CORPORATE STRATEGY

STRATEGIC DIRECTION
The strategic direction of the Company in the short term is to regenerate the football pools business through a major rebrand and relaunch, which will provide the platform for the medium to longer term objective of becoming a broad based, market leading sport, leisure and gaming business with international reach.

DISTINCT GLOBAL ADVANTAGES
As the operator of the oldest independent football gaming business in the world, we have a history and heritage associated with our three football pools businesses which is unparalleled across the world. Since the football pools was first established in 1923 we have created lasting benefits for all of our key stakeholders.

We have consistently delivered quality and valued products to customers and have paid billions of pounds in prizes to millions of winning customers. In addition to our customers, the larger stakeholder community has also benefited substantially over the years. The economy has benefited with significant tax and duty revenue generated over this period. Furthermore, the football pools companies have provided a lasting legacy to local communities and the British public through the contribution of £1.1 billion to football, other sports, the arts and good causes. At its peak, the weekly involvement of one in three of the adult population of the UK playing our games provided unique promotion of football to the general public.

INTERNATIONAL MARKETPLACE
We operate in a global and growing marketplace. Football and particularly British football is experiencing an unprecedented boom in global popularity. Pool (pari-mutuel) gaming and games of skill continue to be the popular forms of gaming around the world, contrary to the position in the UK which is dominated by fixed odds, betting exchanges and spread betting. Against an international backdrop of stringent legislation and the prevalence of pool betting and games of skill, we will endeavour to work with commercial operators, the sports community and governments to take the world’s oldest football gaming business, operating the largest football pool on British football, to the international community.

FOCUS ON CORE VALUES
The overriding strategic objective for the Company has been to refocus on its core business, the football pools. The aim is to regenerate the football pools business and widen the franchise of the pools and associated gaming products. The number one strategic acquisition for the Company, therefore, was Vernons. The acquisition of Vernons enables us to merge the three independent football pools into one enlarged pool, thereby creating bigger prizes and enhanced profile. Importantly, as the existing licence to use the ‘Littlewoods’ name expires in 2010, the acquisition also provides a timely opportunity to relaunch the business as ‘The New Football Pools’, strengthening the marketing message of one business in a very competitive betting and gaming landscape.

Our focus on customer retention continues. For the second year running, excluding the one-off impact of product pricing initiatives, customer attrition levels are at 9%, maintaining the improvement on historic years where customer attrition rates were running in the mid to late teens.

RE-ESTABLISH LINKS WITH FOOTBALL
The football pools has been synonymous with football since its formation in 1923. For years this relationship has extended beyond a financial one, playing a central role in British family culture, as families huddled around the radio, and more recently the television and internet, in anticipation of winning a large sum of money at 5 o’clock on a Saturday afternoon. We are pleased that in December 2007 we re-established strong links with football through a data and marketing agreement to become one of a select number of official licensees of the Premier League and Football Leagues and official partners of their Scottish equivalents until June 2011. Throughout this period we have also established formal links with the Football Foundation and football related charities to support grass roots and club related initiatives.

STRENGTHENED FINANCIAL POSITION
The strategic review of the Company completed in 2007 highlighted the need to re-negotiate the banking facilities, improve the balance sheet position and significantly reduce the gearing ratio.

In December 2007, we entered into new banking arrangements which significantly improve the financial standing of the Company with interest rate margins, covenants and repayment terms appropriate to the Company going forward, rather than the unsuitable and challenging arrangements previously in place.

In addition, the Company further strengthened its balance sheet by the raising of £41.4m in December 2007 from new and existing shareholders to part fund the acquisition of Vernons.

As a result of the acquisition of Vernons, the associated fundraising, elimination of loss making activities and strict management of cash, the gearing ratio over the last two years has been reduced by over a third, from 77% to 49%.

INVESTING IN PRODUCTS, TECHNOLOGY AND DISTRIBUTION
The strategic review highlighted that there had been significant underinvestment over many years in the three key operational areas of the business: products, technology and distribution.

We were delighted to sign a strategic technology and distribution partnership with Scientific Games, the New York-based operator of pari-mutuel (pool) systems, lotteries and betting terminals early in 2007. At the same time, we also signed a contract with a second technology partner, Orbis, a leading provider of interactive betting and gaming solutions.

Technology is the facilitator of change which will enable us to attract a new and younger customer base. By investing in new technology we will enable our current and enhanced range of products to be delivered down new distribution channels, making them easier to access and easy to play.

BRAND
The ‘Littlewoods’ name is used under a licence agreement which expires in 2010 and therefore the Board, as part of its strategic review, has committed to ensuring a smooth transition away from the Littlewoods name over the next two and a half years. The first milestone in this process is the launch of the new brand, The New Football Pools, for our football gaming business. This is now well underway and the new branding is already present on our online football pools and gaming suite.

RELAUNCH OF THE FOOTBALL POOLS
Alongside the rebranding exercise the Company will be relaunching the football pools business in August 2008, as The New Football Pools, to coincide with the start of the 2008/09 football season. Currently we deliver our products down predominantly traditional routes to market (collector and direct mail). However, following completion of the next phase of our technology overhaul, due to be delivered ahead of August 2008, we will develop this business into one that offers a broader, more engaging range of football pools, media, football content and football games, distributed to new and existing customers via online, retail, licensed betting offices, mobile and international outlets, as well as our existing traditional routes to market.
A full marketing and advertising campaign is planned to support this next phase in the development of the football pools business.

E-GAMING
Our strategy for the e-Gaming business has been to refocus and refine this business through better customer relationship management and more sophisticated marketing activity. As a result we are already seeing a substantial increase in profitability. We have also successfully relocated our Casino and Poker business to Malta, providing a more stable framework within which to operate, including the ability to continue advertising in the UK.

OUTLOOK
The Board has established a clear strategy for the Company, one that is expected to deliver increases in shareholder value in the medium term. Trading for the current period has started well. We remain focused on the major business initiatives to be put into place prior to the relaunch of the football pools in August 2008 and we are making significant progress with our international expansion plans. We anticipate being able to update the market of latest developments in the potentially lucrative Asian markets in the near future.

IAN R PENROSE
CHIEF EXECUTIVE
18 March 2008