Corporate Governance

The following information has been extracted from the Annual Report and Accounts 2006

Corporate Governance Policy
Statement on Application of the Combined Code
Executive Directors and Responsibilities of the Main Board
Non-Executive Directors
The Audit Committee
The Remuneration Committee
The Nomination Committee
Business and Environmental Ethics
Accountability and Audit
Shareholder relations
Compliance Statement

Corporate Governance Policy

The Board of Intec Telecom Systems PLC is committed to the highest standards of corporate governance, professional integrity and ethical behaviour across the entire business. The directors assume responsibility for setting and maintaining these standards, and promoting them actively among all staff and business partners. The Board aims to achieve full compliance with regulations on corporate governance, as well as meeting best practice for international companies as appropriate to its operations.

Intec has a full time Compliance officer who monitors our compliance with the Ethics Policy. The Compliance Officer reports monthly to the Executive Committee on all compliance matters, and any issues are reviewed formally at quarterly Board meetings.

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Statement on Application of the Combined Code

The UK Listing Authority requires listed companies to disclose, in relation to Section 1 of the Combined Code issued by the Financial Reporting Council in July 2003 which is appended to the UK Listing Rules, how they have applied its principles and whether they have complied with its provisions through the accounting period. Details of the Group’s compliance with the provisions of the Code are described in the sections below, with any exceptions to compliance described here:

A4.6 During the year the Board as a whole performed the roles and responsibilities of the Nomination Committee, and as such has not included a separate section detailing the work of the Nominations Committee within the Annual Report.

C3.1 Prior to the appointment of Gordon Stuart (31 August 2006) there was no non-executive director who had ‘relevant and recent’ financial experience.

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Executive Directors and Responsibilities of the Main Board

At year end, the Company was managed by the Board of Directors, comprising a non-executive chairman, chief executive officer and chief financial officer, three independent non-executive directors, and a further non-executive director representing General Atlantic Partners (Bermuda) LP (a major shareholder in the Company). The non-executive directors, who served throughout the year, were Roger McDowell, Peter Manning and René Kern. During the year, Mike Frayne and Thomas Ivarson both served as non-executive directors until their resignations on 6 December 2005. In addition, Gordon Stuart joined the board as a non-executive director on 31 August 2006.

The chairman undertakes the leadership of the Board by ensuring and facilitating its effectiveness by the provision of timely, accurate and clear information on all aspects of the Group’s business. The chairman reviews the effectiveness of all directors; the senior non executive director reviews the effectiveness of the chairman. This process comprises an assessment questionnaire, covering the effectiveness of the Board and its committees, as well as the effectiveness of individual members of the Board. Following this review, action plans were developed relating to the Board composition (including the appointment of Gordon Stuart, a nonexecutive director with ‘recent and relevant’ financial experience) and as regards to Board succession planning. Other than the actions identified above, no other matters were noted as regards to the effectiveness or contribution of individual directors.

The chief executive officer undertakes the leadership and responsibility for the running of the Group’s business on a day-today basis. Meetings of the Group’s senior management team take place at regular intervals, with senior staff reporting formally to the Board on activities, budgets and objectives to ensure an appropriate level of control and information exchange is maintained. The chief executive officer conducts a formal annual appraisal of all regional heads of the business to ensure optimum business contribution.

The Board meets regularly, at least quarterly, to discuss and agree on the various matters brought before it, including the trading results, through a comprehensive briefing document, prepared by the Executive Directors and senior managers from all principal functions of the business. All directors have substantial experience in relevant positions and in the management of listed companies of significant size.

The Board has a formal schedule of matters reserved to it for decision. The Board formally reviews all matters affecting the Company, including strategy, acquisitions, disposals, budgets, business development, investor relations, product development goals, and senior appointments. In its review the Board also monitors the Company’s exposure to key risks.

All directors have access to the advice and services of the company secretary and to other senior managers, and may take independent professional advice on any matter which they believe warrants it at the Company’s expense.

