financial statements 2017 shaping the … · s rpt. communisis plc. annual report and financial...

SHAPING THE FUTURE OF CUSTOMER COMMUNICATIONS

COMMUNISIS PLCANNUAL REPORT AND FINANCIAL STATEMENTS 2017

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STRATEGIC REPORT01 Highlights02 Communisis at a glance08 Chairman’s statement10 Business model12 Chief Executive’s statement16 Strategy18 Risk management and principal risks22 Financial review26 Corporate social responsibility report

CORPORATE GOVERNANCE33 Introduction to Corporate governance34 Board of Directors36 Corporate governance report40 Nomination Committee report42 Audit Committee report44 Directors’ remuneration report60 Directors’ report64 Statement of Directors’ responsibilities

FINANCIAL STATEMENTS66 Independent auditor’s report74 Consolidated income statement75 Consolidated statement of

comprehensive income76 Consolidated balance sheet77 Consolidated cash flow statement78 Consolidated statement of changes

in equity79 Notes to the Consolidated

financial statements116 Company balance sheet117 Company statement of changes in equity118 Notes to the Company financial statements

SHAREHOLDER INFORMATION

129 Shareholder information

“ STRONG TRADING IN 2017 SAW COMMUNISIS GENERATING PROFITABLE GROWTH WITH GOOD LEVELS OF FREE CASH FLOW AND A SIGNIFICANT REDUCTION IN NET DEBT. LONG-TERM CONTRACTS HAVE BEEN SECURED WITH A MAJOR UK BANK AND WITH PROXIMITY LTD TO PROVIDE COMMUNICATION SERVICES TO THE BBC FOR THE TV LICENSING PROGRAMME. A STRATEGY FOR THE GROUP’S NEXT PHASE OF GROWTH IS BEING LAUNCHED: A FOCUSED, THREE YEAR PLAN TO CREATE ENHANCED RETURNS TO SHAREHOLDERS AS WE RAISE THE VALUE WE PROVIDE TO OUR CLIENTS.”

Andy BlundellChief Executive8 March 2018

CASE STUDY

UK MOBILE NETWORK OPERATORRETAIL INNOVATION

To deliver standardisation and simplification for product and POSVM display, the Communisis’ team needed to come up with a faster, more cost effective and bespoke method for deploying campaigns into stores. The solution was an online “store” of retail POS materials, allowing managers to log in and order displays tailored to their requirements.

REDUCED CAMPAIGN MANAGEMENT FROM 5 DAYS TO 15 MINUTES

FIND OUT MORE ONLINE AT COMMUNISIS.COM

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linkedin.com/company/communisis

COMMUNISIS IS AN INTEGRATED BUSINESS SERVICES COMPANY WHICH DRIVES CLIENT VALUE AND SUSTAINABLE PROFIT IMPROVEMENT, THROUGH THE PROVISION OF INCREASINGLY DIGITALLY ENABLED SOLUTIONS FOR REGULATED TRANSACTIONAL COMMUNICATION AND MARKETING EXECUTION.

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01Communisis plc Annual Report and Financial Statements 2017

FINANCIAL HIGHLIGHTS

VALUE ENHANCEMENT PROGRAMME (VEP) 2020 – THREE YEAR PLAN HIGHLIGHTS

2017 6.4

2016 6.1

2015 5.2

2017 14.4

2016 11.6

2015 17.3

2017 17.2

2016 16.7

2015 14.5

2017 2.66

2016 2.42

2015 2.20

• The financial target is to create sustainable shareholder value over the next three years (2018-2020) by growing adjusted diluted earnings per share (EPS) within a range of 5-10% CAGR.

• The VEP is a three-year plan to deliver enhanced returns to our shareholders by raising the demonstrable value we deliver to our clients.

• There will be a deliberate focus on margin improvement and related pricing initiatives.

• The VEP will be driven by three key strategic themes: Digital First, Global Reach and Empowered Organisation.

• The target has now been built into in our senior management remuneration policy and the design of the 2018 Long Term Incentive Plans (LTIPs).

ADJUSTED EARNINGS PER SHARE (EPS)

6.4p (+5%)PROFIT BEFORE TAX

£14.4m (+24%)

2017 12.5

2016 12.9

2015 12.0

FREE CASH FLOW

£12.5m (-3%)

ADJUSTED PROFIT BEFORE TAX

£17.2m (+3%)

2017 24.3

2016 30.4

2015 39.4

NET DEBT

£24.3m (-20%)FULL YEAR DIVIDEND

2.66p (+10%)

OPERATIONAL HIGHLIGHTS

• Major UK Bank: a new contract was won for marketing communication and an existing contract for transactional communication was renewed, both for five year terms.

• Proximity: the partnership contract to provide communication services to the BBC for TV Licensing was renewed for a six year term.

• HMRC (Her Majesty’s Revenue and Customs): good progress in the implementation of the contract for all outbound printed customer communication and forms fulfilment. Following successful migration of all fulfilment activity to our Newcastle operation in May 2017, Communisis assumed full accountability for all printed customer communications with the transition of circa 180 million packs annually into our Halifax and Liverpool transactional facilities beginning in October 2017.

• Overseas sales now represent 30% of total turnover (2016 26%).

• New York: good progress made with our US Editions office established in May 2017 to service clients in the financial services sector with content marketing services.

• Hong Kong: Communisis will open an office in Hong Kong in April 2018 for the sourcing of “premiums”; the gifts which accompany many purchases of luxury goods.

• Technology investment: the programme to install a single platform for the management of our international supply chain for marketing execution is planned to go live in Q2 2018.

2017 2016

Total revenue (£m) 375.9 361.9 +4%

Adjusted operating profit (£m)* 21.2 19.5 +9%

Adjusted profit before tax (£m)* 17.2 16.7 +3%

Profit before tax (£m) 14.4 11.6 +24%

Adjusted earnings per share (p)* 6.4 6.1 +5%

Proposed final dividend per share (p) 1.77 1.61 +10%

Free cash flow (£m) ** 12.5 12.9 -3%

Net debt (£m) 24.3 30.4 -20%

* Adjusted metrics are stated before exceptional items and the amortisation of acquired

intangibles to give a better understanding of the underlying performance of the Group.

Adjusted earnings per share is diluted and excludes the after tax effects of exceptional

items, amortisation of acquired intangibles and certain tax items in respect of prior years.

** Free cash flow represents net operating cash flow less net capital expenditure.

FINANCIAL RESULTS

OUTLOOK

Communisis is at an exciting stage in its development with a bedrock of solid performance and deep client relationships to build upon. The growth strategy for the next phase is highly focused and we already have clear evidence of the themes of Digital First, Global Reach and Empowered Organisation resonating in our key markets.

The Board is looking forward to another positive year for the Group.

HIGHLIGHTS

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02 Communisis plc Annual Report and Financial Statements 2017

SHAPING THE FUTURE OF CUSTOMER COMMUNICATIONS

OUR PURPOSEGROWING VALUE, SUSTAINABLY

We measure value by how well our solutions meet our clients’ needs and how willing they are to pay for them. This is reflected in our ability to earn an improved and sustainable margin. Through consistent and predictable performance, we continue to generate free cash which has enabled a strong dividend stream for shareholders. 20

COUNTRIES

67LOCATIONS

2,000+OVER 2,000 STAFF HELPING DELIVER CUSTOMER COMMUNICATIONS

22LANGUAGES

OUR MISSIONTo drive client value and sustainable profit improvement through the provision of increasingly digitally enabled solutions for regulated transactional communication and marketing execution.

COMMUNISIS AT A GLANCE

VALUE FOR CLIENTSAcross the markets in which we operate, common themes which enable clients to maximise the benefits of the products, services and insight we provide have enabled us to define our strategic priorities and the optimal divisional structure to deliver them.

Our clients need innovation in their supply chain, enabling them to future proof, focus on their core activities and grow return on investment and market share. They need simplicity in their supply chain, reducing the number of key suppliers to a smaller number of proactive, strategic partners. Resilience of service and regulatory compliance are critical.

Understanding these needs, Communisis delivers security, accuracy, integrity and reliability with the cost competitive scale of our pan-European network and UK operations. We provide multi-channel delivery and digital leadership to our clients as well as our unique expertise.

This allows our clients to increase sales at a premium and improve speed to market, being lean, standardised and simplified. We help them stay safe, manage risk, keeping them informed and able to make better decisions. This all builds loyalty and trust.

SUPPORTED BY OUR BRAND VALUES

Being TRUSTED

Being a LEADER

Being IMAGINATIVE

Being AGILE

CASE STUDY

LEADING FMCG BRAND - EUROPEBRAND CONTROLWith such a broad range of products and a wide geographical stretch, it’s key for this client to deliver a consistent brand. The Communisis team centralised procurement to control branding and create an online store to allow brand managers to order specific POS for their territories and retail partners.

GREATER BRAND CONSISTENCY IN 50 MARKETS ACROSS EMEA

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HOW WE GENERATE REVENUE

OUR CLIENTS

Read more on page 5Read more on page 4

Creating activation communications in Retail and FMCG channels that motivate consumers to experience and buy brands.

• Brand activation strategy

• Shopper marketing

• Marketing supply chain management

• Fulfilment

• Logistics

• Point of Sale (POS) procurement

Creating lasting and profitable personal customer relationships in all direct, digital and social channels.

• Mission-critical personalised communications

• Customer engagement

• Specialised content

• “Transactional” (billing, statements, cheques and inbound services)

• Regulatory communications

THE CUSTOMER EXPERIENCE DIVISION

THE BRAND DEPLOYMENT DIVISION

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HOW OUR DIVISIONS OPERATE

THE CUSTOMER EXPERIENCE DIVISION

END CUSTOMEROur end to end communication lifecycle uses data rich and engaging content to

ensure relevant and targeted interactions with our clients’ customers

CHANNEL DELIVERYBased upon channel preference and

customer journey, communications are delivered by relevant channel

BATCH AND REAL-TIME CUSTOMER DATA

WEBSITESMSPOSTAPPEMAIL

CONTENT GENERATIONData and artwork are integrated using our best in breed customer communication management products within our Connect™ platform. Information design services are

deployed at this stage in the communication cycle

CHANNEL PREFERENCEPreference engines ensure we help our clients communicate

with their customers across their preferred channel throughout the customer journey

RETRIEVAL Documents can be securely retrieved either by end

customers or our clients CRM teams to enable decisioning, referencing or query resolution

ARCHIVEComposed documents are archived using the enterprise

content management products within Connect™ and retained based upon data retention policies

COMMUNISIS AT A GLANCE CONTINUED

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THE BRAND DEPLOYMENT DIVISION

CASE STUDY

HOW THIS WORKED FOR A GLOBAL FMCG BRANDBefore Communisis, a client had a minimum of 23 touchpoints necessary to successfully deliver a project. By driving standardisation, providing consistency, control and visibility whilst maximising savings opportunities, we were able to reduce these touchpoints to seven whilst also enabling the client to realise the following further benefits:

• increased speed to markets for campaigns;

• encouraging innovation and value-added benefits;

• reduced cost to serve through a more consolidated delivery of the services;

• access to innovation and capability from the supply chain; and

• greater savings as a result of larger spend leverage.

7 TOUCHPOINTS

DEMAND MANAGEMENTFor a marketing execution project, Communisis

manages the agency interface and prototyping to ensure the product is fit for purpose, as well as reviewing

historic volumes and providing innovative solutions

SOURCINGVendors are selected from our pan-European network of over 700 approved suppliers, ensuring quality assurance, performance and

capacity management are controlled throughout

EXECUTIONEnd to end project management along the critical path to

ensure simplified and seamless execution. We provide business insight, governance and online ordering capabilities

with our point of sale toolkit

FINALISATIONDelivery planning, warehousing and logistics and

assembly instructions for complex items, all delivered to our clients’ activation plan to retailers

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WHERE WE OPERATE THE GROUP CONTINUES TO EXPAND AND WIDEN ITS INTERNATIONAL FOOTPRINT. OUR CLOSENESS TO CLIENTS, OFTEN THROUGH HAVING ON-SITE TEAMS WITH COMMUNISIS STAFF SITTING ALONGSIDE CLIENTS’ MARKETING TEAMS, FACILITATES THE IDENTIFICATION AND DEVELOPMENT OF NEW OPPORTUNITIES WHICH BOTH GROWS REVENUE AND IMPROVES THE RANGE OF OFFERINGS WE HAVE TO OUR CLIENTS.Our clients take an increasingly global approach to marketing services and to meet this we continue to assess new opportunities both within EMEA and beyond.

CONNECTING BRANDS AND CUSTOMERS IN 20 COUNTRIES AND 22 LANGUAGES

CASE STUDY

HOTEL, COFFEE SHOP AND RESTAURANT CHAINGETTING MARKET POSITIONING RIGHT Our team’s new brand for this client helped the company to find a unique identity in the crowded UK high street restaurant scene. By building on the existing brand with contemporary, striking communications and a streamlined, focused menu, we were able to strengthen market position and increase footfall “beyond expectation” in the flagship restaurant.

CONCEPT AND CAMPAIGN AWARDS WINNER

COMMUNISIS AT A GLANCE CONTINUED

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CASE STUDY

FMCG BRAND IN POLANDMULTI-BRAND EFFICIENCY For an international FMCG brand, finding efficiency and simplicity within their print production is not only helpful, but essential. By aligning a toolkit of the core commercial print across all brand and distribution channels, we were able to deliver a consistently qualitative commercial solution that shortened lead times and increased savings during the production of over 20 million items.

35% PROJECT COST SAVINGS, FROM INITIAL 10%

CASE STUDY

FMCG BRAND FRANCEUNDERSTANDING CONSUMER BEHAVIOUR Ensuring customers continue to buy from the same brand again and again remains a critical component of success for any consumer-focused business. For this client, we developed a loyalty magazine that contained personalised coupons to encourage new purchases. This incentivised customers to stay loyal to the brand, while also giving the company a highly useful buying habit measuring tool.

CAMPAIGN TIME TO MARKET REDUCED BY 16%

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LAUNCH OF STRATEGY FOR NEXT PHASE OF GROWTH

I joined the Communisis Board last March and was appointed to the chair at the Annual General Meeting (AGM) in May. These preliminary results are therefore my first as Chairman of your Company.

The past twelve months have confirmed my initial views about the strength of the business. A track record of growth backed by strong cash generation has been established over several years. We perform mission critical work at scale for very substantial clients across the Financial Services and Fast-Moving Consumer Goods (FMCG) sectors. We are significantly invested in our people, systems and infrastructure to fulfil data-sensitive, regulation-mandated customer communications, at high volumes and to manage complex, time-critical multinational product programmes for some of the world’s biggest brands. We are differentiated from our competitor/comparator set in many ways. Our long-term client retention levels are sector-leading.

The foundation for further success is therefore in place. To build upon it we have now set ourselves one key priority which is to raise the underlying profitability of the business in a sustainable way.

The Value Enhancement Programme (VEP) which we are launching, is a three-year plan to deliver enhanced returns to our shareholders by raising the demonstrable value we deliver to our clients.

Under the VEP we will launch a series of digital and data-led client initiatives which will include providing complete format and channel flexibility for client communications; building out added value services in allied areas such as fraud protection and data security and developing data analytics driven insight programmes to give clients greater visibility of enhancement opportunities. We also continue our commitment to embrace process innovation to deliver cost efficiency without compromising effectiveness of output.

The core aim of the VEP will be to evidence consistently that our clients will drive higher returns on their investment with us than they can either with alternative providers or by retaining in house the activity in which we specialise. Communisis will not be the lowest price option - we are not a commodity level provider - but we will partner with our clients to deliver the highest returns on their spend.

The VEP is our practical response to three key strategic themes of our business: Digital First, Global Reach and Empowered Organisation.

• Digital First recognises that an increasing proportion of the customers of our clients now prefer to communicate online. This now established trend will have a notable effect on our transactional business over time. It is our intention to take a still more pro-active lead with Digital and put it at the forefront of our transactional business. We will do that by accelerating existing organic developments, working with a range of technology partners and where appropriate acquiring the necessary skills and experience to strengthen our core propositions. We believe the time is ripe to enrich customer dialogue through the meaningful application of Digital - it is about a lot more than saving postage costs.

FULL YEAR DIVIDEND PER SHARE

2.66p(2016 2.42p)

Communisis delivered a strong set of results in 2017. It was especially pleasing to see further growth in adjusted diluted EPS, solid free cash flow and a significant reduction in net debt.

The final dividend for the year is proposed at 1.77p which added to the interim dividend of 0.89p gives a total of 2.66p, a 10% increase on the previous year.

CHAIRMAN’S STATEMENT

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CASE STUDY

FMCG BRANDCOUNTERING RETAIL OVERLOADIntroducing customers to a wider range of products was a challenge that produced excellent results. Before they came to us, over 75% of the coffee brand’s sales came from just two products, making the need for more emphasis on their wider portfolio stronger than ever. Our team devised a new campaign that involved segmenting each brand into a range of different coffee-drinking occasions. This has helped to transform this brand and remains hugely popular and successful among consumers today.

NEW SPLIT OF SALES

Digital transformation will have other positive impacts on Communisis. For example it will allow us to extend the application of data analytics as a service and capture opportunities for the digitisation of our services for marketing execution.

• Global Reach is the recognition that many of our clients are truly international businesses and expect our services to be available in an increasing number of territories. We already have 30% of our sales in overseas markets and a prudent approach in EMEA has seen our network expand through our main hubs in Paris, Madrid, Rome, Warsaw and Frankfurt and eastward as far as Istanbul and Dubai. We have announced that we will be opening an office in Hong Kong for the sourcing of “premiums”; the gifts which accompany many purchases of luxury goods. This move will make us more responsive in this growth area and contribute to increased margins by taking more direct control of these supply chains. Heartened by the good progress Editions has made in New York in 2017 with financial services clients, we aim to significantly enhance our presence in the USA. The three main opportunity areas we have identified are: further growth for Editions in content marketing, mostly in financial services; scope to access marketing execution services under our existing master relationships with brand owners; and digital transactional communications.

• Empowered Organisation covers a range of initiatives designed to make Communisis progressively more efficient and valuable. From a client perspective it is about our becoming still more integrated into client workflows to give them greater visibility and understanding of the impact of their communication and marketing execution choices and surfacing opportunities to enhance their efficiency or effectiveness or both. From a Communisis commercial perspective, this involves driving fresh marketing and commercial initiatives to deliver the right pipeline of growth opportunities. Communisis will selectively target the business it is best equipped to deliver and where it can retain more of the value which it creates for its clients. The structure of contracts will adapt accordingly. From an organisational perspective we are fuelling this by devolving more direct P&L responsibility into the hands of our local site and country managers, empowering them to drive the profitability of their discrete business units entrepreneurially.

Communisis remains committed to delivering enhanced returns to its shareholders. The announcement of our three-year VEP is a new expression of that commitment. Alongside investing capital in pursuit of that growth, we will continue to ensure that a strong dividend remains a key component of our total shareholder returns policy.

BOARD COMPOSITIONHaving reviewed the Board structure to enact these future plans, we announced in December 2017 that Steve Rawlins was joining us as Chief Financial Officer (CFO). Steve has extensive experience of

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the digital media, business services and FMCG sectors in both the UK and overseas markets. Most recently Steve was CFO of EDC Communications, a private equity backed group of digital media agencies. Previously he held senior finance roles at Vendia UK Ltd, Uniq PLC, Caradon PLC and The Gillette Company.

Non-executive Director Helen Keays is to step down from the Board and from her role as Chair of the Remuneration Committee on 6 June 2018, due to other commitments. We thank Helen for her significant contribution since 2014. Our attention now turns to finding her replacement and we will update investors in due course.

DAVID GILBERTSONChairman8 March 2018

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We operate at scale and to the highest standards. Our clients trust the products we deliver, the services we provide and the solutions we develop.

END TO END CAPABILITY

CUSTOMER EXPERIENCE • Enterprise content management (including Inbound).

• Customer communication management.

• Professional services.

• Security communications.

• Creative and agency services.

• Film.

BRAND DEPLOYMENT• Creative services.

• Creative production.

• Brand and shopper strategy.

• Procurement.

• Campaign management.

• Warehousing, fulfilment & logistics.

• Installation and analytics.

INVESTMENT • Technology strategic partners: Hewlett Packard, Pitney

Bowes, Noosh & Quadient (GMC).

• Capital investment running at a rate of between £5m and £6m each year, predominantly software/technology.

• eUCN (unique cheque numbering) developed as a Communisis proprietary patented service to combat cheque fraud.

PEOPLE PRODUCT

BUSINESS MODEL

WHY CLIENTS CHOOSE COMMUNISIS

We quantify the value we create for our clients and are specific about what differentiates us from our competitors, be that our people, products, processes or performance.

We recruit, retain and develop the very best talent in our industry. We attract great people and invest in them to deliver exceptional results.

EXPERIENCE • 50 change management professionals with 500

combined years of business transformation and transition experience.

• Successfully managed 31 TUPE transfers in total. Of these, six have been in the last five years and involved on-boarding 800 new employees.

• Favoured employer in our industry in the UK with more sector professionals than any competitor.

• CIPS (Chartered Institute of Purchasing and Supply) Advance standard - a leading level held by fewer than 20 organisations globally.

QUALIFICATIONS • 80% of our senior managers are degree or masters

qualified and accredited by recognised professional bodies.

DIVERSITY • Presence in 20 countries, with 22 languages spoken

across our teams and over 150 professionals based in our European network.

• ‘Committed to Equality’ accredited business for five years.

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PERFORMANCEPROCESS

Process is the foundation of repeatable outputs and consistent performance; absolute necessities as far as our clients are concerned. So not only do we hold ourselves to account, we seek and maintain accreditation wherever relevant and value adding.

MANAGING RISK • Accredited to 11 different ISO or industry standards.

• Full disaster recovery/business continuity plans in place; we conducted 55 client specific end to end tests and trained 200 employees in the last year.

• Interoperable locations European network ensuring continuity of service.

• Strong risk management framework to ensure we support our clients to communicate within regulation.

• Corporate governance – Communisis is a PLC, listed on the London Stock Exchange.

TECHNICAL CAPABILITY • State of the art resilience delivered through tier 3 and 4

data centres.

• End to end governance process supports seamless integration between our own IT and third party solutions.

TRANSITIONAL CAPABILITY • Customer Experience: 52 large, 72 medium and 104 small

projects managed over the last 12 months with total project budgets of £21m.

• Brand Deployment: 10 pan–European contracts transferred into the business in the last five years and a further 20 into single markets, delivering savings of £48m for our clients.

The performance of our business units is meticulously tracked and we are always looking for ways to improve them. That means investment in technology to make our business even better.

SCALE • Customer Experience: UK sites producing each day

4 million mail packs and 3.4 million encoded documents, mail sorting 1.2 million items and processing 95 thousand inbound cases.

• Brand Deployment: manage marketing execution for our clients through 700 fully approved suppliers.

• Leverage from European print spend.

INTEGRITY • Accuracy: 0.71 recorded non-conformances per million

units despatched.

• Delivery: industry-leading 99.4% SLA performance.

• Tracking: every personalised communication is tracked through our business from composition to despatch.

CLIENT RETENTION • Five-year average contract term and >90% retention rate.

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STRONG TRADING IN 2017

MARKET TRENDS The UK financial services industry remains the primary market for our Customer Experience division. Our clients and prospects within this market continue to see lower headline growth due to saturation and are therefore primarily focused on retention of market share and enriching their customer relationships. The continued migration to digital channels, improving customer experience and emphasis on quality of customer communications are central to this and our solutions and services are well placed to fulfil client needs.

Within the insurance market, organisations are more focused on gaining market share over retention and are proactively acquiring the capability to shift to channels of customer preference. Digital channels are therefore preferred and communications are typically complex and highly personalised. The utilities sector again is typified by lower headline growth but customer habits are changing and moving more digital to take personal control of consumption and respond to environmental concerns.

Demand for specialist content marketing capability, such as that provided by our Editions Financial business, is strong in the UK and US. Experience during 2017 suggests that high quality content delivered by genuine sector specialists is being favoured by chief marketing officers to enable brands to speak with authority.

Within the international FMCG market, the challenge for most brand owners in 2017 was the fluctuation of currency and how this has affected the repatriation of Euros or Pounds to Dollars (typically). This has caused some pressure on marketing budgets. In-store marketers are responding to the trend to cheaper, own brand alternatives and online shopping. There has been a drive towards standardisation to increase production leverage and efficiency and a desire for displays to be more permanent. There is still a focus on supply chain efficiencies and eliminating waste/failed delivery with some market estimates at up to 20% of pre-filled free-standing display units not making it to their intended shop floor destination. Such challenges represent opportunity for our Brand Deployment division.

CHIEF EXECUTIVE’S STATEMENT

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With the increased sales in the craft drinks sector (whether that be beers, gins, etc.), major brand businesses have needed to respond to keep on-shelf presence in supermarkets. Brands are therefore offering more events or Gift with Purchase (GWP) to keep their in-store presence and increase sales. As a result, we have seen a marked increase in the requirement for fast turnaround co-packing of GWP for major shopping events (Christmas, Father’s Day and other anniversaries). We expect to see this trend increase in 2018.

The broader agency market dynamic is changing significantly at present, driven largely by the entrance of consultancy-based businesses into the sector. This has increased commoditisation of service and has led to a reduction of fees. That said, with the increased pushback on the lack of transparency online, agencies are being asked to deliver more demonstrable sales and can charge for that effectiveness. In addition, there are increased calls to design products for in-store that can be used efficiently as well as effectively to reduce costs and increase sales. There remain strong opportunities in brand awareness and product launches and this is where, for example, our agency Twelve has been successful.

We still anticipate further consolidation within our sectors. As we focus increasingly on provision of digital products and services, our competitor set has shifted somewhat. This now includes technology-based competitors, as well as consultancy businesses.

We continue to monitor the impact of Brexit negotiations on the economies in which we operate. There are not yet any clear political outcomes but given our activity in the wider supply chain for staple consumer goods and employment of foreign nationals, in-country, we continue to believe that we are relatively well protected from potential negative economic impacts Brexit may have.

RISK/GDPR/REGULATIONThe Group has a formal approach to risk management. In considering the risk to the business over the past 18 months, the Group has reviewed and refined its approach to data protection in line with the changing global landscape and new legislation.

The EU General Data Protection Regulation (GDPR) is of particular focus and is a regulation which updates rights and provides opportunities for individuals and companies in the 21st century. The primary objective of the GDPR is to give back control of personal data and to simplify the regulatory environment for international business. When it is implemented in May 2018, in the words of the Information Commissioner, GDPR will be ‘a game changer for us all’ by:

• putting the spotlight on accountability;

• emphasising transparency;

• extending the scope of data protection;

• introducing fines for non-compliance; and

• realising the business benefits of this changing environment.

CASE STUDY

LEADING FMCG CLIENTINCREASING SALES AND WINNING AWARDSWe worked with one brand to showcase their award-winning products to a wider audience. Our team helped position their range as the best in class, while supporting the client and retailers’ loss prevention directive. Production rollout achieved a 27% uplift in sales of some products and won awards at the POPAI and Shop! awards.

A THREE-MONTH STORE TRIAL DEMONSTRATED A 42% SALES UPLIFT FOR FEATURED PRODUCTS VERSUS THE CONTROL STORE

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RISK/GDPR/REGULATION CONTINUEDCommunisis’ activities as both a Data Controller and a Data Processor have required us to review our operations against the new regulations and put in place actions to address the risk of non-compliance. As part of our ongoing investment that supports the business, we have integrated Data Protection within the Group as part of our Information Security Management System. This investment, comprising £0.8m capital and £0.8m operational expenditure in 2018, includes:

• dedicated Data Protection Compliance Officers, who are experienced subject matter experts, bringing in skills and experience from both the public and private sectors;

• developing ‘Records of Processing Activities’ models which are used to assess the processing Communisis undertakes as both a Data Controller and Data Processor and feed into an updated risk assessment procedure and Data Processing Impact Assessment;

• implementing enhancements in technology to support new regulations; and

• undertaking work, in compliance with the Information Commissioner’s Office (ICO) guidance on contracts and liabilities, to assist clients in their compliance.

DETAILED TRADING REVIEW PER DIVISION FOR 2017 CUSTOMER EXPERIENCE2017 was a positive year for Customer Experience with a strong overall increase in profitability. The Direct Mail business performed well, showing significant improvement on prior year numbers. This was largely driven by increased insourcing of work and stringent cost control. The overall transactional business (outbound and inbound) improved profitability against prior year, driven by new contracts and increased volumes. Our technology business also outperformed 2016. This was related to transition activity on-boarding a new client to our ConnectTM

digital platform for customer communications management. The Security Print business (predominantly cheque book production) was down on volume but demand for our new digital technology for fraud prevention has increased with a number of bank clients now using our system for eUCN, a patented cheque fraud feature exclusive to Communisis.

We refocused our general creative agency Psona onto Communisis’ core client bases in Financial Services and FMCG and restructured to integrate its ongoing and future client activity.

BRAND DEPLOYMENTThis division achieved proportionately less profit growth than revenue growth, mainly in our core Managed Services business, driven by country mix and investment in new markets. The Campaign Fulfilment business outperformed expectations as it brought various new contracts on-board and we expanded our services in the drinks sector. The Agencies finished ahead of prior year, mainly due to projects relating to the telecommunications sector within Twelve.

TECHNOLOGYThe continued importance of technology, in the delivery of services to our clients and supporting our operating model, provided focus to improve capability, control and visibility of services and systems in 2017. To enable this, we made a number of significant industry hires in the year. We implemented a best practice approach to enterprise architecture enabling us to align people, process and technology with specific expertise from the financial services sector. Amongst other benefits, this approach allowed us to develop a scalable, multi-tenanted product for digital asset management and workflow during 2017 which now supports five clients, with capacity and capability for further on-boarding. This allows marketing teams access to creative content for action and approval.

CHIEF EXECUTIVE’S STATEMENT CONTINUED

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Formal service reviews with stakeholders are now embedded, creating dialogue which enables transformation plans aligned to business need and strategic priorities. This is supported by an internal customer satisfaction survey, providing quantitative understanding of the service we deliver and assisting us to shape our future planning. Through systematic selection and contracting with 3rd party vendors (the latter being increasingly pertinent as we continue to develop real time digital products), we have improved services received from our technology supply base, in addition to generating important savings in the year.

We have also prioritised investment in technology solutions and services. This includes major software expenditure over two years with ‘Noosh’, a product which allows Communisis to support marketing services and print procurement in a more operationally efficient and expedient way, a significant step in the digitisation of our business processes in Brand Deployment. We also adopted ‘Solarwinds’ in the year for service and incident management and products for internal and external collaboration. This extends to federation with clients to improve lines of communication and manage costs more effectively.

CASE STUDY

MAJOR UK HIGH STREET BANKENHANCING CUSTOMERS’ BANKING EXPERIENCEOur work with this banking client has become the backbone of their communications operation. Their task for us was to decrease the operational costs of processing inbound communications. Our solution was to transfer 430 employees to Communisis with all non-core banking activity and collaborate with the bank to create an end to end solution to link inbound and outbound communications. The results were increased customer responsiveness, a more cost-effective system and the start of a decade long relationship between Communisis and the bank.

OVER 3,000,000 INBOUND COMMUNICATIONS A MONTH

PEOPLE Our progress with people related matters remains strong and supports our strategic agenda. We are delighted to have retained with an improved result, our Gold Level accreditation from the ‘Committed to Equality’ organisation. In 2017 we also made significant strides with managing and developing our talent, boosted by a strong focus on personal performance management and leadership development programmes, with 32 candidates completing a leadership programme in the year.

ANDY BLUNDELLChief Executive8 March 2018

Strategic Report


DIGITAL FIRST

Core to our strategy is the need to adopt a ‘Digital First’ approach to business, developing our professional services capability and ensuring we excel at systems integration and building communications. Digitisation is focused both in developing and enhancing delivery channels for our clients as well as our own internal business processes to provide operational efficiency.

STRATEGIC PRIORITIES

• New product development with greater emphasis on data analytics to support digital leadership and channel capability.

• Marketing insight and innovation to inform strategic decision making.

• Digitally enabled business processes delivering automation, simplification and efficiency as well as reducing risk.

• Increased use of technology to manage the interface between Communisis and our clients, raising visibility of activity and making us easier to do business with.

ACHIEVEMENTS• The Group is increasing investment in technology to

deliver more digital services to clients and to make its own operations more operationally effective.

• Within the Customer Experience division, we have invested in a new processing facility for our Enterprise Content Management digitisation platform in Leeds which gives us further capacity and capability to grow our inbound service line.

• We are also moving to a single technology platform for the international supply chain management activity within the Brand Deployment division.

• We are making our services GDPR resilient on behalf of our clients and a significant proportion of our investment overall in future to be in technology and risk-related areas.

GLOBAL REACH

Our international reach has increased year on year and this continues to form a core element of our growth strategy. Where this has been largely EMEA marketing activation activity, we are committed to growing both our Brand Deployment and Customer Experience divisions.

• Targeted insight into prospect markets and territories which support further expansion and profitable growth.

• Increased international representation in our middle and top management reflecting our increasing overseas revenues and presence.

• Increased use of technology to facilitate centralised sourcing and consistency throughout the supply chain interface.

• Leveraging established locations to drive other services to maximise investment.

ACHIEVEMENTS• Overseas revenue now represents 30% of total revenue.

• We now have 700 fully approved suppliers outside the UK providing a comprehensive partner network.

• Our content marketing agency, Editions, expanded operations to the US. This represents a new market for Communisis and the first non-UK activity for the Customer Experience division.

STRATEGY

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EMPOWERED ORGANISATION

We recognise the importance of high performing and motivated leaders across our business and are committed to ensure they have the structure and support needed to lead our business units to success.

• Increased ownership and accountability for delivery with enhanced support and access to specialised resource.

• Promoting locally driven business development to improve capacity utilisation and mix.

• Systematic annual cost efficiency reviews across our divisions to drive operating margin.

ACHIEVEMENTS• Invested additional resource in our commercial and

marketing insight functions and adopted a methodology and process for defining prospects and vertical sectors which will deliver improved profitability.

• Developed a value creation programme to ensure our teams have the tools to sell Communisis services on the basis of value and differentiation.

• Salesforce.com now adopted as the central knowledge hub for all of our sales and performance marketing activities and we have a richer insight into our commercial and client relationships.

CASE STUDY

HEALTHCARE CLIENTUNDERSTANDING POS REQUIREMENTSThe line of products offered by this client is vast. The team’s solution to the significant challenge to achieve brand consistency and standardise the range was to focus on the retailers themselves. Through MI capture, we were able to better understand their requirements and catalogue tailored items delivered directly to stores. Through the introduction of Roamler Analytics, future POS production and use will now be informed more than ever before.

REDUCED SET-UP TIME SAVING UP TO €3 PER UNIT AT FULFILMENT STAGE

Strategic Report


RISK MANAGEMENT AND PRINCIPAL RISKS

OUR APPROACHThe Board is accountable for ensuring the identification and appropriate management of potential risks faced by the Group. The internal audit function’s responsibilities include overseeing the effectiveness of the internal control environment of the Group and its ongoing risk management programme. This process is designed to identify, evaluate and manage the principal risks faced by the business in line with the Group Risk Policy Statement. Risk management is the extent to which the Group responds to the opportunities faced, whilst at the same time understanding and seeking to control any threats that could prevent its achievement of business objectives and successful execution of our business strategy.

The aim of the Group’s risk management programme is therefore to improve the awareness of the consequences of risk-taking activities, reduce the frequency of damaging events occurring and minimise the severity of the consequences if they do occur. Part of this approach includes operation in line with or certification to a number of standards. This helps the business to work to legal, regulatory and contractual requirements using a set of clearly defined frameworks and management systems.

Policy requires that business unit heads demonstrate that they conform to the requirements of the Communisis Group risk management programme. Assessments must be undertaken, risks identified, controls identified and action managed for all activities that are identified as being critical to Communisis. During the year, all business units are required to report their material risks on a monthly basis to the internal audit function enabling independent review and reporting to the Board and senior management teams. Impact assessments are carried out to ascertain the likelihood of occurrence of each risk and the potential impact on the Group.

In addition, the Board also carries out a regular top down risk assessment of the most significant strategic risks that are linked to the achievement of the Group’s strategic initiatives.

VIABILITY STATEMENTThe Group has prepared five-year forecasts of profitability and cash flow as part of the goodwill impairment testing and, with average contract lives of five years, the Group has good medium-term visibility of the business. Despite this, there will always be uncertain factors outside the control of Communisis and forecasting can never take into account unknown future economic, legal or regulatory changes which could impact the business and the markets in which it operates. In recognition of this, and consistent with the Value Enhancement Programme, the Group has produced a viability assessment based on the three-year period to December 2020, and can confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities as they fall due for the next three years.

In making this statement the Directors have considered forecasts for the next three years, which include the Group’s key financial ratios and cash flows over the period, and formed an opinion over the resilience of the Group. This takes into account the current position, the principal risks facing the business in severe but plausible scenarios and the effectiveness of any mitigating actions. This assessment has considered the potential impacts of these risks on the business model, future performance, solvency and liquidity over the three-year period. The Directors consider the period to December 2020 to be appropriate as this is in line with the period covered by the Group’s financial and strategic planning. Clients have shown an increased willingness to enter into longer contractual terms resulting in improved visibility for the Group from a financial perspective. With more emphasis being placed internally on identifying and managing pervasive risk, the Directors are confident that the Group will operate in line with the three-year forecasts.

Whilst the review has considered all the principal risks identified in the table below, three have been identified for enhanced stress testing where they are considered to have the most significant plausibility and impact. These are: safeguarding of data and cyber risk; response to technological change; and the loss of major clients. Testing in isolation was considered inappropriate, as ultimately the occurrence of a severe data incident or adverse impact from technological change could lead to loss of major clients (either through reputational damage or failure to respond to the client’s progressive adoption of digital communication channels). From May 2018 the impact of a data incident may also result in fines from the Information Commissioner’s Office, due to General Data Protection Regulation (GDPR). The three-year forecasts have therefore been stress tested by considering these data and technological risks and then overlaying the impact of the loss of the Group’s top three customers.

During 2017 the Group’s banking facilities were renewed and are in place until August 2022. Availability of bank facilities is not expected to present any risk to the viability of the Group and has not therefore featured within the viability stress testing.

