CHAIRMAN'S REPORT

I am pleased to report the return to growth in earnings as a result of good performance by our UK retail network, excellent internet payment growth and substantial progress in our Romanian network and Collect+. We have increased resources and improved infrastructure at PayByPhone. We have made strong progress in technology, completing the development and starting the roll out of our virtual terminal, developing a broadband communications solution for faster transactions and introduced new services for our terminal network, including cash out and money transfer.

In the UK retail network, retail services delivered healthy growth, although mobile top-ups continued to decline. I am particularly delighted with the recent announcement that we have won the tender to provide the retail network for the Department for Work and Pensions’ replacement of giro cheques for benefit payments, the contract for which is under negotiation. Currently, over 20 million giro cheques are issued annually to pay benefits. We have already demonstrated that our retailers can make payments to consumers (in addition to our traditional strength in collecting money from them). This will substantially increase the flow of money out, reducing banking charges to retailers and delivering more commission and footfall to them.

Internet net revenues have increased 20% and the business had notable success in winning gaming merchants, including Stan James, 32 Red and Sportingbet. We are continuing to win gaming business because of our robust and resilient platform, innovation, advanced fraud and risk management capabilities, and real-time enterprise level reporting.

We have continued to invest in our Romanian retail network by increasing our full service terminal estate by more than 1,100, whilst removing all the old mobile top-up only sites. We accept bill payment for 27 clients and transaction volumes have more than doubled to over 12.1 million transactions. Under a new contract with Western Union, we will roll out money transfer this year.

We have extended our parcels service through Collect+, our joint venture with Yodel, selectively across our UK retail network. Momentum is strong, with considerable interest among major internet retailers and internet marketplaces. We have over 3,700 sites handling Collect+ parcels and 30 home shopping retailers live, including some of the most respected customer service leaders, including ASOS, New Look, Boden and Very. During the year, we handled over 1 million parcels.

In PayByPhone, we have increased the resources in sales, marketing and delivery more than we planned. We have upgraded the infrastructure to provide disaster recovery and introduced a new consumer friendly mobile web parking registration and payment system for the UK and North America. We will continue to nvest to stay at the leading edge of this fast moving market.

The combination of sound, profitable growth in both the UK retail network and our internet business, substantive progress towards profitability in our Romania retail network, gathering momentum in Collect+ and proper resourcing of PayByPhone, mark an important year in re-establishing the group for substantial growth. We are proposing a final dividend of 15.6 pence per share, making a total for the year of 23.4 pence, an increase of 7.3 per cent.

For the current financial year, trading is in line with the company’s expectations. Our established business streams (UK and Irish retail networks and internet payments) are strong, with further opportunities to enhance retail yield through the introduction of new technology and services. In addition, improvements in our service offering to online merchants will provide opportunities for growth. We will benefit from rolling out services in our developing business streams (Collect+, PayByPhone and Romanian retail network), growing our market share and improving profitability. Together, our businesses provide a solid foundation to deliver value for our shareholders.

David Newlands
26 May 2011

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