Communisis 2016 AGM

ANNUAL REPORTAND FINANCIALSTATEMENTS2016

CONTENTSHIGHLIGHTS 4CHAIRMAN’S STATEMENT 7STRATEGIC REPORT 9RISKS AND UNCERTAINTIES 22CORPORATE SOCIAL RESPONSIBILITY REPORT 26GOVERNANCE 32BOARD OF DIRECTORS AND EXECUTIVE BOARD 32DIRECTORS’ REPORT 35CORPORATE GOVERNANCE REPORT 40AUDIT COMMITTEE REPORT 46STATEMENT OF DIRECTORS’ RESPONSIBILITIES 48DIRECTORS’ REMUNERATION REPORT 50FINANCIAL STATEMENTS 69CONSOLIDATED INCOME STATEMENT 70CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 71CONSOLIDATED BALANCE SHEET 72CONSOLIDATED CASH FLOW STATEMENT 73CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 74NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 75COMPANY BALANCE SHEET 114STATEMENT OF CHANGES IN EQUITY 115NOTES TO THE COMPANY FINANCIAL STATEMENTS 116INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF COMMUNISIS PLC 127SHAREHOLDER INFORMATION 135

“SUCCESS IN CAME FROM A FOCUS ON CORE ACTIVITIES AND TRANSLATED INTO A NUMBER OF SIGNIFICANT, NEW MULTI-YEAR CONTRACTS. WE HAVE SUCCEEDED IN STRENGTHENING OUR POSITION AS THE LEADER IN UK TRANSACTIONAL COMMUNICATIONS AND FURTHER EXTENDED OUR BRAND DEPLOYMENT SERVICES IN OVERSEAS TERRITORIES. THESE TWIN THEMES WILL CONTINUE TO UNDERPIN OUR GROWTH STRATEGY GOING FORWARD.” ANDY BLUNDELL Chief Executive March 3

HIGHLIGHTS FINANCIAL HIGHLIGHTS Adjusted earnings per share up % to . p ( . p) . p) Adjusted profit before tax up % to £ . m ( £ . m) Free cash flow % higher at £ . m ( £ . m) Net debt reduced by £ m to £ m ( £ m) Full year dividend per share increased by % to . p ( ADJUSTED EARNINGS PER SHARE (EPS) ADJUSTED PROFIT BEFORE TAX . £m . . . . . . . . . . Pence per share . . . FREE CASH FLOW DIVIDEND PER SHARE £m . . . . . . . Pence per share . . . Financial Results As Reported Constant Currency* Total revenue (£m) Adjusted operating profit (£m)** . . +% % Adjusted profit before tax (£m)** Adjusted earnings per share (p)** . . +% +% Profit before tax (£m) (Note ) Proposed final dividend per share (p) . . + % +% Free cash flow (£m) *** Net debt (£m) . . +% +% . . -% -% . . +% . . +% . . -% Note : Profit before tax during included a significant £ . m one-off release of contingent consideration. Adjusted measures are presented and used by Communisis to give a better understanding of the underlying performance of the Group by excluding the effect of exceptional gains and losses from each year. * Constant currency: the reported numbers excluding the effects of changes in exchange rates on the translation into sterling of results denominated in foreign currencies. ** Adjusted metrics are stated before exceptional items and the amortisation of acquired intangibles. Adjusted earnings per share is fully diluted and excludes the after-tax effects of exceptional items and the amortisation of acquired intangibles. *** Free cash flow represents net operating cash flow less net capital expenditure.4

Communisis plc Annual Report and Financial Statements 2016 HIGHLIGHTSOPERATIONAL HIGHLIGHTS GROWTH EFFICIENCY PEOPLEGROWTH EFFICIENCY PEOPLESignificant new multi-year contractual Implemented a simplified two divisional Entered into a partnership withrelationships: structure to align with our target Clients Randstad Sourceright, a global leader and main markets. in recruitment solutions, to improve our LV= (Liverpool Victoria Friendly Society) recruitment processes; for a six-year term for customer Continued to optimise cost base: fulfilment services from March ; Continued investment in our learning Reduction in corporate costs as a and development function. Her Majesty’s Revenue and Customs result of simplified Group structure; (“HMRC”) for all outbound customer communication, commencing July Operational efficiency programmes delivering benefits in all main for a five-year term; manufacturing locations. Global healthcare client for marketing OUTLOOK print management across EMEA (Europe, the Middle East and Africa), Communisis is well placed to respond to opportunities for client service with a staged roll-out commencing extension, the application of technology and geographic expansion in our from the Middle East and then multiple existing and new Client relationships. Our simplified structure is also helping territories, for a three-year term; us to optimise our cost base and operational efficiency programmes are delivering benefits in our manufacturing locations. Sony Europe for a range of customer communication services, commenced Trading in the early months of this year has started in line with expectations October for a three-year term. and the Board is looking forward to another positive year for the Group.Increased international presence:International sales now % of Grouprevenue ( %);First presence in USA market to beestablished through an office in NewYork, expected to open by June ,initially providing content-marketingservices to our Client, LinkedIn. 5

COMMUNISIS DELIVERED A STRONG SET OF RESULTS IN , WHICH WAS OUR SEVENTH CONSECUTIVE YEAR OF GROWTH6

Communisis plc Annual Report and Financial Statements 2016 CHAIRMAN’S STATEMENTCHAIRMAN’S STATEMENTRESULTS , which The Brand Deployment division continued to grow rapidly in overseas markets; these territories now account for % ofCommunisis delivered a strong set of results in Group turnover. In Communisis secured a major contractwas our seventh consecutive year of growth. with a global healthcare provider and separately a new contract with Sony Europe; both arrangements are multi-yearAdjusted profit before tax increased % to £ . m agreements across several countries in EMEA. Brand owners( £ . m) on revenue that was % ahead at £ . m are increasingly concerned to control and co-ordinate their( £ . m). Free cash generation was strong, increasing spend in marketing execution on an international basis,to £ . m ( £ . m). Year-end net debt reduced by % which translates as a significant, continued growthto £ . m ( £ . m). Adjusted earnings per share was opportunity for Communisis.up % at . p ( . p). Successful delivery of the Group’s strategy is dependent uponThese results came about through a focus on our core attracting, developing and retaining a high calibre team.activities, driven from a simplified group structure that The Board would like to thank everyone who has contributedeffectively aligns to our main target Clients and markets. to another successful year for the Group.In Communisis won several important new contracts,which assist visibility against our longer-term growth plans. DIVIDENDThe Customer Experience division consolidated its market The proposed final dividend has been increased by % toleadership in the UK transactional arena, with important new . p per share, bringing the total dividend for the year tocontracts with Her Majesty’s Revenue and Customs (“HMRC”) . p per share. The dividend will be payable on Mayand LV= Group. There are interesting opportunities for our to shareholders on the register at April .company to help its Clients respond through multiplechannels, to a more demanding customer base, whilst BOARD CHANGESnavigating regulation. David Gilbertson was appointed as Non-Executive Director and Chairman Designate on March . After nine years in the role, I have taken the decision to retire and David will assume the role of Chairman, following the Annual General Meeting on May . I am proud to have served Communisis and its shareholders for the past nine years. During this time the Group has established itself as a market leader in customer communication. Our growth has seen us enter new service areas, win major long- term outsourcing contracts and create a meaningful presence in international markets. I very much welcome David as my successor and wish him well in the role. PETER HICKSON Chairman March 7

CREATING LASTING AND PROFITABLE PERSONAL CUSTOMER RELATIONSHIPS IN ALL DIRECT, DIGITAL AND SOCIAL CHANNELS8

Communisis plc Annual Report and Financial Statements 2016 STRATEGIC REPORTSTRATEGIC REPORTWHAT DO WE DO? Communisis creates engaging content and delivers it across multiple customer touch-points; in digital, broadcast andCommunisis specialises in integrated marketing services print channels, using a combination of unique strategicthat improve communications between brands and their insight, customer communications, technology andcustomers. transformational expertise.The Group has recently completed a detailed review to refine HOW THIS IS DELIVERED FOR CLIENTSits Client propositions and how it is positioned in the market. “ONE TO ONE” – THE CUSTOMER EXPERIENCE DIVISIONThe new proposition simplifies the go-to-market approach anduses marketing discipline to create demand and preference for Creating lasting and profitable personal customerour services. The Group has also revitalised its brand identity. relationships in all direct, digital and social channels.More details are available at www.communisis.com This involves mission-critical personalised communications:THE NEW PROPOSITION – customer engagement, corporate video communications,SHAPING THE FUTURE specialised content, “transactional” (being billing, statements,OF CUSTOMER cheques and inbound services) and regulatory communications.COMMUNICATION Customer Experience’s clients include Lloyds Banking Group,PURPOSE Centrica, AXA, American Express, Amazon, Scottish Power, BP and HMRC.Clients are facing unprecedented change, whether regulatory,technological or in consumer behaviour. It is the role of “ONE TO MANY” – THE BRAND DEPLOYMENT DIVISIONCommunisis to help them stay ahead of these challenges. Creating activation communications in Retail and Fast Moving Consumer Goods (“FMCG”) channels that motivate consumers to experience and buy brands. Providing brand activation strategy, shopper marketing, marketing supply chain management, fulfilment, logistics and Point Of Sale (“POS”) procurement. Brand Deployment’s clients include Procter & Gamble, Coty, Müller, Heineken, Nokia, Kellogg’s and Bacardi.COMMUNISIS SPECIALISESIN INTEGRATED MARKETINGSERVICES THAT IMPROVECOMMUNICATIONS BETWEENBRANDS AND THEIR CUSTOMERS 9

MARKET DYNAMICS BRAND DEPLOYMENT Market trends previously identified continue to pertain to the Brand Deployment is emerging as a new strategic market, Group as a whole: defined by the realisation that brand owners can outsource marketing execution to managed service providers to deliver outsourcing of incoming and outgoing customer on an international basis. Previously such services had been communication and associated services; in-house and frequently devolved, regionally. At present, managed service providers tend to be focussed by geographic clients reducing the number of service providers: the winners groupings in, say, EMEA, Latin America or the USA but longer being those with scale and a broad range of services; term it is likely that more truly global solutions will be sought. The main product is POS but brand owners are expecting regulation: increasingly important influence on Clients associated services to be provided alongside, for example, in areas such as Financial Services; Premiums, experiential and merchandising. There is an important trend within POS toward more semi-permanent de-regulation: affecting Clients in areas such as Utilities, or permanent displays, sometimes incorporating digital. to encourage switching between providers; This mix is dependent upon geography and relative retail sophistication. the rising importance of customer experience to most Clients; precision marketing through personalised communications; more consistent messaging in global campaigns; and the emphasis being placed on content and the desire to transmit that content by the channel most relevant to the customer. CUSTOMER EXPERIENCE All analogue activities in this Division happen in the UK, the transactional outbound and inbound services needing to be within the postal jurisdiction. Digital can go cross-border and we have taken a first step with the establishment of a small office in New York to offer content marketing to our Client, LinkedIn. By vertical Client segment, observations include: banks – looking to protect market share and promote loyalty. Ring-fencing legislation will create opportunities for Communisis; insurance – % of Insurers’ product investment budgets to be aimed at customer experience. There is tension between the Direct and Aggregator providers; retail – increasing digital influence. Clients’ Marketeers challenged with digital overload; and public sector – more momentum after Government’s Communications Plan for / published with a “Digital by Default” agenda.10