Whilst the occurrence of these risks is plausible, the Group are confident that the mitigating actions detailed in the table overleaf are sufficient to minimise the impact.

GOING CONCERNThe Directors, after making enquiries, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, a period not less than 12 months from the date of the Financial Statements. For this reason, they have adopted the going concern basis in preparing the Financial Statements.

MANAGING RISK TO DELIVER STRATEGIC OBJECTIVES

To successfully deliver against the Group’s strategic initiatives, we must first understand the risks faced and plan to manage them to an acceptable level.

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RISKS AND UNCERTAINTIES

The principal risks and uncertainties facing the business are taken directly from the risk registers and are detailed below. The Group faces other risks which are subject to regular review and have been assessed as lower risk and are therefore not included here. Some risk factors remain beyond the direct control of the Group and the risk management programme. We can therefore, only provide reasonable but not absolute assurance that key risks are managed to an acceptable level. The Group continues to monitor the impact of the UK’s decision to exit the EU but until we have more visibility of the eventual outcome it is difficult to fully evaluate the impact on the Group’s activities.

RISK AREA IMPACT MITIGATING ACTIONS AND MANAGEMENTCHANGE IN LEVEL OF RISK

The Group must be able to respond to market and technological change

Clients’ and their customers’ progressive adoption of digital formats and channels may impact Group strategy and market demand for products and services.

The impact is that the systems and equipment utilised by the Group could potentially be superceded earlier than anticipated by management.

A disruptive technological change has not been anticipated as a result of a lack of investment in new products and services.

We may not adequately identify and protect our IP.

Continued investment in technology and new services maintains and enhances the Group’s competitive position.

Specific teams are embedded within the business to lead change and innovation.

The Group is committed to procuring new types of technology in order to be able to provide the latest services to clients and therefore maintain its competitive position.

Where appropriate we have protected IP through patents.

The level of risk is increasing

The Group continues to pursue international expansion

The Group now operates in 18 countries outside of the UK (2016 17 countries). International exposure to geo-political volatility and social instability may put the Group operations at risk.

Movements in foreign exchange rates can impact the Group’s Sterling reported Financial Statements.

The Group operates in a range of jurisdictions where non-compliance with local laws may expose the Company to fines or other restrictions.

The Group has a work stream forum team that specifically deals with the management of operations that are carried out in non-UK locations.

A country risk assessment process has been developed along with country management manuals.

Foreign currency balances and cash flow forecasts are regularly reviewed to monitor exposure. Principal exposure is in Euro denominated territories.

Advice is sought from expert legal and tax partners.


Deterioration in the economic environment may decrease profitability

The impact is that macro-economic issues may quickly and detrimentally affect consumer expenditure, which could impact the trading performance of the Group’s clients and reduce their discretionary spend resulting in lower sales and profitability.

Market trends are monitored and factored into the Group’s business planning, budgeting and management processes. This is especially pertinent with regard to Brexit.

Volume erosion protection is included in contract terms where possible.

The level of risk is stable

Strategic Report


RISK MANAGEMENT AND PRINCIPAL RISKS CONTINUED


The Group continues to integrate acquisitions to meet its strategic objectives

The Group’s last acquisition was in January 2015 which is now integrated fully within the Group with appropriate cost base control. The ongoing risk is that in the longer term the acquisitions may not achieve the revenues anticipated within the business case on acquisition.

The Group has a clear strategy for ensuring growth. This includes assessment of the alignment of the products and services supported by positive and robust integration.

We have adopted a two-divisional structure with the benefit of reducing complexity and providing a clearer market proposition to our client base.


Clients rely upon proven resilient business operations

Certain Group operations depend upon the uninterrupted delivery of products and services that rely on complex computer networks and systems.

The impact is that the Group may face a significant business continuity incident that will materially affect its ability to deliver products or services to its clients, and associated financial penalties.

A Business Continuity Management (BCM) system and BCM plans are in place. These are exercised and audited for core areas of the Group.

The Group operates from multiple office, inbound and manufacturing facilities which helps to mitigate against natural disasters.

Appropriate business interruption insurance is maintained.

Key areas of the Group have been integrated in to ISO/IEC 22301 certification.


Safeguarding of data and cyber risk

The Group processes personal and sensitive data on behalf of clients as part of its core services.

The impacts are that:

• a failure to maintain a secure and fully functional IT infrastructure could result in an inability to meet contractual service obligations; and

New GDPR (General Data Protection Regulation) fines are to be implemented in 2018, of up to 4% of global revenue.

Continued investment in IT infrastructure, security and monitoring, guards against the inappropriate use of client data and maintains and enhances the effectiveness of controls.

Established information and security standards are subject to regular third-party audits.

Core areas of the Group are subject to certification including ISO/IEC 27001.

Alignment with changing legislation is assessed and actioned, this includes GDPR.


People, talent and skills; recruitment and retention; support

Without learning, development resource and succession planning, there is a risk that the Group will be unable to develop, retain and motivate highly skilled employees that are necessary to support operations, expand and build client relationships.

There is also a possible impact to employee morale and wellbeing from a failure by the Group to maintain a safe and compliant working environment.

The Group actively monitors senior leadership to ensure motivation is maintained, that succession plans are in place and applied to relevant team members.

A growing range of benefits and incentives are provided by the Group to its staff.

The Group has policies and procedures in place for training and development. Business operational expansion and acquisitions also help to ensure that the Group has the right skills.

The Group provides regular training on health and safety for all employees and monitors performance to ensure compliance with all relevant regulations and employment laws across all jurisdictions in which the Group operates.


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Existing client concentration may mean that the loss of a major client could materially decrease sales

A substantial percentage of the Group’s revenues are derived from a relatively small number of clients and therefore the loss of one or more of these clients could have a material impact on the Group’s sales. This could result in a material decrease in profitability whilst new contracts are sought and excess capacity reduced.

In the year ended 31 December 2017 the top five clients of the Group accounted for approximately 48% of sales (2016 56%).

A strategic account management programme operates to preserve client relationships, monitor compliance with service level agreements and expand the services offered to key clients.

Business development activities continue to promote the Group’s services in a broad range of market sectors and into international markets, reducing the historical reliance on the financial services sector.

Long-term client relationships and associated contractual commitments are developed.


Due to high operational gearing, a reduction in revenues could significantly impact profitability

The impacts are that the Group will not:

• adapt sufficiently quickly to any technological change or downturn in demand, with a consequent loss of competitiveness and profitability;

• have adequate resources to invest in new technology and services;

• retain its major client portfolio, without replacement, or recover debts; and

• diversify sufficiently into other market sectors.

The Group prepares regular financial forecasts to evaluate its funding and liquidity requirements for the foreseeable future. These forecasts are reviewed and approved by the Board. Based on these forecasts, appropriate funding and liquidity solutions are put in place to ensure that appropriate headroom is maintained.

A range of financing facilities are utilised with a reasonable degree of headroom over projected funding requirements. The Group’s lending arrangements have been renewed and are in place until August 2022.

Client credit is closely monitored and controlled to minimise the amount of overdue debt. Credit insurance is obtained against larger non-financial services sector debts.

Working capital and capital expenditure are actively managed to ensure that banking covenants are not breached.


A change in pension scheme assumptions could increase the pension deficit

Communisis has continuing obligations under a defined benefit pension scheme that is now closed to new entrants. The IAS 19 accounting pension deficit is £38.2m as at 31 December 2017.

The impact is that any changes in assumptions, such as interest rates, equity returns or discount rates could require substantial future cash contributions to eliminate any resulting increase in the pension scheme deficit and therefore decrease the Group’s ability to expand the business through continued investment or to pay dividends to shareholders.

The Group works closely with the pension scheme trustees to adopt programmes that optimise returns on pension scheme assets, reduce the ultimate pension liabilities and minimise the level of additional cash contributions required to eliminate any deficit.

The triennial valuation was completed in 2017 with a funding deficit of £29.8m. Following this, deficit repair payments have been set at a base of £2.55m in addition to the £1.15m annual payments under the Central Asset Reserve scheme. The next triennial valuation will be in 2020.


Potential lease liabilities from past disposals could result in high cash costs to the Group

The Group has contingent liabilities arising from lease commitment guarantees on past corporate disposals.

The principal impact is that current leasehold occupants will become insolvent and that guarantees will be called, resulting in a material cash cost to the Group.

The financial status of the leasehold occupants is monitored on a regular basis.

Action will be taken to minimise the cost to the Group when default is anticipated. The level

of risk has decreased


Strategic Report

FINANCIAL REVIEW

CONTINUED GROWTH

SUMMARY

• The Group continues to grow in both revenues and profit generation across both divisions, resulting in an adjusted operating profit of £21.2m (2016 £19.5m) and adjusted diluted earnings per share of 6.37p (2016 6.07p).

• Strong conversion of profits to cash generated a free cash flow of £12.5m (2016 £12.9m), leading to further net debt reduction by £6.1m to £24.3m (2016 £30.4m).

• The Group’s adjusted operating margin increased to 5.6% (2016 5.4%).

TRADING SUMMARY2017 was a further year of growth in revenues and profits within both divisions with strong free cash generation and continued reduction in net debt.

Total revenue grew by 4% to £375.9m (2016 £361.9m), driven by expansion of international operations with overseas revenues now representing 30% of Group revenue (2016 26%). Adjusted operating profits rose 9% to £21.2m (2016 £19.5m) from growth across both divisions. Customer Experience grew from the integration of new business wins and strong performance across both traditional revenue streams and newer digital outputs. Brand Deployment saw further development within its overseas network and an increased level of Campaign Fulfilment activity. Together, this delivered adjusted profit before tax of £17.2m (2016 £16.7m) and adjusted diluted earnings per share of 6.37p, up from 6.07p in 2016, an increase of 5%.

Free cash flow of £12.5m (2016 £12.9m) remained strong, despite increased tax payments and higher pension deficit repair payments, as a result of higher underlying earnings and lower capital expenditure. Net debt as a result reduced by £6.1m to £24.3m.

The segmental reporting is aligned with the Group’s strategic direction and the way in which activities are managed. Revenue and operating profit before exceptional items are reported in two divisions: Customer Experience and Brand Deployment. Central costs that support the full Group are reported separately.

CUSTOMER EXPERIENCEGross revenue for the division was £189.3m, increased from £185.0m in 2016. This was due to the integration of new business wins and a strong year across both digital revenue streams and the traditional areas of direct mail and statements where volume erosion across transactional print channels continues but at lower levels than expected.

Adjusted operating profit for Customer Experience at £22.4m was £2.5m higher than 2016 with very strong performances across the business. Significant improvements were seen in Direct Mail as a result of insourcing and strong cost control within the production environment, in Inbound due to increased volumes, and in our transactional business due to new business wins and the associated transition income relating to the integration into our transactional centres. A challenging year in Cheques, but mitigated through strong cost control with some initial take up of

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eUCN, boding well for 2018. Editions Financial had another strong year and successfully established the New York office as planned, initially providing content marketing to our client, LinkedIn, and on-boarding further large financial services clients. The Agencies performed at similar levels to 2016 but underwent a significant restructuring during the year with the closure of the Glasgow operation and full restructure of the London based teams, entering 2018 leaner and more focused on core services and clients.

BRAND DEPLOYMENTGross revenue grew to £186.6m from £176.9m during the year, with Managed Services benefitting from strong sales growth across Germany, Poland, France, Spain, Italy and Dubai, which saw its first full year of operations.

Adjusted operating profit showed some growth to £16.5m (2016 £16.2m). In Managed Services the margin did not increase proportionately in line with revenue as a result of country mix

together with investment in new countries as we build out the international operations. The focus going forwards is on operating margin improvement through both operational efficiencies and continued investment in systems along with integration of new client wins. Campaign Fulfilment, performed by our Newcastle based operation, had a very successful year with growth in revenues and profits from a number of new contracts. The agencies Life and Twelve together had a strong year, with further growth and their most profitable year to date since acquisition.

CENTRAL AND CORPORATE COSTSCentral costs are £0.8m higher than in 2016, driven by increased spend on technology and increased focus on marketing and development of the Communisis brand. In addition, pension costs in 2017 included within Corporate Costs did not benefit from £0.4m of one-off settlement gains experienced in 2016.

The table below is an extract from the Group’s segmental Income Statement.

2017 2016 #

£m £m

Revenue

Customer Experience 189.3 185.0

Brand Deployment 186.6 176.9

Total Group revenue 375.9 361.9

Adjusted profit from operations

Customer Experience 22.4 19.9

Brand Deployment 16.5 16.2

Central Costs (11.8) (11.0)

Corporate Costs (5.9) (5.6)

Adjusted operating profit 21.2 19.5

Amortisation of acquired intangibles (0.7) (0.8)

Profit from operations before exceptional items 20.5 18.7

Exceptional items (2.1) (4.3)

Profit from operations 18.4 14.4

Net finance costs including revaluation gains/(losses) (4.0) (2.8)

Profit before tax 14.4 11.6

Tax (2.6) (3.0)

Profit after tax 11.8 8.6

Earnings per share

Basic (p) 5.64 4.12

Adjusted diluted (p) 6.37 6.07

Adjusted profit before tax (£m) 17.2 16.7

Adjusted EBITDA (£m) 29.8 29.4

Adjusted operating margin (on gross revenue) 5.6% 5.4%

# Account management and service costs relating to Customer Experience clients, previously included within central costs, have now been recognised within the Customer

Experience segment from 2017. The 2016 comparatives have been adjusted to show this on a like for like basis.

Strategic Report


FINANCIAL REVIEW CONTINUED

EXCEPTIONAL ITEMSTotal exceptional costs charged in the year were £2.1m, including £1.7m associated with restructuring across the agency and Managed Service businesses, restructuring of the Group marketing function and closure of the Bangalore and Glasgow offices. In addition there was a £0.2m non-cash write off relating to customer relationship assets, offset by a £0.3m fair value revaluation release of contingent consideration in respect of recent acquisitions. The Group also incurred a £0.5m write off in respect of unsupported assets which will not be recovered.

NET FINANCE COSTSFinance costs were £1.2m higher than the prior year due to a swing on the impact of foreign currency translation of non-trading balances. 2016 had benefitted from a £0.9m gain whereas there was a £0.4m loss in 2017. Both pension and bank finance charges were at a consistent level in both years.

TAXATIONThe effective tax rate in the Income Statement was 18.4% (2016 25.6%).

During the year, the effective tax rate has benefitted from a number of credits which related to prior years. The balance has been adjusted through the current year Income Statement, as management consider that the adjustment is immaterial in the context of an understanding of the Group’s financial performance for users of the financial statements.

Excluding this adjustment the tax rate would have been 22.7% which is higher than the UK rate of corporation tax due to the proportion of profits generated in overseas jurisdictions with higher tax rates.

CASH FLOW AND NET DEBTThe table below summarises the cash flows for the year and the closing net debt position.

2017 2016

£m £m

Profit from operations before exceptional items 20.5 18.7

Depreciation and other non-cash items 10.0 11.2

Decrease in working capital (1.1) (0.5)

Pension scheme contributions (4.0) (2.8)

Interest and tax (5.2) (4.3)

Net operating cash flow before exceptional items 20.2 22.3

Exceptional items (2.7) (3.7)

Net operating cash flow 17.5 18.6

Net capital expenditure (5.0) (5.7)

Free cash flow 12.5 12.9

Investment in new contracts (0.7) (1.2)

Acquisition of subsidiary undertakings — (0.3)

Repayment of promissory loan note relating to acquisition of subsidiary undertakings (9.3) —

Dividends paid (5.2) (4.8)

Share issues net of directly attributable expenses 0.1 —

Debt arrangement fees (0.7) —

Purchase of shares — (0.4)

Revaluation 0.2 2.4

(Increase)/decrease in net bank debt (3.1) 8.6

Opening net bank debt (19.7) (28.3)

Closing net bank debt (22.8) (19.7)

Unamortised borrowing costs 0.6 0.2

Net bank debt (22.2) (19.5)

Finance lease creditor (2.1) (1.6)

Promissory loan notes — (9.3)

Net debt (24.3) (30.4)

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Generating strong free cash flow and continued debt reduction remains a priority for the Group and during 2017, we are pleased to report a further 20% reduction in net debt of £6.1m to £24.3m.

Free cash flow remained strong at £12.5m (2016 £12.9m) with increased pension deficit repair payments, higher tax payments and increased working capital being offset by higher underlying profitability, lower capital expenditure and lower exceptional items.

Dividends paid to shareholders increased by £0.4m to £5.2m.

Promissory loan notes of £9.3m in respect of the Life Marketing Consultancy acquisition in January 2015 were repaid during January 2017 from normal facilities. The overall movement in bank debt including this was a net cash outflow of £3.1m. Excluding this repayment the cash improvement during the year was £6.2m.

The net bank debt at the end of the year was £22.8m (2016 £19.7m), with significant headroom within the Group’s facilities of £70m. Average net bank debt during the year was £41.9m (2016 £32.7m), at a higher level than 2016 following the repayment of the promissory loan notes.

During the year the banking facilities were renewed through to August 2022. As part of the facility, Communisis has to comply with a number of covenants, including maintaining a multiple of net bank debt to EBITDA and EBITA to net finance costs, both of which were in compliance with significant headroom.

DIVIDENDSThe Board has proposed a final dividend of 1.77p per share bringing the total dividend for the year to 2.66p per share, an increase of 10% over 2016.

PENSIONSThe pension scheme accounting deficit at the year end decreased to £38.2m (2016 £55.5m). This reflects both an improvement in asset valuations and a reduction in liabilities. The reduction in liabilities incorporates changes in mortality assumptions following the 31 March 2017 triennial valuation. Discount rates in 2017 reduced to 2.5% from 2.7% with RPI/CPI rates remaining static.

Cash contributions to the pension scheme are determined by reference to the triennial actuarial valuation. During the year the 31 March 2017 triennial valuation was completed with deficit repair payments being set for future years. The contributions paid in 2017 towards the accounting deficit were £2.9m plus rental payments of £1.1m through the Central Asset Reserve arrangement. The next triennial valuation will be in 2020.

BALANCE SHEET AND NET ASSETSNet assets as at 31 December 2017 have increased by £20.9m since the prior year. This increase does however include the benefit of a £17.3m reduction in the pension scheme deficit. Excluding this, Group net assets increased by £3.6m during the year.

CORPORATE SOCIAL RESPONSIBILITYThe Group embraces corporate social responsibility and our policies make Communisis more resilient, more productive and more predictable in performance, whilst delivering economic and environmental benefits to society as a whole.

STEVE RAWLINSChief Financial Officer8 March 2018

Strategic Report


CORPORATE SOCIAL RESPONSIBILITY REPORT

SUSTAINABLE ACTIVITIES

Communisis has continued to elevate the level of corporate social responsibility (CSR) internally by constantly reviewing and improving processes to track sustainable activities that the business has been involved in. We ensure that we support charitable organisations and continue to safeguard the future of our business through our focus on apprenticeships, internships and learning and development.

OUR PEOPLE AND ORGANISATIONWe recruit, develop and retain top quality people who help us to grow the business and achieve our strategic aims.

Details of how the Company attracts, develops and retains the best people and engages, develops and rewards its people, are set out below.

ATTRACT, DEVELOP AND RETAIN THE BEST PEOPLEWe communicate our strategic goals to all of our managers and empower them to develop both themselves and those for whom they are responsible through focused training to ensure they can best deliver those goals.

In 2017 we grew our internal learning and development team. This team delivers a range of technical, leadership and developmental training to all our people, running a number of tailored leadership training programmes throughout the year. Some 120 of our most promising future leaders completed one of these programmes in 2017.

We also continued to grow our online resources, through the Communisis Academy. This is our learning and development hub which provides all of our employees with access to tools and materials to support their ongoing developmental needs. It is a cloud-based system, available 24/7 regardless of where our employees are based. In 2017, we moved our annual review process to this platform, allowing a digital, flexible approach to managing objectives, performance and individuals’ development needs.

Our apprenticeship programme continues to grow. This now encompasses roles in IT, business administration and digital marketing. Plans are in place to have apprentices over four sites: Liverpool, Edinburgh, Leeds and Andover.

In 2017, following the roll-out of the Apprenticeship Levy, we launched our programme of modern apprenticeships and now have over 60 colleagues across the Group completing qualifications ranging from Software Development to Business Administration and Improving Operational Performance to Leadership and Management.

Succession plans have been reviewed during the year and are in place for all senior and business-critical roles. These succession plans allow us to focus on learning and development requirements, as well as driving our diversity agenda by identifying key talent and providing support with tailored development programmes.

Recruiting the best talent is critical to our ongoing success. In 2017, our partnership with Randstad Sourceright went live. This allows us to access the best recruitment tools and processes to support our line managers in finding the best people for their teams. In addition, this approach enhances our commitment to diversity and equality during the recruitment process by ensuring we follow best practice for ensuring fair and equitable recruitment processes. In 2017 we have made great strides in presenting ourselves as an employer of choice. We are working hard to bring a greater awareness of Communisis to the recruitment marketplace, and help us attract the best new talent. More work will follow in 2018 to enhance this further.

RETAINING OUR PEOPLE THROUGH ENGAGEMENT AND REWARDAt Communisis we understand that the success of our business strategy is critically dependent upon the involvement of all employees. We appreciate that employee engagement and wellbeing not only benefit our employees but also have a direct impact upon the performance of our business and we seek to achieve that engagement in a number of ways. During 2017 we:

• held information and consultation forums, focus groups and internal surveys to listen to our teams;

• acted upon that feedback at local and Company levels;

• used various high-quality digital channels to ensure timely and effective flows of information; and

• developed improved and engaging visual communications to support our digital channels.

A healthy and safe working environment is central to everything we do. We are committed to providing our employees with a safe place to work combined with excellent occupational health services.

In 2017 we further enhanced our flexible benefits offering by expanding the offering on our benefits platform available within the UK. We are also constantly reviewing our international benefits offerings which vary by country linked to local legislation and practice.

We review remuneration regularly, benchmarking salaries where appropriate, and develop reward schemes which encourage and incentivise appropriately.

Our people also receive regular wellbeing communications and have the opportunity to engage in various advice and training initiatives on Wellbeing Days. Our aim is to ensure that our people work within an environment which is conducive to good health and wellbeing and that our programmes and initiatives positively affect our peoples’ lives both inside and outside of work.

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DIVERSITYWe have an ongoing commitment to equality and diversity and have retained accreditation to the Committed2Equality® standard in 2017. Following an annual audit, our accreditation has remained at Gold standard, with an improved assessment result.

Communisis has focused on utilising appropriate recruitment processes and techniques to ensure we are able to reach all jobseekers. We are also committed to flexible working arrangements, and benefits provision, which assists staff with their work–life balance.

The Group has in place an Equal Opportunities Policy and Statement (details of which are set out below). The ongoing commitment above, together with the Group’s Equal Opportunities Policy and Statement, comprises the Group’s policy on diversity.

EQUAL OPPORTUNITIESOur policy is to provide equal opportunities to all existing and potential employees. We know that our reputation is dependent upon fair and equitable treatment of all our employees and we forbid discrimination on the grounds of race, religion, gender, disability, sexual orientation, age, nationality or ethnic origin. Employment opportunities are equally available to all.

Employment opportunities are available to disabled persons in accordance with their abilities and aptitudes on equal terms with other employees. If an employee becomes disabled during employment, we make every effort to enable them to continue in employment by making reasonable adjustments in the workplace and providing retraining for alternative work where necessary.

MENTAL HEALTH AND WELLBEINGIn 2017 the business launched a significant initiative to support our people’s mental health and wellbeing. The initiative started by participating in Mental Health Awareness Week in May 2017, at the end of which we made three commitments:

• created a mental health and wellbeing group, to lead and drive initiatives to support our people;

• improved our internal support by training our HR team; and

• signed the “Time to change employer pledge” detailing our commitments (which included in 2018 creating mental health first aiders in the workplace).

This programme of works shows our commitment to our people and that we take the issue of mental health seriously and are committed to breaking down the taboo and helping end mental health discrimination in all workplaces.

GENDERWe have a progressive policy towards gender equality. Whilst we have always taken the view that the most suitable candidate for any role should be the person who is appointed to that role, we recognise the benefits that diversity can bring to any organisation and have embraced that philosophy when making all appointments into the business.

Our recruitment partnership, with market leader Randstad Sourceright, involves coaching, training and up-skilling our line managers to help them support our approach to both diversity and gender equality. We also partner with CEB (now Gartner) for a suite of SHL psychometric assessment tools which ensure we have an objective and fair approach to candidate selection.

A breakdown by gender of the number of persons who were Directors, senior managers and employees of the Group as at 31 December 2017 is set out below.

BREAKDOWN BY GENDER OF THE NUMBER OF PERSONS WHO WERE DIRECTORS, SENIOR MANAGERS AND EMPLOYEES

DIRECTORS

67% MALE (4)

33% FEMALE (2)

SENIOR MANAGERS1

55% MALE (22)

45% FEMALE (18)

ALL EMPLOYEES

59% MALE (1,233)

41% FEMALE (873)

67+33+H55+45+H59+41+H

1 The category of senior managers comprises the Executive Board members and

individuals who report directly into them.

GENDER PAYUnder the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, Communisis is required to report various statistics and information linked to differences in pay by gender across the business.

The publishing of our gap analysis is on track to meet the reporting deadline of 4 April 2018.

Strategic Report


CORPORATE SOCIAL RESPONSIBILITY REPORT CONTINUED

OUR PEOPLE AND ORGANISATION CONTINUED SUPPORTING OUR SUPPLIERSOur supply chain is key to the success of Communisis. We work hand in hand with our suppliers to understand our environmental impact and we plan to do more in 2018 to establish a reliable source of data within the supply chain through the strategic adoption of Ecovadis (a supply chain management platform) which will give us greater insights into the businesses that we work with.

SUPPORTING OUR PEOPLEOur aim is to give our employees rewarding careers that make the best use of the talents they have and also to equip them for the future by providing the opportunity to develop new skills. Most importantly, we want all our employees to feel they work for a company that treats them with respect and has values they can feel proud of. Our aim is to be the employer of choice for the best people in our markets.

SUPPORTING OUR COMMUNITIESWe actively encourage all employees to be socially active and participate in volunteering activities in the local community. We support this by allowing a paid volunteer day per employee per year.

Our Insight and MI team travelled to the heart of East London to St Luke’s Community Centre, where they worked hard to help revamp some donated picnic benches and help out with some gardening. They then helped clear one of the local parks by removing the fallen leaves and turning the soil, planting fresh plants and flowers to blossom in time for spring and summer.

COMMUNISIS CHARITY AND VOLUNTEERINGSupport for our nominated charities continued during 2017, led by our Charity Committee, which is made up of colleagues from all around the Group. Proceeds from all fundraising events went to Children in Need, Alzheimer’s Society and Macmillan Cancer Support. We will announce new nominated charity partners in 2018.

During 2017 our fundraising and donations amounted to £56,723, which has been distributed amongst our nominated charities. A further £1,275 was raised for other local charities giving a grand total of £57,998.

We continued to work with and support The Prince’s Trust through 2017, and will be doing so into 2018.

Our Volunteer Charity Champions represent all the business regions and support fundraising events, engage with other employees, set an example and are key to the success of our endeavours. Below are some of the events we enjoyed in 2017.

YORKSHIRE THREE PEAKSOn 7 July 2017, 47 Communisis employees took on the Yorkshire Three Peaks. Individuals either walked the 24-mile long route with 5,200ft of ascent, or they supported those doing so. Everyone challenged themselves, whether that was to complete one peak, two peaks or all three.

483 bottles of water, 51 made-to-order sandwiches, 104 energy gels and a countless number of blisters later, everyone had completed the challenge coming in under the guideline of 12 hours.

This event alone raised over £5,000.

47 Communisis employees took on the Yorkshire Three Peaks in July 2017


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BAKE SALESCommunisis is not alone in its love of cake, and in 2017 we held numerous bake sales. Highlights included Alzheimer’s Society Cupcake Day in June, and Macmillan Coffee Morning in September.

All our sites got involved and raised thousands on behalf of these good causes in the process.

SUSTAINABILITYOur work continued throughout 2017 with the sustainability forum, which is comprised of stakeholders from across the business who can offer insight and expertise in all areas of the business. The purpose of the forum is to share best practice, capture our achievements and help shape the future of sustainability within Communisis.

We are committed to the development, implementation and maintenance of an action plan to target improvements in our environmental and sustainability performance, in addition to helping our clients with theirs and to monitoring our progress over time.

HUMAN RIGHTS AND MODERN SLAVERYWe take the issue of human rights seriously.

The Modern Slavery Act 2015 has introduced changes in the UK law focusing on increasing transparency in supply chains. A copy of the Group’s slavery and human trafficking statement can be found on the Company’s website (www.communisis.com). We are committed to ensuring there is transparency in our approach in tackling modern slavery in our supply chain.

ANTI-BRIBERY POLICYThe Group’s anti-bribery policy sets out the ethical values required to ensure compliance with legal requirements. Anti-bribery and corruption training is provided across the Group to all employees. The training is provided via our online training portal.

Communisis values its reputation for ethical behaviour, financial integrity and reliability. It acknowledges that over and above the commission of any crime, any involvement in bribery will also reflect adversely on its reputation.

Communisis’ aim is to limit its exposure to bribery and corruption by:

• setting out a policy on anti-bribery and corruption;

• training all employees so that they can recognise and avoid the use of bribery by themselves and others;

• providing employees with a suitable channel of communication and ensuring sensitive information is treated appropriately;

• rigorously investigating instances of alleged bribery and assisting the police and other appropriate authorities in any resultant prosecution; and

• taking firm and vigorous action against any individual involved in bribery or corruption.

Strategic Report



HEALTH, SAFETY AND ENVIRONMENTHEALTH, SAFETY AND ENVIRONMENTAL POLICYCommunisis operates a combined Health, Safety and Environmental Policy which strives to continuously improve our health, safety and environment (HSE) compliance by integrating HSE practices as core values into our business activities. This in turn significantly contributes to the commercial success of the business.

The Board Director responsible for implementation of the Health, Safety and Environmental Policy is the Chief Executive.

KEEPING OUR PEOPLE SAFEThe main focus of our Health and Safety Programme is the prevention of injury and loss. We believe that all incidents are preventable and that our employees should be free to work in an environment that does not cause them injury or ill health.

In 2017, we were not subject to any regulatory enforcement resulting from any breaches of Health and Safety (H&S) legislation. All manufacturing locations maintained their safety management certifications to the externally verified standard of Occupational Health and Safety Assessment Standard 18001:2007 (OHSAS).

All endeavours are made to maintain a legally compliant business that operates without placing our employees, customers and visitors at risk of injury. We have a mature system of compliance checking through audit that enables us to monitor and improve our systems. This activity is compounded by and reinforced by external verification audits that are undertaken by SGS, our nominated external verification provider, to the standard of OHSAS that we operate in our production sites.

In 2017 we combined the Health and Safety Policy with our Environmental Policy to create one unified document.

We continue to offer a cycle to work scheme and now have more colleagues than ever enjoying the benefits of a healthier lifestyle that this has brought to them.

We continue to utilise our online training portal to provide our H&S training. This portal enables us to provide consistent training throughout the organisation. In addition we have utilised other forms of training including face-to-face training to raise line management awareness of HSE issues across our operational facilities.

PERFORMANCE AGAINST HEALTH, SAFETY AND ENVIRONMENTAL POLICY OBJECTIVES• Demonstrate proactive leadership and management for the

prevention of incidents, ill-health and environmental pollution.

We have continued to be proactive in our approach to safety and environmental management through the implementation of initiatives such as line management responsibility training, incident investigation awareness training and an increased focus on hazard observation and reporting. Other areas such as occupational health surveillance and mental health awareness have also been the focus of Group-wide initiatives.

• Demonstrate continuous improvements to our HSE management systems to reduce HSE risk and maintain legal compliance.

All operational facilities have maintained their OHSAS and International Organisation for Standardisation (ISO) 14001:2004 management system, with two locations making the conversion to the new ISO 14001:2015 standard. To provide assurance that this effort is directed in the correct manner, we have a rolling programme of internal audit reviews covering legal and process compliance.

• Engage and consult with personnel to ensure their competency, awareness and ability to work safely and in an environmentally responsible manner through the provision of supervision, information, instruction and training.

All operational facilities operate an employee forum where HSE issues are discussed and improvements are agreed. Many of the forums liaise directly with local unions, where representation is held, to ensure that good communication, information, instruction and training is provided to all areas of our operations. Our new online training portal has also enabled us to deploy training to a greater population of the workforce and provides consistency in the quality of the training.

• Manage performance by monitoring and taking corrective action and ensure efficiency of communication for a positive culture.

We use a software-based system to manage various aspects of HSE documentation. This includes hazard observation records, risk assessment records, audit schedule and non-conformance tracking.

• Monitor and manage our environmental impacts based on energy usage, waste management and supply chain practices.

Each operational facility monitors its energy use to reduce energy wastage. High standards of waste segregation and recycling are present across the business.

We have renewed our Forest Stewardship Council (FSC) and Programme for the Endorsement of Forest Certification (PEFC) for the next three years showing our dedication to sustainable sourcing of the materials we use.

We operate a greenhouse gas management system which enables us to accurately record and report our emissions. This system ensures consistency and transparency in our activities and is written to support ISO 14064-1.

We recognise that water scarcity and water pollution are a major global environmental challenge and we take all practicable steps to ensure that we manage our impact on these resources with the care that it requires. Water consumption and waste generation across our operations are monitored and managed to ensure our environmental impact is as low as possible.

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HEALTH AND SAFETY PERFORMANCEThe reportable incident frequency rate (RIFR) has reduced slightly to 0.12 from 0.13. This is due to improved return to work processes utilising our external healthcare provider and Employee Assistance Programme.

The lost time incident frequency rate (LTIFR) (referred to previously as Lost Time Accident Frequency Rate (LTAFR)) has increased to 0.27 from 0.22*. As a result of this increase, the business has taken additional risk management measures to ensure that relevant learnings were widely communicated, risk assessment controls reviewed and additional training completed.

*2016 numbers have been restated to reflect more accurate data.

Both frequency rates are calculated by taking the number of incidents multiplying by 100,000 (as the typical number of hours that a facility of 100 employees would work across 50 weeks per year) and dividing this by the total number of hours worked (based on permanent employees, temporary employees, agency employees and sub-contractor employees).

RIFR AND LTIFR

LTIFR RIFR

2015 2016 2017

0.3

0.1

0.25

0.15

0.05

0.2

02014

0.35

In 2017 we experienced 11 Lost Time Incidents, five of which were reportable under the Reporting of Injuries Diseases and Dangerous Occurrences Regulations 2013 (RIDDORs). In 2016 there were 11 Lost Time Incidents and six RIDDORs respectively. Whilst the 2017 number of Lost Time Incidents is the same as 2016, there is a marked improvement in relation to the number of days lost in respect of these incidents. With only 110 Lost Working Days being recorded in 2017 against 170* days in 2016.

*2016 numbers have been restated to reflect more accurate data.

INCIDENT BY TYPE

0 10 20 30 50 60 70 80 90

100

40

Near Miss

First Aid

Medical Aid

Lost Time Incident (> 1 Day)

RIDDOR (> 7 Days)

2015 2016 2017

There continues to be exceptional H&S performance from some of the operational sites throughout the Group. For example, the site at Newcastle experienced no injuries for the second consecutive year. Group performance also improved with a 68% increase in hazard observations being reported compared to 2016.

HSE OBSERVATIONS

2014 2015 2016 2017

2,500

1,000

1,500

500

2,000

02013

ENVIRONMENTAL PERFORMANCEENVIRONMENTAL LEGAL COMPLIANCECommunisis has maintained all its relevant environmental certifications and operational permits and has not been subject to any improvement, abatement or enforcement notices. We frequently evaluate our compliance against relevant environment legislation through a programme of auditing and review against current legislation.

CARBON REDUCTION COMMITMENT (CRC) AND GREENHOUSE GAS (GHG)Full compliance was achieved with CRC Phase 2 during 2017. This aspect of our compliance was done in conjunction with Carbon Credentials Energy Services Limited, our compliance partner, which we continue to partner with to provide us with technical advice and support.

GHG REPORTINGWe continuously review and modify current reporting practices in order to fully meet compliance requirements. Aside from continuous improvement of monitoring and measurement of activity data, we ensure that there are internal controls in place in order to avoid the risk of any material discrepancy within this report.

Strategic Report



HEALTH, SAFETY AND ENVIRONMENT CONTINUEDENVIRONMENTAL PERFORMANCE CONTINUEDCARBON INTENSITYWe have updated our carbon intensity calculation for 2017 and moved away from the previous measure that referred to paper consumption. Going forward we will be reporting on two new measures that we believe give greater insight into the performance of the Group as a whole.

We have elected to report:

1) tonnes of CO2e per square footage of our property portfolio; and

2) tonnes of CO2e from business travel against our average

employee headcount during the year.

TONNES OF CO2E PER SQ FT

2015 2016 2017

0.025

0.01

0.015

0.005

0.02

02014

Year-on-year there has been a positive improvement in carbon intensity performance across our property portfolio that we own or lease. This can be attributed to energy efficiency projects that have been introduced. For instance, LED lighting and energy efficient compressors have been installed in various parts of our operations.

TRAVEL (TONNES CO2E) PER HEADCOUNT

2015 2016 2017

0.4

0.6

0.2

0.8

02014

Our carbon intensity for travel (as a ratio of average headcount) shows a small reduction during 2017 (0.560) compared to 2016 (0.572). This can be attributed to the continued focus on restricting travel and improving our internal communication technology. The rate has however increased from 2014 and 2015 levels (with an average of 0.456). This is due to an increased amount of international travel that occurred as our global presence has increased. The headcount calculation includes permanent employees, temporary employees, agency employees and subcontractor employees.

For the purposes of reporting, any sites that were acquired or divested during a particular year will not have its square footage or energy included in the calculation.

As part of our continuous improvement process and our obligation to report GHG emissions, we will continue to provide verification of the emissions statements and data made by the Company in accordance with ISO 14064-3. Our current status is maintained at the top scoring of “reasonable assurance” as verified by our external third-party partner.

ENVIRONMENTAL PERFORMANCE MONITORINGECOVADISEcovadis is a supply chain management process that allows us to communicate our sustainability performance to our clients across a common platform. This provides us with an externally verified score based on our approach to the environment, labour practices and human rights, fair business practices, sustainable procurement and associated KPIs.

