Annual Report and Financial Statements 2007

Financial Statements 2007 RISK.MANAGED.

CATTLES PLC WHAT WE DO We operate in the UK financial services markets of non-standard consumer credit, debt recovery and invoice finance that provide significant opportunities for sustained growth. OUR PLATFORM FOR GROWTH We have been able to sustain strong income and profit growth because our experience, commitment, people and infrastructure enable us to benefit from market opportunities in both buoyant and tough economic conditions. We aim to increase shareholder value significantly by becoming the UK s leading non-standard financial services group. How? By deploying six key strengths: CONSERVATIVELY MANAGED FUNDING Our philosophy is to lend short and borrow long, ensuring we have funding headroom, secured ahead of need and hedged against interest rate volatility. ROBUST UNDERWRITING We have refined our credit scoring and underwriting processes over many years, so our acceptance of credit risk is rigorously controlled. BEING CLOSE TO OUR CUSTOMERS Knowing customers personally is what our community branches are for. They help us to build relationships and manage arrears if customers circumstances change. MOTIVATED, WELL TRAINED PEOPLE We have consistently benefited from investment in our people: their skills and experience enable us to manage risk successfully while providing excellent customer service. INVESTMENT IN SYSTEMS AND PROCESSES High quality IT helps us recruit and select customers, matching their credit status and needs to our products. Our scalable systems will grow with our customer base. BREADTH OF DISTRIBUTION CHANNELS We reach our customers through our network of brokers, strategic partners and introducers, our nationwide branches and online. RISK.MANAGED. The Risk.Managed. culture underpinning our businesses has helped us ensure robust credit quality over many years. The Group s key strengths are demonstrated in each of its businesses. An illustration of these strengths, as well as an explanation of the benefits they bring, is shown on pages 2 to 7. 00

AT A GLANCE CATTLES PLC is a financial services group specialising in providing consumer credit to non-standard customers in the UK. We also provide debt recovery services to external clients and our consumer credit business, and working capital finance for small and mediumsized businesses. We also have a car retail operation, which is the largest introducer of hire purchase customers to our consumer credit business. In the consumer credit market, non-standard refers to customers who may currently not have access to mainstream facilities typically due to perceived shortcomings in their employment, residency or credit histories. We give them an opportunity to build or repair their credit profile. Effective risk management is paramount in all our markets, and underpins our strategy for continued strong growth. GEOGRAPHIC COVERAGE Branches Welcome Financial Services The Lewis Group Cattles Invoice Finance OUR BUSINESSES Welcome Financial Services The Lewis Group Cattles Invoice Finance Pre-tax profit 164.8m Welcome Financial Services comprises three businesses: Welcome Finance Shopacheck Welcome Car Finance Receivables 2,611.8m Welcome Finance, the principal lending business, serves more than 500,000 customers, providing direct repayment loans from 183 branches across the UK. Its product range includes unsecured personal loans, second charge secured loans and hire purchase for cars. Details on its business model are set out on the opposite page. Shopacheck provides short-term home collected loans to some 260,000 customers through 52 branches. Welcome Car Finance sells around 14,000 used cars a year from 12 sites and is the largest introducer of hire purchase business to Welcome Finance. Pre-tax profit 10.2m Receivables 132.9m The Lewis Group is a UK leader in debt recovery and investigation services, serving both external clients and Welcome Financial Services. It is one of the UK s largest buyers of non-performing debt. Pre-tax profit 2.5m Receivables 99.4m Cattles Invoice Finance provides working capital finance to small and medium-sized businesses. It operates through six regional offices in England and Scotland. OUR CUSTOMERS The great majority of our customers (over 500,000) have loans from Welcome Finance. We only advance these direct repayment loans to customers who are in employment, have a bank account and can repay by direct debit. Most are in socio-economic groups C and D, but a significant proportion come from higher categories. These are some typical customer scenarios: Welcome Finance Unsecured personal loan Mr A, 25, is a mechanic who is single and lives with his parents in Manchester. He earns 17,500 and borrowed 2,000 over three years to pay for a holiday and repay an existing loan. He applied online after being rejected by his bank. Second charge secured loan Mr B, 46, is a fireman and his wife, 42, is a part-time teacher. They live in Norwich and have a joint income of 30,000. They borrowed 9,000 over 10 years for home improvements. They applied through a broker, who referred them to Welcome Finance as they had limited equity in their home. Hire purchase Mr C, 38, is an office manager in Watford earning 25,000. He borrowed 6,000 over four years to buy a car from Welcome Car Finance. He applied direct to Welcome Car Finance after seeing an advert on TV. Shopacheck Mrs D, 36, is an administrator and single. She bought her East London council house. She earns 300 a week, paid into her bank account. She borrowed 200 over 30 weeks to fund Christmas shopping. The Lewis Group Credit card company, E plc, has several million customers and each month it sells accounts which are in default. Lewis buys these, at a discount, and collects the sums outstanding. Bank F plc also has customers in default but it prefers to outsource the collection of overdue accounts. Lewis carries out this work and charges the bank a commission on the amounts it collects. Cattles Invoice Finance G Ltd specialises in wholesale organic food products, turning over 1.5 million a year. Its business was growing and the company had to take on 12 additional employees to meet demand, but wholesalers were requiring extended credit and G Ltd needed access to extra capital. Cattles Invoice Finance provided flexible finance, securing advances against invoices.

WELCOME FINANCE A RISK.MANAGED. BUSINESS MODEL Welcome Finance lends to individuals with non-standard credit profiles providing unsecured and secured personal loans, and hire purchase for cars. Its interest rates are priced to reflect the credit risk exposure. It has a well-developed national network of introducers. Managing credit risk is integral to the business model principally through effective bespoke credit scoring and centralised underwriting processes, and the close customer relationships maintained by the national network of local community branches. Distribution A significant factor in Welcome Finance s business model is the relationships it has built with its external distribution channels. Customers are reached through a well-established national network of: Brokers and introducers Car dealerships Strategic partners Nationwide branches Online Customer Sales and Service Centres (CSSCs) Welcome Finance ensures consistency of credit quality by scoring and underwriting applications centrally in its three CSSCs. Credit risk assessment of the customer is based on: Bespoke scorecards tailored to the non-standard market based on Welcome Finance s own data Affordability tests and proofs of both income and identity Policy rules Once assessment is complete, products are allocated according to the applicant s risk rating. Branch Network Welcome Finance s extensive network of community branches exists so that staff can get to know customers personally, build relationships with them, and manage arrears should their circumstances change. Relationships are managed as follows: Branches employ local people with good communication skills, who understand local conditions Once a loan has been advanced, customers are contacted by a customer account manager to begin establishing a close working relationship This ensures a prompt response if they experience difficulty with repayments and enables a practical plan to be agreed to help them avoid arrears If an account misses two payments, it is passed to a Local Management Branch. Local Management Branches (LMBs) At the LMBs, specialist account managers work with customers to ensure regular payments resume. This enables the accounts to be transferred back to the Branch Network and prevents them from falling into more serious arrears. Local Collection Units (LCUs) At the LCUs, account managers agree new repayment plans with customers. At this stage the business is focused on recovering the outstanding balance and would no longer consider these customers for additional credit. The Lewis Group The Lewis Group is able to collect accounts economically and manages any necessary legal action. If a customer s financial difficulties prove to be longer-term, the account is transferred to a Local Collection Unit. If a customer is unable to make a meaningful payment at the LCU, their account is transferred to The Lewis Group.

HIGHLIGHTS OF 2007 FINANCIAL Income 2006: 619.6m 822.2m +32.7% Pre-tax profit 2006: 132.2m 165.2m +24.9% Basic earnings per share 2006: 28.01p 32.30p +15.3% Dividend per share 2006: 17.50p 19.30p +10.3% Overview 00 What We Do 00 At a Glance 01 Highlights of 2007 02 Our Key Strengths 08 Chairman s Statement 10 Chief Executive s Review Operating and Financial Review 12 Our Markets 15 Our Objectives and Strategies 17 Risks 26 Key Resources 31 Performance Review 35 Financial Review OPERATIONAL Welcome Finance volumes 2006: 988.3m 1,408.6m +42.5% Welcome Finance customers 2006: 409,000 514,000 +25.7% Instalment arrears 2006: 7.4% 7.0% Cost income ratio 2006: 35.5% 31.4% CORPORATE RESPONSIBILITY Speak Up survey colleague participation 2006: 84% 87% Colleague volunteer hours in community activities 2006: 2,059 2,644 +28.4% Governance 42 Directors and Secretary 44 Corporate Governance Report 50 Audit Committee Report 53 Nomination Committee Report 54 Directors Remuneration Report 65 Directors Report 68 Independent Auditors Report Financial Statements 70 Group Income Statement 71 Group and Company Balance Sheets 72 Group and Company Statements of Recognised Income and Expense 73 Group and Company Cash Flow Statements 74 Notes to the Accounts Shareholder Information 119 Shareholder Information 120 Registered Office and Advisers 01

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We choose our customers with care and build close relationships with them. CHRIS NAYLOR, HEAD OF CUSTOMER SERVICE, WELCOME FINANCIAL SERVICES Our underwriting is tightly controlled. Scorecards are regularly reviewed by our credit quality team and experienced colleagues check and verify applicant documentation to ensure we don t lend more than they can afford to repay. Once a loan is approved we allocate the customer to their nearest branch. Within 24 hours the customer receives a call from their branch account manager to start building a personal relationship. The manager will run through all the details again and make sure they re comfortable with everything and check that they know when the first repayment is due. Robust underwriting Our key strength We have refined our credit scoring and underwriting processes over many years to give us rigorous control of credit risk. The same applies when we buy debt portfolios in The Lewis Group, where we have developed sophisticated and robust portfolio valuation models. The benefits it brings Robust underwriting is part of our Risk. Managed. approach, helping us maintain consistent credit quality and keep arrears within our target range. It also helps us to be a responsible lender: we would not benefit our customers or ourselves by lending them more than they can afford. Being close to our customers Our key strength Knowing customers personally is another aspect of our Risk. Managed. approach. It helps ensure that customers keep us in the picture if their circumstances change or if they encounter repayment difficulties. The benefits it brings By acting quickly and constructively, perhaps by rescheduling repayments, we can often prevent a temporary setback escalating into arrears. Our loan can be repaid in full, and the customer avoids a major blow to their credit profile. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 03

Before we take on debt, we make sure we can handle it. GRAHAM HOCKLEY, HEAD OF RISK, THE LEWIS GROUP Welcome is well down the road of investing in new IT systems. Now we ve begun the journey of completely re-engineering our systems in Lewis. We re re-designing our whole collection process so we can adapt faster and more flexibly to market, economic and regulatory changes. Speed and flexibility are also crucial when we re acquiring debt portfolios. When attractive opportunities arise, we need to be able to act fast. In today s market, having funding in place gives us a vital competitive advantage. Investment in systems and processes Our key strength High quality IT helps us recruit and select customers, matching their credit profile and needs to our products, and enhances the effectiveness and efficiency of our processes. Our scalable systems will grow with our customer base. The benefits it brings Investment in scalable systems is ensuring that our growth will not be held back by capacity constraints. It is also contributing to that growth by enabling us to respond faster to enquiries from loan applicants and intermediaries and, in the case of Lewis, manage larger portfolios of debt. Conservatively managed funding Our key strength Our philosophy is to lend short and borrow long, ensuring we have funding headroom, secured ahead of need and hedged against interest rate volatility. We have an excellent track record for raising funding in bank, bond and equity markets. The benefits it brings Our prudent, consistent approach to funding and proactive approach to hedging enables us to take advantage of opportunities when they arise, while maintaining stable medium-term funding costs. 04

OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 05

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With people like ours, it s no wonder we re widely recommended. CAROLINE McDONALD, MARKET DEVELOPMENT MANAGER, CATTLES INVOICE FINANCE The majority of our business comes from intermediaries such as accountants, brokers and banks though we re now reaching an increasing number of business owners directly through the internet and telemarketing. Our research says intermediaries think highly of us because we re independent, responsive and flexible. Clients say they re impressed by the way we understand their needs and issues. And that s down to the quality of our people. We have good communications so that knowledge and experience are shared, and a strong training culture. I m halfway through a 12-month management and leadership course myself, and it s motivating when your company wants to invest in you. Motivated, well trained people Our key strength We have consistently benefited from investment in our people: their skills and experience enable us to manage risk successfully while providing excellent customer service. This investment, whether in recruitment, training, communication, or cultural development, supports the growth of the business. The benefits it brings Last year we set new records for colleague training, continued to improve colleague benefits and increased leadership training for managers. Clearly, that is good for those who work for us. It helps us attract the quality of people we want and to retain them. It also helps customers who want quality service from positive people who know what they are doing. Breadth of distribution channels Our key strength Across the Group, we reach our customers through our networks of brokers, strategic partners and introducers, our nationwide branches and online. Ongoing investment in developing these relationships allows us to provide high quality, consistent service to both intermediaries and customers. The benefits it brings The breadth of our distribution channels helps to reduce our reliance on any one source and to access a greater number of customers. It is also good for customers, who can reach us through whichever channel suits them. The internet is increasingly important as more consumers and businesses look to research and apply for credit online. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 07

CHAIRMAN S STATEMENT NORMAN BROADHURST Chairman It gives me great pleasure to report an excellent performance by the Group in 2007, building on our success of previous years. Pre-tax profit increased by 24.9% to 165.2 million and basic earnings per share increased by 15.3% to 32.30p. DIVIDEND The Board recommends an increased final dividend of 13.10p per share, payable on 13 May 2008. Together with the interim dividend of 6.20p per share, this gives a total dividend for the year of 19.30p an increase of 10.3% over the previous year. As an alternative to receiving the cash dividend, shareholders in the UK, excluding the Channel Islands, will again have the opportunity to reinvest their dividends in the Company s shares through our Dividend Reinvestment Plan. PEOPLE Seán Mahon retired as Chief Executive on 30 September 2007. On behalf of the Board I thank him for his outstanding leadership over the past seven years and wish him the best for the future. He was succeeded by David Postings, previously Managing Director of Lloyds TSB Commercial, who joined the Board on 1 September 2007. David s experience in senior roles at both Lloyds TSB and Barclays will be invaluable as the Group pursues further profitable growth. The quality of our people, and the strength and stability of the management team, have been critical to our success. To continue to grow the business we have increased our investment in training and development. Our positive, performanceoriented culture is reflected in the continued rise in colleagues satisfaction and pride in working for the Group. On behalf of the Board, I thank them for their contribution to another year s strong performance. OUTLOOK I believe our strategy for enhancing shareholder value through disciplined lending growth, robust credit quality and improving operational and financial efficiency remains sound and appropriate to current market conditions. Together with my fellow directors, I look forward to another successful year in 2008. Our positive, performance-oriented culture is reflected in the continued rise in colleagues satisfaction in working for the Group. Norman Broadhurst Chairman 28 February 2008 08

OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 09 Going through the details of the loan with a customer in our Welcome Finance branch in Bulwell, Nottingham.

CHIEF EXECUTIVE S REVIEW DAVID POSTINGS Chief Executive I am pleased to report another year of strong profit growth for the Cattles Group. Our pre-tax profits have increased by 24.9% underpinned by strong income growth of 32.7%. Critically, this has been achieved without compromising credit quality: instalment arrears improved to 7.0% of receivables. Extensive experience in our markets enables us to continue lending responsibly, taking full account of customers ability to repay. So, as many lenders withdraw from these markets, we remain committed to meeting the needs of customers, as evidenced by continuing investment in our branch network, systems and people. GROUP KEY PERFORMANCE INDICATORS Pre-tax profit 2006: 132.2m 165.2m Return on equity 2006: 24.0% 21.8% Loan loss ratio 2006: 7.4% 8.4% Cost income ratio 2006: 35.5% 31.4% Welcome Finance customers 2006: 409,000 514,000 GROUP PERFORMANCE Continued profit growth Group pre-tax profit increased by 24.9% to 165.2 million (2006: 132.2 million). Following the successful share placing in March 2007, return on equity remained high at 21.8% (2006: 24.0%). Basic earnings per share rose 15.3% to 32.30p (2006: 28.01p). These achievements give us confidence to recommend a 10.5% increase in the final dividend to 13.10p per share (2006: 11.85p). The year s success was achieved through continued income and customer growth, robust credit quality, improved productivity and a consistent funding strategy. Continued income and customer growth Group income increased by 32.7% to 822.2 million (2006: 619.6 million), reflecting buoyant demand for the Group s products. In particular, Welcome Finance achieved strong growth in customer numbers up 25.7% to 514,000 (2006: 409,000). Group net interest margin remained robust at 23.2% (2006: 23.3%). Robust credit quality The Group loan loss ratio of 8.4% (2006: 7.4%), remains well within our target range and reflects a change in the mix of Welcome Finance s business in the period, in particular, growth in its higher interest yielding unsecured loan book. Instalment arrears 1 in Welcome Finance improved to 7.0% of receivables (2006: 7.4%) and customer balances in arrears 2 remained stable at 29.2% (2006: 29.1%). Improved productivity Group cost income ratio 3 improved to 31.4% (2006: 35.5%), as a result of the growing efficiency of our infrastructure. Ongoing investment in IT systems will continue to provide the processing capacity to sustain our growth. Consistent funding strategy The average cost of borrowing was 6.86% (2006: 6.79%) due to our proactive hedging strategy that aims to provide stable medium-term funding costs to match the maturities of our liabilities. Group year-end gearing improved to 4.6 times shareholders funds (2006: 5.1 times), and is well within our covenant of 6.0 times. The Group raised 533 million from a share placing and bond issue, and agreed a further 150 million unsecured bilateral bank facility in December. Year-end funding headroom was 226.0 million (2006: 348.5 million), with the only facility maturing in 2008 being a US $40 million private placing (2007: 125 million). The 150 million bilateral facility we announced in December 2007 has recently been increased to 250 million. We are confident that we will be able to raise debt funding to support our planned growth while maintaining a highly attractive net interest margin. 1 Instalment arrears overdue instalments as a percentage of closing receivables 2 Customer balances in arrears total value of loans in arrears as a percentage of closing receivables 3 Revised basis for ratio overheads as a percentage of total income (net of interest expense) and excluding Welcome Car Finance income and costs 10

BUSINESS UNIT PERFORMANCE Welcome Financial Services (WFS) WFS comprises Welcome Finance and Shopacheck, the Group s non-standard consumer lending businesses, and Welcome Car Finance, our car retail operation. Pre-tax profit increased by 21.0% to 164.8 million (2006: 136.1 million). Total net receivables increased by 35.0% to 2.6 billion (2006: 1.9 billion). Welcome Finance The loan loss ratio in the principal business, Welcome Finance, was well within our target at 8.6% (2006: 7.4%). This reflected a change in the mix of the business in the year and, in particular, growth in its unsecured loan book which delivers a higher interest yield. Instalment arrears improved to 7.0% of receivables (2006: 7.4%) and customer balances in arrears remained stable at 29.2% (2006: 29.1%). Customer numbers increased by 25.7% to 514,000 (2006: 409,000). Welcome Car Finance Income from Welcome Car Finance grew by 75.8% to 106.1 million (2006: 60.4 million) as it raised unit sales by 53.0% to 13,763 vehicles (2006: 8,993). Shopacheck Receivables in our Shopacheck home collected credit business reduced to 101.3 million (2006: 113.8 million), representing less than 4% of the Group s total receivables. The Lewis Group Pre-tax profit increased by 107.1% to 10.2 million (2006: 4.9 million), driven by our strategy to increase investment in debt portfolios. Receivables increased to 132.9 million (2006: 91.0 million) following debt acquisitions totalling 74.3 million (2006: 69.5 million) during the year. Commission on third-party debt collection increased by 10.5% to 7.2 million (2006: 6.6 million). Cattles Invoice Finance Income grew 15.6% to 16.9 million (2006: 14.6 million), and client numbers by 11.4% to 725 (2006: 651). Pre-tax profit reduced by 6.9% to 2.5 million (2006: 2.7 million) 4 largely as a result of provisions for three specific accounts. The loan loss charge increased to 2.5 million (2006: 1.0 million). More detailed information on the performance of our businesses can be found in the Performance Review on pages 31 and 32. CURRENT YEAR The Group has made a strong start to the year. All key indicators are in line with expectations. Through continuing to focus on customer service and increasing our investment in people, IT and infrastructure, our strategy is to deliver enhanced shareholder value. Together with my senior management team, I look forward to another successful year in 2008. David Postings Chief Executive 28 February 2008 We continue to focus on customer service and increase our investment in people, IT and infrastructure. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 4 Before prior year disposal profit of 0.8 million 11

OPERATING AND FINANCIAL REVIEW Our Markets Welcome Finance benefits from its accumulated knowledge of customer behaviour in identifying profitable lending opportunities and screening loan applications. This Operating and Financial Review has been prepared in accordance with Reporting Standard 1: Operating and Financial Review as published by the Accounting Standards Board. WELCOME FINANCIAL SERVICES Welcome Financial Services (WFS) is one of the UK s leading players in non-standard consumer finance. It comprises Welcome Finance and Shopacheck, its lending businesses, and Welcome Car Finance, its car retail operation. Competition for its principal business, Welcome Finance, primarily comes from specialist subsidiaries of major banks. The opportunity for WFS continues to grow as the banks progressively tighten their lending criteria as they find it difficult to lend economically to borrowers with non-standard credit profiles. WFS lends to individuals with non-standard credit profiles people who may not have access to mainstream lending, typically because of perceived shortcomings in their employment, residency or credit histories. It gives customers an opportunity to build or repair their credit profiles. WFS s credit assessment processes are designed to ensure that customers repayment commitments are manageable and that they are not over-committed. Welcome Finance Welcome Finance provides unsecured and secured personal loans, and hire purchase for cars. The sums involved are relatively modest: typical advances are 2,100 for unsecured loans, 9,300 for second charge secured loans and 6,000 for car hire purchase loans. Welcome Finance has over 500,000 customers and repayments are mainly collected monthly by direct debit. Outstanding loans of this type at the end of 2007 totalled over 3 billion, before allowance for loan loss provisions, accounting for over 85% of the Group s total receivables. Welcome Finance s customers are primarily in socio-economic groups C and D, which make up some 65% of the UK adult population. However, its market also includes people in the higher categories who may have irregular earnings patterns or need to repair their credit history. Welcome Finance s market is dynamic, and independent research estimates the total size to be approximately 13 million potential customers. Of this, there is a potential addressable market of 7.1 million customers, of whom 5.3 million would meet Welcome Finance s underwriting criteria. During 2007 there has been a reduction in competitor capacity and credit risk appetite. Welcome Finance presently has a share of around 8% of its growing addressable market and management expects it to gain further market share through ongoing development in its systems, products and customer and intermediary service. Unsecured lending, Welcome Finance s main activity, faces varying degrees of competition. New entrants come into the market from time to time, particularly during credit boom periods when prime lenders soften their lending criteria to extend into the non-standard sector of the consumer lending market. However, there are significant barriers to maintaining a successful presence in this market. One is the need to build a substantial knowledge base: while credit history data is available from credit reference agencies, Welcome Finance benefits from its accumulated knowledge of customer behaviour in identifying profitable lending opportunities and screening loan applications. This proprietary knowledge is difficult to accumulate quickly. New entrants also need the expertise and resources to deal with customers face-toface through a well-developed multibranch infrastructure. Against the trend in the financial services industry, Welcome Finance continues to invest in its branch network. It views its local branch presence as a significant strength research shows that many customers prefer to discuss their payment arrangements, when their personal circumstances have changed, on a face-toface basis and Welcome Finance has made it a central part of the way it manages both customer relationships and risk. Shopacheck The home collected credit market is mature. Datamonitor, a leading market research agency, forecasts a modest increase in advances each year from 1.6 billion to 1.8 billion between 2007 and 2011. Shopacheck remains the second largest player in this market. However, the number of its customers is reducing, down 15% in 2007 to 266,000, as it continues to disengage from sectors of the market which are considered uneconomic to serve. At 31 December 2007 home collected loans represented less than 4% of the Group s total receivables at 102 million. Typical Shopacheck advances are around 300 and repayments are collected weekly by local agents. 12

Welcome Car Finance and The Lewis Group have both experienced significant growth in 2007. Welcome Car Finance The non-standard motor finance sector is predicted to grow modestly over the next few years, despite the market remaining flat during 2007. Non-standard lending accounts for about 20% of the total asset financed car market. Welcome Car Finance has experienced strong growth in 2007, despite softening in the UK market overall, and is the Group s largest introducer of hire purchase customers. Impact of the credit crunch Demand in the UK non-standard consumer lending market has been growing strongly in recent years. However, as credit markets have tightened, a number of mainstream lenders who had entered the non-standard market have begun to withdraw from segments of it. As this trend continues, increasing demand is likely to remain fed not only by existing non-standard borrowers but also by a tightening of credit qualification criteria by mainstream lenders, which will squeeze some customers out of the prime segment into the non-standard sector. This is expected to create further opportunities for Welcome Finance, which has robust expertise in pricing risk and managing collections. Welcome Finance typically lends smaller amounts than the companies that are withdrawing from the sector, at interest rates priced to reflect the risk. It also has systems and infrastructure to provide close relationship management and support for customers key elements in its model for maintaining robust credit quality. Regulation Government regularly reviews regulation and legislation to ensure a robust and fair consumer finance market. The significant strengthening of regulation in recent years favours responsible, well-managed businesses: Cattles welcomes the reassurance that it provides to customers and investors alike. Cattles corporate values require the Company to be a responsible lender and the Group has always seen treating customers fairly and responsibly as an essential part of how it operates and how it manages risk. The Group s consumer lending businesses are licensed under the Consumer Credit Act 2006. To maintain high standards of integrity and honesty among lenders, all providers of consumer credit must have a licence of fitness to trade from the Office of Fair Trading, which they must renew every five years. The sale of general insurance products by Welcome Finance is regulated by the Financial Services Authority (FSA). All relevant Welcome Finance employees receive prescribed training and accreditation to maintain the required standards of customer care and compliance. Cattles fully supports the FSA s Treating Customers Fairly principles which have been embedded in Welcome Finance s culture and values training, and in its operating policies and procedures. The Competition Commission inquiry into the sale of Payment Protection Insurance (PPI) began in February 2007 and is currently in the information gathering stage. Cattles has provided all the requested information and attended a Private Hearing in June 2007 to provide further evidence to the Commission. The sale of PPI has been regulated by the FSA since January 2005 and continues to contribute around 10% of the Group s revenues. The Commission produced its Emerging Thinking document in November 2007 and advised that its Provisional Findings Report would be published in May 2008. The Inquiry has to provide a Final Report by its statutory end date of February 2009. Cattles is an active member at board level of various trade associations including the Consumer Credit Association, the Consumer Credit Trade Association and the Finance & Leasing Association. THE LEWIS GROUP The Lewis Group (Lewis) is a UK leader in debt recovery and investigation services, serving both external clients and WFS. Its external clients are mainly large issuers of credit cards and unsecured loans as well as both central and local government departments, insurance companies, catalogue retailers, utilities, telecommunications businesses and educational institutions. Lewis has a reputation for quality and ethical collection practices, and subscribes to the Credit Services Association s code of conduct. This provides comfort to bluechip clients concerned to manage risk to their own reputations. Debt collection and recovery is a diverse and competitive market with over 500 firms operating in the UK. Consolidation is expected and the market is becoming more sophisticated as buyers and sellers of debt obtain better data and develop enhanced models that enable them to price debt more accurately. Some 74% of Lewis income comes from purchasing and recovering portfolios of non-performing debt. It buys these from credit providers, at a discount to their face value, and then recovers the outstanding amounts. Lewis helped to establish the purchased debt market in the UK with a ground-breaking transaction in 1998. It is one of the top three players in this fastgrowing market segment which grew by OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 13

OPERATING AND FINANCIAL REVIEW Our Markets continued Cattles Invoice Finance offers its clients a high quality and responsive service. around 40% a year between 2004 and 2006, compared with growth of around 15% between 1998 and 2006 for the contingent debt collection market. Most single portfolios coming to market now realise around 0.5-1.0 million apiece, but there is a trend to selling larger parcels. Lewis is well-placed to bid on much larger transactions and is particularly interested in longer-term forward flow deals. Market growth accelerated strongly in 2007, and an estimated 8-10 billion of face value debt was sold during the year, according to the Debt Buyers & Sellers Group of the Credit Services Association. Lewis continued to take advantage of the opportunities provided by its strong market position, spending some 74 million on debt purchases during the year (2006: 70 million). Investment in debt purchase is central to Lewis growth, and any economic slowdown is likely to increase the availability of debt on attractive terms. Lewis is also a significant re-seller of debt, which has completed its progress through the company s collection strategies. The balance of Lewis business comes from recovering debts for clients on a commission basis and supplying investigation services, such as customer care visits for insurance companies and arrears and pre-litigation visits for creditors. Lewis operates one of the largest self-employed field collection teams in its sector. Impact of the credit crunch The purchased debt market is expected to continue growing faster than commissioned debt collection driven by liquidity pressures on banks, which are the largest debt vendors, and their need to free-up capital by reducing the amount of debt on their own books. There is room for further growth among smaller businesses and the public sector, which are relatively under-penetrated and may also face pressure to recover capital faster. Prices for purchased debt are likely to soften if, as expected, private equity-backed debt collection agencies face increased funding pressures. CATTLES INVOICE FINANCE Cattles Invoice Finance (CIF) provides working capital finance to small and medium-sized businesses throughout the UK. It has a broadly spread portfolio of 725 clients. It reaches clients through three main channels: intermediaries, corporate partnerships and direct marketing, such as internet and telemarketing. Direct marketing generated almost 10% of new clients in 2007. Like WFS, CIF manages risk through its underwriting processes and by maintaining exceptionally close personal contact with clients. Its client managers generally handle around 25-30 clients each about a third of the typical industry level to ensure high quality client service and a thorough understanding of clients financial position. Around 60 companies operate in the UK invoice financing market. The clearing banks dominate, with a combined share of about 60%. A number of overseas banks and larger independent lenders, such as CIF, operate nationwide and there are also a large number of smaller regional players. Consolidation of the sector has been under way in recent years. The UK invoice financing market has grown strongly in recent years. The average annual growth rate has been 8% for client numbers and 18% for advances, which indicates that more larger businesses are now using invoice finance. Historically CIF has served smaller companies with turnover up to 5 million, where the annual growth in advances has been slower at around 10%. The UK market currently comprises approximately 3.7 million small and medium-sized businesses with 250,000 suitable for invoice finance. Less than 20% are using invoice financing services, indicating significant potential for increased penetration across the marketplace. CIF has an immediate addressable market (excluding borrowing over 5 million and the market share of the Big 4 banks) of approximately 16,500 businesses (40% of the total). CIF currently funds approximately 700 businesses, giving it an addressable market share of around 4% in terms of client numbers. Impact of the credit crunch Any tightening of credit is likely to increase companies demand for invoice financing. Pressures on funding among the clearing banks may reduce their capacity. 14

OPERATING AND FINANCIAL REVIEW Our Objectives and Strategies GROUP STRATEGY The overall objective of Cattles is to increase shareholder value significantly by becoming the UK s leading non-standard financial services group. The Group intends to achieve this objective by: Continuing to focus on non-standard consumer lending; and Supplementing this with a broadening range of complementary financial services and distribution channels for non-standard consumers. The Key Performance Indicators (KPIs) to measure the Group s progress are: Income growth Earnings per share growth Return on equity The Group s investment over recent years has built a strong, scalable business in three complementary markets: non-standard consumer finance, debt recovery and SME invoice finance. The Group intends to continue growing in all three areas. There is a great opportunity to leverage the Group s expertise, track record and leadership skills in non-standard consumer finance. The recent contraction in this market has been due to a reduction in supply as lenders have withdrawn from sectors of this market or have tightened their underwriting criteria, rather than to any softening in demand: demand has in fact continued to grow. The Group will continue to invest in building upon its strong position in this sector, without compromising underwriting criteria, through organic development of Welcome Finance and through the acquisition of complementary non-standard consumer finance businesses. The Group will also continue to invest in growing Lewis and to develop CIF. Investment in infrastructure and IT systems has already enabled the Group to accelerate its growth. This investment is enabling loans to be approved more efficiently, improving the effectiveness of collection processes, enhancing customers experience and making it easier for brokers and dealers to promote the Group s products. These new systems are scalable. The Group will continue to invest in its branch network, processes and IT to support further growth. The quality and motivation of the Group s people is a clear strength, both in gaining new business and in maintaining robust credit quality. The Group will continue to focus on employee engagement linked to reward and to develop a shared culture across the organisation which involves and energises all employees to grow the business and enhance the quality of customer service. Welcome Financial Services The Group aims to maintain strong growth in income and profits in WFS whilst maintaining robust credit quality and intends to achieve this aim by: Focusing on non-standard direct repayment lending by increasing customer origination and retention through enhanced customer relationship management; Establishing new distribution channels and becoming the lender of choice for intermediaries; Leveraging WFS s customer base to develop non-interest income streams, either organically or by acquisition; and Continuing the development of Welcome Car Finance. The KPIs to measure progress are: Growth: customer numbers Credit quality: loan loss ratio Yield: net interest margin The Lewis Group The Group aims to maintain strong growth in income and profits in Lewis and intends to achieve this aim by: Continuing to invest in acquiring debt portfolios; Building new strategic partnerships with major lenders; and Maintaining Lewis rigorous debt valuation criteria. The KPIs to measure progress are: Growth: total receivables Yield: net interest margin Cattles Invoice Finance The Group aims to continue to increase CIF s share of its growing market and intends to achieve this aim by: Focusing on organic growth through customer acquisition and broadening the product range; and Continuing to enhance CIF's client service offering. The KPIs to measure progress are: Growth: total receivables Credit quality: loan loss ratio Yield: net interest margin Corporate Responsibility Cattles aims to retain the confidence of all stakeholders and to maintain their trust in its businesses. The Group will continue to demonstrate a responsible approach to customers, colleagues, local communities and the environment. Corporate Responsibility (CR) is about managing risks to the confidence and trust placed in Cattles businesses by customers, colleagues and other stakeholders. If the Group fails to recognise its responsibilities or underestimates their importance, it risks damaging its reputation and ultimately its business. Cattles has a straightforward CR strategy based on three cornerstones: Being a responsible financial services organisation The Group s businesses treat their customers fairly and with respect. They lend carefully, making sure customers financial circumstances are understood to ensure the right products are offered. Open and honest relationships are sought with customers and constructive support is offered to customers if they encounter difficulties. Being a good people business The Group s success depends on the skills and professionalism of its employees. The Group aims to create an environment that is motivating and stimulating and to treat its employees with fairness and respect. Listening to what employees have to say, helping them to fulfil their career aspirations and offering them equal opportunities to progress are important priorities. The Group seeks to build strong bonds with the communities in which it operates because these are where its customers and employees live and work. Being environmentally responsible As a growing business the Group recognises its impact on the environment. It has a duty to manage this impact and minimise it where it can, and to raise awareness of environmental issues among colleagues. Stakeholders expect the Group to do this, and using resources more efficiently will also help to reduce costs. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 15

16 Reviewing performance in our Shopacheck branch in Bradford.

OPERATING AND FINANCIAL REVIEW Risks Over many years the Group has built a unique understanding of its markets and developed a thorough, methodical approach that is called Risk. Managed. This requires unrelenting awareness and control of risk in everything the Group does. It ensures that risks are accurately identified and managed conservatively. RISK MANAGEMENT IN THE NON-STANDARD SECTOR The Group s appetite for risk is a carefully calibrated part of the business model, aligned to strategic and corporate objectives. The aim is not to avoid or eliminate risk, it is to do business successfully. The markets in which the Group operates potentially expose it to higher credit risk than those faced by the financial services industry generally. The relatively narrow range of the Group s products and services primarily lending and the selling of general insurance also means that the Group is more exposed to certain external factors. The Board accepts these risks on the condition that they are controlled in a way that enables the Group to price its products commensurately. Providing non-standard credit is not a business for the uncommitted. It requires deep knowledge of the market and a very robust and iterative approach to risk management and regulatory compliance. Underpinning the Group s long-term commitment to the non-standard sector is a Group-wide approach to the management of risk of all types. It is hands-on, not just involving dedicated specialist teams, but forming part of the organisations culture: the Group s risk programme is embedded into all processes. RISK MANAGEMENT FRAMEWORK The Group has a strong risk management framework and compliant culture. The risk management and compliance teams are supported by an independent internal audit function provided by Deloitte & Touche LLP (Deloitte). The principal risk management groups and their responsibilities are: Board Takes overall responsibility for the Group s internal control systems, reporting on their effectiveness and defining the framework for, and influencing the culture of, risk management across the Group Determines the Group s appetite for risk Determines an appropriate categorisation of risks Determines what types of risk are acceptable and unacceptable Approves major decisions affecting the Group s risk profile or exposure Produces a Corporate Governance Report for shareholders as part of the Annual Report & Financial Statements, drawing on advice from the Audit Committee, Risk Management Group, senior management and internal/external auditors Audit Committee On behalf of the Board: Monitors the effectiveness of the Group s internal controls, including financial, operational, regulatory and compliance controls Calls on external auditors, external risk assurance providers and executive directors to attend meetings as required Receives reports from the Risk Management Group Receives an annual risk management report from the risk and compliance director Risk Management Group Risk Management Committee Risk Management department Defines and co-ordinates the Group-wide risk management strategy and framework Manages the Group s relationships with regulators and compliance with legal and regulatory requirements Reviews the key Group risks and controls identified, and the effectiveness of those controls Reports to the Audit Committee twice yearly on risk management Reviews the risks identified on the WFS divisional risk registers, the effectiveness of controls and progress on risk treatment plans Reviews the risk log and associated documents to identify new or emerging risks to the business and escalating material risks Reports to the board of WFS The risk, compliance and internal audit functions are complementary; together they provide effective protection for the Group s businesses: Compliance department Internal audit (Deloitte) Provides independent Group-wide risk-based assurance and advice Ensures internal audit and compliance activity is aligned to the corporate risk profile and provides appropriate testing and monitoring Maps Group and subsidiary risks Supports the Risk Management Group in its reporting of risk management and the effectiveness of controls Advises on good practice, encourages risk awareness and co-ordinates training Supports business change management Prepares, maintains and tests business continuity plans Monitors regulatory changes, advises on implications and sets compliance policies and strategy Maps and reports on compliance risk Monitors and reports on compliance Manages the customer services and legal services departments Reviews the effectiveness of risk management controls, shares good practice and recommends improvements where necessary Reports to management and the Audit Committee OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 17