Communisis plc Annual Report and Financial Statements 2016 STRATEGIC REPORTTHREE CLEAR STRATEGIES,CREATING VALUE FOR STAKEHOLDERSGROWTH EFFICIENCY PEOPLEGrow sales organically Optimise direct cost and overhead Attract and retain the best people base, capitalising on synergies Engage, develop and rewardExtend activities to broaden anddeepen the service offering Improve capacity utilisationIncrease international presenceHOW HAVE WE PERFORMED?Good progress was made during the year against all three The business wins in the year further diversify the Groupstrategic initiatives. away from its traditional strength in servicing the Financial Services sector, with FMCG/Retail now represented to a similarGROWTH level. As well as further developing the insurance, healthcare and technology sectors, the recent HMRC contract brings aOur growth strategy will continue to focus on the UK significant move into the public sector. Many of the Group’smarket for transactional communications and marketing largest Clients are leaders in their sectors.execution in overseas territories. Due to the contractual arrangements in place, there isGROW SALES ORGANICALLY good medium-term visibility in the business. The average contract life is currently five years. Many of the contracts areThe following significant contracts have been announced for personalised, business-critical communications, such asin : billing, statements, cheque books and inbound services, or for multi-territory marketing campaigns. As a result of the nature a six-year contract with LV= for the provision of customer of these services, Communisis becomes deeply embedded fulfilment services including document composition, digital with its Clients, with our best relationships taking the form of archiving and transactional output. trusted partnerships. The Group normally negotiates to extend or renew relationships as long as service levels are met, far HMRC for all outbound customer communication. Awarded extending the average contract life. in December for a term of five years with an initial three years and the option of a further two-year extension. EXTEND ACTIVITIES TO BROADEN AND DEEPEN THE Implementation planning is in hand and working towards SERVICE OFFERING a go-live date in mid- . The new structure allows Communisis to provide a visibly a three-year multi-territory agreement with a new global more cohesive service offering to existing and new Clients. healthcare client awarded in May for marketing print For example, the new contract with a global healthcare management provision within EMEA including premiums, brand within our Brand Deployment division draws heavily on POS and shopper/creative insight services. both POS deployment and shopper marketing propositions from that division. Similarly, the new LV= contract spans Sony Europe for a range of customer communication multiple offerings from the Customer Experience division, services including marketing collateral and point-of-sale encompassing transactional print, digital archiving and across Europe. The arrangement went live in October document composition. for a term of three years. 11

Our closeness to Clients, often through having on-site teams EFFICIENCY with Communisis staff sitting alongside Clients’ marketing teams, facilitates the identification and development of new Driving efficient operations will underpin the future opportunities which both grows revenue and improves the success of the Group. range of offering we have to our clients. OPTIMISE DIRECT COST AND OVERHEAD BASE, Several new products and services have been developed CAPITALISING ON SYNERGIES during 6, including: The new two divisional structure adopted in the year has e-UCN, a Communisis patented system which provides allowed for significant efficiencies and cost savings including increased security for our cheque Clients within the Banking a reduction in the size of the corporate office, de-layering sector, with positive initial take-up; and of management and restructuring of the Agency offerings. Further efficiencies have been gained through consolidation investment emphasis on technology to support Client of the Chiswell Street, London office into Little Portland Street, requirements in areas such as Enterprise Content London, outsourcing of non-core activities and a reduction in Management “ECM” and Document Composition software. the overall level of Corporate costs. INCREASE INTERNATIONAL PRESENCE As part of our previously announced initiative to move to a Shared Service operation, we outsourced the majority of With % ( %) of Group revenue now generated our legal function, facilities management and recruitment activity to third party suppliers during the year. In addition, IT overseas, the Group continues to expand and widen development activity formerly performed by our Indian based development team was transferred to a specialist software what has become a successful international footprint. provider, accelerating delivery of Client solutions. New operations for Brand Deployment opened within Through de-layering and restructuring the workforce, the Group has continued to grow while at the same time reducing Dubai during 6, and a third German presence has been headcount and hence further optimising the on-going cost base. established in Berlin to complement our existing operations Total Group employees reduced from , in December in Frankfurt and Düsseldorf. to , by December . Additional Clients continue to be added within the already IMPROVE CAPACITY UTILISATION established European network further extending the Brand Deployment division. This further reduces the risk of Client The Group continues to invest in the automation of processes concentration in any one location and allows for cost in both divisions and has reconfigured the asset base within efficiencies to be leveraged. the transactional area to reduce the amount of leased printing equipment, facilitating a flexible and appropriately geared Our Clients take an increasingly global approach to organisation. Our ability to work in an interconnected manner marketing services and to meet this we continue to assess has improved across our production sites, facilitating the new opportunities both within EMEA and beyond. Extending transfer of work between locations. This allows appropriate into new territories on a “sponsored” basis from brand owners workload balancing and resource management. has facilitated becoming established and profitable in new territories in a much quicker timeframe than we could have The Group is becoming less capital-intensive with future achieved without these valuable Client relationships. We expenditure now largely focussed on technology to support the expect to continue this approach outside EMEA during , delivery of workflow and facilitate multi-channel output as part responding to the needs of our Client base. of our digital strategy. The investment emphasis is on technology to support Client requirements in areas such as ECM and Furthermore, our first presence in the USA market will be Document Composition. established this year through an office in New York. Expected to open by June , it will initially provide content-marketing services to our Client, LinkedIn. We now have people based overseas servicing overseas clients and representing % of our worldwide workforce.12

Communisis plc Annual Report and Financial Statements 2016 STRATEGIC REPORTPEOPLE ENGAGE, DEVELOP AND REWARDWe recognise that our people are an essential and valuable At Communisis we understand that the success of our businesselement in delivering our growth plans and our focus is on strategy is critically dependent upon the involvement of allattracting, retaining and developing the best individuals. employees. We appreciate that employee engagement and wellbeing not only benefits our employees, but also has a directATTRACT AND RETAIN THE BEST PEOPLE impact upon the performance of our business and we seek to achieve that engagement in a number of ways. During we:We communicate our strategic goals to all of our managersand empower them to develop both themselves and those for held information and consultation forums, focus groups andwhom they are responsible through focussed training to ensure internal surveys to listen to our teams;they can best deliver those goals. acted upon that feedback at local and company levels;In we launched the Communisis Academy. This is ouronline learning and development hub which provides all of our used various high-quality digital channels to ensure timelyemployees with access to tools and materials to support their and effective flows of information; andon-going developmental needs. This is a cloud-based system,available / regardless of where our employees are based. developed improved and engaging visual communications to support our digital channels.Our apprenticeship programme continues to grow. This nowencompasses roles available in IT, business administration A healthy and safe working environment is central toand digital marketing. Plans are in place to have apprentices everything we do. We are committed to providing ourover four sites: Liverpool, Edinburgh, Leeds and Andover. employees with a safe place to work combined with excellentIn , we partnered with two additional Apprenticeship occupational health services.training providers in anticipation and preparation for thenew Apprenticeship Levy, which is due to come into effect Our employees also receive regular wellbeing communicationsin May . and have the opportunity to engage in various advice and training initiatives on Wellbeing Days which involve bringingSuccession plans have been reviewed during the year and are experts in to the sites to give advice and guidance on a varietyin place for all senior and business critical roles. of topics. Our aim is to ensure that our people work within an environment which is conducive to good health and wellbeingRecruiting the best talent is critical to our on-going success. and that our programmes and initiatives positively affect ourIn , we implemented a Recruitment Process Outsourcing employees’ lives both inside and outside of work.agreement with Randstad Sourceright. This model hasgone live in Q , and allows us access to best practicerecruitment tools and practices to support our line managersin finding the best people for their teams. In addition, thisapproach will enhance our commitment to diversity andequality during the recruitment process. 13

CREATING VALUE GROUP The segmental reporting is aligned with the Group’s strategic has been a year of solid growth in Group revenue, direction and the way in which the activities are managed. adjusted operating profit and free cash generation with Revenue, operating profit and margins before exceptional significant new business wins to underpin growth plans items are reported in two divisions: Customer Experience into and beyond. and Brand Deployment. Pass Through revenues, being those purchased materials that are passed on to Clients at cost with Total revenue has grown by % to £ . m ( £ . m), no added value, are reported separately, as are unallocated driven by expansion within the international business. Adjusted central costs that support integrated service offerings. operating profit rose % to £ . m as a result of growth in Brand Deployment, including £ . m from favourable exchange Clients can access services either from a single division or on rates. This delivered adjusted diluted earnings per share of an integrated basis across both divisions. The Group’s account management process encourages the delivery of a broader . p, up from . p in , an increase of %. range of services by targeting the Client’s total available market. Higher underlying earnings and lower capital expenditure delivered improving free cash flow of £ . m ( £ . m) with net debt reducing over the year by £ . m to £ . m. INCREASE IN ADJUSTED EARNINGS PER SHARE14

Communisis plc Annual Report and Financial Statements 2016 STRATEGIC REPORTFINANCIAL OVERVIEWRESULTSThe table below is an extract from the Group’s segmental Income Statement with Pass Through further split by operating segment.REVENUE £m £mCustomer ExperiencePass Through . .Total Customer Experience Revenue . .Brand Deployment . .Pass Through . .Total Brand Deployment Revenue . .Total Group Revenue . . . .ADJUSTED PROFIT FROM OPERATIONSCustomer Experience . .Brand Deployment . .Central Costs ( .) ( .)Corporate Costs (.) (.)Adjusted operating profit . .Amortisation of acquired intangibles (.) (.)Profit from operations before exceptional items . .Exceptional items (.) .Net finance costs including revaluation gains/(losses) (.) (.)Profit before tax . .Tax (.) (.)Profit after tax . .Earnings per share .p .pBasic .p .pAdjusted fully diluted . .Adjusted profit before tax (£m) . .Adjusted EBITDA (£m) .% .%Adjusted operating margin (on gross revenue) 15

CUSTOMER EXPERIENCE CENTRAL AND CORPORATE COSTS Gross revenue for the division, including Pass Through, ended Central costs were slightly higher than , driven by increased at £ . m, down from £ . m in , primarily due to investment in technology to support the Group’s growth plans. the continued impact of conversion from print to digital This was offset by reductions in the cost of the plc corporate communication channels, lower agency spend and the office due to a reduced number of executive directors. reduction of £ m of non-margin-generating Pass Through revenue. Volume erosion was seen across transactional print EXCEPTIONAL ITEMS channels although at lower levels than expected, reflecting on-going customer reluctance to migrate completely from In , the Group undertook a number of activities to paper to digital formats. reduce the cost base of the organisation and outsource non-core activities. Total exceptional costs charged in the Adjusted operating profit for the segment at £ . m was year were £ . m, including £ . m associated with efficiency £ . m lower than . A strong performance from the improvements within the production units and restructuring transactional and service units was delivered through within the Agency, PSONA. A further £ . m of the total successful implementation of efficiency and automation charge related to site exit costs at Chiswell Street, London projects, alongside lower than expected volume erosion in and the Bangalore office following the outsourcing of IT transactional. This was offset by lower Cheques and Agency development. In addition £ . m was a non-cash write off profitability. Cheque revenue eroded by %, however this relating to customer relationship assets and certain acquired business unit remains profitable and cash generative. The trade names, offset by a £ . m fair value revaluation release Agency, principally PSONA, and Cross Media Production of contingent consideration in respect of acquisitions in the design activities, experienced a challenging year as marketing former Design segment. budgets came under pressure impacting revenue and margins. The Agency elements of the division were reorganised during In the prior year, the exceptional credit of £ . m principally the year, moving from ten separate business units to four, consisted of a credit of £ . m in respect of the renegotiation delivering a more integrated offering providing Clients with a of the Life Marketing Consultancy Limited (“Life”) acquisition comprehensive value proposition. earn-out agreement, a release of £ . m in respect of a property provision, £ m relating to restructuring activities and BRAND DEPLOYMENT £ . m write off of customer relationship assets. The combined effect of a current year exceptional charge following a prior Gross revenue including Pass Through grew to £ . m from year exceptional credit has resulted in a decrease in basic £ . m during the year, impacted positively by a full year earnings per share from . p to . p, despite an increase of trading in additional countries from and £ . m from in operating results. favourable exchange rates. Non-UK revenue accounted for NET FINANCE COSTS INCLUDING % ( %) of Brand Deployment revenue during . REVALUATION GAINS/(LOSSES) Adjusted operating profit was % higher than at £ . m. Lower year-end foreign currency rates impacted the This included a strong recovery within shopper marketing, revaluation of non-sterling related balances, delivering and a favourable currency translation from overseas profits a positive £ . m profit impact within net finance costs. of £ . m. TAX Growth continued in the principal markets of Germany, Italy and Spain where the initial hub investment is delivering The underlying tax rate in was . % ( . %), rewards as additional Clients are added to the network. Operations in Eastern Europe (Poland and Romania) which is above the UK standard rate due primarily to the delivered improvements on full year impact. In addition, shopper marketing improved profitability due to a significant increasing proportion of profits that are generated in overseas improvement in conversion of new wins and a lower cost base. jurisdictions with higher tax rates. Our new office in Dubai performed well during its inaugural year and is already showing signs of growth. DIVIDEND The Board has proposed a final dividend of . p per share bringing the total dividend for the year to . p per share, an increase of % over . Dividend remains well covered at . times.16