In 2017 we maintained a silver rating which placed us in the top 30% of subscribers.

CARBON DISCLOSURE PROJECT (CDP)Our climate change programme submission for 2017 was completed for both our Company performance and the way in which our supply chain is managed. We have maintained our “A-“ score. Year 2014 2015 2016 2017

Scope 1 1,603 1,571 1,630 1,816

Scope 2 9,122 8,514 7,486 6,138

Scope 3 1,012 784 951 930

Total gross carbon TCO2e 11,737 10,869 10,067 8,884

The above table shows the audited and verified data by our external third party partner. Scope 1 emissions are those that occur from sources that the Company own and directly manage or control. These have increased due to an increase in our production activity.

Scope 2 emissions are those that are generated from the purchased electricity that the Company consumed and have decreased because our operational facilities continue to be more energy efficient through the process improvements that were implemented during 2017.

Scope 3 emissions occur as a consequence of our activities, but occur from sources that are not owned nor controlled by us. These have reduced due to fewer European and domestic flights.

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DEAR SHAREHOLDERTo ensure continued focus on our long-term delivery, we have launched the next phase of our strategic planning, with financial targets to ensure continued shareholder returns and value. To this end we have initiated a Value Enhancement Programme (VEP) with three key strategic themes; Digital First, Global Reach and Empowered Organisation.

CORPORATE GOVERNANCEThis report serves to highlight that a strong governance framework is in place in order to support the Group’s strategy. The report sets out our approach to the main governance principles and outlines how the Board ensures that high standards of corporate governance are maintained.

CODE COMPLIANCEAs a Board we remain committed to maintaining high standards of corporate governance and we endorse the provisions set out in the UK Corporate Governance Code 2016.

During the year under review, we have assessed the level of compliance with the Code and the Board confirms that throughout the year the Company has continued to comply with all of the Code’s provisions, insofar as they apply to a FTSE SmallCap company.

FUTURE STRATEGIC DIRECTIONThe Board confirms its collective responsibility for the success of the Group by demonstrating its strong leadership in setting the Group’s strategy and reviewing management performance. The Board is accountable to the Company’s shareholders for good governance and this report describes how the principles of good governance set out in the Code are applied within Communisis.

DAVID GILBERTSONChairman8 March 2018

INTRODUCTION TO CORPORATE GOVERNANCE

Corporate Governance

GOVERNANCE



BOARD OF DIRECTORS

DAVID GILBERTSONChairman

TERM OF OFFICEChairman of the Board since May 2017, having been appointed an Independent Non-executive Director in March 2017. David is a member of the Audit, Remuneration and Nomination Committees and Chairman of the Nomination Committee.

EXPERIENCEDavid has more than 30 years’ experience in specialist business and professional information provision, first as a journalist and editor and subsequently as leader of companies in public ownership, private equity and private hands. He has a significant corporate M&A track record and extensive experience of company governance at board level in both public and private domains, and of managing shareholder relations and communication. David was formerly CEO of Informa plc.

CURRENT EXTERNAL DIRECTORSHIPSDavid is Senior Independent Director of Tarsus Group plc. He is Chairman of Old Street Labs Limited and Procurement Leaders Limited.

KEY STRENGTHSExtensive board and general management experience.

ANDY BLUNDELLChief Executive

TERM OF OFFICEChief Executive since October 2009 and member of the Board since August 2009.

EXPERIENCEAndy joined Communisis in January 2008 as Managing Director of Print Sourcing and became Group Sales Director in November 2008. He was later appointed to the Board as Chief Executive Officer designate on 25 August 2009 and took on the role permanently in October 2009. Formerly, Andy was a Managing Director at Bemrose Booth Limited and a Managing Director at De La Rue plc.

CURRENT EXTERNAL DIRECTORSHIPSAndy is a Non-executive Director of RM plc.

KEY STRENGTHSConsiderable executive management experience in relevant sectors.

Sales and Marketing; Client focus.

Wide knowledge of international markets.

STEVE RAWLINSChief Financial Officer

TERM OF OFFICEChief Financial Officer and member of the Board since December 2017.

EXPERIENCESteve joined Communisis in December 2017 and has extensive experience of the digital media, business services and FMCG sectors in both the UK and overseas markets. Most recently Steve was CFO of EDC Communications, a private equity backed group of digital media agencies. Previously he held senior finance roles at Vendia UK Ltd, Uniq PLC, Caradon PLC and The Gillette Company.

CURRENT EXTERNAL DIRECTORSHIPSNone.

KEY STRENGTHSExtensive financial management experience.

KEY FOR COMMITTEE MEMBERSHIP AT 8 MARCH 2018

A

Audit Committee

R

Remuneration Committee

N Nomination Committee

R

A

N

MEET THE BOARD

* Any two Directors (one of whom must be

the Chairman, the Chief Executive or the

Chief Financial Officer).

F

F F

Peter Hickson was Chairman of the Nomination Committee and a member of the Audit, Remuneration and

Administration and Finance Committees until 11 May 2017, when he stepped down as Chairman of the Board.

F Administration and Finance Committee*

Committee Chairman

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PETER HARRISSenior Independent Non-executive Director

TERM OF OFFICEIndependent Non-executive Director since July 2013 and Senior Independent Director since May 2015. Peter is also Chairman of the Audit Committee and a member of the Remuneration and Nomination Committees.

EXPERIENCEPeter has over 30 years’ financial experience and also has extensive media experience, having spent the last 20 years in senior finance roles in the media sector. He was previously the Interim Finance Director at Centaur Media plc, Interim Chief Financial Officer of Bell Pottinger LLP, CFO of the Engine Group and CFO of 19 Entertainment. Prior to that, he was Group Finance Director of Capital Radio plc. Peter has considerable experience in UK and US listed companies, with international exposure.

CURRENT EXTERNAL DIRECTORSHIPSPeter is Executive Director and Chief Financial Officer of Next Fifteen Communications Group plc.

KEY STRENGTHSExtensive financial management experience (including recent financial experience).

JANE GRIFFITHSNon-executive Director

TERM OF OFFICEIndependent Non-executive Director since May 2012. Jane is also a member of the Audit, Remuneration and Nomination Committees.

EXPERIENCEJane is a marketing professional with over 20 years’ international agency and brand owner experience for global brands across the luxury, financial services, IT, telecommunications, retail, travel, hospitality, charity, automotive and petrochemicals industry sectors. Jane is currently working as an international marketing consultant. Jane’s previous roles include Marketing Director EMERI for Christie Manson & Woods Limited and Marketing Director EMEA for Citibank NA. She has also worked for a number of advertising agencies including Ogilvy/ Ogilvy One in London, New York and Korea, Arc Worldwide London (part of the Leo Burnett Group) and TBWA/GGT London, each with a seat on the senior management team and as a member of the Board.

CURRENT EXTERNAL DIRECTORSHIPSNone.

KEY STRENGTHSStrong marketing and agency experience with global businesses.

R

N

A

HELEN KEAYSNon-executive Director

TERM OF OFFICEIndependent Non-executive Director since August 2014. Helen is also Chair of the Remuneration Committee and a member of the Audit and Nomination Committees.

EXPERIENCEHelen has over 20 years’ experience in travel, retail, consumer markets and telecoms, with the majority of her career spent at GE Capital and Vodafone, where she held various senior marketing roles. Previously Helen was a Non-executive Director of Majestic Wine plc, Mattioli Woods plc and SKN Holdings Limited.

CURRENT EXTERNAL DIRECTORSHIPSHelen is a Non-executive Director of Domino’s Pizza Group plc, Nichols Plc and is also a Life Trustee of the Shakespeare Birthplace Trust.

KEY STRENGTHSStrong commercial experience in retail and consumer markets.

A

N

R

F

R

N

F

A

F



CORPORATE GOVERNANCE REPORT

INTERNAL GOVERNANCE STRUCTURE

EXECUTIVE BOARDThe Executive Board is the main operating board of Communisis plc and comprises the following people from across the Group:


STEVE RAWLINSChief Financial Officer

ANDREW NEALGroup Human Resources Director

DAVID HERRIDGEManaging Director – Customer Experience

JON WELLINGSManaging Director – Brand Deployment

MARK LEWISGroup Shared Services Director

This report, with the Directors’ Remuneration Report, describes how the Board applies the principles of the UK Corporate Governance Code issued by the Financial Reporting Council, which is publicly available at www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-2016.pdf.

UK CORPORATE GOVERNANCE CODE COMPLIANCEDuring the year under review, the Company has complied with the main provisions of the UK Corporate Governance Code (April 2016) (the Code).

BOARD STRUCTUREThe Board currently comprises the Chairman, two Executive Directors and three independent Non-executive Directors. David Gilbertson was appointed as an independent Non-Executive Director on 1 March 2017 and took over as Chairman at the close of the AGM on 11 May 2017, when Peter Hickson stepped down from the Board. On 4 December 2017 Mark Stoner, Executive Director and Finance Director, stepped down from the Board. Steve Rawlins was appointed as an Executive Director and Chief Financial Officer on 4 December 2017. We have announced today that Helen Keays will be leaving the business on 6 June 2018. The Nomination Committee will conduct an external search for a new Non-executive Director.

The roles and responsibilities of the Chairman and Chief Executive are set out in separate documents outlining their respective roles. The Chairman’s role fulfils a number of objectives including ethical leadership of the Board, ensuring the Board agenda focuses on strategy, value creation, performance and accountability, appropriate identification and supervision of significant risks, effective communication with shareholders and that the Board as a whole acts efficiently in delivering the agreed strategies.

The Chief Executive is responsible for operational management of the Group, leading the development and implementation of strategy, setting and monitoring of budgets and other financial objectives, organisational structure and setting and delivery of objectives of direct reports, all for consideration by the Board.

Consistent with their role as part of a unitary board, the Non-executive Directors constructively challenge and help develop Company proposals on strategy. They also test the integrity of financial information, ensure financial controls are appropriate and robust, determine appropriate levels of remuneration for Executive Directors and have a pivotal role in succession planning.

Biographical details of the Board as at the date of this report can be found on pages 34 and 35.

The Chairman does not have any other significant commitments in addition to those detailed in his biography.

CONFLICTS OF INTERESTThe Company’s Articles of Association contain provisions permitting Directors to take up any position that conflicts, or may possibly conflict, with the interests of the Company provided those Directors have sought authorisation from the Board before doing so. All existing external appointments for each Director have been authorised by the Board and a register of interests is kept and reviewed on a regular basis. All Directors have been made aware of the need to consult the Company Secretary about any possible conflicts which may arise, so that prior consideration can be given by the Board to whether or not such conflict will be authorised.

BOARD PROCEEDINGSThe Board schedules eight or nine meetings each year, and also meets at other times as appropriate. During 2017 there were nine scheduled meetings and two ad hoc meetings (some of which were conducted by telephone). The table opposite shows the attendance of each Director at meetings of the Board and its standing Committees during the year. Details of membership of Committees are set out on pages 34 and 35.

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The Company has adopted a schedule of matters reserved for Board approval which is reviewed annually and includes:

• strategy;

• budget approval and monitoring of performance;

• acquisitions and disposals;

• approval of the Annual Report, interim, preliminary and other market updates on the Company’s performance;

• approval of significant contracts; and

• approval of Group policies.

The Company ensures that the Board is supplied with appropriate and timely information to enable it to discharge its duties. Directors may seek independent professional advice if necessary, at the expense of the Company. All Directors have access to the services of the Company Secretary.

During the year under review the Chairman held meetings with the Non-executive Directors in the absence of the Executive Directors to discuss a range of issues including strategy, financial performance, progress towards targets, management performance and management succession.

RE-ELECTIONIn accordance with the Code recommendation, all members of the Board will be submitting themselves for re-election at this year’s AGM to be held on 10 May 2018, with the exception of Steve Rawlins, who will be standing for election, and Helen Keays who will be leaving the business on 6 June 2018 and therefore will not be offering herself for re-election at this year’s AGM.

As a result of consideration of the Directors’ input throughout the year and the Board evaluation process referred to below, the Board is satisfied that all the Directors continue to demonstrate the level of skills and commitment to be fully effective in their respective roles as members of the Board.

NON-EXECUTIVE DIRECTOR INDEPENDENCEHaving considered the criteria for independence within the Code, the Board is satisfied that David Gilbertson, Jane Griffiths, Peter Harris and Helen Keays remain independent.

INDUCTION AND DEVELOPMENTA formal and comprehensive induction process is in place for new Directors, which includes an information pack and personalised induction programme. This programme is tailored to the needs of each Director and agreed with him or her so that he or she can gain a better understanding of the Company.

Steve Rawlins, further to his appointment on 4 December 2017, is currently undergoing a formal and comprehensive induction including site tours and meetings with senior management at the Company’s main operating sites.

In order to ensure that Directors continue to further their understanding of the issues facing the Company, presentations are made to the Board on key topics throughout the year. This gives the Directors the opportunity to meet the management teams across the Group and improve their knowledge and understanding of the different areas of the Group.

The Directors also receive regular briefings on upcoming developments and, if required, training is arranged to cover specific areas for which the Directors need to have a more in-depth knowledge.

ATTENDANCE BY DIRECTORS AT MEETINGS OF THE BOARD AND COMMITTEES IN 2017Administration

Board Audit Remuneration Nomination and Finance

(11 meetings) (3 meetings) (5 meetings) (3 meetings) (13 meetings) 1

David Gilbertson2 10 3 4 2 —

Andy Blundell 11 — — — 13

Steve Rawlins3 1 — — — 4

Jane Griffiths 11 3 5 3 —

Peter Harris 11 3 5 3 —

Helen Keays 11 3 5 3 —

Mark Stoner4 10 — — — 9

Peter Hickson5 4 1 2 2 —

1 Meetings of the Administration and Finance Committee are held on an ad hoc basis and require the attendance of two Directors, one of whom must be the Chairman, Chief

Executive or Chief Financial Officer.

2 David Gilbertson was appointed a Non-executive Director on 1 March 2017 and Chairman with effect from 11 May 2017.

3 Steve Rawlins was appointed an Executive Director and Chief Financial Officer on 4 December 2017.

4 Mark Stoner stepped down as an Executive Director and Finance Director on 4 December 2017.

5 Peter Hickson stepped down as Chairman of the Board on 11 May 2017.



CORPORATE GOVERNANCE REPORT CONTINUED

the Committee are made by the Board, which considers the required balance of skills and expertise required for the Committee.

The Committee meets as required but not less than three times a year. Three meetings were held during 2017. It also meets in the absence of management for discussions with the external auditor and in the absence of the external auditor when undertaking its annual appraisal of the performance of the auditor.

The Committee’s primary function is to oversee and manage the appointment of and relationship with the Group’s external auditor and to monitor and review the activities of the internal audit function to ensure appropriately robust and effective financial controls are in place and are adhered to.

The Committee is provided with sufficient resources to undertake its duties and has access to the Company Secretary, who acts as secretary to the Committee, and all other employees. It may also take independent legal or professional advice at the expense of the Group when it believes it is necessary.

The Audit Committee Report is set out on pages 42 and 43.

NOMINATION COMMITTEEDetails of the Nomination Committee are set out in the Nomination Committee Report on pages 40 and 41.

REMUNERATION COMMITTEEDetails of the Remuneration Committee are set out in the Directors’ Remuneration Report on pages 44 to 59.

ADMINISTRATION AND FINANCE COMMITTEEThe Committee comprises any two Directors, one of whom must be the Chairman, the Chief Executive or the Chief Financial Officer. It may appoint its own Chairman and it meets when necessary.

It is empowered by the Board to:

• administer the Company’s share schemes in accordance with the Board’s policy (and any specific decisions of the Remuneration Committee that concern participation by Directors and/or senior employees);

• borrow money (by entering into new or replacement facilities) needed by the business, enter into finance leases and operate existing banking facilities (within the limit set by the Group’s borrowing facilities immediately before taking action and subject to a transaction limit of £10m); and

• enter into guarantees or indemnities where they are a necessary incidental of the exercise of the powers above.

BOARD EVALUATIONA Board performance evaluation is conducted annually with the most recent being December 2017. The evaluation process was based on a questionnaire devised for the purpose and circulated to the Directors. The performance of the Board as a whole and of each of its principal Committees was considered and included issues such as: the assessment and monitoring of the Group’s strategy and risks; the mix of knowledge and skills on the Board; processes and procedures; oversight; ethics and compliance. The results were collated by the Company Secretary and reviewed by the Chairman, who reported significant themes to the Board for further consideration and discussion. The objectives for 2018 are:

• explore ways for the Non-executive Directors to gain a more detailed understanding of the challenges faced by different areas of the business in order to facilitate insightful contributions to strategy discussions;

• increase the proportion of Board time spent on strategic issues; and

• to undertake a full review of Board members’ skills and experience, to ensure that the appropriate skills and experience are in place to execute the strategy.

The evaluation process for 2018 is planned for the fourth quarter of the year.

BOARD COMMITTEESThe Board has four Committees: Audit, Remuneration, Nomination and Administration and Finance, all of which have terms of reference which are reviewed annually and deal specifically with their authorities and duties. The terms of reference may be viewed on the Company’s website.

Only the Committee Chairman and Committee members are entitled to be present at the Audit, Remuneration and Nomination Committee meetings but others may attend by invitation.

AUDIT COMMITTEEDuring the year, the Audit Committee comprised:

• Peter Harris (Chairman);

• David Gilbertson (from 1 March 2017);

• Jane Griffiths; and

• Helen Keays.

Peter Hickson stepped down from the Board and the Audit Committee on 11 May 2017.

Peter Harris is assessed as having the required recent and relevant financial expertise required by the Committee. All appointments to

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INTERNAL CONTROL AND RISK MANAGEMENTThe Board is responsible for maintaining a sound system of internal control in the Group and reviewing the effectiveness of financial, operational and compliance controls.

This system is designed to provide assurance to the Group’s objectives of reliable financial reporting, operational effectiveness and efficiency, compliance with laws, regulations and policies and the safeguarding of assets. The system aims to manage, rather than eliminate, the risk of failure to achieve business objectives. By its nature, it provides reasonable, but not absolute, assurance against material misstatement or loss.

The Group has an independent internal audit function which has a direct line of communication to the Audit Committee Chairman. The principal role in fulfilling the internal audit function is to review the adequacy and effectiveness of the controls operating within the business by undertaking an agreed schedule of independent audits each year. The nature and scope of this annual audit programme is reviewed in advance by the Audit Committee each year and may be updated from time to time according to changing business circumstances and requirements. The findings of these audits are reported in accordance with the internal audit terms of reference and any necessary corrective actions are agreed and monitored. Summaries of these reports are presented to, and discussed with, the Audit Committee along with details of progress against action plans as appropriate.

The Board has overall accountability for ensuring that risks are effectively managed across the Group. In addition, the internal audit function within the Group also has responsibilities for the risk management programme. A summary of this process is provided as part of the Viability Statement on page 18.

RELATIONS WITH SHAREHOLDERSAn important role of the Board is to represent and promote the interests of its shareholders as well as being accountable to them for the performance and activities of the Company.

The Board believes it is very important to engage with its shareholders and its main channel of communication to institutional investors is through the Chief Executive and Chief Financial Officer via investor roadshows, broker organised conferences, face-to-face meetings and the AGM.

The Company is a member of the Quoted Companies Alliance (QCA), which enhances access to leading small and mid-cap investors and helps the Company better understand its key criteria in making investment decisions.

Following the Company’s preliminary and interim results announcements, presentations are made to analysts and major shareholders to update them on the progress the Company has made towards its strategic objectives and invite them to ask questions.

Full details on results presentations, RNS releases and trading updates are available on the Company’s website.

In 2017 Andy Blundell utilised internet video channels via the Proactive Investor website to extend links to investors.

The Chairman and Senior Independent Director are also available to speak with major shareholders and brief the Board to ensure that they are aware of the views of shareholders.

Additionally the retail market has been kept in focus with direct communication and through intermediaries (private client brokers).

Information in relation to those who have a significant direct or indirect holding in the Company are set out in the Directors’ Report on page 62.

GENDER DIVERSITYDetails of the proportions of male and female employees on the Board, in senior management positions and in the organisation as a whole, are provided in the Corporate Social Responsibility Report on page 27.

STRUCTURE OF COMPANY’S CAPITALDetails of the structure of the Company’s capital are set out in the Directors’ Report on pages 60 to 63.

Approved by the Board on 8 March 2018 and signed on its behalf by:

Sarah CaddyCompany Secretary8 March 2018



ANNUAL STATEMENT BY THE CHAIRMAN OF THE NOMINATION COMMITTEEThe Nomination Committee evaluates and keeps under review the composition of the Board and its Committees to maintain the appropriate balance of skills, knowledge, experience and independence to ensure their continued effectiveness. Appropriate succession plans for the Non-executive Directors, Executive Directors and senior management are also kept under review.

The Committee has continued to perform its duties in respect of its terms of reference, a copy of which is available on the Company’s website.

The Committee meets as required, but has at least two scheduled meetings throughout the year. Three meetings were held throughout 2017 and attendance records of the meetings held during the year can be found on page 37.

COMPOSITIONThe composition of the Nomination Committee during the year was:

• David Gilbertson (Chairman) (Committee member from 1 March 2017, Chairman from 11 May 2017);

• Jane Griffiths;

• Peter Harris; and

• Helen Keays.

Peter Hickson stepped down from the Board and Chairman of the Nomination Committee on 11 May 2017.

Committee appointments are made by the Board. The Committee is provided with sufficient resources to undertake its duties and has access to the Company Secretary, who acts as secretary to the Committee, and all other employees. It may also take independent legal or professional advice at the expense of the Group when it believes it is necessary.

ROLES AND RESPONSIBILITIESThe main roles and responsibilities of the Committee are to:

• review the composition of the Board and make recommendations to the Board of any changes needed;

• consider, at the request of the Board or the Chairman, the making of any appointment or re-appointment, to the Board;

• evaluate the skills, knowledge and experience of the Board and, taking these into account, prepare a description of the role and capabilities required for a particular appointment; and

• identify and nominate, for Board approval, candidates to fill any Board vacancies.

NOMINATION COMMITTEE REPORT

NOMINATION COMMITTEE

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KEY ACTIONS TAKEN DURING 2017As part of its role to review the composition of the Board, during 2017 the Nomination Committee recommended the appointment of a new Non-executive Director who would also replace Peter Hickson as Chairman of the Board and Chairman of the Nomination Committee at the close of the 2017 AGM. The Nomination Committee evaluated the balance of skills, experience, independence and knowledge of the Board before preparing a detailed candidate specification, which defined the criteria for the new appointee, in particular, looking for a candidate with the relevant skills to take on the roles of Chairman of the Board and Chairman of the Nomination Committee. The specification was agreed by the Nomination Committee. Peter Hickson stepped down from the Board as Non-executive Chairman with effect from 11 May 2017. I was appointed as a Non-executive Director on 1 March 2017 and as Non-executive Chairman with effect from 11 May 2017 and will offer myself for re-election at the May 2018 AGM.

In accordance with the requirements of the specification, an independent external search agency (Warren Partners) was engaged to assist with the search for suitable candidates. Warren Partners has no other connection with the Company. A short-list of potential candidates was produced and these were interviewed by the Senior Independent Director, Chairman of the Nomination Committee and Group Human Resources Director. The final candidates were then interviewed by the other Non-executive Directors. Following those interviews, the final candidate was selected and then met by the Executive Directors. I was selected as Non-executive Director for my extensive knowledge and experience in relevant industry sectors and suitability to take over as Chairman of the Board and Chairman of the Nomination Committee when Peter Hickson stepped down at the AGM on 11 May 2017. Peter Hickson was not involved in the final decision on the appointment of his upcoming successor.

The process described above was also followed in respect of the appointment of Steve Rawlins as an Executive Director and Chief Financial Officer with effect from 4 December 2017. In connection with Steve Rawlins’ appointment, the Committee used the services of Spencer Stuart (which has no other connection with the Company). Mark Stoner stepped down as an Executive Director and Finance Director with effect from 4 December 2017.

It has been announced today that Helen Keays will be leaving the business on 6 June 2018. The Board would like to thank Helen for her commitment and contribution over the years and to wish her every success for the future. The Committee will conduct an external search for a new Non-executive Director.

Following the appointment of a new Director, the Chairman, in conjunction with the Company Secretary and the Group Human Resources Director, has responsibility for ensuring that a full, formal and tailored induction to the Company is provided. Such induction includes one-to-one meetings with key management, an overview of the Group’s structure, strategy and operations, and site visits.

The Committee also carefully reviews and makes recommendations concerning the re-appointment of any Non-executive Director at the conclusion of their specified term of office. The Committee considered the positions of Peter Harris, Jane Griffiths, and myself. It was the Committee’s view that it would be in the best interests of the Company’s shareholders, subject to careful and rigorous review, for each of the Non-executive Directors to offer themselves for re-election at the 2018 AGM. In the Committee’s view, each of the Directors bring considerable management experience and an independent perspective to the Board’s discussions and are considered to be independent of management and free from relationship or circumstance that could affect, or appear to affect, the exercise of their independent judgement, therefore providing continued valuable support. Helen Keays will be leaving the business on 6 June 2018 and therefore will not be offering herself for re-election at this year’s AGM.

DIVERSITYThe Board recognises the recommendations and benefits to the Group of diversity in the workforce and in the composition of the Board itself. Whilst the Company will always make appointments based on the best candidate for the role, it does take into consideration the recommendations within the Davies Report and seeks to follow the Code. In 2017 female Directors accounted for 33.3% of the Board composition. More details on diversity and gender across the Group can be found on page 27. The Committee will also consider the Parker Review findings on ethnic and cultural diversity when making future appointments to the Board.

David GilbertsonChairman of the Nomination Committee8 March 2018



AUDIT COMMITTEE REPORT

ANNUAL STATEMENT BY THE CHAIRMAN OF THE AUDIT COMMITTEEThe Committee has continued to perform its duties in respect of its terms of reference, a copy of which is available on the Company’s website.

Three meetings were held during the year, two of which were scheduled to coincide with the Board’s review and approval of the Group’s interim statement and of its preliminary results announcement based on the Annual Report and Financial Statements. Attendance records of the meetings held during the year can be found on page 37.

ROLE AND RESPONSIBILITIESBroadly, the key activities and responsibilities of the Committee have been to review and challenge, where necessary:

• the effectiveness of the Group’s internal controls, audit function and risk management programme;

• the financial reporting process, including the adoption of critical accounting policies and practices;

• the independence and effectiveness of the external auditor;

• the Group’s procedures and arrangements for handling any allegations from whistleblowers; and

• to report to the Board any action required if a material cause for concern, or scope for improvement, is discovered.

COMPOSITIONThe Committee is composed entirely of Non-executive Directors. The composition of the Audit Committee during the year was:

• Peter Harris (Chairman);

• Jane Griffiths;

• Helen Keays; and

• David Gilbertson (Committee member from 1 March 2017).

Peter Hickson stepped down from the Board as a Committee member of the Audit Committee on 11 May 2017.

The relevant experience of each member is described on pages 34 and 35.

INTERNAL AUDIT AND CONTROLThe Group’s system of operational and internal financial control is subject to regular internal and external audits including those conducted on behalf of clients under contractual arrangements.

There were 419 separate audits completed during 2017. This activity covered areas of compliance including information security, quality, health and safety, environmental matters and business continuity arrangements in addition to financial reporting and internal controls.

The internal and external audit plans are set and approved in the context of a developing assurance reporting process and are flexed to deal with any changes with respect to the risk profile of the Group.

The Group’s internal audit function reports independently and directly to the Audit Committee Chairman and maintains regular communication outside of the scheduled Committee meetings.

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The FRC noted one matter in relation to pension disclosures where they believed that users of the accounts would benefit from improvements to existing disclosures. As a result, we have taken the opportunity to improve our disclosures in relation to our pension funding investment strategy in our 2017 Annual Report and Financial Statements. The FRC’s review covered only the specific disclosures relating to the thematic review of pensions disclosures, and was not intended to provide any assurance that the report and accounts were correct in all material respects.

EXTERNAL AUDITThe Committee has responsibility for making a recommendation on the appointment, re-appointment and removal of the external auditor. The external auditor’s appointment is reviewed periodically and the lead audit partner is rotated at least once every five years. Ernst & Young LLP has been the Group’s external auditor since September 2002, when the last audit tender took place. A new audit partner was rotated onto the audit during the year as the previous partner had completed five annual audits.

The Committee is aware of the EU mandated requirement for auditor rotation and will monitor any legal or regulatory developments.

The Committee reviews reports from Ernst & Young LLP as part of the annual audit process. These cover the scope, approach and results of the external audit and include the procedures adopted for safeguarding the firm’s independence and objectivity. The quality and content of these reports, together with the performance and behaviour of the audit teams during the exercise of their duties, inform the Committee’s assessment of audit effectiveness.

The external auditor meets privately with the Committee after each meeting without any member of the executive management team being present.

The Committee has an established policy for determining the non-audit services that the external auditor can provide and the procedures required for pre-approval of any such engagement. This allows the Committee to satisfy itself that auditor objectivity and independence are safeguarded. The split between audit and non-audit fees for the year ended 31 December 2017 and the nature of the non-audit services provided appear in Note 5.5 to the Consolidated Financial Statements. Non-audit fees totalled £20,000 in respect of other assurance and advisory services provided during 2017. Given the type of non-audit services provided and at 9% of the external audit fee of £235,000, they are not considered by the Committee to be of a nature or at a level that compromises the objectivity and independence of the external auditor.

Upon the recommendation of the Committee, Ernst & Young LLP will be proposed for re-appointment as auditor by shareholders at the AGM on 10 May 2018.

Peter HarrisChairman of the Audit Committee8 March 2018

RISK MANAGEMENTThe Group has an established risk management programme, details of which are provided in the Strategic Report and Corporate Governance sections. The risk focus has been on the changes in data protection legislation, data control assurance and cyber security.

The Committee also kept a keen eye upon health, safety and environment which involved reviewing internal controls and challenging how risks are appropriately managed. The impact of the exit from the European Union was also considered in the context of the Group’s strategic risks.

SIGNIFICANT MATTERS RELATED TO THE FINANCIAL STATEMENTSThe Committee assesses whether suitable accounting policies have been adopted, and appropriate estimates and judgements have been made, based upon a review of accounting papers which have been prepared by management providing details of significant financial reporting issues, together with reports from the external auditor prepared in contemplation of the interim and full-year results. Any issues arising are discussed with the external auditor together with any other matters which the auditor wishes to bring to the Committee’s attention.

In 2017, such issues included revenue recognition, goodwill impairment and internal controls.

Of the matters considered during the year, the most significant were revenue recognition and goodwill valuation:

• the Committee continued to monitor the established Group policies for revenue recognition to ensure that they remained appropriate, robust and were consistently applied; and

• recoverability of goodwill is reviewed on an ongoing basis and an assessment of whether any impairment of goodwill is required is performed at least annually. The principal judgements relate to the assumptions underlying the calculation of the value in use of the segmental businesses, primarily whether the long-term plans are achievable, the reasonableness of the overall macro-economic factors that underlie the valuation process and the suitability of the discount rate used to determine the present value of future cash flows. The Committee assessed this issue by considering management prepared papers and by reviewing reports from the external auditor, both of which describe the supporting methodology, the rationale and support for the key assumptions in the context of market comparators and the associated sensitivities. The Committee’s conclusion was that a goodwill impairment was not required.

The key areas of focus during 2018 include the General Data Protection Regulation which is effective from May 2018, and the implementation of new International Financial Reporting Standards (IFRS) in respect of lease accounting (IFRS 16) and revenue from contracts with customers (IFRS 15).

As part of the Financial Reporting Council’s (FRC) thematic review into pension disclosures, the Company was notified that the pension disclosures in its 2016 Annual Report and Accounts would be reviewed.



DIRECTORS’ REMUNERATION REPORT

ANNUAL STATEMENT FROM THE CHAIR OF THE REMUNERATION COMMITTEE

DEAR SHAREHOLDERI am pleased to present the Directors’ Remuneration Report for the year ended 31 December 2017 on behalf of the Board.

This Remuneration Report is split into two sections:

• this letter introducing the Directors’ Remuneration Report; and

• the Annual Report on Remuneration.

Our Directors’ Remuneration Policy, which was approved by our shareholders at the 2017 AGM, is set out for reference in the Appendix to this report.

REMUNERATION IN 20172017 was a year of continued progress for Communisis despite challenging trading conditions in a number of our markets. As a consequence of this performance and the related growth in profits, the Committee was pleased to approve the payment of annual bonuses for 2017, albeit at broadly threshold levels for our Executive Directors (Andy Blundell only) for 2017 (30% of base salary). However, we do expect to approve the vesting of part of the 2015 Long Term Incentive Plan (LTIP) award. The EPS condition for this award (80% weighting) has been met. A total of 55.066% of this part vested; the share price condition (20% weighting) will be measured after the performance period for this part ends on 15 April 2018.

The Committee also undertook the following actions in 2017:

• base salaries were reviewed for Executive Directors as part of the normal, annual review of Company-wide salaries. In line with the levels of increases made to all staff, the Chief Executive’s salary was increased by 1% from 1 July 2017; there was no pay increase awarded to the Finance Director in the year;

• further LTIP awards were made to Executive Directors on 10 March 2017;

• the treatment of remuneration items for the Finance Director who stepped down from our Board on 4 December 2017 (Mark Stoner) were determined (as more fully described on page 49 of this report); and

• the remuneration for Steve Rawlins who joined us on 4 December 2017 as an Executive Director and Chief Financial Officer was approved. Details of Steve’s remuneration arrangements for 2018 are set out in this report.

REMUNERATION POLICY IN 2018We were very pleased to receive over 94% support when we renewed our Directors’ Remuneration Policy at our 2017 AGM.

For 2018, we have had to consider as a Committee whether our policy remains appropriate for Communisis and capable of supporting our revised strategic vision as more fully explained in the Chairman’s Statement at the beginning of this Annual Report. Having undertaken a review, we concluded that our current policy as approved at the 2017 AGM remains appropriate. We are thus not seeking to amend our policy at the 2018 AGM.

We have, however, decided to make certain changes in the way in which we will implement our policy in 2018. These modifications are permitted within our current policy and so we do not propose to seek a further policy approval at the 2018 AGM.

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SHAREHOLDER APPROVALAt the AGM on 10 May 2018, shareholders will be invited to approve the 2017 Directors’ Remuneration Report as set out on pages 44 to 52. We are not seeking further approval from shareholders for our policy (as set out for information in the Appendix to the Directors’ Remuneration Report) at the 2018 AGM.

Our shareholders’ support for the resolution on the 2017 Directors’ Remuneration Report which will be proposed at the 2018 AGM is important for us as a Board and I would recommend all shareholders to vote for this resolution.

Yours sincerely

Helen KeaysChair of the Remuneration Committee8 March 2018

INTRODUCTIONThis report is presented in two parts.

The first part constitutes the Annual Report on Remuneration. This outlines how the Committee implemented the Directors’ Remuneration Policy for the financial year ended 31 December 2017. This report, together with the Annual Statement from the Chair of the Remuneration Committee, will be put to shareholders for approval at the AGM to be held on 10 May 2018. Shareholder approval is on an advisory basis only.

The second part is an Appendix containing the Directors’ Remuneration Policy, as approved by the Company’s shareholders at the Company’s AGM on 11 May 2017, which is reproduced here for information. For completeness, the “scenario charts” in the Directors’ Remuneration Policy have been updated to reflect Steve Rawlins’ remuneration arrangements for 2018.

The Company has complied with the principles and provisions relating to Directors’ remuneration in the UK Corporate Governance Code, and these reports have been prepared in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the Regulations). Where information disclosed has been subject to audit by the Company’s auditor, Ernst & Young LLP, this is highlighted.

In summary, the changes which we are making are as follows:

• whilst the same performance measures from 2017 (Adjusted EBIT (50%), free cash flow (25%) and personal objectives (25%)) will apply to the 2018 annual bonus, in 2018 the percentage of maximum bonus payable for on-target performance will be increased from 50% of maximum to 65% of maximum; and

• within our LTIP, we are again seeking to make annual awards subject to an equally weighted (50:50) mix of three-year EPS growth and three-year absolute TSR growth targets. For both measures the growth rates required for vesting are between 5% CAGR (25% vesting of that part) and 10% CAGR (100% vesting of that part). For 2017’s awards the equivalent ranges were a 5% to 15% CAGR for three-year EPS and a 7.5% to 17.5% CAGR for TSR with 15% of the award vesting at the threshold level for both measures.

The changes which we have made were not matters undertaken lightly by the Committee, but we are under an obligation to act in the interests of our shareholders and in this regard we considered it important that our incentive plans align with our revised strategy and support its delivery. The performance targets which we have set for the LTIP are aligned to the growth aspirations set out in the Chairman’s Statement. Accordingly, the target ranges are, we believe, appropriately stretching in light of our revised strategy and, if achieved, will deliver strong performance for our shareholders in the prevailing business climate in our industry.

Additionally we would ask our shareholders to note that:

• for absolute TSR we are starting the measurement point for the 2018 to 2020 three-year cycle from a significantly higher base point than in 2017 (Communisis’ TSR in financial year 2017 increased by 55.3%);

• we strongly believe in our incentive plans being “self-funding”, and hence the heavy emphasis on profits-based measures within our plans (adjusted EBIT, EPS) against which the costs of all bonuses and share plans are charged; and

• we set appropriately stretching targets for our annual bonus:

• our five-year average bonus outcome for the Chief Executive is 34.4% of maximum bonus levels; and

• to ensure affordability, even if our free cash flow and personal objectives measures for annual bonus are attained at levels higher than the equivalent performance on our adjusted EBIT measure, the amount of bonus payable will be capped by the level of attainment on the adjusted EBIT metric.



DIRECTORS’ REMUNERATION REPORT CONTINUED

ANNUAL REPORT ON REMUNERATION

PROPOSED IMPLEMENTATION OF REMUNERATION POLICY IN 2018 (UNAUDITED INFORMATION)Element of Remuneration Policy Detail of implementation of Policy for 2018

Base salary Andy Blundell – £364,212 Steve Rawlins – £250,000

A further review will occur on 1 July 2018.

Pension No changes to the overall value of the pension arrangements for Executive Directors are anticipated for 2018. From 1 July 2013 the pension entitlement for each Executive Director has been set at 12% of base salary.

Benefits There are no proposed changes to the benefits offered to Executive Directors in 2018.