OPERATING AND FINANCIAL REVIEW Risks continued The Group s approach to risk management is hands-on, not just involving dedicated specialist teams, but forms part of the organisation s culture. Fig 1. RISK IDENTIFICATION PROCESS Colleague and business as usual risk identification Risk Forum Assesses the central risk log Risk Management Committee (WFS only) Assesses recommendations from the Risk Forum and reviews the WFS Register Lewis Board Updates the subsidiary register and has quarterly reviews with Risk Management WFS Board Updates the divisional registers CIF Board Updates the subsidiary register and has quarterly reviews with Risk Management Risk Management Group Updates to the Group Risk Monitor Audit Committee RISK IDENTIFICATION The Group s risk identification process is outlined in Fig 1. When new potential or emerging risks are identified, they are referred either directly to the Risk Management team or through the Risk Forum, which brings together around 12 colleagues, referred to as risk champions, who represent all functions in the business. New risks are added to the central risk register, which is reviewed at each meeting of the Risk Management Committee. This committee, comprising directors and heads of all functions, debates each new risk and votes (within clear terms of reference) on which are sufficiently material to warrant being escalated to the WFS board. If the risk affects the Group as a whole, it is further debated at the WFS board to decide whether escalation to the Risk Management Group is required. The Group maintains risk registers and risk maps for the following parts of the business:, CIF, Lewis and WFS (which include functional risk registers for Financial Control, Human Resources, Health & Safety, Information Security Management, Fraud Risk Management, Credit Quality and Credit Risk, Regulatory Risk, Shopacheck, Operational Risk Customer Sales and Service Centres, Operational Risk Branch Operations, Welcome Car Finance Retail and Welcome Car Finance Procurement). In addition to these permanent risk registers, ad hoc registers are maintained for all key projects and initiatives, such as the current implementation of the new back office IT systems. About half a dozen project risk registers are currently in operation. The Cattles risk register is reviewed twice a year by the Risk Management Group, which reports to the Audit Committee. The risk registers for WFS, Lewis and CIF are formally updated three times a year and presented to the relevant subsidiary board. Functional registers are updated quarterly with the senior management of the relevant function and agreed with the relevant board director. Project registers are updated according to the nature of the project, generally no less than once a quarter. RISK ASSESSMENT AND MONITORING Each part of the Group has a defined risk matrix indicating how risks are rated and outlining the management and approval arrangements for each level of risk. Risks are rated in terms of impact, likelihood and control effectiveness, and the prioritisation scales defining the risk assessment are updated annually. Compliance and internal audit reviews include assessments of the effectiveness of the controls for all risks in the risk registers. The Group aims to keep risk identification and management processes as straightforward as possible to maximise the engagement and understanding of all colleagues. Risk registers are presented in a consistent and uniform manner across the Group, with risks arranged in residual risk priority order. Considerable effort is put into visual presentation, using risk maps and dashboards to help managers see the risk picture more clearly. These visualisations also help to show how the pattern of risk evolves over time, as risks are modified by external events or the Group s actions to control them. The risk maps and prioritisations for the Group, WFS, Lewis and CIF are independently validated by the Deloitte internal audit team. 18

All key data provided by loan applicants income, outgoings and identity is validated through documented proof, supplemented with comprehensive fraud checks. Through dashboards, risks are monitored against pre-set tolerances. These tolerances are set by functional management and agreed with Risk Management. Where tolerances are exceeded, appropriate risk treatment plans are invoked. The Group uses the TERRA risk methodology for risk treatment: Transfer, Exploit, Reduce, Retain, Avoid. Risks and the Group s actions to mitigate them are scored subjectively. Ultimately, these can only be determined using judgement. However, technology provides the opportunity to make judgements more systematic, objective, robust and consistent. The Group is currently implementing and testing bespoke enterprise risk management software to help the risk champions throughout the business to identify potential risks, then log, mitigate and track them as they emerge and develop. The system balances materiality of risks, and therefore the scale of controls, against commercial considerations. It provides a highly visible and iterative approach, and should further increase the consistency and responsiveness of the Group s risk management. CATEGORISING RISKS The Group has identified the key risks that could impede or frustrate delivery of its objectives. These key risks, and how they are mitigated and managed, are described below. Credit risk This is the risk to earnings or capital arising from a counterparty s failure to meet the terms of a contract with one of the Group s businesses where funds have been advanced to them. The main exposure to credit risk relates to the Group s portfolios of loans and receivables. The Group acknowledges that the risk arising from changes in credit quality and the recoverability of loans is inherent in the nature of its business. Adverse changes in customers credit quality arising from a general deterioration in economic conditions in the UK, such as higher interest rates, higher unemployment levels or house price reductions, could affect the recoverability and value of the Group s loans and receivables. The objective of credit risk management is to enable the Group to achieve appropriate reward while keeping this risk exposure in line with its declared risk appetite. The Group Board sets standards for credit risk management throughout the Group. This is achieved through a combination of governance structures, credit risk policies and credit systems and processes. It delegates authority for credit policy to the subsidiary boards. Welcome Financial Services The WFS board determines credit policy by considering and authorising recommendations proposed by a subcommittee responsible for evaluating credit policy and product profitability. WFS has a credit quality department responsible for ensuring that asset quality is maintained within specified parameters. The department is independent of operational management and has no responsibility for income generation. The department is subject to internal audit review on a regular basis. This review covers areas such as integrity of scorecards and the quality of the department s reporting. In Welcome Finance, the principal protections against credit risk are the effectiveness of its bespoke credit scoring and underwriting processes, and the way in which it maintains close customer relationships through its national network of local community branches. Applications for advances come from a variety of channels, including national brokers and dealers, and Welcome Finance ensures consistency of credit quality by scoring and underwriting applications centrally. No one has the authority to overwrite a credit score. Before a new loan is approved, an appropriate credit risk assessment of the customer is made. This includes using bespoke scorecards tailored to the non-standard market based on Welcome Finance s own data, ensuring compliance with affordability tests and obtaining satisfactory proofs of both income and identity. The applicant s risk rating is assessed by a combination of the scorecard and policy rules and a product is allocated according to that risk. All key data such as income and identity is validated through documented proof, supplemented with electronic checking. The comprehensive fraud checks use the latest fraud prevention technology and a national fraud-sharing database. The introduction of DETECT software designed to mitigate the risk of application fraud has been a great success in identifying and eliminating a significant volume of applicant fraud. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 19

OPERATING AND FINANCIAL REVIEW Risks continued The performance of branches is closely managed to ensure that the level of customers arrears is well-controlled. Maintaining close customer relationships is central to Welcome Finance achieving robust credit quality. Customers ability to afford their loan repayments is assessed during the sales process, taking into account their level of income in comparison to their outgoings. Secured loans are underwritten on the same basis as unsecured loans, with emphasis placed on assessing and verifying a customer s ability to repay and not on the equity in their property. A legal charge is nevertheless registered on the customer s property as experience shows that this leads to customers placing a higher priority on meeting their loan repayments. At the time a loan is paid out, all Welcome Finance customers must be in employment and have set up a direct debit from a bank account to repay the loan. The majority of customers are managed by the extensive branch network and collections units. After loans are paid out, customers are assigned to a customer account manager in their nearest community branch. Establishing and maintaining close personal relationships with customers is a fundamental strength in Welcome Finance s ability to achieve robust credit quality, because it enables them to help customers promptly should they encounter difficulties with their repayments. The customer account managers in the Operational Branches are responsible for managing a customer s schedule of repayments. The performance of customer account managers, and each branch as a whole, is specifically measured in terms of the level of customers arrears, and relevant management information is available on a daily basis in each branch. Summary information is available to senior operational management to monitor collections performance and arrears at both a branch and portfolio level. In addition, the credit quality and finance teams continuously review and analyse arrears statistics in order that any corrective steps can be identified and implemented should any adverse trends in either a particular location or product line develop. The Operational Branches manage customers accounts whilst they are up-todate or experiencing early, casual arrears. If an account misses two payments, it is passed to a Local Management Branch. These branches comprise specialist collectors who work with customers to ensure regular payments resume so as to enable the account to be transferred back to the Operational Branch and to prevent the account from falling into more serious arrears. If a customer s financial difficulties prove to be longer-term, management of the account is transferred to a Local Collection Unit where an account manager will agree a new repayment plan more suited to the individual s circumstances and revised ability to repay. It is at this stage in the collections process, when the business is seeking to recover the outstanding balance from the customer and would no longer consider the customer for additional credit, that the loan is considered to be impaired and subject to an appropriate level of provision. The Group s long-established target is to maintain Welcome Finance instalment arrears at 8-10% of receivables and it has consistently operated within or slightly below this range for many years. At 31 December 2007 the level was 7.0% (2006: 7.4%). Data from Welcome Finance s bespoke scorecards continues to confirm the belief that the 8-10% target is appropriate for the risk appetite. Over time, as previously reported, the Group expects instalment arrears to return gradually to within the target range because of a change in product mix towards unsecured personal loans. Credit risk in Shopacheck is managed through regular analysis of customers ability to make repayments, and their credit limits are amended accordingly. The Lewis Group Lewis was one of the founders of the debt purchase industry in the UK and recorded the industry s first ever 10 million plus acquisition in the late 1990s. This experience of the debt purchase market, together with the business long history in contingent debt collecting, has provided senior management with significant knowledge and data with which to price portfolios offered for sale. Lewis has an established and experienced Risk team, responsible for performing the detailed analytical work needed to segment and value portfolios. The pricing models used have evolved over time and are capable of performing multi-dimensional analysis of very large portfolios in a sophisticated, yet efficient way. The Risk team works under the close supervision of the Lewis board and submits draft bids to the Pricing Committee, comprising the Lewis directors and the head of risk, for consideration and approval. Any bids which exceed the Committee s mandate are subject to the approval by the Group Board. 20

Cattles Invoice Finance provides exceptionally high levels of client contact key to controlling arrears. After the operations team have established collection targets at an individual collector level, the Risk team is also responsible for monitoring collections performance postacquisition. A suite of reports has been developed to assist in this monitoring process. The performance of each portfolio is monitored and reported on a monthly basis with major portfolios being subject to additional formal review meetings on a quarterly basis. Data from actual collections is fed back into the valuation models as appropriate. Cattles Invoice Finance CIF benefits from a well-diversified portfolio and robust underwriting criteria. It has a defined process, contained within its credit policy, for the approval of invoice financing facilities to prospective clients. A prospective client is assessed in relation to the suitability of the security offered (supported by professional valuations where necessary), the robustness of their systems to provide all the information necessary to establish and maintain a facility, and the availability and content of financial information detailing their current trading position and future projections. In addition, information from external credit reference agencies in relation to the directors and contracting parties of the prospective client is also obtained. As well as establishing appropriate underwriting criteria and systems, providing personal attention to clients is key to controlling arrears. CIF has structured itself in order to provide exceptionally high levels of client contact and service, with each client manager handling only 25-30 client relationships. In addition, the business has a dedicated team of auditors performing site reviews at clients to ensure there is ongoing adequacy in the clients systems and that the business of the client has remained consistent with that indicated at the commencement of the facility. However, these precautions cannot eliminate all risk of default or fraud: in 2007, the Group judged it prudent to provide for defaults on three accounts, increasing the loan loss ratio to 2.2% (2006: 1.2%). Treasury risk The Group has categorised treasury risk into its constituent elements liquidity risk, interest rate and currency risks (being market risks), counterparty credit risk, concentration risk and capital risk each of which is discussed below: Liquidity risk This is the risk to earnings or capital arising from an inability to meet obligations when they become due, without incurring unexpected or unacceptable losses. It includes the risk of inability to manage unplanned decreases or changes in funding sources and also any failure to recognise and address changes in market conditions that could affect the Group s ability to liquidate assets quickly, with minimum value loss, if necessary. There is a risk that funding for expansion may not be available or may prove expensive particularly when the Group s lending business is growing particularly strongly. Failures in the Group s capital planning framework could result in the Group lacking sufficient capital to support current and anticipated business activity and impact adversely on capital repayment and dividend payment. To manage these risks, the Treasury & Risk Director and his team continuously forecast funding headroom, monitor the funding markets and seek to increase headroom well ahead of need. The Group funds its businesses through syndicated and bilateral facilities with major UK and international banks and through private and public debt offerings. The current syndicated and bilateral facilities have original maturities of up to six years. In order to continue to fund the expected growth in the Group s receivables these facilities will typically be renewed and/or increased on their termination. The Group has a successful track record in fundraising activity, which has continued during 2007. Equity placement activity in 2007 has helped to reduce the Group s gearing to 4.6 times tangible net assets at the year-end, comfortably within the Company s covenant limit of six times; and by increasing shareholders funds, the equity placement increased the Group s total borrowing capacity by some 773 million. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 21

OPERATING AND FINANCIAL REVIEW Risks continued The Group has a long-standing and consistent approach to funding and liquidity the average maturity of borrowing facilities is around five years, compared to three years for the receivables book. The Group maintains a mixture of longterm and short-term committed facilities that are designed to ensure that the Group has sufficient available funds for current operations and planned growth. Details of current bank facilities and their maturity dates are set out in Fig 12 on page 39. The Group s funding includes: Syndicated and bilateral bank facilities Public bond issues US private placements Overdraft facilities The Group has a long-standing and conservative approach to funding and liquidity. The average maturity of the Group s total borrowing facilities is around five years, whilst the average maturity of the receivables book is shorter, at approximately three years. Existing and forecast headroom levels are reported and reviewed at each Board meeting. Whilst there is no set minimum level of headroom, under normal circumstances the intention would be to maintain a minimum of around six months headroom. The Group s risk management programme aims to limit adverse external impacts on financial performance by using financial instruments such as interest rate and cross-currency swaps to fix interest rates and hedge foreign currency denominated borrowings. The Board has delegated responsibility for the Group s treasury risk management policies, within limits, to the Treasury & Risk Director. These policies are implemented directly by the treasury team on the Group s behalf. The team has a risk management policy setting out specific guidelines for managing interest rate, foreign exchange and credit risks and the use of financial instruments in relation to these. Interest rate risk The Group has minimal risk to income from changes in market interest rates as almost all customer lending is at rates of interest which are fixed over the term of the contract. Facilities provided by banks and other investors are a mixture of fixed rate and floating rate funding. Floating rate borrowings are exposed to the risk of rising interest rates which the Group manages by the use of appropriate financial hedging instruments, primarily interest rate swaps. As a result, the Group has a relatively low risk to changes in market interest rates for current borrowings. At 31 December 2007, around 85% (2006: 80%) of the Group s borrowings were protected against future interest rate volatility, either through fixed rate borrowing (in the case of public bonds, private placement loan notes, debentures, finance leases, hire purchase and some other loans) or by using interest rate swaps to protect floating rate bank borrowings. As a result, based on borrowings at 31 December 2007, a hypothetical 1% change in the three-month LIBOR would only change the Group s annual interest expense (after taking account of any hedge ineffectiveness) by around 1.9 million (2006: 2.4 million). This long-standing treasury strategy to limit exposure to interest rate movements has helped to provide the Group with a stable funding platform and greater certainty and control over future funding costs. It is not the policy of the Group to trade in such financial hedging instruments. The level of protection contracted for at any particular time would not exceed the Group s exposure to actual or projected borrowings, except in the event of short-term timing differences. Currency risk Certain funding received from banks or other sources may not be in sterling. This creates a potential exposure to the risk of adverse foreign exchange rate movements. At 31 December 2007 the Group had a US $110 million unsecured loan note due for redemption at par in two parts in 2008 and 2011, a further US $75 million unsecured loan note due for redemption at par in two parts in 2011 and 2013 and a 6 million unsecured loan note due for redemption at par in 2013. It is the policy of the Group to manage the risk of exposure to adverse foreign exchange rate movements by the use of financial hedging instruments. In order to achieve this, all foreign currency denominated borrowings are immediately swapped into sterling at the start of the related facility agreement for the term of the borrowings. Counterparty credit risk At any point in time, Cattles has an exposure to its counterparties arising from treasury activities. Management of counterparty credit risk is assisted by ensuring that derivative counterparties and other counterparties that hold the Group s funds on deposit or credit balances on bank accounts should carry a long-term credit rating of higher than BBB, or equivalent. 22

Fig 2. GEARING CALCULATION 2007 2006 m m Group borrowings 1 2,319.3 1,754.8 Adjustment (18.0) (27.9) Borrowings for gearing calculation 2,301.3 1,726.9 Net assets as per balance sheet 595.1 416.9 Less: goodwill and other intangible assets 2 (97.2) (80.1) Tangible net assets 497.9 336.8 Gearing 4.6 times 5.1 times 1 As per note 22 of the accounts 2 As per notes 14 and 15 of the accounts In addition, interest rate and cross-currency derivatives with any single counterparty would not, under normal circumstances, be allowed to exceed 25% of the Group s total interest rate derivatives. Concentration risk The Group is careful to avoid building a concentration of facilities with a relatively small group of funding partners. In order to avoid such a concentration the Group has established funding in the bank, public bond and US private placement markets. Bank facilities currently include a syndicate of over 30 banking partners. It is the Group s intention that funding with any individual counterparty should not normally exceed 20% of total Group funding. The risk from a concentration of customer credit risk is limited due to the relatively low value of each customer s debt and to the Group s large and unrelated customer base. Capital risk The Group s objective in managing capital is to maintain a strong capital base to support current operations and planned growth and to provide for an appropriate level of dividend payment to shareholders. The Group is not subject to external regulatory capital requirements. It is, however, required under certain of its funding agreements, to ensure that its gearing ratio does not exceed six times. For this purpose gearing is calculated as the ratio of consolidated borrowings to tangible net assets. The precise definition of borrowings used in the calculation varies according to the funding agreement, but is broadly consistent with that disclosed in the consolidated balance sheet. Adjustment is made to exclude items such as accrued interest, unamortised discount and fees, and net off certain bank deposits. Tangible net assets are based on net assets (equivalent to total shareholders equity) less goodwill and other intangible assets. The calculation of the gearing ratio at 31 December 2007 and 2006 is shown in Fig 2. Throughout 2007, the Company complied with the gearing covenant and the reduction in the ratio is attributable to the equity placing in March 2007 which strengthened the Group s capital base. Depending on the specific funding agreement, reporting against this covenant is carried out on a quarterly, semi-annual or annual basis. In addition, the gearing level is monitored internally on a monthly basis and is included in the Group s forecasts. The Group aims to maintain the capital base (which includes share capital, share premium, other reserves and retained earnings) so that, at all times, the gearing level is below the covenant limit. In doing so, due regard is given to relevant forecast information. Strategic risk This is the risk to earnings or capital arising from adverse business decisions, or improper or inadequate implementation of those decisions. This risk is a function of the Group s corporate strategic goals, the business strategies developed to achieve those goals, the resource deployed against them and the quality of the implementation. The resource considerations should include operations, support and communications. To mitigate the risks relating to specific strategic projects the Group has a range of project risk registers, and members of the Risk Management department are closely involved in the project teams and/or steering committees for any such developments. For example, the current project to replace the back office IT systems in WFS has a very robust governance structure including its own risk committee reporting directly to the board. The output of this committee feeds directly into the strategic and commercial decisions around the programme s go/nogo review by the WFS board. Operational/transactional risk This is the risk to earnings or capital arising from problems with service or product delivery. It can stem from failures of process, systems and people. This risk is a function of internal controls, information systems, employee integrity and operating processes. It affects all products and services. The Group s approach to managing operational risk is a highly proactive and iterative one. For example, each function within WFS has a dedicated risk manager, who works closely with the senior management team in identifying, assessing and monitoring risks at a functional level. Colleagues within HR, finance, credit quality and branch operations have their own bespoke risk registers that are reviewed quarterly with their risk manager. Each functional risk register is formally presented to, and approved by, the relevant board director. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 23

OPERATING AND FINANCIAL REVIEW Risks continued Welcome Financial Services has embedded Treating Customers Fairly principles into its culture and values training. Business Continuity Risk Loss of information and communications technology (ICT) infrastructure or key business premises would adversely impact the Group s ability to do business, and is a risk that is taken extremely seriously. To mitigate it the Group has a business continuity management (BCM) system. This is endorsed by the Group Board and underpinned by a clear BCM policy signedoff by the Treasury & Risk Director, who is the BCM sponsor on the Group Board. The policy states that the industry-recognised good practice guidelines set out by the Business Continuity Institute are followed, and that the Group aligns itself to the British Standard for Business Continuity Management, BS25999. Recognising the Group s increasing reliance on telephony and computer systems, the significant resources of third-party specialists under formal ICT disaster recovery arrangements are used. Third-party specialists are also contracted to cover the loss of any key business premises. Compliance and legal risk Failure or inability to comply with the laws, regulations or codes relating to the financial services industry can lead to fines, public reprimands and enforced suspension of operations and in extreme cases, withdrawal of authorisation to operate. The Group s dedicated compliance function has implemented controls and systems to monitor and manage these risks. These include monitoring regulatory and legal changes, advising on implications and setting compliance policies and strategy. The Group identifies and manages legal risk through effective use of its internal and external legal advisers. The Company Secretary and Legal Counsel is responsible for providing the support necessary to identify, manage and control legal risk across the Group. The Group s compliance monitoring processes are designed to ensure that operating licences are not put at risk and that insurance products are sold in accordance with FSA regulations. Compliance is continually monitored, reported to senior management and the WFS board, and improvements made to processes where appropriate. Reputation risk This is the risk to earnings or capital arising from negative public opinion. This could affect the Group s ability to establish new relationships or services or to sustain existing relationships, expose the business to regulatory censure or financial loss, or impair the value of the Group s brands. Reputation risk is inherent throughout the business and includes a responsibility to exercise appropriate caution when dealing with customers, shareholders, markets and the community. Cattles guards its reputation jealously and trains customer-facing colleagues to protect it. For example, in WFS the FSA s Treating Customers Fairly (TCF) initiative is supported. WFS has established a Customer Experience Group, chaired by its director of customer experience. This group of senior managers is responsible for promoting a customer-focused culture within the business, and ensuring that the principles and expectations are firmly embedded into the corporate culture. WFS has established principles in relation to TCF, so as to ensure it considers the needs of customers when products are developed and sold, when after sales service processes, complaint handling procedures and marketing materials are designed and when colleague remuneration policies are set. In each of the Group s businesses, well-developed procedures for resolving customer complaints and queries are in place. In the debt recovery commission market there are published league tables of debt collection performance: Lewis high ranking in these tables confirms that its collection strategies are effective. To protect its own reputation and those of its clients it has a strict policy of using only ethical collection methods, and as a member of the Credit Services Association it adheres to the Association s code of conduct. The Group s Corporate Responsibility (CR) programme also plays an important role in how the Group effectively manages reputation risk. It generates the most value for business performance and reputation by being commercially and operationally aligned to business strategy. The Group s CR activities are focused on the three cornerstones of the CR strategy being a responsible financial services organisation, a good people business and environmentally responsible. At the same time the Group recognises its commitment to engage with stakeholders across a wide range of issues and to meet their needs and expectations as well as possible. 24

OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 25 Advising a customer in our Welcome Car Finance showroom in Luton.

OPERATING AND FINANCIAL REVIEW Key Resources The Group has continued to receive strong support from equity and bond investors and from its banking relationships. FUNDING Funding KPIs Total borrowing 2.3 billion 2006: 1.8 billion Average cost of funding 6.9% 2006: 6.8% Headroom at year-end 226 million 2006: 349 million The Group s continuing strong growth requires an increase in the amount of funding needed, if it is to reap the benefit of the opportunities open to it. During 2007 the Group s total receivables increased by 739 million to 2.8 billion and borrowings increased over the year by 565 million to 2.3 billion. The Group has continued to receive strong support from equity and bond investors, and from its banking relationships, despite greater risk aversion in the markets. In the first quarter of 2007 the Company successfully placed 32,978,986 new ordinary shares, which were admitted to listing on the London Stock Exchange on 20 March 2007. This raised gross proceeds of 133 million to refinance debt portfolios acquired by Lewis in 2006 and to finance organic growth. In July 2007, the Group completed a new 400 million 10-year sterling bond issue at a fixed rate of 7.125%. This significantly increased available headroom and strengthened the average maturity profile. The issue was placed in line with the Group s strategy of going to the markets well ahead of need, and proved particularly well timed: soon afterwards, the corporate bond markets effectively closed to new issues. In December, the Group secured additional headroom by arranging a new 18-month unsecured facility of 150 million from the Royal Bank of Scotland, priced at around 25bps above its current average rate for bank funding. This facility has recently been increased to 250 million. The Group also redeemed its 125 million maiden sterling bond, issued in 1999. It provides some perspective on current economic conditions to note that this bond carried a fixed interest rate of 8.625% significantly higher than the average rates at which the Group is borrowing today. Following this transaction, with the sole exception of a US $40 million tranche of private placing funding which matures in December 2008, none of the Group s other facilities will need refinancing until mid-2009. The Group has maintained its long-established treasury strategy of hedging exposure to interest rate volatility. At the year-end, around 85% of the Group s 2.3 billion total borrowings were protected against future interest rate volatility, for an average period of around four years. As a result, despite significant increases in short-term LIBOR rates, the Group s average cost of funding rose only marginally in 2007 to 6.9% (2006: 6.8%). The Group s funding covenant allows borrowings up to six times the value of shareholders funds. By increasing shareholders funds, the March share placing added some 773 million to the amount the Group can potentially raise in the debt markets to fund further growth in lending. At the year-end the Group s gearing was 4.6 times (2006: 5.1 times) shareholders funds, excluding goodwill and other intangible assets. the Group s credit rating was reaffirmed as BBB in October. At the end of 2007 the Group had available headroom of 226 million (2006: 349 million) within existing funding facilities, which had an average maturity of around five years. While this allows continued strong growth into 2008, the scale of opportunities open to the Group mean that the Board will be looking to extend the Group s funding facilities further by mid-2008. The Group is well-placed to raise further funds successfully, despite the current more conservative lending climate. It has an excellent track record, well-established relationships with over 30 banks, and continuing robust credit quality which provides further comfort to lenders. However, given current debt market conditions the Board is also looking at a range of actions that would broaden the Group s funding options. Inevitably, there will be some increase in the cost of funding. But as existing borrowings are already substantially hedged, any rise will impact mainly on new borrowing. It is estimated that a 1% change in the three-month LIBOR would add only 1.9 million to the Group s annual interest expense, based on current levels of borrowing. 26

Centralised underwriting using bespoke scorecards is a key element to effectively managing credit risk. ROBUST UNDERWRITING Underwriting KPIs Welcome Finance loan loss ratio 8.6% 2006: 7.4% Welcome Finance instalment arrears 7.0% 2006: 7.4% An essential element of the Group s consumer lending strategy and risk management is maintaining robust credit quality. The Group s long-established target has been to maintain instalment arrears in Welcome Finance at 8-10% of receivables, and the business has consistently operated at or slightly below this level for many years. Welcome Finance achieves controlled levels of arrears through its bespoke credit scoring and underwriting process supported by the close relationships that employees in its local community branches maintain with customers so that account managers can provide timely assistance to customers who experience difficulties with their repayments. Welcome Finance s scorecards and credit scoring methodology are bespoke, based on its own data, developed with a leading credit referencing agency, and refined over many years of experience in non-standard consumer lending. Management believes they represent best practice in the sector. Improved credit scorecards and other enhancements to Welcome Finance s customer selection technology were introduced in 2004, and the combined effect of these has contributed to bringing customers instalment arrears below the target range. At the end of 2007 the level of instalment arrears in Welcome Finance was 7.0% (2006: 7.4%). The Group continually monitors the performance of the scorecards to ensure they continue to support the strategy of robust credit quality. The Board continues to believe that the 8-10% target constitutes an appropriate risk appetite. Over time, as previously reported, it is expected that instalment arrears will gradually return to within the target range because of changes in product mix towards unsecured lending. Each Welcome Finance applicant s credit risk rating is assessed using a combination of scorecards and policy rules, and this rating is used to determine which product is appropriate. All key data such as income and identity is validated through documented proof, supplemented with electronic checking and use of the latest fraud prevention technology and a national fraud sharing database. During the sales process a customer s ability to afford their loan repayments, balancing their proven income against their outgoings, is assessed. At the time a loan is paid out all Welcome Finance customers are in employment and have a direct debit set up from a bank account to repay the loan. BEING CLOSE TO OUR CUSTOMERS The 235 branches in WFS s network are a crucial resource in the effective management of credit risk. These branches employ local people with good communication skills, who understand local conditions and help the business to engage in the local community. Once a Welcome Finance loan has been advanced by one of the three Customer Sales and Service Centres, customers are contacted by a customer account manager from their nearest branch to begin establishing a close working relationship. Maintaining these relationships is a key part of the Group s arrears management strategy and is the major role of branch staff. It helps the business to respond promptly when customers experience difficulty with repayments, agreeing a practical plan to help them avoid arrears. In order to accommodate Welcome Finance s continuing growth, management has been reviewing the role of branches so that they can manage larger numbers of customers successfully. Their work in maintaining close personal relationships with customers is paramount, but it is recognised that there is some scope for handling some aspects of administration centrally rather than in branches. Welcome Finance is currently undertaking pilots of alternative models. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 27

OPERATING AND FINANCIAL REVIEW Key Resources continued The Group s investment in building a strong culture and values has grown in 2007. MOTIVATED, WELL TRAINED PEOPLE People KPIs Number of employees 5,008 2006: 4,449 Colleague turnover 30.5% 2006: 33.1% Proud to work here index rating increased 0.6% on 2006 To support the accelerating growth of the business, the Group has stepped-up its investment in people: in recruiting, training, developing and motivating them, and ensuring that they are well led by appropriately skilled senior managers. The Group has also increased its investment in fostering a consistent, positive and ethical culture across all its businesses. The response has been encouraging: colleague turnover is down, and colleagues are increasingly engaged in the business and committed to its success. Attracting and retaining high calibre colleagues Employee numbers increased across the Group last year, rising by 13% to just over 5,000. This compares with a 1% increase in 2006. These increases have supported a 44% increase in Welcome Finance s customer numbers over the two-year period. Coming on top of normal colleague turnover, the staffing increase meant that the Group had to attract some 1,970 new people into the organisation during the year. The quality of the Group s people is essential to its success: their skills, commitment and, in particular, their understanding of the Group s markets and customers are paramount. The Group therefore recognises the importance of being able to attract people of the right calibre and to train and motivate them well. Developing talent from within in order to grow internal expertise in key areas, such as arrears management, is also viewed highly. On average the Group attracts about 10 applicants for each job, such that in 2007 19,000 applications were handled. The Group has strengthened the recruitment team, brought in additional specialist skills, and supported them with new IT to help them process applications efficiently. To attract and retain the best people the Group needs to offer attractive benefits, working conditions and career paths in all areas of the business. The Group aims to provide competitive salary and benefits packages, and help colleagues to participate in its success through a Sharesave Scheme and the award of free shares. The benefits offered to colleagues are continually reviewed: last year a consistent approach to rewarding loyalty across the Group was developed and a flexible menu of benefits was introduced so that colleagues can choose a personally tailored package. The Group also introduced the Colleague Assistance Programme, which provides information and counselling to help colleagues with life s ups and downs. The Group has been working hard to engage its people with the business goals by improving internal communications. Twice a year, elected colleague representatives now meet with subsidiary board directors and colleagues receive a range of information on their subsidiary s performance. The quality of people that can be attracted as a result of this work is pleasing and has led to a further reduction in colleague turnover to 30.5% (2006: 33.1%). The response rate to the Group s annual Speak Up colleague survey grew to 87% (2006: 84%). The survey recorded good improvements in colleagues perceptions of the Group s financial strength, culture, professionalism and customer focus. It also acknowledged colleagues continuing progress in helping local communities and caring for the environment. Key findings were as follows: Index rating increase of 0.6 to 78% in relation to colleagues being proud to work for the Group Index rating increase of 0.1 to 82% in relation to believing they worked for a good employer 95% of colleagues feel they make a valuable contribution to the business Cattles has also received external professional recognition in 2007, with awards for the Most Effective Employee Benefits Programme in the 2007 HR Excellence Awards and Best Employee Benefits Communications in the DWF Employer Awards. Building a strong culture and values With some 1,970 new joiners in 2007, and growing numbers likely for the foreseeable future, the Group has made additional efforts to instil strong values across the organisation and ensure that all colleagues know what is expected of them. Being respectful of both colleagues and customers is important and management believes the way colleagues and customers are treated is important to differentiate the Group positively from competitors and earn Cattles good standing with regulators and commentators. 28

Record levels of training were provided in 2007, as well as increased opportunities for leadership development. The Group fosters a culture that is both performance-oriented and customer sensitive: knowing and supporting customers is the best way to maintain strong growth in a range of economic conditions. So, for example, bonus and incentive schemes are designed to reward responsible lending, compliant behaviour and good customer service. For each of the Group s businesses, management has worked with colleagues to establish clear aims and values. In 2007 WFS defined its purpose as to set the standard in non-standard consumer finance in relation to customers, people and profit. Lewis and CIF have adopted similar programmes to strengthen their culture and values. WFS, which is regulated by the FSA, has embraced the FSA s Treating Customers Fairly (TCF) initiative. The business applies the TCF principles in its business dealings and training, and is embedding them in its approach to remuneration. Leadership, training and development To maintain the quality of leadership and performance as the Group grows, investment in training and management development again increased in 2007. Quality of leadership is crucial to successful growth management, and in 2007 a head of leadership development was appointed. During the year 116 of the Group s managers participated in the leadership development programmes of the Management Academy, and a further 231 colleagues attended other development programmes covering topics such as coaching, time management and persuading and influencing. One of the Group s leadership programmes, the Foundation Management Skills programme, received external accreditation from the Institute of Leadership and Management, and means managers are able to gain an externally recognised qualification through the Academy: a further incentive to high calibre people to build their careers with Cattles. The Group is moving people more frequently between and around its businesses wherever possible to develop a management team with broader experience of the whole Group. At the same time, bringing in talent and experience from outside is considered appropriate in order to introduce fresh perspectives and new skills. A great advantage of the Group s continuing expansion is that this can be done while maintaining a strong programme of internal development and promotion: in 2007, 189 colleagues were promoted from one grade to another, and another 588 were promoted within their existing grade. The Group continues to invest in training at all levels, particularly for customer-facing employees, to ensure that colleagues have the skills they need to meet regulatory requirements, deliver the businesses strategies and develop their careers. Over 16,000 days of training were provided in 2007, of which almost 6,500 were to prepare colleagues for the introduction of Welcome Finance s new back office IT systems in 2008. Other major training programmes included training 175 people to join Welcome Finance s new sales fulfilment team, and the Licensed to Sell programme which ensures that every colleague who gives advice on insurance products meets regulatory requirements. The Group has a clearly articulated equal opportunities policy, and the workforce tends to reflect the local environment and community. Diversity training is increasingly part of induction and management development programmes. Health and safety Although the great majority of employees work in office environments, the Group is not complacent about health and safety. The well-being of all colleagues is regarded as a primary responsibility. In 2007 there were three accidents reportable under RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurances Regulations), compared with two in 2006. The Group s health and safety policies are reviewed regularly to ensure that significant hazards are managed effectively, and fire risk assessments are completed at all locations. The Group stepped-up online health and safety training for all colleagues during 2007, such that 13,212 assessment modules were completed. The Group has substantial field forces working in the community, some of whom carry money as part of their job. These colleagues are provided with personal safety awareness training and support using materials developed by the Suzy Lamplugh Trust, of which Cattles is a long-standing member. With some 1,450 company cars, the Group also recognises the risks to colleagues on the road. Company car drivers are targeted with driver training programmes and safety awareness campaigns. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 29

OPERATING AND FINANCIAL REVIEW Key Resources continued Continuing investment in technology and process development is resulting in productivity gains and enhanced customer service. INVESTMENT IN SYSTEMS AND PROCESSES Welcome Finance continues to benefit from its CRM system, implemented in mid-2006, which has supported record business volumes with highly reliable and scalable technology for new business acquisition. In 2008 the business introduces the second major phase of this investment programme, replacing the systems handling of the back office aspects of Welcome Finance s lending operations. This will be highly integrated with the CRM system to provide a single solution handling all aspects of customer acquisition, management and retention. Simplified procedures will lead to greater consistency and efficiencies in the way the business deals with its customers. There will also be further improvement in management information through taking a single view of customer data. At the same time Welcome Finance will deploy a comprehensive marketing solution to support full life cycle marketing of its products to new and existing customers. This phase will complete the investment to deliver foundation systems capable of supporting both organic and acquisitive growth. It will enable Welcome Finance to pilot a number of new initiatives to broaden the way in which its customers and introducers work with them and in particular to create faster turnaround of lending decisions. This should lead to further improvement in new business conversion rates. The Group will also take advantage of recent advances in telephony to support more efficient routing of calls across its customer management functions. This will lead to a better customer service and improve efficiency by routing calls wherever skilled staff are available to respond. In 2008 Lewis will begin implementing a new core business system. This will enhance the effectiveness of its debt collection processes, for example, by better matching collection strategies to types of debt. It will be a fully scalable package capable of supporting Lewis future growth. CIF introduced an industry-leading CRM system in 2006. This has proved highly successful in helping the company to manage the sales process, make better informed decisions and increase business from introducers. Work is now under way to link the system with CIF s core operational system to provide better integrated management information. BREADTH OF DISTRIBUTION CHANNELS A significant factor in Welcome Finance s sustained growth is the relationships it has built with its external distribution channels. These are mainly brokers and car dealerships who refer customers. Welcome Finance centralised its underwriting processes to ensure that it can give these introducers an exceptionally high quality, consistent service. By demonstrating commitment to them and the market, the business has built a sound basis for long-term relationships and trust. Its CRM system is enabling the business to develop improved access for introducers, so that they obtain a faster response from Welcome Finance than from other lenders and can in turn deliver a better service to their customers. Lewis has a number of large clients in the public and private sectors, who either sell portfolios of debt or use Lewis debt collection services. Lewis sustains its relationships with these blue-chip organisations by offering competitive prices for purchased debt, delivering excellent service and taking care to ensure that its approach does not put their clients reputations, or its own, at risk. Virtually all CIF s business has traditionally come through introducers such as banks and accountancy firms. In 2007 it appointed a corporate partnership director to pursue relationships with larger institutions and affinity groups as a strategic partner or outsourced provider. This work is already beginning to bear fruit and the business expects to announce a number of partnerships in 2008. CIF also reaches potential customers through direct marketing channels such as internet and telemarketing. Marketing investment in this area has resulted in 10% of new clients in 2007 coming from these channels. 30

