive training and cooperation taking place. Ericsson has also now become an Intec Partner, post year-end. During 2002 we won a number of important new customers with our Partners, including Smartcom PCS in Chile with Logica, Maroc Telecom with HP, and VimpelCom in Russia and Eircell in Ireland with ICL.

USER GROUPS
Intec User Groups are one of the great strengths of the company, creating a genuine two-way dialogue between Intec and its customers that helps, among other things, to define future product direction. Customer satisfaction, a key Board-level business measure at Intec, is surveyed on a regular basis through the User Groups and used as strategic input to our operating objectives and development policy. In 2002 we ran two exceptionally successful User Conferences, in Florida and London, each attracting over 100 customer delegates. Given the current restrictions on travel budgets, and time pressures on telecoms staff, I believe this underlines the value that customers put on their continuing relationship with Intec.

STAFF AND INFRASTRUCTURE
The success that Intec has enjoyed this year has been largely attributable to very hard work in a difficult business environment by Intec’s staff. They have had to contend with intense competition and customers who are scrutinising every expenditure very carefully. At the same time Intec itself has been highly cost-conscious and efficiency focused. In short, we have asked our staff to do more with less – and they have responded with hard work, intelligence and dedication.

During the year we have made a number of changes to our corporate structure, including the relocation of certain functions, particularly in the development team, with a view to greater efficiency and reduced operating costs. These benefits have shown through in our ability to generate positive cash flow and an EBITDA profit, despite pricing and other pressures. We expect that these measures will generate savings in 2003.

Despite acquisitions, staff numbers grew only modestly in 2002, from 485 at the end of 2001 to 500 at the end of the period under review. A number of these are attributable to acquisitions, particularly our purchase of ICL’s OSS business unit in January, which brought us extra expertise in both billing and mediation. Intec continually reviews skills and staffing levels required in light of market conditions. Our record for staff retention remains well above industry averages, and we continue to operate best practice remuneration and staff management policies, with consistency of benefits and employment conditions in the light of local regulations in all regions. Many staff are shareholders, and all staff can partake in a share options program. In 2002 we also conducted an extensive Staff Survey to better understand how staff can benefit from, and contribute to, Intec as a business. This survey will be conducted every year. 2002 also saw the initiation of a program to create ‘Employee Relations Forums’. These are mandatory for companies based in the European Union, above a certain size. Intec has not yet reached this threshold, but we believe that ERFs represent a good example of best practice in staff relations, and we have decided to implement them across the company in 2002/3. We also initiated a successful, employee-led cost saving initiative programme which has saved many thousands of pounds across the company from innovative ideas. Staff receive a modest bonus for each accepted idea.

Intec has continued to invest in its business infrastructure, with numerous programs to improve internal communications, information systems, working conditions and customer support facilities, such as training and presentation suites. Intec is working actively towards certification to the telecoms industry quality standard, TL9001.

OUTLOOK
2002 has been a year of very mixed fortunes for the telecoms sector, and Intec has done well to prosper in these times. It would be unwise to predict that 2003 will be substantially better, although there are some signs that the climate is improving. However, it is worth noting that many telecoms companies continue to deliver good financial results, particularly in developing markets, that a number of large telecoms players have reduced their debt exposure significantly and that the long awaited next-generation mobile services of UMTS/3G are expected to be launched to paying customers in the near future. Telecoms traffic continues to climb and the arrival of exciting new services such as MMS will undoubtedly stimulate it further.

For Intec, the future looks promising. We have achieved outright market leadership in one sector, and are arguably very close to it in another. We have generated increased EBITDA and positive operating cash flows and we intend to continue this trend. Our customer base has grown strongly in 2002 and we see ongoing demand for our products and services. We have a number of new products coming to market or recently arrived, and we have greatly solidified our product roadmaps for the next few years. The challenges of the current market have made us a more efficient, more competitive organisation, with higher product quality, and our ongoing investment in many areas means we are well placed to thrive. The market remains turbulent, and we are not complacent about the need to work hard to continue to grow the business, but I am optimistic that 2003 will be, like 2002, a successful year for Intec.

Kevin Adams
Chief Executive Officer

2 December 2002