Each member of the Board brings different experience and skills to the Board and its various committees. The Board composition is kept under review and, when a new appointment is to be made, consideration is given to the particular skills, knowledge and experience that a potential new member could add to the existing board composition. This mix of skills and business experience is a major contribution to the proper functioning of the Board, ensuring matters are debated and that no individual or group dominates the board decision-making process.

A comprehensive induction is provided to new Board members. The Group has long recognised the vital role that non-executive directors have in ensuring high governance standards. All directors are required to submit themselves for re-election under the retirement by rotation provisions in the Company’s Articles of Association if they have held office for more than 30 months since their appointments or last re-appointment. Gordon Stuart, who was appointed since the last Annual General Meeting, will offer himself for retirement and re-election to the Board at the next Annual General Meeting.

The table shows the number of meetings attended by each director during the year, or during the period since they joined, in their capacity as a director of the Board or member of the relevant Committee.

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Non-Executive Directors

Before appointment, non-executive directors are required to assure the Board that they can give the time and commitment necessary to properly fulfil their duties, both in terms of availability to attend meetings and discuss matters on the telephone and meeting preparation time.

Roger McDowell is the senior non-executive director to the Board.

Three of the four non-executive directors serving at the year end are considered to be independent, as defined in Section A3.2 of the Code. They have been appointed for specified terms, and provide the necessary balance to the Executive Directors as a result of their outside expertise.

One of the non-executive directors, René Kern, is not considered to be independent, as defined in Section A3.2 of the Code.

He represents the interest of General Atlantic Partners (Bermuda) LLP, a major shareholder in the Company and as such is not considered ndependent.

The Board has established several committees, each with defined terms of reference, procedures and responsibilities. During the year, each committee reviewed its respective terms of reference and recommended to the Board certain changes to reflect changes to the size and structure of the Group, all of which have now been implemented. The terms of reference for each committee are published on the Company’s website, and are available from the Company Secretary.

The committees review their terms of reference and their effectiveness annually, and if necessary recommend any changes to the Board. The minutes of the committee meetings are normally sent to all directors and oral updates are given at Board meetings.

The frequency and attendance for each of the committees is shown in the table above.

The Audit Committee

Terms of Reference - PDF file.

The Audit Committee was chaired by Roger McDowell, and also comprised Peter Manning, Gordon Stuart (following his appointment) and Thomas Ivarson (prior to his resignation) who are all considered to be independent non-executive directors. The Chairman, Chief Financial Officer and the Director of Finance and external auditors normally attend all meetings and the Committee also meets the external auditors without management present. The Audit Committee is required to meet alone at least three times a year and has responsibility for reviewing a wide range of financial matters including the half-year and annual accounts prior to their submission to the Board, and monitoring the controls which are in force to ensure the integrity of the financial information reported to shareholders. The Audit Committee advises the Board on the appointment of external and internal auditors (including reviewing their cost effectiveness, independence and objectivity) and on their remuneration, both for audit and non-audit work, and discusses the nature and scope of their audit work.

The Board considers that the members of the Audit Committee as
a whole have sufficient recent and relevant experience to carry out
the Committee’s functions, a view strengthened following the
appointment of Gordon Stuart.

During the year the Audit Committee, operating under its terms
of reference, discharged its responsibilities by:

• reviewing Intec’s draft financial statements and interim and annual results announcements prior to Board approval and reviewing the external auditors’ detailed reports;
• reviewing Intec’s trading announcements prior to their release;
• reviewing the appropriateness of the Company’s accounting policies;
• reviewing and approving the audit fees;
• reviewing the external auditors’ plan for the audit of Intec accounts, which included key areas of extended scope work, confirmation of auditor independence and the terms of engagement for each audit;
• reviewing the Risks and Control Failures Report covering the systems of internal control and their effectiveness, reporting to the Board on the results of the review and receiving regular updates on key risk areas of financial control;
• reviewing readiness for the changeover of financial reporting from existing UK GAAP to International Financial Reporting Standards; and
• reviewing the programme of the implementation of a new Group ERP/reporting system, ongoing throughout the year.

The Audit Committee has also implemented procedures relating to the provision of non-audit services by the Company’s auditors, which include requiring non-audit work and the fees involved to be approved in advance by the chairman of the Audit Committee.