OPERATING AND FINANCIAL REVIEW Performance Review Fig 1. GROWTH IN WELCOME FINANCE CUSTOMERS (000) 208 34 69 409 2006 1.9 Unsecured New Agreements 2.1 5.7 HP Fig 3. UNSECURED VOLUMES ( m) Early Settlements Fig 2. WELCOME FINANCE AVERAGE ADVANCE ( 000) 2006 9.3 2007 8.7 6.0 205 2003 Fig 4. HIRE PURCHASE VOLUMES ( m) Fig 5. SECURED VOLUMES ( m) 167 2003 277 304 2004 Settlements/ Bad Debts Secured 267 2005 205 210 2004 365 2005 3.8 3.9 357 2006 294 2006 345 338 514 Average 2007 559 2007 416 2007 434 WELCOME FINANCIAL SERVICES (WFS) WFS grew significantly in 2007. Its pre-tax profit increased by 21.0% to 164.8 million (2006: 136.1 million), primarily as a result of the growth achieved in loan volumes and customer numbers by its principal business, Welcome Finance. Welcome Finance While some competitors continued to withdraw from non-standard consumer credit, particularly unsecured lending, Welcome Finance passed two important milestones during 2007: customer numbers exceeded 500,000 in November 2007 and the year-end loan book passed 2.5 billion. A key factor in Welcome Finance s profitable growth was its CRM system, implemented in mid-2006, alongside the breadth and strength of its distribution channels. These strengths enabled the business to take advantage of the buoyant demand for its products and the reduced competition, while maintaining robust control of credit quality. The number of Welcome Finance s customers increased by 105,000 to 514,000 (2006: 409,000), representing growth of 25.7% compared with 14.2% in 2006. The number of new agreements written during 2007 increased by 65,000 to 208,000 (2006: 143,000) and resulted in growth in total loan volumes of 42.5% to 1.4 billion (2006: 988.3 million). See Fig 1 The business also achieved a reduction in the number of its customers settling their agreements early. This fell by 1,000 to 34,000 (2006: 35,000), reducing the early settlement ratio to 8.3% (2006: 9.8%). There has been no significant change in the value of average advances to new customers across each product: unsecured personal loans 2,100 (2006: 1,900), hire purchase for cars 6,000 (2006: 5,700) and second charge secured loans 9,300 (2006: 8,700). See Fig 2 Unsecured personal loans Many mainstream lenders tightened their underwriting criteria during 2007, or withdrew from segments of the unsecured personal loans market altogether, as they continued to experience deteriorating credit quality. This reduction in supply saw the market decrease by 19.5%, according to the Finance & Leasing Association (FLA). The supply-led reduction does not equate in Cattles experience to any such reduction in consumer demand for these products and the reduced competition enabled Welcome Finance to take full advantage of its extensive experience in the sector. Applications rose significantly, enabling the business to increase its unsecured personal loan volumes by 56.7% to 558.8 million (2006: 356.7 million) without relaxing stringent credit criteria, as a consistent proportion of below-standard applications continued to be rejected. See Fig 3 Hire purchase In hire purchase too, Welcome Finance s experience and long-term commitment to the market enabled it to grow as the market remained flat overall, as reported by the FLA. Hire purchase volumes grew by 41.5% to 415.8 million (2006: 293.8 million). This performance demonstrated the continuing success of the hire purchase field sales team, supported by the Hire Purchase Customer Sales and Service Centre based in Hull, in building a national distribution network of external introducers for used car finance. See Fig 4 Secured loans Welcome Finance grew its secured lending volumes by 28.5% to 434.0 million (2006: 337.8 million) during 2007, an outstanding performance in a UK market which, according to FLA figures, experienced a supply-led overall reduction of 5.2% in 2007. The business has maintained its strategy of not offering large balance, low rate second charge secured loans, as these do not meet its risk profile. See Fig 5 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 2003 2004 2005 2006 2007 31

OPERATING AND FINANCIAL REVIEW Performance Review continued Fig 6. NUMBER OF CARS SOLD BY WELCOME CAR FINANCE Fig 7. SHOPACHECK ADVANCES ( m) 213 2003 Fig 8. DEBT PURCHASES BY LEWIS ( m) 14 2003 Fig 9. LEWIS ACTIVITY BY TYPE (%) 485 10,028 2004 175 2004 21 2004 29 61 2006 536 7,209 2005 133 2005 32 2005 Commission based Debt purchase Fig 10. CATTLES INVOICE FINANCE CLIENT NUMBERS 619 8,993 2006 122 119 2006 70 2006 651 13,763 2007 2007 74 2007 26 74 2007 725 Welcome Finance does not write first charge mortgages. Its second charge secured loans are underwritten on the same basis as an unsecured loan and the focus is on assessing and verifying a customer s ability to repay rather than the equity in their property. In Welcome Finance s experience, however, registering a legal charge on the customer s property leads to the customer placing a higher priority on meeting their loan repayments. Welcome Finance s loans and receivables increased by 37.9% to 2.5 billion (2006: 1.8 billion) at 31 December 2007, after allowance for loan loss provisions. The net interest margin earned by Welcome Finance improved during 2007 to 19.8% (2006: 19.2%), and its loan loss ratio was well within expectations and target at 8.6% (2006: 7.4%) of receivables. This arose from a change in the mix of the business in the year and, in particular, growth in its unsecured loan book which delivers a higher interest yield. Instalment arrears improved to 7.0% of receivables (2006: 7.4%) and customer balances in arrears remained stable at 29.2% (2006: 29.1%). This robust credit quality is attributable to the business core operating strengths: its rigorous approach to customer selection and consistency of centralised underwriting, its ability to establish and maintain close relationships with customers through its local branch network, and its ongoing investment in its collections processes. Welcome Car Finance Welcome Car Finance remains the Group s largest introducer of hire purchase customers. It increased its total unit sales for the year by 53.0% to 13,763 (2006: 8,993) capturing a greater share of a softening overall UK market. Key factors in its performance were strong management focus, close working relationships with Welcome Finance colleagues and a substantial, targeted marketing campaign. It opened a twelfth site, at Luton, during the year. See Fig 6 Shopacheck The Group progressed its planned withdrawal from uneconomic sectors of the home collected credit market during 2007. Total advances by Shopacheck reduced by 2.4% to 118.8 million (2006: 121.7 million) and the number of its customers decreased to 266,000 (2006: 307,000). Shopacheck s year-end receivables amounted to 101.3 million (2006: 113.8 million), representing less than 4% of the Group s total receivables. See Fig 7 THE LEWIS GROUP Lewis pre-tax profit more than doubled to 10.2 million (2006: 4.9 million) during 2007, reflecting its strategy of increasing investment in debt portfolios. While liquidity pressures have caused some competitors to limit their activity in the debt purchase market, the quality of accounts for sale has improved as lenders are reducing the amount of debt they wish to carry on their own books. This has enabled Lewis to increase its share of the purchased debt market while remaining highly selective. Debt purchases during the year totalled 74.3 million (2006: 69.5 million), reinforcing Lewis position as one of the leading players in the UK market. By the end of 2007 its receivables had grown by 46.0% to 132.9 million (2006: 91.0 million). See Fig 8 In September 2007, Lewis acquired a portfolio of 32,000 UK credit card, loan and overdraft accounts for 25 million. It supplements the large portfolio acquired in December 2006, which has performed well and will continue to provide a weekly flow of smaller tranches of debt until at least the middle of 2009. Lewis commission on third-party debt collection generated increased income of 7.2 million (2006: 6.6 million). See Fig 9 The net interest margin earned by Lewis increased to 15.9% (2006: 15.4%) lagging the growth in net interest income of 73.6% to 17.2 million (2006: 9.9 million), due to the significant growth in its receivables during the year. This income growth contributed to the improvement in Lewis cost income ratio to 39.2% (2006: 47.0%). CATTLES INVOICE FINANCE CIF increased its client base by 11.4% to 725 during 2007 (2006: 651) and its net receivables by 23.9% to 99.4 million (2006: 80.2 million). As a consequence, CIF delivered double-digit income growth of 15.6% to 16.9 million (2006: 14.6 million) and improved its net interest margin to 4.3% (2006: 4.0%). See Fig 10 This strong income growth did not translate into CIF s pre-tax profit of 2.5 million (2006: 2.7 million), largely as a result of the quantum of provisions taken on three specific accounts. The loan loss charge increased to 2.5 million (2006: 1.0 million) and its loan loss ratio rose to 2.2% (2006: 1.2%). 2003 2004 2005 2006 2007 32

OPERATING AND FINANCIAL REVIEW CORPORATE RESPONSIBILITY As outlined on page 15 the Group s Corporate Responsibility (CR) strategy is based on three cornerstones: Being a responsible financial services organisation; Being a good people business; and Being environmentally responsible. The Group continues to embed CR thinking into its operational activities. In 2007, 24 CR roadshows were run across the business to explain to colleagues how they can apply the cornerstones in their working roles. Being a responsible financial services organisation As a non-standard lender Cattles faces increasing scrutiny from stakeholders. The Group must be seen to operate responsibly: its success and reputation depend on treating customers fairly and with respect. The Group s priorities are to maintain high operational standards, meet regulatory obligations, engage and influence policymakers, ensure excellent customer service and promote financial education. During the year WFS established a Customer Experience Group to support the delivery of excellent customer service. CR HIGHLIGHTS FOR 2007 Training days delivered to colleagues 2006: 5,300 16,019 Speak Up survey colleague participation 2006: 84% 87% Colleagues agreeing the Company should support money management education in schools 2006: 88% 90% Colleague turnover 2006: 33.1% 30.5% Colleague volunteer hours in community activities 2006: 2,059 2,644 Litres of fuel consumed (m) 2006: 2.6 2.3 Cattles also worked with the Association of British Credit Unions to highlight the impact of financial exclusion on the poorest in society and to promote solutions to this problem. Furthermore, the Group began a long-term collaborative project with Credit Action to distribute over 500,000 copies a year of its Moneymanual to improve the financial awareness and money management skills of young adults entering university, and to research their attitudes toward money management. Being a good people business Having the right people, with the right skills and high levels of commitment, is essential to the success of the Group. In addition, contributing to the well-being of the communities served by the Group encourages customers to view the business more positively and helps the attraction and retention of good recruits. The Group s priorities are to develop colleagues to maximise their talent and equip them to address the business needs, attract and retain the best people, recognise and reward colleagues achievements, create a working environment where colleagues feel safe and valued, promote effective communications, invest in the communities where customers and colleagues live and work, and encourage colleague involvement in community activities. In 2007, the number of people working for the Group increased significantly to 5,008 (2006: 4,449). Colleague turnover improved to 30.5% (2006: 33.1%), supported by improved recruitment and rewards, a strong training and development culture, and effective twoway communication across the business. Participation in the Group s annual colleague attitude survey increased again to 87% (2006: 84%) and, overall, 82% of respondents gave positive answers to the survey s questions. During 2007 the Group increased the amount of training to enhance colleagues skills, introduce them to new systems and processes, and enable them to meet regulatory requirements. Over 16,000 (2006: 5,300) days training, equal to more than three days for each colleague, were delivered in the year. Even excluding the training on Welcome Finance s new CRM system, the total was 9,575 days. The Group s benefits and rewards programme won two awards in 2007: Best Employer Benefits Communications Award at the DWF Employer Awards and Most Effective Benefits Programme at the HR Excellence Awards. The Group also invested 0.6 million (2006: 0.7 million) in community activities and initiatives. This includes financial donations and the value of donations of time. It equates to 0.4% of pre-tax profits. Colleagues undertook 2,644 hours of volunteering (2006: 2,059), a significant increase of 28.4%. Being environmentally responsible Cattles believes it has a duty to manage its impact on the environment and minimise it wherever possible. The Group s priorities are to increase awareness of environmental issues in the business, focus on high impact areas, operate in an environmentally efficient way, and improve its environmental performance in order to generate tangible business benefits. In 2007, company car fuel consumption decreased by 11%. In the Group s list of company cars available to colleagues, hybrid cars were included for the first time. During the year a teleconferencing system to help reduce business travel was also introduced. Where the Group is able to measure energy consumption 4.9 million kwh of electricity was used in the year unchanged from 2006, despite significant growth in the business. This was equal to 2.7kg of CO2 per 1,000 of revenue. The Group is working to identify further ways to reduce energy use. Although in absolute terms the Group s use of paper increased by 10% during 2007, paper use per 1,000 of revenue improved by 17% reflecting the more efficient use of paper within the business. The planned introduction of handheld mobile technology in Shopacheck will reduce paper use by over 16 million sheets a year. In 2007, the Group generated 1,077 tonnes of waste (2006: 927 tonnes). This 16% increase is considered largely due to improved data collection. Almost half (47%) of this waste was recycled. The year ahead The Group believes that further significant progress in improving its reputation for CR across all target audiences has been made during 2007. In 2008, the main focus will be to continue integrating the CR strategy into the operational thinking of each of the businesses. Further information on the Group s approach to CR, its performance in 2007 and the plans for 2008 can be found in the separate Corporate Responsibility Review 2007, published with this Annual Report and available on the Group s website, www.cattles.co.uk. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 33

34 A team session on cultural values and behaviours taking place at Cattles Invoice Finance in Cleckheaton.

OPERATING AND FINANCIAL REVIEW Financial Review Fig 1. INCOME STATEMENT 2007 2006 Growth m m % Net interest income 567 432 31.3 Non-interest income 255 187 36.0 Total income 822 619 32.7 Purchase of goods (68) (45) 52.3 Loan loss charge (297) (191) 55.1 Other operating costs (292) (251) 16.2 Profit before tax 165 132 24.9 Tax (50) (40) 25.0 Profit after tax 115 92 24.9 Fig 2. ANALYSIS OF INCOME 2007 2006 m m Interest income 700 530 Interest expense (133) (98) Net interest income 567 432 Fee and related income 126 104 Revenue from sale of goods 111 67 Other operating income 1 18 16 Total 822 619 1 Includes Lewis commissions from collection and investigation services. Interest income is analysed as follows:- Welcome Finance 569 426 Shopacheck 98 83 The Lewis Group 23 13 Cattles Invoice Finance 8 6 Other (PICL) 2 2 Total 700 530 To allow a greater level of comparability with other organisations in the financial services sector, the Group has adopted a banking style format to its income statement and introduced new or redefined KPIs. INCOME STATEMENT See Fig 1 In order to allow a greater level of comparability with other organisations in the banking and financial services sector, the Group has adopted a more standardised banking style format to the Group Income Statement for 2007. The Group has also taken the opportunity to provide an enhanced level of disclosure by reporting two typical banking key performance indicators (KPIs): net interest margin and return on equity. Additionally, a previously reported KPI, cost income ratio, has been redefined in order to more accurately reflect the new style Income Statement and to enable the cost income ratio to be more comparable in the Group s sector. Where appropriate, the previous ratio has been provided for continuity. Definitions used for each of the principal KPIs used by the Group are provided in the table on page 40. Total income grew by 32.7% in the year to 822.2 million (2006: 619.6 million), resulting mainly from a continuation of the strong volumes and receivables growth seen in Welcome Finance from the second half of 2006. This trend was directly a consequence of the success of the CRM system, implemented in mid-2006, enabling the business to respond to an increasingly buoyant demand and to match appropriate products to individuals creditworthiness and ability to repay. 2007 benefited from a full year s impact of these developments. Net interest income rose 31.3% to 567.4 million (2006: 432.3 million), driven mainly by a 35.1% increase in the closing receivables book and a stable average cost of borrowing. Non-interest income increased by 36.0% to 254.8 million (2006: 187.3 million). This was largely due to revenue from the sale of motor vehicles by the Group s car retail operation, Welcome Car Finance (WCF), increasing by over 75% to 105.4 million. Purchase of goods, primarily relating to the cost of vehicles sold by WCF increased by 52.3% to 68.0 million (2006: 44.6 million). The growing Welcome Finance receivables book, together with a change in product mix towards unsecured lending, was reflected in an increase in the loan loss charge (including the gross-up adjustment) to 296.9 million (2006: 191.4 million). Similarly reflecting the larger book, and appropriate management of it, operating expenses, including staff costs, at 292.1 million, increased by 16.2% (2006: 251.4 million). Profit before tax, therefore, rose 24.9% to 165.2 million (2006: 132.2 million). As a result, basic earnings per share increased by 15.3% to 32.30p (2006: 28.01p), based on an effective tax rate of 30.6% (2006: 30.6%). Return on equity (RoE), at 21.8% (2006: 24.0%), reflects the 128.9 million share placing in March 2007, which increased average shareholders funds in the year by over 20%. If both 2007 and 2006 are adjusted as if the additional equity had been in place throughout the year, the adjusted RoE, at 20.1% (2006: 19.0%), shows an underlying improvement of over one percentage point. In view of the Group s strong performance, the Board has recommended a final dividend of 13.10p per share. Together with the interim dividend of 6.20p per share, this gives a total dividend for the year of 19.30p (2006: 17.50p) an increase of 10.3% over the previous year. Dividend cover remains stable at around 1.7 times. INCOME See Fig 2 Interest income Welcome Finance again performed strongly in 2007, with very good volume growth, particularly in unsecured and hire purchase lending, and total customer growth of 25.7%. Loan volumes in the first half increased by 52.4% to 658.8 million (H1 2006: 432.1 million) and the trend was maintained into the second half, delivering some 749.8 million (H2 2006: 556.2 million) of new business, a 34.9% increase and, hence, a year-onyear improvement of almost 43%. Interest income rose accordingly by 33.6% in the year to 568.9 million, driven principally by the growth in new business volumes over the previous 18 months. Interest income from the Group s weekly home collected credit business, Shopacheck, increased to 97.9 million (2006: 83.4 million) despite the continuing disengagement from uneconomic sectors of the market and the resultant reduction in the receivables book. In Lewis, the Group s debt recovery business, interest income rose by over 80% to 23.5 million (2006: 13.0 million) as a result of a 46.0% increase in purchased debt portfolios, which at 31 December 2007 amounted to 132.9 million (2006: 91.0 million). OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 35

OPERATING AND FINANCIAL REVIEW Financial Review continued Fig 3. ANALYSIS OF NET INTEREST & NET INTEREST MARGIN 2007 2006 Net Net Net Net interest interest interest interest income margin income margin m % m % Welcome Finance 427 19.8 321 19.2 Shopacheck 96 93.4 83 73.8 The Lewis Group 17 15.9 10 15.4 Cattles Invoice Finance 4 4.3 3 4.0 Other 23 15 Total 567 23.2 432 23.3 Fig 4. LOAN LOSS CHARGE 2007 Ratio 2006 Ratio m % m % Welcome Finance 235 8.6 151 7.4 Shopacheck 22 17.0 22 15.0 Welcome Financial Services 257 8.9 173 7.9 Cattles Invoice Finance 2 2.2 1 1.2 259 8.4 174 7.4 The loan loss charge presented above excludes the gross-up adjustment ( 37.3m, 2006: 17.0m) CIF generated a 44.8% increase in interest income from 5.7 million to 8.3 million, driven by a 11.4% increase in its client base and a 23.9% increase in receivables. Interest income (before interest expense) for the Group as a whole, therefore, at 700.0 million, rose by 32.1% (2006: 529.9 million). Net interest income (after deducting 132.6 million interest expense) for the Group, at 567.4 million, increased by 31.3% from 432.3 million last year. The average level of net receivables, at 2.5 billion (2006: 1.9 billion), also grew by around one third and, hence, the Group s net interest margin remained stable at 23.2% (2006: 23.3%). This newly introduced measure of the Group s gross operating margin generated from interest earning assets reflects mainly the stability in the pricing of new business written by Welcome Finance together with a slight business mix change away from high yielding home collected credit (Shopacheck) to relatively lower yielding debt purchase (Lewis). See Fig 3 The stability in margin was also supported by the Group s average cost of borrowing being maintained at just below 7%. Non-interest income See Fig 2 on page 35 Fee and related income, at 125.9 million (2006: 103.9 million) increased by 21.2% due principally to commission earnings on general insurance products sold to the Welcome Finance customer base including for example, life and family health cover and warranties on cars financed through hire purchase credit facilities. Revenue from sale of goods rose by 65.1% to 110.5 million (2006: 66.9 million) primarily as a result of the 75.8% increase in revenue from the sale of vehicles by WCF to 105.4 million (2006: 60.0 million). This increased level of sales was achieved from a network of 12 sites (2006: 11). This strong performance in like-for-like sales reflects a very strong management focus, close working with Welcome Finance colleagues to allow in-house finance to be available for prospective customers and a substantial step-up in nationwide marketing. Commission earned by Lewis for collecting other lenders debt and providing investigation services, at 8.4 million (2006: 8.2 million), remained flat as the business concentrated its resources in the rapidly expanding and more profitable purchased debt market. The Group s accounting policies relating to revenue recognition are set out in the notes to the accounts on pages 75 and 76. COSTS See Fig 1 on page 35 Purchase of goods A 53% growth in unit sales volumes at WCF, together with an improvement in the quality of cars sold, resulted in a 52.3% increase in the cost of purchasing goods to 68.0 million. Loan loss charge See Fig 4 The Welcome Finance loan loss charge increased by 83.8 million in the year and, as a result, the loan loss ratio also increased, as expected, to 8.6% (2006: 7.4%). As previously reported, the Group anticipated that the ratio would return to a level within the established target range of 8-9% during 2007, following the significant uplift in new business volumes and, hence, the receivables book during the final quarter of 2006, which had the effect of diluting the ratio at that time. Notwithstanding the distortive impact of the new business volumes achieved in the final quarter of 2006 on the comparative December 2006 ratio, the increase in the 2007 ratio also reflects the changed mix of business this year towards unsecured lending, which has a higher bad debt incidence. However, this is reflected in the product pricing, ensuring that unsecured personal loans yield a higher interest income margin. Shopacheck s loan loss charge, at 22.3 million, remained stable year-on-year, although with a gradually reducing book the loan loss ratio increased slightly from 15.0% last year to 17.0%. However, at less than 4% of the Group s receivables book, the weekly home collected credit loan loss performance has little impact on the overall loan loss ratio for WFS, which at 8.9% (excluding the gross-up adjustment) was up on last year, but remained within the expected range. The loan loss charge (excluding the gross-up adjustment) at CIF, at 2.2 million (2006: 1.0 million), increased following a decision to provide specifically for three relatively large accounts. This caused the loan loss ratio to rise disproportionately from 1.2% to 2.2%. The Group s accounting policy in relation to loan loss provisioning is set out in the notes to the accounts on pages 76 and 77. Application of this policy is subject to the estimation of future cash flows associated with impaired loans as described in note 2 on page 80. 36

Fig 5. OPERATING COSTS & COST INCOME RATIO 2007 2006 m m Staff costs 145 125 Occupancy 18 16 Agents commission 13 14 Advertising 12 11 Depreciation and amortisation 10 10 Collection costs 9 8 Motor and travel 5 3 General overheads 80 64 Total 292 251 Cost income ratio 31.4% 35.5% Fig 6. BALANCE SHEET 2007 2006 m m Goodwill and intangibles 97 80 Property, plant and equipment 23 23 Loans and receivables 2,844 2,105 Other assets 121 113 Total assets 3,085 2,321 Borrowings (2,319) (1,755) Retirement benefit obligation (14) (24) Other liabilities (157) (125) Total liabilities (2,490) (1,904) Net assets 595 417 The Group continues to invest in its infrastructure to support its planned growth. Operating expenses (including staff costs) See Fig 5 Tight control of costs remains a high priority and total operating expenses, including staff costs, accordingly, increased by 40.7 million or 16.2% less than half the year-on-year percentage increase in both income and receivables. As a result, the Group cost income ratio continued to improve, falling to 31.4% (2006: 35.5%). This redefined KPI measures the Group s overhead cost efficiency in relation to lending income, net of interest expense, and exclusive of car retail activity. The previously reported cost income ratio, which included both lending and car retail activity and was based on total income before interest expense, shows a similar four percentage point improvement from 29.7% to 25.7%. The Group continues to look for opportunities to improve efficiency while maintaining the investment necessary to support the infrastructure required for its planned growth. Staff costs were 16.4% higher in 2007, rising from 124.8 million to 145.3 million. The average monthly number of people employed by the Group during the year was 4,719 compared to 4,337 during 2006, an increase of 8.8%. A net 559 additional colleagues joined the Group in the year, most of whom were recruited to support the growth in customer numbers and receivables at Welcome Finance. Recruitment costs rose accordingly by almost 50%. General overheads increased by 16.0 million from 64.0 million to 80.0 million. This cost category included year-on-year increases for such items as secured loan property valuations and credit referencing costs ( 2 million), other WCF vehicle cost of sales ( 6 million) and general administrative overheads including legal and professional fees ( 3 million), IT costs ( 2 million) and, as referred to above, higher recruitment costs ( 1 million). The planned reduction in Shopacheck led directly to a 6.7% decrease in commission paid to agents from 14.1 million in 2006 to 13.2 million. BALANCE SHEET See Fig 6 Net assets at the year-end stood at 595.1 million (2006: 416.9 million) an increase of 42.7% on the previous year. This was largely attributable to the growth in the Group s net receivables book of 738.7 million (35.1%) to 2.8 billion, whilst borrowings grew by 564.5 million (32.2%) to 2.3 billion. The 0.2 billion additional investment in loan assets not funded by loan capital was funded by the issue of shares in March 2007 and the retention of post-dividend profits in the year. A particular strength of the Group s balance sheet is its liquidity. The Group s current assets of 1.2 billion exceed current liabilities by 976.4 million at the end of 2007 (2006: 661.5 million). This reflects the relatively short-term maturity of much of the receivables book. The increase in goodwill and intangibles of 17.1 million (after amortisation) during 2007 is due entirely to further investments made in IT systems during the year. The investment is being amortised over a period of seven years. Investment in IT for 2008 is expected to be around 22 million. Investment in property, plant and equipment during 2007 totalled 7.0 million (2006: 4.5 million), with 2008 investment expected to be around 3 million. Other assets of 121.1 million at 31 December 2007 were 8.4 million higher than 2006. The main reasons for this were an increase in bank deposits and other cash balances of 15.7 million, together with increased vehicle stock of 5.4 million, offset by a 6.2 million reduction in insurance profit share receivable and a 4.4 million reduction in deferred tax assets. The reduction in the retirement benefit obligation from 23.8 million to 14.1 million was due in equal measure to an improved performance of the pension fund s assets and a reduction in the value of the fund s liabilities, driven by an increase in corporate bond yields (discount rate). Other liabilities of 156.4 million at 31 December 2007 were 30.6 million higher than 2006. The main reasons for this were an 8.8 million decrease in the fair value of some interest rate swaps, a 15.5 million increase in trade and other payables and a 6.7 million increase in current tax liabilities. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 37

OPERATING AND FINANCIAL REVIEW Financial Review continued Fig 7. LOANS AND RECEIVABLES 2007 2006 Growth m m % Welcome Finance 2,511 1,820 37.9 Shopacheck 101 114 (10.9) Welcome Financial Services 2,612 1,934 35.0 The Lewis Group 133 91 46.0 Cattles Invoice Finance 99 80 23.9 Group 2,844 2,105 35.1 Fig 8. WELCOME FINANCE INSTALMENT ARREARS 2007 2006 2005 % % % Traditional measure 1 7.0 7.4 7.6 IFRS 7 basis: Up to date 70.8 70.9 71.1 In arrears 2 29.2 29.1 28.9 100.0 100.0 100.0 In arrears: Past due but not impaired 14.9 11.9 8.9 Impaired 14.3 17.2 20.0 29.2 29.1 28.9 Definitions: 1 Overdue instalments as a % of closing receivables 2 Customer balances in arrears as a % of closing receivables Loans and receivables See Fig 7 Group net loans and receivables increased by 35.1% over the year from 2.1 billion to 2.8 billion. Welcome Finance, which accounts for around 88% of Group receivables, made further good progress with an increase of 37.9% to 2.5 billion (2006: 1.8 billion). This was driven by a 25.7% growth in customers, a 42.5% uplift in volumes written and a modest uplift in the average balance from 5,200 to 5,500. Shopacheck reduced its book by almost 11% to 101.3 million (2006: 113.7 million) to less than 4% of Group receivables, as the Group maintained its strategy of disengaging from customers that are considered uneconomic to serve. Lewis grew its purchased debt book in the year by 46.0% from 91.0 million to 132.9 million, reflecting the ongoing investment in forward flow debt from existing contracts and substantial additional purchases of new debt portfolios. Debt purchases in 2007 totalled 74.3 million (2006: 69.5 million), including increasingly better quality portfolios from mainstream lenders. CIF grew its receivables by 23.9% from 80.2 million to 99.4 million in the year, reflecting an 11.4% increase in client numbers and a 28.4% increase in the value of clients invoices factored. Credit quality See Fig 8 Our long-established measure used to track instalment arrears in Welcome Finance remained broadly stable during the year, closing at 7.0% (2006: 7.4%). This KPI measures the value of contractual payments overdue at the balance sheet date as a percentage of closing customer balances. The stability reflected in this traditional arrears measure is directly attributable to Welcome Finance s rigorous approach to customer selection and the consistency in its centralised underwriting, the maintaining of close relationships with customers through its local branch network and the ongoing investment in its collections process. The Group has adopted IFRS 7 Financial instruments: Disclosures this year and therefore provides various additional disclosures on the management of risk, including credit risk, in the notes to the accounts on pages 93 to 97. The IFRS 7 basis of arrears measurement calculates the total value of loans with contractual payments overdue at the balance sheet date as a percentage of closing customer balances. The resulting overall level of arrears debt (both past due and impaired debt) has similarly remained consistent over the period at around 29% of the book. More specifically, the growth in the proportion of debt classified as past due but not impaired from 11.9% at December 2006 to 14.9% at December 2007 reflects the introduction of Local Management Branches (LMBs) in early 2006 in Welcome Finance. LMBs manage accounts transferred from the main Operational Branches once a customer has missed two payments. LMB staff specialise in working with customers to enable them to resume regular monthly payments. Specifically, the increase in the value of debt in this category reflects the LMBs dedicated skilled collectors, processes and specific performance targets to focus on maximising cash collections and thus minimising the amount of debt reaching the impairment point. This can be seen in the proportion of the debt classified as impaired falling to 14.3% at December 2007 (2006: 17.2%). 38

Fig 9. BORROWINGS 2007 2006 m m Public bonds 744 474 Private placement sterling 91 91 Private placement US$ & 96 96 Total bonds 931 661 Syndicated bank loans 1,267 979 Overdrafts and bilaterals 73 82 Total bank loans 1,340 1,061 Total bonds and bank loans 2,271 1,722 Finance leases and other borrowings 11 12 Accruals/prepayments of interest and fees 37 21 Total borrowings 2,319 1,755 Gearing 4.6x 5.1x Average cost of borrowing 6.86% 6.79% Fig 10. OPERATING CASH FLOW 2007 2006 m m Profit before tax 165 132 Depreciation and other non-cash items 14 10 Increase in loans and receivables (739) (432) Changes in working capital 23 (86) Operating cash flow (537) (376) Fig 11. HEADROOM 2007 2006 m m Bank facilities 1 1,566 1,410 Utilisation 1,340 1,061 Headroom 226 349 1 Includes cash at bank Fig 12. MATURITY OF BANK FACILITIES ( m) 13 On demand 27 2008 650 2009 2010 180 2011 785 2012 2013 Borrowings See Fig 9 The Group continues to use the bank, public bond and private placement markets as its principal existing sources of funding. Total borrowings increased by 564.5 million during the year to 2.3 billion at 31 December 2007. In July 2007, the Group completed a new 400 million 10-year sterling bond issue at a fixed coupon of 7.125%. This was followed in December by an additional 150 million unsecured bilateral bank facility for a period of up to 18 months, priced at approximately 25bps above the Group s existing average cost of bank funding. Also in December, the Group repaid a maturing 125 million bond which had carried a coupon of 8.625%. In addition to these new borrowing facilities, additional equity funding was raised by the Group in March 2007 from the successful placing of 32,978,986 new ordinary shares, resulting in gross proceeds of 133 million. These shares were admitted to listing on the London Stock Exchange on 20 March 2007. The Group was delighted with the strong support received from bank, bond and equity supporters, particularly in the context of the difficult market conditions experienced in recent months. 37 350 2014 2015 40 2016 400 2017 2018 2019 2020 2021 FUNDING Covenants As a consequence of the equity placing, the Group s gearing ratio of borrowings to tangible net assets has reduced to 4.6 times at 31 December 2007 (2006: 5.1 times), remaining comfortably within the covenant limit of six times. The other key funding covenant, interest cover, stands at 2.3 times for 2007 (2006: 2.3 times), against a minimum covenant requirement of 1.75 times. The Group s credit rating remains BBB. Cash flow See Fig 10 The Group s net operating cash outflow during 2007 was 537.4 million, an increase of 161.2 million (42.8%) on the previous year. This principally reflects the additional investment in loans and receivables of 738.7 million (35.1%) during the year. Headroom See Fig 11 The Group maintains a mixture of longterm and short-term committed facilities that are designed to ensure that the Group has sufficient available funds for current operations and planned growth. The Group had bank facilities of 1.6 billion at the end of 2007 and headroom of 226 million (2006: 1.4 billion of facilities and 349 million of headroom respectively). Maturity of bank facilities See Fig 12 The average maturity of the Group s total borrowing facilities is around five years, which gives a strong funding position, with only a US $40 million tranche of private placing funding maturing in 2008. In comparison, the average maturity of the receivables book is shorter, at approximately three years, highlighting the Group s conservative approach to funding and liquidity. 20 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 39

OPERATING AND FINANCIAL REVIEW Financial Review continued Fig 13. PROFITS BY BUSINESS 2007 2006 Growth m m % Welcome Financial Services 164.8 136.1 21.0 The Lewis Group 10.2 4.9 107.1 Cattles Invoice Finance 2.5 2.7 (6.9) Disposal profit 1 0.8 Central expenses 2 (12.3) (12.3) (0.2) Group 165.2 132.2 24.9 1 Disposal profit refers to a residual profit following the sale of the corporate services business, Cattles Commercial Finance, in 2005. 2 Central expenses in 2006 included 1.2m of legal and due diligence fees prior to withdrawal from discussions concerning a possible offer for London Scottish Bank. Excluding these costs, central expenses were up 10.5%. The 800 million syndicated bank facility established in 2006 contained an option for the Company to request an extension of the initial five-year term, for a further 12 months, on both its first and second anniversaries. This request was made on the first anniversary in 2007, and agreement to the 12-month extension was received from banks representing 785 million of the total facility. Cost of borrowings Funding received from banks and other providers is a mixture of fixed rate and floating rate facilities. At 31 December 2007, around 85% of the Group s borrowings were protected against future interest rate volatility for an average period of approximately five and a half years (2006: four and a half years), either through fixed rate borrowing or by using interest rate swaps to protect floating rate borrowings. Further details of the Group s interest rate risk management policy are set out in the section entitled Interest rate risk on page 22 of the Operating and Financial Review. As a result of the proactive and consistently applied hedging strategy, the Group s average cost of borrowings remained stable throughout 2007, with an average cost for the year of 6.86% (2006: 6.79%). SEGMENTAL ANALYSIS See Fig 13 The Group s 24.9% increase in profit before tax to 165.2 million (2006: 132.2 million) can be analysed by operating segment as follows: The consumer credit division incorporating the businesses of Welcome Finance, Shopacheck, Welcome Car Finance, Welcome Mortgages (prior to its closure at the end of 2007) and Progressive Insurance contributed 164.8 million (2006: 136.1 million) to the Group s profit before tax. This represented a combined growth of 21.0% with most of the year-on-year improvement coming from Welcome Finance. The debt recovery division, comprising Lewis, contributed 10.2 million (2006: 4.9 million) to the Group s profit before tax, representing growth in excess of 100%. The main driver was increasing investment in the purchased debt market coupled with a continuing successful collections strategy. The corporate services division, comprising CIF, contributed 2.5 million (2006: 2.7 million, before a 0.8 million residual profit on disposal) to the Group s profit before tax, representing a reduction of 6.9%. This was due to an exceptional increase in CIF s loan loss charge as described earlier on page 36. Central expenses remained flat at 12.3 million (2006: 12.3 million). Key performance indicators (KPIs) A number of KPIs have been used in the Operating and Financial Review. The following table provides an explanation of the purpose and basis of calculation for certain KPIs: KPI Return on equity Purpose Measurement of the profitable use of shareholders funds employed by the Group Calculation method Post-tax profit divided by average shareholders funds using a 3 point average Net interest margin Measurement of the Group s gross operating margin from interest earning assets Net interest income as a percentage of average net receivables (net of deferred income and loan loss provision) using a 3 point average Loan loss ratio Measurement of the Group s credit quality Loan loss charge (excluding gross-up adjustment) expressed as a percentage of closing customer balances net of loan loss provision Instalment arrears % Cost income ratio Early settlement ratio Measurement of Welcome Finance s customers accounts contractually in arrears that have the propensity to become impaired Measurement of the Group s overhead cost efficiency in relation to its lending (excluding retail) activities Measurement of the proportion of Welcome Finance customers who settle their accounts early Value of contractual cash instalments overdue at the balance sheet date as a percentage of closing customer balances Overhead expenses as a percentage of total income (i.e. after interest expense) excluding income and operating expenses of Welcome Car Finance Number of Welcome Finance customers who have settled their account early during the year expressed as a percentage of the number of customers at the start of the year 40

GOVERNANCE Contents 42 Directors and Secretary 44 Corporate Governance Report 50 Audit Committee Report 53 Nomination Committee Report 54 Directors Remuneration Report 65 Directors Report 68 Independent Auditors Report OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 41

DIRECTORS AND SECRETARY CHAIRMAN 1. Norman N Broadhurst*, FCA, FCT. Chairman Age 66. Appointed to the Board 2001. Appointed non-executive Chairman May 2006. Chairman of Chloride Group plc and Freightliner Limited and also a non-executive director of Old Mutual plc and United Utilities plc. Previously finance director of Railtrack Group plc. EXECUTIVE DIRECTORS 2. David J Postings Chief Executive Age 48. Joined the Company in September 2007 and appointed Chief Executive October 2007. Previously was managing director of Lloyds TSB Commercial and prior to that held a number of roles at Barclays, including managing director of Enable and senior positions in Corporate Banking. 3. Mark W G Collins Δ, FCA. Treasury & Risk Director Age 54. Joined the Company in 1996 and appointed to the Board 1998. CBI council member for Yorkshire and Humber. Prior to joining the Company was finance director of Brooke Industrial (Holdings) plc and group financial controller at SIG plc. 4. James J Corr, CA. Finance Director Age 54. Joined the Company and appointed to the Board 2001. Prior to joining the Company was finance director of Polypipe plc. Previously held senior finance positions in a variety of listed and private companies. 5. Ian S Cummine Chief Operating Officer Age 54. Joined the Company in 1994 when Welcome Financial Services Limited was acquired. Appointed to the Board 1998. Prior to the setting up of Welcome, of which he was a co-founder, in 1989 he was deputy managing director of Avco Financial Services Limited and held other senior positions in the credit industry. 1. 2. 3. 4. 5. 42