The benefits to be received by Executive Directors in 2018 will include life assurance, private medical cover, car or car allowance provision and fuel card.

Annual performance bonus The maximum annual performance bonus for 2018 will remain at 100% of base salary.

The proposed performance measures (and their respective weightings) for the 2018 annual bonus are as follows:

• Adjusted EBIT – 50%

• Free cash flow – 25%

• Personal objectives – 25%

The actual performance targets for 2018 are not disclosed prospectively as these are considered to be commercially sensitive by the Board. The Committee’s intention is for the performance targets for each performance measure to be disclosed retrospectively in next year’s Directors’ Remuneration Report, which is consistent with the fact the performance targets for the 2017 annual performance bonus are disclosed retrospectively in this report on page 48.

As described in the Annual Statement from the Chair of the Remuneration Committee, reflecting the level of stretch within the targets set for the 2018 annual bonus, the percentage of maximum bonus payable for on-target performance in 2018 will be 65% of base salary.

Long-term incentives There will be an LTIP grant made in 2018 to the Executive Directors over shares worth 150% of salary. The performance conditions for this award will be as follows:

• 50% of the award will be subject to a performance condition requiring absolute growth in adjusted diluted EPS;

• 50% of the award will be subject to a performance condition requiring absolute growth in TSR;

• for both metrics, the vesting range is detailed below;

• both metrics will be measured over three financial years to 31 December 2020;

• EPS will be measured on the basis of adjusted diluted EPS; and

• TSR growth will be measured using a three-month averaging period to determine the starting and ending TSR levels.

Threshold Upper

CAGR range 5% 6% 7.5% 10%

Vesting % 25% 43% 70% 100%

All-employee share plans Continued opportunity to participate in the tax-advantaged Sharesave Scheme on the same basis as all other UK employees.

Chairman and Non- Executive Directors’ fees

David Gilbertson’s fee as Chairman is currently £135,000 per annum.

The Non-executive Director base fees for 2018 are currently £50,000. Peter Harris and Helen Keays each receive an additional £5,000 fee as Chair of the Audit Committee and Remuneration Committee respectively. Peter Harris also receives £5,000 for his role as the Senior Independent Director.

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ROLE AND MEMBERSHIP OF THE REMUNERATION COMMITTEEThe Committee’s principal responsibilities are:

• recommending to the Board the remuneration strategy and framework for the Executive Directors and senior managers;

• determining, within that framework, the individual remuneration arrangements for the Executive Directors and senior managers; and

• overseeing any major changes in employee benefit structures throughout the Group and reviewing remuneration trends across the Group.

The Committee has formal terms of reference which can be viewed on the Company’s website.

During 2017, the Committee comprised:

• Helen Keays (Chair);

• Peter Hickson (stepped down 11 May 2017);

• David Gilbertson (appointed Non-executive Director 1 March 2017; appointed Company Chairman 11 May 2017);

• Jane Griffiths; and

• Peter Harris.

The Committee met on five occasions and attendances are given in the table on page 37.

The Chief Executive is invited to attend meetings of the Committee, except when his own remuneration is being discussed.

ADVISERS TO THE COMMITTEEFIT Remuneration Consultants LLP (FIT), signatories to the Remuneration Consultants Group’s Code of Conduct, were appointed by the Committee following consideration of FIT’s experience in this sector. FIT provides advice to the Committee on all matters relating to remuneration, including best practice. FIT provided no other services to the Group and accordingly the Committee was satisfied that the advice provided by FIT was objective and independent. FIT’s fees in respect of 2017 were £34,836.50 (excluding VAT). FIT’s fees were charged on the basis of the firm’s standard terms of business for advice provided.

At the Committee’s request, administrative advice and support were provided by the Company Secretary, the Company’s Human Resources Director and the Company’s Tax Manager.

2017 VOTINGAt the Company’s AGM held on 11 May 2017, shareholders approved the Directors’ Remuneration Report for the year ended 31 December 2016 and approved the Directors’ Remuneration Policy. Below is the result in respect of these resolutions, which required a simple majority of the votes to be cast in favour in order for the resolution to be passed:

Votes for % Votes against %

Remuneration Report 108,911,258 99.96% 42,991 0.04%

Remuneration Policy 102,536,765 94.12% 6,406,141 5.88%

93,149 votes and 104,492 votes were withheld from the Remuneration Report and Remuneration Policy resolutions respectively.

IMPLEMENTATION REPORT FOR 2017

SINGLE TOTAL FIGURE OF REMUNERATION IN 2017 FOR THE EXECUTIVE DIRECTORS (AUDITED INFORMATION)

Salary Benefits1

Annualperformance

bonus2

LTIP andSharesave3,4 Pension5 Total

2017£000

2016£000

2017£000

2016£000

2017£000

2016£000

2017£000

2016£000

2017£000

2016£000

2017£000

2016£000

Andy Blundell 364 360 36 36 109 89 161 42 44 43 714 570

Mark Stoner6 228 247 13 16 — 61 110 27 27 29 378 380

Steve Rawlins7 19 — 1 — — — — — 2 — 22 —

1 Benefits comprise life assurance, private medical cover, car or car allowance provision and fuel card.

2 Details of the performance measures and targets applicable to the annual bonus for 2017 are set out below.

3 LTIP vesting in 2017 is summarised below. The value shown in the table above for LTIPs in 2017 represents vesting of the EPS element of the 2015 LTIP award (which is measured to

31 December 2017). The share price element of the 2015 award is not recognised in the table above but will be recognised in the 2018 report to the extent that this element vests on

the measurement date of 14 April 2018. The table assumes that 44.053% of the total award vests. This is multiplied by the three-month average share price to 31 December 2017

(59.3426p per share).




IMPLEMENTATION REPORT FOR 2017 CONTINUED

SINGLE TOTAL FIGURE OF REMUNERATION IN 2017 FOR THE EXECUTIVE DIRECTORS (AUDITED INFORMATION) CONTINUED

4 The figures in the LTIP column shown above for 2016 (representing the vesting of part of the 2014 LTIP awards) have been restated from the 2016 report. The values in the above

table now reflect the value of the Company’s shares on the date(s) of vesting (49p per share on 11 June 2017; 46.5p per share on 2 August 2017 for half of Mark Stoner’s vesting

shares) multiplied by the number of shares vesting, whereas the equivalent figure within the published 2016 single figure table was an estimate which reflected the average share

price between 1 October 2016 and 31 December 2016 (37.5832p per share).

5 Pension contributions are in line with the pension entitlements summary on page 48.

6 Mark Stoner ceased to be a Director on 4 December 2017. More details can be found on page 49.

7 Steve Rawlins was appointed a Director on 4 December 2017.

8 The aggregate remuneration of all Directors under salary, fees, benefits, cash contributions in lieu of pensions and annual bonus was £1,114,000 (2016 £1,447,000)

(2016 figures included remuneration details for Nigel Howes and Dave Rushton, who are no longer remunerated).

9 Dave Rushton stepped down from the Board on 31 January 2016 and ceased to be an employee on 30 June 2016. He was paid salary, benefits and pension entitlement until 30

June 2016 only in accordance with his contractual notice period. As noted above, he was paid an additional £8,622 in 2016 with regard to settlement of claims in relation to

statutory rights. He did not receive an annual bonus for 2016. Dave Rushton exercised his outstanding LTIP options on 13 September 2016 (14,453 shares at 39.08p).

10 Nigel Howes stepped down from the Board on 31 January 2016 and ceased to be an employee on 31 January 2017. He was paid salary, benefits and supplement in lieu of pension

until 31 January 2017 only in accordance with his contractual notice period. He was paid an additional £5,700 in January 2017 with regard to settlement of claims in relation to

statutory rights. He did not receive an annual bonus for 2016. Nigel Howes exercised his outstanding LTIP options on 19 March 2017 (222,049 shares at 54.25p).

ANNUAL PERFORMANCE BONUS 2017As Mark Stoner stood down from the Board on 4 December 2017, it was determined that he would not receive an annual performance bonus for 2017.

The performance measures for the 2017 annual performance bonus were as follows:

• adjusted EBIT (50% weighting of total bonus);

• free cash flow (25% weighting of total bonus); and

• personal objectives (25% weighting of total bonus).

Level: Threshold Maximum

Total value of award available: 30% of weighting 100% of weighting

Weighting: Metric:

50% of salary Adjusted EBIT (£’m) 20.5 22.6

25% of salary Free cash flow (£’m) 12 14

25% of salary Personal objectives — —

Against these measures, £21.2m was achieved for adjusted EBIT and £12.5m was achieved for free cash flow.

On the basis of the Committee’s judgement and considering performance against the performance measures described above, the 2017 annual bonus for Andy Blundell was £109,000 (2016 £89,000), an outcome of 30% of salary. Andy Blundell accepted the bonus in line with other members of the Executive Board.

VESTING OF LTIP AWARDS IN 2018The 2015 LTIP award was based as to 20% of the award on a share price growth performance condition and as to 80% of the award on an EPS performance condition. See page 51 for a summary of the performance conditions.

The share price growth performance condition requires the attainment of share price growth thresholds (65.513p to 90p) on the third anniversary of the award date (being 14 April 2018). Accordingly, the single figure table includes an estimated level of vesting for these awards based on the three-month average share price to 31 December 2017 (59.3426p; estimated vesting nil).

The EPS performance condition of CAGR 7.5% to 15% has been achieved as to 55.066% vesting.

In the single total figure table 44.053% of the total 2015 LTIP award is represented as vesting.

PENSION ENTITLEMENTS SUMMARYAndy Blundell remains a member of the defined contribution section of the Communisis Pension Plan. He receives a contribution of £10,000 per annum to the Communisis Pension Plan. His overall pension entitlement is 12% of base salary. The balance above £10,000 is paid as a salary supplement. No Director participated in a defined benefit scheme in the year. Steve Rawlins will receive all pension entitlements as a cash supplement.

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PAYMENTS TO DIRECTORS LEAVING THE GROUP As was announced on 4 December 2017, Mark Stoner stepped down from his role as Finance Director on that day. In accordance with the terms of his service agreement and the Directors’ Remuneration Policy, Mark will receive the following treatments:

• payment of his base salary and benefits for 12 months in line with his contractual notice period;

• no annual bonus for 2017;

• the 2015 and 2016 LTIP awards made to Mark Stoner will be retained. These awards may vest at the originally specified vesting dates, subject to the performance conditions for the awards being achieved and subject to time pro-rating where applicable; and

• it was agreed after the year end that the 2017 LTIP award to Mark Stoner would lapse.

COMPARATIVE TOTAL SHAREHOLDER RETURNThe graph below shows the Company’s total shareholder return performance compared with the FTSE All Share Index. The graph provides a basis for comparison with a relevant equity index, of which Communisis is a constituent, and the Committee believes that no other published index provides a better comparison. In accordance with the regulations the graph shows this performance over a nine-year period.

TOTAL SHAREHOLDER RETURN SINCE 31 DECEMBER 2008

TABLE OF HISTORICAL DATA (CEO)The Regulations also require a table setting out the remuneration of the Chief Executive (CEO) over the same period as the above chart and this data is presented below.

Single figure Annual variable element Long-term incentiveof total award rates against vesting rates against

Year CEO remuneration (£000) maximum opportunity (%) maximum opportunity (%)

2017 Andy Blundell 714 30 44


2015 Andy Blundell 476 — 12

2014 Andy Blundell 600 49 —




2010 Andy Blundell 335 17 —

2009 Andy Blundell/Steve Vaughan 442 6 —

300

100

250

150

50

200

031 Dec 2008

Communisis plc FTSE All-Share

31 Dec 2009

31 Dec 2010

31 Dec 2011

31 Dec 2012

31 Dec 2013

31 Dec 2014

31 Dec 2015

31 Dec 2016

31 Dec 2017T

SR –

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of a

100

un

it in

vest

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t ma

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31 D

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20

08





RELATIVE IMPORTANCE OF SPEND ON PAYProfit distributed by Overall expenditure

Year way of dividend (£000) on pay (£000)

2016 5,058 98,619

2017 5,564 94,381

% change 10.00% (4.30)%

NOTES1 Profit distributed by way of dividend has been taken as the dividend paid in respect of the relevant financial year. For 2017 this is the

interim dividend paid (£1,860,000) and the proposed final dividend of £3,704,000. No share buy-backs were made in either year.

2 Overall expenditure on pay has been taken as the total employee costs (wages and salaries, social security costs and pension costs) as set out in Note 5.3 Employee Benefits Expense in the Notes to the Consolidated Financial Statements.

The reduction in the percentage of spend on pay primarily reflects the lower number of employees in the Group in 2017.

CEO’S RELATIVE PAYIn accordance with the regulations, we present in the table below the percentage change in the prescribed pay elements (salary, taxable benefits and annual bonus outcome) of the Chief Executive and the average percentage change for UK-based staff between financial year 2016 and financial year 2017.

YEAR-ON-YEAR PERCENTAGE CHANGE

Salary (%)Taxable

benefits (%)Annual

bonus (%)

CEO 1.00 (0.80) 22.16

UK-based staff 2.35 11.35 26.13

DIRECTORS’ INTERESTS (AUDITED INFORMATION)The interests (all being beneficial) of the Directors in the Company’s securities are set out below:

At 31 December 20172 At 31 December 2016

Director Ordinary sharesShares subject

to option Ordinary sharesShares subject

to option

David Gilbertson 193,000 — — —

Peter Hickson2 1,360,778 — 1,360,778 —

Andy Blundell1 405,200 2,733,311 362,843 1,977,778

Steve Rawlins — — — —

Jane Griffiths — — — —

Peter Harris — — — —

Helen Keays — — — —

Mark Stoner2 179,152 1,754,335 148,910 1,230,549

1 23,000 of these shares are held by Andy Blundell’s wife.

2 The holdings for Peter Hickson and Mark Stoner are shown as at the dates on which they stepped down from the Board, being 11 May 2017 and 4 December 2017 respectively.

NOTES• The Directors and their families had no interest in the shares of any other company within the Group.

• There have been no changes in the interests of those continuing Directors between the year end and 7 March 2018.

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SHARE OPTIONS (AUDITED INFORMATION)The number of, and prices at which, options under the Long Term Incentive Plan 2007 and Sharesave Scheme have been granted to Directors are set out below. Except for Sharesave options, all options are subject to the performance conditions described below and on page 46.

Options Options

held at held at Earliest Latest1 January Options Options Options 31 December Option exercise exercise

2017 granted lapsed exercised 2017 price (p) date date

Long Term Incentive Plan

Andy Blundell 300,000 — 214,171 85,829 — Nil 11.06.2017 09.06.2019

615,000 — — — 615,000 Nil 15.04.2018 13.04.2020

1,062,778 — — — 1,062,778 Nil 10.03.2019 08.03.2021

— 1,055,533 — — 1,055,533 Nil 11.03.2020 10.03.2022

Mark Stoner 100,000 — 71,391 28,609 — Nil 11.06.2017 09.06.2019

100,000 — 71,391 28,609 — Nil 02.08.2017 31.07.2019

420,000 — — — 420,000 Nil 15.04.2018 13.04.2020

583,009 — — — 583,009 Nil 10.03.2019 08.03.2021

— 723,786 — — 723,786 Nil 11.03.2020 10.03.2022

Sharesave Scheme

Mark Stoner 27,540 — — — 27,540 45.75 01.06.2019 30.11.2019

NOTES1 The range of market price of shares in Communisis plc during the year ended 31 December 2017 was 39p to 66p. The closing price

on 31 December 2017 was 65p.

2 None of the Directors paid for the award of options.

3 Options granted in the year represent awards with a face value of 150% of base salary (£543,600) for Andy Blundell and 150% of base salary (£372,750) for Mark Stoner. This has been calculated using the mid-market price of the preceding day before the date of grant, being 51.5p for the options granted on 10 March 2017.

4 Threshold level of vesting for the LTIP awards granted in the year is 15% of the total number of awards granted. Sharesave options are not subject to performance conditions.

5 The performance conditions attached to the LTIP awards granted during the year are set out below.

6 The Directors exercised the options indicated in the table above on 7 September 2017, when the market price of the Company’s shares was 57p. Additionally, former Director Nigel Howes exercised 222,049 options at 54.25p.

7 The aggregate gains of Directors from share options exercised in 2017 was £81,537 (2016 £161,858).

8 The 723,786 LTIP shares granted to Mark Stoner in 2017 lapsed on 2 January 2018.

SUMMARY OF PERFORMANCE CONDITIONS FOR UNVESTED LTIP AWARDSYear of award Performance condition Performance condition

2017 EPS growth (50% weighting)

Measured over three financial years, beginning with year of award

5% CAGR to 15% CAGR (see below)

Absolute TSR (50% weighting)

Measured over three years from date of award

7.5% CAGR (15% of this part) to 17.5% CAGR (100% of this part); straight-line vesting between these thresholds



5% CAGR to 15% CAGR (see below)

N/A



7.5% CAGR (25% of this part) to 15% (100% of this part) CAGR; straight-line vesting between these thresholds

Absolute share price performance (20% weighting)

Measured at three years from date of award

65.513p (25% of this part) to 90p (100% of this part)

Underpin (applicable to all LTIP awards)

No LTIP shares will vest unless the Committee is satisfied as to the Company’s underlying financial performance over the three-year LTIP vesting period





SUMMARY OF PERFORMANCE CONDITIONS FOR UNVESTED LTIP AWARDS CONTINUEDNOTES1 EPS is adjusted basic earnings per share (i.e. earnings per share from continuing operations before exceptional items

and amortisation of acquired intangibles and the tax effect of these items). Vesting is based on EPS for the final year of the three-year performance period.

2 Both absolute TSR and share price are measured on the basis of three-month averaging periods.

3 The vesting schedule for EPS growth for the 2016 and 2017 LTIP awards is as follows:EPS growth (compound annual growth) % of award subject to EPS performance condition vesting

Less than 5% p.a. Nil

5% p.a. 15%

6% p.a. 20%

7.5% p.a. 25%

10% p.a. 75%

15% p.a. or more 100%

Between each defined threshold Straight-line vesting

PROVISION OF SHARES FOR SHARE PLANS – DILUTIONThe current estimated dilution from subsisting awards, including executive and all-employee share awards, and assuming, which is most unlikely, that all subsisting options vest in full, is approximately 4.36% of the shares in issue at the date of this report. The Company has an Employee Benefit Trust which as at 7 March 2018 holds 441,220 shares which may be used to satisfy options granted under the Executive Share Option Scheme and the LTIP and the above estimate of potential dilution is presented on the basis of assuming that the Employee Benefit Trust will satisfy certain outstanding awards. Awards are currently managed to confine commitments within an overall dilution limit for all-employee share plans of no more than 10% of share capital in any 10-year period and a limit of 5% of share capital in any 10-year period for the Company’s discretionary share plans. Following approval of the 2017 LTIP by shareholders at the 2017 AGM, the 5% limit in respect of the Company’s discretionary share plans will no longer apply to new LTIP awards.

CHAIRMAN AND NON-EXECUTIVE DIRECTOR FEES

Salary/fees£000

Other benefits£000

Total 2017£000

Total 2016£000

Chairman

David Gilbertson 113 — 113 N/A

Non-executive Directors

Jane Griffiths 50 — 50 50

Peter Harris 60 — 60 58

Helen Keays 55 — 55 53

EXTERNAL DIRECTORSHIPSAndy Blundell was appointed a Non-executive Director of RM plc on 25 May 2017. He received a fee of £21,692.35 in 2017, which he retained.

This report was reviewed and approved by the Board on 8 March 2018 and signed on its behalf by order of the Board.


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APPENDIX TO DIRECTORS’ REMUNERATION REPORT – DIRECTORS’ REMUNERATION POLICY

REMUNERATION POLICYRemuneration for Executive Directors comprises the following elements:

FIXED PAY VARIABLE PAYTOTAL

REMUNERATIONBase salary + Pension + Benefits + Annual performance bonus + Long-term incentives =

Element and purpose Policy Operation and opportunity Performance measures

Base salary

This is the core element of pay that reflects the individual’s role and position within the Group and reflects capability and contribution.

Base salaries are reviewed periodically against companies of similar size and complexity, and any salary increases are applied in line with the outcome of the relevant review with effect from 1 July in a financial year. Base salaries are paid monthly in cash.

Any salary increases in the policy period will be made following consideration of business performance and, as a cap, no increase will take an Executive Director’s salary above the median salary for Chief Executives in the FTSE SmallCap plus 10%, determined using data available to the Committee at that time.

N/A

Pension

To provide market-competitive levels of retirement benefits.

Provide a competitive employer-sponsored pension plan.

Pension contributions are paid in relation to membership of the defined contribution section of the Communisis Pension Plan, as a salary supplement in lieu of pension contributions, or as a Company contribution to personal pension arrangements.

Pension contributions are set at a maximum level of 12% of base salary per annum.

N/A

Benefits

To aid retention and remain competitive within the marketplace.

Benefits comprise private medical cover, car or car allowance provision and fuel card.

The Committee reserves the ability to introduce new benefits where it concludes that it is in the interests of Communisis to do so, having regard to the particular circumstances and to market practice, provided that the maximum aggregate value of all benefits in a year will not exceed the maximum amount stated in this table.

In any year the values of benefits for Executive Directors may vary in line with the cost of providing insurance and other benefits without the Committee taking action.

A limit on the maximum cash value of all benefits has been set at £40,000 per annum for each Executive Director. Actual levels of benefits will be disclosed each year in the “single figure” table.

N/A





Annual performance bonus

To motivate employees and incentivise delivery of annual performance targets.

Bonus levels and the appropriateness of measures are reviewed annually at the commencement of each financial year to ensure they continue to support our strategy.

Once set, performance measures and targets will generally remain unchanged for the year, except to reflect events such as corporate acquisitions or other major transactions where the Committee considers it to be necessary, in its opinion, to make appropriate adjustments.

The Committee will not set a maximum annual bonus level in excess of 100% of base salary for the duration of this policy.

Awards are paid in cash.

No bonus is paid at the threshold level of performance, with amounts accruing from that point.

The performance measures applied may be financial or non-financial, and can be corporate, divisional or individual measures set for any year in such proportions as the Committee considers appropriate. However, the weighting of financial performance measures will not be reduced below 60% of total annual bonus potential in any year for the duration of this policy.

The Committee will consider overall Group and financial performance before any element of bonus is paid, and accordingly may moderate the bonus outturn either upwards (without exceeding the 100% of base salary cap) or downwards.

Long-term incentives

The Company operates the Communisis Long Term Incentive Plan 2017 (LTIP) to motivate and incentivise delivery of sustained performance over the long term.

Awards can be made on an annual basis with a vesting period of at least three years.

The Company also has scope to operate a tax-advantaged Executive Share Option Scheme. Although there is no plan to make awards to Executive Directors under this plan at present, the Company reserves the right to do so subject to the £30,000 limit on HMRC approved options available under this plan. Any such awards would be taken into account in making any awards under the LTIP in the same year.

The maximum value of LTIP awards which may be granted in any financial year is equivalent to 150% of base salary.

The threshold level of vesting for LTIP awards will not exceed 25% of the total award.

Performance measures applied to LTIP awards are reviewed from time to time to ensure they remain appropriate and aligned with shareholders’ interests.

The Committee may set such performance conditions on LTIP awards as it considers appropriate (whether financial or non-financial and whether corporate, divisional or individual). However, performance conditions will always measure performance over a period of at least three financial years (commencing with the financial year in which the award is made).

Share ownership guidelines

To encourage share ownership by the Executive Directors and ensure interests are aligned.

Executive Directors are expected to retain 50% of all shares (net of tax) which vest under the LTIP (or any other discretionary long-term incentive arrangement introduced in the future) until such time as they hold a specified value of shares.

Only beneficially owned shares and vested share awards (discounted for anticipated tax liabilities) may be counted for the purposes of the guidelines. Share awards do not count prior to vesting.

The Remuneration Committee will review Executive Director shareholdings annually in the context of this policy.

100% of base salary for all Executive Directors.

N/A

APPENDIX TO DIRECTORS’ REMUNERATION REPORT – DIRECTORS’ REMUNERATION POLICY CONTINUED

REMUNERATION POLICY CONTINUED

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All-employee share plans

To encourage share ownership by employees, thereby allowing them to share in the long-term success of the Group and align their interests with those of the shareholders.

The Company operates a Sharesave plan for UK employees.

This is an all-employee tax-advantaged share plan and follows the usual form for such plans.

Executive Directors are able to participate in all-employee share plans on the same terms as other Group employees.

The exercise price of the options is usually equal to the market price of the shares at the date of invitation to participate less a maximum discount of 20%.

The maximum amount that can be invested in the scheme will not exceed the statutory limit from time to time (currently £500 per month).

The options vest on the third or fifth anniversary of the commencement of the savings period (depending upon the length of the savings period).

Consistent with normal practice, such awards are not subject to performance conditions.

REMUNERATION POLICY – CHAIRMAN AND NON-EXECUTIVE DIRECTORSThe table below summarises the remuneration elements for the Chairman and Non-Executive Directors.Element and purpose Policy Operation and opportunity Performance measures

Chairman and Non-executive Director fees.

The fees paid to the Chairman and the fees of the other Non-executive Directors aim to be competitive with other fully listed companies of equivalent size and complexity.

The fees payable to Non-executive Directors are determined by the Board. The Chairman’s fee is determined by the Committee.

Non-executive Directors will not participate in share incentive arrangements.

Fees are paid monthly in cash.

The aggregate fees (and any benefits) of the Chairman and Non-executive Directors will not exceed the limit from time to time prescribed within the Company’s Articles of Association for such fees (currently £500,000 p.a. in aggregate).

Any increases actually made will be appropriately disclosed.

N/A

NOTES TO THE REMUNERATION POLICY TABLE1. Differences between the Policy on Remuneration for Directors from the Policy on Remuneration of other employeesWhere Communisis’ pay policy for Directors differs to its pay policies for groups of employees, this reflects the appropriate market rate position for the relevant roles. However, elements of consistency of treatment are promoted through a single Group-wide annual bonus arrangement (although quantum and the mix of performance metrics vary according to seniority) and Group-wide share plans.

2. Stating maximum amounts for the remuneration policyThe DRR Regulations and related investor guidance encourages companies to disclose a cap within which each element of remuneration policy will operate. Where maximum amounts for elements of remuneration have been set within the Directors’ Remuneration Policy, these will operate simply as caps and are not indicative of any aspiration.

3. Malus and clawbackMalus (being the forfeiture of unvested awards) and clawback (being the ability of the Company to claim repayment of paid amounts as a debt) provisions apply to the annual bonus and LTIP. These provisions may be applied where the Remuneration Committee considers it appropriate to do so following:

• any material re-statement of the Company’s or a Group member’s financial results for any period;

• individual gross misconduct; or

• any other circumstances that have a sufficiently significant impact on the reputation of the Company or any Group member.

4. Travel and hospitalityWhile the Remuneration Committee does not consider it to form part of benefits in the normal usage of that term, it has been advised that corporate hospitality (whether paid for by Communisis or another) and certain instances of business travel (including any related tax liabilities settled by the Company) for the Directors (and exceptionally their family members) may technically come within the applicable rules and so the Remuneration Committee expressly reserves the right to authorise such activities within its agreed policies.





REMUNERATION POLICY CONTINUEDNOTES TO THE REMUNERATION POLICY TABLE CONTINUED5. Payments under previous policiesFor the avoidance of doubt, in approving this Directors’ Remuneration Policy, authority is given to the Remuneration Committee to honour any commitments entered into with former or current Directors under previous policies (including the payment of pensions and the vesting of past share awards).

6. Discretions reserved in operating incentive plansThe Remuneration Committee will operate the annual performance bonus and LTIP according to their respective rules and the above Remuneration Policy table. The Remuneration Committee retains certain discretions, consistent with market practice, in relation to the operation and administration of these plans including:

• the determination of performance measures and targets and resultant vesting and pay-out levels;

• the ability to adjust performance measures and targets to reflect events (including corporate actions) and/or to ensure the performance measures and targets operate as originally intended;

• (as described in the Termination Policy section below) determination of the treatment of individuals who leave employment, based on the rules of the incentive plans, and the treatment of the incentive plans on exceptional events, such as a change of control of the Company; and

• the ability to make adjustments to existing awards made under the incentive plans in certain circumstances (e.g. rights issues, corporate restructurings or special dividends).

APPROACH TO RECRUITMENT REMUNERATIONThe Company’s recruitment remuneration policy aims to give the Committee sufficient flexibility to secure the appointment and promotion of high-calibre executives to strengthen the management team and secure the skill sets to deliver our strategic aims.

The following represents principles to be applied by the Committee on recruitment of Executive Directors:

• The starting point for the Committee will be to look to the policy for Executive Directors as set out in the policy table and structure a package in accordance with that policy. Consistent with the DRR Regulations, the caps contained within the general policy for fixed pay will not apply to a recruit although the Committee would not envisage exceeding those caps in practice.

• For a new appointment, base salary may be increased over time following progress and development in the role rather than being set directly at the level of a previous incumbent or at market level.

• For an internal appointment, any variable pay element awarded in respect of the prior role may either continue on its original terms or be adjusted to reflect the new appointment, as appropriate.

• For external and internal appointments, the Committee may agree that the Company will make a contribution towards legal fees in connection with agreeing employment terms.

• The annual performance bonus plan and LTIP will operate as outlined in the general policy in relation to any newly appointed Executive Director, including the maximum award levels.

• All awards for external appointments to compensate for awards forfeited on leaving a previous employer (“buy-outs”), whether made under the annual performance bonus, LTIP or otherwise (including under UKLA Listing Rule 9.4.2), will be capped at the commercial value of the amount forfeited and will take account of the nature, time horizons and performance requirements of those awards. In particular, the Committee’s starting point will be to ensure that any awards being forfeited which remain subject to outstanding performance requirements (other than where substantially complete) will be replaced with buy-out awards subject to similar requirements, and any awards with service requirements are also bought out with similar terms. However, exceptionally the Committee may relax those obligations in respect of buy-outs where it considers it to be in the interests of shareholders and those factors are, in the view of the Committee, equally reflected in some other way, for example through a discount to the face value of the awards forfeited.

• For the avoidance of doubt, such buy-out awards are not subject to a formal cap.

A new Chairman or Non-executive Director would be recruited on the terms explained above in respect of the main policy for such Directors.

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SERVICE CONTRACTSEXECUTIVE DIRECTORSThe Committee’s policy is that each Executive Director’s service agreement should be of indefinite duration, subject to termination at normal retirement age, and should otherwise be terminable by the Company on no more than 12 months’ notice and by the Director on six months’ notice. The service agreements of all Executive Directors comply with that policy. None of the service agreements include provision for compensation payments on early termination. Whether any such compensation would be payable and the amount of any compensation would be determined according to the law of contract as it applies to the particular circumstances of an individual case. Contracts do not contain change of control provisions. The Committee reserves flexibility to alter these principles if necessary to secure the recruitment of an appropriate candidate but would expect a return to these principles within a reasonable timeframe.

The date of each Executive Director’s appointment is:Contract date

Andy Blundell 2 November 2009

Steve Rawlins 4 December 2017

NON-EXECUTIVE DIRECTORSEach Non-executive Director is engaged for an initial period of three years. They are then invited to serve for a further three-year period, after which they are appointed annually. These engagements can be terminated by either party on three months’ notice.

The Non-executive Directors cannot participate in the Company’s share option schemes, are not entitled to any pension benefit and are not entitled to any payment in compensation for early termination of their appointment.

The date of original appointment of each Non-executive Director and the effective date of their latest appointment is:Date of original appointment Latest appointment date

David Gilbertson 1 March 2017 1 March 2017

Jane Griffiths 17 May 2012 7 May 2015

Peter Harris 1 July 2013 12 May 2016

Helen Keays 1 August 2014 11 May 2017

TERMINATION POLICY SUMMARYIt is appropriate for the Committee to consider treatments on a termination having regard to all of the relevant facts and circumstances available at that time. This policy applies both to any negotiations linked to notice periods on a termination and any treatments that the Committee may choose to apply under the discretions available to it under the terms of the annual performance bonus and LTIP plans. The potential treatments on termination under these plans are summarised below.

Incentives If a leaver is deemed to be a “good leaver”; i.e. leaving through voluntary redundancy, serious ill health or death or otherwise at the discretion of the Committee.

If a leaver is deemed to be a “bad leaver”; i.e. leaving for disciplinary reasons or to join a competitor.

Other exceptional cases; e.g. change in control.

Annual Performance Bonus Committee has discretion to award a pro-rated bonus.

No awards made. Pro-rated bonus.

Long Term Incentive Plan (LTIP)* Leaver will receive a pro-rated award subject to the application of the performance conditions. Vesting levels may be varied by the Committee if considered appropriate. Vesting will not be brought forward to the time of cessation of employment unless the Committee considers this appropriate.

All awards will normally lapse. Leaver will receive a pro-rated award subject to the application of the performance conditions at the date of the event, subject to standard Committee discretions to increase vesting taking into account relevant factors.

* Similar treatments would apply to any awards made under the Executive Share Option Scheme in future.





TERMINATION POLICY SUMMARY CONTINUEDThe Company has power to enter into settlement agreements with executives and to pay compensation to settle potential legal claims. In addition, and consistent with market practice, in the event of termination of an Executive Director, the Company may pay a contribution towards the individual’s legal fees and fees for outplacement services as part of a negotiated settlement. Any such fees would be disclosed as part of the detail of termination arrangements. For the avoidance of doubt, the policy does not include an explicit cap on the cost of termination payments.

In the event of cessation of a Non-executive Director’s appointment they would be entitled to a three-months’ notice period.

EXTERNAL APPOINTMENTSAndy Blundell is a Non-executive Director of RM plc. No other Executive Director is a director of any company apart from subsidiaries of Communisis. Were any Executive Directors to take up such an external non-executive appointment, they would be permitted to retain any fees earned from that appointment.

INDICATIVE TOTAL REMUNERATION LEVELS Communisis’ total remuneration opportunity

The above chart aims to show how the remuneration policy set out above for Executive Directors is applied using the following assumptions:

Minimum • Consists of base salary, benefits and pension.

• Base salary is the current base salary.

• Benefits for Andy Blundell are the benefits paid in 2017 as set out in the single figure table, with Steve Rawlins’ benefits at expected 2018 levels for illustration.

• Pension entitlements measured as 12% of base salary receivable either as a contribution or in cash.

£000 Base salary Benefits Pension Total fixed

Andy Blundell £364 £36 £44 £444

Steve Rawlins £250 £11 £30 £291

In line with expectation

Based on what the Director would receive if performance was in line with expectation (excluding share price appreciation and dividends):

• annual performance bonus: consists of the on-target bonus (65% of base salary); and

• LTI: consists of the threshold level of vesting (25%). Assumed that the typical annual award is at 150% of base salary each year.

Maximum Based on the maximum remuneration receivable (excluding share price appreciation and dividends):

• annual performance bonus: consists of the maximum bonus (100% of base salary); and

• LTI: assumes maximum vesting of awards (150% of total award).

£1,400

£400

£1,000

£600

£200

£800

£0Minimum In line with

expectationMaximum

£00

0

Minimum In line with expectation

Maximum

100% 33%54%

29%

17%

27%

100% 32%53%

30%27%

17%

41%

Andy Blundell Steve Rawlins

Long term incentives (incl. Sharesave) Annual performnce bonus Total fixed pay

£444

£819

£1,356

£291

£550

£918

£1,200

40%

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STATEMENT OF CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE IN THE GROUPPay and employment conditions in the Group are taken into account when setting Executive Directors’ remuneration. The Committee receives regular updates from the Human Resources Director on overall pay and conditions in the Group, including (but not limited to) changes in base pay and any staff bonus pools in operation. There is also oversight of the all-employee Sharesave Scheme which Executive Directors and all other Group employees can participate in on the same terms and conditions.

The Company did not consult with employees in drawing up this Directors’ Remuneration Report.

STATEMENT OF CONSIDERATION OF SHAREHOLDER VIEWSEach year, the Committee takes into account the approval levels of remuneration-related matters at our AGM in determining that the current Directors’ Remuneration Policy remains appropriate for the Company.

The Committee also seeks to have a productive dialogue with investors on developments in the remuneration aspects of corporate governance generally, and any changes to the Company’s executive pay arrangements in particular.



DIRECTORS’ REPORT

DIRECTORS AND GOVERNANCEThe names and biographical details of the Directors who hold office at the date of this report are set out on pages 34 and 35. The Directors who served during the year are shown below:

DAVID GILBERTSON (appointed Non-executive Director 1 March 2017; appointed Chairman 11 May 2017)Chairman


STEVE RAWLINS (appointed 4 December 2017)Chief Financial Officer

JANE GRIFFITHSNon-executive Director

PETER HARRISNon-executive Director

HELEN KEAYSNon-executive Director

PETER HICKSON (stepped down on 11 May 2017)Chairman

MARK STONER (stepped down on 4 December 2017)Finance Director

Additional information relating to the remuneration and share interests of each Director is given in the Directors’ Remuneration Report on pages 44 to 59. No Director had, during or at the end of the year, any material interest in any contract of significance in relation to the Group’s business.

Details of the Directors’ service contracts are set out in the Directors’ Remuneration Report on page 57.

In accordance with the UK Corporate Governance Code, all Directors will offer themselves for re-election at the AGM on 10 May 2018 in line with best market practice (with the exception of Helen Keays who will be leaving the business on 6 June 2018 and therefore will not be offering herself for re-election at this year’s AGM).

The corporate governance statement required by Disclosure and Transparency Rule (DTR) 7.2.1 is contained within the Corporate Governance Report on pages 36 to 39 as permitted by DTR 7.2.9.

Communisis plc (the Company) is a company incorporated in England and Wales and is listed on the London Stock Exchange. Its registered office address is Communisis House, Manston Lane, Leeds LS15 8AH, and its registered number is 02916113.

The Directors present their Annual Report, Financial Statements and Independent Auditor’s Report for the year ended 31 December 2017.

With the exception of details of Directors’ interests which are set out on page 50 of the Directors’ Remuneration Report, the information to be included in the Annual Report and Financial Statements under LR9.8.4C of the UK Financial Conduct Authority’s Listing Rules is set out in this Directors’ Report.

