In 2002 Intec Telecom Systems has demonstrated that the right strategic approach can overcome a market that has been at least as difficult as any previous downturn in the sector. At the start of the year we predicted, despite the uncertainties that we saw in this market, that turnover growth in the region of 20% was a realistic and obtainable objective. I am therefore very pleased to report that we have increased revenues from the £39.8 million recorded in 2001 to £47.5 million this year – an increase of just over 19%. Just as importantly, this growth has been achieved alongside positive operating cash flow of almost £2.8 million, and improved EBITDA. This has come against a background of intense competition for new business and stringent cost-control measures by our target customers. Intec’s response to this has also naturally included rigorous cost management. I must therefore begin my report by thanking Intec’s staff, partners and suppliers for their outstanding contribution in this challenging market. I am aware of few other comparable companies in our sector that have been able to achieve such positive results.

Intec’s business this year has been built around a strategy of focusing on understanding market developments and our customers’ requirements, and delivering high quality systems profitably to meet them. At the start of the year Intec’s senior management team performed a detailed review of business conditions and opportunities, our product offering, and our business model. The strategic decisions flowing from the review have been fundamental to our delivery of good results in a market that has been substantially more competitive this year. Our strategic approach is explained in more depth in the Chief Executive’s review of the year.

A key part of our strategy remains a positive but careful approach to acquisitions. We believe that the OSS vendor market will continue to consolidate around a smaller number of viable players. Intec has been very active, having completed a number of successful acquisitions. Our acquisition strategy has been to expand our customer base in existing areas of expertise through consolidation of competitors and to seek to move into new segments within the overall OSS space to achieve further product diversification. In January 2002 we acquired the OSS products business of former competitor International Computers Limited (“ICL”). ICL is now operating as an Intec consulting and systems integration partner under the Fujitsu brand. This acquisition brought us around 20 new customers and a global partner in Fujitsu.

Similarly, after the year end, we announced the acquisition of the interconnect software business unit of Ericsson, bringing us over 40 customers and another global partnership. These consolidation acquisitions firmly cement our dominance in the market sectors in which we are active, and impact positively on the competitive landscape. The recurring revenue streams we derive from these core market acquisitions help us to fund the continuing development and support of our products. The expanded customer base offers excellent cross-selling opportunities for other products and services, further increasing annual turnover.

We have also spent a considerable time in 2002 examining other acquisition opportunities, particularly those that would take us into new OSS markets. That we have not chosen this year to pursue any of the many opportunities we considered is, once again, a result of our strategy. Although there are many interesting technologies and companies that we considered, these have to be tempered with a realistic assessment of their financial and strategic potential. This is even more critical in a difficult market, where the inherent operating problems of many companies are only too obvious.

Within our continuing business the core product lines of convergent mediation (Inter-mediatE) and interconnect billing (InterconnecT) have justified our view that they are increasingly critical components of the infrastructure of a telecoms company. In a competitive market it is vital that carriers take every possible opportunity to protect and increase network revenues while minimising unnecessary operating costs. Both mediation and interconnect billing have proven capabilities in fulfilling these opportunities. The feedback we have had from many customers on the real operating benefits and short-term return on investment from buying our technology is very pleasing. As a consequence of these factors and our effective execution, in 2002 we have once again seen our customer base increase substantially, with high profile wins in all areas.

Actual customer numbers were approaching 280 at the year end, and with the recent Ericsson agreement are now well over 300. Perhaps most significantly, Intec now supplies core OSS technology to over 50% of the world’s largest telecommunications carriers. The business stability and market presence that these major customers bring are key contributors to our present and future success. The good relationship we have with customers was underlined by two exceptionally successful User Conferences during the year, in Florida and London, with record attendances from operators, despite the obvious pressure today on business schedules and travel budgets. Delivering world-class support services from our four worldwide Centres of Excellence remains at the heart of our customer strategy.

2002 has been a year when all businesses in our sector have necessarily focused closely on costs. Intec made a decision early in the present business cycle that we would attempt to preserve both product investment and staff expertise as far as was consistent with good financial performance. The revenue growth anticipated by management has been achieved and hence we have been able to maintain the planned product investment. We believe this is a good strategic decision that increases our technical leadership at a time when competitors are cutting back. Ongoing product investment is a necessity in the increasingly complex telecoms market, where next-generation services are now a reality. Our core products remain state-of-the-art, and the expansion of our product line with complementary systems opens new opportunities for future growth. Despite acquisitions, we have held our staff numbers to only modest growth, by close analysis of operating needs and we have targeted hiring to support current revenue-led expansion plans. Intec has also strengthened its management team this year, and the contribution they are making worldwide is evident in our results, improved market share and product capabilities.

In 2003 we intend to continue executing a business strategy that has proved successful in 2002. However, we will balance this with a continual strategic review of market demands and conditions, and seek new opportunities to expand the business and increase shareholder value. There are some positive signs in the marketplace, and I am confident that Intec is better placed than ever to achieve further growth.

Mike Frayne
Executive Chairman

2 December 2002