NON-EXECUTIVE DIRECTORS 6. David A Haxby, LLB, FCA. Age 66. Appointed to the Board 1999. Senior independent non-executive director. Non-executive director of SIG plc. From 1991 until his retirement in 1995 he was the managing partner of the London office of Arthur Andersen. 7. Frank Dee Age 57. Appointed to the Board 2004. Non-executive director of Leeds Building Society and Speedy Hire plc. Previously held senior executive and non-executive roles in a variety of companies in the retail sector. 8. Alan J McWalter Δ Age 54. Appointed to the Board 2005. Non-executive director of Alphameric plc, Trafficmaster Limited and Haygarth Group Limited and non-executive chairman of Constantine Holdings Limited. Previously marketing director of Marks & Spencer plc. 9. Margaret A Young, MBA. Age 53. Appointed to the Board 2006. Previously a non-executive director of Uniq plc and Royal Numico NV and a managing director of Credit Suisse First Boston and a director of NatWest Markets Corporate Finance Limited. 6. 7. 8. 9. COMPANY SECRETARY 10. Roland C W Todd, MA (Oxon), Solicitor. Company Secretary and Legal Counsel Age 46. Joined the Company and appointed Company Secretary and Legal Counsel 2004. Prior to joining the Company was a partner in the Leeds office of the law firm DLA. * Member of the Remuneration and Nomination Committees Member of the Nomination Committee Independent non-executive director and member of the Audit, Remuneration and Nomination Committees Δ Member of the Welcome Financial Services Regulatory Oversight Committee 10. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 43

CORPORATE GOVERNANCE REPORT For the year ended 31 December 2007 NORMAN BROADHURST Chairman The Board of aims to maintain the highest standards of corporate governance in the belief that such standards are essential to the process of delivering long-term growth in profits and dividends. Throughout the year ended 31 December 2007, the Company complied with the provisions of the 2006 FRC Combined Code on Corporate Governance, except that in September 2007 the Company did not comply with Code provision A.3.2 (which provides that at least half the Board, excluding the Chairman, should comprise independent non-executive directors) because during that month there were four independent non-executive directors and five executive directors after D J Postings was appointed as an executive director on 1 September 2007 before becoming the Chief Executive on 1 October 2007 following S P Mahon s retirement. BOARD OF DIRECTORS The Company is managed through the Board of directors. The Board s main roles are to provide entrepreneurial leadership of the Company within a framework of prudent and effective controls which enables risk to be assessed and managed, to set the Company s strategic aims and to ensure that the necessary financial and human resources are in place for the Company to meet its objectives and so increase shareholder value. Compliance Throughout the year ended 31 December 2007, the Company complied with the provisions of the 2006 FRC Combined Code on Corporate Governance, except that in September 2007 the Company did not comply with Code provision A.3.2 (which provides that at least half the Board, excluding the Chairman, should comprise independent non-executive directors) because during that month there were four independent non-executive directors and five executive directors after D J Postings was appointed as an executive director on 1 September 2007 before becoming the Chief Executive on 1 October 2007 following S P Mahon s retirement. BOARD MEETINGS Normally, there are seven regular Board meetings a year, together with a day devoted to reviewing the Group s business strategy, with additional meetings being held as required. All directors attended each of the seven regular meetings held during 2007 (except for D A Haxby who missed one meeting due to illness). The table below sets out the number of meetings of the Board and its Committees which each director attended during 2007, together with, in brackets, the number he or she was eligible to attend. WFS Regulatory Audit Remuneration Nomination Oversight Director Board Committee Committee Committee Committee N N Broadhurst 7 (7) 6 (6) 3 (3) D J Postings 3 (3) S P Mahon 5 (5) 3 (3) M W G Collins 7 (7) 2 (2) J J Corr 7 (7) I S Cummine 7 (7) D A Haxby 6 (7) 2 (3) 5 (6) 3 (3) F Dee 7 (7) 3 (3) 6 (6) 3 (3) A J McWalter 7 (7) 3 (3) 6 (6) 3 (3) 2 (2) M A Young 7 (7) 3 (3) 3 (3) There are a number of matters specifically reserved for Board approval, which include: Approval of the Group s overall business strategy, planning and annual budgets; Assessment of internal controls and risk management; Senior management appointments; Approval of major contracts and significant acquisitions; Investment and capital expenditure decisions; Corporate governance practices; and Approval of the Group s financing and dividend policies. At each regularly scheduled Board meeting, there is a full financial and business review and discussion, which includes the comparison of trading performance to date against the annual budget and any other financial plan which has been previously approved by the Board for that year. Each Board member receives a comprehensive Board pack prior to each meeting, which incorporates a formal agenda, separate reports from the Chief Executive and each of the executive directors on their specific areas of responsibility, together with supporting papers for items to be discussed at the 44

meeting. Board papers are usually sent out one week before the meeting to give the directors sufficient time to prepare for a comprehensive review of the relevant issues at the meeting. The Board has delegated the following responsibilities to the executive directors: The development and recommendation of strategic plans for consideration by the Board that reflect the longer-term objectives and priorities established by the Board; Implementation of the strategies and policies of the Group as determined by the Board; Monitoring of operating and financial results against plans and budgets; Monitoring the quality of the investment process against objectives; Prioritising the allocation of capital, technical and human resources; and Developing and implementing risk management systems. THE ROLES OF THE CHAIRMAN AND CHIEF EXECUTIVE The division of responsibilities between the non-executive Chairman of the Board, N N Broadhurst, and the Chief Executive, D J Postings, is clearly defined in writing and has been approved by the Board. The Chairman leads the Board in the determination of its strategy and in the achievement of its objectives. The Chairman is responsible for organising the business of the Board, ensuring its effectiveness and setting its agenda. The Chairman has no involvement in the day-to-day business of the Group. The Chief Executive has direct charge of the Group on a day-today basis and is accountable to the Board for the financial and operational performance of the Group. SENIOR INDEPENDENT DIRECTOR D A Haxby continues to perform the role of Senior Independent Director. D A Haxby is available to meet shareholders on request and to ensure that the Board is aware of shareholder concerns not resolved through the existing mechanisms for investor communication. DIRECTORS AND DIRECTORS INDEPENDENCE The Board currently comprises the Chairman, four executive directors and four independent non-executive directors see Fig 1. The names of the directors together with their biographical details are set out on pages 42 and 43 and Fig 2 shows the length of tenure of the directors. All the directors served throughout the period under review, except for D J Postings who was appointed on 1 September 2007. The Board includes independent nonexecutive directors who constructively challenge and help develop proposals on strategy, and bring strong, independent judgement, knowledge, and experience to the Board s deliberations. The independent directors are of sufficient calibre and number that their views carry significant weight in the Board s decision making. Independent professional advice is provided at the Company s expense, when the directors deem it necessary in order for them to carry out their responsibilities. Details of the Chairman s professional commitments are included in the Chairman s biography. The Chairman holds the chairmanship of one other listed company and one private company and two other non-executive directorships, but the Board is satisfied that these do not interfere with the performance of his duties to the Company which are based around a commitment of approximately 80 days per annum. The Board considers all its other non-executive directors to be independent in character and judgement. No independent non-executive director: Has been an employee of the Group within the last five years; Has, or has had within the last three years, a material business relationship with the Group; Receives remuneration other than a director s fee from the Group; Has close family ties with any of the Group s advisers, directors or senior employees; Holds cross-directorships or has significant links with other directors through involvement in other companies or bodies; Represents a significant shareholder; or Has served on the Board for more than nine years. D A Haxby will have served as a non-executive director for nine years on 1 July 2008, but the other directors have determined that in spite of this he will continue to be considered to be an independent non-executive director because he continues to be independent in character and judgement and none of the other relationships or circumstances set out in provision A.3.1 of the 2006 FRC Combined Code on Corporate Governance apply to him. Fig 1. BALANCE OF EXECUTIVE AND NON-EXECUTIVE DIRECTORS 4 1 000.0 Fig 2. LENGTH OF TENURE OF DIRECTORS 2 3 1 4 3 Chairman Executive directors Non-executive directors 0 3 years 3 6 years 6 9 years Over 9 years OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 45

CORPORATE GOVERNANCE REPORT For the year ended 31 December 2007 continued PROFESSIONAL DEVELOPMENT On appointment, the directors take part in an induction programme when they receive information about the Group, the role of the Board and the matters reserved for its decision, the terms of reference and membership of the principal Board Committees, together with the powers delegated to those Committees, the Group s corporate governance practices and procedures, and the latest financial information about the Group. This is supplemented by visits to key locations and meetings with key senior executives. Throughout their period in office the directors are continually updated on the Group s business, the competitive, legal and regulatory environment in which it operates and other changes affecting the Group and the financial services industry by written briefings and Board presentations by senior executives. Directors are also updated on changes to their legal and other duties and obligations as directors of a listed company. At the November 2007 Board meeting the Company s legal advisers, Walker Morris, provided training to the directors on directors duties and derivative actions under the Companies Act 2006. PERFORMANCE EVALUATION The Board has established a formal process led by the Chairman for the annual evaluation of the performance of the Board, its principal Committees and the individual directors, with particular attention being paid to those who are due for re-appointment. The directors are made aware, on appointment, that their performance will be subject to an evaluation. In 2006, the directors completed a questionnaire which was circulated by the Company Secretary and was designed to gain an insight into how well the Board and its Committees were meeting their objectives. The questionnaire included the former Chairman s summary of progress made during 2005 against the matters identified for attention in the 2004 self-evaluation process and asked the directors to state whether or not those matters had been addressed. The Company Secretary then collated the completed results from the questionnaires and presented the consolidated results to the Chairman. In 2007, the directors reviewed the consolidated results of the 2006 self-evaluation questionnaires and agreed that good progress had been made in the various areas identified during the 2006 self-evaluation exercise. They also identified specific matters where action would be taken during 2008. The Chairman conducts the annual appraisals of the four executive directors and the four non-executive directors in relation to their duties as directors of the Company. These appraisals are conducted in separate meetings between the Chairman and each director, at which the director s contribution to Board proceedings is reviewed and the director s views on his or her own performance and the operation of the Board identified in the self-evaluation exercise are discussed. The Chairman reports to the Board on any issues requiring Board consideration. Led by the Senior Independent Director, the non-executive directors meet annually, without the presence of the Chairman, to conduct a performance evaluation of the Chairman. The Senior Independent Director subsequently has a meeting with the Chairman on a similar basis as the Chairman s meeting with each director. Individual written personal objectives in relation to their management roles are prepared at the beginning of the financial year by each executive director. After agreement with the Chief Executive, and in the case of the Chief Executive with the Chairman, these objectives are submitted to the Remuneration Committee for consideration and approval on behalf of the Board. The Chief Executive conducts an annual appraisal of the performance of the other executive directors which includes an assessment of their individual performance against their personal objectives and a formal interview. The same process is conducted by the Chairman in respect of the Chief Executive. The extent to which executive directors personal objectives have been achieved is determined during this review process, the results of which are submitted to, and taken into account by, the Remuneration Committee in finalising the executive directors bonuses for the year. RE-ELECTION Subject to the Company s Articles of Association, the Companies Acts and satisfactory performance evaluation, non-executive directors are appointed for an initial period of three years, but may be invited to serve one or two additional three year terms if the Nomination Committee believes this to be appropriate. The re-appointment of directors who have served for more than nine years is subject to annual review and re-election by the shareholders. COMPANY SECRETARY The Company Secretary is responsible for advising the Board through the Chairman on all governance matters. The directors have access to the advice and services of the Company Secretary. The Company s Articles of Association and the schedule of matters reserved to the Board for decision provide that the appointment and removal of the Company Secretary is a matter for the full Board. STANDING COMMITTEES OF THE BOARD The Board has established three standing Committees, each with formal terms of reference, being the Audit Committee, the Remuneration Committee and the Nomination Committee. The terms of reference are published on the Company s website, www.cattles.co.uk. The Company Secretary acts as secretary to all three standing Committees. AUDIT COMMITTEE Details of the Audit Committee and its activities during 2007 are set out in the Audit Committee Report on pages 50 and 51. REMUNERATION COMMITTEE Details of the Remuneration Committee and its activities during 2007 and the Group s remuneration policy are set out in the Directors Remuneration Report on pages 54 to 63. NOMINATION COMMITTEE Details of the Nomination Committee and its activities during 2007 are set out in the Nomination Committee Report on page 53. 46

WELCOME FINANCIAL SERVICES REGULATORY OVERSIGHT COMMITTEE Welcome Financial Services (WFS), the Company s largest subsidiary and the owner of Welcome Finance, Welcome Car Finance and Shopacheck Financial Services, is regulated by the Financial Services Authority (FSA) in relation to general insurance business. In 2007, following discussions with the FSA about WFS s corporate governance arrangements, the Company and WFS established the Welcome Financial Services Regulatory Oversight Committee. The purpose of the Welcome Financial Services Regulatory Oversight Committee, as set out in its terms of reference, is to provide oversight to the operation of WFS, including: Providing an independent challenge and support to the WFS board on the development of its strategic and operational plans, policies, procedures and budgets in the light of the board s regulatory responsibilities and, in particular, to ensure that the risk of customer detriment, financial loss or mismanagement is minimised; Providing an independent assessment of WFS s compliance with FSA regulation, guidance and principles, as well as other legal and statutory obligations, with particular regard to any customer detriment; and Agreeing actions and monitoring performance against these actions, in order to ensure that any issues that may arise are appropriately dealt with by the WFS board. The Welcome Financial Services Regulatory Oversight Committee comprises A J McWalter, one of the independent non-executive directors of the Company, who chairs the Committee, M W G Collins, the Treasury & Risk Director, the managing director, risk and compliance director and sales and marketing director of WFS and one other WFS director on a rotating basis. The Company Secretary acts as secretary to the Committee. The Committee held its inaugural meeting in September and met again in December 2007. The Committee will meet quarterly in 2008. The chairman of the Committee reports to the Board and the WFS board on its proceedings and minutes of meetings are circulated to the directors of both companies. At its inaugural meeting in September 2007 the Committee approved its terms of reference and reviewed a report from WFS s risk and compliance department, WFS s risk register and risk maps, a progress report on WFS s Treating Customers Fairly (TCF) project, a report on WFS s insurance sales process and relevant sections of the internal audit plan for 2007/8. At its December meeting the Committee reviewed the discussions with WFS s FSA supervisor about five complaints in relation to payment protection insurance and considered reports on WFS s compliance with FSA regulation, guidance and principles, complaints handling procedures and TCF initiative. RELATIONS WITH SHAREHOLDERS The Board maintains a close relationship with the Company s major shareholders. The Chief Executive, Finance Director, Treasury & Risk Director and Chief Operating Officer maintain regular contact with major institutional shareholders, who are offered a personal meeting with the Chief Executive and other executive directors at least twice each year. The Chairman usually attends the presentations to analysts of the Company s Interim and Final Results and all major shareholders are offered a personal meeting with the Chairman and Senior Independent Director, if they so require. Major shareholders are also given the opportunity to meet new non-executive directors on their appointment and to provide non-attributed feedback to the Board through discussions with the Company s stockbrokers, HSBC Bank plc and CitiGroup Global Markets Limited. As required by the Combined Code, the Chairman relays to the Board any issues raised with him by shareholders. This is supplemented by a report by the Chief Executive of shareholders views following the presentations of the Interim and Final Results. The directors also receive reports from the Company s advisers on the market s views of the Company both before and after the announcement of the Interim and Final Results and copies of analysts reports. The Annual General Meeting is seen as an opportunity to communicate with other shareholders and all directors are expected to attend. The Chief Executive gives a presentation to shareholders at the Annual General Meeting on the Group s results for the previous year. All shareholders have the opportunity to put questions at the Annual General Meeting. In addition to regular financial reporting, significant matters relating to the trading or development of the Group are disseminated to the market by way of Stock Exchange announcements. The Company s website, www.cattles.co.uk, includes a section focusing specifically on investor relations. All such announcements are accessible on the website once made. In addition, the materials used in the presentations to analysts of the Company s Interim and Final Results and the webcasts of these presentations are also available on the website after the presentations have been made. ACCOUNTABILITY AND AUDIT The directors believe that the Financial Statements presents a balanced and understandable assessment of the Group s financial position and prospects. The Chairman s Statement, the Chief Executive s Review and the Operating and Financial Review, which can be found on pages 8 to 40, together provide a detailed assessment of the Group s affairs. The directors responsibilities for the financial statements are described in the Directors Report on page 66. The Company s financial statements are reviewed by the Audit Committee prior to being submitted to the Board for approval. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 47

CORPORATE GOVERNANCE REPORT For the year ended 31 December 2007 continued INTERNAL CONTROL AND RISK MANAGEMENT The Board of directors has overall responsibility for the Group s internal control system, which is designed to safeguard shareholders investment and the Company s assets, and embraces all risks faced by the Group, including business, financial, operational and compliance risks. The directors recognise, however, that there are inherent limitations in any system of internal control and as such the controls can provide only reasonable, and not absolute, assurance against material misstatement or loss. The Group has complied with the guidance provided by the Financial Reporting Council in a document entitled Internal Control: Revised Guidance for Directors on the Combined Code (October 2005) (Turnbull guidance), through an ongoing process to identify and evaluate key areas of risk, both financial and non-financial, the Group s perceived tolerance or commercial appetite towards such risks and the policies and procedures which should be adopted in order to manage the likely exposure and to review the operation and effectiveness of the Group s internal control system. This process, which has been in place throughout the year and up to the date of approval of this Annual Report, is regularly reviewed by the Board and accords with the Turnbull guidance. The Audit Committee is responsible for reviewing the operation and effectiveness of the internal control system on at least a six monthly basis and reporting to the Board thereon. Such reviews have been conducted during the financial year. The principal features of the Group s internal control system can be summarised as follows: Primary responsibility of the Board to ensure that the major business risks facing the Group are identified and that appropriate policies are developed for the management of those risks. The Board, however, recognises that the internal control system is designed to manage rather than eliminate the risk of failure to achieve business objectives. A clearly defined organisational structure with lines of responsibility and delegation of authority to divisional executive management supported by established policies and procedures. The engagement of a leading firm of professional advisers for the provision of a complete range of internal audit services, with a direct reporting link to the Audit Committee. A Risk Management Group, comprising the executive directors and other key members of senior management including risk specialists, reviews key Group risks together with the effectiveness of the Group s controls to manage and reduce the impact of these risks. This review includes the adoption of procedures which are designed to capture and evaluate any failings or weaknesses in the internal control system. The Risk Management Group meets twice yearly and reports to the Audit Committee. Delegation of the responsibility for ongoing maintenance of the system of internal control procedures to the executive management, with specifically designated Risk Champions for all business areas and appropriate working parties. The system ensures that successive assurances are provided to ascending levels of management and changes in the risk profiles for all business areas are monitored and reported on a monthly basis. The Group is continuing to develop its risk management framework further to ensure that risk monitoring and reporting is embedded at all levels of management and throughout all areas of the Group s operations. Arrangements by which employees of the Group may raise concerns in confidence about possible improprieties in matters of financial reporting or other matters, together with arrangements for the proportionate and independent investigation of such matters and for appropriate follow-up action and reporting to the Board. Operation of a comprehensive planning and financial reporting system, which covers income, expenditure, cash flows and balance sheets. Annual budgets and medium-term plans are approved by the Board and monitored against actual performance on a monthly basis to identify any significant deviation from approved plans. The annual budget is reviewed and reforecast on a regular basis. Adoption of a schedule of matters specifically reserved for the approval of the Board ensuring that it maintains full and effective control over appropriate financial, strategic, organisational and compliance issues. As described on page 44, the Board has identified a number of key areas, which are subject to regular reporting to the Board. The Board also reviews the role of insurance in managing risks across the Group. GOING CONCERN Under company law, the directors are required to consider whether it is appropriate to prepare financial statements on the basis that the Company and the Group are going concerns. As part of its normal business practices, the Group prepares annual budgets and longer-term financial and business plans. In reviewing this information, the directors are satisfied that the Company and the Group have adequate resources to continue in business for the foreseeable future. For this reason, the directors continue to adopt the going concern basis in preparing the Group s financial statements. Norman Broadhurst Chairman 28 February 2008 48

OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 49 Discussing sales performance at our Customer Sales and Service Centre in Nottingham.

AUDIT COMMITTEE REPORT For the year ended 31 December 2007 MARGARET YOUNG Chairman of the Audit Committee OTHER MEMBERS OF THE COMMITTEE D A Haxby F Dee A J McWalter INTRODUCTION This report to shareholders has been prepared in accordance with the requirements of paragraph C.3.3 of the Combined Code on Corporate Governance and paragraphs 5.1 and 5.2 of the Guidance on Audit Committees produced by Sir Robert Smith. This report gives details of the work of the Committee in discharging its responsibilities. TERMS OF REFERENCE The Committee s terms of reference, which can be found on the Company s website, are reviewed annually by the Committee and any changes are approved by the Board. The main responsibilities of the Committee set out in the terms of reference are shown in the box below. MEMBERSHIP The four independent non-executive directors, M A Young as chairman, D A Haxby, F Dee and A J McWalter have been members of the Committee throughout 2007. The chairman of the Committee, M A Young, qualified and practised as a Chartered Accountant (ACA) and has significant, relevant and up-to-date financial and accounting knowledge and experience. M A Young was previously chairman of the audit committee of Uniq plc (2003 to 2007) and a managing director of Donaldson Lufkin & Jenrette and then Credit Suisse First Boston (1997 to 2000) and a director of NatWest Markets Corporate Finance Limited (1985 to 1997). The other members of the Committee have a wide range of business experience which is evidenced in their biographical details on page 43. MEETINGS The Committee normally meets three times a year and did so in 2007. All members of the Audit Committee attended each of the three meetings held in 2007, except for D A Haxby who missed one meeting due to illness. Both the external auditors and internal auditors and the Finance Director and the Treasury & Risk Director attend all meetings of the Committee. The Chairman of the Board, the other executive directors, the WFS managing director and the WFS risk and compliance director usually attend meetings of the Committee at the invitation of the Committee chairman. The external auditors have a confidential discussion with members of the Committee without the executive directors being present during part of each meeting. Committee s Responsibilities Monitoring the integrity of the Company s financial statements; Reviewing the effectiveness of the Company s internal controls and risk management systems; Reviewing the Company s arrangements for employees to raise concerns, in confidence, about possible wrongdoing in financial reporting and other matters; Monitoring and reviewing the effectiveness of the Company s internal audit function in the context of the Company s overall risk management system; Considering and making recommendations to the Board in relation to the appointment, re-appointment and removal of the Company s external auditors; and Overseeing the relationship with the external auditors, including (but not limited to) approving their remuneration, assessing annually their independence and objectivity taking into account relevant professional and regulatory requirements and the relationship with the auditors as a whole, including the provision of any non-audit services. The Committee s terms of references are available at www.cattles.co.uk/index.php?audit_committee 50

WORK OF THE COMMITTEE The Committee discharges its duties as follows: At its meetings in February and August, the Committee reviews the Company s preliminary announcement and Annual Report and Financial Statements and interim announcement respectively. At each of these meetings the Committee receives a report from the external auditors setting out any accounting or judgemental issues which require its attention. A report from the internal auditors is reviewed at the meetings in February, August and December. The Committee considers the internal auditors work plan for the following year at its December meeting. With effect from 1 July 2007, the Committee appointed Deloitte & Touche LLP (Deloitte) as the Company s internal auditors in place of KPMG, although KPMG continue to perform the internal audit function in relation to the Siebel information technology programme implementation because Deloitte advise the Group on this. The Committee considers the external auditors pre-year end issues report at its December meeting and their audit plan at its August meeting. At its August and December meetings the Committee reviews the reports of the Risk Management Group, which comprises the executive directors and other key members of senior management including risk specialists and considers the key risks facing the Group and the effectiveness of the Group s internal controls to manage and reduce the impact of those risks. At its February and August meetings the Committee considers the annual and half-yearly risk and compliance reports produced by the Treasury & Risk Director in relation to the preceding year and half-year respectively. The Committee reviews the fees paid to the external auditors for audit and non-audit services at all its meetings and at its February meeting it assesses the external auditors independence and makes a recommendation to the Board as to the appointment or re-appointment of the auditors at the Annual General Meeting. INDEPENDENCE OF AUDITORS Both the Audit Committee and the external auditors, PricewaterhouseCoopers LLP, have put in place safeguards to avoid the auditors objectivity and independence being compromised. The Group s policy with regard to services provided by its external auditors is as follows: Statutory audit services The external auditors, who are appointed annually by the shareholders, undertake this work. The external auditors also provide services in respect of the provision of a review opinion on the Company s Interim Results, perform work in their capacity as reporting accountant in accordance with the Prospectus Rules and provide regulatory services and formalities relating to other circulars. The Audit Committee reviews the auditors performance on an ongoing basis. Tax compliance and tax advisory services Tax compliance involves dealing with the Group s corporation tax returns and this work is carried out by PricewaterhouseCoopers LLP. Tax advisory services include tax planning and structuring advice for direct and indirect taxes. The Group s policy is for each individual assignment to be assessed separately and awarded depending on which professional services firm is considered best suited to perform the relevant work. Other non-audit services This category includes work relating to due diligence and other non-regulatory reporting. The Group s normal policy is to appoint the external auditors to undertake this work because of their knowledge and experience of the business. However, the Board reviews their independence and expertise on every assignment. In 2007 and 2006 this category included work in connection with the possible offer for London Scottish Bank plc. The external auditors are not permitted to provide internal audit, risk management, litigation support, remuneration advice and legal advice services. The provision of other non-audit services is awarded on a case-by-case basis, depending on which professional services firm is considered best suited to perform the work. In 2007 the external auditors provided advisory services in relation to the Group s defined benefit pension scheme, the Group s share-based payment awards and the Group s response to the Competition Commission s inquiry into the payment protection insurance market. These safeguards, which are monitored by the Audit Committee, are regularly reviewed and updated to ensure they remain appropriate. The appointment of the external auditors to provide non-audit services requires Board approval for any assignments with fees above a set financial limit. The external auditors report to the Audit Committee each year on the actions they have taken to comply with professional and regulatory requirements and best practice designed to ensure their independence, including the rotation of key members of the external audit team. PricewaterhouseCoopers LLP have formally confirmed their independence to the Board, in respect of the period covered by these financial statements. The disclosure of the non-audit fees paid to the external auditors during the year is included in note 10 to the financial statements, on page 87. Margaret Young Chairman of the Audit Committee 28 February 2008 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 51

52 Training on the new Siebel IT system being delivered at one of our Customer Sales and Service Centres in Hull.

NOMINATION COMMITTEE REPORT For the year ended 31 December 2007 NORMAN BROADHURST Chairman of the Nomination Committee OTHER MEMBERS OF THE COMMITEE D J Postings D A Haxby F Dee A J McWalter M A Young Committee s Responsibilities Evaluating the balance of skills, knowledge and experience on the Board and, in the light of this evaluation, preparing a description of the role and capabilities required for a particular appointment; Identifying and nominating for the approval of the Board candidates to fill Board vacancies; and Considering proposals for succession planning for directors and other senior executives, taking into account the challenges and opportunities facing the Company and what skills and expertise are therefore needed on the Board in the future. The Committee s terms of references are available at www.cattles.co.uk/index.php?nomination_committee_ INTRODUCTION This report to shareholders has been prepared in accordance with the requirements of paragraph A.4.6 of the Combined Code on Corporate Governance. This report gives details of the work of the Committee in discharging its responsibilities. TERMS OF REFERENCE The Committee s terms of reference, which can be found on the Company s website, are reviewed annually by the Committee and any changes are approved by the Board. The main responsibilities of the Committee set out in the terms of reference are shown in the box below. MEMBERSHIP The Committee comprises the Chairman, the four independent non-executive directors (D A Haxby, F Dee, A J McWalter and M A Young) and the Chief Executive, D J Postings, under the chairmanship of the Chairman of the Board, N N Broadhurst. D J Postings became a member of the Committee upon his appointment as Chief Executive on 1 October 2007. S P Mahon was a member of the Committee until his retirement as Chief Executive on 30 September 2007. There were no other changes to the composition of the Committee during 2007. MEETINGS The Committee met formally on three occasions during 2007. All members of the Committee attended each of the three formal meetings held in 2007. WORK OF THE COMMITTEE The main work undertaken by the Committee during 2007 was the process which culminated in the recommendation to the Board that D J Postings should succeed S P Mahon as Chief Executive following his retirement on 30 September 2007. In anticipation of S P Mahon s likely retirement at some point during 2007, in the autumn of 2006 members of the Committee agreed a description of the role and capabilities required for the next Chief Executive and appointed an external search consultancy to assist with the recruitment process. The consultants then reviewed the description of the role and the required capabilities and drew up a list of potential candidates. This list was then reviewed by members of the Committee so as to create a definitive list of internal and external candidates. Members of the Committee and the external search consultants interviewed various candidates in January and February 2007 and then re-interviewed the shortlisted candidates in the spring of 2007. S P Mahon s retirement later in 2007 was announced on 1 May 2007 and, following the Board s acceptance of the Committee s recommendation, D J Postings appointment as a director on 1 September 2007 and as Chief Executive on 1 October 2007 was announced on 25 May 2007. Norman Broadhurst Chairman of the Nomination Committee 28 February 2008 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 53

DIRECTORS REMUNERATION REPORT For the year ended 31 December 2007 FRANK DEE Chairman of the Remuneration Committee OTHER MEMBERS OF THE COMMITEE N N Broadhurst D A Haxby F Dee A J McWalter M A Young DEAR SHAREHOLDER I am pleased to introduce this report after succeeding David Haxby as chairman of the Remuneration Committee in December 2007. I would like to thank David Haxby for his leadership in chairing the Committee for the last six years. The Remuneration Committee continues to review the Company s remuneration policy as it applies to executive directors and other senior executives to ensure that it remains appropriate for both the Company and shareholders. Executive remuneration packages are designed to attract, motivate and retain directors and other senior executives of the high calibre necessary to maintain the Group s strong financial performance which should enhance value to shareholders. The key principles of this policy are: To pay around median salaries, while taking account of individual performance and responsibilities; To ensure that a substantial proportion of the remuneration of the executive directors and other senior executives is performance-related; and To encourage share ownership. The executive directors have share ownership guidelines, participate in share-based long-term incentive plans and can be required to defer a portion of their annual bonus into shares. In addition, every employee in the Group with at least 12 months service has the opportunity to become a shareholder in the Company through the Sharesave Scheme and the Share Incentive Plan. Significant issues addressed during the year were: The remuneration package awarded to David Postings on his joining the Company to succeed Seán Mahon as Chief Executive; and The making of exceptional LTIP Performance Awards to the three continuing executive directors and of awards under the Management Share Plan to nine senior non-main Board executives after the announcement of David Postings appointment and following specific overtures being made to certain Cattles senior executives by a competitor organisation. The Remuneration Committee is entirely comfortable that the approaches adopted were very much in the interests of shareholders as they ensure that the entire highly regarded Cattles executive team continues to remain fully committed to the generation of sustained long-term returns to shareholders. I am keen to encourage an ongoing dialogue with shareholders. Accordingly, please feel free to contact me, either by writing to me at the Company s head office or by email to frankdee@cattles.co.uk if you would like to discuss any matters arising from this report or remuneration issues generally. Frank Dee Chairman of the Remuneration Committee The Committee s terms of references are available at www.cattles.co.uk/index.php?remuneration_committee 54

INTRODUCTION This report has been prepared in accordance with the Directors Remuneration Report Regulations 2002 (the Regulations) and also meets the relevant requirements of the Listing Rules of the Financial Services Authority. The report describes how the Board has applied the Principles of Good Governance relating to directors remuneration and, in accordance with the Regulations, a resolution to approve this report will be proposed at the Annual General Meeting of the Company in May 2008. The Regulations require the auditors to report to the Company s members on the auditable part of the Directors Remuneration Report and to state whether in their opinion that part of the report has been properly prepared in accordance with the Companies Act 1985 (as amended by the Regulations). The report has therefore been divided into separate sections for audited and unaudited information. UNAUDITED INFORMATION REMUNERATION COMMITTEE The Chairman, N N Broadhurst, and three of the independent non-executive directors, D A Haxby, F Dee and A J McWalter, have been members of the Committee throughout 2007. D A Haxby was chairman of the Committee until December 2007 when he was succeeded by F Dee. M A Young (also an independent non-executive director) was appointed as a member of the Committee in December 2007 after the last meeting of the year. All members of the Remuneration Committee attended each of the six meetings held in 2007, except for D A Haxby who missed one meeting due to illness. None of the Committee members has any personal financial interest in the Company other than as a shareholder, nor have they any day-to-day involvement in the running of the business or conflicts of interests arising from cross-directorships. One of the main duties of the Committee is to determine the remuneration of the executive directors, the Chairman and the Company Secretary and to monitor the level and structure of remuneration for specified senior managers below Board level. The Committee s terms of reference, which can be found on the Company s website, are reviewed annually by the Committee and any changes are approved by the Board. The Committee has appointed New Bridge Street Consultants LLP (NBSC) as its remuneration consultants. NBSC has no other connection with the Company. NBSC advises the Committee directly on matters within the Committee s terms of reference on which the Committee chooses to consult NBSC. NBSC may also advise the Company generally on aspects of executive and employee remuneration, typically on the implementation and ongoing operation of executive remuneration schemes. NBSC advises a sub-committee of the Board from time to time on the remuneration of the non-executive directors, other than the Chairman. The Chairman does not participate in any discussions relating to his own remuneration and absents himself from the meeting when his own remuneration is being considered. The Chief Executive and the Treasury & Risk Director are consulted by the Committee but do not participate in any discussions relating to their own remuneration. REMUNERATION POLICY Executive remuneration packages are designed to attract, motivate and retain directors of the high calibre necessary to maintain the Group s strong financial performance which should enhance value to shareholders. The performance measurement of the executive directors and the determination of their annual remuneration packages are undertaken by the Committee. There are four main elements of the remuneration packages of executive directors: Basic salary and benefits; Annual bonus; Long-term incentives; and Pension and life assurance arrangements. The Company s policy is that a substantial proportion of the remuneration of the executive directors should be performancerelated. As described below, each of the executive directors may participate in both an annual bonus scheme and long-term incentive arrangements. When determining remuneration levels for the executive directors, consideration is given to pay levels elsewhere in the Group. When determining remuneration policy, the Committee takes into account all factors which it deems necessary, including the Company s performance on environmental, social and governance issues. The Committee has ensured that the incentive structure for senior management does not raise environmental, social and governance risks by inadvertently motivating irresponsible behaviour. Fees paid to the Chairman of the Board are determined by the Remuneration Committee (excluding the Chairman) in consultation with the Chief Executive. Fees paid to non-executive directors, other than the Chairman, are determined by a sub-committee of the Board comprising the Chairman of the Board, the Chief Executive and the Finance Director. BASIC SALARY AND BENEFITS The basic salaries of the executive directors are determined by the Remuneration Committee, prior to the beginning of each year, taking into account the responsibilities and performance of the individual director and having regard to market practice as advised by NBSC. The Committee s policy is to pay basic salaries around the median while (as stated above) taking account of the responsibilities and performance of each director. Following the Committee s review in December 2007 applying this policy, the Board agreed the following changes to the annual salaries of the executive directors with effect from 1 January 2008: 1 January 1 January 2008 2007 000 000 D J Postings 1 525 500 S P Mahon 550 M W G Collins 320 305 J J Corr 320 305 I S Cummine 390 370 1 DJPostings salary is stated from his appointment as a director on 1September 2007. In making these recommendations to the Board, the Committee also took account of the Company s continued delivery of high levels of year-on-year earnings growth, a main driver of which has been the exceptional performance and commitment of the Company s executive directors. In addition to basic salary, the executive directors receive certain benefits in kind, being a car and fuel provision (or a cash allowance), private medical insurance and permanent health insurance. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 55