Communisis plc Annual Report and Financial Statements 2016 STRATEGIC REPORTCASH FLOW AND NET DEBTThe table below summarises the cash flows for the year and the closing net debt position.Profit from operations before exceptional items £m £mDepreciation and other non-cash items . .Decrease in working capital . .Pension scheme contributions .Interest and tax (.)Net operating cash flow before exceptional items (.) (.)Exceptional items (.) (.)Net operating cash flow . .Free cash flow (.) (.)Net capital expenditureAcquisition costs included in exceptional items . .Net operating cash flow . .Net capital expenditure . .Investment in new contracts – (.)Acquisition of subsidiary undertaking . .Dividends paidShare issues net of directly attributable expenses (.) (.)Purchase of shares (. ) (.)Revaluation (.)Decrease in bank debt (.) –Opening bank debt (.)Closing bank debt – (.) .Bank debt –Unamortised borrowing costs . (.)Net bank debt . . ( .) ( .)Finance lease creditor ( .) ( .)Promissory loan notesNet debt ( .) ( .) . . ( .) ( .) (. ) (.) (.) (.) ( .) ( .) 17

Generating improving amounts of free cash flow and RESERVES consequent debt reduction has been a priority for the Group, and this has been delivered during with net debt reducing In response to the economic environment and volatility of the by % to £ . m during the year. accounting pension deficit, the Group completed a capital reduction exercise on December which generated Free cash flow continued to improve with £ . m being an additional £ . m of distributable reserves from the former generated in ( £ . m). This was as a result of share premium account, capital redemption reserve and the higher underlying earnings, controlled working capital and a merger reserve. reduction in capital expenditure to £ . m ( £ . m), offset by higher exceptional cash spend of £ . m ( £ . m). NET ASSETS £ . m of the exceptional costs are carried forward as Net assets as at December decreased by £ . m since cash outflows. the prior year. This reduction is due to the adverse movement on the Pension Scheme which, net of tax, reduced net assets Dividends paid to shareholders increased by £ . m to £ . m. by £ . m. Excluding this, the underlying improvement in net assets, after payment of dividends, was £ . m. A net cash inflow of £ . m ( £ . m) was used to reduce net bank debt at the year end to £ . m ( £ . m), KEY PERFORMANCE INDICATORS comfortably within the Group’s facilities of £ m. Average net bank debt during the year was £ . m ( £ . m). As part The key performance indicators, that are commented upon of the facility, Communisis has to comply with a number of individually elsewhere in this Strategic Report, comprise: covenants, including maintaining a multiple of net bank debt to EBITDA and EBITA to net finance costs, both of which were Financial .. in compliance. Adjusted operating profit (£million) .. Adjusted operating margin on gross Net debt ended at £ . m, £ . m lower than the prior revenue (%) .. year. This included £ . m from the favourable conversion of Profit before tax (£million) .. non-sterling denominated balances, delivering an underlying Free cash flow (£million) .. £ . m debt improvement. Banking covenants remain well Net debt (£million) .. covered with significant headroom. Pension accounting deficit (£million) Promissory loan notes of £ . m in respect of the Life RISKS AND UNCERTAINTIES acquisition of January were repaid during January from normal facilities. The Group is subject to a number of risks and uncertainties that bring both challenge and opportunity. The Group’s Bank facilities remain in place until March and the principal risks and uncertainties, together with the mitigating Group will seek renewal of these facilities during . actions, are set out in the Risks and Uncertainties on pages to . PENSIONS CORPORATE SOCIAL RESPONSIBILITY The Pension Scheme accounting deficit at the year-end increased to £ . m ( £ . m). This is primarily due to a The Group embraces corporate social responsibility and our reduction in the year in UK corporate bond yields resulting in policies make Communisis more resilient, more productive and a significant decrease in discount rates from . % to . %, more predictable in performance, whilst delivering economic together with higher inflation assumptions which are used in and environmental benefits to society as a whole. the actuarial calculation of the Pension Scheme liabilities. ANDY BLUNDELL MARK STONER Cash contributions to the Pension Scheme are determined Chief Executive Finance Director by reference to the triennial actuarial valuation, the latest of which was performed as at March , when the deficit March March was £ . m. The contributions paid in towards the accounting deficit were £ . m plus rental payments of £ . m through the Central Asset Reserve arrangement. The next triennial valuation is scheduled for the end of March . For further detail please refer to Note to the Consolidated Financial Statements section of this report.18

Communisis plc Annual Report and Financial Statements 2016 STRATEGIC REPORTCREATING ACTIVATION COMMUNICATIONSIN RETAIL AND FAST MOVING CONSUMERGOODS “FMCG” CHANNELS THATMOTIVATE CONSUMERS TO EXPERIENCEAND BUY BRANDS 19

DELIVERING OUR STRATEGY BY MANAGING RISK To successfully deliver against the Group’s strategic initiatives, VIABILITY STATEMENT we must first understand the risks faced and plan to manage them to an acceptable level. The Group has prepared five-year forecasts of profitability and cash flow as part of the goodwill impairment testing and, OUR APPROACH with average contract lives of five years, the Group has good medium term visibility of the business. Despite this, there will The Board is accountable for ensuring the identification and always be uncertain factors outside the control of Communisis appropriate management of potential risks faced by the and forecasting can never take into account unknown future Group. The internal audit function’s responsibilities include economic, legal or regulatory changes which could impact the overseeing the effectiveness of the internal control environment business and the markets in which it operates. In recognition of the Group and its on-going risk management programme. of this, the Group has produced a viability assessment based This process is designed to identify, evaluate and manage on the three-year period to December , and can confirm the principal risks faced by the business in line with the Group that they have a reasonable expectation that the Group will Risk Policy Statement. Risk management is the extent to which continue to operate and meet its liabilities as they fall due for the Group responds to the opportunities faced, whilst at the the next three years. same time understanding and seeking to control any threats that could prevent the achievement of business objectives and In making this statement the Directors have considered successful execution of the business strategy. forecasts for the next three years, which include the Group’s key financial ratios and cash flows over the period, and formed an The aim of the Group’s risk management programme is opinion over the resilience of the Group. This takes into account therefore to improve the awareness of the consequences of the current position, the principal risks facing the business risk-taking activities, reduce the frequency of damaging events in severe but plausible scenarios, and the effectiveness of occurring and minimise the severity of the consequences if any mitigating actions. This assessment has considered the they do occur. Part of this approach includes operation in line potential impacts of these risks on the business model, future with, or certification to, a number of standards. This helps performance, solvency and liquidity over the three-year period. the business to work to legal, regulatory and contractual The Directors consider the period to December to be requirements using a set of clearly defined frameworks and appropriate as this is in line with the period covered by the management systems. Group’s financial and strategic planning. Clients have shown an increased willingness to enter into longer contractual terms Policy requires that business unit heads demonstrate that they resulting in improved visibility for the Group from a financial conform to the requirements of the Group’s risk management perspective. With more emphasis being placed internally programme. Assessments must be undertaken, risks identified, on identifying and managing pervasive risk, the Directors controls identified and action managed for all activities that are confident that the Group will operate in line with the are identified as being critical to Communisis. During the year, three-year forecasts. 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.20

Communisis plc Annual Report and Financial Statements 2016 STRATEGIC REPORTWhilst the review has considered all the principal risks identifiedin the table overleaf, three have been identified for enhancedstress testing where they are considered to have the mostsignificant plausibility and impact. These are: safeguarding ofdata and cyber risk; response to technological change; andthe loss of major Clients. Testing in isolation was consideredinappropriate, as ultimately the occurrence of a severe dataincident or adverse impact from technological change couldlead to loss of major Clients (either through reputationaldamage or failure to respond to the Client’s progressiveadoption of digital communication channels). From Maythe impact of a data incident may also result in fines fromthe Information Commissioner’s Office, due to General DataProtection Regulation (“GDPR”). The three-year forecasts havetherefore been stress tested by considering these data andtechnological risks and then overlaying the impact of the lossof the Group’s top three Clients.During the period covered by the three-year assessment,the Group’s banking facilities are due for renewal. This is notexpected to present any risk to the viability of the Group andhas not therefore featured within the viability stress testing.Whilst the occurrence of these risks is plausible, the Groupis confident that the mitigating actions detailed in the tableoverleaf are sufficient to minimise the impact. Accordingly,the Board continues to adopt and consider appropriate thegoing concern basis in preparing the Annual Report andFinancial Statements.GOING CONCERNThe Directors, after making enquiries, have a reasonableexpectation that the Group has adequate resources tocontinue in operational existence for the foreseeable future.For this reason, they have adopted the going concern basisin preparing the Financial Statements. 21

RISKS AND UNCERTAINTIES The principal risks and uncertainties facing the business have two years to renegotiate its terms of trading and other are taken directly from the risk registers and are detailed relevant matters with the EU, continued uncertainty about below. The Group faces other risks which are subject to the process, the timing and the consequences of changes regular review and have been assessed as lower risk and makes contingency planning challenging. We therefore aim to are therefore not included here. Some risk factors remain assess items that can result in uncertainty potentially causing beyond the direct control of the Group risk management damage to the business. Where this occurs, a plan will be programme. We can, therefore, only provide reasonable, drawn up to understand the impact and prevent, or at least but not absolute, assurance that key risks are managed to limit, the loss. an acceptable level. The Group continues to monitor the impact of the UK’s decision to exit the EU and other political changes that may affect its operations. Although the UK Government will Risk area Impact Mitigating actions and management The Group Clients’ and their customers’ progressive Continued investment in technology and new must be able adoption of digital formats and channels may services maintains and enhances the Group’s to respond to impact Group strategy and market demand for competitive position. market and products and services. technological Specific teams are embedded within the change The impact is that the systems and equipment business to lead change and innovation. utilised by the Group could be superseded earlier The Group than anticipated by management. The Group is committed to procuring new continues types of technology in order to be able to to pursue The Group now operates in countries ( provide the latest services to Clients and international countries) outside the UK. International therefore maintain its competitive position. expansion exposure to geo-political volatility and social A country Risk Assessment process has been Deterioration in instability may put the Group operations at risk. developed along with Country Management the economic Manuals. environment Movements in foreign exchange rates can may decrease impact the Group’s sterling reported financial Foreign currency balances and cash flow profitability statements. forecasts are regularly reviewed to monitor exposure. Principal exposure is Euro The Group operates in a range of jurisdictions denominated territories. where non-compliance with local laws may expose the company to fines or other restrictions. Advice is sought from expert, in-territory, legal and tax partners. The impact is that macro-economic issues may quickly and detrimentally affect consumer Management review and audits are in place for expenditure, which could impact the trading international territories. performance of the Group’s Clients and reduce their discretionary spend resulting in lower sales Market trends are monitored and factored and profitability. 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.22

