<xsl:key name="contacts-by-surname" match="contact" use="surname" />
<xsl:template match="records">
	<xsl:for-each select="contact[count(. | key('contacts-by-surname', surname)[1]) = 1]">
		<xsl:sort select="surname" />
		<xsl:value-of select="surname" />,<br />
		<xsl:for-each select="key('contacts-by-surname', surname)">
			<xsl:sort select="forename" />
			<xsl:value-of select="forename" /> (<xsl:value-of select="title" />)<br />
		</xsl:for-each>
	</xsl:for-each>
</xsl:template>

Grouping Using the Muenchian Method

XSLT