DIRECTORS REMUNERATION REPORT For the year ended 31 December 2007 continued ANNUAL BONUS The targets which trigger annual cash bonuses are set by the Remuneration Committee. In 2007 these targets comprised the following three measures of performance: The Group s actual earnings per share (EPS) growth; Funds utilisation efficiency as measured against budget; and The achievement of each director s personal objectives. The maximum potential bonus payment to executive directors in respect of the year ended 31 December 2007 was restricted to 100% of basic salary, with a maximum of 75% being payable in respect of EPS growth, 15% in respect of funds utilisation efficiency and 10% in respect of the achievement of personal objectives. Any bonus earned over 75% of 2008 basic salary must be deferred into shares which will not be received by the executive directors for a further three years. Such deferred shares count for the purposes of the Matching Shares element of the Long-Term Incentive Plan described more fully below, but are not subject to further performance conditions. The Committee has retained this structure for the 2008 executive directors annual cash bonuses except that the funds utilisation efficiency as measured against budget element of the annual bonus has been replaced by a profit to borrowings ratio. Bonuses do not form part of pensionable earnings. LONG-TERM INCENTIVES The Remuneration Committee believes that share ownership by executive directors and senior executives strengthens the link between their personal interests and those of shareholders, and provides the opportunity for longer-term motivation and retention. The Company s policy is that the executive directors are required to build up and retain a shareholding in the Company, primarily from their long-term incentive arrangements, equivalent to their annual salary. The Committee reviewed the Company s long-term incentive arrangements during 2007 in respect of their operation, grant levels, performance criteria and vesting schedules to ensure they remain appropriate to the Company s current circumstances and prospects and take due account of market and best practice. Following this review, the Committee exercised its discretion and made changes to the operation of the Long-Term Incentive Plan as described below. LONG-TERM INCENTIVE PLAN (LTIP) The LTIP was adopted in May 2005 to replace the Restricted Share Scheme, which expired in 2004. Participation is at the discretion of the Committee and participants include the executive directors and other members of the Company s senior executive team who are best placed to influence the performance of the Group. The LTIP has two elements: an award of Performance Shares and an award of Matching Shares linked to an investment in Cattles plc shares (together Awards). Awards will normally vest following the third anniversary of the date of grant provided that challenging performance conditions have been satisfied and the participant remains in employment. In normal circumstances Awards of Performance Shares may not be granted to any participant in any financial year under the LTIP if it would cause the aggregate market value of those shares to exceed 100% of the participant s basic salary. However, to provide the Committee with a market standard degree of flexibility to operate the LTIP in the best interests of shareholders and to take account of particular circumstances as they may arise, in exceptional circumstances Awards of Performance Shares worth up to 200% of basic salary may be granted. This flexibility was exercised in 2006 when awards of Performance Shares worth 115% of basic salary were made to the executive directors for the reasons set out in last year s Directors Remuneration Report. In September 2007, the Committee (after careful consideration and fully mindful of the interests of shareholders) also decided to exercise the flexibility afforded to it under this provision and made an Award of Performance Shares to D J Postings worth 200% of his basic salary. The Committee believes that this approach was entirely appropriate because, in addition to his normal 100% Performance Award, the extra 100% was required to compensate D J Postings for the long-term incentive plan awards and executive share option grants which lapsed when he left Lloyds TSB Bank plc to join the Company. The Committee considered that the grant of performance-linked share-based incentives of a value that took due account of the value of the awards D J Postings was foregoing by joining Cattles was a more appropriate way to provide such compensation than an unconditional cash payment. In April 2007, normal 100% Performance Awards were made to M W G Collins, J J Corr and I S Cummine. However, following this grant the Committee became aware that specific overtures had been made to certain Cattles senior executives by a competitor organisation. In addition, during meetings with the Company in connection with the appointment of D J Postings, a number of the Company s major shareholders made it clear that they viewed the retention of the Cattles senior executive team as crucial to the Company s continued success. Therefore, in June 2007 the Committee (again after careful consideration and fully mindful of the interests of shareholders) decided to make additional Awards of Performance Shares to M W G Collins, J J Corr and I S Cummine worth a further 100% of basic salary. The Committee believes that this approach was entirely appropriate and very much in the interests of shareholders. As described below, the Awards made in 2007 were subject to more demanding (in absolute terms) real EPS growth targets than those applied to Awards in 2006. Awards of Matching Shares are granted to the extent that participants acquire shares using their annual bonus (Investment Shares). Under the Company s annual bonus plan, any annual bonus in excess of 75% of basic salary payable to an executive director must be deferred into the Company s shares. These shares are treated as Investment Shares which will qualify for the grant of Matching Shares. Participants are also allowed to invest their cash bonus (but no other funds) on a voluntary basis into shares and treat those shares as Investment Shares. The maximum aggregate pre-tax value of bonus invested on both a compulsory and voluntary basis per annum is 37.5% of the individual s salary. Matching Shares can be awarded up to a maximum award ratio of 2:1 (free Matching Shares to Investment Shares) on a gross basis. If a participant sells his Investment Shares at any time during the three year performance period, this will reduce (on a pro-rata basis) the number of Matching Shares that may be transferable to him on vesting. In March 2007 all the then executive directors were awarded deferred bonus shares and bought the maximum number of permitted Investment Shares and the Committee made Awards of Matching Shares on 2:1 ratio. No award of Matching Shares was made to D J Postings in 2007. The vesting of Awards depends on the Company s performance over a single fixed three year performance period (i.e. with no re-testing facility) which commences with the financial year in which the Awards are granted. Awards will (subject to the 56

adjuster referred to below) vest by reference to the Company s EPS growth in excess of the Retail Price Index (RPI) over the three year performance period, comparing the Company s EPS in the financial year prior to grant with its EPS in the third year following grant. For these purposes, EPS is calculated on the same basis as stated in the Company s Financial Statements, subject to the Committee using its discretion to take account of any material short-term effect arising from an acquisition or any exceptional item of profit or loss in a particular year, or to take account of changes in accounting standards. Subject to the adjuster referred to below, the performance conditions relating to Awards made in 2007 and 2005 are: EPS growth of the Company over the 3 year performance period Percentage of Award that vests Less than RPI +20% 0% RPI +20% 30% RPI +35% or more 100% Between RPI +20% and RPI +35% Between 30% and 100% on a straight line basis Subject to the adjuster referred to below, the performance conditions relating to Awards made in 2006 are: EPS growth of the Company over the 3 year performance period Percentage of Award that vests Less than RPI +15% 0% RPI +15% 30% RPI +30% or more 100% Between RPI +15% and RPI +30% Between 30% and 100% on a straight line basis As can be seen from the tables above, the Committee applied more demanding (in absolute terms) real EPS growth targets for Awards made in 2007 than to those made in 2006, having taken into account the Company s projected EPS growth over the relevant three year period. In order to provide a comparative element to the performance conditions, the performance conditions will be adjusted by reference to the Company s EPS performance over the performance period relative to an average EPS growth of companies comprised in the FTSE 250 (the Index), calculated by dividing the Index by the price/earnings ratio of the Index. If the Company s EPS growth over the performance period is lower than the average EPS growth of the Index, the level of vesting of Awards will reduce by 1% for every 4% (subject to a maximum reduction of 25%) that the Company s EPS growth is lower than the Index average. To the extent that the Company s EPS growth is higher, the level of vesting of Awards will increase by 1% for every 4% up to (but not exceeding) the maximum level of vesting. After a review during 2007 the Committee continues to consider that the use of EPS in the LTIP is appropriate as it encourages the Company s senior management team to deliver sustained exceptional EPS growth (and, therefore, returns to shareholders), with EPS being a widely used statistic. Therefore, a similar approach is currently intended to be adopted for awards made in 2008. The LTIP operates in conjunction with an employee benefit trust (Trust), the trustee of which is Cattles Trustee Limited, a wholly owned subsidiary of. The directors of the trustee Company are three of the members of the Committee, all of whom are independent non-executive directors of the Company, and none of whom is a beneficiary under the Trust or LTIP. On the grant or before the vesting of Awards, the Trust purchases sufficient shares in the market to satisfy such awards, hence there is no issue of new shares. On the vesting of Awards, the Trust transfers the appropriate number of shares to the participants. The Trust will at no time hold more than 5% of the issued share capital of. The LTIP is funded by loans from the Company to the Trust, which then acquires shares for the purpose of the LTIP. RESTRICTED SHARE AWARD On 17 September 2007 the Company made a restricted share award of 274,160 shares to D J Postings as an exceptional award which the Committee considered necessary to recruit D J Postings as successor to S P Mahon as Chief Executive and which was therefore made under the exemption in paragraph 9.4.2 (2) of the UK Listing Authority s Listing Rules which allows one-off awards to be made following the recruitment of a director without shareholder approval. 50% of the award will normally vest on 9 October 2009 and the remaining 50% will normally vest on 9 October 2011, provided that D J Postings continues to be employed by a member of the Group. Vesting of the award (which is not pensionable) is not subject to performance conditions. On a change in control or the winding-up of the Company (except as part of an internal reorganisation), the award will vest in full. On cessation of employment for good leaver reasons (which include death), the award will vest on cessation and will be pro-rated on a time basis unless the Committee, acting fairly and reasonably, decides otherwise. On cessation of employment for other reasons, or the transfer, assignment, charging or other disposal of the award, it will lapse. In the event of any variation in the share capital of the Company or a demerger, special dividend or other similar event which affects the market price of the Company s shares to a material extent, the Committee may make such adjustments to the award as it considers appropriate to the number of shares comprised in the award. No alteration shall be made to the terms of the award to the advantage of D J Postings without prior shareholder approval. The Committee made the award on the same terms as, and in order to compensate D J Postings for, the Lloyds TSB non-performance linked long-term incentive plan award which lapsed when he left Lloyds TSB Bank plc to join the Company. The Committee was satisfied that this share-based award over shares of a similar value to the award D J Postings was foregoing when joining Cattles and which only vests subject to continued employment, was a more appropriate way of compensating D J Postings than a straight immediate unconditional cash payment. The Restricted Share Award operates in conjunction with the Trust in the same way as the LTIP (i.e. no new issue shares are used). MANAGEMENT SHARE PLAN The Management Share Plan was adopted by the Board in June 2007. Participation is at the discretion of the Committee and participants include senior executives who are best placed to influence the performance of the Group but exclude the executive directors. Participants are awarded shares in the Company which will normally vest in the proportions and on the dates specified by the Committee at the time of making the award, provided that the participant remains in employment. The vesting of awards is not subject to performance conditions. In June 2007, for the reasons stated above in relation to the grant of additional 100% Performance Awards under the LTIP to three of the executive directors in June 2007, the Committee granted awards worth 100% of their basic salary to nine senior non-main Board executives, of which 50% will vest on 21 December 2008 and the remaining 50% will vest on 21 June 2010, subject to the senior executives remaining in the employment of a member of the Group. The Management Share Plan operates in conjunction with the Trust in the same way as the LTIP (i.e. no new issue shares are used). OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 57

DIRECTORS REMUNERATION REPORT For the year ended 31 December 2007 continued RESTRICTED SHARE SCHEME This scheme was established in 1994 and expired in 2004. The participants included the executive directors and some other key senior executives. In relation to the awards made contingently under the scheme, each participant was notionally awarded shares up to one times basic annual salary each year. The number of long-term incentive shares which a participant ultimately received depended upon continued employment and performance conditions. More particularly, EPS had to grow by a minimum pre-determined amount, set by the Committee at the time of the award, over a three year performance period before participants became entitled to any shares. The three year target earnings growth for the last award made in January 2004, which vested on 10 April 2007, was 45% in excess of the increase in RPI to the extent that it exceeded 5%. The provisional award of shares was established by comparing the actual earnings growth achieved by the Company against the pre-determined target set for the relevant period. The maximum award was made where the target had been met or exceeded. If the earnings growth achieved by the Company was less than the target, then the provisional award was reduced on a straight line basis, such that where the earnings growth was less than 66.67% of the target, no provisional award was made. When the provisional award had been calculated, the earnings growth achieved by the Company was then compared with the average earnings growth achieved by the constituent companies included in the FTSE All Share Index and the Speciality and Other Financials Index. If the earnings growth achieved by the Company was less than that achieved by the constituent companies of either index, the provisional award was reduced by 1% for every 4% by which the earnings growth of the Company fell below that of the constituent companies in either index. The provisional award could have been reduced by a maximum of 25% as a result of this comparison. Equally, if the earnings growth achieved by the Company exceeded that achieved by the constituent companies of either index, then the provisional award was increased by 1% for every 4% by which the earnings growth of the Company exceeded that of either index, subject to the original notional award not being exceeded. The Restricted Share Scheme operated in conjunction with the Trust in the same way as the LTIP (i.e. no new issue shares are used). SHARESAVE SCHEME This scheme was approved in 2003 and enables all employees, including executive directors, with at least 12 months service at the date of invitation, to enter into a SAYE savings plan. At the end of three or five years, participants can exercise an option to acquire shares in the Company at a fixed price determined at the start of the savings contract in accordance with the scheme rules. The exercise of options under this scheme is not subject to any performance conditions, in accordance with HM Revenue & Customs (HMRC) rules. The timing of invitations under this scheme is determined by the Board acting upon the recommendation of the Committee. For the grant of options in 2007, the Committee decided both to reduce the eligibility period which employees, including executive directors, must serve before they are offered options from 18 to 12 months and to give eligible employees the choice to enter into a three as well as a five year savings contract. These changes were made to enable more employees to apply for options and to bring the terms of the scheme more into line with other employers SAYE schemes following a study of their terms. As at 31 December 2007 options to subscribe for 2,187,957 (2006: 1,181,933) ordinary shares remained exercisable under the Sharesave Scheme. SHARE INCENTIVE PLAN The Share Incentive Plan was introduced in 2003. It is open to all eligible UK employees, including executive directors, and is an HMRC-approved all employee share plan. Employees with at least 18 months service were entitled to participate in the 2007 appropriation but the Committee has decided that employees with at least 12 months service should be entitled to participate in 2008 and future appropriations to enable more employees to participate and to bring the terms of the plan more into line with the terms of other employers share incentive plans following a study of their terms. Each year a sum of money is set aside as determined by the Board acting upon the recommendation of the Committee. The amounts attributable to eligible employees are determined by a formula linked to their salaries. The maximum award to any one employee during a year is 3,000. Participants may also use their dividends to acquire further shares which are held within the plan. EXECUTIVE SHARE OPTION SCHEMES The Cattles Executive Share Option Scheme 1994 (the 1994 Scheme), an HMRC-approved scheme, and the Cattles Executive Share Option Scheme 1996 (the 1996 Scheme) have both now expired. Shareholder approval was obtained in 2005 for the establishment of the Cattles Executive Share Option Scheme 2005 (the 2005 Scheme) to replace the 1994 and the 1996 Scheme. The maximum award under the 2005 Scheme is 100% of salary. Executive directors and senior executives have not participated in these Executive Share Option Schemes since being invited to participate in the LTIP and Restricted Share Scheme referred to above. Consequently, no executive director has options outstanding or unexercised under any of the Executive Share Option Schemes. The Committee s current policy will continue to be that the executive directors and senior managers who participate in the LTIP will not be granted options under the 2005 Scheme, save where exceptional circumstances exist (such as senior recruitment) which result in the Committee considering it appropriate to grant both options under the 2005 Scheme and the LTIP, in which case the performance conditions that are 58

applied to options will take full account of market and best practice. As at 31 December 2007 no options had been granted under the 2005 Scheme. As at 31 December 2007 options to subscribe for 68,900 and 48,400 ordinary shares remained exercisable under the 1994 Scheme and the 1996 Scheme respectively. INTERNATIONAL FINANCIAL REPORTING STANDARDS The Committee was mindful of the effect of the transition to International Financial Reporting Standards (IFRS) on the EPSbased performance conditions used in the LTIP, the Restricted Share Scheme and the Executive Share Option Schemes. At the request of the Committee the Company s auditors reviewed the conversion of the EPS growth targets from UK GAAP to IFRS. In addition, the Committee will (where it feels it appropriate to do so) seek third-party verification of the extent to which the performance conditions applying to share-based incentives are satisfied. PENSION AND LIFE ASSURANCE ARRANGEMENTS S P Mahon, J J Corr and I S Cummine have individual personal pension plans into which the Company contributed 25% of basic salary in the case of S P Mahon up to his retirement on 30 September 2007 and 20% of basic salary in the cases of J J Corr and I S Cummine up to 31 December 2007. M W G Collins is a member of the Cattles Staff Pension Fund and is subject to the cap in the rules of the Fund which is based on the former statutory pension cap. He therefore receives payments representing 20% of the difference between his basic salary and that cap for contribution to additional pension schemes. No other payments to directors are pensionable. Cattles Staff Pension Fund is a funded, HMRC-approved, final salary occupational pension scheme with a contribution rate of 5% of pensionable salary from the employee. Its main features, which apply to all members on the same terms, are: Pension is payable at normal pension age of 65 at 1/60th of final pensionable salary for each year of pensionable service up to a maximum of 40/60ths; Death-in-service life assurance cover is provided at four times pensionable salary; and Pension is payable in the event of early retirement due to ill health and to spouse on death of member. D J Postings receives a salary supplement of 25% of his basic salary in lieu of a pension contribution because his pension plans are already funded up to the HMRC maximum limit. This salary supplement does not form part of D J Postings basic salary for any purpose. The directors are provided with death-in-service life assurance cover of four times basic salary. PERFORMANCE GRAPH OF TOTAL SHAREHOLDER RETURN Five years to 31 December 2007 In the opinion of the Committee, the FTSE 250 index is the most appropriate index against which the total shareholder return of should be measured because it is an index containing similar sized companies to and the Company has a limited number of direct comparator companies. The graph below shows the value of 100 invested in on 31 December 2002 compared with the value of 100 invested in the FTSE 250 index. TOTAL SHAREHOLDER RETURN 300 250 200 150 100 50 0 100 100 31 Dec 2002 FTSE 250 139 121 31 Dec 2003 171 138 129 31 Dec 2004 222 289 282 31 Dec 2005 31 Dec 2006 SERVICE CONTRACTS Director Date of service contract Notice period D J Postings 18 May 2007 12 months either party M W G Collins 5 March 2003 (amended) 12 months from the Company, 6 months from the individual J J Corr 5 March 2003 (amended) 12 months from the Company, 6 months from the individual I S Cummine 5 March 2003 (amended) 12 months from the Company, 6 months from the individual 31 Dec 2007 It is the Company s policy that executive directors service contracts should be rolling contracts requiring a notice period of one year to be given by the Company and usually six months to be given by each director. Each of the executive directors (apart from D J Postings) entered into service contracts, including these terms, on the date of their appointment to the Board. In order to reflect changes in other terms agreed since the original service contracts were entered into and to incorporate changes in employment legislation, the executive directors (apart from D J Postings) entered into new service contracts on 5 March 2003. D J Postings entered into a service contract, including these terms (except that he is required to give the Company 12 months notice), on 18 May 2007. The Company has the right to terminate a director s employment by paying to the director the remuneration which he would have been entitled to receive from the Company in respect of the relevant period of notice. If a director ceases to be employed, for any reason, by the Company before the end of the financial year, any bonus payment will be at the sole discretion of the Committee. It is the Committee s policy that, when determining the amount of any compensation paid to a departing director, the Committee will take into account the director s obligation to mitigate his loss, to the extent it is possible to do so under the terms of the relevant contract. An executive director may not become a director of another company without the prior written consent of the Board. No executive director is a non-executive director of any other company. 180 126 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 59

DIRECTORS REMUNERATION REPORT For the year ended 31 December 2007 continued NON-EXECUTIVE DIRECTORS Non-executive directors are appointed for an initial period of three years, although either the Company or the director may terminate the appointment by giving six months written notice. They are subject to re-election at an Annual General Meeting at least every three years in common with all directors. They do not have service contracts and may not participate in any bonus scheme, share scheme, pension scheme, car scheme or healthcare scheme operated by the Company. The dates of their current letters of appointment are: D A Haxby 22 June 1999; N N Broadhurst 23 March 2001; F Dee 30 June 2004; A J McWalter 6 September 2005; and M A Young 1 February 2006. In 2007 the Chairman, N N Broadhurst, received a fee of 175,000 which was determined by the Committee on the same basis as applied to the determination of the basic salaries of the executive directors. In 2007 the non-executive directors basic fee (calculated by reference to practice adopted in the market generally and taking account of the time commitment and the responsibilities of the non-executive directors) was 45,000, with D A Haxby receiving an extra 10,000 fee for his services as Senior Independent Director and chairman of the Remuneration Committee, M A Young receiving an extra 10,000 fee for her services as chairman of the Audit Committee and A J McWalter receiving an extra 10,000 fee for his services as chairman of the Welcome Financial Services Regulatory Oversight Committee with effect from 1 September 2007. Reasonable expenses that they may incur in the furtherance of their duties are repaid by the Company. Following the review by the Committee in December 2007, in relation to the Chairman, and by the sub-committee of the Board, comprising the Chairman of the Board, the Chief Executive and the Finance Director, in December 2007, in relation to the other non-executive directors, applying the above policy and reflecting the fact that F Dee had succeeded D A Haxby as chairman of the Remuneration Committee, the Board agreed the following changes to the fees of the non-executive directors with effect from 1 January 2008: 1 January 1 January 2008 2007 000 000 N N Broadhurst 185 175 D A Haxby 50 55 F Dee 58 45 A J McWalter 58 45 M A Young 58 55 AUDITED INFORMATION AGGREGATE DIRECTORS REMUNERATION The following table sets out the basic salary, benefits in kind, annual bonus, expense allowances and other remuneration for each of the executive directors and the fees of the non-executive directors in respect of the year ended 31 December 2007 together with comparative figures for the preceding year. Basic Benefits Annual Expense Total salary Fees in kind bonus allowances Other 2007 2006 000 000 000 000 000 000 000 000 Executive directors D J Postings 1 167 200 34 59 460 S P Mahon 2 413 23 413 849 1,055 M W G Collins 305 22 259 586 587 J J Corr 305 28 259 592 591 I S Cummine 370 30 315 715 710 Non-executive directors N N Broadhurst 175 175 132 B Cottingham 3 61 D A Haxby 55 55 53 F Dee 45 45 42 A J McWalter 48 48 42 M A Young 4 55 55 50 Total 1,560 378 103 1,446 34 59 3,580 3,323 1 appointed 1September 2007 2 retired 30 September 2007 3 retired 11 May 2006 4 appointed 1 February 2006 A J McWalter s fee increased from 45,000 pa to 55,000 pa on 1 September 2007 when he became chairman of the Welcome Financial Services Regulatory Oversight Committee. The bonuses earned by M W G Collins, J J Corr and I S Cummine in respect of 2007 were 85% out of a maximum of 100% of 2007 basic salary and reflected the partial achievement of the funds utilisation efficiency measure, the EPS growth measure and personal objectives. The bonuses earned in excess of 75% of 2008 basic salary will be deferred into shares and will not be received by the relevant directors for a further three years. The bonus earned by D J Postings in respect of 2007 was a guaranteed 200,000 which was agreed by the Committee when he joined the Company and was a necessary element of D J Postings recruitment arrangements in light of the potential bonus he was foregoing from his previous employer by joining. The bonus earned by S P Mahon in respect of 2007 was 75% out of a maximum of 100% of 2007 basic salary and reflected the extent to which the Committee assessed the targets to have been met as at 30 September 2007 and his overall contribution during the course of the part of the year in which he was employed. The expense allowances received by D J Postings are comprised of his car and fuel allowance and relocation expenses. The other remuneration received by D J Postings is comprised of a salary supplement of 25% of his basic salary in lieu of a pension contribution and a cash sum which he received in compensation for his awards of Lloyds TSB deferred shares, SAYE options and share incentive plan shares which lapsed when he joined the Company. 60

DIRECTORS LONG-TERM INCENTIVES Participation in the LTIP, the Deferred Share Bonus Plan (DSBP), the Management Share Plan (MSP), the Restricted Share Award (RSA) and the Restricted Share Scheme (RSS) is as follows: No. of Total Potential Share Amount shares Share value interest price at charged notionally Notionally price at at in shares date of against held at awarded Vested vesting vesting Lapsed at 31 notional profit in Notional Earliest 1 January in the in the date date in the December award the year award vesting Award 2007 year year (p) 000 year 2007 (p) 000 date date Executive directors D J Postings (appointed LTIP 267,737 267,737 373.50 86 17.09.07 17.09.10 1 September 2007) RSA 137,080 137,080 373.50 61 17.09.07 09.10.09 RSA 137,080 137,080 373.50 28 17.09.07 09.10.11 S P Mahon (retired RSS 140,613 104,053 406.00 422 36,560 334.25 (71) 01.01.04 10.04.07 30 September 2007) LTIP 171,262 157,561 349.00 550 13,701 298.00 408 23.05.05 30.09.07 LTIP 244,547 149,996 349.00 523 94,551 406.50 540 23.11.06 30.09.07 LTIP 235,592 72,240 349.00 252 163,352 400.90 253 24.04.07 30.09.07 DSBP 20,116 20,116 349.00 70 428.75 86 23.03.07 30.09.07 M W G Collins RSS 68,810 50,919 406.00 207 17,891 334.25 (35) 01.01.04 10.04.07 LTIP 90,768 90,768 298.00 33 23.05.05 23.05.08 LTIP 135,082 135,082 406.50 159 23.11.06 23.11.09 LTIP 130,663 130,663 400.90 105 24.04.07 24.04.10 DSBP 10,903 10,903 428.75 22 23.03.07 23.03.10 LTIP 78,104 78,104 390.50 45 29.06.07 29.06.10 J J Corr RSS 68,810 50,919 406.00 207 17,891 334.25 (35) 01.01.04 10.04.07 LTIP 90,768 90,768 298.00 33 23.05.05 23.05.08 LTIP 135,082 135,082 406.50 159 23.11.06 23.11.09 LTIP 130,663 130,663 400.90 105 24.04.07 24.04.10 DSBP 10,903 10,903 428.75 22 23.03.07 23.03.10 LTIP 78,104 78,104 390.50 45 29.06.07 29.06.10 I S Cummine RSS 91,249 67,524 406.00 274 23,725 334.25 (46) 01.01.04 10.04.07 LTIP 111,320 111,320 298.00 41 23.05.05 23.05.08 LTIP 163,029 163,029 406.50 192 23.11.06 23.11.09 LTIP 158,542 158,542 400.90 127 24.04.07 24.04.10 DSBP 12,827 12,827 428.75 26 23.03.07 23.03.10 LTIP 94,750 94,750 390.50 55 29.06.07 29.06.10 Total directors 1,511,340 1,503,064 673,328 2,505 367,671 1,973,405 2,444 Other executives RSS 63,453 46,954 406.00 191 16,499 338.00 (31) 01.04.04 10.04.07 LTIP 82,290 82,290 298.00 30 23.05.05 23.05.08 LTIP 213,627 213,627 406.50 251 23.11.06 23.11.09 LTIP 219,565 219,565 400.90 176 24.04.07 24.04.10 MSP 159,887 159,887 405.75 211 21.06.07 21.12.08 MSP 159,888 159,888 405.75 99 21.06.07 21.06.10 Total 1,870,710 2,042,404 720,282 2,696 384,170 2,808,662 3,180 In respect of those shares notionally awarded on 1 January 2004 under the RSS, the EPS growth achieved by the Group during the three years ended 31 December 2006 fell marginally short of the pre-determined target and was less than the average EPS growth achieved by the constituent companies in the FTSE All Share Index and the Speciality and Other Financials Index and as a result 74% of the shares notionally awarded on 1 January 2004 vested in the executive directors and other senior executives on 10 April 2007. In respect of those shares notionally awarded on 23 May 2005 under the LTIP, the EPS growth achieved by the Group during the three years ended 31 December 2007 exceeded the pre-determined target but was less than the average EPS growth achieved by the constituent companies in the FTSE 250 Index and as a result 84% of the shares notionally awarded on 23 May 2005 will vest in three of the executive directors and other senior executives on 23 May 2008. The figures for the executive directors notional awards comprise both their Performance and, where relevant, their Matching Awards. The performance criteria attaching to the RSS are set out in the third to sixth paragraphs of the Restricted Share Scheme section of this report on page 58. The performance criteria attaching to the LTIP are set out in the ninth to fourteenth paragraphs of the LTIP section of this report on pages 56 and 57. As at 1 January 2007 the employee benefit trust owned 1,002,023 shares. On 10 April 2007 the employee benefit trust transferred 320,369 shares on the vesting of awards under the RSS. On 5 October 2007 the employee benefit trust transferred 399,913 shares on the vesting of awards to S P Mahon on his retirement pursuant to the rules of the LTIP (i.e. taking account of performance and the time elapsed since grant) and the DSBP. As at 31 December 2007 the employee benefit trust owned 281,741 shares. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 61

DIRECTORS REMUNERATION REPORT For the year ended 31 December 2007 continued SHARESAVE SCHEME Ordinary shares under option granted to executive directors under the Sharesave Scheme are as follows: 1 January Granted during 31 December Exercise price Date from which 2007 the year 2007 (p) exercisable Expiry date Executive directors D J Postings (appointed 1 September 2007) S P Mahon 1 (retired 30 September 2007) 5,549 285.6 01.10.07 31.03.08 J J Corr 5,549 5,549 285.6 01.12.08 01.06.09 I S Cummine 3,418 3,418 285.6 01.12.08 01.06.09 I S Cummine 2,163 2,163 298.2 01.12.12 01.06.13 M W G Collins 5,633 5,633 298.2 01.12.12 01.06.13 Total 14,516 7,796 16,763 1 SPMahon did not exercise any of his options between 1January 2007 and his retirement on 30September2007. Under the rules of the Sharesave Scheme SPMahon must exercise his options on or before 31 March 2008 or they will lapse. The number of options exercisable by S P Mahon will depend on whether, and, if so, for how long, he continues to make payments under his SAYE savings plan but will be less than the 5,549 options originally granted to him because he will not have saved for the whole of the five year savings contract. No options have been exercised or have lapsed during the year. The mid-market price of the Company s shares at 31 December 2007 was 294p and the range during the year was 267p to 473p. SHARE INCENTIVE PLAN Allocations under the Share Incentive Plan represent the market value of shares at the date of appropriation to the trustees on behalf of the directors, relating to the allocation from profits of the previous year. 2007 2006 000 000 Executive directors D J Postings (appointed 1 September 2007) S P Mahon 1 (retired 30 September 2007) 3 3 M W G Collins 3 3 JJCorr 3 3 I S Cummine 3 3 Total 12 12 1 Under the rules of the Share Incentive Plan the shares were transferred to SPMahon by the trustees following his retirement. DIRECTORS PENSION ENTITLEMENTS Company contributions during the year were as follows: 2007 2006 000 000 Executive directors D J Postings (appointed 1 September 2007) S P Mahon (retired 30 September 2007) 103 131 M W G Collins 39 36 JJCorr 61 58 I S Cummine 74 70 Set out below are the Listing Rules and Companies Act disclosures providing details of the Cattles Staff Pension Fund benefits to which one executive director is entitled at 31 December 2007. Transfer value of additional Increase in Additional Additional accrued benefits Transfer value of Transfer value of transfer value of accrued accrued benefits earned in the year accrued pension accrued pension Increase in accrued pension benefits earned in (net of inflation) Accrued pension entitlement at entitlement at transfer value of entitlement earned in the year less director s entitlement at 31 December 31 December accrued pension less director s the year (net of inflation) contribution 31 December 2007 2006 entitlement contribution (i) (i) (i) (ii) 2007 (ii) (ii) (ii) (ii) 000 000 000 000 000 000 000 000 Executive director M W G Collins 2 2 12 20 206 150 56 50 (i) Under the Listing Rules disclosure requirements, additional accrued benefits earned in the year exclude inflation. Under the Companies Act disclosure requirements, inflation is included. (ii) In light of new legislation, changes in market conditions and actuarial advice, the trustees of the Cattles Staff Pension Fund reviewed and amended the basis for the calculation of cash equivalent transfer values in October 2007. This change in basis resulted in 18% out of the total 37% increase in MWGCollins transfer value as at 31December 2007 compared with that at 31December 2006. 62

The accrued pension entitlement shown in respect of M W G Collins is the amount that would be paid each year to the director in the form of a pension on retirement at age 65 in the event of him having left service at the end of the year. The accrued pension entitlement includes, where relevant, entitlements earned as an employee, prior to becoming a director, as well as those earned for qualifying services after becoming a director. The increase in the accrued pension entitlement is the difference between the accrued benefit at the year-end and that at the previous year-end. Transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. The transfer values of the additional accrued benefits and of the accrued pension entitlement in respect of qualifying services represent the value of assets that the pension scheme would need to transfer to another pension provider on transferring the scheme s liability in respect of the director s pension benefits that he has earned in respect of qualifying services. They do not represent sums payable to the director and, therefore, cannot be added meaningfully to annual remuneration. The transfer value of the additional accrued benefits earned in the year less director s contribution is the transfer value of the additional accrued benefits in respect of qualifying services earned in the year after deducting the director s personal contribution to the scheme during the year. The increase in the transfer value less director s contribution is the increase in the transfer value of the accrued benefits in respect of qualifying services during the year after deducting the director s personal contributions to the scheme. APPROVAL This report was approved by the Board on 28 February 2008 and signed on its behalf by: Frank Dee Chairman of the Remuneration Committee 28 February 2008 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 63

64 Colleagues from one of our Customer Sales and Service Centres in Hull undertaking a gardening project for a local primary school as part of the Group's Hands Up volunteering initiative.

DIRECTORS REPORT For the year ended 31 December 2007 The directors submit their Annual Report together with the audited Financial Statements of the Company and the Group for the year ended 31 December 2007. PRINCIPAL ACTIVITIES The principal activities of the Group are described in the Operating and Financial Review on pages 12 to 14. A list of principal operating subsidiary undertakings is set out in note 35 on page 118. BUSINESS REVIEW A review of the businesses of the Group, a description of the principal risks and uncertainties facing the Group during the year ended 31 December 2007 and an indication of likely future developments in the businesses of the Group are included in the Operating and Financial Review on pages 12 to 40. RESULTS AND DIVIDENDS Total income for the year amounted to 822.2 million (2006 restated: 619.6 million) and profit before taxation was 165.2 million (2006: 132.2 million) as set out in the Group Income Statement on page 70. An analysis of income and profit before taxation, by segmental activity, is set out in note 4 on pages 83 and 84. Details of the taxation charge for the year are set out in note 11 on page 88. A final dividend of 13.10p per share is proposed by the directors which, if approved at the Annual General Meeting, will be paid on 13 May 2008 to shareholders on the register at 28 March 2008. The final dividend, together with the interim dividend of 6.20p paid in October 2007, makes a total for the year of 19.30p per share. Shareholders can again reinvest their cash dividend in shares through the Dividend Reinvestment Plan (Plan). Shareholders who have not previously completed a mandate and who require details of the Plan should contact the Registrars online at www.computershare.com/investor/uk or by telephone on 0870 889 4021. New mandates must be received by close of business on 21 April 2008 to be included in the Plan for the final dividend. Further details are set out in Shareholder Information on page 119. The trustee of the Cattles employee benefit trust has agreed to waive the right to receive dividends over and above 0.01p per share on all shares it holds for the purpose of the Long-Term Incentive Plan, the Deferred Share Bonus Plan, the Management Share Plan and the Restricted Share Award. In respect of the total dividend for 2007 of 19.30p per share, the trustee has waived dividends of 0.1 million (2006: 0.2 million) on the shares held during the year ended 31 December 2007. DIRECTORS The Board comprises the non-executive Chairman, four executive directors and four independent non-executive directors, details of whom, together with brief biographical information, are set out on pages 42 and 43. S P Mahon was a director until his retirement on 30 September 2007. The Company s Articles of Association require D J Postings, who was appointed as a director of the Company on 1 September 2007 by the directors, to be re-appointed at the Annual General Meeting on 9 May 2008. D J Postings holds office as an executive director and has a rolling service contract requiring a period of 12 months notice from the Company or the director. The Company s Articles of Association require that one third, or as near as possible but not less than one third, of the directors (excluding, for this purpose, D J Postings) retire by rotation each year. Directors due to retire by rotation are those who have been longest in office since they were last elected and so that as between persons who were last elected on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot. The directors retiring by rotation and, being eligible, offering themselves for re-election at the Annual General Meeting on 9 May 2008 are M W G Collins, who holds office as an executive director and has a rolling service contract requiring a period of 12 months notice from the Company or six months from the director, and D A Haxby and M A Young, non-executive directors, who do not have a service contract. All directors are re-elected at intervals of not more than three years, in accordance with the provisions of the Combined Code on Corporate Governance issued by the Financial Reporting Council. Details of the directors remuneration, share incentives and options, and pension arrangements are set out in the Directors Remuneration Report on pages 54 to 63. Qualifying third party indemnity provisions (as defined in Sections 232 to 239 of the Companies Act 2006) have been made by the Company for the benefit of all the directors indemnifying them to the maximum extent permitted by law against liabilities attaching to them as directors of the Company and such provisions continue in force at the date of this report. No director has had a contract of significance, other than a service contract and a qualifying third-party indemnity provision, with the Company or any subsidiary undertaking during the year. The Company s shareholders may by ordinary resolution appoint any person to be a director and may by special resolution or by ordinary resolution, of which special notice has been given, remove any director before the expiration of his or her period of office and may by ordinary resolution appoint another person in his or her place. No person other than a director retiring at the meeting shall, unless recommended by the Board, be appointed as a director at any general meeting unless, not less than seven and not more than 28 clear days before the date of the meeting, there has been given to the Company Secretary written notice by a shareholder (not being the person proposed to be appointed as a director) who is entitled to attend and vote at the relevant meeting of his or her intention to propose such person for appointment and also written notice signed by the person to be proposed of his or her willingness to be appointed. The Board also has the power to appoint a person as a director, although any such director shall only hold office until the next Annual General Meeting, at which he or she will be eligible for re-appointment. A person will cease to be a director in various circumstances, including if he or she is requested to resign by written notice signed by all of the other directors. The directors have general power to manage the Company s business and may exercise all such powers of the Company as are not required by the Companies Acts or the Articles of Association to be exercised by the shareholders in general meeting, subject nevertheless to the provisions of the Companies Acts, the Memorandum and Articles of Association and to any directions given by the shareholders in general meeting by special resolution. In particular, the directors have power to propose amendments to the Company s Articles of Association but any such amendments may only be made by a special resolution passed by the Company s shareholders. In addition, the holders of 10% of the issued share capital may requisition an Extraordinary General Meeting for any purpose including amending the Articles. Subject to the provisions of the Companies Acts and the Articles of Association, the unissued shares of the Company are at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to any such persons, at such times and for such consideration and upon such terms and conditions as the Board may determine. Pursuant to resolutions passed OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 65

DIRECTORS REPORT For the year ended 31 December 2007 continued at the 2007 Annual General Meeting, the directors currently have authority to issue up to 120,923,900 ordinary shares on a pre-emptive basis and up to 9,069,290 ordinary shares on a non-pre-emptive basis. Subject to the provisions of the Companies Acts and the Articles of Association and to any confirmation or consent required by law, the Company may from time to time purchase its own shares. Pursuant to the resolution passed at the 2007 Annual General Meeting the Company currently has the power to purchase up to 36,277,172 ordinary shares and the directors could exercise this power on behalf of the Company under their general power to manage the Company s business. DIRECTORS SHAREHOLDINGS The directors named on pages 42 and 43 were in office for the whole of the financial year, except for D J Postings who was appointed on 1 September 2007. The interests of the directors in the shares of the Company, all of which were beneficial interests, as notified pursuant to rule 3.1.2 of the Disclosure Rules and Transparency Rules, were as follows: 27 February 31 December 31 December 2008 2007 2006 N N Broadhurst 1,000 1,000 1,000 D J Postings 1 M W G Collins 90,877 90,877 80,497 J J Corr 76,601 76,601 63,729 I S Cummine 137,280 137,280 121,749 D A Haxby 8,317 8,317 8,317 F Dee 10,000 10,000 10,000 A J McWalter M A Young 5,000 5,000 Total 329,075 329,075 285,292 1 DJPostings did not have an interest in shares of the Company on his appointment on 1September 2007. STATEMENT OF DIRECTORS RESPONSIBILITIES The directors are responsible for preparing the Annual Report, the Directors Remuneration Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for the period. In preparing those financial statements, the directors are required to: Select suitable accounting policies and then apply them consistently; Make judgements and estimates that are reasonable and prudent; State that the financial statements comply with IFRSs as adopted by the European Union; and Prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Group will continue in business, in which case there should be supporting assumptions or qualifications as necessary. The directors confirm that they have complied with the above requirements in preparing the financial statements. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements and the Directors Remuneration Report comply with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. These financial statements will be published on the Company s website, in addition to the paper version to be posted to those shareholders who receive printed documents. The maintenance and integrity of the website is the responsibility of the directors. The work carried out by the auditors does not involve consideration of these matters. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. DISCLOSURE OF INFORMATION TO AUDITORS So far as each director who held office on 28 February 2008 (the date of the approval of this report) is aware, there is no relevant audit information of which the Company s auditors are unaware and he or she has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Company s auditors are aware of that information. FINANCIAL RISK MANAGEMENT Details of the Group s financial risk management policies are set out in the Operating and Financial Review in the sections entitled Credit risk and Treasury risk on pages 19 to 23. SHARE CAPITAL Details of the structure of the Company s share capital and the rights and obligations attaching to the ordinary shares are set out in note 26 on page 106. Cattles Trustee Limited, the trustee of the employee benefit trust, owns 281,741 shares in the Company for the purpose of satisfying the future vesting of awards under the LTIP, the Deferred Share Bonus Plan, the Management Share Plan and the Restricted Share Award. Cattles Trustee Limited holds the voting rights in respect of such shares but has not in practice exercised such voting rights. To vote by proxy at general meetings, shareholders must lodge their forms of proxy with the Company s registrars by no later than 48 hours before the start of the relevant meeting. There are no restrictions on shareholders exercising their voting rights in respect of their shares in the Company, except where calls or other sums payable in respect of the shares have not been paid or a shareholder or other person appearing to be or to have been interested in any shares fails to comply with a disclosure notice issued by the Company requiring the disclosure of information in relation to those shares. There are no restrictions on the transfer of shares in the Company, except: Where certain technical requirements for the transfer have not been complied with; To certain specified categories of persons such as minors, bankrupts and persons suffering from mental illness; Where in certain circumstances a certificated share has not been paid up or on which the Company has a lien; Where in certain circumstances a shareholder or other person appearing to be or to have been interested in any shares fails to comply with a disclosure notice issued by the Company requiring the disclosure of information in relation to those shares; or Where law or regulation (for example, insider trading laws) or the Model Code (which applies to the directors and certain other senior executives) prevents dealings in shares. 66