STRATEGIC REPORTSection 414C of the Companies Act 2006 (the Act) requires us to present a fair review of the business during the year ended 31 December 2017 and a description of the principal risks and uncertainties facing the Company. The review must be a balanced and comprehensive analysis of both the development and performance of the Company’s business during the financial year, and the position of the Company’s business at the end of the year, consistent with the size and complexity of the business. It also requires us to provide details of expected future developments in the Group and an indication of the Group’s overseas branches. The Strategic Report can be found on pages 1 to 32.

RESULTS AND DIVIDENDSThe results for the year are shown on page 74. An interim dividend of 0.89p per ordinary share was paid on 13 October 2017. The Directors now propose a final dividend of 1.77p per ordinary share to be paid on 18 May 2018 to shareholders on the register at close of business on 20 April 2018. This makes total dividends for the year of 2.66p per share (2016 2.42p).

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Finally, we have been upgrading our management information tools, which removes Adobe Flash as this technology presents issues for many of our clients and the new interface is pure HTML5.

ConnectTM now has over 30 products to enable clients to create, send and receive multi-channel communications.

SHARE CAPITALNote 19 to the Consolidated Financial Statements contains details of the changes in issued share capital of the Company during the year.

FINANCIAL RISK MANAGEMENTDisclosures required under paragraph 6 in Schedule 7 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 have been provided in Note 26 to the Consolidated Financial Statements.

PURCHASE OF OWN SHARESThe Directors’ authority to make purchases of the Company’s shares on its behalf is given by resolution of the shareholders and renewed annually at the Company’s AGM.

No share buy-backs were undertaken by the Company during 2017. In March and November 2016 the Communisis plc Employee Benefit Trust acquired 320,000 and 800,000 shares respectively for total consideration of £441,691.

SHARE OPTION SCHEMESFurther options were granted during the year under the Group’s share option schemes. Details of the options outstanding at year end are given in Note 13 to the Consolidated Financial Statements.

CORPORATE SOCIAL RESPONSIBILITYThe Group’s approach to corporate social responsibility is detailed within its report set out on pages 26 to 32.

POLITICAL DONATIONSNo political expenditure was incurred during the year, nor were any contributions made for political purposes.

EMPLOYMENT POLICYCommunisis is committed to the principle of equal employment opportunity for all employees and to providing employees with a work environment free of discrimination and harassment.

Employment decisions at Communisis are based on candidates’ abilities to match the business needs, job requirements and individual qualifications for roles. We are committed to treating all candidates in a fair and objective manner, regardless of their age, race, colour, nationality, ethnic origin, creed, disability, sexual orientation, sex, gender identity, marital or civil partnership status, parental status, religion, belief or non-belief, social or economic class, employment status, or any other criteria that cannot be shown to be properly justifiable.

RESEARCH AND DEVELOPMENTExpenditure on research and development in the year was £nil (2016 £nil).

In respect of internal development activities, in 2017, we continued active development across ConnectTM, our multi-channel communication platform.

A key challenge for clients in marketing wishing to adopt any type of workflow system is the definition of their own processes. To simplify this, within MantlTM (the marketing workflow components of ConnectTM) we have developed new standard processes for many types of workflow such as Direct Marketing and Product Literature. The initial release of these features helped us reduce on-boarding for the first client down to eight weeks where previously it was between three and six months.

For retail customers ensuring their point of sale material is displayed correctly is a major challenge. Our current compliance tool enables retail stores to photograph their displays and central marketing can then approve, or provide instructions to correct the displays. We have been researching image analysis and recognition to do this automatically. Proof of concept work suggests that walls with up to three posters on may be recognisable but beyond that the resolution of the posters becomes too small. There is a trade-off between how quickly multiple items can be confirmed as correct and verifying each item, particularly when the change between versions may be low.

Like all organisations we are moving away from developing applications to building multi-tenanted platforms and in 2017 we updated ConnectTM to enable multiple clients to run on a single infrastructure stack. Over time this will enable us to deliver more integrated support with the ability to centrally monitor the production, delivery and receipt of communications.

We launched two new products within the ConnectTM range, firstly Personalised Video is now a channel option for marketing and transactional customers. Personalised Video, as the name suggests, enables an email to be sent to customers containing a link to a video with content tailored to them.

We have also developed DocBox as a solution to long-term storage of terms and conditions in a digital form. Many of our clients are required by the regulator to provide documentation in a so called “Durable Medium”, one that cannot be tampered with and will be available to the customer for the relevant regulatory period. DocBox provides a unique encrypted URL for each document, plus underlying storage that enables clients to prove that each customer is being served the correct terms and conditions for the product they have and also that the document has not been changed since it was posted. DocBox saved our initial client over £1m in postage costs for terms and conditions mailings.



DIRECTORS’ REPORT CONTINUED

AGMNotice of the AGM to be held on 10 May 2018 is contained in a separate document sent, or made available electronically, to shareholders with this report and is available on the Company’s website.

DISCLOSURE OF INFORMATION TO THE AUDITORIn accordance with Section 418(2) of the Act, the Directors confirm that, so far as each is aware, there is no relevant audit information of which the auditor is unaware.

Each Director has taken all steps that he or she ought to have taken as a Director to make himself or herself aware of, and to establish that the auditor is aware of, any relevant audit information.

ADDITIONAL INFORMATION FOR SHAREHOLDERSThe following is additional information required for shareholders as a result of the implementation of the Takeover Directive into UK law.

At 31 December 2017, the Company’s issued share capital comprised:

% of total issued

Number £ share capital

Ordinary shares of 25p each 209,619,144 52,404,786.00 100

Each share carries one vote with the result that the total voting rights at the same date were 209,619,144.

The Company is not aware of any agreements between shareholders that may result in restrictions in the transfer of shares or voting rights.

The Company’s issued share capital as at 8 March 2018 was 209,701,138.

Every holder of ordinary shares present in person or by proxy at the AGM of the Company will be entitled to vote. A poll will be taken on each of the resolutions in the Notice of Meeting and every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held.

EMPLOYMENT POLICY CONTINUEDOpportunities are available to disabled employees for training, career development and promotion on the same basis as all other employees. Where existing employees become disabled, it is the Group’s policy to provide continuing employment wherever practicable in the same or an alternative position and to provide appropriate assistance, equipment and facilities for them to carry out the role.

Further details of the way in which we engage with our employees on matters which affect them and encourage their involvement and participation in the performance of the Group are given on page 10 and on pages 26 to 29.

QUALIFYING THIRD-PARTY INDEMNITY PROVISIONArticle 172 of the Company’s Articles of Association provides that, subject to the provisions of the enactments concerning companies (which limit the scope of indemnities in favour of Directors), every Director and officer, and the auditor of the Company, is to be indemnified out of the assets of the Company against all costs, charges, expenses, losses and liabilities which he or she may sustain or incur in or about the execution of his or her office or in relation thereto. This is a qualifying third-party indemnity provision within the meaning of Section 236 of the Act.

The Company also takes out insurance covering claims against the Directors or officers of the Company and any subsidiary. This insurance provides coverage in respect of some of the Company’s liabilities under Article 172.

FUTURE DEVELOPMENTSFuture developments are described in the Strategic Report on pages 1 to 32.

GOING CONCERN AND VIABILITYThe Directors’ Going Concern and Viability Statements are set out in the Strategic Report on page 18.

The Directors have assessed the longer-term prospects of the Group in accordance with provision C.2.2 of the Code. This is included in the Strategic Report on page 18.

MAJOR INTERESTS IN SHARESThe Company was notified under DTR 5 of the following major holdings of voting rights associated with its shares as at the year end and changes made as at 7 March 2018:

Voting rights as at % of total issued Voting rights as at % of total issued

Shareholder 31 December 2017 share capital 7 March 2018 share capital

Richard Griffiths and controlled undertakings 48,500,000 23.16 48,500,000 23.16

Henderson Group plc 20,916,657 9.99 20,916,657 9.99

CRUX Asset Management Limited 12,000,000 5.73 12,000,000 5.73

Majedie Asset Management Limited 10,651,768 5.13 10,651,768 5.13

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SIGNIFICANT INTERESTSDirectors’ interests in the share capital of the Company as at 8 March 2018 and 31 December 2017 are shown in the table on page 50. Significant interests in voting rights notified under DTR 5 are shown on page 62.

CONTRACTS WITH SHAREHOLDERSThere are no contracts of significance or any other contracts between the Company and a controlling shareholder within the meaning of Listing Rule 9.8.4R.

SIGNIFICANT SHARE SCHEMESThe Communisis Employee Benefit Trust holds 0.21% as at 8 March 2018 (2016 0.39%) of the issued share capital of the Company in trust for the benefit of employees of the Group and their dependents. The voting rights of these shares are exercisable by the Trustees.

GREENHOUSE GAS EMISSIONSAll disclosures concerning the Group’s greenhouse gas emissions (as required to be disclosed under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013) are contained in the Corporate Social Responsibility Report forming part of the Strategic Report on pages 26 to 32.

CHANGE OF CONTROLThe Company is party to a number of contracts that could be terminated by the other party in the event of a change of control of the Company. The Company is also party to a number of banking agreements that, upon a change of control of the Company, are terminable by the banks upon provision of written notice.

There are no agreements between the Company and its Directors or employees providing for additional compensation for loss of office or employment (whether through resignation, redundancy or otherwise) where such loss of office or employment occurs because of a takeover bid.

AUDITORThe Directors will place a resolution before the AGM to re-appoint Ernst & Young LLP as auditor for the ensuing year.

Approved by the Board on 8 March 2018 and signed on its behalf by:


The Notice of Meeting specifies deadlines for exercising voting rights either in person or by proxy in relation to resolutions to be passed at that meeting. All votes, including proxy votes, will be counted and made available as soon as practicable after the AGM and published on the Company’s website.

There are no restrictions on the transfer of ordinary shares in the Company other than:

• the registration of share transfers may be suspended at such times and for such periods (not exceeding 30 days in any year) as the Directors may determine;

• certain restrictions may, from time to time, be imposed by laws and regulations (for example, insider trading laws and market requirements relating to close periods); and

• the restrictions imposed by the Listing Rules of the Financial Conduct Authority, whereby certain employees of the Company require the approval of the Company to deal in the Company’s securities.

A special resolution at a general meeting of the shareholders is required to amend the Company’s Articles of Association.

Directors are re-appointed by ordinary resolution at a general meeting of the shareholders. The Articles provide that the Board can appoint a Director but anyone so appointed must be elected by an ordinary resolution at the next AGM. At each AGM, one-third of the Directors previously elected at an AGM must retire by rotation. Each retiring Director who wishes to continue to serve must be re-elected at the meeting. In line with best practice, the Board conducts annual re-elections for all Directors and will follow this policy at the 2018 AGM.

DIRECTORS’ AUTHORITIESThe Directors are authorised under the terms of Section 551 of the Act to issue ordinary shares up to a maximum aggregate nominal value of £17,448,000 and under the terms of Section 560 of the Act authorised to issue ordinary shares in connection with a rights issue up to a maximum aggregate nominal value of £34,896,001 (such amount to be reduced by any allotments made under the first part of this paragraph). Pursuant to Section 570 of the Act, the Directors are also authorised to allot shares for cash, without first offering them to existing shareholders, up to a limit of 5% of the Company’s issued ordinary share capital. This authority also gives the Directors the power to allot shares for cash in connection with a rights issue.

Both these authorities will expire at the AGM on 10 May 2018, and the Directors will seek to have them renewed at that meeting.



STATEMENT OF DIRECTORS’ RESPONSIBILITIES

PARENT COMPANY FINANCIAL STATEMENTS PREPARED UNDER UK GAAPThe Directors are responsible for preparing the parent company Financial Statements in accordance with applicable United Kingdom law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law, the Directors have elected to prepare the Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit and loss of the Company for that period.

In preparing these 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 whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

• prepare the Financial Statements on a going concern basis unless they consider that to be inappropriate.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy, at any time, the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

GROUP FINANCIAL STATEMENTS PREPARED UNDER IFRSThe Directors are responsible for preparing the Annual Report and 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 Financial Statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period.

In preparing these Financial Statements, the Directors are required to:

• select suitable accounting policies and apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether IFRS as adopted by the EU has been followed, subject to any material departures disclosed and explained in the Group Financial Statements; and

• prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping adequate accounting records, which show and explain the Group’s transactions and disclose with reasonable accuracy, at any time, the financial position of the Group and enable them to ensure that the Financial Statements comply with the Companies Act 2006 and Article 4 of the International Accounting Standards (IAS) Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are also responsible for preparing the Directors’ Report, the Strategic Report, the Directors’ Remuneration Report and the Corporate Governance Report in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules.

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DIRECTORS’ RESPONSIBILITY STATEMENTS PURSUANT TO DTR 4Each of us, for himself or herself and on behalf of each other Director who held office on 31 December 2017, confirms that, to the best of his or her knowledge:

• the Consolidated Financial Statements, prepared in accordance with IFRS as issued by the IASB and IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation as a whole; and

• the Strategic Report and the Directors’ Report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties it faces.

In accordance with Section 418 of the Companies Act 2006, each Director in office at the date of this report confirms that:

• so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is 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 auditor is aware of that information.

In addition, the Directors as at the date of this report consider that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.

By order of the Board:

Andy BlundellChief Executive8 March 2018

Steve RawlinsChief Financial Officer8 March 2018

Financial Statements


OPINIONIn our opinion:

• Communisis plc’s Group financial statements and parent company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2017 and of the Group’s profit for the year then ended;

• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards the Group financial statements, Article 4 of the IAS Regulation.

We have audited the financial statements of Communisis plc which comprise:Group Parent company

Consolidated Balance Sheet as at 31 December 2017 Company Balance Sheet as at 31 December 2017

Consolidated Income Statement for the year then ended Company Statement of Changes in Equity for the year then ended

Consolidated Statement of Comprehensive Income for the year then ended Related notes 1 to 22 to the financial statements including a summary of significant accounting policies

Consolidated Statement of Changes in Equity for the year then ended

Consolidated Cash Flow Statement for the year then ended

Related notes 1 to 32 to the financial statements, including a summary of significant accounting policies

The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).

BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We are independent of the Group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

USE OF OUR REPORTThis report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

CONCLUSIONS RELATING TO PRINCIPAL RISKS, GOING CONCERN AND VIABILITY STATEMENTWe have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to:

• the disclosures in the annual report set out on pages 18 to 21 that describe the principal risks and explain how they are being managed or mitigated;

• the directors’ confirmation set out on page 18 in the annual report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;

• the directors’ statement set out on page 18 in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;

• whether the directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or

• the directors’ explanation set out on page 18 in the annual report as to how they have assessed the prospects of the entity, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF COMMUNISIS PLCFOR THE YEAR ENDED 31 DECEMBER 2017

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ents


OVERVIEW OF OUR AUDIT APPROACH

Key audit matters • Revenue recognition

• Carrying value of goodwill

Audit scope • We performed an audit of the complete financial information of 5 components and audit procedures on specific balances for the remaining 17 components.

• The components where we performed full or specific audit procedures accounted for >99.5% of profit before tax adjusted for exceptional items, >99.5% of Revenue and 99% of Total assets.

Materiality • Overall Group materiality of £0.8m which represents 5% of profit before tax adjusted for exceptional items.*

* Exceptional items are defined in note 5.4 to the Annual Report and Financial Statements

KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

Risk Our response to the riskKey observations communicated to the Audit Committee

Revenue recognition

Refer to the Audit Committee Report (pages 42 and 43); and Notes 2 and 4 of the Group financial statements

The Group has reported revenues of £375.9m (2016 £361.9m). We identified 4 specific risks of fraud and error in respect of improper revenue recognition given the nature of the Group’s products and services as follows:

• Inappropriate cut-off of revenue;

• Inappropriate accounting for complex contractual arrangements;

• Inappropriate accrual or deferral of income;

• Management bias or override of controls.

There is no change in the risk profile in the current year.

At each full and specific scope audit location with significant revenue streams:

• We performed walkthroughs of each significant class of revenue transactions and assessed the design effectiveness of key controls.

• For revenue recognised close to the period end, we vouched all transactions above our testing threshold to documentation supporting recognition of revenue.

• For revenue accrued but unbilled at the period end, we vouched all transactions above our testing threshold to documentation supporting recognition of revenue on a stage of completion basis.

• We have performed audit procedures over a sample of complex contractual arrangements and assessed whether the revenue recognition policies adopted were appropriate and consistently applied.

• We performed other substantive, transactional testing and analytical procedures to assess the recognition of revenue throughout the year. Where practicable, at 9 components we performed testing over full populations of transactions using data analysis.

• For revenue recorded through journal entries outside of normal business processes, we performed testing on a sample basis to establish whether a service had been provided or a sale had occurred in the financial year to support the revenue recognised

We also considered the adequacy of the Group’s disclosure of accounting policies for revenue recognition in notes 2 and 4 to the financial statements respectively.

At each full and specific scope audit location with significant revenue streams (12 components) we performed audit procedures which covered >99.5% of the Group’s revenue. All procedures were performed by the primary team

Based on the procedures performed, we did not identify any evidence of material misstatement in the revenue recognised in the year or revenue deferred at 31 December 2017.



INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF COMMUNISIS PLC CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2017

KEY AUDIT MATTERS CONTINUED

Risk Our response to the riskKey observations communicated to the Audit Committee

Carrying value of goodwill

Refer to the Audit Committee Report (pages 42 and 43); and Notes 2 and 12 of the Group financial statements

We focused on this area due the size of the goodwill balance (£164m) (2016 £164m) and because the directors’ assessment of ‘value in use’ of the Group’s Cash Generating Units (“CGUs”) involves assumptions about the future performance of the business and the discount rates applied to future cash flow forecasts.

We consider there to be a fraud risk due to the significance of the carrying value of goodwill; the inherent judgements involved; and recent trading challenges in some jurisdictions where the Group operates making the estimate susceptible to override by management.

There is no change in the risk profile in the current year.

We challenged management’s assumptions used in its impairment models for assessing the recoverability of the carrying value of goodwill. We focused on the appropriateness of CGU identification, the method applied to estimate recoverable values, discount rates, and forecast cash flows. Specifically:

• We assessed the design effectiveness of internal financial controls over management’s budgeting process and their assessment and measurement of impairment.

• We have confirmed that the CGUs identified are the lowest level at which management monitors goodwill.

• We tested the method applied in the value in use calculation as compared to the requirements of IAS 36, Impairment of Assets, and the mathematical accuracy and integrity of management’s model.

• We obtained an understanding of, and assessed the basis for, key underlying assumptions for the 2018 budget.

• We have confirmed that the cash flow forecasts used in the valuation are consistent with information approved by the Board and have reviewed the historical accuracy of management’s forecasts.

• We challenged management on its cash flow forecasts and the implied growth rates for 2018 and beyond by considering evidence available to support these assumptions and their consistency with findings from other areas of our audit.

• The discount rates and long term growth rates applied within the model were assessed in conjunction with EY valuation specialists, including comparison to economic and industry forecasts where appropriate.

• For both CGUs, we performed sensitivity analyses by stress testing key assumptions in the model with downside scenarios to understand the parameters that, should they arise, could lead to a different conclusion in respect of the carrying value of goodwill.

We considered the appropriateness of the related disclosures provided in note 12 in the Group financial statements.

The entire goodwill balance was subject to full scope audit procedures.

Based on the results of our work, we agree with management’s conclusion that no impairment of goodwill is required in the current year. We agree with management’s assessment of the reasonably possible changes in key assumptions that would result in an impairment in any Cash Generating Unit and the disclosure given in note 12 to the financial statements.

In the prior year, our auditor’s report included a key audit matter in relation to ‘Accounting for a change in segments’. As the reportable segments have not changed in 2017 this has not been included this year.

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AN OVERVIEW OF THE SCOPE OF OUR AUDIT TAILORING THE SCOPEOur assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment and other factors such as recent Internal audit results when assessing the level of work to be performed at each entity.

In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, of the 22 reporting components of the Group, we selected 12 components covering entities within Europe which represent the principal business units within the Group.

Of the 12 components selected, we performed an audit of the complete financial information of 5 components (“full scope components”) which were selected based on their size or risk characteristics. For the remaining 7 components (“specific scope components”), we performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.

The reporting components where we performed audit procedures accounted for 100% (2016 100%) of the Group’s Profit before tax adjusted for exceptional items, 100% (2016 100%) of the Group’s Revenue and 100% (2016 100%) of the Group’s Total assets. For the current year, the full scope components contributed 95% (2016 96%) of the Group’s Profit before tax adjusted for exceptional items, 94% (2016 94%) of the Group’s Revenue and 94% (2016 94%) of the Group’s Total assets. The specific scope components contributed 4% (2016 4%) of the Group’s Profit before tax adjusted for exceptional items, 5% (2016 6%) of the Group’s Revenue and 5% (2016 5%) of the Group’s Total assets. The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group.

Of the remaining 10 components that together represent 1% of the Group’s Profit before tax adjusted for exceptional items, none are individually greater than 1% of the Group’s Profit before tax adjusted for exceptional items. For these components, we performed other procedures, including analytical review, testing of consolidation journals and intercompany eliminations to respond to any potential risks of material misstatement to the Group financial statements.

The charts below illustrate the coverage obtained from the work performed by the audit team.

5%

4%

5%

94% 1%

95% 1%

94% 1%

Revenue

PBT

0% 20% 40% 60% 80% 100%

Total assets

Full Specific Review

CHANGES FROM THE PRIOR YEAR There have been no changes to the scope compared to the prior year.

INVOLVEMENT WITH COMPONENT TEAMS In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us as the primary audit team.

All audit work performed for the purposes of the audit of the Group Financial Statements was undertaken by the primary audit team.




OUR APPLICATION OF MATERIALITY We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.

MATERIALITYThe magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Group to be £800,000 (2016 £780,000), which is 5% (2016 5%) of the Group’s adjusted profit before tax. We believe that adjusted profit before tax provides us with a consistent year on year basis for determining materiality and is the most relevant performance measure to the stakeholders of the entity. Non-recurring items are set out in Note 5.4 of the Group’s financial statements.

We determined materiality for the Parent Company to be £1.7 million (2016 £1.5 million), which is 2% (2016 2%) of net assets. This is higher than Group materiality of £800,000, however for the purpose of the Group audit, we performed our work using allocated performance materiality of £120,000.

STARTING BASIS

• Profit before tax £14.4m

ADJUSTMENTS

• Adjustment for non recurring items

• Exceptional items of £2.1m

MATERIALITY

• Profit before tax adjusted for exceptional items of £16.5m

• Materiality of £800,000 (5% of materiality basis)

During the course of our audit, we reassessed initial materiality and the only change in the final materiality from our original assessment at planning was to reflect the actual reported performance of the Group in the year.

PERFORMANCE MATERIALITYThe application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance materiality was 50% (2016 75%) of our planning materiality, namely £400,000 (2016 £580,000). We have set performance materiality at this percentage to ensure that uncorrected and undetected misstatements in all accounts do not exceed our materiality level. We have set performance materiality at this percentage due to our past experience of the audit that indicate a higher risk of misstatements, both corrected and uncorrected.

Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to full and specific scope components was £80,000 to £240,000 (2016 £117,000 to £350,000).

REPORTING THRESHOLDAn amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £40,000 (2016 £39,000), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

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OTHER INFORMATION The other information comprises the information included in the annual report set out on pages 1 to 65, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.

We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:

• Fair, balanced and understandable set out on page 65 – the statement given by the Directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

• Audit committee report set out on page 42 – the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or

• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 36 – the parts of the directors’ statement required under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.

OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTIONIn the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.




RESPONSIBILITIES OF DIRECTORSAs explained more fully in the directors’ responsibilities statement set out on pages 64 and 65, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

EXPLANATION AS TO WHAT EXTENT THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD The objectives of our audit, in respect to fraud, are: to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.

Our approach was as follows:

• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant frameworks which are directly relevant to specific assertions in the financial statements are those that relate to the reporting framework (IFRS, FRS 101, the Companies Act 2006 and UK Corporate Governance Code) and the relevant tax compliance regulations in the jurisdictions in which the Group operates.

• We understood how Communisis plc is complying with those frameworks by making enquiries of management, Internal Audit, those responsible for legal and compliance procedures and the Company Secretary. We corroborated our enquiries through our review of board minutes and papers provided to the Audit Committee.

• We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur, by meeting with management from various parts of the business to understand where it considered there was a susceptibility to fraud. We also considered performance targets and their propensity to influence efforts made by management to manage earnings. We considered the programmes and controls that the Group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those programmes and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These procedures included testing manual journals and were designed to provide reasonable assurance that the financial statements were free from fraud and error.

Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations identified in the paragraphs above. Our procedures involved journal entry testing, with a focus on manual consolidation journals, and journals indicating large or unusual transactions based on our understanding of the business; enquiries of Legal Counsel, Group management, Internal Audit, subsidiary Management at all full and specific scope components; and focused testing, as referred to in the key audit matters section above. In addition, we completed procedures to conclude on the compliance of the disclosures in the Annual Report and Accounts with the requirements of the relevant accounting standards, UK legislation and the UK Corporate Governance Code 2016.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

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OTHER MATTERS WE ARE REQUIRED TO ADDRESS • We were appointed by the company on 11 October 2002 to audit the financial statements for the year ending 31 December 2002 and

subsequent financial periods.

• The period of total uninterrupted engagement including previous renewals and reappointments is 16 years, covering the years ending 2002 to 2017.

• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company and we remain independent of the Group and the parent company in conducting the audit.

• The audit opinion is consistent with the additional report to the audit committee.

Mark Morritt (Senior statutory auditor)for and on behalf of Ernst & Young LLP, Statutory AuditorLeeds8 March 2018

NOTES:1. The maintenance and integrity of the Communisis plc website is the responsibility of the directors; the work carried out by the

auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.



2017 2016

Note

Beforeamortisation

of acquiredintangibles

andexceptional

items£000

Amortisationof acquiredintangibles

andexceptional

items(Note 5.4)

£000Total£000

Beforeamortisation

of acquiredintangibles

andexceptional

items£000

Amortisation of acquired intangibles

and exceptional

items (Note 5.4)

£000Total £000

Revenue 4 375,865 — 375,865 361,932 — 361,932

Changes in inventories of finished goods and work in progress 22 — 22 (291) — (291)

Raw materials and consumables used (197,551) — (197,551) (191,210) — (191,210)

Employee benefits expense 5.3 (91,597) (1,570) (93,167) (95,094) (3,525) (98,619)

Other operating expenses (56,914) (482) (57,396) (45,921) (742) (46,663)

Depreciation and amortisation expense (8,663) (733) (9,396) (9,945) (809) (10,754)

Profit from operations 21,162 (2,785) 18,377 19,471 (5,076) 14,395

Finance revenue 4 1 — 1 963 — 963

Finance costs 5.1 (3,943) — (3,943) (3,765) — (3,765)

Profit before taxation 17,220 (2,785) 14,435 16,669 (5,076) 11,593

Income tax expense 6 (3,249) 586 (2,663) (3,956) 990 (2,966)

Profit for the year attributable to equity holders of the parent 13,971 (2,199) 11,772 12,713 (4,086) 8,627

Earnings per share 8

On profit for the year attributable to equity holders and from continuing operations

— basic 6.40p 5.64p 6.08p 4.12p

— diluted 6.37p 5.61p 6.07p 4.12p

Dividend per share

— paid during the year 2.50p 2.29p

— proposed 1.77p 1.61p

Dividends paid and proposed during the year were £5.2m and £3.7m respectively (2016 £4.8m and £3.4m respectively).

The accompanying notes are an integral part of these Consolidated Financial Statements.

All income and expenses relate to continuing operations.

CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2017

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2017

Note2017£000

2016£000

Profit for the year 11,772 8,627

Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent years:

Exchange differences on translation of foreign operations 19 415 1,129

Gain/(loss) on cash flow hedges taken directly to equity 134 (29)

Income tax thereon 6 (23) 3

Items not to be reclassified to profit or loss in subsequent years:

Adjustments in respect of prior years due to change in tax rate 6 824 (411)

Actuarial gains/(losses) on defined benefit pension plans 14 14,805 (15,972)

Income tax thereon 6 (2,517) 2,715

Other comprehensive income/(loss) for the year, net of tax 13,638 (12,565)

Total comprehensive income/(loss) for the year, net of tax 25,410 (3,938)

Attributable to:

Equity holders of the parent 25,410 (3,938)




Note2017£000

2016£000

Assets

Non-current assets

Property, plant and equipment 10 19,296 21,638

Intangible assets 11 186,124 187,903

Trade and other receivables 16 1,966 821

Deferred tax assets 6 4,636 6,406

212,022 216,768

Current assets

Inventories 15 7,756 6,968

Trade and other receivables 16 77,375 66,203

Cash and cash equivalents 18 30,182 38,294

115,313 111,465

Total assets 327,335 328,233

Equity and liabilities

Equity attributable to the equity holders of the parent

Equity share capital 19 52,405 52,344

Share premium 19 75 —

Merger reserve 19 519 519

ESOP reserve 19 (163) (297)

Cumulative translation adjustment 19 742 327

Retained earnings 85,558 65,322

Total equity 139,136 118,215

Non-current liabilities

Interest-bearing loans and borrowings 20 53,604 58,751

Trade and other payables 22 951 1,511

Provisions 21 42 42

Financial liabilities 23 — 228

Retirement benefit obligations 14 38,217 55,479

92,814 116,011

Current liabilities

Interest-bearing loans and borrowings 20 884 614

Trade and other payables 22 92,993 90,968

Income tax payable 1,414 2,210

Provisions 21 — 215

Financial liabilities 23 94 —

95,385 94,007

Total liabilities 188,199 210,018

Total equity and liabilities 327,335 328,233

The Consolidated Financial Statements on pages 74 to 115 were approved by the Board on 8 March 2018 and signed on its behalf by:

Andy Blundell

Steve RawlinsDirectors


CONSOLIDATED BALANCE SHEET31 DECEMBER 2017

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Note2017£000

2016£000

Cash flows from operating activities

Cash generated from operations 30 22,624 22,909

Interest paid (1,800) (2,065)

Interest received 1 18

Income tax paid (3,419) (2,250)

Net cash flows from operating activities 17,406 18,612

Cash flows from investing activities

Acquisition of subsidiary undertakings (net of cash acquired) — (252)

Purchase of property, plant and equipment (1,559) (3,225)

Purchase of intangible assets (4,364) (3,808)

Proceeds from the sale of property, plant and equipment 283 118

Net cash flows from investing activities (5,640) (7,167)

Cash flows from financing activities

Share issues net of directly attributable expenses 136 49

Purchase of shares — (442)

New borrowings under old loan facility 5,000 5,000

Repayment of borrowings under old loan facility (63,000) (8,000)

New loan facility 63,000 —

Repayment of borrowings under new loan facility (10,000) —

Repayment of promissory loan note in respect of acquisition of subsidiary undertakings 7 (9,300) —

Debt arrangement fees (657) —

Dividends paid 9 (5,222) (4,773)

Net cash flows from financing activities (20,043) (8,166)

Net (decrease)/increase in cash and cash equivalents (8,277) 3,279

Cash and cash equivalents at 1 January 38,294 32,719

Exchange rate effects 165 2,296

Cash and cash equivalents at 31 December 18 30,182 38,294


CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2017



Issuedcapital

£000

Sharepremium

£000

Capitalreduction

shares£000

Mergerreserve

£000

ESOPreserve

£000

Capitalredemption

reserve£000

Cumulativetranslation

adjustment£000

Retainedearnings

£000

Totalequity

£000

At 1 January 2016 52,302 5,986 — 15,600 (10) 1,375 (802) 52,363 126,814

Profit for the year — — — — — — — 8,627 8,627

Other comprehensive loss — — — — — — 1,129 (13,694) (12,565)

Total comprehensive loss — — — — — — 1,129 (5,067) (3,938)

Employee share option schemes – value of services provided — — — — — — — 505 505

Shares issued – exercise of options 42 10 — — — — — (3) 49

Shares issued from ESOP — — — — 155 — — (155) —

Purchase of own shares — — — — (442) — — — (442)

Issue of capital reduction shares — — 15,081 (15,081) — — — — —

Capital reduction — (5,996) (15,081) — — (1,375) — 22,452 —

Dividends paid — — — — — — — (4,773) (4,773)

At 31 December 2016 52,344 — — 519 (297) — 327 65,322 118,215

Profit for the year — — — — — — — 11,772 11,772

Other comprehensive income — — — — — — 415 13,223 13,638

Total comprehensive income — — — — — — 415 24,995 25,410

Employee share option schemes – value of services provided — — — — — — — 597 597

Shares issued – exercise of options 61 75 — — — — — — 136

Shares issued from ESOP — — — — 134 — — (134) —

Dividends paid — — — — — — — (5,222) (5,222)

At 31 December 2017 52,405 75 — 519 (163) — 742 85,558 139,136


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2017

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1. AUTHORISATION OF FINANCIAL STATEMENTS The Consolidated Financial Statements of Communisis plc (the “Group”) for the year ended 31 December 2017 were authorised for issue in accordance with a resolution of the Directors on 8 March 2018. Communisis plc is a public limited company incorporated and domiciled in England and Wales whose shares are traded on the London Stock Exchange. The registered office is located at Communisis House, Manston Lane, Leeds LS15 8AH. The nature of the Group’s operations and its principal activities are set out in the Chief Executive’s Statement on pages 12 to 15.

2. ACCOUNTING POLICIES 2.1 BASIS OF PREPARATION The Consolidated Financial Statements of Communisis plc are for the year ended 31 December 2017. They have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The Consolidated Financial Statements are presented in Sterling and all values are rounded to the nearest thousand British pounds (£000) except where otherwise indicated.

New standards and interpretations There are no IFRS or IFRIC (IFRS Interpretations Committee of the IASB) interpretations effective for the first time this financial year that have had a material impact on the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

2.2 BASIS OF CONSOLIDATION The Consolidated Financial Statements comprise the Financial Statements of Communisis plc and its subsidiaries as at 31 December each year. The results of subsidiaries prepared for the same reporting year as the parent company are included in these Consolidated Financial Statements, using consistent accounting policies. All intra-group balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is a change of control of a subsidiary, the Consolidated Financial Statements include the results for the part of the reporting year during which Communisis plc has control.

2.3 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES The key judgements and assumptions concerning the future and other key sources of estimation uncertainty at the Balance Sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Judgements ExceptionalsThe Group presents separately, on the face of the Income Statement, material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year. An element of management judgement is required in identifying these exceptional items. Additional information is included in Note 5.4.

Development costsExpenditure on a development project, such as computer software, which is reliably measurable, is capitalised when the technical feasibility and commercial viability of the project is demonstrated. The Group must intend to, and have available the resources to, complete the project and be satisfied that the intangible asset arising from the development project will generate probable future economic benefits. An element of management judgement is required when distinguishing between the research and development phases of a project. Additional information is included in Note 5.3.

Estimates Impairment of goodwill The Group determines whether goodwill is impaired on at least an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2017 was £164m (2016 £164m). Additional information is included in Note 12.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2017

2. ACCOUNTING POLICIES CONTINUED2.3 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES CONTINUED Pensions The actuarial valuation involves making assumptions about mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. Discount rates are based on interest rates of AA rated corporate bonds that have terms of maturity approximating to the terms of the relevant pension liability. Additional information is included in Note 14.

Revenue recognitionRevenue from the delivery of client projects is recognised by reference to the stage of completion. This is more commonly seen within the “agency” businesses. Stage of completion is estimated using an appropriate measure according to the nature of the contract such as costs incurred relative to total anticipated costs. Where the financial outcome of a project cannot be reliably measured, revenue is only recognised to the extent that the expenses recognised are recoverable.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Foreign currency transactions Transactions in foreign currencies are recorded in the functional currency at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the Balance Sheet date and exchange differences arising are recognised in the Income Statement.

The functional currencies of the overseas subsidiaries include the Euro, the Indian Rupee, the Swedish Krona, the Swiss Franc, the Turkish Lira, the Polish Zloty, the Romanian Leu, the United Arab Emirates Dirham and the United States Dollar. The assets and liabilities of these overseas subsidiaries are translated into Sterling at the rate of exchange ruling at the Balance Sheet date and their Income Statements are translated at the weighted average exchange rates for the year where this is a reasonable approximation to actual translation rates. The exchange differences arising on the retranslation are taken directly to a separate component of equity described as the “cumulative translation adjustment”. On disposal of a foreign entity, the cumulative amount recognised in equity relating to that particular foreign operation is recognised in the Income Statement.

Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment in value. Land is not depreciated.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:

Freehold property 25 to 50 years

Long leasehold property 25 to 50 years

Short leasehold property 5 to 20 years

Plant, equipment and motor vehicles 3 to 20 years

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists, and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Useful economic lives, depreciation methods and residual values are reviewed annually. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in the Income Statement.

Business combinationsBusiness combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value. Acquisition costs incurred are expensed and included in exceptional items.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Assets acquired and liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements, are accounted for separately from the business combination in accordance with their nature and applicable IFRSs.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or a liability will be recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classed as equity, it is not remeasured until it is finally settled within equity.

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2. ACCOUNTING POLICIES CONTINUED2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUEDGoodwillGoodwill on acquisitions is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised.

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that its carrying value may be impaired. Goodwill is allocated to the related cash-generating units monitored by management for the purpose of impairment testing.

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and an operation within that unit (or group of units) is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operations disposed of and the portion of the cash-generating unit (or group of units) retained.

Intangible assetsIntangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets created within the business are not capitalised (unless the specific conditions in IAS 38 are met) and expenditure is charged to the Income Statement in the year in which the expenditure is incurred.

(a) Acquired from a business combinationIntangible assets arising from a business combination are capitalised at fair value at the date of acquisition, where they can be measured reliably. Following initial recognition, the cost model is applied to the class of intangible assets. Amortisation charged on assets is recognised in amortisation expense in the Income Statement over the expected life of the asset. Intangible assets currently recognised are being amortised over a period of between five and ten years.

(b) Customer relationshipsAmounts paid to secure customer contracts are capitalised and amortised over the length of the contract. An impairment review is carried out when events or changes in circumstances indicate that the carrying value may not be recoverable.

(c) Research and development costs Research costs are expensed as incurred. Expenditure on a development project, such as computer software, which is reliably measurable, is capitalised when the technical feasibility and commercial viability of the project is demonstrated. The Group must intend to, and have available the resources to, complete the project and be satisfied that the intangible asset arising from the development project will generate probable future economic benefits.

Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure carried forward is amortised over the period of expected future sales from the related project, from the date the asset is available for use.

The carrying value of development costs is reviewed when there is an indicator of impairment. In addition it is reviewed annually when the asset is not yet in use.

(d) Computer software costs Acquired computer software and licences are capitalised. These costs are amortised over their estimated useful lives (three to eight years).

Costs associated with maintaining computer software programs are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will generate probable economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the costs of software development employees. These costs are amortised over their estimated useful lives (three to eight years).

Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

Inventories Inventories are stated at the lower of cost and net realisable value.

Raw materials are stated at purchase cost on a first-in, first-out basis. For finished goods and work in progress, costs include directly attributable material and labour costs and certain overhead costs that contribute in bringing the inventories to their present location and condition. Selling expenses and other administrative overhead expenses are excluded.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Provision is made for items of stock that are damaged, obsolete or slow moving.




2. ACCOUNTING POLICIES CONTINUED2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUEDTrade and other receivables Trade and other receivables are recognised and carried at original invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made. Bad debts are written off when identified.

Impairment of assets At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the higher of an asset or cash-generating unit’s fair value less costs to sell and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case impairment is determined at the cash-generating unit level. The carrying amounts of the cash-generating units to which goodwill is allocated and intangible assets not yet available for use are reviewed annually or more frequently when there is an indication of impairment.

Value in use is determined by the estimated future pre-tax cash flows, discounted to their present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset.

Cash and cash equivalents Cash and cash equivalents in the Consolidated Balance Sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purpose of the Consolidated Cash Flow Statement, cash and cash equivalents are as defined above, net of outstanding bank overdrafts.

Trade and other payables Trade and other payables are recognised and carried at original invoice amount.

Financial instruments Financial assets and financial liabilities are recognised in the Consolidated Balance Sheet when the Group becomes a party to the contractual provisions of the instrument.

Financial liabilities The Group’s financial liabilities include borrowings and trade and other payables, which are all classified as “other financial liabilities”. Other financial liabilities are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled, or they expire.

Derivative financial instruments and hedge accountingInitial recognition and subsequent measurement The Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its foreign currency and interest rate risks respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting and the ineffective portion of an effective hedge are taken directly to the Income Statement.

The fair value of forward currency contracts is the difference between the forward exchange rate and the contract rate. The forward exchange rate is referenced to current forward exchange rates for contracts with similar maturity profiles.

The fair value of interest rate swaps is the difference between the fixed rate and the one-month LIBOR rate implied at the Balance Sheet date, calculated monthly, and discounted to present value.

For the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging exposure to variability in cash flows, which is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction, or when hedging the foreign currency risk in an unrecognised firm commitment.

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2. ACCOUNTING POLICIES CONTINUED2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUEDDerivative financial instruments and hedge accounting continuedInitial recognition and subsequent measurement continuedFor those derivatives designated as hedges and for which hedge accounting is desired, the hedging relationship is formally designated and documented at its inception. This documentation identifies the risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how effectiveness will be measured throughout its duration. Such hedges are expected to be highly effective in offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income, while any ineffective portion is recognised immediately in the Income Statement.

Amounts taken to equity are transferred to the Income Statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the Income Statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in other comprehensive income until the forecast transaction or firm commitment occurs.

The Group sometimes uses forward exchange contracts as hedges of its exposure to foreign currency risk in forecasted transactions and firm commitments. During 2017 and 2016 the Group did not utilise any hedging instruments other than in respect of interest rates as detailed in Note 23.

ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made, but there is some uncertainty about the timing or the amount of the future expenditure required in settlement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Pensions and similar obligationsGroup companies operate defined contribution and defined benefit pension plans.

Payments to the defined contribution pension plans are charged as an expense to the Income Statement as incurred when the related employee service is rendered. The Group has no further legal or constructive payment obligations once the contributions have been made.

For the defined benefit pension plan, the cost of administering the pension scheme is recognised in employee benefits expense in the Income Statement. The Group determines the net interest income/expense on the net defined benefit assets/liabilities for the year by applying the discount rates used to measure the defined benefit obligations at the beginning of the year to the net defined benefit assets/liabilities at the beginning of the year, taking into account any changes in the net defined benefit assets/liabilities during the year as a result of contributions and benefit payments. The liability recognised in the Balance Sheet in respect of the defined benefit pension plan is the present value of the defined benefit obligation at the Balance Sheet date less the fair value of the plan assets. The defined benefit obligation is calculated annually by independent actuaries. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of AA rated corporate bonds that have terms of maturity approximating to the terms of the relevant pension liability. AA rated corporate bonds are used as the most suitable proxy for calculating the discount rate.

All actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recognised in the Consolidated Statement of Comprehensive Income.

When a settlement or a curtailment occurs, the obligation and the related plan assets are remeasured using current actuarial assumptions and the resultant gain or loss is recognised in the Income Statement during the period in which the settlement or curtailment occurs. A settlement is the elimination of all obligations for benefits already accrued and a curtailment is the reduction of future obligations as a result of a material reduction in the scheme membership or a reduction in future entitlement.




2. ACCOUNTING POLICIES CONTINUED2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUEDShare-based payment transactions Certain Directors and management are eligible to participate in share-based payment schemes, all of which are equity-settled.

The cost of equity-settled transactions with employees is measured by reference to their fair value at the date at which they are granted. The fair value is determined by an external valuer using an appropriate model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Communisis plc (“market conditions”).

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting or non-vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance or service conditions are satisfied.

The Group has an employee share ownership plan (ESOP) for the granting of non-transferable options. Shares in the Group held by the ESOP are accounted for in the same way as treasury shares and presented in the Balance Sheet as a deduction from equity described as the “ESOP reserve”.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the Income Statement for the award is expensed immediately. This includes any awards where non-vesting conditions within the control of the Group or the employee are not met. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the Income Statement.

Where an equity-settled award is forfeited, the total cost recognised in the Income Statement to date for the award is reversed.

ESOP reserve Communisis plc shares held by the Group are classified in shareholders’ equity as the “ESOP reserve” and are recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to retained earnings. No gain or loss is recognised in the Income Statement on the purchase, sale, issue or cancellation of equity shares.

Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The determination considers whether fulfilment of the arrangement is dependent on the use of a specific asset or assets, or the arrangement conveys a right to use the assets.

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability on a straight-line basis. Finance charges are recognised in the Income Statement.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term or in accordance with utilisation of the leased asset when the contract is based on usage.

Revenue Revenue in the year represents the turnover, net of discounts, derived from services provided to clients and sales of goods.

Revenue is recognised at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Provision of services The provision of print sourcing services includes the sourcing and supply of printed and other marketing material (included within Brand Deployment revenue). Revenue from such services is recognised when the significant risks and rewards of ownership of the material have passed to the client and the amount of revenue can be measured reliably; this is usually on despatch by the supplier.

Revenue from creative, data and analysis services (included within Customer Experience revenue) is recognised when the service has been provided and client acknowledgement of stage completion has been received.

Revenue from campaign management services (included within Brand Deployment revenue) is recognised when the service has been provided, on a time basis which is either a monthly or annual charge, or on a management fee basis.

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2. ACCOUNTING POLICIES CONTINUED2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUEDRevenue continuedProvision of services continuedRevenue from delivery of client projects is recognised by reference to the stage of completion. Stage of completion is estimated using an appropriate measure according to the nature of the contract such as costs incurred relative to total anticipated costs or other measures such as contract milestone completion. Where the project outcome cannot be measured reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable.

Revenue from postal sortation services (included within Customer Experience revenue) is recognised on despatch of the post to the postal carrier.

Revenue from software licences is recognised over the period of the licence.

Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably; this is usually on despatch by the Group.

Interest Finance revenue is recognised as the interest accrues using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount.

Income from suppliers The Group receives rebates from certain suppliers for transactions that, based on the terms of the relevant contracts and local law, are either remitted to clients or retained by the Group. If amounts are passed on to clients they are recorded as liabilities until settled or, if retained by the Group, are recorded as a reduction to cost of sales as earned. These rebates are not complex in nature and there is no management judgement in calculating these. The rebates are typically calculated based on a fixed percentage of purchase value.

Exceptional items The Group presents separately, on the face of the Income Statement, those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year. This facilitates comparison with prior periods and to better assess trends in financial performance.

Income taxCurrent tax Current tax assets and liabilities for the current year are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the Balance Sheet date.

Deferred tax Deferred income tax is provided, using the liability method, on all temporary differences at the Balance Sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill, or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised. In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each Balance Sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the Balance Sheet date.

Income tax relating to items recognised in other comprehensive income or directly in equity is also recognised in other comprehensive income or directly in equity.




2. ACCOUNTING POLICIES CONTINUED2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUEDSales tax Revenues, expenses and assets are recognised net of the amount of sales tax except:

• where the sales tax incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• receivables and payables which are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Balance Sheet.

Dividend distribution The final dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s Financial Statements in the year in which the dividend is approved by the Company’s shareholders. Interim dividends are recognised in the year in which they are paid.

2.5 ADOPTION OF NEW AND REVISED STANDARDS The IASB and IFRIC have issued a number of standards and interpretations with an effective date after 1 January 2018. With the exception of the new revenue standard IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018 replacing IAS 18 Revenue) and the new leases standard IFRS 16 Leases (effective 1 January 2019 replacing IAS 17 Leases), the Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s Financial Statements.

IFRS 15 Revenue from Contracts with CustomersThe standard replaces IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. It provides a single comprehensive model to use in accounting for revenue and costs from contracts with customers and includes extensive disclosure requirements. The core principle is that an entity recognises revenue at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for transferring the goods or services to a customer. The principles in IFRS 15 are applied using the five-step model.

The Group will adopt IFRS 15 using the full retrospective application method and consequently apply the new standard to each reporting period presented i.e. 2017, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

As a practical expedient under IFRS 15 the Group will apply the five step approach to portfolios of contracts with similar characteristics as it is not expected that the Financial Statements would materially differ had the standard been applied to the individual contracts within the portfolio. In addition the following practical expedients will also be taken:

• contracts which are completed at the beginning of the earliest period presented will not be restated;

• contracts that are started and completed in the same annual reporting period will have no impact and therefore will not be restated;

• where contracts are completed but had variable consideration, an entity will use the transaction price at the date the contract was completed rather than estimates of the variable consideration in comparative periods;

• contract modifications which occurred before the beginning of the earliest period presented will be reflected in aggregate; and

• for all periods presented before the date of initial application, we will not disclose the amount of the transaction price allocated to the remaining performance obligations or an explanation of when we expect to recognise that amount as revenue.

The Group is in the process of finalising the impact on the 2017 results. At this stage, the following areas of change have been identified:

• certain revenue streams within the Customer Experience segment should be treated on an Agent basis under IFRS 15 whereas under IAS 18 these are accounted for on a Principal basis. As Agent, the Group will recognise revenue net (i.e. the remaining amount of consideration after deduction of third party’s fees) when or as the performance obligation is satisfied. An adjustment to both revenue and costs is therefore required when restating the 2017 comparatives in accordance with IFRS 15. This will not affect profit however margins will be improved due to the lower revenue figures; and

• the profile of transition revenue, relating to the integration of new contracts into Communisis, is likely to change under IFRS 15. The extent of this change will vary between contracts dependent on the specifics of each individual transition project.

IFRS 16 LeasesThe standard replaces IAS 17 Leases and related interpretations. It introduces a single lessee accounting model, referred to as the “right-of-use” model, which will apply to most leases. The standard therefore primarily changes operating lease accounting for lessees. All lease arrangements will give rise to the recognition of a right-of-use asset and a lease liability. Lease costs will be recognised in the form of deprecation of the right-of-use asset and interest on the lease liability. Lessee accounting under IFRS 16 is therefore similar to accounting for finance leases under existing IAS 17. Lessor accounting under IFRS 16 is similar to existing IAS 17 accounting and is not expected to have a material impact for the Group.

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2. ACCOUNTING POLICIES CONTINUED2.5 ADOPTION OF NEW AND REVISED STANDARDS CONTINUED IFRS 16 Leases continued The Group is currently assessing and quantifying the impact of the accounting changes that will arise under IFRS 16; however, the following changes to lessee accounting will have a material impact on the Consolidated Income Statement, Consolidated Balance Sheet and Consolidated Cash Flow Statement after the Group’s adoption on 1 January 2019:

• right-of-use assets will be recognised for most assets that are leased by the Group under operating leases; currently no lease assets are recognised on the Consolidated Balance Sheet. The biggest asset category impacted for the Group will be Land and Buildings;

• liabilities will be recorded for future lease payments of existing operating leases in the Consolidated Balance Sheet for the “reasonable certain” period of the lease. Liabilities are not currently recorded for operating leases; future operating lease commitments are however disclosed. The lease liability recognised on transition will not equal the lease commitments reported on 31 December 2017, but may not be dissimilar. This increase in debt will have an impact on gearing ratios;

• lease expenses will be for depreciation of the right-of-use assets and interest on lease liabilities. Interest will typically be higher in the early stages of a lease and reduce over the term as with current finance lease accounting under existing IAS 17. The effect of this change will increase EBITDA. Currently operating lease expenses are recognised on a straight-line basis over the lease term; and

• operating lease cash flows are currently included within operating activities in the Consolidated Cash Flow Statement; under IFRS 16 these will be recorded as cash flows from financing activities.

IFRS 9 Financial InstrumentsThe standard is effective from 1 January 2018 and replaces IAS 39 Financial Instruments. It brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. During 2017 the Group performed an impact assessment of the three aspects of IFRS 9 which are summarised below:

Classification and measurementLoans and trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Group analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortised cost measurement under IFRS 9. This is the same treatment as under IAS 39, therefore, reclassification is not required.

ImpairmentIFRS 9 requires the Group to record expected credit losses on all of its loans and trade receivables, either on a twelve-month or lifetime basis. The Group will apply the simplified approach detailed in IFRS 9 and record lifetime expected losses on its trade receivables. The Group, however, expects no material increase in the bad debt provision as a result of this change.

Hedge accountingThe Group determined that existing hedge relationships are still deemed effective hedging relationships and hence will continue to qualify for hedge accounting under IFRS 9. As IFRS 9 does not change the general principles of how an entity accounts for effective hedges, applying the hedging requirements of IFRS 9 will not have a material impact on the Group’s Financial Statements after adoption.

The assessment is based on currently available information and may be subject to change arising from further reasonable and supportable information being made available to the Group in 2018 when the standard is adopted. Overall, the Group expects no material impact on its Financial Statements.

3. SEGMENTAL INFORMATIONBUSINESS SEGMENTSThe Group’s activities are now predominantly focused in two main areas which are:

• Customer Experience; and

• Brand Deployment.

During the year there have been two changes to cost allocations within the segments as follows:

• Pass Through revenue, representing pre-agreed or contracted revenues that include an element regarding print, postal and other marketing material which are passed on to clients at cost as part of a wider service, is now reported directly within the Customer Experience and Brand Deployment segments. This change has been made to allow the full underlying segmental split of gross revenue to be better understood.

• Account management and service costs relating to Customer Experience clients, previously included within Central Costs, have now been recognised within the Customer Experience segment.

Pension scheme costs are included in the Corporate Costs segment.




3. SEGMENTAL INFORMATION CONTINUEDBUSINESS SEGMENTS CONTINUED The Communisis Board, being the Chief Operating Decision Maker, considers the performance of Customer Experience and Brand Deployment in assessing the performance of the Group and making decisions about the allocation of resources. Segmental disclosures have therefore been presented on this basis.

Segment performance is evaluated based on profit from operations and is measured consistently with profit from operations in the Income Statement. However, Corporate Costs and Central Costs are managed on a Group basis and are not allocated to operating segments.

Transfer pricing between business segments is set on an arm’s length basis in a manner similar to transactions with third parties.

The revenue and operating profit figures reviewed by the Chief Operating Decision Maker exclude sales between business segments and, as such, sales between business segments are excluded from the figures in the segmental results tables below.

The segment results for the year ended 31 December 2017 are as follows:

CustomerExperience

£000

BrandDeployment

£000

CentralCosts £000

CorporateCosts£000

Total £000

Revenue 189,279 186,586 — — 375,865

Profit from operations before amortisation of acquired intangibles and exceptional items 22,373 16,497 (11,759) (5,949) 21,162

Amortisation of acquired intangibles (570) (163) — — (733)

Profit from operations before exceptional items 21,803 16,334 (11,759) (5,949) 20,429

Exceptional items (1,315) (734) (289) 286 (2,052)

Profit from operations 20,488 15,600 (12,048) (5,663) 18,377

Net finance costs (3,942)

Profit before tax 14,435

Income tax expense (2,663)

Profit for the year 11,772

Other segmental information:

Depreciation 3,413 187 — 159 3,759

Amortisation 4,455 880 213 89 5,637

Revenue includes sales to two clients which each individually represent more than 10% of the Group’s total revenue. Sales to client 1 were £68.8m including transactions with the Brand Deployment business segment, and to client 2 were £43.1m including transactions with the Customer Experience business segment.

The re-segment results for the year ended 31 December 2016 are as follows:

CustomerExperience

£000

BrandDeployment

£000

CentralCosts £000

CorporateCosts£000

Total £000

Revenue 185,053 176,879 — — 361,932

Profit from operations before amortisation of acquired intangibles and exceptional items 19,915 16,216 (11,080) (5,580) 19,471

Amortisation of acquired intangibles (599) (210) — — (809)

Profit from operations before exceptional items 19,316 16,006 (11,080) (5,580) 18,662

Exceptional items (3,128) (495) (29) (615) (4,267)

Profit from operations 16,188 15,511 (11,109) (6,195) 14,395

Net finance costs (2,802)

Profit before tax 11,593

Income tax expense (2,966)

Profit for the year 8,627

Other segmental information:

Depreciation 3,838 159 207 144 4,348

Amortisation 4,714 1,084 548 60 6,406

Revenue includes sales to two clients which each individually represent more than 10% of the Group’s total revenue. Sales to client 1 were £88.7m including transactions with the Brand Deployment business segment, and to client 2 were £48.7m including transactions with the Customer Experience business segment.

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3. SEGMENTAL INFORMATION CONTINUEDGEOGRAPHICAL INFORMATION

2017£000

2016£000

Revenues from external clients

United Kingdom 262,473 266,153

Other countries 113,392 95,779

375,865 361,932

Non-current assets

United Kingdom 205,320 209,444

Other countries 100 97

205,420 209,541

Non-current assets for this purpose consist of property, plant and equipment and intangible assets.

4. REVENUERevenue disclosed in the Income Statement is analysed as follows:

2017£000

2016£000

Sales revenue

Sale of goods 160,951 142,733

Provision of services 214,914 219,199

375,865 361,932

Finance revenue

Interest income on financial assets carried at amortised cost 1 18

Gain on foreign currency liabilities — 945

1 963

No revenue was derived from exchanges of goods and services (2016 £nil).

5. OTHER EXPENSES5.1 TOTAL FINANCE COSTS

2017£000

2016£000

Interest expense for borrowings at amortised cost 2,030 2,289

Loss on foreign currency liabilities 425 —

Retirement benefit related cost (Note 14) 1,488 1,476

3,943 3,765

5.2 NET FINANCE COSTS2017£000

2016£000

Interest on financial assets measured at amortised cost 1 18

Interest on financial liabilities measured at amortised cost (2,030) (2,289)

Net interest on financial assets and financial liabilities not at fair value through Income Statement (2,029) (2,271)

(Loss)/gain on foreign currency liabilities (425) 945

Retirement benefit related cost (1,488) (1,476)

(3,942) (2,802)




5. OTHER EXPENSES CONTINUED5.3 EMPLOYEE BENEFITS EXPENSE

2017£000

2016£000

Wages and salaries 78,355 82,150

Social security costs 8,471 8,155

Pension costs 4,046 4,409

Share-based payments (equity-settled) 597 505

Redundancy costs 1,698 3,400

93,167 98,619

In addition to the above £93,167,000, a further £1,214,000 of employee costs have been capitalised during the year as part of various development projects around the Group. These costs have been capitalised as software and are included in Note 11. The total employee benefits expense for the year ended 31 December 2017 is therefore £94,381,000.

Of the £1,698,000 redundancy costs, £1,570,000 has been included in exceptional items in Note 5.4.

2017Number

2016Number

The average monthly number of employees during the year was made up as follows:

Customer Experience 1,471 1,514

Brand Deployment 457 478

Central Costs 129 145

Corporate Costs 24 27

2,081 2,164

Compensation of key management personnel2017£000

2016£000

Short-term employee benefits 2,394 2,531

Post-employment benefits 52 91

Compensation for loss of office 112 (139)


Total compensation paid to key management personnel 3,018 2,825

Key management personnel consist of statutory Directors of the Company along with non-statutory Directors who sit on the Executive Board.

In the year ended 31 December 2016 an adjustment of £139,000 was made in respect of actual compensation for loss of office charged and provided for in 2015.

Details of individual statutory Director’s remuneration, with pension entitlements and interests, for the Directors of the Company only, are provided within the Directors’ Remuneration Report on pages 44 to 59. Details of the Group’s pension commitments are provided in Note 14 to these Financial Statements. Details of the Directors’ interests in employee share incentive plans are provided within the Directors’ Remuneration Report on pages 44 to 59.

5.4 AMORTISATION OF ACQUIRED INTANGIBLES AND EXCEPTIONAL ITEMS2017£000

2016£000

Profit from operations is arrived at after charging the following items:

Exceptional restructuring costs 1,737 4,260

Customer relationship asset write off 170 118

Contingent consideration write off (361) (452)

Write off of unsupported assets 506 —

Capital restructure costs — 109

Trade name impairment — 232

Exceptional items 2,052 4,267

Non-exceptional amortisation of acquired intangibles 733 809

2,785 5,076

During 2017 the Group incurred £1,737,000 in respect of organisational restructuring to reduce the cost base, deliver efficiency improvements and outsource non-core activities. The restructuring costs included £1,570,000 relating to staff restructuring and £167,000 in respect of the site closures at the Bangalore office and Bothwell Street, Glasgow, and associated legal costs. Of the £1,737,000, £140,000 is unpaid at 31 December 2017.

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5. OTHER EXPENSES CONTINUED5.4 AMORTISATION OF ACQUIRED INTANGIBLES AND EXCEPTIONAL ITEMS CONTINUEDThe £170,000 customer relationship asset write off relates to customer relationships valued as part of acquisition accounting in recent years. It is indicative of the current nature of client turnover in agency businesses where revenues are project based and not usually underpinned by long-term contracts.

The £361,000 reduction in contingent consideration relates to fair value revisions of the contingent consideration in respect of the acquisitions of Life Marketing Consultancy Limited (Life) and Psona Films Limited, being £300,000 and £61,000 respectively. The £452,000 reduction in contingent consideration in the year ended 31 December 2016 relates to fair value revisions of the contingent consideration in respect of the acquisitions of Life and The Meaningful Marketing Group Limited, being £200,000 and £252,000 respectively.

The Group also incurred a charge of £506,000 in respect of the write off of unsupported assets which will not be recovered.

The trade name impairment of £232,000 in the year ended 31 December 2016 is in relation to Life. The trade name was assigned a value of £512,000 at acquisition on 5 January 2015. Trading with this business has been lower than expected resulting in the trade name impairment.

The £109,000 capital restructure costs in the year ended 31 December 2016 relate to non-recurring professional fees in relation to the capital reduction exercise undertaken during that year to create additional distributable reserves.

5.5 AUDITOR’S REMUNERATIONThe remuneration of the auditor is analysed as follows:

2017£000

2016£000

Audit of the Group Financial Statements 151 150

Other fees to the auditor – local statutory audits for subsidiaries 84 88

– other assurance services 10 9

– other advisory services 10 —

255 247

5.6 OPERATING LEASE PAYMENTS2017£000

2016£000

Minimum lease payments 11,487 11,364

Sub-lease receipts (1,135) (1,098)

10,352 10,266

6. INCOME TAXThe major components of income tax expense for the years ended 31 December 2017 and 2016 are:

2017£000

2016£000

Tax charged in the Consolidated Income Statement

Current income tax

UK corporation tax 2,738 2,736

Adjustments in respect of prior years (555) 197

Overseas tax on profits for the year 1,256 787

Total current income tax charge 3,439 3,720

Deferred income tax

Origination and reversal of temporary differences (740) (636)

Adjustments in respect of prior years (36) (105)

Adjustments in respect of prior years – due to change in tax rate — (13)

Total deferred tax credit (776) (754)

Tax charge in the Consolidated Income Statement 2,663 2,966

Tax relating to items charged or credited to other comprehensive income

Deferred income tax

Actuarial gains/(losses) on pension scheme current year credit 2,517 (2,715)

Adjustment in respect of prior years – due to change in tax rate (824) 411

Tax on financial liabilities 23 (3)

Tax charge/(credit) in the Consolidated Statement of Comprehensive Income 1,716 (2,307)




6. INCOME TAX CONTINUEDCurrent tax adjustments, in respect of prior years, relate to the release of provisions created in respect of prior years’ tax submissions, agreed in the current year.

RECONCILIATION OF THE TOTAL TAX CHARGEThe tax expense in the Income Statement for the year is lower (2016 higher) than the average standard rate of corporation tax in the UK of 19.25% (2016 20%). The differences are reconciled below:

2017£000

2016£000

Profit before income tax 14,435 11,593

At UK statutory income tax rate of 19.25% (2016 20%) 2,779 2,319

Expenses not deductible for tax purposes 297 317

Non-taxable income (138) (97)

Effect of different tax rates of subsidiaries operating in other jurisdictions 424 204

Unrecognised tax losses in overseas territories 7 60

Share-based payments (92) 110

Change in deferred tax in respect of rolled over capital gains (23) (26)

Adjustments in respect of prior years (591) 92

Adjustment in respect of prior years – due to change in tax rate — (13)

Tax charge in the Consolidated Income Statement 2,663 2,966

The Group has unrecognised losses amounting to £380,000 (2016 £200,000), which arose outside of the UK and which are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. No deferred tax asset has been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group and there is no evidence of recoverability in the near future. If the Group were able to recognise all unrecognised deferred tax assets, the profit would have been increased by £96,000.

DEFERRED TAXDeferred tax included in the Consolidated Balance Sheet is as follows:

2017£000

2016£000

Accelerated capital allowances (777) (925)

Other short-term timing differences 50 185

Losses available for offset against future taxable income 353 387

Capital gains rolled over into replacement assets (413) (436)

Share-based payments 383 176

Pensions 5,221 7,331

Financial liabilities 15 39

Customer relationship intangible assets (196) (351)

Deferred tax asset 4,636 6,406

The realisation of the above current year deferred tax asset is dependent upon the anticipated continuing profitability of the Group. The deferred tax asset is recognised as the Directors foresee future profits adequate to assume recovery.

The deferred tax credit included in the Consolidated Income Statement is as follows:

2017£000

2016£000

Accelerated capital allowances (141) (149)

Other short-term timing differences 116 (19)

Losses available for offset against future taxable income 27 166

Held-over capital gains — (153)

Capital gains rolled over into replacement assets (23) (31)

Share-based payments (207) 9

Pensions (393) (337)

Customer relationship intangible assets (155) (240)

Deferred tax credit (776) (754)

The provision for deferred tax at 31 December 2017 has been made at rates between 17% and 19% depending upon the anticipated time of reversal. This reflects the legislation included in the Finance Act 2016 reducing the rate of corporation tax to 17% from April 2020.

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7. ACQUISITION OF BUSINESSIn the year ended 31 December 2017 there have been movements in contingent consideration in relation to Psona Films Limited and Life as outlined below:

PSONA FILMS LIMITEDOn 25 April 2014, the Group acquired the entire issued share capital of Jacaranda Productions Limited. On 30 June 2014 the Company’s name was changed to Psona Films Limited.

As part of the purchase agreement a contingent consideration was agreed. An amount equal to 10% of annual gross profits of the company was payable to the sellers at the end of each of the three earn-out periods, being the years ended 30 April 2015, 2016 and 2017. The total contingent consideration would in no circumstance exceed the value of £500,000. As at the date of acquisition, the fair value of the contingent consideration was estimated at £200,000, determined using a discounted cash flow method.

As at 31 December 2017, a total of £139,000 had been paid out under this arrangement for the earn-out periods ending 30 April 2015 and 30 April 2016. However, as the conditions of the contingent consideration arrangement were not met in the final earn-out period, the remaining balance at 30 April 2017 was written off to the Income Statement. A reconciliation of the fair value of the contingent consideration liability is provided below:

2017£000

At 1 January 2017 61

Fair value revision (61)

At 31 December 2017 —

The results of this business are included within the Customer Experience segment.

LIFE MARKETING CONSULTANCY LIMITEDOn 5 January 2015, the Group acquired the entire share capital of Life.

As part of the purchase agreement a contingent consideration was agreed, the mechanism for which was subsequently revised in 2015 to maintain incentivisation for the management of Life. As at 31 December 2016, the fair value of all contingent consideration was revised to £300,000. The final contingent consideration liability will be quantified and settled in 2019.

An assessment of the likely contingent consideration payable was performed by looking at the relative likelihood of a range of outcomes of over or under achieving against the current forecasts over the earn-out period. As at 31 December 2017, using this methodology, the fair value of the contingent consideration was revised to £nil. A reconciliation of the fair value of the contingent consideration liability is provided below:

2017£000


Fair value revision (300)


The results of this business are included within the Brand Deployment segment.

The Group has used Level 3 hierarchy valuation techniques to determine the fair value of the contingent consideration. The fair value hierarchy is described in Note 23.

In January 2017 the Group repaid the £9,300,000 two-year promissory loan note which was used to finance part of the initial consideration for the acquisition of Life Marketing Consultancy Limited.

8. EARNINGS PER SHARE2017

Number000

2016Number

000

Weighted average number of ordinary shares (excluding treasury shares) for basic earnings per share 208,804 209,211

Effect of dilution:

Share options 1,008 336

Weighted average number of ordinary shares (excluding treasury shares) adjusted for the effect of dilution 209,812 209,547

441,220 (2016 806,319) shares were held in trust at 31 December 2017.

Share options in issue total 2,470,608 (2016 4,395,426) options.




8. EARNINGS PER SHARE CONTINUED2017 £000

2016£000

Basic and diluted earnings per share is calculated as follows:

Profit attributable to equity holders of the parent 11,772 8,627

Earnings per share

Basic 5.64p 4.12p

Diluted 5.61p 4.12p

ADJUSTED EARNINGS PER SHAREAdjusted earnings per share are derived from net profit from continuing operations before exceptional items, amortisation of acquired intangibles and certain tax items in respect of prior years, attributable to equity holders of the parent is derived as follows:

2017 £000

2016£000

Profit after taxation from continuing operations 11,772 8,627

Exceptional items (Note 5.4) 2,052 4,267

Taxation on exceptional items (461) (819)

Amortisation of acquired intangibles (Note 5.4) 733 809

Taxation on amortisation of acquired intangibles (125) (171)

Taxation – adjustments in respect of prior years (609) —

Profit after taxation from continuing operations excluding exceptional items and amortisation of acquired intangibles 13,362 12,713

Adjusted earnings per share:

Basic 6.40p 6.08p

Diluted 6.37p 6.07p

The basis of measurement of adjusted earnings per share is to reflect more accurately the measure of earnings per share used by the market.

Adjusted earnings per share uses the same weighted average number of ordinary shares as reported above.

9. DIVIDENDS PAID AND PROPOSED

Declared and paid during the year 2017 £000

2016£000

Amounts recognised as distributions to equity holders in the year:

Final dividend for the year ended 31 December 2015 of 1.47p per share — 3,077

Interim dividend for the year ended 31 December 2016 of 0.81p per share — 1,696

Final dividend for the year ended 31 December 2016 of 1.61p per share 3,362 —

Interim dividend for the year ended 31 December 2017 of 0.89p per share 1,860 —

5,222 4,773

Proposed for approval at AGM (not recognised as a liability as at 31 December)

Final equity dividend on ordinary shares of 1.77p (2016 1.61p) per share(based on issued share capital at the date of approval of the Financial Statements) 3,704 3,358

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10. PROPERTY, PLANT AND EQUIPMENT

Freehold property

£000

Long leasehold

property £000

Short leasehold

property £000

Plant,equipmentand motor

vehicles £000

Total£000

Cost

At 1 January 2016 8,217 176 2,895 61,873 73,161

Additions 23 — 405 2,932 3,360

Disposals — — — (3,218) (3,218)

Exchange adjustment — — — 39 39

At 31 December 2016 8,240 176 3,300 61,626 73,342

Additions 21 — 73 1,610 1,704

Disposals (796) — — (5,696) (6,492)

At 31 December 2017 7,465 176 3,373 57,540 68,554

Depreciation

At 1 January 2016 3,929 176 788 45,185 50,078

Depreciation charge for the year 280 — 211 3,857 4,348

Impairment — — — 334 334

Disposals — — — (3,077) (3,077)

Exchange adjustment — — — 21 21

At 31 December 2016 4,209 176 999 46,320 51,704

Depreciation charge for the year 196 — 228 3,335 3,759

Disposals (950) — — (5,252) (6,202)

Exchange adjustment — — — (3) (3)

At 31 December 2017 3,455 176 1,227 44,400 49,258

Net book value at 31 December 2017 4,010 — 2,146 13,140 19,296



The carrying value of plant and equipment held under finance leases and hire purchase contracts at 31 December 2017 was £2,883,999 (2016 £2,059,000).

With the exception of finance leases and hire purchase contracts above, there is no security or any restriction on title.

Included within plant, equipment and motor vehicles are assets currently in development of £151,000 (2016 £1,500,000). Depreciation is expected to commence in 2018.

There are a number of assets included within property, plant and equipment that have been fully amortised but are still in use by the Group. The total cost and accumulated depreciation of these assets at 31 December 2017 is £39,091,000 (2016 £44,532,000).




11. INTANGIBLE ASSETS

Goodwill £000

Softwareassets

£000

Customerrelationship

assets £000

Tradenames

£000 Licences

£000 Total£000

Cost

At 1 January 2016 240,198 25,811 31,509 512 1,200 299,230

Additions — 2,206 — — 86 2,292

Disposals — (761) — — — (761)

At 31 December 2016 240,198 27,256 31,509 512 1,286 300,761

Additions — 4,028 — — — 4,028

Disposals — (446) (454) — — (900)

At 31 December 2017 240,198 30,838 31,055 512 1,286 303,889

Amortisation and impairment

At 1 January 2016 76,177 14,030 16,031 102 523 106,863

Amortisation during the year — 3,281 2,944 69 112 6,406

Impairment (Note 5.4) — — 118 232 — 350

Disposals — (761) — — — (761)

At 31 December 2016 76,177 16,550 19,093 403 635 112,858

Amortisation during the year — 2,626 2,862 37 112 5,637

Impairment (Note 5.4) — — 170 — — 170

Disposals — (446) (454) — — (900)

At 31 December 2017 76,177 18,730 21,671 440 747 117,765

Net book value at 31 December 2017 164,021 12,108 9,384 72 539 186,124



Software assets are amortised evenly over their useful economic lives of between three and eight years. Included in software assets is £2,666,000 (2016 £336,000) currently in development. Amortisation is expected to commence in 2018.

As at 31 December 2017 the forecast revenue for some of the customer relationships within recent acquisitions had declined from initial expectations resulting in an indication of impairment. The relevant customer relationship assets have therefore been reduced accordingly and £170,000 (2016 £118,000) has been recorded in exceptional items (Note 5.4).

Included within licences are amounts spent for the development of software which the Group has the exclusive right to sell within the UK.

There are a number of assets included within software that have been fully amortised but are still in use by the Group. The total cost and accumulated amortisation of these assets at 31 December 2017 is £7,803,000 (2016 £8,954,000).

12. IMPAIRMENT OF GOODWILLGoodwill acquired through business combinations is allocated for impairment testing purposes to two cash-generating units (CGUs), which are reportable segments, as follows:

• Customer Experience; and

• Brand Deployment.

These represent the lowest level within the Group at which goodwill is monitored for internal management purposes.

The carrying amount of goodwill allocated to cash-generating units is as follows:

2017 £000

2016£000

Customer Experience 86,691 86,691

Brand Deployment 77,330 77,330

164,021 164,021

The Group conducts annual impairment tests on the carrying value of goodwill using value in use calculations. The key assumptions included in the value in use calculations are revenue growth, product and services mix and profit margins, the long-term growth rates and the discount rate applied.

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12. IMPAIRMENT OF GOODWILL CONTINUEDThe Group prepares cash flow forecasts for these CGUs based on the most recent annual budgets approved by the Board. These are based upon detailed budgets for the coming year and internal forecasts of future growth over a five-year period and cash flows beyond the five-year period are extrapolated using external forecasts of expected growth rates. Further information on the assumptions used within the major CGUs is detailed below.

KEY ASSUMPTIONS USED IN VALUE IN USE CALCULATIONSThe calculation of value in use for all CGUs is most sensitive to the following assumptions:

• revenue growth rates;

• product and services mix and profit margins; and

• growth rates used to extrapolate cash flows beyond the budget period.

In addition, the calculation of value in use is sensitive to movements in the discount rate.

Revenue growth included in the approved financial budgetsThe revenue forecast in the Customer Experience cash flow projections, based on financial budgets, is a decline of 4% in 2018 followed by growth of between 3% and 5% in years two to five.

The revenue forecast in the Brand Deployment cash flow projections, based on financial budgets, is a decline of 2% in 2018 followed by growth of between 7% and 8% in years two to five.

Product and services mix and profit marginsBrand Deployment is expected to have an increased share of Group revenues relative to Customer Experience over the five-year forecast period.

The Group profit margin, based on gross revenue, is projected to increase from 5.6% in 2017 to 7.5% by the end of the detailed forecast period.

Profit growth rate used to extrapolate cash flows beyond the budget periodThe profit growth rate used to extrapolate cash flow projections beyond the budget period for all CGUs is considered to be a representative rate for the markets to which these segments are dedicated and in line with long-term economic growth forecasts.

Profit growth rates have been assessed individually for each CGU. Profit growth rates of 1.9% have been used for Customer Experience and 2.4% for Brand Deployment.

Discount ratesThe pre-tax discount rate applied to the Customer Experience cash flow projections is 11.4% and to Brand Deployment cash flow projections is 11.7%. This is the Group’s weighted average cost of capital adjusted to a pre-tax rate and adjusted to reflect management’s view of the market assessment of specific risks associated with each separate CGU.