The Remuneration Committee

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The Nomination Committee

Business and Environmental Ethics

The Board recognises that the Group is accountable to its shareholders and, at the same time, seeks to take into account the interests of all its stakeholders including customers, employees, suppliers and subcontractors, as well as the local community, and the environment in which it operates.

Shareholders
The Group takes its responsibilities owed to shareholders seriously. To this end it seeks to provide shareholders with a satisfactory rate of return on their investment and to sustain and improve the level of this return. Financial reports are provided to shareholders in a timely manner, and extensive information on the Company is provided on its website. The Group communicates its goals and objectives with actual and potential shareholders honestly and expeditiously. The senior non-executive director, Roger McDowell, is available to meet with shareholders at their request.

Customers
The Group treats all its customers with the utmost respect and seeks to be honest and fair in all relationships with them. The Group provides its customers with products and levels of customer service of outstanding quality. Customer satisfaction is surveyed on an annual basis and any customer complaints or issues are treated with the utmost seriousness.

Employees
The Group recognises the value of its employees and that the success of the Group is due to their efforts. The Group respects the dignity and rights of all its employees. The Group provides clean, healthy and safe working conditions. An inclusive working environment and a culture of openness are maintained by the regular dissemination of information through Group-wide meetings. The Group endeavours to provide equal opportunities for all employees and facilitates the development of employees’ skill sets. A fair remuneration policy is adopted in every country in which the Group operates. The views of all staff are solicited annually on a range of issues through an anonymous staff survey which is disseminated to all employees. Employee Relations Forums (ERFs) have been established in all Group offices where it is practical to do so. The ERFs provide a forum where staff can raise any matters of concern, and address questions on any pertinent matter to the Company’s management.

The Group does not tolerate any sexual, physical or mental harassment of its employees. The Group operates an equal opportunities policy and specifically prohibits discrimination on grounds of colour, ethnic origin, gender, age, religion, political or other opinion, disability or sexual orientation. The Group does not employ underage staff.

‘Whistleblowing’ in confidence
Each business unit establishes and communicates to its employees processes which ensure that individuals may disclose concerns to senior management without fear of retaliatory action and then that such disclosures are appropriately investigated.

Such processes at the minimum cover concerns relating to:

• breach of legal obligations;
• danger to health & safety;
• damage to the environment;
• financial impropriety;
• breach of Company policies; and
• deliberate concealment or falsification of facts or information.

Employees are at liberty to communicate their concerns to any member of the business’s senior management team and, if felt necessary or in the event of inadequate investigation/action, to the chairman of the Audit Committee or any other non-executive director of the Board of the Group as appropriate.

The process established by each business shall provide that employees shall be safeguarded from retaliatory action provided their disclosures are:

• delivered in good faith and in seeking to safeguard the best interests of the Company;
• not made anonymously or to the media; and
• not motivated by self-interest or malice.

Suppliers and subcontractors
Relationships with suppliers and subcontractors are based on mutual respect and abidance by contractually agreed terms. The Group seeks to be honest and fair in its relationships with suppliers and subcontractors and to honour the terms of agreements reached.

The Group does not believe that the giving or accepting of bribes is acceptable business conduct.

Community
The Group seeks to be a good corporate citizen respecting the laws of the countries in which it operates and adhering to best social practice where feasible. It aims to be sensitive to the local community’s cultural, social and economic needs.

Environment
The Group recognises that the nature of its business has inherently limited impact on the environment. However, every effort is made to ensure the environmental impact of the Group’s operational practices is kept to a minimum, including strict adherence to all statutory requirements. To this end, a policy of minimising and recycling waste and conserving energy is pursued wherever it is viable to do so.

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Accountability and Audit

Financial Reporting

The directors are responsible for preparing the financial statements which comprise the consolidated profit and loss account, the balance sheets, the consolidated statement of total recognised gains and losses, the consolidated reconciliation of movements in shareholders’ funds, the consolidated cash flow statement and the related notes. Half yearly reports are also presented in a timely fashion, in compliance with Listing Authority requirements and to meet best practice market standards.