During the year, the issued ordinary share capital of the Company increased by 33,071,825 to 362,804,760. Details of the changes are shown in note 26 on page 106. As at 31 December 2007 the Company was authorised to purchase up to 36,277,172 of its own shares. SUBSTANTIAL SHAREHOLDINGS As at 27 February 2008 the Company had been notified of the following interests pursuant to the Disclosure Rules and the Transparency Rules representing 3% or more of the issued share capital of the Company: Standard Life Investments 10.37% F&C Asset Management PLC 6.92% Lloyds TSB Group plc 6.85% UBS Global Asset Management 5.55% FMR Corporation 4.68% Legal & General Investment Management 3.91% Barclays plc 3.04% SIGNIFICANT CONTRACTS The agreements relating to the Company s bank facilities, details of which are set out in note 23 on page 105, and debenture loans and other borrowings, details of which are set out in note 22 on page 99, contain provisions entitling the other parties to the agreements to terminate the agreements on a change of control of the Company. All of the Company s share plans and schemes, which are described in the Directors Remuneration Report on pages 56 to 59, contain provisions in relation to a change of control of the Company. Outstanding options and awards would normally vest and become exercisable on a change of control, subject, where relevant, to the satisfaction of any applicable performance conditions at that time. DONATIONS Charitable donations during the year amounted to 0.4 million (2006: 0.4 million) of which 0.3 million (2006: 0.2 million) were made to organisations seeking to improve the financial skills and general welfare of young people and 0.1 million (2006: 0.2 million) were made to organisations addressing the issues of social disadvantage in the communities served by the Group s businesses. Further details on the Group s community investment policy and the community activities undertaken during the year are set out in the 2007 Corporate Responsibility Review, a copy of which is available on the Company s website, www.cattles.co.uk. There were no political donations in either year. EMPLOYMENT POLICY The Group gives sympathetic consideration to applications for employment from disabled persons wherever practicable. Successful applicants and employees who become disabled are given appropriate assistance and training and have the same career and promotion prospects as other employees. Details of employee involvement in the Group s businesses and performance are set out in the Operating and Financial Review on pages 28 and 29. Further details on the Group s commitment towards its employees can be found in the 2007 Corporate Responsibility Review. SUPPLIER PAYMENT POLICY AND PRACTICE It is the Company s policy that payments to suppliers are made in accordance with those terms and conditions agreed between the Company and its suppliers when a binding purchase contract is entered into, provided that all trading terms and conditions have been complied with. At the year-end, the Group had an average of 12 days purchases outstanding in trade payables (2006: 19 days) and the Company had an average of 33 days (2006: 26 days). INDEPENDENT AUDITORS PricewaterhouseCoopers LLP have expressed their willingness to continue in office and resolutions proposing their re-appointment as auditors and authorising the directors to determine the auditors remuneration will be proposed at the Annual General Meeting. By order of the Board Roland Todd Company Secretary 28 February 2008 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 67

INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF CATTLES PLC We have audited the Group and Company financial statements (the financial statements ) of for the year ended 31 December 2007 which comprise the Group Income Statement, the Group and Company Balance Sheets, the Group and Company Statements of Recognised Income and Expense, the Group and Company Cash Flow Statements and the related notes. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors Remuneration Report that is described as having been audited. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The directors responsibilities for preparing the Annual Report, the Directors Remuneration Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors Responsibilities. Our responsibility is to audit the financial statements and the part of the Directors Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the Company s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We also report to you whether in our opinion, the Directors Report is consistent with the financial statements. The information given in the Directors Report includes the specific information presented in the Operating and Financial Review that is cross-referred from the Business Review section of the Directors Report. In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors remuneration and other transactions is not disclosed. We review whether the Corporate Governance Report reflects the Company s compliance with the nine provisions of the Combined Code (2006) specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group s corporate governance procedures or its risk and control procedures. We read other information contained in the consider whether it is consistent with the audited financial statements. The other information comprises only the sections entitled What We Do, At a Glance, Highlights of 2007, Our Key Strengths, Chairman s Statement, Chief Executive s Review, Operating and Financial Review, Directors and Secretary, Corporate Governance Report, Audit Committee Report, Nomination Committee Report, Directors Report, Shareholder Information and the unaudited part of the Directors Remuneration Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. BASIS OF AUDIT OPINION We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group and Company s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors Remuneration Report to be audited. OPINION In our opinion: The Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group s affairs as at 31 December 2007 and of its profit and cash flows for the year then ended; The parent Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent Company s affairs as at 31 December 2007 and of its cash flows for the year then ended; The financial statements and the part of the Directors Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation; and The information given in the Directors Report is consistent with the financial statements. PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors Leeds 28 February 2008 68

FINANCIAL STATEMENTS Contents PRIMARY STATEMENTS 70 Group Income Statement 71 Group and Company Balance Sheets 72 Group and Company Statements of Recognised Income and Expense 73 Group and Company Cash Flow Statements NOTES TO THE ACCOUNTS 74 Accounting policies 80 Key sources of estimation uncertainty and judgement 81 Revised format of the income statement 83 Segmental reporting 85 Parent company income statement 85 Interest income 85 Interest expense 86 Staff costs 87 Other operating expenses 87 Services provided by the Company s external auditors 88 Taxation 88 Dividends 89 Earnings per share 89 Goodwill 90 Other intangible assets 91 Property, plant and equipment 93 Investments in subsidiary undertakings 93 Loans and receivables 98 Trade and other receivables 98 Deferred tax 99 Cash and cash equivalents 99 Borrowings 102 Financial instruments 105 Trade and other payables 106 Provisions 106 Equity share capital 107 Share-based payments 110 Statement of changes in shareholders equity 112 Other reserves 113 Reconciliation of profit before taxation to cash flow from operations 114 Pension obligations 117 Operating lease arrangements 117 Contingent liabilities 117 Related party transactions 118 Principal operating subsidiary undertakings OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 69

GROUP INCOME STATEMENT For the year ended 31 December 2007 Group 2007 2006 m m Restated Notes (note 3) Interest income 6 700.0 529.9 Interest expense 7 (132.6) (97.6) Net interest income 567.4 432.3 Fee and related income 125.9 103.9 Revenue from sale of goods 110.5 66.9 Other operating income 18.4 16.5 Total income 4 822.2 619.6 Purchase of goods (68.0) (44.6) Loan loss charge 18 (296.9) (191.4) Staff costs 8 (145.3) (124.8) Other operating expenses 9 (146.8) (126.6) Profit before taxation 165.2 132.2 Taxation 11 (50.5) (40.4) Profit for the year attributable to equity holders of the Company 28 114.7 91.8 Earnings per share Basic 13 32.30p 28.01p Diluted 13 32.26p 27.98p 70

GROUP AND COMPANY BALANCE SHEETS As at 31 December 2007 Group Company 2007 2006 2007 2006 Notes m m m m Assets Non-current assets Goodwill 14 39.5 39.5 Other intangible assets 15 57.7 40.6 Property, plant and equipment 16 22.5 23.1 0.3 0.2 Investments in subsidiary undertakings 17 181.7 179.6 Loans and receivables 18 1,778.5 1,269.3 Trade and other receivables 19 0.8 3.1 Deferred tax assets 20 11.3 15.7 10.7 10.0 Derivative financial instruments 23 2.7 7.5 2.7 7.5 1,912.2 1,395.7 196.2 200.4 Current assets Inventories 12.6 7.2 Loans and receivables 18 1,065.6 836.1 2,659.7 1,953.9 Trade and other receivables 19 44.1 47.9 1.8 2.2 Derivative financial instruments 23 0.6 0.3 0.6 0.3 Cash and cash equivalents 21 49.8 34.1 7.4 1,172.7 925.6 2,669.5 1,956.4 Total assets 3,084.9 2,321.3 2,865.7 2,156.8 Liabilities Current liabilities Borrowings 22 (81.2) (170.8) (130.0) (205.6) Current tax liabilities (53.4) (46.7) (29.6) (29.7) Derivative financial instruments 23 (7.8) (0.2) (7.8) (0.2) Trade and other payables 24 (53.9) (45.8) (4.1) (4.5) Provisions 25 (0.6) (0.6) (196.3) (264.1) (171.5) (240.6) Non-current liabilities Borrowings 22 (2,238.1) (1,584.0) (2,231.9) (1,577.9) Retirement benefit obligation 31 (14.1) (23.8) (14.1) (23.8) Derivative financial instruments 23 (27.4) (26.4) (27.4) (26.4) Trade and other payables 24 (11.7) (4.3) (11.8) (8.9) Provisions 25 (2.2) (1.8) (2,293.5) (1,640.3) (2,285.2) (1,637.0) Total liabilities (2,489.8) (1,904.4) (2,456.7) (1,877.6) Net assets 595.1 416.9 409.0 279.2 Shareholders equity Share capital 26 36.3 33.0 36.3 33.0 Share premium account 28 269.5 143.9 269.5 143.9 Other reserves 29 (5.8) 1.1 (0.8) 8.4 Retained earnings 28 295.1 238.9 104.0 93.9 Total shareholders equity 28 595.1 416.9 409.0 279.2 The financial statements were approved and authorised for issue by the Board on 28 February 2008 and were signed on its behalf by: David Postings Chief Executive James Corr Finance Director OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 71

GROUP AND COMPANY STATEMENTS OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2007 Group Company 2007 2006 2007 2006 Notes m m m m Profit for the year 28 114.7 91.8 68.7 27.6 Cash flow hedges: Fair value (losses)/gains, net of tax 29 (3.1) 7.4 (3.1) 7.4 Recycled and reported in net profit 29 (6.1) 1.3 (6.1) 1.3 Actuarial gains on defined benefit pension scheme, net of tax 28 5.6 5.2 5.6 5.2 Tax on share-based payments 28 0.4 0.3 0.3 0.4 Income/(expense) recognised directly in equity (3.2) 14.2 (3.3) 14.3 Total recognised income for the year attributable to equity holders of the Company 111.5 106.0 65.4 41.9 72

GROUP AND COMPANY CASH FLOW STATEMENTS For the year ended 31 December 2007 Group Company 2007 2006 2007 2006 Notes m m m m Cash flows from operating activities Cash in/(out)flow from operations 30 (537.4) (376.2) 8.6 (8.4) Tax (paid)/repaid (37.6) (20.8) 1.1 0.4 Net cash in/(out)flow from operating activities (575.0) (397.0) 9.7 (8.0) Cash flows from investing activities Disposal of subsidiary undertakings (net of cash and overdrafts transferred and contingent consideration repaid) (0.6) (0.8) (0.6) (0.8) Purchase of property, plant and equipment (2.2) (2.0) Proceeds from sale of property, plant and equipment 1.1 2.2 0.1 Purchase of intangible assets (20.7) (21.7) Dividends repaid (32.6) Dividends received 34.1 16.0 Net cash in/(out)flow from investing activities (22.4) (22.3) 33.5 (17.3) Cash flows from financing activities Proceeds from issue of share capital 28 133.2 2.0 133.2 2.0 Costs incurred in relation to the issue of equity shares 28 (4.3) (4.3) Repayment of loan by employee benefit trust 1.2 Issue of new borrowings 679.0 408.1 679.0 408.1 Repayment of borrowings (131.5) (4.9) (126.4) (1.4) Issue of new intra-group borrowings (654.0) (339.3) Dividends paid to shareholders 28 (65.3) (53.4) (65.3) (53.4) Net cash in/(out)flow from financing activities 611.1 351.8 (37.8) 17.2 Net increase/(decrease) in cash and cash equivalents 13.7 (67.5) 5.4 (8.1) Cash and cash equivalents at 1 January 22.1 89.6 (12.0) (3.9) Cash and cash equivalents at 31 December 35.8 22.1 (6.6) (12.0) For the purposes of the cash flow statement, cash and cash equivalents comprise: Cash at bank and in hand 20.6 12.9 7.4 Short-term bank deposits 29.2 21.2 Cash and cash equivalents 21 49.8 34.1 7.4 Bank overdrafts included within current borrowings (14.0) (12.0) (14.0) (12.0) 35.8 22.1 (6.6) (12.0) OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 73

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 1. ACCOUNTING POLICIES (the Company ) is a public limited company domiciled in the UK. Its shares are listed on the London Stock Exchange. The consolidated financial statements of the Company for the year ended 31 December 2007 comprise the Company and its subsidiaries (together referred to as the Group ). Statement of compliance These consolidated and Company financial statements have been prepared in accordance with EU endorsed International Financial Reporting Standards (IFRS) and IFRIC interpretations issued by the International Accounting Standards Board. These consolidated and Company financial statements have also been prepared in accordance with the Companies Act 1985 as applicable to companies reporting under IFRS. Basis of preparation The financial statements are rounded to the nearest million to one decimal place. They are prepared under the historical cost convention, as modified by the revaluation of derivative financial instruments. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 2 on page 80. The accounting policies set out below have been applied consistently to all periods presented in these consolidated and Company financial statements, except for the two changes described below. The accounting policies have been applied consistently by all the Group s entities. Revised format of the income statement The format of the income statement adopted by the Group has been revised in order that it more appropriately reflects the nature of the Group s principal activity, that of lending. The impact of this presentational change on the current and prior year s income statements is set out in note 3 on pages 81 and 82. Adoption of IFRS 7 IFRS 7 Financial instruments: Disclosures and the complementary amendment to IAS 1 Presentation of financial statements Capital disclosures have been adopted from 1 January 2007. IFRS 7 and the amendment to IAS 1 have introduced new quantitative and qualitative disclosures relating to financial instruments and they do not have any impact on the classification or valuation of financial instruments. Accounting developments The following new standards, interpretations and amendments cannot be adopted until they have been endorsed by the EU. Interpretations effective in 2007 but which had no impact The following interpretations to existing standards are mandatory for accounting periods beginning on or after 1 March 2006 or later periods, but they have had no impact on the Group or the Company: IFRIC 7 Applying the restatement approach under IAS 29, Financial reporting in hyperinflationary economies IFRIC 8 Scope of IFRS2 IFRIC 9 Reassessment of embedded derivatives IFRIC 10 Interim financial reporting and impairment Standard, amendment and interpretation that are not yet effective and have not been early adopted The following standard, amendment and interpretation to existing standards have been published and are mandatory for accounting periods beginning on or after 1 January 2008 or later periods, but which the Group and the Company have not early adopted: IFRS 8 Operating segments it is not expected that this standard, which is effective from 1 January 2009, will significantly impact on the Group s segmental disclosures. Amendment to IAS 23 Borrowing costs it is not expected that this amendment, which is effective from 1 January 2009, will have an impact on the Group or Company s result as the Group s existing accounting policy requires that borrowing costs relating to assets in the course of development are capitalised as part of the asset s costs rather than expensed. IFRIC 14 IAS 19 The limit on a defined benefit asset, minimum funding requirements work is currently being undertaken to establish how this interpretation, which is effective from 1 January 2008, will impact on the value of the Group and Company s retirement benefit obligation going forward. This assessment will take account of the latest actuarial valuation and the new schedule of contributions to be agreed in 2008, however it is expected that the adoption of IFRIC 14 will have no material financial impact as at 1 January 2008. Interpretations that are not yet effective and have not been early adopted, which are not expected to have an impact The following interpretations to existing standards have been published and are mandatory for accounting periods beginning on or after 1 March 2007 or later periods, but are not expected to have a material impact on the Group or the Company: IFRIC 11 IFRS 2 Group and treasury share transactions IFRIC 12 Service concession arrangements IFRIC 13 Customer loyalty programmes Consolidation A business combination is recognised where separate entities or businesses have been brought together within the Group. Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities, generally accompanying a shareholding of more than 50% of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. All subsidiaries share the same reporting date, 31 December, as. 74

1. ACCOUNTING POLICIES continued The purchase method of accounting is used to account for business combinations made by the Group. The cost of a business combination is measured as the fair value of the assets acquired, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the business combination. Contingent consideration is included in the cost of a business at the acquisition date only if the consideration is probable and can be reliably measured, and is discounted using an appropriate discount rate. If the future events upon which the contingent consideration is based do not occur or the estimate needs to be revised or if contingent consideration, which had not been initially included, does become probable and can be reliably measured, the cost of the business combination, and any associated goodwill, is adjusted accordingly. Identifiable assets, liabilities and contingent liabilities acquired in the business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets acquired, the difference is credited to the income statement in the period of acquisition. Inter-company income, expenses, balances and unrealised gains or losses on transactions between Group companies are eliminated on consolidation. Segmental reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. For management purposes, the Group is organised into three operating divisions, consumer credit (principally Welcome Financial Services), debt recovery (principally The Lewis Group) and corporate services (principally Cattles Invoice Finance). These divisions are, therefore, the basis on which the Group reports its primary segments. A geographical segment is a group of assets and operations engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those segments operating in other economic environments. The Group s operations are located only in the UK. Management considers that all regions of the UK are subject to the same risks and returns, such that no secondary geographic segments exist. Financial assets Management determines the classification of the Group s financial assets at initial recognition into one of the following categories and re-evaluates this designation at each reporting date: Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money directly to a customer with no intention of trading the receivable. This classification includes advances made to customers under hire purchase agreements and purchased debt. Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading; and those designated at fair value through profit or loss at inception. A financial asset is classified as at fair value through profit or loss if acquired principally for the purpose of selling in the short-term or if so designated by management. Derivatives (refer to the accounting policy entitled Derivative financial instruments and hedging activities ) are also categorised as held for trading unless they are designated as hedges. Held-to-maturity Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has a positive intention and ability to hold to maturity. Were the Group to sell a significant amount of held-to-maturity assets the entire category would be tainted and reclassified as available-for-sale. Available-for-sale Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. The Group has not held any held-to-maturity or available-for-sale financial assets at any point during the period. Loans and receivables are recognised when cash is advanced to borrowers, or at the date of acquisition in respect of purchased debt. These assets are initially recognised at fair value plus direct and incremental transaction costs. Loans and receivables are carried at amortised cost using the effective interest method. Purchases and sales of financial assets at fair value through profit or loss are recognised on the date of trade, the date on which the Group commits to purchase or sell the asset. Financial assets at fair value through profit or loss are initially recognised, and subsequently carried, at fair value. Gains and losses arising from changes in the fair value of these financial assets are included in the income statement in the period in which they arise. The Group s financial assets at fair value through profit or loss relate solely to derivative instruments which cannot be designated as hedges. Consequently, they are classified as derivative financial instruments in the balance sheet within assets or liabilities dependent on the individual instruments fair value at the reporting date. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all the risks and rewards of ownership. Revenue recognition Revenue comprises the fair value receivable for the sale of goods and services, net of value added tax, and is recognised as follows: Interest income Interest income is recognised in the income statement for all financial assets measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period. The effective interest rate (EIR) is the rate that exactly discounts estimated future cash flows through the expected life, or OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 75

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 1. ACCOUNTING POLICIES continued contractual term if shorter, of the financial asset to the net carrying amount of the financial asset. When calculating the EIR, the Group estimates cash flows considering all contractual terms of the financial instruments, such as early settlement options, but does not include an expectation for future credit losses. The calculation includes all fees charged to customers, such as acceptance or similar fees, and direct and incremental transaction costs, such as broker commissions and certain agents remuneration. All income relating to payment protection insurance is regarded as being part of the Group s economic return on the loans, hence the commission element is a constituent part of the EIR and is included within interest income. Renegotiated loans refers to circumstances under which an existing Welcome Finance or Shopacheck loan agreement has been formally rewritten. The rewrite of an agreement can only occur where the customer has demonstrated a willingness to pay but their circumstances have sufficiently changed from the time at which the loan was originally issued. The debt is rescheduled to an affordable payment, albeit still at a commercial rate, under a new rewritten agreement. Interest income on rewritten loans is recognised in the same way as non-rewritten loans using the effective interest method. The unamortised fees and costs relating to the first agreement continue to be recognised over the original contractual term. In respect of purchased debt, the EIR calculation is based on an estimate of expected collections from the debt and takes account of any initial costs, such as court fees. Amounts due from lessees under finance leases and hire purchase contracts are recorded as receivables at the amount of the Group s net investment in the lease. Finance income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group s net investment (before tax) outstanding in respect of the lease. Interest income continues to be recognised at the EIR once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, irrespective of the terms of the loan and whether interest has been suspended on the customer s account. This is referred to as the gross-up adjustment to income and is offset by a corresponding gross-up adjustment to the loan loss charge (refer to the accounting policy entitled Impairment of loans and receivables ). Fee and related income Welcome Finance offers payment protection and other insurance products, such as health, life and mechanical breakdown insurance, to its customers for which a commission is received from third-party fronting insurers. As set out in the accounting policy entitled Interest income, commission received in relation to the sale of payment protection insurance is included as part of the EIR of the associated loans. Commission received for the brokering of the sale of other insurance products, for which the Group does not bear any underlying insurance risk, is recognised and credited to the income statement when the brokerage service has been provided. Income from insurance profit share arrangements with the fronting insurer is recognised on an effective interest method in respect of payment protection insurance and is recognised in line with the incidence of risk in respect of other insurance products. Revenue from sale of goods Revenue from the sale of goods, principally vehicles, is recognised when the Group entity has delivered the product to the customer, the customer has accepted the product and collectibility of the related receivable is reasonably assured. Other operating income Other operating income primarily comprises commissions charged to clients for the collection of debts and commissions charged to third-party lenders for the introduction of new customers. These commissions are credited to the income statement when the collection or brokerage services have been provided. Impairment of loans and receivables In respect of loans and receivables, including receivables under hire purchase contracts, the Group assesses on an ongoing basis whether there is objective evidence that a loan asset or a group of loan assets is impaired. A loan asset or a group of loan assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and the loss event has an impact on the estimated future cash flows of the loan asset or group of loan assets that can be reliably estimated. The Group first assesses whether objective evidence of impairment exists individually for loan assets that are individually significant, and either individually or collectively for loan assets that are not individually significant. Welcome Financial Services determines that there is objective evidence of an impairment loss at the point at which they are not prepared to offer any further credit to a customer who has encountered serious repayment difficulties. In Welcome Finance this is assessed by reference to the number of days an account is contractually in arrears. When an account has reached 120 days in arrears, there is an acceptance that the original contractual relationship has broken down. At this stage, specialist account managers in Local Collection Units seek to establish a different working relationship with the customer, focusing instead on recovering part payments over a rescheduled repayment plan. At this point, interest on the account is suspended and no longer added to the outstanding balance. In Shopacheck, the point at which no further credit will be offered is assessed by reference to the value of contractual payments made in the preceding 13-week period. When an account has paid less than 50% of the contractually agreed amounts over the previous 13 weeks, it is considered impaired. Cattles Invoice Finance determines that there is objective evidence of an impairment loss as part of a process termed collect out. This process commences should a client have served notice that they wish to end their facility or when management become aware that the client is encountering trading difficulties. At this point the client s facilities are withdrawn, no further funds are made available and client managers begin the process of recovering the outstanding balance. Where, based upon an individual assessment of each client in collect out, it is apparent that there are no further routes to recovery and that as a consequence funds will not be recovered in full, a provision is made which is equivalent to the expected shortfall. If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows, excluding future credit losses that have not been incurred, discounted at the loan asset s original EIR. The carrying amount of the asset is reduced through the use of a loan loss provision. The amount of the loss is recognised in 76

1. ACCOUNTING POLICIES continued the income statement as a loan loss charge, except in the case of purchased debt, where any impairment adjustment is taken to interest income. For the purposes of a collective evaluation of impairment, loan assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows for a group of loan assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Where interest income continues to be recognised on impaired loans, which cannot be collected from the customer due to the interest being fixed at the outset or interest having been suspended on the customer s account, referred to as the gross-up adjustment to income, a corresponding loan loss charge is made. This is referred to as the gross-up adjustment to the loan loss charge (refer to the revenue recognition accounting policy entitled Interest income ). Loans and receivables (and the related loan loss provision) are normally written off when there is no realistic prospect of recovery of these amounts. Interest expense Interest expense primarily comprises the interest expense arising on the Group s borrowings, the ineffectiveness charge arising in relation to the Group s hedging instruments (refer to the accounting policy entitled Derivative financial instruments and hedging activities ) and the cost of undrawn facilities. Foreign currency translation Functional and presentational currency The Group s financial statements are presented in pounds sterling, which is the Company s functional and presentational currency. All subsidiaries of the Group have pounds sterling as their functional currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement as part of interest expense in relation to borrowings and as part of other operating expenses in relation to other monetary assets and liabilities. Intangible assets Goodwill Goodwill arising on acquisition represents the excess of the cost of a business combination over the fair values of the Group s share of the identifiable net assets acquired. Goodwill is not amortised, but is reviewed at least annually for impairment. For the purpose of impairment testing, goodwill is allocated to cash generating units (CGUs). Each CGU is consistent with the Group s primary reporting segments. Any impairment is recognised immediately through the income statement and is not subsequently reversed. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Up to 31 December 1997 under previous accounting policies, goodwill arising on acquisitions was recognised as a deduction from equity. On the subsequent disposal of any business to which goodwill had been recognised as a deduction from equity, the goodwill remains within equity and is not transferred to the income statement. Computer software Acquired software licenses are capitalised as intangible assets and amortised over their useful lives (3-7 years) on a straight line basis. Costs that are directly attributable to the creation of identifiable software, which meet the development asset recognition criteria as laid out in IAS 38 Intangible assets, are recognised as internally generated intangible assets. Direct costs include the employment costs of internal software developers, consultancy costs and borrowing costs. Borrowing costs are capitalised until such time as the internally generated software is substantially ready for its intended use. All other software development and maintenance costs are recognised as an expense as incurred. Computer software development costs recognised as assets are amortised over their estimated useful lives (5-7 years) on a straight line basis. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation. Cost represents expenditure that is directly attributable to the purchase of the asset. Certain land and buildings are held at previous revalued amounts less subsequent accumulated depreciation as these amounts were taken as their deemed cost as at the date of transition to IFRS (1 January 2004) in accordance with the exemption under IFRS 1. Land and buildings are not subject to revaluations. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the items will flow to the Group and the cost of the item can be measured reliably. Land is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate the costs to their residual values over their estimated useful lives, as follows: Freehold buildings 2% pa Leasehold buildings 2% to 20% pa Fixtures and equipment 10% to 33.33% pa Motor vehicles 20% pa The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying value is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are included in the income statement. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 77

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 1. ACCOUNTING POLICIES continued Investments in subsidiary undertakings Investments in subsidiary undertakings are initially recognised at cost. The Company recognises income from the investment only to the extent that it receives distributions from post-acquisition accumulated profits. Distributions received in excess of such profits are regarded as a recovery of investment and recognised as a reduction in the cost of the investment. At each reporting date, an assessment is made as to whether there is any indication that the investment may be impaired. If such an indication exists, the Company estimates the investment s recoverable amount. The investment is written down to the recoverable amount if this is lower than its carrying value. The impairment loss is recognised in the Company s income statement. Inventories Inventories comprise vehicles held for resale and are stated at the lower of actual cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less variable selling expenses. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents includes cash in hand, deposits held with banks with maturity dates of less than three months, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably measured. Staff costs Short-term benefits Wages, salaries, commissions, bonuses, social security contributions, paid annual leave and non-monetary benefits, including the cost of providing company cars and death-inservice premiums, are accrued in the period in which the associated services are rendered by employees of the Group. Pension obligations The Group has both a defined benefit and a number of defined contribution pension plans. The assets of the defined benefit pension plan are held in a separate trustee administered fund. The present value of the defined benefit obligation less the fair value of the plan assets is recognised in the balance sheet as the retirement benefit obligation. This obligation is recognised in the Company s balance sheet since this entity is the plan s sponsoring employer and there is no formal agreement for allocating the cost of pension contributions between the subsidiary participating employers. The defined benefit obligation is calculated annually by independent actuaries using the projected credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of high quality corporate bonds that have terms to maturity approximating to the terms of the related pension liability. The defined benefit obligation takes account of an allowance for the cash commutation option that members have at retirement, but does not include a reserve for death-in-service benefits or non-investment related expenses. The fair value of plan assets is based on bid prices at each balance sheet date. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are immediately recognised in the statement of recognised income and expense. Past service costs are recognised immediately within the income statement, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, past service costs are amortised on a straight line basis over the vesting period. For defined contribution plans, the Group pays contributions into privately administered pension plans on a contractual basis. The contributions are recognised as a staff cost as they fall due. The Group provides no other post-retirement benefits to its directors or other employees. Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either the termination of employment or a voluntary redundancy offered. Share-based payments The Group operates a number of equity-settled share-based payment plans, including a Deferred Share Bonus Plan. In respect of share awards granted after 7 November 2002 (and not vested by 1 January 2005), in accordance with IFRS 2 Share-based payment, an expense is recognised in respect of the fair value of employee services received in exchange for the grant of shares or share options. A corresponding amount is recorded as an increase in equity within retained earnings. The expense is spread over any relevant vesting period and is calculated by reference to the fair value of the shares or share options granted, excluding the effect of any non-market vesting conditions. In respect of the Deferred Share Bonus Plan, the grant date is the start of the year in which the performance to determine the level of bonus to be awarded is measured. In arriving at fair values, the Black-Scholes pricing model is used and various assumptions are made, for example, on expected forfeiture rates, dividend yields, share price volatility and risk free rates. The estimate for the number of options that are expected to become exercisable is revised at each balance sheet date. Any impact from the revision of original estimates is recognised in the income statement over the remaining vesting period. Share-based payment awards made by the Company to employees of subsidiary companies are reflected in the financial statements of the Company as an increase in the investments in subsidiary undertakings with the corresponding credit being made to equity. The Company does not make a recharge to its subsidiary companies in respect of awards granted to their employees. On the exercise of share options any proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) with any surplus taken to the share premium account. 78

1. ACCOUNTING POLICIES continued Leasing as lessee Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Assets held under finance leases or hire purchase contracts are capitalised on inception of the agreement at an amount equal to their fair value or, if lower, the present value of the minimum lease payments. The interest element of the lease cost is charged to the income statement, within other operating expenses, over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases or hire purchase contracts are depreciated over the shorter of the period of the agreement and the estimated useful lives of the assets. Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases, net of any incentives received from the lessor, are charged to the income statement, within other operating expenses or staff costs (in the case of company cars), on a straight line basis over the period of the lease. Borrowings Borrowings include bank borrowings, debenture loans and other borrowings, overdrafts and obligations under finance leases and hire purchase contracts. Bank borrowings, debenture loans and other borrowings are recognised initially at fair value, being their issue proceeds net of any transaction costs incurred. These borrowings are subsequently stated at amortised cost. Any difference between the proceeds, net of transaction costs, and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Current tax The charge for current tax is based on the results for the period as adjusted for items which are non-assessable or disallowed. It is calculated using rates of tax that have been enacted by the balance sheet date. Deferred tax Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Deferred tax is determined using tax rates and laws that have been enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Share capital Ordinary shares are classified as equity. Shares are recorded at their nominal value with any surplus received on their issue taken to the share premium account. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds. Where the Company purchases its own shares, being held by the trustee of the employee benefit trust in respect of the various long-term incentive plans, the consideration paid, including any directly attributable incremental costs, is deducted from equity on consolidation. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable transaction costs, is also included in equity on consolidation. These transactions are classified as own shares held within other reserves. The consideration for the purchase of own shares paid by the Company is recognised as a receivable due from the trust within the Company s trade and other receivables. Dividend distribution Final dividends payable to the Company s shareholders are recognised in the Group s financial statements in the period in which the dividends are approved by the Company s shareholders. Interim dividends payable are recognised in the period in which the dividends are paid. Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date the derivative contract is entered into and are subsequently re-measured at fair value. The fair value of derivatives is determined by using a valuation model and is primarily based on observable market data. The method of recognising the resulting gain or loss from the re-measurement depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group s policy is to designate on the date that the derivative contract is committed to. The Group designates derivatives as: A hedge of the fair value of a liability (fair value hedging instrument), or A hedge of the cost of a highly probable forecast transaction or commitment (cash flow hedging instrument). To qualify for hedge accounting, the Group is required, at inception, to document in advance the relationship between the item being hedged and the hedging instrument. The Group is also required to document and demonstrate an assessment of the relationship between the hedged item and the hedging instrument, which shows that the hedge will be highly effective in offsetting changes in fair values or cash flows of the hedged item on an ongoing basis. This effectiveness testing is re-performed at each reporting date to ensure that the hedge remains highly effective. The effectiveness of hedging instruments is assessed using the hypothetical derivative method. This involves the comparison of the changes in fair value of the hedging instrument to a hypothetical derivative which has critical terms that match the hedged item. Changes in the fair value of derivatives designated as highly effective fair value hedging instruments are recorded in the income statement within interest expense, together with the change in the fair value of the hedged item attributable to the hedged risk. The effective portion of changes in the fair value of derivatives designated as cash flow hedging instruments is recognised in equity within the hedging reserve. The change in the fair value relating to the ineffective portion is recognised immediately in the income statement within interest expense. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 79

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 1. ACCOUNTING POLICIES continued Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect profit, i.e. when the forecast interest payment that is hedged takes place. When a cash flow hedging instrument expires or is sold, or when a cash flow hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. If a fair value hedging instrument no longer meets the effectiveness criteria, the adjustment to the carrying value of a hedged item, for which the effective interest method is used, is amortised to income over the period to maturity. 2. KEY SOURCES OF ESTIMATION UNCERTAINTY AND JUDGEMENT Loan loss provisioning The Group reviews its loans and receivables on an ongoing basis to assess the level of impairment. Future cash flows are estimated on the basis of the contractual cash flows of the assets and historical loss experience. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. To the extent that the net present value of estimated future cash flows differs by +/ 1%, the loan loss provision in the balance sheet would be an estimated 28.4 million lower/higher (2006: 21.1 million lower/higher). Goodwill impairment reviews Determining whether goodwill is impaired requires an estimation of the value in use of the CGUs to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the CGUs and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the balance sheet date was 39.5 million (2006: 39.5 million). Details of the value in use calculation are provided in note 14 on page 89. Retirement benefit obligation The valuation of the retirement benefit obligation is dependent upon a series of assumptions, the key ones being mortality rates, investment returns, salary inflation, the rate of pension increases and the extent to which members take up the maximum tax free commutation on retirement. Mortality estimates are based on standard mortality tables, adjusted where appropriate to reflect the Group s own experience. The returns on fixed interest investments are set to market yields at the valuation date to ensure consistency with the asset valuation. The returns on UK and overseas equities are set by considering the long-term expected returns on these asset classes using a combination of historical performance analysis, the forward looking views of the financial markets (as suggested by the yields available) and the views of investment organisations. The salary inflation and pension increase assumptions reflect the long-term expectations for both earnings and retail price inflation. The assumption as to how many members will take up the maximum tax free commutation on retirement is based on the scheme s own experience of commutation levels. The principal assumptions used in the valuation of the retirement benefit obligation as at 31 December 2007 are set out in note 31 on page 115. 80

3. REVISED FORMAT OF THE INCOME STATEMENT The format of the income statement adopted by the Group has been revised in order that it more appropriately reflects the nature of the Group s principal activity, that of lending, as permitted by IAS 1 Presentation of financial statements and IFRS 7 Financial instruments: Disclosures. The impact of this change on the Group s income statement for the year ended 31 December 2006 is that certain items of income and expense are presented differently. These differences are explained as follows, and illustrated in the restatement below. Total revenue is analysed into four categories, being interest income, fee and related income, revenue from sale of goods and other operating income. The heading finance costs is replaced by interest expense and is shown deducted from interest income to give net interest income. The heading other cost of sales has been replaced. The cost for the purchase of goods and the loan loss charge, previously included in this heading, are now shown separately. Other items previously included in this heading are included within other operating expenses. Administrative expenses have been split into either staff costs or other operating expenses. Corporate format Re-mapping adjustments Banking format 2006 2006 m m Revenue 717.2 Revenue split into Interest income 529.9 Finance costs (97.6) four categories Interest expense (97.6) Net interest income 432.3 Fee and related income 103.9 Revenue from sale of goods 66.9 Total income is after Other operating income 16.5 interest expense Total income 619.6 Other cost of sales (274.3) Purchase of goods Purchase of goods (44.6) Gross profit 345.3 and loan loss Loan loss charge (191.4) charge shown separately with balance of other cost of sales included in other operating expenses Administrative expenses (213.1) Staff costs Staff costs (124.8) shown separately Other operating expenses (126.6) Profit before taxation 132.2 Profit before taxation 132.2 Taxation (40.4) Taxation (40.4) Profit for the year attributable Profit for the year attributable to equity holders of the Company 91.8 to equity holders of the Company 91.8 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 81

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 3. REVISED FORMAT OF THE INCOME STATEMENT continued The Group s income statement for the year ended 31 December 2007 contains certain headings for income and expense which are different from those that would have featured had the revision to the format not taken place. This impact is illustrated in the table below. Banking format Re-mapping adjustments Corporate format 2007 2007 m m Interest income 700.0 Revenue split into Revenue 954.8 Interest expense (132.6) four categories Finance costs (132.6) Net interest income 567.4 Fee and related income 125.9 Revenue from sale of goods 110.5 Other operating income 18.4 Total income is after Total income 822.2 interest expense Purchase of goods (68.0) Purchase of goods Other cost of sales (411.7) Loan loss charge (296.9) and loan loss Gross profit 410.5 charge shown separately with balance of other cost of sales included in other operating expenses Staff costs (145.3) Staff costs Administrative expenses (245.3) Other operating expenses (146.8) shown separately Profit before taxation 165.2 Profit before taxation 165.2 Taxation (50.5) Taxation (50.5) Profit for the year attributable to the Profit for the year attributable to the equity holders of the Company 114.7 equity holders of the Company 114.7 The revision to the format of the income statement has had no impact on the Group s profit after taxation for the years ended 31 December 2006 and 2007, nor has it impacted on the balance sheets and cash flows of the Group and Company in either of these years. 82

4. SEGMENTAL REPORTING The segmental income and results for the year ended 31 December 2007 and segment assets and liabilities as at that date are as follows: Consumer Debt Corporate credit recovery services Central Eliminations Group m m m m m m Income External income 901.6 31.9 21.3 954.8 Inter-segment income 1.8 (1.8) Interest expense (129.6) (6.3) (4.4) 7.7 (132.6) Total income 772.0 27.4 16.9 7.7 (1.8) 822.2 Inter-segment sales are entered into under normal arm s length commercial terms and conditions. Result Segment result 164.8 10.2 2.5 177.5 Central expenses (12.3) Profit before taxation 165.2 Taxation (50.5) Profit for the year attributable to equity holders of the Company 114.7 Consumer Debt Corporate credit recovery services Central Group m m m m m Segment assets and liabilities Segment assets 2,984.6 258.0 108.1 2,719.8 6,070.5 Unallocated 13.1 Eliminations (2,998.7) Total assets 3,084.9 Segment liabilities 2,531.1 251.0 96.3 2,580.3 5,458.7 Unallocated 29.8 Eliminations (2,998.7) Total liabilities 2,489.8 Other segment items Capital expenditure 26.5 0.2 0.8 0.2 27.7 Depreciation 6.1 0.1 0.3 0.1 6.6 Amortisation other intangible assets 3.4 0.1 0.1 3.6 Loan loss charge 294.4 2.5 296.9 The loan loss charge includes the gross-up adjustment of 37.3 million (note 18). Capital expenditure comprises additions to property, plant and equipment (note 16) and intangible assets (note 15). OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 83

