Executive Chairman’s Statement

A year ago I noted a telecoms market that would continue to be very competitive for vendors as well as increasingly technically challenging for service providers and their suppliers. Intec’s strategy in 2003 has therefore been to focus on the best possible execution of our current business combined with careful investment in new products that will meet future needs. We also continued to execute a considered strategy for acquisitions. I am pleased to report that, despite a telecoms environment that has been economically constrained overall, Intec has grown both revenues and earnings as well as increasing investment in new, forward looking products.

Through a combination of increased revenues, up 7% to £50.7 million, and careful control of operating costs, Intec has delivered adjusted pre-tax profits increased by 150% to £5.4 million, despite adverse currency movements. We have also been able to generate positive operating cash flow at £8.5m. These are substantial achievements within an industry sector that remains capital expenditure constrained and where pricing pressure and competitor activity have been intense. Intec’s hard-working professional staff have made this possible and I thank them wholeheartedly for their efforts.

During 2003 Intec has noted many opportunities to acquire other companies in its sector, frequently at modest valuations. However, we have a clear strategy and process only to seek acquisitions that will truly add value to the business and position us better for the future. Our acquisition criteria include the ability to enhance our financial performance, to bring useful market or technical benefits to the business, or to increase our penetration of major customers. We also seek organisations which will be a good cultural fit for Intec, where we will be able to integrate them successfully while retaining their individual strengths.

We continue to track opportunities, and we will not hesitate to pursue those that we feel will be beneficial to the business as well as good value for shareholders.

With these criteria in mind Intec made two important acquisitions during the 2003 financial year. In November 2002 we announced the acquisition of the ‘Settler’ business unit from Ericsson. This unit was formerly one of Intec’s strongest competitors in the interconnect billing market. Its acquisition brought us 31 new customers around the world as well as a distribution arrangement with Ericsson for the renamed ‘InterconnecT Settler’ product. The agreement also covers the Settler development team in Sweden and exclusive worldwide rights to develop and market the Settler product range. Other acquired expertise and technology has allowed us to launch two new products in 2003, InterconnecT Optimised Routing and InterconnecT Automated Reconciliation.

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In September 2003 we announced the acquisition of Digiquant A/S of Denmark, a provider of OSS technology focused on the next-generation market space. Digiquant brings Intec two key assets — a revenue stream from new and existing customers which amounted to some €16 million in 2003, and a truly world-class product set that provides end-to-end capabilities for the management and billing of advanced services such as Voice-over-IP. Digiquant also has a good customer base of around 50 companies and a highly experienced professional staff whose skills are complementary to those within Intec.

Intec invests strongly in its products and underlying technologies. We consider the level of investment we make to be a core strength of the business and a major competitive differentiator against other vendors that have slashed development and support budgets as they strive for profitability or even survival.

Yet we remain constantly aware of the need to balance investment with potential and actual returns. During 2003 we have further refined our Product Operations processes to be ever more focused on business performance with regular examination at executive management level of profit and market potential for all development projects.

During the year we have launched several important new products, notably the Intec Dynamic Charging Platform (DCP) which addresses critical revenue generation requirements for operators delivering advanced services such as entertainment, mobile commerce and multimedia messaging. DCP is the first offering in a range of new products which will complement our existing technologies and extend our reach into new areas such as Voice-over-IP billing. Our core product lines of convergent mediation (Inter-mediatE), interconnect billing (InterconnecT) and service activation (Inter-activatE) have justified our view that they remain critical components of the infrastructure of a telecoms company with key wins in high-profile customers.

In 2004 we see further evidence of a slow recovery in trading conditions in the telecoms sector with many operators indicating their intentions to invest cautiously in new projects that address next-generation service requirements. We must balance this optimism with natural caution concerning ongoing competitive pressures within the OSS vendor community, capital expenditure constraints across the telecoms industry, and global concerns over political, economic and security issues. Overall we are very pleased with Intec’s progress in these challenging markets and we look forward to 2004 as another year of opportunity for further progress.

Mike Frayne
Executive Chairman
24 November 2003

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