Going Concern Statement

The directors, having made suitable enquiries and analysis of the accounts, consider that the Group has adequate resources to continue in business for the foreseeable future and that it is therefore appropriate to adopt the going concern basis in preparing financial statements.

Internal Control and Risk Management

The directors, who are responsible for the Group’s system of internal control, have established systems to ensure that an appropriate and reasonable level of oversight and control is provided. These systems are reviewed for effectiveness not less than annually by the Audit Committee and the Board, and include financial, operational, compliance and risk management controls.

The directors have reviewed the effectiveness of internal control of the Group in the period under consideration, and have taken into account any material developments which have taken place since 30 September 2005 up to the date of approval of the Annual Report & Accounts, the procedures and systems set out above, and the reports provided by individual managers. Such a system can only provide a reasonable and not absolute level of assurance against material misstatement or loss.

A formal process for identifying, evaluating and managing the significant risks faced by the Group has remained in place up to the approval date of the Annual Report & Accounts. That process is formally reviewed by the Board on an annual basis, is monitored regularly by the executive directors, and accords with the publication by the Turnbull working party on guidance for directors on internal control – Internal Control: Guidance for Directors on the Combined Code.

As might be expected in a Group of this size, a key control procedure during the year was the day-to-day supervision of the business by the executive directors. As such, the Board and the Audit Committee do not consider it to be appropriate to have a formal internal audit function at the present time. However, clear management responsibilities have been determined for each entity with authorisation limits and segregation of duties established for the operating functions of the Group. The Board reviews its business processes on a continuous basis and takes steps to enhance controls in all business areas.

Financial Control

Financial results with comparison to budgets and latest forecasts are reported on a monthly basis to the Board by the relevant senior managers across the Group, together with a report on operational achievements, objectives and issues encountered. Managers are supplied with detailed information on budget performance and variances to allow them to prepare their reports and address any problems. Detailed annual budgets are reviewed and approved by the Board. Budgets and objectives are updated regularly in the light of market developments and Company progress. Any significant variances from budgets are discussed at Board meetings and actions set in place to address them.

Approval levels for authorisation of expenditure are at set levels and cascaded through the regional management structure with any expenditure in excess of £25,000 requiring approval from the Executive Board which comprises the executive directors and selected senior managers. All commercial contracts of business require review by the in-house legal department and, in the case of sales, a bid and contract approval process is in place.

Operational Control and Risk management

Operating and regional units formally report to the Board at monthly intervals on all non-financial matters, such as customer account management across all regions, sales performance, research & development project progress, product quality and customer support metrics, marketing programmes, IT systems, internal service level agreements and human resources issues.

Risk management is applied through a systematic process of:

• identification of risk sources by senior managers;
• assessment of the effects of risk;
• formulation of strategies to address each risk; and
• inclusion of appropriate contingency provision in budgets if required.

All senior managers of key operational areas of the business compile a list of significant risks, rank each risk for likelihood and impact, and set out plans for their management and mitigation, in light of the relative impact and costs. This information is reviewed monthly and summarised into a Risk Report which is reviewed by the main Board on at least an annual basis.

Quality Compliance

In 2005 Intec maintained its compliance with several key standards. The mediation business in Atlanta, USA complies with TL9001, a formal quality standard for the telecommunications industry equivalent in scope to ISO9001. Singl.eView (Intec Convergent Billing) in Brisbane, Australia meets ISO9001, and the rest of the Group follows the SEICMM model. Product quality is measured quantitatively on an ongoing basis, in terms of outstanding known issues, with a defined escalation and rectification process that recognises the importance of any problems to customers. The Company employs a full-time compliance manager at Woking who, with quality representatives in major offices, maintains and monitors compliance with a library of formal quality and process procedure documents covering all aspects of Intec’s operations, which are accessible by all staff on the Company’s intranet. The compliance manager in conjunction with the Board agrees an annual audit programme, which he undertakes assisted by nominated experts in the organisation covering all geographies and operational areas of business.