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 4. SEGMENTAL REPORTING continued The segmental income (as restated to reflect interest expense being netted off interest income in the revised format of the income statement) and results for the year ended 31 December 2006 and segment assets and liabilities as at that date are as follows: Consumer Debt Corporate credit recovery services Central Eliminations Group m m m m m m Income External income 678.5 21.2 17.5 717.2 Inter-segment income 1.3 (1.3) Interest expense (97.2) (3.1) (2.9) 5.6 (97.6) Total income 581.3 19.4 14.6 5.6 (1.3) 619.6 Result Segment result 136.1 4.9 3.5 144.5 Central expenses (12.3) Profit before taxation 132.2 Taxation (40.4) Profit for the year attributable to equity holders of the Company 91.8 Consumer Debt Corporate credit recovery services Central Group m m m m m Segment assets and liabilities Segment assets 3,219.3 181.2 89.4 2,020.1 5,510.0 Unallocated 17.5 Eliminations (3,206.2) Total assets 2,321.3 Segment liabilities 2,874.6 180.3 77.6 1,941.6 5,074.1 Unallocated 36.5 Eliminations (3,206.2) Total liabilities 1,904.4 Other segment items Capital expenditure 25.3 0.3 0.5 0.1 26.2 Depreciation 6.4 0.1 0.2 0.1 6.8 Amortisation other intangible assets 3.4 0.1 0.1 3.6 Loan loss charge 190.1 1.3 191.4 The loan loss charge includes the gross-up adjustment of 17.0 million (note 18). 84

5. PARENT COMPANY INCOME STATEMENT The consolidated profit includes 68.7 million (2006: 27.6 million), which has been dealt with in the financial statements of the Company. The Company has taken advantage of Section 230 of the Companies Act 1985 and has not included its own income statement in these financial statements. 6. INTEREST INCOME Group 2007 2006 m m Loans and receivables 698.5 527.9 Cash equivalents 1.5 2.0 700.0 529.9 Interest income from loans and receivables includes amounts totalling 37.3 million (2006: 17.0 million) which the Group must continue to accrue in accordance with IAS 39 Financial instruments: Recognition & measurement in respect of impaired loans. This additional income, which cannot be collected from the customer due to the interest being fixed at the outset or interest having been suspended on the customer s account, referred to as the gross-up adjustment to income, is fully provided against as part of the loan loss charge (note 18). 7. INTEREST EXPENSE Group 2007 2006 m m Interest expense on borrowings 130.3 97.3 Fair value movements on derivative instruments: Interest rate swaps 1.1 (2.1) Cross-currency swaps (0.1) 0.5 Other 1.3 1.9 132.6 97.6 Borrowing costs of 2.3 million (2006: 2.2 million) were capitalised during the year as part of the cost of internally generated computer software, being the development of Welcome Financial Services IT and customer relationship management system. These borrowing costs were calculated by applying an average capitalisation rate of 7.0% (2006: 7.0%) to the expenditure on developing this qualifying software. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 85

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 8. STAFF COSTS Group Company 2007 2006 2007 2006 m m m m Wages and salaries 110.6 97.3 5.4 5.4 Social security costs 13.0 10.4 1.0 1.0 Pension costs defined benefit pension scheme (note 31) 1.5 1.5 Pension costs defined contribution pension schemes (note 31) 1.6 1.2 0.2 0.1 Share-based payments 4.9 2.8 2.8 0.9 Other benefits 13.7 13.1 0.3 0.4 145.3 124.8 11.2 7.8 Staff costs includes a cost for termination benefits of 0.3 million (2006: nil) and nil (2006: nil) for the year ended 31 December 2007 in relation to the Group and Company respectively. Other benefits principally comprises the cost of providing company cars, health insurance and life assurance cover. The average monthly number of persons employed by the Group (including directors) during the year was as follows: 2007 2006 Number Number Welcome Financial Services 4,267 3,903 The Lewis Group 270 245 Cattles Invoice Finance 151 139 Central 31 50 4,719 4,337 Central relates exclusively to the employees of the Company. Key management compensation Group Company 2007 2006 2007 2006 m m m m Short-term employee benefits 4.9 4.2 4.1 3.5 Post-employment benefits 0.5 0.5 0.4 0.4 Share-based payments 2.7 0.9 2.5 0.8 8.1 5.6 7.0 4.7 In addition to the directors of the Company, key management of the Group comprises those members of the executive management team referred to as Cattex. At 31 December 2007 2,383,808 shares were notionally held by key management in respect of long-term incentive schemes (2006: 1,686,801). During the year 1,738,043 shares (2006: 748,641 shares) with an estimated fair value of 5.2 million (2006: 2.3 million) were awarded to key management under these schemes. In addition, certain members of key management have interests in the Group s executive share option schemes. At 31 December 2007 16,000 options previously granted to key management were outstanding (2006: 16,000) of which 16,000 (2006: 16,000) were exercisable. No options in these schemes (2006: no options) were exercised by key management during the year. A detailed analysis of the emoluments of the Company s directors, including salaries, benefits in kind, performance-related bonuses, share options, long-term incentives and pension arrangements, is provided in the section entitled Audited information of the Directors Remuneration Report on pages 60 to 63 and forms part of these financial statements. 86

9. OTHER OPERATING EXPENSES Group 2007 2006 m m Administrative expenses 37.9 33.9 Occupancy costs 18.4 15.9 Agents commission 13.4 13.7 Advertising costs 12.1 10.9 Collection costs 8.6 7.8 Motor and travel expenses 5.3 3.4 Other 51.1 41.0 146.8 126.6 Other includes hire purchase interest expense of 0.3 million (2006: 0.4 million) and the cost of providing against inventory of 0.2 million (2006: 0.3 million). 10. SERVICES PROVIDED BY THE COMPANY S EXTERNAL AUDITORS Group 2007 2006 m m Statutory audit services 0.4 0.4 Other assurance services 0.1 0.6 Total assurance services 0.5 1.0 Other services 0.8 0.6 Total auditors remuneration 1.3 1.6 The disclosure of auditors remuneration in accordance with the ICAEW s Technical Release 06/06 is as follows: Group 2007 2006 m m Fees payable to the Company s auditor for the audit of the Company s annual accounts 0.1 0.1 Fees payable to the Company s auditors and its associates for other services: The audit of the Company s subsidiaries pursuant to legislation 0.3 0.3 Other services supplied pursuant to such legislation 0.1 0.2 Other services relating to taxation: Compliance 0.4 0.2 Advisory 0.3 Services relating to information technology 0.1 Services relating to corporate finance transactions entered into or proposed to be entered into by or on behalf of the Company or any of its associates 0.1 0.3 All other services 0.3 0.1 Total other services 1.2 1.5 Total auditors remuneration 1.3 1.6 In addition to the above services, the Company s external auditors acted as auditors to the Cattles Staff Pension Fund. The appointment of auditors to the Group s pension scheme, and the fees paid in respect of such of 8,780 (2006: 8,570), are agreed by the trustees of the scheme, acting independently from the management of the Group. In appointing the external auditors to carry out non-audit services, and in setting their fees for such work, the directors have due regard to the Group s policy in respect of non-audit services as set out in the Audit Committee Report on page 51 and the benefits, financial and non-financial, expected to be obtained. In the opinion of the directors, these services should benefit the Group in the future. For the year ended 31 December 2007 all other services principally related to advisory work in relation to the Group s response to the Competition Commission s inquiry into the payment protection insurance market, the Group s defined benefit pension scheme and the Group s share-based payment awards, whereas in 2006 these services primarily related to distributable reserves planning work. The charges for audit and non-audit services are included within other operating expenses. The Company is not required to disclose details of its own non-audit services. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 87

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 11. TAXATION Group 2007 2006 m m Current tax UK corporation tax at 30% (2006: 30%) 46.2 35.3 Adjustments in respect of previous years (1.4) (1.3) 44.8 34.0 Deferred tax Origination and reversal of timing differences 4.5 4.9 Adjustments in respect of previous years 0.6 1.5 Change in tax rate 0.6 Total tax charge in the income statement 50.5 40.4 2007 2006 Group m m Current tax on items credited to equity Relating to share-based payments (0.4) (0.8) (0.4) (0.8) Deferred tax on items (credited)/debited to equity Relating to cash flow hedges (3.9) 3.7 Relating to retirement benefit obligation 2.4 2.2 Relating to share-based payments 0.5 Change in tax rate 0.2 (1.3) 6.4 The standard rate of tax for the year, based on the UK standard rate of corporation tax, is 30% (2006: 30%). Deferred tax has been recognised at 28% following the enactment of the reduction in the rate of corporation tax, which is effective from 1 April 2008. The tax charge for the year is more than the tax on profit on ordinary activities at the standard rate for the reasons set out in the following reconciliation: Group 2007 2006 m m Profit on ordinary activities before tax 165.2 132.2 Tax on profit on ordinary activities at the standard rate of 30% (2006: 30%) 49.6 39.7 Factors affecting charge for the year: Expenses not deductible for tax purposes 1.1 0.5 Adjustments to tax charge in respect of previous years (0.8) 0.2 Change in tax rate 0.6 Total tax charge for the year 50.5 40.4 12. DIVIDENDS Group and Company 2007 2006 m m Amounts recognised as distributed to equity holders in the year: Interim dividend for the year ended 31 December 2007 of 6.20p (2006: 5.65p) 22.4 18.5 Final dividend for the year ended 31 December 2006 of 11.85p (2005: 10.65p) 42.9 34.9 65.3 53.4 In addition, the directors are proposing a final dividend for the year ended 31 December 2007 of 13.10p per share. This dividend will be paid on 13 May 2008 to shareholders who are on the register at 28 March 2008. The dividend will be recognised as an appropriation of the Group and Company s profits in the six months ended 30 June 2008 and will absorb an estimated 47.5 million of shareholders funds. Dividends of 0.1 million (2006: 0.2 million), in respect of the total dividend for 2007 of 19.30p per share, have been waived by the trustee of the employee benefit trust in respect of those shares held under the various long-term incentive plans. 88

13. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding own shares held (note 29) which are treated, for this purpose, as being cancelled. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below. 2007 2006 Weighted Weighted average average number of Earnings number of Earnings Earnings shares per share Earnings shares per share m m pence m m pence Shares in issue during the year 355.6 329.0 Own shares held (0.7) (1.4) Basic EPS 114.7 354.9 32.30 91.8 327.6 28.01 Effect of dilutive securities: Options 0.4 (0.04) 0.4 (0.03) Diluted EPS 114.7 355.3 32.26 91.8 328.0 27.98 14. GOODWILL Group m Cost At 1 January 2006, 31 December 2006 and 31 December 2007 46.1 Accumulated amortisation and impairment At 1 January 2006, 31 December 2006 and 31 December 2007 6.6 Net book amount At 1 January 2006, 31 December 2006 and 31 December 2007 39.5 Goodwill relates entirely to the Group s consumer credit division and the impairment review performed as at 31 December 2007 demonstrates significant headroom. The recoverable amount of goodwill is determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes to loan loss rates and direct costs. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the consumer credit division. Changes in loan loss rates and direct costs are based on historic experience and expectations of short-term future changes in the market. The Group prepares a cash flow forecast derived from the approved budget for the following year and extrapolates this in line with historic long-term UK GDP growth. The cash flows are discounted using a pre-tax discount rate of 7.9% (2006: 9.3%). The Company has no goodwill. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 89

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 15. OTHER INTANGIBLE ASSETS Other intangible assets solely comprise computer software. Group Company Internally Internally generated Acquired generated Acquired assets assets Total assets assets Total m m m m m m Cost At 1 January 2006 2.0 34.3 36.3 0.1 0.1 Additions 19.0 2.7 21.7 Reclassifications 9.9 (9.8) 0.1 At 1 January 2007 30.9 27.2 58.1 0.1 0.1 Additions 18.1 2.6 20.7 Disposals (0.1) (0.1) (0.1) (0.1) Reclassifications 0.3 (0.3) At 31 December 2007 49.3 29.4 78.7 Accumulated amortisation and impairment At 1 January 2006 13.9 13.9 Charge for the year 0.8 2.8 3.6 0.1 0.1 At 1 January 2007 0.8 16.7 17.5 0.1 0.1 Charge for the year 1.2 2.4 3.6 Disposals (0.1) (0.1) (0.1) (0.1) At 31 December 2007 2.0 19.0 21.0 Net book amount At 31 December 2007 47.3 10.4 57.7 At 31 December 2006 30.1 10.5 40.6 At 1 January 2006 2.0 20.4 22.4 0.1 0.1 The internally generated computer software principally relates to the cost of developing Welcome Finance s customer relationship management systems. The carrying value of these systems, which includes certain items of acquired software, amounts to 54.4 million (2006: 37.2 million). For the systems which have been commissioned, and hence where amortisation of the cost has commenced, the remaining amortisation period is approximately five and a half years (2006: six and a half years). Internally generated computer software additions include 2.3 million (2006: 2.2 million) in respect of capitalised borrowing costs. All amortisation charges for the year have been charged to the income statement through other operating expenses. 90

16. PROPERTY, PLANT AND EQUIPMENT Freehold Leasehold Fixtures land and land and and Motor Group buildings buildings equipment vehicles Total m m m m m Cost At 1 January 2006 13.1 10.6 36.8 2.5 63.0 Additions 0.8 2.2 1.5 4.5 Disposals (0.8) (0.4) (0.1) (2.3) (3.6) Reclassifications 0.3 (0.3) (0.1) (0.1) Adjustments (0.3) 0.2 0.1 1.1 1.1 At 1 January 2007 12.3 10.9 38.9 2.8 64.9 Additions 0.8 2.1 4.1 7.0 Disposals (0.2) (0.8) (0.6) (1.2) (2.8) Reclassifications (0.5) 0.6 (0.1) At 31 December 2007 11.6 11.5 40.3 5.7 69.1 Accumulated depreciation and impairment At 1 January 2006 0.3 6.6 28.7 0.5 36.1 Charge for the year 0.1 1.3 4.7 0.7 6.8 Disposals (0.1) (0.4) (1.5) (2.0) Adjustments 0.2 (0.3) (0.3) 1.3 0.9 At 1 January 2007 0.5 7.2 33.1 1.0 41.8 Charge for the year 1.2 4.4 1.0 6.6 Disposals (0.5) (0.7) (0.6) (1.8) Reclassifications (0.1) 0.1 At 31 December 2007 0.4 8.0 36.8 1.4 46.6 Net book amount At 31 December 2007 11.2 3.5 3.5 4.3 22.5 At 31 December 2006 11.8 3.7 5.8 1.8 23.1 At 1 January 2006 12.8 4.0 8.1 2.0 26.9 Depreciation and profit/loss on disposal have been charged/credited to the income statement through other operating expenses or staff costs in the case of company cars. The net book values of fixtures and equipment and motor vehicles include amounts of 1.3 million (2006: 2.5 million) and 4.2 million (2006: 1.6 million) respectively in respect of assets held by the Group under finance leases and hire purchase contracts. Included within the depreciation charge shown above was 1.9 million (2006: 2.9 million) in respect of assets held under finance leases and hire purchase contracts. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 91

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 16. PROPERTY, PLANT AND EQUIPMENT continued Leasehold Fixtures land and and Motor Company buildings equipment vehicles Total m m m m Cost At 1 January 2006 0.2 0.7 0.3 1.2 Additions 0.1 0.1 Intra-group transfers 0.1 0.1 Disposals (0.3) (0.3) At 1 January 2007 0.2 0.7 0.2 1.1 Additions 0.2 0.2 Disposals (0.1) (0.1) At 31 December 2007 0.2 0.7 0.3 1.2 Accumulated depreciation and impairment At 1 January 2006 0.2 0.6 0.1 0.9 Charge for the year 0.1 0.1 Intra-group transfers 0.1 0.1 Disposals (0.2) (0.2) At 1 January 2007 0.2 0.6 0.1 0.9 Charge for the year 0.1 0.1 Disposals (0.1) (0.1) At 31 December 2007 0.2 0.6 0.1 0.9 Net book amount At 31 December 2007 0.1 0.2 0.3 At 31 December 2006 0.1 0.1 0.2 At 1 January 2006 0.1 0.2 0.3 Depreciation has been charged to the Company s income statement through other operating expenses or staff costs in the case of company cars. The net book value of motor vehicles includes an amount of 0.2 million (2006: 0.1 million) in respect of assets held by the Company under hire purchase contracts. Included within the depreciation charge shown above was 0.1 million (2006: 0.1 million) in respect of assets held under hire purchase contracts. 92

17. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS Company 2007 2006 m m Cost At 1 January 187.7 188.5 Additions 2.1 175.7 Disposals (176.5) At 31 December 189.8 187.7 Provision for diminution in value At 1 January 8.1 10.8 Disposals (2.7) At 31 December 8.1 8.1 Net book amount at 31 December 181.7 179.6 Of the additions in the year, 2.1 million (2006: 1.9 million) relate to share-based payments in respect of employees of the subsidiary undertakings. The disposals in 2006 related to the transfer of the Company s investments in subsidiary undertakings to one of the Group s intermediate holding companies in exchange for shares in this company. All principal subsidiaries are wholly owned by. The principal operating subsidiary undertakings are shown in note 35 on page 118. 18. LOANS AND RECEIVABLES Credit risk Credit risk in relation to loans and receivables is the risk that financial loss arises from the failure of a customer to meet their obligations under a loan agreement. A description of the Group s objectives, policies and processes for managing credit risk and how it is measured is set out in the Operating and Financial Review on pages 19 to 21 in the section entitled Credit risk. Details are also given in relation to the concentration risk associated with the Group s receivables in the section entitled Concentration risk on page 23. Maximum exposure to credit risk The maximum exposure to credit risk of the Group s loans and receivables is set out in the table below: Group 2007 2006 m m Welcome Finance 2,510.5 1,820.5 Shopacheck 101.3 113.7 Cattles Invoice Finance 99.4 80.2 Originated loans and receivables 2,711.2 2,014.4 Purchased debt The Lewis Group 132.9 91.0 Total loans and receivables 2,844.1 2,105.4 Comprising: Current assets 1,065.6 836.1 Non-current assets 1,778.5 1,269.3 2,844.1 2,105.4 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 93

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 18. LOANS AND RECEIVABLES continued Credit quality A summary of the arrears status of the Group s loans and receivables by class is shown below as at 31 December 2007 and 2006: Cattles Welcome Invoice Group Finance Shopacheck Finance Total 2007 m m m m Neither past due nor impaired 2,184.5 32.4 95.5 2,312.4 Past due but not impaired 458.2 71.5 2.4 532.1 Impaired 441.0 52.6 4.5 498.1 Outstanding customer balance 3,083.7 156.5 102.4 3,342.6 Unamortised fees and costs and accrued interest (233.2) (30.2) (0.4) (263.8) Gross loans and receivables 2,850.5 126.3 102.0 3,078.8 Loan loss provision (340.0) (25.0) (2.6) (367.6) Originated loans and receivables 2,510.5 101.3 99.4 2,711.2 Purchased debt The Lewis Group 132.9 Total loans and receivables 2,844.1 The Group s purchased debt receivables of 132.9 million (2006: 91.0 million) are performing in line with The Lewis Group s expectations, but are in default relative to the original contractual terms between the debtor and the third-party from whom The Lewis Group acquired the debt. Cattles Welcome Invoice Group Finance Shopacheck Finance Total 2006 m m m m Neither past due nor impaired 1,630.9 34.1 75.7 1,740.7 Past due but not impaired 272.6 63.8 4.4 340.8 Impaired 396.0 79.0 2.6 477.6 Outstanding customer balance 2,299.5 176.9 82.7 2,559.1 Unamortised fees and costs and accrued interest (205.5) (28.6) (0.3) (234.4) Gross loans and receivables 2,094.0 148.3 82.4 2,324.7 Loan loss provision (273.5) (34.6) (2.2) (310.3) Originated loans and receivables 1,820.5 113.7 80.2 2,014.4 Purchased debt The Lewis Group 91.0 Total loans and receivables 2,105.4 94

18. LOANS AND RECEIVABLES continued Loans and receivables past due but not impaired Cattles Welcome Invoice Group Finance Finance Total 2007 m m m Past due up to 29 days 142.7 0.8 143.5 Past due 30-59 days 119.0 0.2 119.2 Past due 60-89 days 102.0 0.1 102.1 Past due 90-119 days 94.5 0.2 94.7 Past due 120 days or more 1.1 1.1 458.2 2.4 460.6 Shopacheck 71.5 Total 532.1 Shopacheck receivables which are classified as past due but not impaired of 71.5 million (2006: 63.8 million) have not been analysed into past due bandings since the collection performance of this type of loan is not managed with reference to the extent of any contractual arrears arising during the entire period of the loan since its inception. Instead, performance is managed, and the need for any loan loss provision considered, with reference to the value of contractual payments received in only the preceding 13-week period. This approach prohibits any meaningful disclosure of the ageing of the debt by reference to its contractual past due status. In addition, the directors consider that this disclosure of the Shopacheck receivables is not material in the context of the Group s total loans and receivables of 2.8 billion (2006: 2.1 billion). Cattles Welcome Invoice Group Finance Finance Total 2006 m m m Past due up to 29 days 64.2 0.5 64.7 Past due 30-59 days 98.6 98.6 Past due 60-89 days 47.2 1.0 48.2 Past due 90-119 days 62.6 0.1 62.7 Past due 120 days or more 2.8 2.8 272.6 4.4 277.0 Shopacheck 63.8 Total 340.8 Renegotiated loans and receivables In Welcome Finance and Shopacheck renegotiated loans that would otherwise be past due or impaired totalled 309.8 million and 1.0 million at 31 December 2007 (2006: 170.6 million and 1.0 million) respectively. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 95

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 18. LOANS AND RECEIVABLES continued Collateral The Group holds collateral in relation to certain of its loans and receivables, further details of which are provided below: Welcome Finance In accordance with IFRS 7 implementation guidance notes paragraph 36(b), Welcome Finance does not fair value the collateral held as security in respect of its secured loan and hire purchase receivables on the basis that it would be impracticable to do so and instead provided below is an explanation of the nature of the collateral held. It would be impracticable to fair value the collateral held because information on the value of customers properties and first charge mortgage liabilities is not maintained. Additionally, the only way of estimating the fair value of used motor vehicles on hire purchase would be on an aggregate basis, which may result in the collateral disclosure being misleading when some loans in a portfolio are over-collateralised, and other loans have insufficient collateral. In these circumstances, netting the fair value of the two types of collateral would under-report the amount of credit risk. Secured loans Secured loans are not underwritten based on equity, but on the customer s ability to afford the loan repayments, with the emphasis placed on assessing and verifying the customer s incomings and outgoings. A legal charge ranking second or third is registered against the customer s property, to ensure that the customer prioritises repayments of the secured loan. Hire purchase Hire purchase loans are advanced to customers for the purchase of used motor vehicles. The terms of the hire purchase contract allow the customer to voluntarily terminate and allow Welcome Finance to repossess the vehicle, both subject to meeting certain criteria. A customer may voluntarily terminate the hire purchase contract provided they have paid at least 50% of the contract and have not received a notice of default. In this instance the vehicle is returned to Welcome Finance and disposed of, with the proceeds offset against the customer s outstanding balance. Any remaining balance is written off. Legally, Welcome Finance may repossess a vehicle financed on a hire purchase contract, provided the customer has paid less than one third of the contract and a notice of default has been issued. Welcome Finance endeavour to negotiate arrangements with the customer to avoid the need for repossession. Vehicles that are repossessed are promptly disposed of at auction and the proceeds offset against the customer s outstanding balance. The customer is liable for any remaining balance. Cattles Invoice Finance In addition to the value of the underlying assigned sales ledger balances, Cattles Invoice Finance will wherever possible obtain additional security before offering invoice finance facilities to a client. These include limited personal guarantees from major shareholders, charges over personal and other business property, cross guarantees from associated companies, and unlimited warranties in the case of frauds. These additional forms of security are impracticable to fair value as valuations of the guarantees or warranties are not capable of being accurately determined at any point during the agreement. 96

18. LOANS AND RECEIVABLES continued Loan loss provision The following tables provide an analysis of the movement in the Group s loan loss provision during 2007 and 2006: Cattles Welcome Invoice Group Finance Shopacheck Finance Total 2007 m m m m At 1 January 2007 273.5 34.6 2.2 310.3 Utilised (181.6) (33.1) (1.9) (216.6) Recoveries of amounts previously written off 13.0 1.2 0.1 14.3 Charged to the income statement: Additional provisions created 248.1 23.5 2.3 273.9 Recoveries of amounts previously written off (13.0) (1.2) (0.1) (14.3) 235.1 22.3 2.2 259.6 At 31 December 2007 340.0 25.0 2.6 367.6 Loan loss charge before gross-up adjustment 235.1 22.3 2.2 259.6 Gross-up adjustment 14.0 23.0 0.3 37.3 Total loan loss charge 249.1 45.3 2.5 296.9 Cattles Welcome Invoice Group Finance Shopacheck Finance Total 2006 m m m m At 1 January 2006 257.4 39.0 1.2 297.6 Utilised (139.9) (27.3) (0.3) (167.5) Recoveries of amounts previously written off 4.8 1.0 5.8 Charged to the income statement: Additional provisions created 156.0 22.9 1.3 180.2 Recoveries of amounts previously written off (4.8) (1.0) (5.8) 151.2 21.9 1.3 174.4 At 31 December 2006 273.5 34.6 2.2 310.3 Loan loss charge before gross-up adjustment 151.2 21.9 1.3 174.4 Gross-up adjustment 11.8 5.2 17.0 Total loan loss charge 163.0 27.1 1.3 191.4 Maturity profile of hire purchase receivables The Group s gross investment in hire purchase receivables (included in the Welcome Finance loans and receivables balance) is analysed in the following table: Group 2007 2006 m m Within one year 342.5 290.3 One to five years 593.5 440.3 Over five years 62.2 30.5 998.2 761.1 Unearned future finance income (238.2) (186.2) Loan loss provision (50.0) (64.9) Present value of future lease payments 710.0 510.0 The Group provides hire purchase facilities to customers purchasing vehicles from Welcome Car Finance and other third-party dealers. Under the terms of the hire purchase agreements, no unguaranteed residual values are accruing to the Group and no contingent rents are payable. Company Company loans and receivables, as shown in the balance sheet on page 71, of 2.7 billion (2006: 2.0 billion), comprise amounts due from subsidiary companies, all of which are repayable on demand. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 97

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 19. TRADE AND OTHER RECEIVABLES Group Company 2007 2006 2007 2006 m m m m Trade receivables 5.2 3.5 Loan to the employee benefit trust 0.8 3.1 Other receivables 27.8 34.3 0.4 0.5 Prepayments and accrued income 11.1 10.1 1.4 1.7 44.1 47.9 2.6 5.3 Comprising: Non-current assets 0.8 3.1 Current assets 44.1 47.9 1.8 2.2 44.1 47.9 2.6 5.3 An analysis of the arrears status of the Group s trade receivables and the Company s loan to the employee benefit trust has not been presented as the amounts concerned are not significant. The Group and Company s other receivables at 31 December 2007 and 2006 are considered neither past due nor impaired. The other receivables of the Group principally relate to profit share debtors arising from the sale of insurance policies, which are due, in accordance with the prescribed payment terms, from third-party insurers. 20. DEFERRED TAX Deferred tax is calculated in full on temporary timing differences under the liability method using a tax rate of 28% (2006: 30%). Deferred tax assets have been recognised in respect of all tax losses and other temporary timing differences giving rise to deferred tax assets because it is probable that these assets will be recovered. All of the deferred tax liabilities are available for offset against deferred tax assets and hence the deferred tax asset at each balance sheet date is shown net. The movements in the deferred tax account are shown below: Group Company Accelerated tax Other timing Other timing depreciation differences Total differences m m m m At 1 January 2006 (0.3) 28.8 28.5 15.7 Recognised in income (1.9) (4.5) (6.4) Recognised in equity (6.4) (6.4) (5.7) At 1 January 2007 (2.2) 17.9 15.7 10.0 Recognised in income (2.8) (2.9) (5.7) (0.6) Recognised in equity 1.3 1.3 1.3 At 31 December 2007 (5.0) 16.3 11.3 10.7 Other timing differences principally relate to either timing differences arising from changes in accounting policies following the transition to IFRS, actuarial gains and losses on the retirement benefit obligation, fair value gains and losses relating to cash flow hedging instruments or share-based payments. Of the Group and Company s deferred tax balance at 31 December 2007, 9.8 million (2006: 14.7 million) and 10.3 million (2006: 10.0 million) respectively is expected to be realised in more than one year. 98

21. CASH AND CASH EQUIVALENTS Group Company 2007 2006 2007 2006 m m m m Cash at bank and in hand 20.6 12.9 7.4 Fixed interest bank deposits 29.2 21.2 49.8 34.1 7.4 All bank deposits have a maturity of one month. A description of how the Group is exposed to counterparty credit risk in relation to its cash and cash equivalents, as well as details on the Group s objectives, policies and processes for managing this risk and how it is measured, is set out in the Operating and Financial Review on pages 22 and 23 in the section entitled Counterparty credit risk. 22. BORROWINGS Group Company 2007 2006 2007 2006 m m m m Current Unsecured bank borrowings and overdrafts 18.9 16.2 18.9 16.2 Unsecured debenture loans and other borrowings 60.3 152.0 59.5 151.3 Obligations under finance leases and hire purchase contracts 2.0 2.6 Unsecured intra-group borrowings 51.6 38.1 81.2 170.8 130.0 205.6 Non-current Unsecured bank borrowings 1,321.9 1,043.0 1,321.9 1,043.0 Unsecured debenture loans and other borrowings 912.2 538.0 909.8 534.8 Obligations under finance leases and hire purchase contracts 4.0 3.0 0.2 0.1 2,238.1 1,584.0 2,231.9 1,577.9 Total borrowings 2,319.3 1,754.8 2,361.9 1,783.5 At 31 December 2007 unsecured debenture loans and other borrowings for the Group comprised: (a) A sterling bond with a carrying amount of 371.1 million (2006: 370.8 million). The bond has a par value of 350 million but was issued at a 0.227% discount, realising net proceeds of 347.6 million. The bond has a fixed rate of interest of 6.875% and is redeemable at par in January 2014. The carrying amount reflects the unamortised discount, unamortised transaction costs and accrued interest of 0.5 million, 1.5 million and 23.1 million respectively. (b) A sterling bond with a carrying amount of 408.4 million (2006: nil). The bond has a par value of 400 million but was issued at a 0.931% discount, realising net proceeds of 394.3 million. The bond has a fixed rate of interest of 7.125% and is redeemable at par in July 2017. The carrying amount reflects the unamortised discount, unamortised transactions costs and accrued interest of 5.5 million, 0.1 million and 14.0 million respectively. (c) A US private placing with a carrying amount of 125.0 million (2006: 124.4 million). The placing raised $40 million 7.15% unsecured notes redeemable at par in December 2008, $70 million 7.53% unsecured notes redeemable at par in December 2011, 30 million 7.64% unsecured notes redeemable at par in December 2011 and 40 million 7.80% unsecured notes redeemable at par in December 2016. The carrying amount reflects hedging adjustments, unamortised transaction costs and accrued interest of 20.1 million, 0.7 million and 0.3 million respectively. (d) A US private placing with a carrying amount of 63.3 million (2006: 64.1 million). The placing raised $20 million 6.17% unsecured notes redeemable at par in February 2011, $55 million 6.25% unsecured notes redeemable at par in February 2013, 6 million 4.62% unsecured notes redeemable at par in February 2013, 1 million 5.89% unsecured notes redeemable at par in February 2013 and 20 million 5.94% unsecured loan notes redeemable at par in February 2021. The carrying amount reflects hedging adjustments, unamortised transaction costs and accrued interest of 5.1 million, 0.3 million and 0.5 million respectively. (e) A fixed rate 6.39% loan with a carrying amount of 3.2 million (2006: 3.9 million). The loan is repayable in quarterly instalments by September 2011. (f) 1.5 million (2006: 1.5 million) 4% unsecured loan notes redeemable at par during 2008. All the unsecured debenture loans and other borrowings described above relate to the Company, except for the loan referred to in part (e). OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 99

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 22. BORROWINGS continued Liquidity risk borrowings A description of how the Group is exposed to liquidity risk in relation to its borrowings, as well as details on the Group s objectives, policies and processes for managing liquidity risk and how it is measured, is set out in the Operating and Financial Review on pages 21 and 22 in the section entitled Liquidity risk. Details are also given in relation to the concentration risk associated with the Group s borrowings in the section entitled Concentration risk on page 23. The contractual maturities of the Group and Company s borrowings, including both capital and interest payments, are analysed below. The amounts shown, therefore, do not reconcile to the Group and Company s balance sheets. On Up to 3 3 12 1 2 2 3 3 4 4 5 Over 5 Group demand months months years years years years years Total 2007 m m m m m m m m m Bank overdrafts 14.0 14.0 Bank borrowings 24.1 64.0 558.3 50.8 855.5 0.9 1,553.6 Debenture loans and other borrowings 25.6 60.1 64.2 64.2 138.9 57.7 1,027.1 1,437.8 Obligations under finance leases and hire purchase contracts 0.6 1.5 2.0 1.4 1.0 6.5 14.0 50.3 125.6 624.5 116.4 995.4 58.6 1,027.1 3,011.9 On Up to 3 3 12 1 2 2 3 3 4 4 5 Over 5 Group demand months months years years years years years Total 2006 m m m m m m m m m Bank overdrafts 12.0 12.0 Bank borrowings 17.0 52.7 70.3 486.1 40.4 633.0 0.9 1,300.4 Debenture loans and other borrowings 26.2 147.2 58.9 37.0 37.0 112.4 545.2 963.9 Obligations under finance leases and hire purchase contracts 0.6 2.2 1.7 0.9 0.6 6.0 12.0 43.8 202.1 130.9 524.0 78.0 745.4 546.1 2,282.3 On Up to 3 3 12 1 2 2 3 3 4 4 5 Over 5 Company demand months months years years years years years Total 2007 m m m m m m m m m Bank overdrafts 14.0 14.0 Bank borrowings 24.1 64.0 558.3 50.8 855.5 0.9 1,553.6 Debenture loans and other borrowings 25.4 59.4 63.2 63.2 138.1 57.7 1,027.1 1,434.1 Obligations under finance leases and hire purchase contracts 0.1 0.1 0.2 Intra-group borrowings 51.6 51.6 65.6 49.5 123.4 621.6 114.0 993.7 58.6 1,027.1 3,053.5 On Up to 3 3 12 1 2 2 3 3 4 4 5 Over 5 Company demand months months years years years years years Total 2006 m m m m m m m m m Bank overdrafts 12.0 12.0 Bank borrowings 17.0 52.7 70.3 486.1 40.4 633.0 0.9 1,300.4 Debenture loans and other borrowings 26.0 146.5 57.9 36.0 36.0 111.7 545.2 959.3 Obligations under finance leases and hire purchase contracts 0.1 0.1 Intra-group borrowings 38.1 38.1 50.1 43.0 199.2 128.3 522.1 76.4 744.7 546.1 2,309.9 100

22. BORROWINGS continued Obligations under finance leases and hire purchase contracts The Group and Company s gross obligations under finance leases and hire purchase contracts are as follows: Group Company 2007 2006 2007 2006 m m m m Gross lease payments: Not later than one year 2.1 2.8 Later than one year but not more than five 4.4 3.2 0.2 0.1 6.5 6.0 0.2 0.1 Future finance charges (0.5) (0.4) Present value of minimum lease payments 6.0 5.6 0.2 0.1 The above figures relate to motor vehicles acquired under hire purchase contracts and computer hardware acquired under finance lease agreements. Liquidity risk obligations under operating lease contracts The maturity profiles of the contractual cash flows associated with the Group and Company s operating leases are analysed below. Up to 3 3 12 1 2 2 3 3 4 4 5 Over 5 Group months months years years years years years Total m m m m m m m m 2007 2.5 6.1 5.9 3.9 2.4 1.4 3.6 25.8 2006 2.6 6.6 6.5 4.2 2.6 1.8 4.8 29.1 Up to 3 3 12 1 2 2 3 3 4 4 5 Over 5 Company months months years years years years years Total m m m m m m m m 2007 0.1 0.2 0.2 0.2 0.1 0.8 2006 0.1 0.2 0.2 0.2 0.2 0.2 1.1 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 101

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 23. FINANCIAL INSTRUMENTS A description of how the Group is exposed to interest rate and currency risk in relation to its borrowings, as well as details on the Group s objectives, policies and processes for managing these risks and how they are measured, is set out in the Operating and Financial Review on page 22 in the sections entitled Interest rate risk and Currency risk. Details are also given in relation to the counterparty credit risk associated with the Group s derivative financial instruments in the section entitled Counterparty credit risk on pages 22 and 23. Interest rate risk At 31 December 2007, the Group and the Company held interest rate swaps covering floating rate bank borrowings of 1.0 billion (2006: 707.0 million), effectively fixing the associated cost of interest at rates between 4.01% and 5.72% (2006: 4.01% and 6.43%). In addition, the Group and the Company held a collar covering a further 10.0 million (2006: 10.0 million), which is allowed to floatata floor rate of 4.25% and a cap rate of 4.75% (2006: floor rate of 4.25% and a cap rate of 4.75%). Except for the collar, all of the interest rate financial instruments are designated as cash flow hedges. The gains and losses deferred in equity will be recorded in the income statement during the next ten years (2006: five years), being the remaining lives of the instruments. Foreign currency risk All foreign currency denominated borrowings are immediately swapped into sterling at the commencement of the facility agreement and, hence, the Group and the Company are not exposed to currency rate fluctuations. Of the Group and the Company s cross-currency swaps 75.5 million (2006: 75.5 million) are designated as fair value hedges and, as a consequence, the change in the fair values of these swaps is recorded in the income statement within interest expense, together with the change in the fair values of US Dollar denominated tranches of a private placing which the swaps have hedged. The remaining 47.2 million (2006: 47.2 million) of cross-currency swaps are designated as cash flow hedges and were taken out to hedge against the interest and currency risk associated with US Dollar and Euro denominated tranches of a private placing. The following table shows the fair value of derivative financial instruments, as well as their notional amounts that equal the amount of the associated borrowing: 2007 2006 Notional Notional Group and Company amount Assets Liabilities amount Assets Liabilities m m m m m m Interest rate swaps 1,010.0 3.0 9.1 707.0 7.7 0.3 Interest rate caps and collars 10.0 0.1 10.0 0.1 Cross-currency swaps 122.7 0.2 26.1 122.7 26.3 1,142.7 3.3 35.2 839.7 7.8 26.6 Comprising: Current 0.6 7.8 0.3 0.2 Non-current 2.7 27.4 7.5 26.4 3.3 35.2 7.8 26.6 The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the balance sheet. Neither the Group nor the Company holds any other derivatives and neither have they identified embedded derivatives which require separate accounting for in accordance with IAS 39 Financial instruments: Recognition & measurement. 102