Communisis plc Annual Report and Financial Statements 2016 STRATEGIC REPORTRisk area Impact Mitigating actions and managementThe Groupcontinues The Group’s last acquisition was in January The Group has a clear strategy for ensuringto integrate . With the new two divisional structure, the growth and integrating acquisitions. Thisacquisitions to includes assessing the alignment of productsmeet its strategic recent acquisitions are now more integrated and services supported by positive and robustobjectives within the respective divisions with appropriate integration. cost-base control in place. The on-going risk isClients rely non-achievement of the full benefits anticipated During we have adopted a two divisionalupon proven within the business cases. structure with the benefit of reducingresilient business complexity and providing a clearer marketoperations Certain Group operations depend upon the proposition to our Client base. uninterrupted delivery of products and servicesSafeguarding that rely on complex computer networks and A Business Continuity Management (“BCM”)of data and systems. System and BCM plans are in place. These arecyber risk exercised and audited in core areas of The impact is that the Group may face a the Group. significant business continuity incident that will materially affect its ability to deliver products or Key areas of the Group have been integrated services to its Clients, and associated financial penalties. in to ISO/IEC certification. The Group processes personal and sensitive data Continued investment in IT infrastructure, on behalf of Clients as part of its core services. security and monitoring, guards against the inappropriate use of Client data and maintains The impacts are that: and enhances the effectiveness of controls. a failure to maintain a secure and fully Established information and security standards functional IT infrastructure could result in are subject to regular third-party audits. an inability to meet contractual service obligations; and Core areas of the Group are subject to the confidentiality, integrity and availability certification including ISO/IEC . of information processed by the Group could be compromised by human error, systems Alignment with new legislation regarding data failure, equipment malfunction or deliberate protection is well underway. unauthorised action, any of which could result in reputational damage and financial loss. 23

Risk area Impact Mitigating actions and management Talent and skills recruitment and Without learning, development, resource and The Group actively monitors senior leadership retention succession planning, there is a risk that the to ensure motivation is maintained and that Group will be unable to develop, retain and succession plans are in place and applied to Existing Client motivate highly skilled employees that are relevant team members. concentration necessary to support operations, expand and may mean that build Client relationships. The Group has policies and procedures in place the loss of a for training and development. major Client There is also a possible impact to employee could materially morale and well-being from a failure by the Business operational expansion and decrease sales Group to maintain a safe and compliant acquisitions also help to ensure that the Group working environment. has the right skills. Due to high operational The Group provides regular training on gearing, a health and safety for all employees and reduction in monitors performance to ensure compliance revenues could with all relevant regulations and employment significantly laws across all jurisdictions in which the impact Group operates. profitability A substantial percentage of the Group’s revenues A strategic account management programme are derived from a relatively small number of operates to preserve Client relationships, Clients and therefore the loss of one or more of monitor compliance with service level these Clients could have a material impact on agreements and expand the services offered the Group’s sales. This could result in a material to key Clients. decrease in profitability whilst new contracts are sought and excess capacity reduced. Business development activities continue to promote the Group’s services in a broad In the year ended December the top five range of market sectors and into international markets, reducing the historical reliance on the Clients of the Group accounted for approximately financial services sector. % of sales ( %). Long-term Client relationships and associated contractual commitments are developed. The impacts are that the Group will not: The Group’s cost base is regularly reviewed and aligned with projected demand to avoid adapt sufficiently quickly to any technological margin erosion. change or downturn in demand, with a consequent loss of competitiveness and A range of financing facilities are utilised with a profitability; reasonable degree of headroom over projected funding requirements. have adequate resources to invest in new technology and services; Client credit is closely monitored and controlled to minimise the amount of overdue debt. retain its major Client portfolio, without Credit insurance is obtained against larger replacement, or recover debts; and non-financial services sector debts. diversify sufficiently into other market sectors. Working capital and capital expenditure are actively managed to ensure that banking covenants are not breached. Business development activities in a range of sectors have reduced the historic reliance on the financial services sector.24

Communisis plc Annual Report and Financial Statements 2016 STRATEGIC REPORTRisk area Impact Mitigating actions and managementA change in Communisis has continuing obligations under The Group works closely with the PensionPension Scheme a defined benefit Pension Scheme that is now Scheme Trustees to adopt programmesassumptions closed to new entrants. The IAS accounting that optimise returns on Pension Schemecould increase pension deficit was £ million as at December assets, reduce the ultimate pension liabilitiesthe pension and minimise the level of additional cashdeficit and the funding deficit was approximately contributions required to eliminate any deficit. £ m at the same date.Potential lease The next triennial valuation will occur in ,liabilities from The impact is that any changes in assumptions, at which point the future deficit payments willpast disposals such as interest rates, equity returns or discount be agreed to provide certainty of cash flows forcould result in rates could require substantial future cash the Group for the next three years.high cash costs contributions to eliminate any resulting increaseto the Group in the Pension Scheme deficit and therefore Until this valuation is complete, the deficit decrease the Group’s ability to expand the payments agreed in the triennial business through continued investment or to valuation will be maintained. pay dividends to shareholders. The Group has contingent liabilities arising The financial status of the leasehold occupants from lease commitment guarantees on past is monitored on a regular basis. corporate disposals. Action will be taken to minimise the cost to the The principal impact is that current leasehold Group when default is anticipated. occupants may become insolvent and that guarantees will be called, resulting in a material Break clauses are reviewed and exercised cash cost to the Group. where possible. 25

CORPORATE SOCIAL RESPONSIBILITY REPORT Communisis has continued to elevate the level of Corporate Communisis has focused on utilising appropriate recruitment Social Responsibility (“CSR”) internally by improving our processes and techniques to ensure we are able to reach all processes to track sustainable activities that the business has job seekers and is committed to flexible working arrangements been involved in whilst ensuring that we support charitable to assist staff with their work-life balance. organisations and continue to safeguard the future of our business through our graduate training programme. GENDER OUR PEOPLE AND We have a progressive policy towards gender equality. ORGANISATION Whilst we have always taken the view that the most suitable candidate for any role should be the person who is appointed We recruit and retain top quality people who help us to develop to that role, we recognise the benefits that diversity can bring the business and achieve our strategic aims. to any organisation and have embraced that philosophy when making all appointments into the business. Details of how the Company attracts and retains the best Communisis recognises the requirements of the Equality Act people, and engages, develops and rewards its employees (Gender Pay Gap Information) Regulations , and will are contained within the People section of the Strategic Report on page . be reporting in line with the timetables prescribed. DIVERSITY Our newly-implemented recruitment process outsourcing agreement will involve more training and up-skilling for our line We have an on-going commitment to equality and diversity managers to help them support our approach to both diversity and have retained accreditation to the Committed Equality® and gender equality. Standard in . Following an annual audit, our accreditation has improved from Silver to Gold standard. A breakdown by gender of the number of persons who were directors, senior managers and employees of the Group as at December is set out below. BREAKDOWN BY GENDER OF THE NUMBER OF PERSONS WHO WERE DIRECTORS, SENIOR MANAGERS AND EMPLOYEES DIRECTORS SENIOR MANAGERS* ALL EMPLOYEES MALE MALE MALE %( ) %( ) %( ) FEMALE FEMALE FEMALE %( ) %( ) %( ) * The category of senior managers comprises the plc Board members, Executive Board members and individuals who report directly into them.26

Communisis plc Annual Report and Financial Statements 2016 STRATEGIC REPORTSUPPORTING OUR SUPPLIERS During our fundraising and donations amounted to £ , which has been distributed amongst our nominatedOur supply chain is key to the success of Communisis. charities. A further £ , was raised for other local charitiesWe work hand in hand with our suppliers to understand our giving a grand total of £ , .environmental impact and we plan to do more in toestablish a reliable source of data within the supply chain We continued to work with and support The Prince’s Trustthrough the strategic adoption of Ecovadis (a supply chain through , and will be doing so into .management platform) which will give us greater insights intothe businesses that we work with. Our Volunteer Charity Champions represent all the business regions and are passionate to support fundraising events,SUPPORTING OUR PEOPLE engage with other employees, set an example and are key to the success of our endeavours.Our aim is to give our employees rewarding careers that makethe best use of the talents they have and also to equip them for SUSTAINABILITYthe future by providing the opportunity to develop new skills.Most importantly, we want all our employees to feel they work In we established a sustainability forum that is comprisedfor a company that treats them with respect and has values of stakeholders from across the business who can offer insightthey can feel proud of. Our aim is to be the employer of choice and expertise in all areas of the business. The purpose of thefor the best people in our markets. forum is to share best practice, capture our achievements and help shape the future of sustainability within Communisis.SUPPORTING OUR COMMUNITIES We are committed to the development, implementation andWe actively encourage all employees to be socially active and maintenance of an action plan to target improvements in ourparticipate in volunteering activities in the local community. environmental and sustainability performance, in addition toWe support this by allowing a paid volunteer day per employee helping our clients with theirs and to monitoring our progressper year. over time.COMMUNISIS CHARITY ANDVOLUNTEERINGSupport for our nominated charities continued duringwith the proceeds from all fundraising events going to Childrenin Need, Alzheimer’s Society and Macmillan Cancer Support.This arrangement will be reviewed in . 27

HEALTH AND SAFETY KEEPING OUR PEOPLE SAFE Number of reportsWe have made some excellent improvements with the provision of H&S training via our online training portal Our drivers for safety are the prevention of injury and loss. which enables us to provide consistent training throughout We believe that all incidents are preventable and that our the organisation. employees should be free to work in an environment that Our safety culture continues to mature and our programme does not cause them injury nor ill health. of training and knowledge sharing is at the heart of our progress. We have collectively observed and reported , HEALTH, SAFETY AND WELL-BEING hazards during that had the potential to cause harm or POLICY OBJECTIVES injury which is testimony to the focus that our employees have towards creating a safer working environment. In , we were not subject to any regulatory enforcement resulting from any breaches of Health and Safety (“H&S”) HEALTH, SAFETY AND ENVIRONMENTAL OBSERVATION REPORTS legislation. All manufacturing sites maintained their safety management certifications to the externally verified standard During the year we continued our Senior Manager Tour of Occupational Safety and Health Assessment Standard Programme which began in . We achieved % (“OHSAS”) : . attendance on this programme, demonstrating strong leadership from the senior executive team on H&S and All endeavours are made to maintain a legally compliant engagement with the workforce. 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 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. For we enhanced our H&S policy to include well-being for the first time. To help us promote issues of good health amongst our employees, we partnered with our occupational health provider to deliver interactive training days with a focus on the promotion of a healthier life style. These covered topics such as diet, exercise, stress and work-life balance. We are now in the fifth year of running 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.28

Communisis plc Annual Report and Financial Statements 2016 STRATEGIC REPORTIncident by typeHEALTH AND SAFETY PERFORMANCE The Reportable Incident Frequency Rate (“RIFR”) and Lost Time Incident Frequency Rate (“LTIFR”) (referred to previously as Lost Time Accident Frequency Rate (“LTAFR”)) have begun to plateau. In we experienced of these incidents, six of which were reportable under the Reporting of Injuries Diseases and Dangerous Occurrences Regulations (“RIDDOR”). This is shown in the following chart. GROUP HEALTH, SAFETY AND ENVIRONMENTAL PERFORMANCE Lost Work Days Dangerous Occurrence/ Property Damage Near Miss (Incidents) Environmental Incident First Aid Medical Aid Lost Time Accident LTA (> day) RIDDOR (> day)Frequency rate REPORTABLE INCIDENT FREQUENCY RATE AND LOST TIME INCIDENT Both incident frequency rates show a small increase. FREQUENCY RATE However, there continues to be some exceptional H&S performance from the production sites throughout the Group, . with improved performance for Lost Work Days since their . last Lost Time Incident and RIDDOR events. For example, . our facilities at Leeds and Crewe have both recorded over . a year between these types of events. Our site at Newcastle . experienced no injuries during . . . RIFR LTIFR 29