Goodwill at 31 December

2017 £000

Revenue growth rates

years 2-5 %

Profit marginyears 2-5

(based on grossrevenue)

%

Terminal growth rates

%

Pre-taxdiscount rate

%

Customer Experience 86,691 4%, 3%, 3%, 5%

respectively 11%, 12%, 13%, 14%

respectively 1.9 11.4

Brand Deployment 77,330 8%, 7%, 7%, 7%

respectively10%, 11%, 11%, 11%


Goodwill at 31 December

2016 £000

Revenue growth rates

years 2-5 %

Profit marginyears 2-5

(based on grossrevenue)

%

Terminal growth rates

%

Pre-taxdiscount rate

%

Customer Experience 86,691 5%, 5%, 5%, 6%

respectively 12%, 12%, 13%, 13%


Brand Deployment 77,330 6%, 7%, 4%, 4%

respectively10%, 10%, 11%, 11%


Goodwill was allocated to each individual CGU using a relative value approach during the re-segmentation which was completed in 2016. The growth rates used in years two to five are below the growth rates expected by management for the business.

In 2017 no impairment charges have been made (2016 £nil). The headroom at 31 December 2017 was £33m (2016 £35m) in the Customer Experience segment and £96m (2016 £87m) in the Brand Deployment segment.




12. IMPAIRMENT OF GOODWILL CONTINUEDSENSITIVITY TO CHANGES IN ASSUMPTIONSThere are reasonably possible changes in key assumptions within the Customer Experience segment which could erode the headroom. The sensitivity to each of these reasonably possible changes is detailed below. In each sensitivity assessment, all other items assumptions, other than the assumption being sensitised, remained equal:

• short-term revenue growth rates in years two to five would need to reduce from between 3% and 5% to between -1% and 1% to remove all headroom on the Customer Experience impairment test;

• the pre-tax discount rate would need to increase (in absolute terms) by 2.5% to remove all headroom within the Customer Experience impairment test;

• on average, long-term profit growth rates would need to be reduced (in absolute terms) by 2.5% to remove all headroom in the Customer Experience segment; and

• profit margin would need to drop by 1.8% in years two to five, which equates to a 14.3% drop in overall segmental profits, to remove all headroom in the Customer Experience segment.

There are no reasonably possible changes in key assumptions within the Brand Deployment segment which could erode the headroom to the point at which an impairment is necessary.

13. SHARE-BASED PAYMENTSTHE COMMUNISIS LONG TERM INCENTIVE PLAN 2007Certain Directors and managers are eligible to participate in this plan at the discretion of the Remuneration Committee.

The exercise price in respect of options granted under the scheme is £nil. There are no cash settlement alternatives. The share price measure, in respect of the 2015 grant of options, is calculated by reference to the average share price in the final three months of the three-year performance period in comparison with the average share price in the three months immediately preceding grant (“Base Share Price”). The Total Shareholder Return (TSR) measure, in respect of the 2017 grant of options, is measured by reference to the change in the Net Return Index of the Group over the three-year period commencing on the date of grant. The earnings per share performance will be measured on the basis of adjusted basic earnings per share (being earnings per share from continuing operations before exceptional items and amortisation of acquired intangible assets and the tax effect of these items). For attainment between certain annual growth rate thresholds, vesting will occur on a straight-line pro rata basis.

The Remuneration Committee will only sanction vesting of the awards granted if they are satisfied as to the Group’s underlying financial performance in the performance period.

Year of grant Vesting condition and period

2015 A maximum of 20% of the options will vest on the attainment of certain share price thresholds and the remaining 80% will vest on the attainment of growth in earnings per share over the financial years 2015–17. Vesting will be calculated by comparing earnings per share at the end of financial year 2017 to the earnings per share at 31 December 2014 and calculating the compound annual growth rate.

2016 All options will vest on the attainment of growth in earnings per share over the financial years 2016–18. Vesting will be calculated by comparing earnings per share at the end of financial year 2018 to the earnings per share at 31 December 2015 and calculating the compound annual growth rate.

2017 A maximum of 50% of the options will vest on the attainment of growth in TSR over three years from the date of grant and calculating the compound annual growth rate in this measure. The remaining 50% will vest on the attainment of growth in earnings per share over the financial years 2017–19. Vesting will be calculated by comparing earnings per share at the end of financial year 2019 to the earnings per share at 31 December 2016 and calculating the compound annual growth rate.

The fair value of options granted under the Long Term Incentive Plan 2007 in the year to 31 December 2017 was estimated on the date of grant using a binomial simulation option pricing model, taking into account the terms and conditions upon which the options were granted. The following were used in the option pricing model:

2017 2016

Share price at the date of grant 52.50p 47.00p

Estimated annualised dividend yield 4.6% 4.7%

Risk-free interest rate 0.2% 0.5%

Expected volatility used in the modelling under the Black-Scholes valuation model 39.0% 38.7%

Weighted average fair value of the share options granted 33.38p 41.00p

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns which may occur. The expected volatility reflects historical volatility adjusted for future trends, which may also not necessarily be the actual outcome. Both the historical and expected volatilities reflect the volatility of the share prices of Communisis plc and comparator companies.

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13. SHARE-BASED PAYMENTS CONTINUEDTHE COMMUNISIS LONG TERM INCENTIVE PLAN 2007 CONTINUEDThe following table illustrates the number movements in the Long Term Incentive Plan options during the year. The Long Term Incentive Plan options are £nil cost options so the weighted average exercise prices (WAEP) is £nil in all cases.

2017 Number of shares


Outstanding at 1 January 5,906,359 6,048,291

Granted during the year 3,497,764 3,191,359

Forfeited during the year (603,735) (1,115,547)

Expired during the year (507,681) (1,870,885)

Exercised during the year1 (365,096) (346,859)

Outstanding at 31 December 7,927,611 5,906,359

1 The weighted average share price at the date of exercise for the options exercised in the year ended 31 December 2017 was 55p (2016 45p).

The weighted average remaining contractual life for the share options outstanding under the Long Term Incentive Plan as at 31 December 2017 is 1.52 years (2016 1.75 years).

The weighted average fair value of all options granted under the Long Term Incentive Plan during the year was 33p (2016 41p).

2017Number of shares

2016Number of shares

Equity-settled awards granted to Directors of Communisis plc 1,055,533 1,062,778

Equity-settled awards granted to former Directors of Communisis plc 723,786 583,009

Equity-settled awards granted to other employees 1,718,445 1,545,572

Total equity-settled awards granted during the year 3,497,764 3,191,359

THE EXECUTIVE SHARE OPTION SCHEME 2010Certain Directors and managers are eligible to participate in this scheme at the discretion of the Remuneration Committee. The exercise price of the options granted under this scheme is equal to the market value of the shares on the date of grant. No options were granted under this scheme in the year ended 31 December 2017 or in the year ended 31 December 2016.

THE SHARESAVE SCHEMEAll UK employees (including Executive Directors) are eligible to participate in the Communisis Sharesave Scheme. The exercise price of the options is usually equal to the market price of the shares at the date of invitation to participate less a maximum discount of 20%. The options vest on the third anniversary of the commencement of the savings period. Any options which have not been exercised within six months of the vesting date lapse.

No options were granted under the Sharesave Scheme in 2017.

The weighted average fair value of the options granted was estimated at the date of grant using the Black-Scholes option pricing model. The following were used in the option pricing model and assumed that option holders will exercise their option at expiry:

2017 2016

Share price at the date of grant — 44.00p

Estimated annualised dividend yield — 5.0%

Risk-free interest rate — 0.6%

Expected volatility used in the modelling under the Black-Scholes valuation model — 38.9%

Exercise price for options exercisable three years after the date of grant — 45.75p

The volatility has been determined by reference to Communisis plc’s and comparator companies’ historical volatility over a three-year period, adjusted for expected future trends, to reflect the share price of Communisis plc in the future. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

The following table illustrates the number and WAEP of, and movements in, share options during the year.


2017 WAEP


2016WAEP

Outstanding at the beginning of the year 4,395,426 50.05p 2,640,861 55.57p

Granted during the year — — 3,123,921 45.75p

Forfeited during the year (191,777) 45.75p (1,171,653) 27.73p

Exercised during the year1 (243,134) 56.04p (155,659) 31.68p

Expired during the year (1,489,907) 56.07p (42,044) 31.68p

Outstanding at the end of the year 2,470,608 46.16p 4,395,426 50.05p

Exercisable at the end of the year 86,397 57.50p — —





13. SHARE-BASED PAYMENTS CONTINUEDTHE SHARESAVE SCHEME CONTINUEDThe weighted average remaining contractual life for the share options outstanding under the Sharesave Scheme as at 31 December 2017 is 1.95 years (2016 1.63 years).

The weighted average fair value of all Sharesave options granted during the year was £nil (2016 7.80p).

The range of exercise prices for options outstanding under all schemes at the end of the year was nil – 57.5p (2016 nil – 57.5p). The number of share options for which the exercise price is nil totals 7,927,611 (2016 5,906,359).

14. RETIREMENT BENEFIT PLANSThe Group operates the Communisis Pension Plan which comprises a defined contribution and defined benefit section.

DEFINED CONTRIBUTION SECTIONThe Group operates a UK defined contribution arrangement within all UK trading Group companies. The assets of the arrangements are held separately from those of the Group.

Group companies are required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.

The total cost charged to income of £3,007,000 (2016 £3,105,000) represents contributions payable to these arrangements by the Group at specified rates. At 31 December 2017, £478,000 of contributions due in respect of the current reporting period had not yet been paid over to the arrangements (2016 all paid over). This liability was paid on 4 January 2018.

The Group expects to contribute £3,000,000 to the defined contribution pension arrangements in 2018.

DEFINED BENEFIT SECTIONThe section is closed to all members with no employees accruing further benefits under the plan.

The following tables summarise the components of net benefit expense recognised in the Consolidated Income Statement and the amounts taken to the Consolidated Statement of Comprehensive Income:

2017 £000

2016£000

Recognised in profit from operations

Administration costs (826) (857)

Gains on settlements — 352

Recognised in arriving at profit from operations (826) (505)

Interest expense (5,524) (6,466)

Interest income 4,036 4,990

Net interest on defined benefit liability (1,488) (1,476)

Net benefit expense (2,314) (1,981)

Taken to the Consolidated Statement of Comprehensive Income

Actual return on scheme assets (excluding interest income) 9,659 18,990

Actuarial losses arising from changes in financial assumptions (6,555) (34,962)

Actuarial gains arising from changes in demographic assumptions 2,676 —

Experience gains arising on liabilities 9,025 —

Actuarial gains/(losses) recognised in the Consolidated Statement of Comprehensive Income 14,805 (15,972)

Benefit (liability)/assetThe following table summarises the funded status and amounts recognised in the Consolidated Balance Sheet for the defined benefit pension plan.

2017 £000

2016£000

Defined benefit obligation (200,957) (208,357)

Value of plan assets 162,740 152,878

Net pension deficit (38,217) (55,479)

The defined benefit obligation comprises £200,957,000 (2016 £208,357,000) arising from a partly funded plan.

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14. RETIREMENT BENEFIT PLANS CONTINUEDDEFINED BENEFIT SECTION CONTINUED

Benefit (liability)/asset continuedChanges in the fair value of the funded status of the defined benefit plan are as follows:

2017 £000

2016£000

Opening net pension deficit (55,479) (41,145)

Contributions by employer 4,771 3,619

Gains on settlements — 352

Net interest expense (1,488) (1,476)


Actuarial gains/(losses) 14,805 (15,972)

Closing net pension deficit (38,217) (55,479)

Present value of the defined benefit obligationChanges in the present value of the defined benefit obligation are as follows:

2017 £000

2016£000

Opening defined benefit obligation 208,357 177,486

Interest expense 5,524 6,466

Benefits paid (7,778) (8,069)

Actuarial losses arising from changes in financial assumptions 6,555 34,962

Actuarial gains arising from changes in demographic assumptions (2,676) —

Experience gain arising on liabilities (9,025) —

Creditor extinguished on settlements — (2,488)

Closing defined benefit obligation 200,957 208,357

Value of plan assetsChanges in the value of plan assets are as follows:

2017 £000

2016£000

Opening plan assets 152,878 136,341

Interest income 4,036 4,990


Contributions by employer 4,771 3,619

Benefits paid (7,778) (8,069)

Actual return on scheme assets (excluding interest income) 9,659 18,990

Assets distributed on settlements — (2,136)

Closing plan assets 162,740 152,878

The values of major categories of plan assets and the relative percentage of the total plan assets are as follows:2017 £000

2017 %

2016 £000

2016%

Asset category

Assets with a quoted market price in an active market:

Diversified growth funds 74,507 46 91,154 60

Liability driven investments 27,501 17 23,407 15

Synthetic equities/liability driven investments 24,269 15 — —

Diversified alternatives 15,313 9 — —

Property income fund 14,062 9 13,410 9

Emerging market equities — — 14,018 9

Others

Direct lending 2,688 2 — —

Insured liabilities 2,258 1 2,500 2

Cash 2,142 1 8,389 5

162,740 100 152,878 100

None of the above represent equities or bonds issued by the Group, or properties owned by the Group.




14. RETIREMENT BENEFIT PLANS CONTINUEDDEFINED BENEFIT SECTION CONTINUEDValue of plan assets continued Communisis Trustee (2011) Company Limited (the “Trustee”) has been appointed by Communisis to administer and manage the Communisis Pension Plan on behalf of the members in accordance with the terms of the Trust Deed and Rules of the Plan and relevant legislation. There are currently four Trustee Directors, two of whom are company nominated (one of whom is the Independent Chairman) and two of whom are member-nominated. One of the member-nominated Trustees is a current pensioner of the Communisis Pension Plan and the other an active contributing member. Member-nominated Trustee Directors are usually appointed for a three-year term but are then eligible for re-appointment subject to a vote of the membership.

The overall management of the investment of the assets of the Communisis Pension Plan is the responsibility of the Plan Trustees. However, the day-to-day execution of the investment and associated transactions is delegated to the Plan’s appointed Investment Managers.

The Trustees agreed investment strategy is based on analysis of the liability profile of the Plan and the risk and returns expected from the various asset classes held over the longer term. The primary objective of the Trustees is to operate a strategy which provides long-term growth and security for all beneficiaries.

The risk that the investments may not be sufficient to cover the Plan liabilities is one which is monitored by the Trustees and their advisers as well as by the Company. The funding position and the divergence of invested assets is under regular review.

During 2017, the Plan Trustees reviewed and implemented a new investment strategy for the Defined Benefit Section of the Communisis Pension Plan. The new investment strategy was agreed with the Company and is designed to achieve similar long term investment returns to the previous investment strategy but importantly it aims to do this by taking less investment risk. This has been achieved by improving asset diversification and hedging a greater proportion of the interest and inflation risk inherent in the Plan’s liabilities. The key new funds introduced were:

• Synthetic equity/liability driven investments – a pooled fund that uses derivatives in order to track global equity market returns and simultaneously provide exposure to changes in real interest rates. This fund helps increase the Plan’s hedging of the inflation risk inherent in its liabilities;

• Diversified alternatives – a pooled fund that invests across a range of mostly private market assets such as private equity, specialist property investments, infrastructure and private debt. The diversified nature of these asset classes and their less frequent pricing means that investment returns tend to be smoother than comparable public market investments; and

• Direct lending – this fund invests in senior loans of mostly mid-market European companies and the fund is expected to produce materially better returns than an investment in publicly quoted corporate debt.

The Communisis Pension Plan invests in liability driven investments (LDIs) to both reduce investment risk and to better manage the liabilities of the Plan. The objective of LDIs are to have sufficient assets to meet both current and future liabilities as they fall due rather than simply having assets which deliver a positive investment return. LDIs are executed using approaches ranging from increasing the duration of the gilt portfolio to the use of more sophisticated strategies using financial instruments such as swaps. LDIs are designed primarily to hedge interest and inflation risk with an element of active equity exposure in order to seek higher returns. We believe that LDIs are a key risk management tool given the impact that the fluctuations in liabilities can have on the Plan’s funding levels and deficits.

The Group expects to pay £5,000,000 to the defined benefit pension scheme in 2018, of which £1,150,000 relates to annual rent and £1,000,000 to administration costs.

In February 2012 the Group and the Trustees agreed to a Central Asset Reserve arrangement involving the securitisation of a rental stream on one of the Group’s freehold properties to help address the pension fund deficit. In connection with the arrangement certain freehold property was transferred to a limited partnership established by the Group. The partnership is controlled by, and its results are consolidated by, the Group. The fair value of the assets transferred was £9,750,000 and on the same date the Plan used the contribution to acquire an interest in the partnership for its fair value of £9,750,000. The Plan’s partnership interest entitles it to a distribution of £1,150,000 each year from the income of the partnership over 15 years. The Plan’s interest in the partnership does not qualify as a Plan asset for the Group.

In addition to the rental payments referred to above, in order to remove the deficit, a further recovery plan (subject to reassessment following future triennial valuations) has been agreed. The latest triennial actuarial valuation for the pension scheme was performed at 31 March 2017. The recovery plan following completion of the triennial actuarial valuation comprises eight annual contributions, payable by 5 October each year from 2017 up to and including 2024. It was agreed that deficit repair contributions to the scheme will be £2,550,000, increasing in line with dividend increases, or 3% if higher. We believe this is a balanced outcome for the Group and pension scheme Trustees, and provides certainty over cash payments for the next three years. The Board continues to work with the Trustees to seek opportunities to reduce the deficit and liability exposure, and accelerate progress to the goal of “self-sufficiency” for the defined benefit pension scheme.

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14. RETIREMENT BENEFIT PLANS CONTINUEDDEFINED BENEFIT SECTION CONTINUEDAssumptionsIndependent qualified actuaries have updated the accounting deficit valuation to take account of the requirements of IAS 19 Employee Benefits in order to assess the liabilities of the scheme at 31 December 2017.

The principal weighted average assumptions used to determine benefit obligations for the Group’s Plan are shown below:

2017%

2016%

Discount rate 2.50 2.70

Inflation assumption – Retail Price Index 3.25 3.25

Inflation assumption – Consumer Price Index 2.25 2.25

Mortality ratesMortality rates have assumed the base table of 110% of S2PA to be consistent with the approach adopted at the actuarial valuation dated 31 March 2017 (2016 base table of 110% of S1PA). Assumed life expectancy for a member aged 65 is as follows:

2017 Years

2016Years

Current pensioners:

Male 20.8 20.9

Female 22.7 23.2

Future pensioners:

Male 22.2 22.6

Female 24.2 25.1

Sensitivity analysisSensitivity analysis has been performed to determine the impact on the defined benefit obligation as a result of reasonable changes in the key assumptions occurring at the end of the reporting period.

A change of 0.1 percentage points in the discount rate would have the following effects:

Increase £000

Decrease£000

Discount rate

Effect on profit from operations (56) 45

Effect on defined benefit obligation (3,400) 3,400

A change of 0.1 percentage points in the Consumer Price Index would have the following effect:

Increase £000

Decrease£000

Inflation

Effect on profit from operations 56 (55)

Effect on defined benefit obligation 2,300 (2,200)

An increase of one year in life expectancy would have the following effect:

Increase £000

Effect on profit from operations 169

Effect on defined benefit obligation 6,500

The Plan is exposed to inflation and interest rate risk and changes in the life expectancy of pensioners. The Plan’s exposure to equity market risk is mitigated by a diverse portfolio of investments.

The weighted average duration of the defined benefit obligation at 31 December 2017 is approximately 17 years (2016 17 years).

15. INVENTORIES2017 £000

2016£000

Raw materials 4,467 3,952

Work in progress 1,958 2,339

Finished goods 1,331 677

7,756 6,968

All inventories are held at the lower of cost and net realisable value.




16. TRADE AND OTHER RECEIVABLES2017 £000

2016£000

Trade receivables 49,951 44,505

Prepayments, accrued income and other receivables 29,390 22,519

79,341 67,024

Current 77,375 66,203

Non-current 1,966 821

79,341 67,024

Trade receivables are non-interest bearing and generally on 30–90 days’ credit terms with an average of 50 days. The carrying value of trade receivables is considered a reasonable approximation of fair value. All of the Group’s trade and other receivables have been reviewed for indicators of impairment.

The doubtful debt provision has moved as follows:

2017£000

2016£000

At 1 January 1,404 306

Provisions made during the year 166 1,104

Released during the year (1,104) (6)

At 31 December 466 1,404

In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The Group trades only with recognised, creditworthy third parties. The top 10 clients make up 56% of the receivables balance (2016 44%). Generally, clients who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

The Group has in place trade credit insurance arrangements which cover 38% of the Group’s revenue up to a maximum aggregate claim in any one year of £4,500,000. The concentration of credit risk is therefore limited to the carrying value of trade receivables not covered by the credit insurance. The Directors believe that there is no further credit provision required in excess of the allowance for doubtful debts, in respect of the portion not covered by the credit insurance, and an excess of £40,000 in respect of the portion covered by the credit insurance. Certain trade receivables were found to be impaired and a provision of £466,000 (2016 £1,404,000) is carried at the year end. Trade receivables are shown net of this doubtful debt provision.

In addition, some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows:

2017 £000

2016£000

Overdue by less than 30 days 3,960 1,407

30–60 days overdue 1,156 550

61–90 days overdue 647 300

91+ days 2,283 327

8,046 2,584

Management have considered the unimpaired receivables past due and do not consider there is any change in credit risk that requires any additional provisions.

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17. FINANCIAL ASSETS AND LIABILITIES17.1 FINANCIAL ASSETS BY CATEGORYThe IAS 39 categories of financial assets included in the Consolidated Balance Sheet and the headings in which they are included are as follows:

2017£000

2016£000

Non-current assets

Trade and other receivables – loans and receivables 1,330 691

Cash and cash equivalents — —

1,330 691

2017£000

2016£000

Current assets

Trade and other receivables – loans and receivables 69,367 58,317

Cash and cash equivalents 30,182 38,294

99,549 96,611

17.2 FINANCIAL LIABILITIES BY CATEGORYThe IAS 39 categories of financial liabilities included in the Consolidated Balance Sheet and the headings in which they are included are as follows:

2017 £000

2016£000


Interest-bearing loans and borrowings – financial liabilities measured at amortised cost 53,000 58,000

Unamortised loan arrangement fees (596) (176)

Trade and other payables – financial liabilities measured at amortised cost 242 652

Financial liabilities — 228

Hire purchase commitments 1,200 927

Provisions 42 42

53,888 59,673

Current liabilities

Trade and other payables – financial liabilities measured at amortised cost 81,921 87,603

Financial liabilities 94 —

Hire purchase commitments 884 614

Provisions — 215

82,899 88,432

17.3 CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIESThe IAS 39 categories of financial liability included in the Consolidated Balance Sheet and the headings in which they are included are as follows:

1 January2017£000

Cash flows£000

Amortisationof loan

arrangementfee

£000

31 December2017£000

Non-current interest-bearing loans and borrowings 57,824 (5,657) 237 52,404

1 January2016£000

Cashflows£000

Amortisationof loan

arrangementfee

£000

31 December2016£000

Non-current interest-bearing loans and borrowings 60,648 (3,000) 176 57,824




18. CASH AND CASH EQUIVALENTS2017£000

2016£000

Cash at bank and in hand 30,182 38,294

Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amount of these assets approximates to their fair value.

19. EQUITY SHARE CAPITAL AND RESERVES2017 2016

Number ofshares £000


Allotted and fully paid

Ordinary shares of 25p each 209,619,144 52,405 209,376,010 52,344

At the year end the Group had one class of ordinary shares which carry no right to fixed income.

The Group has two share option schemes under which options to subscribe for the Company’s shares have been granted to employees (Note 13).

SHARE PREMIUM RESERVEThis represents the share premium attaching to those shares issued upon the exercise of certain share options. At 31 December 2017 the share premium reserve was £75,000 (2016 £nil).

£000

At 1 January 2016 5,986

Exercise of share options 10

Capital reduction (5,996)



At 31 December 2017 75

MERGER RESERVEThis represents the share premium attaching to those shares issued upon the acquisition of subsidiaries. At 31 December 2017 the merger reserve on consolidation was £519,000 (2016 £519,000).

£000

At 1 January 2016 15,600


At 31 December 2016 and 2017 519

ESOP RESERVEThe ESOP reserve is used to record the investment in Communisis plc shares held by the employee share ownership plan (ESOP). The ESOP is for the benefit of all employees and can be used in conjunction with any of the Group’s share schemes. The ESOP reserve holds 441,220 shares at 31 December 2017 (2016 806,319) with an average cost of 36.86p (2016 36.83p) and the market value of these shares is £284,589 (2016 £349,781).

£000

At 1 January 2016 (10)

Shares issued from ESOP 155

Purchase of own shares (442)

At 31 December 2016 (297)



CAPITAL REDEMPTION RESERVEThe capital redemption reserve is used to record the effect of share capital buy-backs made by the Company where the nominal value of share capital acquired is transferred to this reserve. At 31 December 2017 the capital redemption reserve was £nil (2016 £nil).

£000

At 1 January 2016 1,375


At 31 December 2016 and 2017 —

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19. EQUITY SHARE CAPITAL AND RESERVES CONTINUEDCUMULATIVE TRANSLATION ADJUSTMENTThe cumulative translation adjustment reserve is used to record exchange differences arising from the translation of the Financial Statements of foreign subsidiaries.

£000

At 1 January 2016 (802)

Translation movements 1,129


Translation movements 415


20. INTEREST-BEARING LOANS AND BORROWINGS

Maturity2017£000

2016£000

Current

Hire purchase contracts May 2022 884 614

884 614

Non-current

Hire purchase contracts May 2022 1,200 927

£65,000,000 bank loan (2016 £65,000,000) August 2022 52,404 57,824

53,604 58,751

HIRE PURCHASESee Note 25 for full details.

BANK OVERDRAFTSThe bank overdrafts are principally denominated in Sterling and bear interest at rates set by reference to the UK base rate. The overdrafts are secured by cross guarantee arrangements with the relevant banks. At 31 December 2017 and 31 December 2016 bank overdraft facilities of £5,000,000 were available but not utilised.

£65,000,000 BANK LOANIn August 2017 the £65,000,000 bank loan facility was renewed. This loan is secured by a cross guarantee arrangement and is repayable in August 2022. Interest is charged at LIBOR plus a rate of between 1.5% and 2.25% depending on the ratio of net debt to EBITDA in the preceding performance period.

The Group is subject to a number of covenants in relation to its borrowing, which, if breached, would result in its loans becoming immediately repayable. These covenants specify certain maximum limits in terms of net debt as a multiple of EBITDA and interest payable as a multiple of EBITA. At the year end, and throughout the year, the Group was not in breach of any bank covenants.

At 31 December 2017 the Group had available £12,000,000 (2016 £7,000,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

With the exception of hire purchase agreements, early repayment is possible under the terms of all the borrowing facilities listed above at no cost by giving more than five days’ notice.

21. PROVISIONSOnerous

leases£000

Dilapidationprovisions

£000Total£000

At 1 January 2017 79 178 257

Arising during the year 215 — 215

Utilised (179) (106) (285)

Released during the year (115) (30) (145)

At 31 December 2017 — 42 42

Current 2017 — — —

Non-current 2017 — 42 42

At 31 December 2017 — 42 42

Current 2016 79 136 215

Non-current 2016 — 42 42

At 31 December 2016 79 178 257




21. PROVISIONS CONTINUEDONEROUS LEASESThe onerous lease provisions related to the estimated costs for the rental obligations in respect of the exits from Bangalore and Bothwell Street, Glasgow. The provisions reflected the estimated net cost to the Group over the remainder of the lease period. At 31 December 2017 both provisions had been settled in full.

DILAPIDATION PROVISIONSThe dilapidation provisions represent the estimated costs required to reinstate premises to a state as required under the lease. At 31 December 2017 the provision existed for premises in Edinburgh which expire in 2021.

22. TRADE AND OTHER PAYABLES2017£000

2016£000

Trade payables 63,426 58,188

Other payables 2,234 2,727

Taxation and social security 6,347 3,980

Accruals and deferred income 21,936 27,584

Interest payable 1 —

93,944 92,479

Current 92,993 90,968

Non-current 951 1,511

93,944 92,479

Trade and other payables are non-interest bearing and generally on 30–90 day credit terms. The carrying values are considered to be a reasonable approximation of fair value.

23. FINANCIAL LIABILITIES2017 £000

2016£000

Current liabilities

Interest rate swaps 94 —


Interest rate swaps — 228

94 228

INTEREST RATE SWAPSAt 31 December 2017 the Group has two arrangements each of a notional amount of £10,000,000 with maturity dates being in 2018. The Group pays fixed rates of interest of 3.16% and 1.77% respectively on each arrangement and on both the Group receives a variable rate equal to LIBOR + 1.5% on the notional amount.

FAIR VALUE HIERARCHYThe Group used the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable either directly or indirectly; and

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

As at 31 December 2017 the Group held the following financial instruments measured at fair value:

2017 £000

Level 1 £000

Level 2 £000

Level 3£000

Financial liabilities at fair value through profit or loss

Interest rate swaps 94 — 94 —

During the year there were no transfers between Level 1 and Level 2 fair value measurements and no transfers into or out of Level 3 fair value measurements.

As disclosed within Note 27, the fair value of loans has been calculated using Level 2 valuation techniques and the fair value of contingent consideration has been calculated using Level 3 valuation techniques as outlined in Note 7.

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24. OBLIGATIONS UNDER OPERATING LEASESOPERATING LEASE COMMITMENTS – GROUP AS LESSEEMotor vehicles and machinery leasesThe Group has entered into commercial leases on motor vehicles and items of machinery. These leases have a remaining life of between one and six years.

Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:

2017 £000

2016£000

No later than one year 5,708 6,115

After one year but no more than five years 6,007 8,518

After five years 22 93

11,737 14,726

Land and building leasesThe Group has entered into commercial land and building leases. These leases have a remaining life of between one and ten years.

Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:

2017 £000

2016£000



After five years 7,556 8,879

25,025 26,948

OPERATING LEASE COMMITMENTS – GROUP AS LESSORSurplus land and building leasesThe Group has entered into commercial land and building leases consisting of the Group’s surplus office and manufacturing buildings. These properties have been sublet and the leases have a remaining life of six years.

Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:

2017 £000

2016£000



After five years 551 1,686

6,228 7,363

25. HIRE PURCHASE COMMITMENTSThe Group has entered into hire purchase contracts for various items of plant and machinery with a purchase option at the end of the lease term for a nominal fee. Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows:

2017 2016

Minimum payments

£000

Present value of

payments (Note 20)

£000

Minimum payments

£000

Presentvalue of

payments(Note 20)

£000

Within one year 951 884 666 614

After one year but no more than five years 1,266 1,200 956 927

Total minimum lease payments 2,217 2,084 1,622 1,541

Less amounts representing finance charges (133) — (81) —

Present value of minimum lease payments 2,084 2,084 1,541 1,541




26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIESThe Group’s principal financial instruments comprise bank loans and overdrafts (Note 20), cash and short-term deposits (Note 18) and interest rate swaps (Note 23). The main purpose of these financial instruments is to raise finance for the Group’s operations and to manage interest rate risk. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are cash flow interest rate risk, foreign currency risk, liquidity risk and credit risk.

CASH FLOW INTEREST RATE RISKThe Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s medium-term debt obligations with a floating interest rate.

All borrowings are held on floating rate terms and so the Group is exposed to interest rate movements on these borrowings. The Group’s policy is to monitor interest rate exposure on this floating rate debt and maintain interest rate swaps through separate financial instruments where appropriate. At the end of 2017 the Group has two arrangements each with a notional amount of £10,000,000, covering 88% of the year end bank debt (2016 100%). Within bank debt the Group includes all interest-bearing bank loans and borrowings, less cash and cash equivalents.

At 31 December 2017, if interest rates had been 100 basis points higher for the full financial year, with all other variables held constant, this would have resulted in a reduction of pre-tax profits of £330,000 and a post-tax reduction in equity of £266,000; if interest rates had been lower by 25 basis points throughout the financial year the pre-tax profits would have been £83,000 higher and the post-tax impact on equity would have been an increase of £67,000.

FOREIGN CURRENCY RISKThe Group operates principally in the UK with approximately 30% (2016 26%) of sales denominated in currencies other than Sterling and, of this figure, 26% (2016 24%) of sales arising from companies operating with functional currencies other than Sterling.

The majority of foreign currency transactions are naturally hedged from buying and selling within the same currency. Where this is not the case, and Communisis is entering into a significant foreign currency transaction with no natural hedge in place, the Group enters into forward foreign exchange contracts to control these risks. There were no foreign currency contracts outstanding at the year end (2016 none).

LIQUIDITY RISKThe Group regularly monitors its risk to a shortage of funds, taking account of the maturity profile of its financial assets and liabilities and the projected cash flows from operations.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through a mix of medium-term funding of committed floating rate facilities supplemented by uncommitted bank overdraft facilities.

In 2017 the Group refinanced its borrowings which are repayable in August 2022. At 31 December 2017 none of the Group’s medium-term debt matures in less than 12 months (2016 £nil), none matures between one and two years from the Balance Sheet date (2016 100%) and 100% matures between two to five years from the Balance Sheet date (2016 £nil).

The Directors consider this funding structure to be adequate for the Group’s current requirements.

The maturity profile of the Group’s financial liabilities at 31 December 2017 is shown in Note 27.

CREDIT RISKThe Group trades only with recognised, creditworthy third parties. Generally, customers who wish to trade on credit terms are subject to credit verification procedures. During the year the Group has entered into trade credit insurance arrangements which cover 38% of the Group’s turnover up to a maximum aggregate claim in any one year of £4,500,000. The concentration of credit risk is therefore limited to the carrying value of trade receivables not covered by the credit insurance as disclosed in Note 16. The Group’s exposure to credit risk arises from the default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. As at the Balance Sheet date there are no significant concentrations of credit risk within the Group.

The credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, is managed by Group treasury in accordance with Group policy. Investments of surplus funds are only made with established banks approved by the Board. The Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

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26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES CONTINUEDCAPITAL MANAGEMENTThe primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support the business and maximise shareholder value.

The Group monitors capital using a gearing ratio, being bank debt divided by equity plus bank debt. The policy is to maintain the gearing ratio below 50%. Within bank debt the Group includes all interest-bearing bank loans and borrowings, less cash and cash equivalents.

2017 £000

2016£000

Interest-bearing bank loans and borrowings 53,000 58,000

Less cash and cash equivalents (30,182) (38,294)

Bank debt 22,818 19,706

Equity 139,136 118,215

Capital and bank debt 161,954 137,921

Gearing ratio 14.09% 14.29%

For the purposes of capital management, the Group considers undiscounted interest-bearing loans and borrowings as the appropriate measure for the purposes of determining bank debt.

27. FINANCIAL INSTRUMENTSThe following table sets out the maturity of the Group’s financial liabilities, based on contractual undiscounted payments.

At 31 December 2017

Within 1 year

£000

1–2 years £000

2–3 years £000

3–4 years £000

4–5 years £000

Morethan

5 years £000

Total£000

Trade and other payables 81,921 242 — — — — 82,163

£65,000,000 bank loan 1,060 1,060 1,060 1,060 53,618 — 57,858

Interest rate swaps 94 — — — — — 94

Provisions — — — 42 — — 42

Hire purchase 951 576 285 285 120 — 2,217

84,026 1,878 1,345 1,387 53,738 — 142,374

At 31 December 2016

Within 1 year

£000

1–2 years £000

2–3 years £000

3–4 years £000

4–5 years £000

Morethan

5 years £000

Total£000

Trade and other payables 90,968 503 449 149 149 261 92,479

£65,000,000 bank loan 1,317 58,329 — — — — 59,646

Interest rate swaps 137 91 — — — — 228

Provisions 215 42 — — — — 257

Hire purchase 666 666 290 — — — 1,622

93,303 59,631 739 149 149 261 154,232

Carrying value is considered to approximate fair value for all of the Group’s financial instruments other than bank loans, which have a carrying value of £52,404,000 (2016 £57,824,000) and a fair value of £57,262,000 (2016 £59,470,000). The fair value of loans has been calculated using Level 2 valuation techniques reflecting the borrowing rate at the end of the reporting period and any unamortised arrangement fees relating to those borrowings. The known non-performance risk at 31 December 2017 was assessed to be insignificant.

28. CAPITAL COMMITMENTSAs at 31 December 2017 the Group had not entered into any contractual commitments for the acquisition of property, plant and equipment (2016 £494,000) or intangible assets (2016 £nil).




29. CONTINGENT LIABILITIESThe Group has contingent liabilities where it has provided rental guarantees to landlords in respect of certain leasehold properties occupied by companies that were formerly subsidiaries in the Group, but have subsequently been sold. The principal risk is that current leasehold occupants will become insolvent and that guarantees will be called, resulting in a material cash cost to the Group. To the extent that they have not already been called, these guarantees represent contingent liabilities of the Group. Other than those leases for which the liability is considered to be remote, the Group has guaranteed rentals on a lease with a remaining term of six years, with an annual rental of £1,135,000. In addition, there are four further rental guarantees totalling £80,000 with remaining lease terms of between two and six years. No provision for these guarantees has been made in the Financial Statements because, at the Balance Sheet date, the Directors believe that it is not probable that they will be called.

30. CASH GENERATED FROM OPERATIONS2017 £000

2016£000

Continuing operations

Profit before tax 14,435 11,593

Adjustments for:

Amortisation of intangible assets arising on business acquisitions 733 809

Depreciation and other amortisation 8,663 9,945

Exceptional items 2,052 4,267

Loss on sale of property, plant and equipment 7 25

Share-based payment charge 597 505

Net finance costs 3,942 2,802

Additional contribution to the defined benefit pension plan (3,988) (2,836)

Cash cost of exceptional items (2,704) (3,700)

Changes in working capital:

(Increase)/decrease in inventories (761) 904

Increase in trade and other receivables (15,546) (9,912)

Increase in trade and other payables 15,194 8,507

Cash generated from operations 22,624 22,909

31. RELATED PARTY TRANSACTIONSDuring the year the Directors were remunerated for services provided to the Group. This is disclosed in the Directors’ Remuneration Report on pages 44 to 59. The Directors are included within key management personnel, for whom details of compensation are disclosed in Note 5.3.

There were no other related party transactions in the year.