23. FINANCIAL INSTRUMENTS continued Liquidity risk The contractual maturities of the Group and Company s derivatives are analysed as follows: Up to 3 3 12 1 2 2 3 3 4 4 5 Over 5 Group and Company months months years years years years years Total 2007 m m m m m m m m Derivatives settled on a net basis: Interest rate swaps (1.3) 0.3 3.4 2.7 1.9 1.8 2.5 11.3 Derivatives settled on a gross basis: Cross-currency swaps Outflow 0.7 36.0 6.4 6.5 65.6 2.1 36.2 153.5 Inflow (1.3) (25.5) (5.2) (5.2) (50.1) (1.9) (33.0) (122.2) Up to 3 3 12 1 2 2 3 3 4 4 5 Over 5 Group and Company months months years years years years years Total 2006 m m m m m m m m Derivatives settled on a net basis: Interest rate swaps 0.1 (0.1) 0.1 0.3 0.4 Derivatives settled on a gross basis: Cross-currency swaps Outflow 0.7 8.2 36.5 6.7 6.7 65.6 38.3 162.7 Inflow (1.3) (5.4) (27.2) (5.3) (5.3) (50.9) (35.1) (130.5) Cash flow hedges The following table shows the impact of the Group and Company s cash flow hedges on the income statement and equity during the year: Group and Company 2007 2006 m m Amount recognised in equity (13.3) 11.2 Amount removed from equity via the income statement (within interest expense) (6.1) 1.3 Ineffectiveness recognised in the income statement (within interest expense) 1.1 (2.1) Fair value hedges The following table shows the impact of the Group and Company s fair value hedges on the balance sheet and the income statement during the year: Group and Company 2007 2006 m m Gains/(losses) on the hedging instruments 0.7 (8.5) (Losses)/gains on the hedged borrowings (0.6) 8.0 Ineffectiveness recognised in the income statement (within interest expense) (0.1) 0.5 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 103

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 23. FINANCIAL INSTRUMENTS continued Sensitivity analysis An increase in LIBOR by one percentage point would have an adverse impact on profit for the year of 1.9 million (2006: 2.4 million) and a favourable impact on equity of 34.1 million (2006: 20.1 million). The Group is not exposed to currency risk because all foreign currency denominated borrowings are immediately swapped into sterling at the start of the related facility agreement for the term of the borrowings. Fair values of non-derivative financial instruments The following table summarises the carrying values and fair values of those financial instruments not recognised in the balance sheet at fair value, except for those financial instruments (being loans and receivables, trade and other receivables, cash and cash equivalents, bank overdrafts, trade and other payables, intra-group receivables and payables, and obligations under finance leases and hire purchase contracts) whose carrying values approximate to their fair values. 2007 2006 Carrying Fair Carrying Fair value value value value Group m m m m Bank borrowings (1,326.8) (1,294.8) (1,047.2) (1,062.2) Debenture loans and other borrowings (972.5) (980.1) (690.0) (696.0) Company Bank borrowings (1,326.8) (1,294.8) (1,047.2) (1,062.2) Debenture loans and other borrowings (969.3) (976.9) (686.1) (692.0) The fair values of bank borrowings, debenture loans and other borrowings are calculated by discounting expected future cash flows. Expected future cash flows are derived using interest rates reflected in yield curves available at each balance sheet date and at exchange rates prevailing at each balance sheet date. Effective interest rates The following profile of the Group s financial assets and liabilities is stated after taking into account the effect of the interest rate swaps discussed above. 2007 2006 Weighted average effective interest rates at year-end % % Loans and receivables* 46.8 42.0 Cash equivalents* 5.9 5.2 Bank borrowings 5.6 5.4 Debenture loans and other borrowings* 7.1 7.3 Obligations under finance leases and hire purchase contracts* 6.6 6.4 *Individually these assets and liabilities bear interest at fixed rates Interest on floating rate bank borrowings is based on a fixed margin over floating rate LIBOR, as pre-determined by each facility agreement. The weighted average effective interest rates on the Group s cash and bank overdrafts are based on the prevailing UK base rate less 0.1% and plus 1.0% (2006: less 0.1% and plus 1.0%) respectively. The weighted average effective interest rates in relation to the Company s financial assets and liabilities are the same of those of the Group, except for loans and receivables which was 6.9% at 31 December 2007 (2006: 6.8%). 104

23. FINANCIAL INSTRUMENTS continued Bank facilities The committed bank facilities available to the Group and the Company at 31 December 2007 were: Total facility Undrawn facility Type Maturity period Established m m Overdraft Renewable annually 13.4 0.4 Bilateral June 2009 2007 150.0 150.0 Syndicate July 2009 2004 500.0 7.0 Syndicate July 2011 2006 15.0 1.0 Bilateral July 2011 2004 75.0 15.0 Loan April 2012 2005 6.9 Syndicate July 2012 2006 785.0 32.0 1,545.3 205.4 Utilisation from each syndicated and bilateral facility is by money market renewable term loans or acceptances which are rolled over in one year or less. Principal covenants The Group and the Company must comply with principal lending covenants in respect of the ratio of total borrowings to tangible net worth and the ratio of profit before interest and tax to net interest payable. At 31 December 2007 neither of these covenants had been breached. 24. TRADE AND OTHER PAYABLES Group Company 2007 2006 2007 2006 m m m m Current Trade payables 18.3 17.7 0.5 0.6 Other taxes and social security 6.3 5.9 0.2 0.2 Other payables 3.9 2.4 0.2 Accruals 25.4 19.8 3.2 3.7 53.9 45.8 4.1 4.5 Non-current Other taxes and social security 0.2 0.2 0.2 0.2 Other payables 11.5 4.1 11.6 8.7 11.7 4.3 11.8 8.9 All trade payables have a maturity of within one month. An analysis of the contractual maturities of the Group and Company s other payables has not been presented as the amounts concerned are not material in the context of the Group and Company s total liabilities. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 105

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 25. PROVISIONS Contingent Group consideration Dilapidations Total m m m At 1 January 2007 0.6 1.8 2.4 Additional provisions created 0.6 0.6 Utilised (0.6) (0.2) (0.8) At 31 December 2007 2.2 2.2 2007 2006 m m Current 0.6 Non-current 2.2 1.8 2.2 2.4 The contingent consideration provision, which was held by the Company in 2006, related to the disposal of Cattles Commercial Finance Limited in 2005. The contingent consideration was settled during the year. The dilapidations provision relates to the future cost of rectifying dilapidations across the Group s portfolio of properties, which are under tenant-repairing leases. 26. EQUITY SHARE CAPITAL Group and Company Number m Authorised ordinary shares of 10p each At 1 January 2006, 1 January 2007 and 31 December 2007 500,000,000 50.0 Allotted, called up and fully paid ordinary shares of 10p each At 1 January 2006 328,868,981 32.9 Exercise of options 863,954 0.1 At 1 January 2007 329,732,935 33.0 Issue of new shares through placing 32,978,986 3.3 Exercise of options 92,839 At 31 December 2007 362,804,760 36.3 On 20 March 2007 the Company issued 32,978,986 ordinary shares of a price of 403.25p per share raising aggregate consideration (before costs) of 133.0 million through a placing to 44 institutional investors procured by HSBC Bank plc and CitiGroup Global Markets UK Equity Limited. On 15 March 2007 (the date upon which the terms of the share issue were fixed) the mid-market price of the ordinary shares at the opening and close of business was 400.5p and 416.5p respectively. The rights attached to the ordinary shares are as follows: Voting On a show of hands every ordinary shareholder who is present in person at a general meeting of the Company and every proxy appointed by an ordinary shareholder and present at a general meeting of the Company shall have one vote and on a poll every ordinary shareholder who is present in person or by proxy shall have one vote for every share held. Dividends Ordinary shareholders shall be entitled to receive such dividend as the Company by ordinary resolution may from time to time declare as a final dividend (such dividend not to exceed the amount recommended by the Board) or as the Board may from time to time declare as an interim dividend. No dividend may be paid other than out of profits available for distribution. Return of capital on a winding-up Ordinary shareholders are entitled to participate in any surplus assets on the winding-up of the Company in proportion to their shareholdings. Capital risk A description of the Group s objectives, policies and processes for managing capital risk and how it is measured is set out in the Operating and Financial Review on page 23 in the section entitled Capital risk. 106

27. SHARE-BASED PAYMENTS (a) Group The Group recognised a total charge of 4.9 million (2006: 2.8 million) related to equity-settled share-based payment transactions during the year ended 31 December 2007. Equity-settled share option schemes Outstanding options under the Cattles Executive Share Option Scheme (1994), the Cattles Executive Share Option Scheme (1996) and the Cattles Employee Sharesave Scheme at 31 December 2007 are as follows: Exercise price Exercise 2007 2006 Period granted (pence) period Number Number Executive Share Option Schemes 1997 171.25 171.50 2000 2007 36,400 1998 241.75 2001 2008 2,400 2,400 1999 326.40 363.95 2002 2009 87,400 116,000 2000 220.10 2003 2010 500 4,000 2001 221.60 283.20 2004 2011 19,000 19,000 2002 324.50 331.90 2005 2012 8,000 14,000 117,300 191,800 Employee Sharesave Scheme 2001 200.90 2006 2007 40,176 2003 285.60 2008 2009 347,484 381,627 2005 243.20 2010 2011 670,514 760,130 2007 298.20 2010 2011 423,942 2007 298.20 2012 2013 746,017 2,187,957 1,181,933 2,305,257 1,373,733 The outstanding share options may be analysed by range of exercise prices as follows: 2007 2006 Weighted Weighted Weighted Weighted average average average average Range of exercise exercise price remaining life exercise price remaining life prices (pence) (pence) Number (years) (pence) Number (years) 171.25 199.00 171.42 36,400 0.68 200.00 249.00 242.96 680,414 3.41 240.81 813,706 4.21 250.00 299.00 295.21 1,529,443 3.94 285.49 393,627 2.47 300.00 363.95 358.43 95,400 1.53 357.78 130,000 2.61 282.40 2,305,257 3.68 262.84 1,373,733 3.47 Details of the share option schemes and of the directors interests in share options and the issued shares of the Company are set out in the audited section of the Directors Remuneration Report on page 62 and the Directors Report on page 66, respectively. A reconciliation of option movements during the year is shown below: 2007 2006 Weighted Weighted average average exercise exercise price price Number (pence) Number (pence) Outstanding at 1 January 1,373,733 262.84 2,457,778 248.98 Granted 1,183,991 298.20 Exercised (92,839) 247.22 (863,954) 223.37 Expired (159,628) 251.77 (220,091) 262.96 Outstanding at 31 December 2,305,257 282.40 1,373,733 262.84 Exercisable at 31 December 117,300 339.46 231,976 289.82 On 26 October 2007 1,183,991 options were granted (2006: nil) with an estimated fair value of 0.5 million. The weighted average share price during the year for options exercised over the year was 383p (2006: 358p). OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 107

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 27. SHARE-BASED PAYMENTS continued Shares issued under long-term incentive plans and Share Incentive Plan The Group has a number of long-term incentive plans for directors and senior executives. Details of each plan are set out in the Directors Remuneration Report on pages 56 to 59. During the year 2,042,404 shares (2006: 891,367 shares) with an estimated fair value of 6.2 million (2006: 2.8 million) were awarded to directors and senior executives under these plans. The Group also operates a Share Incentive Plan which is open to all eligible UK employees, including executive directors, and is an HMRC-approved all-employee scheme. During the year 572,167 shares (2006: 576,783 shares) with an estimated fair value of 1.8 million (2006: 1.5 million) were awarded to staff, including directors and senior executives under the Share Incentive Plan. (b) Company The Company recognised a total charge of 2.8 million (2006: 0.9 million) related to equity-settled share-based payment transactions during the year ended 31 December 2007. Equity-settled share option schemes Outstanding options under the Cattles Executive Share Option Scheme (1994), the Cattles Executive Share Option Scheme (1996) and the Cattles Employee Sharesave Scheme at 31 December 2007 are as follows: Exercise price Exercise 2007 2006 Period granted (pence) period Number Number Executive Share Option Schemes 1998 241.75 2001 2008 2,400 2,400 1999 363.95 2002 2009 4,000 4,000 6,400 6,400 Employee Sharesave Scheme 2003 285.60 2008 2009 27,758 27,758 2006 243.20 2010 2011 25,471 25,471 2007 298.20 2010 2011 11,818 2007 298.20 2012 2013 40,761 105,808 53,229 112,208 59,629 The outstanding share options may be analysed by range of exercise prices as follows: 2007 2006 Weighted Weighted Weighted Weighted average average average average Range of exercise exercise price remaining life exercise price remaining life prices (pence) (pence) Number (years) (pence) Number (years) 241.95 249.00 243.08 27,871 3.19 243.08 27,871 4.19 250.00 299.00 293.85 80,337 3.74 285.60 27,758 2.42 300.00 363.95 363.95 4,000 1.25 363.95 4,000 2.25 283.74 112,208 3.51 270.98 59,629 3.24 A reconciliation of option movements during the year is shown below: 2007 2006 Weighted Weighted average average exercise exercise price price Number (pence) Number (pence) Outstanding at 1 January 59,629 270.98 156,227 241.10 Granted 52,579 298.20 Exercised (95,853) 222.83 Expired (745) 200.90 Outstanding at 31 December 112,208 283.74 59,629 270.98 Exercisable at 31 December 6,400 318.13 6,400 318.13 On 26 October 2007 52,579 options were granted (2006: nil) with an estimated fair value of 0.1 million. No options were exercised in the year and the weighted average share price during 2006 was 358p. 108

27. SHARE-BASED PAYMENTS continued Fair value of share-based payments The fair values of all share-based payments arising from share awards in relation to both the Group and the Company have been estimated using the Black-Scholes option pricing model. The assumptions used in the fair value calculations relating to share awards which have not vested by 31 December 2007 are as follows: Arrangement Employee Sharesave Scheme Share Incentive Plan Grant of Grant of Grant of Grant of Grant of Grant of Nature of arrangement options options options options shares shares Grant date 1/10/03 25/10/05 26/10/07 26/10/07 31/5/06 31/5/07 Share price at grant date 327p 271p 342p 342p 346p 413.25p Exercise price 285.6p 243.2p 298.2p 298.2p 0p 0p Shares under option (at grant date) 755,683 878,109 428,511 755,480 576,783 572,167 Vesting period (years) 5.2 5.1 3.1 5.1 2.0 2.0 Expected volatility 31% 31% 27% 26% n/a n/a Expected life (years) 5.2 5.1 3.1 5.1 2.0 2.0 Risk free rate 4.3% 4.3% 4.9% 4.9% n/a n/a Expected dividends expressed as dividend yield 3.3% 5.4% 5.3% 5.3% n/a n/a Expected forfeiture rate (pa) 9% 9.1% 12% 12% 14% 14% Fair value per option 95.2p 60.9p 70.3p 73.0p 346.3p 413.3p Arrangement Long-Term Incentives 1 Grant of Grant of Grant of Grant of Grant of Grant of Grant of Grant of Grant of Nature of arrangement shares shares shares shares shares shares shares shares shares Grant date 23/5/05 23/11/06 24/4/07 21/6/07 21/6/07 29/6/07 17/9/07 17/9/07 17/9/07 Share price at grant date 298p 406p 399.75p 401p 401p 392p 356.25p 356.25p 356.25p Exercise price 0p 0p 0p 0p 0p 0p 0p 0p 0p Shares under option (at grant date) 546,408 891,367 875,025 159,887 159,888 250,958 267,737 137,080 137,080 Vesting period (years) 3.0 3.0 3.0 1.5 3.0 3.0 2.8 2.1 4.1 Expected volatility n/a n/a n/a n/a n/a n/a n/a n/a n/a Expected life (years) 3.0 3.0 3.0 1.5 3.0 3.0 2.8 2.1 4.1 Risk free rate n/a n/a n/a n/a n/a n/a n/a n/a n/a Expected dividends expressed as dividend yield 4.7% 4.0% 4.4% 4.4% 4.4% 4.5% 5.0% 5.0% 5.0% Expected forfeiture rate (pa) 0% 0% 0% 0% 0% 0% 0% 0% 0% Fair value per option 258.8p 359.9p 350.6p 375.5p 351.8p 342.9p 309.9p 321.3p 290.6p 1 Long-term incentives include the Long-Term Incentive Plan, the Management Share Plan, the Restricted Share Award and the Restricted Share Scheme. The expected volatility is based on historical volatility over an appropriate period, consistent with the assumed option life. The expected life is the average expected period to exercise from the date of grant. The vesting period represents the contractual period to the earliest vesting date. The risk free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed option life. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 109

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 28. STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY Share Share premium Other Retained Total capital account reserves earnings equity Group m m m m m (note 26) (note 29) At 1 January 2006 32.9 142.0 (8.8) 194.8 360.9 Actuarial gains on defined benefit pension scheme, net of tax 5.2 5.2 Fair value gains on cash flow hedges, net of tax 7.4 7.4 Transfers to net profit, including amortisation of transitional hedging reserve 1.3 1.3 Tax on share-based payments 0.3 0.3 Net gains recognised directly in equity 8.7 5.5 14.2 Profit for the year 91.8 91.8 Total recognised income and expense for year 8.7 97.3 106.0 Share-based payments: Value of services provided 2.8 2.8 Settlement of share awards (2.6) (2.6) Vesting of shares 1.2 1.2 Dividends (53.4) (53.4) Issue of equity exercise of options 0.1 1.9 2.0 At 1 January 2007 33.0 143.9 1.1 238.9 416.9 Actuarial gains on defined benefit pension scheme, net of tax 5.6 5.6 Fair value losses on cash flow hedges, net of tax (3.1) (3.1) Transfers to net profit, including amortisation of transitional hedging reserve (6.1) (6.1) Tax on share-based payments 0.4 0.4 Net gains/(losses) recognised directly in equity (9.2) 6.0 (3.2) Profit for the year 114.7 114.7 Total recognised income and expense for year (9.2) 120.7 111.5 Share-based payments: Value of services provided 4.9 4.9 Settlement of share awards (4.1) (4.1) Vesting of shares 2.3 2.3 Dividends (65.3) (65.3) Issue of equity placing 3.3 129.7 133.0 Costs incurred in share issue (4.3) (4.3) Issue of equity exercise of options 0.2 0.2 At 31 December 2007 36.3 269.5 (5.8) 295.1 595.1 110

28. STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY continued Share Share premium Other Retained Total capital account reserves earnings equity Company m m m m m (note 26) (note 29) At 1 January 2006 32.9 142.0 34.5 79.1 288.5 Actuarial gains on defined benefit pension scheme, net of tax 5.2 5.2 Fair value gains on cash flow hedges, net of tax 7.4 7.4 Transfers to net profit, including amortisation of transitional hedging reserve 1.3 1.3 Tax on share-based payments 0.4 0.4 Net gains recognised directly in equity 8.7 5.6 14.3 Profit for the year 27.6 27.6 Total recognised income and expense for year 8.7 33.2 41.9 Share-based payments: Value of services provided by Company and subsidiary employees 2.8 2.8 Settlement of share awards (2.6) (2.6) Dividends (53.4) (53.4) Transfer from other reserves to retained earnings (34.8) 34.8 Issue of equity exercise of options 0.1 1.9 2.0 At 1 January 2007 33.0 143.9 8.4 93.9 279.2 Actuarial gains on defined benefit pension scheme, net of tax 5.6 5.6 Fair value losses on cash flow hedges, net of tax (3.1) (3.1) Transfers to net profit, including amortisation of transitional hedging reserve (6.1) (6.1) Tax on share-based payments 0.3 0.3 Net gains/(losses) recognised directly in equity (9.2) 5.9 (3.3) Profit for the year 68.7 68.7 Total recognised income and expense for year (9.2) 74.6 65.4 Share-based payments: Value of services provided by Company and subsidiary employees 4.9 4.9 Settlement of share awards (4.1) (4.1) Dividends (65.3) (65.3) Issue of equity placing 3.3 129.7 133.0 Costs incurred in share issue (4.3) (4.3) Issue of equity exercise of options 0.2 0.2 At 31 December 2007 36.3 269.5 (0.8) 104.0 409.0 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 111

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 29. OTHER RESERVES Hedging Own shares Total Group reserve held reserve other reserves m m m At 1 January 2006 (4.5) (4.3) (8.8) Fair value gains on cash flow hedges, net of tax 7.4 7.4 Transfers to net profit, including amortisation of transitional hedging reserve 1.3 1.3 Vesting of shares in Restricted Share Scheme 1.2 1.2 At 1 January 2007 4.2 (3.1) 1.1 Fair value losses on cash flow hedges, net of tax (3.1) (3.1) Transfers to net profit, including amortisation of transitional hedging reserve (6.1) (6.1) Vesting of shares in Restricted Share Scheme 2.3 2.3 At 31 December 2007 (5.0) (0.8) (5.8) Hedging reserve From 1 January 2005, the Group achieved hedge accounting such that the hedging reserve includes the effective portion of the cumulative net change in the fair value of cash flow hedging instruments relating to hedged transactions that have not yet occurred. The reserve also includes the unamortised portion of a hedging reserve which arose, in the absence of hedge accounting under IAS 39 Financial instruments: Recognition & measurement, on transition to IFRS of 0.4 million at 31 December 2007 (2006: 0.7 million). This element of the hedging reserve is being amortised through the income statement in a way so as to reflect how the item that was being hedge accounted under UK GAAP has affected profit or loss in the year. Own shares held reserve The own shares held reserve comprises the cost of the shares in held by the employee benefit trust to meet obligations under the Group s long-term incentive plans. The shares were acquired by the trust in the open market using funds provided by the Company. Shares held in trust Nominal value Number m At 1 January 2006 1,432,953 0.1 Awarded by the trust (430,930) At 1 January 2007 1,002,023 0.1 Awarded by the trust (720,282) (0.1) At 31 December 2007 281,741 The market value of the own shares held at 31 December 2007 was 0.8 million (2006: 4.4 million). As at 31 December 2007, the shareholders authority for the Company to purchase its own shares, as approved in Resolution 9 at the Annual General Meeting of 11 May 2007, remained valid. 112

29. OTHER RESERVES continued Capital Total Hedging reduction Special Merger other Company reserve reserve reserve reserve reserves m m m m m At 1 January 2006 (4.5) 8.8 26.0 4.2 34.5 Fair value gains on cash flow hedges, net of tax 7.4 7.4 Transfers to net profit, including amortisation of transitional hedging reserve 1.3 1.3 Transfer to retained earnings (8.8) (26.0) (34.8) At 1 January 2007 4.2 4.2 8.4 Fair value losses on cash flow hedges, net of tax (3.1) (3.1) Transfers to net profit, including amortisation of transitional hedging reserve (6.1) (6.1) At 31 December 2007 (5.0) 4.2 (0.8) Merger reserve The merger reserve has arisen over numerous years in relation to past acquisitions. This reserve is considered non-distributable. 30. RECONCILIATION OF PROFIT BEFORE TAXATION TO CASH FLOW FROM OPERATIONS Group Company 2007 2006 2007 2006 m m m m Profit before taxation 165.2 132.2 68.4 26.5 Adjustments for: Dividend income (72.4) (31.3) Profit on disposal of subsidiary undertakings (0.5) (0.5) Depreciation of property, plant and equipment 6.6 6.8 0.1 0.1 Profit on disposal of property, plant and equipment (0.1) (0.6) Amortisation of intangible assets 3.6 3.6 0.1 Share-based payments 3.1 1.5 1.0 (1.8) Fair value movements on derivatives 0.4 (1.6) 0.4 (1.6) Increase in loans and receivables (738.7) (431.6) Increase in inventories (5.4) (3.7) (Increase)/decrease in trade and other receivables 3.8 (13.1) 0.4 0.1 Increase/(decrease) in trade and other payables 15.5 (65.1) 2.5 4.3 Increase/(decrease) in borrowings 9.9 (0.9) 9.9 (0.9) Increase in provisions 0.4 0.2 Decrease in retirement benefit obligation (1.7) (3.4) (1.7) (3.4) Cash in/(out)flow from operations (537.4) (376.2) 8.6 (8.4) The amount of interest paid and received (excluding that recognised in interest income) during the year was as follows: Group Company 2007 2006 2007 2006 m m m m Interest paid (123.4) (101.8) (122.2) (99.6) Interest received 4.4 4.0 151.8 112.2 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 113

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 31. PENSION OBLIGATIONS The Group operates both defined benefit and defined contribution pension plans. Defined contribution post-employment benefit plans The Group operates a number of defined contribution personal pension plans for new employees and for existing employees who are not members of the defined benefit scheme. The expense recognised by the Group and the Company for the defined contribution plans is 1.6 million (2006: 1.2 million) and 0.2 million (2006: 0.1 million) respectively. Defined benefit post-employment benefit plan The Group and Company operates a funded defined benefit scheme for certain employees, providing benefits based on final salary. The assets of the scheme are held in a separate trustee-administered fund. Contributions to the scheme are assessed in accordance with the advice of an independent qualified actuary using the projected unit method. The scheme was closed to new applicants from 1998. The retirement benefit obligation included in the balance sheet is analysed as: 2007 2006 m m Present value of plan liabilities 72.9 78.1 Fair value of plan assets (58.8) (54.3) Retirement benefit obligation 14.1 23.8 The amounts charged in the income statement in respect of the defined benefit plan are as follows: 2007 2006 m m Current service cost (i) 1.4 1.5 Interest cost 3.9 3.8 Expected return on plan assets (3.8) (3.3) Past service cost (ii) (2.0) Total defined benefit pension expense (note 8) 1.5 (i) Current service cost is net of employee contributions. (ii) The past service cost reflected the change in commutation benefits available to members following an amendment to the scheme rules, which arose from the change in pension legislation effective from 6 April 2007 (A-Day). The defined benefit pension expense is included in staff costs in the income statement. The total return on plan assets was 4.3 million, 0.5 million in excess of that assumed (2006: the total return was 6.4 million, 3.1 million in excess of that assumed). The cumulative actuarial gains and losses (before deferred tax) recognised in the statement of recognised income and expense in respect of the defined benefit plan are as follows: 2007 2006 m m Net actuarial gains recognised in the year 8.0 7.5 Cumulative net actuarial losses recognised at start of year (3.0) (10.5) Cumulative net actuarial gains/(losses) recognised at end of year 5.0 (3.0) 114

31. PENSION OBLIGATIONS continued Principal actuarial assumptions used 2007 2006 % % Inflation rate 3.3 3.1 Expected rate of salary increases (i) 4.8 4.6 Expected rate of pension increases (ii) 3.2 3.1 Discount rate 5.8 5.1 Proportion of members that will take maximum tax free cash allowance on retirement 75.0 75.0 Expected return on plan assets 7.2 7.0 Analysed as: Equities 8.2 8.0 Bonds 5.0 4.8 Cash 5.5 5.0 2007 2006 Number of years a current pensioner is expected to live beyond 65: Men 20.7 19.2 Women 23.2 22.2 Number of years a future pensioner currently aged 50 is expected to live beyond 65: Men 21.7 20.1 Women 24.0 23.1 (i) In addition, allowance is made for scale of age related promotional increases. (ii) In excess of any Guaranteed Minimum Pension (GMP) element. The expected return on plan assets assumptions reflect the actual split of the plan s assets into the different types of underlying investments and are based on the following: Equities The best estimate return on the fund s equity portfolio based on an asset model provided by the fund s investment advisers. Bonds Gross redemption yields on both government and corporate bonds at the balance sheet date, weighted by the holding in each class. Cash Yield on long-term cash investments at the balance sheet date. Sensitivities The sensitivity of plan liabilities and pension expense to changes in certain key assumptions are as follows: Estimated Estimated increase increase Assumption Assumption change Impact on % m Discount rate Reduce by 0.5% Plan liabilities 10 7.8 Pension expense 30 0.4 Expected rate of salary increases Increase by 0.5% Plan liabilities 1 1.0 Pension expense 15 0.2 Changes in the present value of the plan liabilities are as follows: 2007 2006 m m Present value of plan liabilities at start of year 78.1 81.4 Current service cost 1.4 1.5 Interest cost 3.9 3.8 Contributions by plan participants 0.3 0.3 Past service cost (2.0) Actuarial gain (7.5) (4.4) Benefit payments (3.3) (2.5) Present value of plan liabilities at end of year 72.9 78.1 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 115

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 31. PENSION OBLIGATIONS continued Changes in the fair value of plan assets are as follows: 2007 2006 m m Fair value of plan assets at start of year 54.3 46.7 Expected return on plan assets 3.8 3.3 Return on assets in excess of that assumed 0.5 3.1 Contributions by plan participants 0.3 0.3 Contributions by the employer 3.2 3.4 Benefit payments (3.3) (2.5) Fair value of plan assets at end of year 58.8 54.3 The fair value of plan assets at the balance sheet date is analysed as follows: 2007 2006 m m Equities 40.1 38.1 Fixed interest bonds 18.2 15.5 Cash 0.5 0.7 58.8 54.3 The plan assets do not include any of the Group s own financial instruments, other than within the UK equity index tracking funds held, nor any property occupied by, or other assets used by, the Group. The history of the plan is as follows: 2007 2006 2005 2004 m m m m Present value of plan liabilities 72.9 78.1 81.4 67.3 Fair value of plan assets (58.8) (54.3) (46.7) (38.4) Retirement benefit obligation 14.1 23.8 34.7 28.9 Experience gain/(loss) on defined benefit obligation 7.5 4.4 (11.4) (5.2) Experience gain on plan assets 0.5 3.1 4.6 1.5 Net actuarial gain/(loss) recognised in the year 8.0 7.5 (6.8) (3.7) Members contribute at the rate of either 3% or 5% of pensionable salaries, depending on their membership status. The estimated amount of employee contributions for 2008 is 0.3 million. The participating employer companies make normal contributions of 3.4 times members contributions such that the estimated amount of normal employer contributions for 2008 is 1.0 million. In addition, the Company has entered into an agreement with the pension scheme whereby it will make additional shortfall contributions of 2.2 million per annum. Therefore, the estimated total amount of employer contributions for 2008 is 3.2 million. Work in respect of the actuarial valuation of the fund as at 31 March 2007 is currently in progress and the Company and trustees will agree the funding target and contributions during 2008. Impact of IFRIC 14 Work is currently being undertaken to establish how interpretation IFRIC 14 IAS 19 The limit on a defined benefit asset minimum funding requirements, which is effective from 1 January 2008, will impact on the value of the Group and Company s retirement benefit obligation going forward. This assessment will take account of the latest actuarial valuation and the new schedule of contributions to be agreed in 2008, however it is expected that the adoption of IFRIC 14 will have no material financial impact as at 1 January 2008. 116

32. OPERATING LEASE ARRANGEMENTS At the balance sheet date the Group and Company had total future lease payments under non-cancellable operating leases as follows: Group Company 2007 2006 2007 2006 Land and Motor Land and Motor Land and Motor Land and Motor buildings vehicles buildings vehicles buildings vehicles buildings vehicles m m m m m m m m Future lease payments: Within one year 5.7 2.9 6.1 3.2 0.3 0.1 0.1 0.1 In two to five years 10.4 3.3 12.4 2.7 0.4 0.6 0.2 After five years 3.5 4.8 19.6 6.2 23.3 5.9 0.7 0.1 0.7 0.3 The following amounts were recognised in the income statement during the year: Group Company 2007 2006 2007 2006 m m m m Lease payments 13.9 13.7 0.3 0.3 33. CONTINGENT LIABILITIES The Company remains as guarantor of a proportion of the leases of properties held and utilised by Homestyle Group plc (formerly Rosebys PLC) entered into when that company was a wholly owned subsidiary undertaking. The maximum liability under these guarantees amounts to 0.5 million (2006: 0.7 million). 34. RELATED PARTY TRANSACTIONS The Group s payroll is administered by a subsidiary undertaking with the relevant payroll charges being recharged to the parent company and fellow group companies. The subsidiary undertaking does not make any charge for providing these services. The Company provides borrowing facilities for its subsidiary undertakings, for which a financing charge is levied each month. This charge is based upon the Company s average cost of borrowing. The Company also levies a management fee to certain of its subsidiary undertakings in relation to providing them with certain services, such as internal audit services. This management fee is calculated on a cost incurred basis. The Company is provided with IT services by one of its subsidiary undertakings for which a management charge is incurred. The charge is calculated on a cost incurred basis. The following related party transactions were carried out by the Company with its subsidiary undertakings during the year: 2007 2006 m m Lending of funds 712.9 336.8 Intra-group finance income 150.2 113.5 Management fee central services 0.3 1.3 Management charge IT services 0.1 0.1 Receivables due from and payables to subsidiary undertakings are disclosed in note 18 and note 22 respectively. Key management compensation is disclosed in note 8. OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 117

NOTES TO THE ACCOUNTS For the year ended 31 December 2007 continued 35. PRINCIPAL OPERATING SUBSIDIARY UNDERTAKINGS Subsidiary undertaking Welcome Financial Services Welcome Financial Services Limited, trading as: Welcome Finance Welcome Car Finance Shopacheck Financial Services The Lewis Group The Lewis Group Limited C L Finance Limited Cattles Invoice Finance Cattles Invoice Finance Limited Cattles Invoice Finance (Oxford) Limited Principal activity Monthly instalment personal loans and hire purchase credit Direct distribution car retailer Weekly home collected credit Debt collection and investigation services Debt purchase Invoice finance Invoice finance All the above companies are wholly owned. They operate in the United Kingdom and are registered in England with the exception of The Lewis Group Limited, which is registered in Scotland. Companies which are dormant or whose operations are insignificant have been excluded. 118

SHAREHOLDER INFORMATION FINAL DIVIDEND PAYMENT DETAILS A list of the key dates leading to the payment of the final dividend is set out below: Shares quoted ex-dividend 26 March 2008 Record date 28 March 2008 Last date for receipt of Dividend Reinvestment Plan mandates (to be included for the final dividend) 21 April 2008 Payment of final dividend 13.10p (net) 13 May 2008 DIVIDEND REINVESTMENT PLAN The Dividend Reinvestment Plan (Plan) allows shareholders to reinvest their cash dividend in shares bought on the London Stock Exchange through a specially arranged share dealing service. The Plan is run and administered by the Company s Registrars, Computershare Investor Services PLC. For legal reasons, the Plan is available only to shareholders resident in the UK (excluding the Channel Islands), be they individuals or corporate shareholders. If shareholders have not previously completed a mandate and wish to participate in the Plan, they should contact the Registrars online at www.computershare.com/investor/uk or by telephone on 0870 889 4021. New mandates must be received by close of business on 21 April 2008 to be included in the Plan for the final dividend. If shareholders choose to join the Plan, their cash dividend will be used to buy ordinary shares. They will be charged a dealing commission of 0.5% of the value of shares purchased and will be required to pay stamp duty reserve tax at the prevailing rate (currently 0.5%). DIVIDEND MANDATE Using the BACS system, shareholders may choose to have their dividends paid electronically into their bank or building society account. This process ensures that the amount of the dividend is passed directly into their account, as cleared funds, on the date the payment is due. Confirmation of these details will be contained in a dividend tax voucher which is posted or emailed to shareholders registered addresses at the time of payment. This voucher should be kept for future reference. ELECTRONIC COMPANY COMMUNICATIONS Instead of receiving printed documents through the post, shareholders can now receive the Financial Statements, Notice of Annual General Meeting and other shareholder documents electronically, as soon as they are published. An online version of this Financial Statements is available on the website, www.cattles.co.uk, and can be found in the Investor Centre section, alongside copies of prior year reports. Shareholders can view, download or print all of the documents or only those pages in which they are particularly interested. Shareholders are also able to appoint a proxy (someone to vote for them at shareholder meetings) electronically. Shareholders who would like to sign up for electronic communications should log onto www.etreeuk.com/cattlesplc and then use the option to express register for Investor Centre where they can manage their shareholding online. It is simple to register and only takes a few minutes. Once registered, when the Company issues a document or communication to shareholders, shareholders will receive an email containing a link to a page of the website which contains the issued document or communication. SHAREHOLDER SERVICES AND HELPLINE Computershare Investor Services PLC operates a facility whereby shareholders in are able to access their shareholdings over the internet. Shareholders can access this service on Computershare s website, www.computershare.com. Shareholders will need their shareholder reference number, which is printed on their share certificate or tax voucher, to gain access to this information. Shareholders who change address, want to have their dividends paid directly into their bank or building society account, have a query on their shares, or who otherwise require information about their shareholding should contact the Customer Information Unit at Computershare Investor Services PLC on the shareholder information telephone line: 0870 889 4021. Alternatively, they should write to Computershare Investor Services PLC at PO Box 82, The Pavilions, Bridgwater Road, Bristol, BS99 7NH, indicating that they are a shareholder. 2008 CALENDAR A list of the expected key dates in the 2008 financial calendar is set out below: Annual General Meeting 9 May 2008 Interim Management Statement 9 May 2008 Final dividend payment 13 May 2008 Interim Results Announcement 28 August 2008 Interim dividend payment 10 October 2008 Interim Management Statement 23 October 2008 OVERVIEW 00 11 OPERATING AND FINANCIAL REVIEW 12 40 GOVERNANCE 41 68 FINANCIAL STATEMENTS 69 118 SHAREHOLDER INFORMATION 119 120 119

REGISTERED OFFICE AND ADVISERS Registered Office Kingston House Centre 27 Business Park Woodhead Road Birstall Batley WF17 9TD Registered in England Number 543610 Independent Auditors PricewaterhouseCoopers LLP Benson House 33 Wellington Street Leeds LS1 4JP Internal Auditors Deloitte & Touche LLP 1 City Square Leeds LS1 2AL Principal Bankers The Royal Bank of Scotland plc HSBC Bank plc Barclays Bank PLC Lloyds TSB Bank plc Solicitors Walker Morris Kings Court 12 King Street Leeds LS1 2HL DLA Piper UK LLP 3 Noble Street London EC2V 7EE Joint Stockbrokers HSBC Bank plc 8 Canada Square London E14 5HQ CitiGroup Global Markets Limited CitiGroup Centre 33 Canada Square Canary Wharf London E14 5LB Financial Public Relations Financial Dynamics Ltd. Holborn Gate 26 Southampton Buildings London WC2A 1PB Registrars Computershare Investor Services PLC PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH 120

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Kingston House Centre 27 Business Park Woodhead Road Birstall Batley WF17 9TD Registered in England: Number 543610 Tel: 01924 444466 Fax: 01924 442255 www.cattles.co.uk