ENVIRONMENT MANAGEMENT SYSTEMS CARBON INTENSITY We now operate ISO : environmental management Carbon intensity is currently measured as the tonnes of systems at all of our production facilities to ensure that we carbon dioxide equivalent (TCO e) emitted per tonne of paper manage our environmental impacts. processed. The operational boundary for energy intensity and performance reporting is limited to operational sites which We have renewed our Forest Stewardship Council (“FSC”) process paper (namely Crewe, Leeds and Liverpool). The and Programme for the Endorsement of Forest Certification operational boundary does not include operations that are (“PEFC”) for the next three years showing our dedication based on third-party sites because carbon data is currently not to sustainable sourcing of the materials we use. available. Data for the Company’s site at Trafford Wharf was previously included in the and figures but this site We operate a greenhouse gas management system which has now closed. In addition, data for the Company’s Telferton enables us to accurately record and report our emissions. site is only available for . The figures below have been This system ensures consistency and transparency in our calculated without the Trafford Wharf and Telferton data in activities and is written to support ISO - : . order to provide a like-for-like comparison of Total Carbon Intensity over the period. ENVIRONMENTAL LEGAL COMPLIANCE Baseline Year Communisis has maintained all of its relevant environmental certifications and operational permits and has not been Average Site .... subject to any improvement, abatement or enforcement Intensity .... notices. We frequently evaluate our compliance against relevant environment legislation through a programme Total Carbon of auditing and review against current legislation. Intensity CARBON REDUCTION COMMITMENT (“CRC”) AND Our carbon intensity for has improved compared to GREENHOUSE GAS (“GHG”) the previous year. This has been achieved by accomplishing several of the objectives that were set in . Objectives Full compliance was achieved with CRC Phase during . relating to carbon intensity and GHG emissions continue to All payments and allowances were made as required. This focus our business in a sustainable manner, whilst others that aspect of our compliance was done in conjunction with were set in such as waste reduction and travel are to be Carbon Credentials Energy Services Limited, our compliance reviewed during . partner, who we employ to provide us with technical support. As part of our obligation to report GHG emissions and our GHG REPORTING continous improvement process we will provide verification of the emissions statements and data made by the Company in We continuously review and modify current reporting practices accordance with ISO - . Our current status is maintained in order to fully meet compliance requirements. Aside from at the top scoring of ‘reasonable assurance’ as verified by our continuous improvement of monitoring and measurement external third-party partner. 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.30

Communisis plc Annual Report and Financial Statements 2016 STRATEGIC REPORTENVIRONMENTAL PERFORMANCE NATURAL RESOURCES CONSUMPTIONMONITORING We recognise that water scarcity and water pollution areBUSINESS IN THE COMMUNITY (“BiTC”) AWARD a major global environmental challenge and we take all practicable steps to ensure that we manage our impactWe continued to participate in the BiTC awards in . Our on these resources with the care that it requires. Watercompany performance was assessed by CSR experts before consumption and waste generation across our operationsbeing placed into an index alongside our contemporaries. are monitored and managed to ensure our environmentalWe are very pleased to have maintained our Silver award for impact is low. which shows that we have emerging maturity of our SUPPLY CHAIN PARTNERSHIPSCSR programmes. We are committed to conducting business responsiblyECOVADIS and seek to ensure that our supply chain operates to those same high standards across all areas of our business. ThisEcovadis is a supply chain management process that allows us includes employment practices, workplace conditions and,to communicate our sustainability performance to our clients more specifically, the prevention of forced, bonded andacross a common platform. This provides us with an externally trafficked labour. This is upheld through the company’sverified score based on our approach to the environment, policies and processes.labour practices and human rights, fair business practices,sustainable procurement and associated KPIs. The Modern Slavery Act has introduced changes in UK law focusing on increasing transparency in supply chains.In we maintained a Silver rating which placed us in the A copy of the Group’s slavery and human trafficking statementtop % of subscribers. can be found on the Company’s website.CARBON DISCLOSURE PROJECT (“CDP”) Corporate responsibility and sustainability continues to be an important part of our supply chain activities, from supplier dueOur climate change programme submission for was diligence through to audit and performance management.completed for both our Company performance and how We also continue to deliver a number of supply chainour supply chain is managed. CDP has updated its scoring orientated sustainability initiatives, for example moving tomethodology for , our two entries were scored ‘A-‘ which box-less envelope supply which has removed the need forclassed us at one of the top levels, the “Leadership” level. around , boxes in . Baseline YearScope ,,,, ,,,,Scope ,Scope , ,, ,Total GrossTCO eThe above table shows the audited and verified data by ourexternal third party partner. This shows that both our Scopeand Scope CO equivalent emissions are reducing as a resultof the various initiatives that our sites are undertaking. 31

GOVERNANCE BOARD OF DIRECTORS AND EXECUTIVE BOARD PETER HICKSON ANDY BLUNDELL MARK STONER Chairman of the Board since Chief Executive Officer since Finance Director and member December and of the of the Board since August . Nomination Committee. Peter is October and member also a member of the Audit and Mark joined Communisis in June Remuneration Committees. of the Board since August . as Divisional Finance Director of Print Sourcing and in was appointed Peter has had senior management Andy joined Communisis in January Managing Director of that division, prior experience with a number of large as Managing Director of Print Sourcing to becoming Group Director, Supply international companies, and previous and became Group Sales Director in Chain and IT in . Prior to joining appointments include Chairman November . He was later appointed Communisis, Mark previously held of Chemring Group PLC, Senior to the Board as Chief Executive Officer finance roles with NASDAQ listed Atmel Independent Director of Harworth designate on August and took in the UK, KPMG, Siemens plc, Rolls Group plc (formerly Coalfield Resources on the role permanently in October Royce Industrial Power Group and Plc), Chairman of Anglian Water Group, British Steel plc. Finance Director of Power Gen plc, . Formerly, Andy was a Managing and Non-Executive Directorships at Director at Bemrose Booth Limited and CURRENT EXTERNAL Kazakhmys PLC, London & Continental a Managing Director at De La Rue plc. DIRECTORSHIPS: Railways Limited, Scottish Power plc, None. Marconi Corporation plc and RAC plc. CURRENT EXTERNAL DIRECTORSHIPS: CURRENT EXTERNAL None. DIRECTORSHIPS: Peter is Chairman and a trustee of Orbis Charitable Trust, the sight saving charity.32

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEDAVID GILBERTSON JANE GRIFFITHS PETER HARRIS HELEN KEAYSIndependent Non-Executive Independent Non-Executive Independent Non-Executive Independent Non-ExecutiveDirector since March Director since May . Director since July Director since August .and Chairman Designate. Jane is also a member of and Senior Independent Helen is also Chair of theDavid is a member of the the Audit, Remuneration Director since May . Remuneration CommitteeAudit, Remuneration and and Nomination Peter is also Chairman and a member of theNomination Committees Committees. of the Audit Committee Audit and Nominationand will become Chairman and a member of the Committees.of the Board and Jane is a marketing Remuneration andNomination Committee professional with over Nomination Committees. Helen has over years’at the close of the years international agency experience in travel, retail,Annual General Meeting. and brand owner experience Peter has years’ financial consumer markets and for global brands across the experience and also has telecoms, with the majorityDavid has more than luxury, financial services, extensive media experience, of her career spent at GE years in specialist IT, telecommunications, having spent the last Capital and Vodafone, retail, travel, hospitality, where she held various seniorbusiness and professional charity, automotive and years in senior finance marketing roles. Previouslyinformation provision, first petrochemicals industry roles in the media sector. Helen was a Non-Executiveas a journalist and editor sectors. Jane is currently He was previously the Director of Majestic Wine plc,and subsequently as leader working as an international Interim Finance Director at Mattioli Woods plc and SKNof companies in public marketing consultant. Centaur Media plc, Interim Holdings Limited.ownership, private equity Jane’s previous roles include Chief Financial Officer ofand private hands. He has a Marketing Director EMERI for Bell Pottinger LLP, CFO of the CURRENT EXTERNALsignificant corporate M&A Christie Manson & Woods Engine Group, and CFO of DIRECTORSHIPS:track record and extensive Limited and Marketing Helen is a Non-Executiveexperience of company Director EMEA for Citibank Entertainment. Prior to Director of Domino’s Pizzagovernance at board level NA. She has also worked that, he was Group Finance Group plc and is also a Lifein both public and private for a number of advertising Director of Capital Radio Trustee of the Shakespearedomains, and of managing agencies including Ogilvy/ plc. Peter has considerable Birthplace Trust.shareholder relations and Ogilvy One in London, experience in UK and UScommunication. David was New York and Korea, Arc listed companies, withformerly CEO of Informa plc. Worldwide London (part of international exposure. the Leo Burnett Group) andCURRENT EXTERNAL TBWA/GGT London, each CURRENT EXTERNALDIRECTORSHIPS: with a seat on the senior DIRECTORSHIPS:David is Senior Independent management team and Peter is Executive DirectorDirector of Tarsus Group as a member of the Board. and Chief Financial Officer ofplc, Chairman of the Next Fifteen CommunicationsConcerto Group and Old CURRENT EXTERNAL Group plc.Street Labs Limited as well DIRECTORSHIPS:as Non-Executive Director None.for Incisive Media (Holdco)Limited. David also hasseveral operational advisoryinterests and is Governor ofWestminster Kingsway Cityand Islington College. 33

COMMITTEES Membership at March Audit Remuneration Nomination Administration u u and Finance* Peter Hickson u u u u u u u David Gilbertson u u u u u u u Peter Harris u u u Helen Keays u u Jane Griffiths u Andy Blundell Mark Stoner u Committee member u Committee chair * Any two directors (one of whom must be the Chairman, the Chief Executive Officer or the Finance Director) EXECUTIVE BOARD The Executive Board is the main operating board of Communisis plc and comprises the following people from across the Group: ANDY BLUNDELL Chief Executive Officer MARK STONER Finance Director ANDREW NEAL Group Human Resources Director SIMON MARSHALL Chief Marketing Officer DAVID HERRIDGE Managing Director – Customer Experience JON WELLINGS Managing Director – Brand Deployment MARK LEWIS Group Shared Services Director34