32. INVESTMENTSThe Consolidated Financial Statements include the Financial Statements of Communisis plc, the ultimate parent undertaking, and all subsidiary undertakings. The Group’s subsidiary operations are listed in the following table. The registered offices for each subsidiary are referenced in the table and listed on page 115.

Name Country of incorporation Registered office% equity

interest 2017% equity

interest 2016 Immediate parent

Absolute Data Solutions Limited(i) England and Wales 1 100 100 Communisis Data Intelligence Limited

Art Master of Chelsea Limited(i) England and Wales 1 100 100 Wakefield Holdings Limited

B2E Consulting Limited(i) England and Wales 1 100 100 Communisis Data Intelligence Limited

Bangquote Limited(i) England and Wales 1 100 100 Dataform (Northern) Limited

Canada 2 Limited(i) England and Wales 1 100 100 Communisis Dataform Limited

Chorley Direct Mail Limited(i) England and Wales 1 100 100 Waddingtons House Limited

Communisis 2012 Limited England and Wales 1 100 100 Communisis plc

Communisis BBF Limited(i) England and Wales 1 100 100 Robot No.6 Limited

Communisis Broadprint Limited(i) England and Wales 1 100 100 Robot No.7 Limited

Communisis Capital Partner Limited England and Wales 1 100 100 Communisis UK Limited

Communisis Chorleys Limited(i) England and Wales 1 100 100 Waddingtons House Limited

Communisis-CRM Limited(i) England and Wales 1 100 100 Waddingtons House Limited

Communisis Data Intelligence Limited England and Wales 1 100 100 Communisis UK Limited

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Communisis Dataform Limited(i)(ii) England and Wales 1 100 100 Communisis plc

Communisis Dataform South West Limited(i) England and Wales 1 100 100 Communisis Dataform Limited

Communisis Digital Limited(iii) England and Wales 1 100 100 Communisis UK Limited

Communisis Europe Limited England and Wales 1 100 100 Communisis plc

Communisis Group Strategic Partnerships Limited(i)

England and Wales 1 100 100 Communisis UK Limited

Communisis International Limited England and Wales 1 100 100 Communisis plc

Communisis One Limited(i)(iii) England and Wales 1 100 100 Communisis Chorleys Limited

Communisis Security Products Limited(i) England and Wales 1 100 100 Robot No.7 Limited

Communisis Trustee Company Limited(i) England and Wales 1 100 100 Waddington Limited

Communisis Trustee (2011) Company Limited

England and Wales 1 100 100 Communisis plc

Communisis UK Limited England and Wales 1 100 100 Communisis plc

Dataform (Digital) Limited(i) England and Wales 1 100 100 Communisis Dataform Limited

Dataform (Midlands) Limited(i) England and Wales 1 100 100 Communisis Dataform Limited

Dataform (Northern) Limited(i) England and Wales 1 100 100 Communisis Dataform Limited

E.K. Lickfold Limited(i)(iv) England and Wales 1 100 100 Waddingtons House Limited

Geronimo Marketing & Communications Limited(i)

England and Wales 1 100 100 The Meaningful Marketing Group Limited

House of Dubreq Limited(i) England and Wales 1 100 100 Waddington Limited

Imagio Limited(i) England and Wales 1 100 100 Wakefield Holdings Limited

Intuistic Limited(i) England and Wales 1 100 100 Communisis Data Intelligence Limited

Jacaranda Productions Limited(i) England and Wales 1 100 100 Robot No.6 Limited

Jaypak Limited(i) England and Wales 1 100 100 Waddington Limited

John Mansfield Timber Limited(i) England and Wales 1 100 100 Communisis plc

John Waddington Properties(i) England and Wales 1 100 100 Imagio Limited

Johnsen & Jorgensen Plastic Limited(i) England and Wales 1 100 100 Waddington Limited

Ken Stokes Limited(i) England and Wales 1 100 100 Robot No.6 Limited

Kieon Limited(i) England and Wales 1 100 100 Waddington Limited

Laser Image Limited(i) England and Wales 1 100 100 Robot No.6 Limited

Life Marketing Consultancy Limited(v) England and Wales 1 100 100 Communisis plc

McCorquodale Colour Display Limited(i) England and Wales 1 100 100 Robot No.7 Limited

Mono-Web Limited(i) England and Wales 1 100 100 Waddington Limited

NEWJMTCO Limited(i)(vi) England and Wales 1 100 100 Communisis plc

PFB Advertising Limited(i)(vii) England and Wales 1 100 100 Communisis One Limited

Print Directive Limited(i) England and Wales 1 100 100 Communisis Dataform Limited

Psona Limited England and Wales 1 100 100 Psona Group Limited

Psona Films Limited England and Wales 1 100 100 Psona Group Limited

Psona Glasgow Limited England and Wales 1 100 100 Psona Group Limited

Psona Group Limited England and Wales 1 100 100 Communisis plc

Psona 12 Limited England and Wales 1 100 100 Psona Group Limited

Public Creative Limited(i) England and Wales 1 100 100 Psona Limited

Robot No.6 Limited(i) England and Wales 1 100 100 Communisis plc

Robot No.7 Limited(i) England and Wales 1 100 100 Robot No.6 Limited

Standard Check Book Company Limited(i) England and Wales 1 100 100 Robot No.7 Limited

Subbuteo Sports Games Limited(i) England and Wales 1 100 100 Waddington Limited

Supervision Entertainment Limited(i) England and Wales 1 100 100 Waddington Limited

The Communications Agency One Limited(i) England and Wales 1 100 100 Waddington Limited

The Garden Marketing Limited(i) England and Wales 1 100 100 Communisis 2012 Limited

The Meaningful Marketing Group Limited(iii) England and Wales 1 100 100 Psona Group Limited

Waddington Limited(viii) England and Wales 1 100 100 Communisis plc

Waddingtons Business Forms Limited(i) England and Wales 1 100 100 Waddington Limited

Waddingtons Games Limited(i) England and Wales 1 100 100 Waddington Limited

32. INVESTMENTS CONTINUED







Waddingtons Playing Card Company Limited(i) England and Wales 1 100 100 Waddington Limited

Waddingtons Security Print Limited(i) England and Wales 1 100 100 Communisis plc

Waddingtons Videomaster Limited(i) England and Wales 1 100 100 Waddington Limited

Wakefield Holdings Limited(i) England and Wales 1 100 100 Communisis UK Limited

Yomego Limited(i) England and Wales 1 100 100 Robot No.7 Limited

Communisis Belgie NV Belgium 2 100 100 Communisis Europe Limited

Communisis Deutschland GmbH Germany 3 100 100 Communisis Europe Limited

Communisis Digital Private Limited India 4 100 100 Communisis Digital Limited

Communisis France S.a.r.l. France 5 100 100 Communisis Europe Limited

Communisis Hellas Marketing Services EPE Greece 6 100 100 Communisis Europe Limited

Communisis Inc. USA 7 100 100 Communisis International Limited

Communisis Ireland Limited Ireland 8 100 100 Communisis UK Limited

Communisis Italia Srl Italy 9 100 100 Communisis Europe Limited

Communisis Marketing Services LLC United Arab Emirates 10 49 49 Communisis International Limited

Communisis Nederland B.V. The Netherlands 11 100 100 Communisis Europe Limited

Communisis NI Limited (i) Northern Ireland 12 100 100 Robot No.7 Limited

Communisis Pension Funding Limited Partnership (i)

Scotland 13 100 100 Communisis Capital Partner Limited/GDE Limited/Communisis Trustee

(2011) Company Limited

GDE Limited (i) Scotland 13 100 100 Communisis UK Limited

M.Y.E Limited (i) Scotland 13 100 100 Waddingtons House Limited

Waddingtons House Limited (i) (ix) Scotland 13 100 100 Waddington Limited

Communisis Poland Sp. z o.o Poland 14 100 100 Communisis International Limited

Communisis Portugal LDA Portugal 15 100 100 Communisis Europe Limited

Communisis Romania S.R.L Romania 16 100 100 Communisis Europe Limited

Communisis Spain S.L. Spain 17 100 100 Communisis Europe Limited

Communisis Suisse Sàrl Switzerland 18 100 100 Communisis Europe Limited

Communisis Sverige AB Sweden 19 100 100 Communisis Europe Limited

Communisis Turkey Ofis Hizmetleri Pazarlama Ticaret Limited Sirketi

Turkey 20 100 100 Communisis Europe Limited

Editions Publishing Limited Scotland 21 100 100 Communisis UK Limited

Editions Financial Inc. USA 22 100 – Communisis Inc.

Communisis Marketing Services Limited Liability Company

Russian Federation 23 100 – Communisis International Limited

Communisis Marketing Services d.o.o. Beograd

Serbia 24 100 – Communisis International Limited


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Reference(from table above) Registered office

1 Communisis House, Manston Lane, Leeds LS15 8AH

2 Pegasus Park, De Kleetlaan 12A, 1831 Diegem, Belgium

3 Am Kronberger Hang 8, 65824, Schwalbach am Taunus, Germany

4 #41, Patalamma Temple Street, Near South End Circle, Basavanagudi, Bangalore, Karnataka, India – 560004

5 53 Rue Boissiere, 75116 Paris, France

6 Patroklou 1 & Paradissou, Athens, 151 25, Greece

7 1209 Orange Street, Wilmington, Delaware 19801, USA

8 Suite 3, One Earlsfort Centre, Earlsfort Terrace, Dublin, Ireland

9 Via Montenapoleone n.29, 20121 Milan, Italy

10 Standard Chartered Tower, Level 5, Emmar Square, DownTown Burj Khalifa, Dubai, United Arab Emirates

11 Monfor Offices – 4th floor, Sir Winston Churchilllaan 299, 2288 DC Rijswijk, The Netherlands

12 Marlborough House, 30 Victoria Street, Belfast, Northern Ireland BT1 3GG

13 1 Rutland Court, Edinburgh, Scotland EH3 8EY

14 ul. Mila 2, 00-180, Warszawa, Poland

15 Av. do Brasil, 15 - 1°, 1749-112, Lisbon, Portugal

16 Bulevardul Dimitrie Pompei nr. 5–7, Cladirea Hermes Business, Etaj 2, Biroul, 205, Sector 2, Bucuresti, 020335, Romania

17 Calle Gurtubay 4, 3° derecha, 28001 Madrid, Spain

18 11 chemin du Faubourg-de-Cruseilles, Carouge, 1227, Geneva, Switzerland

19 Berga Backe 2, Box 68, 182 11 Danderyd, Sweden

20 Kucukbakkalkoy Mahallesi, Vedat Gunyol Caddesi, Defne Sokak No: 1 Flora Residence Kat: 18 Daire: 1801-1802-1803, Atas, ehir / Istanbul, 34750, Turkey

21 50 Lothian Road, Edinburgh, Midlothian, Scotland EH3 9WJ

22 111 Eighth Avenue, New York, NY 10011, USA

23 762, 3 Smolenskaya Square, 121099 Moscow, Russian Federation

24 Spanskih boraca 52/10, Novi Beograd, Belgrade, Serbia

Notes:

(i) Dormant company.

(ii) Ownership held in ordinary shares, ordinary-A shares, preference-A shares and preference-B shares.

(iii) Ownership held in ordinary-A shares and ordinary-B shares.

(iv) Ownership held in ordinary shares and deferred shares.

(v) Ownership held in ordinary-A shares, ordinary-B shares and ordinary-C shares.

(vi) Ownership held in ordinary shares, ordinary-A shares, ordinary-B shares, ordinary-C shares and preference shares.

(vii) Ownership held in ordinary shares and 4% non-cumulative preference shares.

(viii) Ownership held in ordinary shares, 6% preference shares and 8% preference shares.

(ix) Ownership held in ordinary shares and ordinary-A shares.




COMPANY BALANCE SHEET31 DECEMBER 2017

Note 2017£000

2016£000

Assets

Non-current assets

Property, plant and equipment 6 144 173

Intangible assets 7 118 154

Trade and other receivables 9 3 —

Investments 8 228,765 228,565

Deferred tax assets 5 1,031 1,424

230,061 230,316

Current assets

Trade and other receivables 9 2,631 5,391

Income tax receivable 1,543 209

Cash and cash equivalents 10 303 115

4,477 5,715

Total assets 234,538 236,031

Equity and liabilities

Equity share capital 15 52,405 52,344

Share premium 16 75 —

ESOP reserve 16 (163) (297)

Retained earnings 17 32,835 26,824

Total equity 85,152 78,871



Trade and other payables 12 242 613

Financial liabilities 13 — 228

Loans due to group undertakings 62,857 70,787

Retirement benefit obligations 18 4,384 6,507

119,887 135,959

Current liabilities


Trade and other payables 12 4,238 14,423

Financial liabilities 13 94 —

Provisions 14 — 127

29,499 21,201

Total liabilities 149,386 157,160

Total equity and liabilities 234,538 236,031

The Company has taken advantage of the exemption provided by Section 408 of the Companies Act 2006 not to publish its individual Income Statement. The profit for the year attributable to the members of the Company was £9,148,000 (2016 £658,000 loss).

The Financial Statements on pages 116 to 128 were approved by the Board on 8 March 2018 and signed on its behalf by:

Andy Blundell

Steve RawlinsDirectors

The accompanying notes are an integral part of these Financial Statements.

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COMPANY STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2017

Issued capital

£000

Share premium

£000

Capital reduction

shares £000

Merger reserve

£000

ESOP reserve

£000

Capitalredemption

reserve £000

Retained earnings

£000

Totalequity£000

At 1 January 2016 52,302 5,986 — 15,081 (10) 1,375 11,239 85,973

Loss for the year — — — — — — (658) (658)

Other comprehensive loss — — — — — — (1,783) (1,783)

Total comprehensive loss — — — — — — (2,441) (2,441)

Employee share option schemes – value of services provided — — — — — — 505 505

Shares issued – exercise of options 42 10 — — — — (3) 49

Shares issued from ESOP — — — — 155 — (155) —

Purchase of own shares — — — — (442) — — (442)

Issue of capital reduction shares — — 15,081 (15,081) — — — —

Capital reduction — (5,996) (15,081) — — (1,375) 22,452 —

Dividends paid — — — — — — (4,773) (4,773)

At 31 December 2016 52,344 — — — (297) — 26,824 78,871

Profit for the year — — — — — — 9,148 9,148

Other comprehensive income — — — — — — 1,622 1,622

Total comprehensive income — — — — — — 10,770 10,770

Employee share option schemes – value of services provided — — — — — — 597 597

Shares issued – exercise of options 61 75 — — — — — 136

Shares issued from ESOP — — — — 134 — (134) —

Dividends paid — — — — — — (5,222) (5,222)

At 31 December 2017 52,405 75 — — (163) — 32,835 85,152

The accompanying notes are an integral part of these Financial Statements.



NOTES TO THE COMPANY FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017

1. AUTHORISATION OF FINANCIAL STATEMENTS AND STATEMENT OF COMPLIANCE WITH FRS 101The Financial Statements of Communisis plc (the “Company”) for the year ended 31 December 2017 were authorised for issue on 8 March 2018 and the Balance Sheet was signed on the Board’s behalf by Andy Blundell and Steve Rawlins. Communisis plc is incorporated and domiciled in England and Wales.

The Company Financial Statements are prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and in accordance with applicable United Kingdom law and accounting standards.

The Company’s Financial Statements are presented in Sterling and all values are rounded to the nearest thousand British pounds (£000) except where otherwise indicated.

The results of Communisis plc are included in the Consolidated Financial Statements of Communisis plc which are available from Communisis House, Manston Lane, Leeds LS15 8AH.

The principal accounting policies adopted by the Company are set out in Note 2.

2. ACCOUNTING POLICIES2.1 BASIS OF PREPARATIONThe accounting policies which follow set out those policies which apply in preparing the Financial Statements for the year ended 31 December 2017.

The Company has taken advantage of the following disclosure exemptions under FRS 101:

(a) the requirements of paragraphs 45(b) and 46–52 of IFRS 2 Share-based Payment, because the share-based payment arrangement concerns its own equity instruments and its separate Financial Statements are presented alongside the Consolidated Financial Statements of the Group and the disclosures are included in the Consolidated Financial Statements of the Group in which the entity is consolidated;

(b) the requirements of IFRS 7 Financial Instruments: Disclosures, as the disclosures are included in the Consolidated Financial Statements of the Group in which the entity is consolidated;

(c) the requirements of paragraphs 91–99 of IFRS 13 Fair Value Measurement as the disclosures are included in the Consolidated Financial Statements of the Group in which the entity is consolidated;

(d) the requirement in paragraph 38 of IAS 1 Presentation of Financial Statements to present comparative information in respect of:

(i) paragraph 79(a)(iv) of IAS 1;

(ii) paragraph 73(e) of IAS 16 Property, Plant and Equipment; and

(iii) paragraph 118(e) of IAS 38 Intangible Assets;

(e) the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134 to 136 of IAS 1 Presentation of Financial Statements;

(f) the requirements of IAS 7 Statement of Cash Flows;

(g) the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;

(h) the requirements of paragraph 17 of IAS 24 Related Party Disclosures;

(i) the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member; and

(j) the requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d)–134(f) and 135(c)–135(e) of IAS 36 Impairment of Assets as the disclosures are included in the Consolidated Financial Statements of the Group in which the entity is consolidated.

The Company has taken advantage of the exemption provided by Section 408 of the Companies Act 2006 not to publish its individual Income Statement and related notes.

The Company has net current liabilities of £25,022,000 as at 31 December 2017 (2016 net current liabilities of £15,486,000). The Company’s objectives, policies and processes for managing its liquidity risk, as well as potential exposure to cash flow interest rate risk, are described in Note 26 in the Consolidated Financial Statements.

Through the Group, the Company has considerable financial resources and, as a consequence, the Directors believe that the Company is well placed to manage its business risks successfully.

After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements.

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2. ACCOUNTING POLICIES CONTINUED2.2 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATESEstimation uncertaintyThe key assumptions concerning the future and other key sources of estimation uncertainty at the Balance Sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

PensionsThe actuarial valuation involves making assumptions about discount rates, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. Additional information is included in Note 18.

2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESIntangible assetsIntangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets created within the business are not capitalised (unless specific conditions are met) and expenditure is charged to the Income Statement in the year in which the expenditure is incurred.

Acquired computer software and licences are capitalised. These costs are amortised over their estimated useful lives (three to eight years).

Costs associated with maintaining computer software programs are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Company, and that will generate probable economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the costs of software development employees. These costs are amortised over their estimated useful lives (three to eight years).

Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

Property, plant and equipmentProperty, plant and equipment in the Financial Statements of the Company are stated at cost, less aggregate depreciation and any provision for impairment.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:

Plant and equipment 3 to 10 years

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists, and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Useful economic lives, depreciation methods and residual values are reviewed annually. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in the Income Statement.

InvestmentsInvestments are shown at cost less provision for impairment. The cost of an investment is measured as the aggregate of the consideration transferred, measured at acquisition date fair value. Any contingent consideration will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or a liability will be recognised in accordance with IAS 39 either in profit and loss or in other comprehensive income. If the contingent consideration is classed as equity, it is not remeasured until it is finally settled within equity.

Investments are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that its carrying value may be impaired. Investments are allocated to the related cash-generating units monitored by management for the purpose of impairment testing.

Trade and other receivablesTrade and other receivables, which generally have 30–90 day credit terms, are recognised and carried at original invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made. Bad debts are written off when identified.

Cash and cash equivalentsCash and cash equivalents in the Balance Sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.



NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2016

2. ACCOUNTING POLICIES CONTINUED2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUEDTrade and other payablesTrade and other payables, which generally have 30-90 day credit terms, are recognised and carried at original invoice amount.

Income taxCurrent tax, being UK corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the Balance Sheet date.

Deferred income tax is provided, using the liability method, on all temporary differences at the Balance Sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill, or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred income tax assets are recognised for all deductible temporary differences carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised. In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each Balance Sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the Balance Sheet date.

Income tax relating to items recognised in other comprehensive income or directly in equity is also recognised in other comprehensive income or directly in equity.

Foreign currenciesThe Company’s functional currency and presentation currency is Sterling. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the Balance Sheet date. All differences are taken to the Income Statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Pension costsThe Company operates defined contribution and defined benefit pension plans.

Payments to defined contribution pension plans are charged as an expense to the Income Statement as incurred when the related employee service is rendered. The Company has no further legal or constructive payment obligations once the contributions have been made.

The defined benefit pension plan is a Group scheme, as detailed in the Group accounting policies note in the Group Consolidated Financial Statements on page 83.

In accordance with the Company policy in respect of the defined benefit pension scheme, a proportion equating to 12.3% of all movements on the defined benefit scheme is recognised within the Company accounts. This proportion is based on the number of members employed by the Company at the time that the scheme was closed to future accrual. The proportionate split is applied to all costs, settlements and actuarial gains and losses as detailed below.

The costs of administering the defined benefit pension scheme are recognised in employee benefits expense in the Income Statement.

When a settlement (eliminating all obligations for benefits already accrued) or a curtailment (reducing future obligations as a result of a material reduction in the scheme membership or a reduction in future entitlement) occurs, the obligation and the related plan assets are remeasured using current actuarial assumptions and the resultant gain or loss is recognised in the Income Statement during the period in which the settlement or curtailment occurs.

All actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recognised immediately in the Statement of Comprehensive Income.

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2. ACCOUNTING POLICIES CONTINUED2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUEDLeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to the use of assets.

Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term or in accordance with utilisation of the leased asset if more appropriate.

Employee share ownership planCommunisis plc shares held by the Company are classified in shareholders’ equity as the “ESOP reserve” and are recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to retained earnings. No gain or loss is recognised in the Income Statement on the purchase, sale, issue or cancellation of equity shares.

BorrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. 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.

Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the Balance Sheet date.

ProvisionsProvisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made, but there is some uncertainty about the timing or amount of the future expenditure required in settlement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Share-based payment transactionsCertain Directors and management are eligible to participate in share-based payment schemes, all of which are equity-settled, in return for services provided to Communisis plc.

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuer using an appropriate model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Communisis plc (“market conditions”).

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance or service conditions are satisfied.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the Income Statement for the award is expensed immediately. This includes any award where non-vesting conditions within the control of the Company or the employee are not met. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the Income Statement.

Where an equity-settled award is forfeited, the total cost recognised in the Income Statement to date for the award is reversed.

Derivative financial instruments and hedge accountingInitial recognition and subsequent measurementThe Company uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its foreign currency and interest rate risks respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting and the ineffective portion of an effective hedge are taken directly to the Income Statement.

The fair value of interest rate swaps is the difference between the fixed rate and the one-month LIBOR rate implied at the Balance Sheet date, calculated monthly, and discounted to present value.



2. ACCOUNTING POLICIES CONTINUED2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUEDDerivative financial instruments and hedge accounting continuedInitial recognition and subsequent measurement continuedFor the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging exposure to variability in cash flows, which is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction, or when hedging the foreign currency risk in an unrecognised firm commitment.

For those derivatives designated as hedges and for which hedge accounting is desired, the hedging relationship is formally designated and documented at its inception. This documentation identifies the risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how effectiveness will be measured throughout its duration. Such hedges are expected to be highly effective in offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Cash flow hedgesThe effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in the Income Statement.

Amounts taken to equity are transferred to the Income Statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the Income Statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.

3. OPERATING COSTS AND INCOMEAUDITOR’S REMUNERATIONThe auditor’s remuneration charge relating to the year was £21,000 (2016 £20,500).

The Company is exempt from disclosing remuneration for non-audit services as the Group accounts are required to include the information required by Regulation 4(1)(b) of the Companies Regulations 2005 in respect of the Group.

EMPLOYEE BENEFITS EXPENSE2017 £000

2016£000

Wages and salaries 2,731 2,210

Social security costs 348 233

Pension costs 208 163


Redundancy costs — 181

3,625 3,038

2017 Number

2016Number

The average number of persons employed by the Company during the year was:

United Kingdom 24 27

DIRECTORS’ REMUNERATIONDetails of individual Directors’ remuneration, pension entitlements and interests of the Directors in Communisis plc are provided within the Directors’ Remuneration Report on pages 44 to 59.

4. DIVIDENDS PAID AND PROPOSED

Declared and paid during the year 2017 £000

2016£000

Amounts recognised as distributions to equity holders in the year:

Final dividend for the year ended 31 December 2015 of 1.47p per share — 3,077

Interim dividend for the year ended 31 December 2016 of 0.81p per share — 1,696

Final dividend for the year ended 31 December 2016 of 1.61p per share 3,362 —

Interim dividend for the year ended 31 December 2017 of 0.89p per share 1,860 —

5,222 4,773

Proposed for approval at AGM (not recognised as a liability as at 31 December)

Final equity dividend on ordinary shares of 1.77p (2016 1.61p) per share (based on issued share capital at the date of approval of the Financial Statements) 3,704 3,358


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5. DEFERRED TAXDeferred tax included in the Balance Sheet is as follows:

2017 £000

2016£000

Depreciation in excess of capital allowances 33 47

Temporary differences 7 102

Share-based payments 231 130

Pension 745 1,106

Financial liabilities 15 39

Deferred tax asset 1,031 1,424

The provision for deferred tax at 31 December 2017 has been made at rates between 17% and 19% depending upon the anticipated time of reversal. This reflects the legislation included in the Finance Act 2016 reducing the rate of corporation tax to 17% from April 2020.

6. PROPERTY, PLANT AND EQUIPMENTPlant and

equipment£000

Cost

At 1 January 2017 1,495

Additions —

Disposals (1,251)


Depreciation

At 1 January 2017 1,322

Charge for year 29

Disposals (1,251)


Net book value at 31 December 2017 144


7. INTANGIBLE ASSETSComputer

software£000

Cost


Additions 53

Disposals (118)


Amortisation


Charge for year 89

Disposals (118)






8. INVESTMENTSShares

£000 Provisions

£000 Total£000

Subsidiaries

At 1 January 2017 404,821 (176,256) 228,565

Fair value adjustment 200 — 200

31 December 2017 405,021 (176,256) 228,765

Details of the Company’s investments are outlined in Note 32 in the Consolidated Financial Statements.

9. TRADE AND OTHER RECEIVABLES2017 £000

2016£000

Trade receivables 308 475

Amounts owed by subsidiary companies 769 3,478

Other receivables 603 527

Prepayments and accrued income 228 289

VAT receivable 726 622

2,634 5,391

Current 2,631 5,391

Non-current 3 —

2,634 5,391

10. CASH AND CASH EQUIVALENTS2017 £000

2016£000

Cash at bank and in hand 303 115

11. INTEREST-BEARING LOANS AND BORROWINGS

Maturity 2017 £000

2016£000

Current

Bank overdrafts On demand 25,167 6,651

25,167 6,651

Non-current

£65,000,000 bank loan (2016 £65,000,000) August 2022 52,404 57,824

77,571 64,475

BANK OVERDRAFTSThe bank overdrafts are principally denominated in Sterling and bear interest at rates set by reference to the UK base rate. The overdrafts are secured by cross guarantee arrangements with the relevant banks.

£65,000,000 BANK LOANThis loan is secured by a cross guarantee arrangement and is repayable in August 2022. Interest is charged at LIBOR plus a rate of between 1.5% and 2.25% depending on the ratio of net debt to EBITDA in the preceding performance period.

The Company is subject to a number of covenants in relation to its borrowing, which, if breached, would result in its loans becoming immediately repayable. These covenants specify certain maximum limits in terms of net debt as a multiple of EBITDA and interest payable as a multiple of EBITA. At the year end and throughout the year the Company was not in breach of any bank covenants.

At 31 December 2017 the Company had available £12,000,000 (2016 £7,000,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

Early repayment is possible under the terms of all the borrowing facilities listed above at no cost by giving more than five days’ notice.


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12. TRADE AND OTHER PAYABLES2017 £000

2016£000

Trade and other payables 521 2,190

Amounts due to subsidiary companies 143 21

Other payables 326 130

Taxation and social security 2,067 1,957

Accruals and deferred income 1,423 10,738

4,480 15,036

Current 4,238 14,423

Non-current 242 613

4,480 15,036

13. FINANCIAL LIABILITIES2017 £000

2016£000

Current liabilities

Interest rate swaps 94 —


Interest rate swaps — 228

94 228

INTEREST RATE SWAPSAt 31 December 2017 the Company has two arrangements each of a notional amount of £10,000,000 with maturity dates being in 2018. The Company pays fixed rates of interest of 3.16% and 1.77% respectively on each arrangement and on both the Company receives a variable rate equal to LIBOR + 1.5% on the notional amount.

14. PROVISIONSDilapidation

provisions £000

Total£000

At 1 January 2017 127 127

Utilised (106) (106)

Released during the year (21) (21)

At 31 December 2017 — —

DILAPIDATION PROVISIONSThe dilapidation provisions represent the estimated costs required to reinstate the Chiswell Street, London, premises to a state as required under the lease. The costs were incurred in 2017.

15. CALLED UP SHARE CAPITAL2017 2016

Number of shares £000


Allotted and fully paid

Ordinary shares of 25p each 209,619,144 52,405 209,376,010 52,344

The Company has one class of ordinary shares which carries no right to fixed income.

The Company has two share option schemes under which options to subscribe for the Company’s shares have been granted to employees (Note 19).

During the year the Company issued 243,134 ordinary shares with a nominal value of £60,784 in respect of Sharesave options for consideration of £136,226. The difference of £75,442 between the consideration received and the nominal value has been taken to the share premium reserve.



16. RESERVESSHARE PREMIUMThis represents the share premium attaching to those shares issued upon the exercise of certain share options. At 31 December 2017 the share premium reserve was £75,000 (2016 £nil).

£000

At 1 January 2016 5,986






MERGER RESERVEThis represents the share premium attaching to those shares issued upon the acquisition of subsidiaries. At 31 December 2017 the merger reserve was £nil (2016 £nil).

£000

At 1 January 2016 15,081



ESOP RESERVEThe ESOP reserve is used to record the investment in Communisis plc shares held by the employee share ownership plan (ESOP). The ESOP is for the benefit of all employees and can be used in conjunction with any of the Group’s share schemes. The ESOP reserve holds 441,220 shares at 31 December 2017 (2016 806,319) with an average cost of 36.86p (2016 36.83p) and the market value of these shares is £284,589 (2016 £349,781).

£000

At 1 January 2016 (10)


Purchase of own shares (442)




CAPITAL REDEMPTION RESERVEThe capital redemption reserve is used to record the effect of share capital buy-backs made by the Company where the nominal value of share capital acquired is transferred to this reserve. At 31 December 2017 the capital redemption reserve was £nil (2016 £nil).

£000

At 1 January 2016 1,375



17. RETAINED EARNINGS2017 £000

2016£000

At 1 January 26,824 11,239

Profit/(loss) for the financial year 9,148 (658)

Ordinary dividends paid (5,222) (4,773)

Adjustment in respect of prior years due to change in tax rate — (47)

Net gain/(loss) on cash flow hedges taken directly to equity 111 (26)

Actuarial gains/(losses) on defined benefit pension plans 1,821 (1,965)

Income tax (charge)/credit on items taken directly to Other Comprehensive Income (310) 255

Employee share option schemes – value of services provided 597 505

Shares options exercised — (3)

Shares issued from ESOP (134) (155)

Capital reduction — 22,452

At 31 December 32,835 26,824


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18. RETIREMENT BENEFIT PLANSThe Company operates the Communisis Pension Plan which comprise a defined contribution and defined benefit section.

DEFINED CONTRIBUTION SECTIONThe Company operates UK defined contribution arrangements. The assets of the arrangements are held separately from those of the Company.

The Company is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Company with respect to the retirement benefit scheme is to make the specified contributions.

The total cost charged to income of £106,000 (2016 £165,000) represents contributions payable to these arrangements by the Company at specified rates. At 31 December 2017, £16,000 of contributions due in respect of the current reporting period had not yet been paid over to the arrangements (2016 all paid over). This liability was paid on 4 January 2018.

The Company expects to contribute £0.1m (2016 £0.1m) to the defined contribution pension arrangements in 2018.

DEFINED BENEFIT SECTIONThese Financial Statements include a proportion of the Group pension deficit and charge which has been allocated to the Company based on the number of members employed by the Company at the time the scheme was closed to future accrual.

2017 £000

2016£000

Defined benefit obligation (23,969) (24,879)

Fair value of plan assets 19,585 18,372

Net pension deficit (4,384) (6,507)

Detailed disclosure can be found in Note 14 to the Consolidated Financial Statements on pages 100 to 103.

19. SHARE-BASED PAYMENTSThe Company operates two schemes, details of which can be found in Note 13 to the Consolidated Financial Statements on pages 98 to 100.

The following table illustrates the number and movements in the Long Term Incentive Plan options during the year. The Long Term Incentive Plan options are £nil cost options so the weighted average exercise prices (WAEP) are £nil in all cases.

2017 Number

2016 Number

Exercised during the year1 365,096 346,859

Outstanding at the end of the year 7,927,611 5,906,359


The weighted average remaining contractual life for the share options outstanding under the Long Term Incentive Plan as at 31 December 2017 is 1.52 years (2016 1.75 years).

The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, Sharesave Scheme options during the year.

2017 Number

2017 WAEP

2016 Number

2016WAEP

Exercised during the year1 243,134 56.04p 155,659 31.68p

Outstanding at the end of the year 2,470,608 46.16p 4,395,426 50.05p


The weighted average remaining contractual life for the share options outstanding under the Sharesave Scheme as at 31 December 2017 is 1.95 years (2016 1.63 years).

The range of exercise prices for options outstanding under all schemes at the end of the year was nil–57.5p (2016 nil–57.5p). The number of share options for which the exercise price is nil total 7,927,611 (2016 5,906,359).



20. OTHER FINANCIAL COMMITMENTSAt 31 December 2017 the Company had annual commitments under non-cancellable operating leases for assets as set out below:

Land and buildings

2017 £000

2016£000

Operating leases which expire:

– within one year 10 55

– in two to five years — 10

10 65

Other

2017 £000

2016£000

Operating leases which expire:

– within one year 30 54

– in two to five years 35 19

65 73

21. CONTINGENT LIABILITIESThe Company has contingent liabilities where it has provided rental guarantees to landlords in respect of certain leasehold properties occupied by companies that were formerly subsidiaries in the Group, but have subsequently been sold. The principal risk is that current leasehold occupants will become insolvent and that guarantees will be called, resulting in a material cash cost to the Group. To the extent that they have not already been called, these guarantees represent contingent liabilities of the Company. Other than those leases for which the liability is considered to be remote, the Company has guaranteed rentals on a lease with a remaining term of six years, with an annual rental of £1,135,000. In addition, there are four further rental guarantees totalling £80,000 with remaining lease terms of between two and six years. No provision for these guarantees has been made in the Financial Statements because, at the Balance Sheet date, the Directors believe that it is not probable that they will be called.

22. RELATED PARTY TRANSACTIONSThe Company has taken advantage of the exemption under paragraph 8(k) of FRS 101 not to disclose related party transactions with its wholly owned subsidiaries. Remuneration of key management personnel is disclosed in the Directors’ Remuneration Report on pages 44 to 59.


2018 FINANCIAL CALENDAR

8 March 2018 Preliminary results announcement

19 April 2018 Ex-dividend date for the final dividend

20 April 2018 Record date to be eligible for the final dividend

10 May 2018 Annual General Meeting

18 May 2018 Final dividend payment date

2 August 2018 Interim results announcement

13 September 2018 Ex-dividend date for the interim dividend

14 September 2018 Record date to be eligible for the interim dividend

12 October 2018 Interim dividend payment date

ANNUAL GENERAL MEETING (AGM) 2018This year’s AGM will be held at the offices of Eversheds Sutherland LLP, 1 Wood Street, London EC2V 7WS, on Thursday 10 May 2018.

The meeting will start at 12 noon and registration will be available from 11.30 am.

HOW TO GET IN TOUCHREGISTERED OFFICECommunisis plc Communisis House Manston Lane Leeds LS15 8AH Tel: +44 (0) 113 222 6500 Registered in England and Wales Number 02916113

COMPANY SECRETARYSarah Caddy

HEAD OFFICECommunisis plc 10 Little Portland Street London W1W 7JG Tel: +44 (0) 207 382 8950

ADVISERSAUDITORErnst & Young LLP 1 Bridgewater Place Water Lane Leeds LS11 5QR

STOCKBROKERSLiberum Capital Limited Ropemaker Place 25 Ropemaker Street London EC2Y 9LY

CORPORATE LAWYERSEversheds Sutherland LLP Clarion Solicitors LLP Pinsent Masons LLP Ward Hadaway LLP

PRINCIPAL BANKERSHSBC Bank plc Lloyds Banking Group plc Santander UK plc Barclays Bank PLC

REGISTRAR AND SHAREHOLDING ENQUIRIESAdministrative enquiries about the holding of Communisis shares, such as change of address, change of ownership and dividend payments, should be directed to our registrar, Link Asset Services:

BY PHONEPlease call 0871 664 0300 and calls will be charged at 12p per minute plus your phone company’s access charge. If you are outside the United Kingdom, please call +44 371 664 0300 and calls will be charged at the applicable international rate. Lines are open between 09.00 and 17.30 Monday to Friday excluding public holidays in England and Wales.

BY [email protected]

ONLINEYou can use the Share Portal at www.signalshares.com.

To register for this service, you will require your investor code which can be located on a recent dividend confirmation or on your share certificate.

For all other enquiries, please contact Link Asset Services by post at the following address:

Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU

DIVIDENDSWe encourage shareholders to have dividends paid directly into their bank account to ensure efficient payment and cleared funds on the payment date. If you have a UK bank account you can sign up for this service on the Share Portal by clicking on “your dividend options” and following the on-screen instructions or by contacting Link Asset Services on the number above.

ELECTRONIC COMMUNICATIONSShareholders can register to receive shareholder information electronically. Registering for electronic communications is very straightforward. Just visit www.signalshares.com. You will require your investor code which can be located on a recent dividend confirmation or on your share certificate.

BOILER ROOM SCAMSUnfortunately, we are aware that in the past some of our shareholders were targeted by fraudsters who made offers to buy their shares at prices substantially in excess of the market price. General information on boiler room scams, and how to report a suspected scam, is available from the FCA’s website at www.fca.org.uk/consumers/scams.

SHAREHOLDER INFORMATION

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129Communisis plc Annual Report and Accounts 2017

FIND OUT MORE ONLINE AT COMMUNISIS.COM

Communisis plc10 Little Portland StreetLondonW1W 7JG

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