External Communications and Price Sensitive Information

The requirement for compliance with relevant Financial Services Authority provisions, such as staff share dealing and external communications, is communicated regularly to staff and actively monitored and regulated by the company secretary. An understanding of compliance and regulatory issues is now a part of staff induction training, is set out in the Company Handbook, and forms part of the terms and conditions of employment. The Company’s staff are notified on a regular basis of any applicable close period or other restrictions on dealing or external communications consequent on working for a listed company. Only specific senior staff are authorised to comment externally on matters which might be considered to be price sensitive information, and a Board-level process exists for determining which events or information should be considered price sensitive. All material external communications are subject to formal Board approval and by appropriate external advisers if relevant.

Information Management and Security

The Group uses computer systems for the majority of its financial control and record keeping purposes. These systems are regularly reviewed for their ability to provide the security, accuracy and availability of information required to manage and control the business. The Group has established controls and procedures over the off-site storage of data held on computers, has a defined and monitored information security policy for all staff, maintains appropriate measures against deliberate external attack, regularly audits all computers for legal compliance and educates all staff in these matters. Security systems have been reviewed and upgraded regularly during the current year to deal with perceived changes to the risk of loss, damage or information corruption through internal and external factors.

Quality of Personnel and Employee Involvement

The Board approves all senior appointments to the Group’s subsidiary businesses. The Group is committed to attracting and retaining the highest calibre of personnel. It strives to do this through, amongst other things, the application of high standards in recruitment.

The Group is aware of the importance of good communication in relationships with its staff. The Group follows a policy of encouraging training and regular meetings between management and staff in order to provide a common awareness on the part of the staff of the financial and economic circumstances affecting the Group’s performance. Most employees participate in the growth of the business through the ownership of share options and participation in the Group bonus schemes.

Commitment to Continuous Improvement

Measures continue to be taken to embed internal controls and risk management procedures into the business processes of the organisation and to deal with areas of improvement which come to the management’s and the Board’s attention. Metrics and quality objectives continue to be actively implemented and monitored as part of a continual improvement programme. This increased emphasis on quality and improvement has led to a number of new initiatives, concentrating on underpinning and supporting business-led objectives based on real business needs and benefits. Business processes throughout the organisation are currently being revised and reassessed to ensure they are effective and continue to reflect real business needs.

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Shareholder Relations

The Company engages in full and open communication with both institutional and private investors and responds promptly to all queries received. In conjunction with the Company’s brokers and other financial advisers all relevant news is distributed in a timely fashion through appropriate channels to ensure shareholders are able to access material information on the Company’s progress. An investor relations website has been established which contains all publicly available financial information and news on the Company. Investors or others may register through the website to an electronic news service which provides automated circulation of all regulatory announcements. The Group’s Annual and Interim Reports are circulated to all shareholders on record and other interested parties, and may also be requested through a number of channels operated by WILink plc. The Company also monitors the opinions of shareholders and the research published by market analysts insofar as this is practicable, and responds to concerns when appropriate. The Company reported quarterly up to the end of the 2005 financial year (half yearly thereafter) on its performance, holding publicly accessible conferences or teleconferences where investors may question the directors on any aspect of its business or related matters. All shareholders have at least 21 working days’ notice of the Annual General Meeting (AGM), which is held at a convenient location with adequate facilities for the expected audience. The directors and committee chairmen are available for questions at the AGM. The Company meets all provisions of the Combined Code in respect of proxy voting arrangements and resolutions.

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Compliance Statement

The Listing Rules require the Board to report on compliance with the 45 Code provisions throughout the year ended 30 September 2005. The Board believes that the Company has complied throughout the financial year with the provisions set out in Section 1 of the Combined Code, with the following exceptions:

• A4.6 The work of the Nomination Committee, including the processes it has used for Board appointments, is not set out in a separate section of the Annual Report.
• A6.1 The process of performance evaluation of the Board, its committees and its individual directors is ongoing (to be completed prior to the Company’s Annual General Meeting) and as such, the process of how this evaluation is being performed, is not set out in the Annual Report.
• C3.1 There is currently no non-executive director who has ‘relevant and recent’ experience. The Board has engaged an external executive recruitment company to identify such a non-executive director.

Approved by the Board and signed on its behalf.
Craig T Preston ACA
Company Secretary
6 December 2005

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