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEDIRECTORS’ REPORTCommunisis plc (the “Company”) is a company incorporated DIRECTORS AND GOVERNANCEin England and Wales and is listed on the London StockExchange. Its registered office address is Communisis House, The names and biographical details of the directors who holdManston Lane, Leeds LS AH and its registered number office at the date of this report are set out on pages to .is . The directors who served during the year are shown below:The directors present their Annual Report, Financial PETER HICKSONStatements and independent auditor’s report for the year Chairmanended December . ANDY BLUNDELLWith the exception of details of directors’ interests which are Chief Executive Officerset out on page of the Directors’ Remuneration Report, theinformation to be included in the Annual Report and Financial NIGEL HOWES*Statements under LR . . C of the UK Financial Conduct Strategic and Corporate Development DirectorAuthority’s Listing Rules is set out in this Directors’ Report. DAVE RUSHTON*STRATEGIC REPORT Group Managing DirectorSection C of the Companies Act (“the Act”) requires MARK STONERus to present a fair review of the business during the year to Finance Director December and a description of the principal risks JANE GRIFFITHSand uncertainties facing the Company. The review must Non-Executive Directorbe a balanced and comprehensive analysis of both thedevelopment and performance of the Company’s business PETER HARRISduring the financial year, and the position of the Company’s Non-Executive Directorbusiness at the end of the year, consistent with the size andcomplexity of the business. It also requires us to provide HELEN KEAYSdetails of expected future developments in the Group and an Non-Executive Directorindication of the Group’s overseas branches. The StrategicReport can be found on pages to . * Stepped down from the Board on JanuaryRESULTS AND DIVIDENDS Additional information relating to the remuneration and share interests of each director is given in the Directors’The results for the year are shown on page . An interim Remuneration Report on pages to . No director had,dividend of . p per ordinary share was paid on October during or at the end of the year, any material interest in any contract of significance in relation to the Group’s business. . The directors now propose a final dividend of . p perordinary share to be paid on May to shareholders on Details of the directors’ service contracts are set out in thethe register at close of business on April . This makes Directors’ Remuneration Report on page .total dividends for the year of . p per share ( . p). In accordance with the UK Corporate Governance Code, all directors will offer themselves for re-election at the Annual General Meeting (the “AGM”) on May in line with best market practice. The corporate governance statement required by Disclosure and Transparency Rule (“DTR”) 7. . is contained within the Corporate Governance Report on pages to as permitted by DTR . . . 35

RESEARCH AND DEVELOPMENT SHARE CAPITAL Expenditure on research and development in the year was Note to the Consolidated Financial Statements contains £nil ( £nil). details of the changes in issued share capital of the Company during the year. As we support our clients in their digital transformation from print-based communications to multi-channel FINANCIAL RISK MANAGEMENT communications, content management and multi-channel delivery are fundamental building blocks. Disclosures required under paragraph in Schedule of the Large and Medium-sized Companies and Groups (Accounts To this end we completed the implementation of our new and Reports) Regulations have been provided in Note composition platform in the middle of and are now to the Consolidated Financial Statements. moving new and existing clients onto this. Two of our major sales wins in were as a result of this technology. PURCHASE OF OWN SHARES We have released six core Application Programming Interfaces The Directors’ authority to make purchases of the Company’s for clients to quickly connect to our systems, covering shares on its behalf is given by resolution of the shareholders and outbound and inbound multi-channel communications. renewed annually at the Company’s Annual General Meeting. Clients can now send data to us, distribute communications in real-time via any channel, enable us to ingest responses No share buy-backs were undertaken by the Company during via any channel and then notify their Customer Relationship or . However, in March and November the Management system of customer interactions. Communisis plc Employment Benefit Trust acquired , As customer communications become more complex and , shares respectively for a total consideration and diverse, so the tools needed to design and manage of £ , . marketing campaigns also need to evolve. We have carried out significant developments in to improve RESERVES the performance of our campaign management platform adding new configuration features to enable clients to map, In response to the economic environment and volatility of the at a granular level, the allocation of segments and offers to accounting pension deficit, the Group completed a capital artwork, while automatically generating schedules and costs. reduction exercise on December which generated This continues our drive to link our technology solutions to, an additional £ . m of distributable reserves from the share and enhances our creative, data and procurement services premium account, capital redemption reserve and the enabling us to integrate and innovate in line with, client- merger reserve. The changes across the individual reserve specific requirements. balances are detailed further in Note to the Consolidated Financial Statements. The efficiency and resilience of our manufacturing operations is critical and so we continue to invest in our production SHARE OPTION SCHEMES platform. We continue to develop inter-site features which enable us to move work quickly around our operations. Further options were granted during the year under the This enables us to move large portions of client work between Group’s share option schemes. Details of the options sites to free up capacity, upgrade equipment and provide outstanding at year end are given in Note to the support to further internalisation of disaster recovery. We Consolidated Financial Statements. have also developed the automation and visibility of client material management and supply chain which will deliver lean CORPORATE SOCIAL RESPONSIBILITY processes through . The Group’s approach to corporate social responsibility Finally, we continue to expand the technology team, adding is detailed within its report set out on pages to . people with the right digital skill sets while ring-fencing and cultivating existing internal talent. POLITICAL DONATIONS No political expenditure was incurred during the year, nor were any contributions made for political purposes.36

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEEMPLOYMENT POLICY Opportunities are available to disabled employees for training, career development and promotion on the same basis as allCommunisis is committed to the principle of equal employment other employees. Where existing employees become disabled,opportunity for all employees and to providing employees with it is the Group’s policy to provide continuing employmenta work environment free of discrimination and harassment. wherever practicable in the same or an alternative position and to provide appropriate assistance, equipment andEmployment decisions at Communisis are based on facilities for them to carry out the role.candidates’ abilities to match the business needs, jobrequirements and individual qualifications for roles. We are Further details of the way in which we engage with ourcommitted to treating all candidates in a fair and objective employees on matters which affect them and encourage theirmanner, regardless of their age, race, colour, nationality, ethnic involvement and participation in the performance of the Grouporigin, creed, disability, sexual orientation, sex, gender identity, is given on page and on pages to .marital or civil partnership status, parental status, religion,belief or non-belief, social or economic class, employmentstatus, or any other criteria that cannot be shown to beproperly justifiable.MAJOR INTERESTS IN SHARESThe Company was notified under DTR of the following major holdings of voting rights associated with its shares as at the yearend and changes made as at March :Shareholder Voting rights as at % of total issued Voting rights as at % of total issuedRichard Griffiths and controlled undertakings December share capital March share capitalHenderson Group plc ,, . ,, .Majedie Asset Management Limited ,, . ,, .Slater Investments Ltd ,, . ,, . ,, . ,, less than % 37

QUALIFYING THIRD PARTY INDEMNITY ADDITIONAL INFORMATION FOR PROVISION SHAREHOLDERS Article of the Company’s Articles of Association provides The following is additional information required for that, subject to the provisions of the enactments concerning shareholders as a result of the implementation of the companies (which limit the scope of indemnities in favour Takeovers Directive into UK law. of directors), every director, officer and the auditor of the Company is to be indemnified out of the assets of the At December , the Company’s issued share Company against all costs, charges, expenses, losses and capital comprised: 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 Number £ % of total issued qualifying third party indemnity provision within the meaning ,,. share capital of Section of the Act. Ordinary shares ,, The Company also takes out insurance covering claims against of p each the directors or officers of the Company and any subsidiary. This insurance provides coverage in respect of some of the Each share carries one vote with the result that the total voting Company’s liabilities under Article . rights at the same date were , , . FUTURE DEVELOPMENTS The Company is not aware of any agreements between shareholders that may result in restrictions in the transfer Future developments are described in the Strategic Report of shares or voting rights. on pages to . The Company’s issued share capital as at March was GOING CONCERN AND VIABILITY ,,. The Directors’ Going Concern and Viability Statements are Every holder of ordinary shares present in person or by proxy at set out in the Strategic Report on pages to . 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 ANNUAL GENERAL MEETING (“AGM”) every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held. Notice of the AGM to be held on May is contained in a separate document sent, or made available electronically, The Notice of Meeting specifies deadlines for exercising voting to shareholders with this Report and is available on the rights either in person or by proxy in relation to resolutions to Company’s website. be passed at that meeting. All votes, including proxy votes, will be counted and made available as soon as practicable DISCLOSURE OF INFORMATION after the AGM and published on the Company’s website. TO THE AUDITOR In accordance with Section ( ) 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.38

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEThere are no restrictions on the transfer of ordinary shares CONTRACTS WITH SHAREHOLDERSin the Company other than: There are no contracts of significance, or any other contracts the registration of share transfers may be suspended at such between the Company and a controlling shareholder within times and for such periods (not exceeding days in any the meaning of Listing Rule . . R. year) as the directors may determine; SIGNIFICANT SHARE SCHEMES certain restrictions may, from time to time, be imposed by laws and regulations (for example, insider trading laws and The Communisis Employee Benefit Trust holds . % as at market requirements relating to close periods); and March ( . %) of the issued share capital of the the restrictions imposed by the Listing Rules of the Financial Conduct Authority, whereby certain employees of the Company in trust for the benefit of employees of the Group Company require the approval of the Company to deal in the Company’s securities. and their dependants. The voting rights of these shares areA special resolution at a general meeting of the shareholders exercisable by the Trustees.is required to amend the Company’s Articles of Association. GREENHOUSE GAS EMISSIONSDirectors are re-appointed by ordinary resolution at a generalmeeting of the shareholders. The Articles provide that the All disclosures concerning the Group’s greenhouse gasBoard can appoint a director but anyone so appointed must emissions (as required to be disclosed under the Companiesbe elected by an ordinary resolution at the next AGM. At each Act (Strategic Report and Directors’ Report) RegulationsAGM, one-third of the directors previously elected at an AGMmust retire by rotation. Each retiring director who wishes to ) are contained in the Corporate Social Responsibilitycontinue to serve must be re-elected at the meeting. In line with Report forming part of the Strategic Report on pages to .best practice, the Board conducts annual re-elections for alldirectors and will follow this policy at the AGM. CHANGE OF CONTROLDIRECTORS’ AUTHORITIES The Company is party to a number of contracts that could be terminated by the other party in the event of a changeThe directors are authorised under the terms of Section of control of the Company. The Company is also party to aof the Act to issue ordinary shares up to a maximum number of banking agreements that, upon a change of controlaggregate nominal value of £ , , and under the terms of the Company, are terminable by the banks upon provision ofof Section of the Act authorised to issue ordinary shares written notice.in connection with a rights issue up to a maximum aggregatenominal value of £ , , (such amount to be reduced by There are no agreements between the Company and itsany allotments made under the first part of this paragraph). directors or employees providing for additional compensationPursuant to Section of the Act, the directors are also for loss of office or employment (whether through resignation,authorised to allot shares for cash, without first offering them redundancy or otherwise) where such loss of office orto existing shareholders, up to a limit of % of the Company’s employment occurs because of a takeover bid.issued ordinary share capital. This authority also gives thedirectors the power to allot shares for cash in connection with AUDITORa rights issue. The directors will place a resolution before the AGM toBoth these authorities will expire at the Annual General reappoint Ernst & Young LLP as auditor for the ensuing year.Meeting on May , and the directors will seek to havethem renewed at that meeting. Approved by the Board on March and signed on its behalf bySIGNIFICANT INTERESTS SARAH CADDYDirectors’ interests in the share capital of the Company as at Company Secretary March and December are shown in the tableon page . Significant interests in voting rights notified underDTR are shown on page . 39

CORPORATE GOVERNANCE REPORT This Report, with the Directors’ Remuneration Report, The Chairman does not have any other significant describes how the Board applies the principles of the UK commitments in addition to those detailed in his biography. Corporate Governance Code issued by the Financial Reporting Council, which is publicly available at www.frc.org.uk/ CONFLICTS OF INTERESTS Our-Work/Publications/Corporate-Governance/UK-Corporate- Governance-Code- .pdf The Company’s Articles of Association contain provisions permitting directors to take up any position that conflicts, UK CORPORATE GOVERNANCE CODE or may possibly conflict, with the interests of the Company COMPLIANCE provided those directors have sought authorisation from the Board before doing so. All existing external appointments for During the year under review, the Company has complied with each director have been authorised by the Board and a register the main provisions of the UK Corporate Governance Code of interests is kept and reviewed on a regular basis. All directors (the “Code”). have been made aware of the need to consult the Company Secretary about any possible conflicts which may arise, so that BOARD STRUCTURE prior consideration can be given by the Board to whether or not such conflict will be authorised. The Board currently comprises the Chairman, two executive directors and four independent non-executive directors. David BOARD PROCEEDINGS Gilbertson was appointed as an independent Non-Executive Director from March and will take over as Chairman at The Board schedules eight or nine meetings each year, and the close of the Annual General Meeting (the “AGM”) on May also meets at other times as appropriate. During there were eight scheduled meetings and two ad hoc meetings when Peter Hickson steps down from the Board. On (some of which were conducted by telephone). The table January Dave Rushton and Nigel Howes, both of whom opposite shows the attendances of each director at meetings were Executive Directors, stepped down from the Board. of the Board and its standing committees during the year. Details of membership of committees are set out on page . The roles and responsibilities of the Chairman and Chief Executive Officer are set out in separate documents outlining The Company has adopted a schedule of matters reserved for their respective roles. The Chairman’s role fulfils a number of Board approval which is reviewed annually and includes: objectives including ethical leadership of the Board, ensuring the Board agenda focuses on strategy, value creation, strategy; performance and accountability, appropriate identification and supervision of significant risks, effective communication budget approval and monitoring of performance; with shareholders and that the Board as a whole acts efficiently in delivering the agreed strategies. acquisitions and disposals; The Chief Executive Officer is responsible for operational approval of the annual report, interim, preliminary and other management of the Group, leading the development and market updates on the Company’s performance; implementation of strategy, setting and monitoring of budgets and other financial objectives, organisational structure and approval of significant contracts; and setting and delivery of objectives of direct reports, all for consideration by the Board. approval of Group policies. Consistent with their role as part of a unitary board, the The Company ensures that the Board is supplied with non-executive directors constructively challenge and help appropriate and timely information to enable it to discharge develop Company proposals on strategy. They also test the its duties. Directors may seek independent professional advice integrity of financial information, ensure financial controls if necessary, at the expense of the Company. All directors have are appropriate and robust, determine appropriate levels access to the services of the Company Secretary. of remuneration for executive directors and have a pivotal role in succession planning. During the year under review the Chairman held meetings with the non-executive directors in the absence of the Biographical details of the Board as at the date of this report executive directors to discuss a range of issues including can be found on pages to . strategy, financial performance, progress towards targets, management performance and management succession.40

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCERE-ELECTION INDUCTION AND DEVELOPMENTIn accordance with the Code recommendation, all members A formal and comprehensive induction process is in placeof the Board will be submitting themselves for re-election at for new directors, which includes an information pack andthis year’s AGM to be held on May , with the exception personalised induction programme. This programme isof David Gilbertson who will be standing for election and tailored to the needs of each director and agreed with himPeter Hickson who will step down from the Board at the close or her so that he or she can gain a better understandingof the AGM. of the Company.As a result of consideration of the directors’ input throughout David Gilbertson, further to his appointment on Marchthe year and the Board Evaluation process referred to , is currently undergoing a formal and comprehensivebelow, the Board is satisfied that all the directors continueto demonstrate the level of skills and commitment to be fully induction including meetings with the Executive Board, as welleffective in their respective roles as members of the Board. as site tours and meetings with senior management at the Company’s main operating sites.NON-EXECUTIVE DIRECTORINDEPENDENCE In order to ensure that directors continue to further their understanding of the issues facing the Company, presentationsHaving considered the criteria for independence within the are made to the Board on key topics throughout the year. ThisCode, the Board is satisfied that Jane Griffiths, Peter Harris and gives the directors the opportunity to meet the managementHelen Keays remain independent and that David Gilbertson teams across the Group and improve their knowledge andwas independent upon appointment. understanding of the different areas of the Group. The directors also receive a regular brief 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. During the directors and senior management team received training on the legislation and requirements of senior management and board directors in relation to health and safety.ATTENDANCE BY DIRECTORS AT MEETINGS OF THE BOARD AND COMMITTEES IN Board Audit Remuneration Nomination Administration ( meetings) ( meetings) ( meetings) ( meetings) and Finance ( meetings)¹Peter Hickson –Andy Blundell –––Nigel Howes ––––Dave Rushton ––––Mark Stoner –––Jane Griffiths –Peter Harris –Helen Keays –. 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 Officer or Finance Director.. Nigel Howes and Dave Rushton stepped down from the Board on January . 41

BOARD EVALUATION Peter Harris and Peter Hickson are assessed as having the required recent and relevant financial expertise required by the A Board performance evaluation is conducted annually with Committee. All appointments to the Committee are made by the most recent being December . The evaluation process the Board, which considers the required balance of skills and was based on a questionnaire devised for the purpose and expertise required for the Committee. circulated to the directors. The performance of the Board as a whole and of each of its principal Committees was The Committee meets as required but not less than three times considered and included issues such as: the assessment a year. Three meetings were held during . It also meets and monitoring of the Group’s strategy and risks; the mix of in the absence of management for discussions with the knowledge and skills on the Board; processes and procedures; external auditor and in the absence of the external auditor oversight; ethics and compliance. The results were collated by when undertaking its annual appraisal of the performance the Company Secretary and reviewed by the Chairman who of the auditor. reported significant themes to the Board for consideration and discussion. Given the anticipated appointment of a new The Committee’s primary function is to oversee and manage Chairman at the time the review was conducted, the Board the appointment of and relationship with the Group’s external agreed that it was inappropriate to finalise its objectives for auditor and to monitor and review the activities of the internal audit function to ensure appropriately robust and defensible without the new Chairman’s input. The objectives for financial controls are in place and are adhered to. will be disclosed in the Annual Report. The evaluation process for is planned for the fourth quarter of the year. The Committee is provided with sufficient resources to undertake its duties, has access to the Company Secretary, who BOARD COMMITTEES acts as secretary to the Committee, and all other employees. It may also take independent legal or professional advice at the The Board has four Committees: Audit, Remuneration, expense of the Group when it believes it is necessary. Nomination and Administration and Finance, all of which have terms of reference which are reviewed annually and The Audit Committee Report is set out on pages to . deal specifically with their authorities and duties. The terms of reference may be viewed on the Company’s website. NOMINATION COMMITTEE Only the Committee chair and Committee members are The composition of the Nomination Committee during the entitled to be present at the Audit, Remuneration and year was: Nomination Committee meetings but others may attend by invitation. Peter Hickson (Chair); AUDIT COMMITTEE Jane Griffiths; During the year, the Audit Committee comprised: Peter Harris; and Peter Harris (Chair); Helen Keays Peter Hickson; David Gilbertson became a member of the Nomination Committee on March and will become Chairman of the Jane Griffiths; and Committee at the conclusion of the AGM. Helen Keays. Committee appointments are made by the Board. The Committee is provided with sufficient resources to undertake David Gilbertson became a member of the Audit Committee its duties, has access to the Company Secretary, who acts as on March . 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 Committee meets as required, but has at least two scheduled meetings throughout the year. Three meetings were held throughout .42

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEThe main roles and responsibilities of the Committee are to: The Board recognises the benefits to the Group of diversity in the workforce and in the composition of the Board itself. review the composition of the Board and make Whilst the Company will always make appointments based recommendations to the Board of any changes needed; on the best candidate for the role, it does seek to follow the recommendations within the Davies Report and the Code. consider, at the request of the Board or the Chairman, In female directors accounted for % of the Board the making of any appointment or re-appointment, composition. More details on diversity and gender across the to the Board; Group can be found on page . evaluate the skills, knowledge and experience of the REMUNERATION COMMITTEE Board and, taking these into account, prepare a description of the role and capabilities required for a particular Details of the Remuneration Committee are set out in the appointment; and Directors’ Remuneration Report on pages to . identify and nominate, for Board approval, candidates to fill ADMINISTRATION AND FINANCE COMMITTEE any Board vacancies. The Committee comprises any two directors, one of whomAs part of its role to review the composition of the Board, must be the Chairman, the Chief Executive Officer or thethe Nomination Committee recommended the appointment Finance Director. It may appoint its own Chairman and it meetsof a new non-executive director who would also replace when necessary.Peter Hickson as Chairman of the Board and Chairman ofthe Nomination Committee at the close of the AGM. It is empowered by the Board to:The Nomination Committee evaluated the balance of skills,experience, independence and knowledge of the Board administer the Company’s share schemes in accordancebefore preparing a detailed candidate specification, which with the Board’s policy (and any specific decisions of thedefined the criteria for the new appointee, in particular, Remuneration Committee that concern participation bylooking for a candidate with the relevant skills to take on directors and/or senior employees);the roles of Chairman of the Board and Chairman of theNomination Committee. The specification was agreed by the borrow money (by entering into new or replacementNomination Committee. facilities) needed by the business, enter into finance leases and operate existing banking facilities (within the limit set byIn accordance with the requirements of the specification, an the Group’s borrowing facilities immediately before takingindependent external search agency (Warren Partners) was action and subject to a transaction limit of £ m); andengaged to assist with the search for suitable candidates.Warren Partners have no other connection with the company. enter into guarantees or indemnities where they are aA short-list of potential candidates was produced and these necessary incidental of the exercise of the powers above.were interviewed by the Senior Independent Director, Chairof the Nomination Committee and Group Human ResourcesDirector. The final candidates were then interviewed by theother non-executive directors. Following those interviews, thefinal candidate was selected and then met by the executivedirectors. David Gilbertson was selected as Non-ExecutiveDirector for his extensive knowledge and experience in relevantindustry sectors and suitability to take over as Chairman ofthe Board and Nomination Committee when Peter Hicksonsteps down at the AGM on May . Peter Hickson wasnot involved in the final decision on the appointment of hisupcoming successor. 43

INTERNAL CONTROL AND RISK RELATIONS WITH SHAREHOLDERS MANAGEMENT An important role of the Board is to represent and promote the The Board is responsible for maintaining a sound system of interests of its shareholders as well as being accountable to internal control in the Group and reviewing the effectiveness them for the performance and activities of the Company. of financial, operational and compliance controls. The Board believes it is very important to engage with its This system is designed to provide assurance to the Group’s shareholders and its main channel of communication to objectives of reliable financial reporting, operational institutional investors is through the Chief Executive Officer effectiveness and efficiency, compliance with laws, regulations and Finance Director via investor roadshows, broker organised and policies and the safeguarding of assets. The system aims conferences, face-to-face meetings and the AGM. to manage, rather than eliminate, the risk of failure to achieve business objectives. By its nature, it provides reasonable, but The Company is a member of the Quoted Companies Alliance not absolute, assurance against material misstatement or loss. (“QCA”), which enhances access to leading small and mid-cap investors and helps the Company better understand their key The Group has an independent internal audit function which criteria in making investment decisions. has a direct line of communication to the Audit Committee Chair. The principal role in fulfilling the internal audit function Following the Company’s preliminary and interim results is to review the adequacy and effectiveness of the controls announcements, presentations are made to analysts and operating within the business by undertaking an agreed major shareholders to update them on the progress the schedule of independent audits each year. The nature and Company has made towards its strategic objectives and invite scope of this annual audit programme is reviewed in advance them to ask questions. by the Audit Committee each year and may be updated from time to time according to changing business circumstances Full details on results presentations, RNS releases and trading and requirements. The findings of these audits are reported updates are available on the Company’s website. in accordance with the internal audit terms of reference and any necessary corrective actions are agreed and monitored. In Andy Blundell utilised internet video channels via the Summaries of these reports are presented to, and discussed Proactive Investor website to extend links to investors; he also with, the Audit Committee along with details of progress presented at the Capital Conference in London. against action plans as appropriate. The Chairman and Senior Independent Director are also The Board has overall accountability for ensuring that risks are available to speak with major shareholders and brief the Board effectively managed across the Group. In addition, the internal to ensure that they are aware of the views of shareholders. audit function within the Group also has responsibilities for the Risk Management programme. A summary of this process Additionally the retail market has been kept in focus with is provided as part of the Viability Statement on pages to . direct communication and through intermediaries (private client brokers). On behalf of the Board, the Audit Committee regularly reviews the effectiveness of the Group’s system of internal control Information in relation to those who have a significant direct and risk management. These results are reported to, and or indirect holding in the Company are set out in the Directors’ considered by, the Board. Report on page .44

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEGENDER DIVERSITYDetails of the proportions of male and female employeeson the Board, in senior management positions and in theorganisation as a whole are provided in the Corporate SocialResponsibility Report on page .STRUCTURE OF COMPANY’S CAPITALDetails of the structure of the Company’s capital are set outin the Directors’ Report on pages to .Approved by the Board on March and signed on itsbehalf bySARAH CADDYCompany Secretary 45

AUDIT COMMITTEE REPORT ANNUAL STATEMENT BY THE CHAIR The internal and external audit plans are set and approved in OF THE AUDIT COMMITTEE the context of a developing assurance reporting process and are flexed to deal with any changes with respect to the risk The Committee has continued to perform its duties in respect profile of the Group. of its terms of reference, a copy of which is available on the Company’s website. The Group’s internal audit function reports independently and directly to the Audit Committee Chair and maintains regular Three meetings were held during the year, two of which were communication outside of the scheduled Committee meetings. scheduled to coincide with the Board’s review and approval of the Group’s Interim Statement and of its Preliminary Results RISK MANAGEMENT announcement based on the Annual Report and Financial Statements. Attendance records of the meetings held during The Group has an established Risk Management programme, the year can be found on page . details of which are provided in the Strategic Report and Corporate Governance sections. ROLE AND RESPONSIBILITIES During the year, the Committee has considered Group Risks, The key activities and responsibilities of the Committee have reviewed the effectiveness of the internal audit function, been to review and challenge, where necessary: assessed fraud, whistleblowing and anti-bribery measures across the business and also considered the requirements of the the effectiveness of the Group’s internal audit function and Modern Slavery Act. A copy of the Group’s Slavery And Human Risk Management programme; Trafficking Statement can be found on the Company’s website. the financial reporting process, including the adoption The Committee also focused on health, safety, environment, of critical accounting policies and practices; and information security which involved reviewing internal controls and challenging how risks are appropriately the independence and effectiveness of the external auditor; managed. The potential impact of exit from the European Union was also considered in the context of the Group’s the Group’s procedures and arrangements for handling any strategic risks. allegations from whistleblowers; and SIGNIFICANT MATTERS RELATED TO THE to report to the Board any action required if a material cause FINANCIAL STATEMENTS for concern, or scope for improvement, is discovered. The Committee assesses whether suitable accounting policies COMPOSITION have been adopted, and appropriate estimates and judgments have been made, based upon a review of accounting papers The Committee is composed entirely of non-executive directors which have been prepared by management providing details and is chaired by Peter Harris. The other members of the of significant financial reporting issues, together with reports Committee are Peter Hickson, Jane Griffiths, Helen Keays and from the external auditor prepared in contemplation of the David Gilbertson who joined the Board on March . interim and full-year results. Any issues arising are discussed The relevant experience of each member is described with the external auditor together with any other matters on pages to . which the auditor wishes to bring to the Committee’s attention. INTERNAL AUDIT AND CONTROL In , such issues included revenue recognition, re-segmentation, capital reductions, goodwill impairment, The Group’s system of operational and internal financial internal controls and exceptional items. control is subject to regular internal and external audits including those conducted on behalf of clients under Of the matters considered during the year the most significant contractual arrangements. were revenue recognition, goodwill valuation, accounting for re-segmentation and management override: There were separate audits completed during . 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.46

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCE the Committee continued to monitor the established EXTERNAL AUDIT Group policies for revenue recognition to ensure that they remained appropriate, robust and were consistently applied, The Committee has responsibility for making a particularly in circumstances where revenue recognition was recommendation on the appointment, re-appointment driven by the percentage completion of individual contracts and removal of the external auditor. The external auditor’s or where other judgments were made in allocating revenue appointment is reviewed periodically and the lead audit between periods. The Committee also discussed the issue partner is rotated at least once every five years. Ernst & Young with management relating to the application of these LLP has been the Group’s external auditor since September policies and by reviewing reports from the external auditor on the nature and results of the audit tests undertaken; , when the last audit tender took place. The current audit partner has completed five annual audits. recoverability of goodwill is reviewed on an on-going basis and an assessment of whether any impairment of goodwill The Committee is aware of the EU mandated requirement is required is performed at least annually, and at the point for auditor rotation and will monitor any legal or regulatory of re-segmentation during the year. The principal judgments developments. There is no present intention to conduct an relate to the assumptions underlying the calculation of the audit tender. value in use of the segmental businesses, primarily whether the long-term plans are achievable, the reasonableness The Committee reviews reports from Ernst & Young LLP as part of the overall macro-economic factors that underlie the of the annual audit process. These cover the scope, approach valuation process and the suitability of the discount rate and results of the external audit and include the procedures used to determine the present value of future cash flows. The adopted for safeguarding the firm’s independence and Committee assessed this issue by considering management objectivity. The quality and content of these reports, together prepared papers and by reviewing reports from the external with the performance and behaviour of the audit teams during auditor both of which describe the supporting methodology, the exercise of their duties, inform the Committee’s assessment the rationale and support for the key assumptions in of audit effectiveness. the context of market comparators and the associated sensitivities. The Committee’s conclusion was that a goodwill The external auditor meets privately with the Committee impairment was not required; after each meeting without any member of the executive management team being present. the committee reviewed the re-segmentation performed during . This included assessing the internal reporting The Committee has an established policy for determining the under the new segments, the re-allocation and subsequent non-audit services that the external auditor can provide and the valuation of goodwill and the appropriateness of disclosures procedures required for pre-approval of any such engagement. in the Annual Report and Accounts. The committee are This allows the Committee to satisfy itself that auditor objectivity satisfied that the changes for the re-segmentation have and independence are safeguarded. The split between audit been appropriately accounted for and reported in line and non-audit fees for the year to December and the with IFRS operating segments and that the goodwill has nature of the non-audit services provided appear in Note . to been accurately and appropriately allocated to the new the Consolidated Financial Statements. Non-audit fees totalled business segments. £ , in respect of other assurance services provided during the external auditors highlighted the issue of fraud and . Given the type of non-audit services provided and at % management override as a risk on the basis there are of the external audit fee of £ , , they are not considered by pressures upon all public companies to achieve market the Committee to be of a nature or at a level that compromises consensus view in respect of certain targets, which may be the objectivity and independence of the external auditor. subject to judgment, estimation or manipulation to present an improved operating result. The Committee has reviewed Upon the recommendation of the Committee, Ernst & Young all such areas in conjunction with the external auditors and LLP will be proposed for re-appointment as auditor by are satisfied that appropriate policies have been followed shareholders at the AGM on May . and that appropriate disclosures have been included in the Annual Report and Financial Statements. PETER HARRIS Chair of the Audit CommitteeThe key areas of focus during include readiness for theGeneral Data Protection Requirements which are effective from MarchMay and the future implementation of new InternationalFinancial Reporting Standards in respect of revenue fromcustomer contracts and lease accounting. 47

STATEMENT OF DIRECTORS’ RESPONSIBILITIES GROUP FINANCIAL STATEMENTS PARENT COMPANY FINANCIAL PREPARED UNDER IFRS STATEMENTS PREPARED UNDER UK GAAP The directors are responsible for preparing the Annual Report The directors are responsible for preparing the Parent and Financial Statements in accordance with applicable law Company Financial Statements in accordance with applicable and regulations. United Kingdom law and regulations. Company law requires the directors to prepare financial Company law requires the directors to prepare Financial statements for each financial year. Under that law, the Statements for each financial year. Under that law, the directors directors have prepared the Group Financial Statements in have elected to prepare the Financial Statements in accordance accordance with International Financial Reporting Standards with United Kingdom Generally Accepted Accounting Practice (“IFRS”) as adopted by the European Union (“EU”). Under (United Kingdom Accounting Standards and applicable law). company law, the directors must not approve the financial Under company law, the directors must not approve the statements unless they are satisfied that they give a true and Financial Statements unless they are satisfied that they give fair view of the state of the affairs of the Group and of the profit a true and fair view of the state of affairs of the Company and or loss of the Group for that period. of the profit and loss of the Company for that period. In preparing these Financial Statements, the directors are In preparing these Financial Statements, the directors are required to: required to: select suitable accounting policies and apply them select suitable accounting policies and then apply consistently; them consistently; make judgments and estimates that are reasonable and make judgments and estimates that are reasonable prudent; and prudent; state whether IFRS as adopted by the EU has been followed, state whether applicable UK accounting standards have subject to any material departures disclosed and explained been followed, subject to any material departures disclosed in the Group financial statements; and and explained in the Financial Statements; and prepare the Financial Statements on a going concern basis prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Group will unless they consider that to be inappropriate. continue in business. The directors are responsible for keeping proper accounting The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s records, which show and explain the Group’s transactions and transactions and disclose with reasonable accuracy, at disclose with reasonable accuracy, at any time, the financial any time, the financial position of the Company and enable position of the Group and enable them to ensure that the them to ensure that the Financial Statements comply with Financial Statements comply with the Companies Act the Companies Act . They are also responsible for and Article of the International Accounting Standards (“IAS”) safeguarding the assets of the Company and hence for taking Regulation. They are also responsible for safeguarding the reasonable steps for the prevention and detection of fraud and assets of the Group and hence for taking reasonable steps for other irregularities. 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 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules.48

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEDIRECTORS’ RESPONSIBILITYSTATEMENTS PURSUANT TO DTREach of us, for himself or herself and on behalf of each otherdirector who held office on December , 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 of the Companies Act ,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 considerthat the Annual Report and Financial Statements, taken asa whole, is fair, balanced and understandable and providesthe information necessary for shareholders to assess theCompany’s performance, business model and strategy.By order of the Board.ANDY BLUNDELLChief Executive Officer MarchMARK STONERFinance Director March 49

DIRECTORS’ REMUNERATION REPORT ANNUAL LETTER FROM REMUNERATION IN THE CHAIR OF THE REMUNERATION COMMITTEE Along with many other listed companies, our first three- year Directors’ Remuneration Policy was approved by our Dear Shareholder shareholders in and as this three-year authority is now expiring, we are required to seek our shareholders’ authority I am pleased to present the Directors’ Remuneration Report for a new Directors’ Remuneration Policy at our AGM. for the year end December on behalf of the Board. The policy to be proposed at the AGM contains a high This Remuneration Report is split into three sections: degree of consistency with the Company’s previous policy: this letter introducing the Directors’ Remuneration Report; no increases to the potential quantum of Executive Directors’ remuneration are proposed; the new Directors’ Remuneration Policy; and within the policy, each element of remuneration contains the Annual Report on Remuneration. an appropriate “cap”, none of which have been increased from the previous policy (and which are simply caps to REMUNERATION IN comply with the regulations and do not reflect an aspiration in any way); As more fully detailed in our Strategic Report, was a year of continued progress for Communisis despite challenging within the annual bonus we have retained the current trading conditions in a number of our markets. As a maximum opportunity of % of base salary per annum. consequence of this performance and the related growth in The precise metrics for the annual bonus will be set each year profits, the Committee was pleased to approve the payment of in line with strategic priorities. For , the annual bonus annual bonuses for , albeit at broadly threshold levels for will be based on a mix of demanding adjusted EBIT targets, our Executive Directors for ( % of base salary) and was Free Cash Flow and personal targets. The Committee will pleased to approve the vesting of part of the Long-Term also apply a holistic overview of Group performance before Incentive Plan (“LTIP”) award ( . % vesting). approving any annual bonus pay-outs to Executive Directors; The Committee also undertook the following actions in : the current LTIP was first established at the Company’s AGM and the original -year authority to operate this plan base salaries were reviewed for Executive Directors as part which was given by our shareholders expires in . Having of the normal, annual review of company-wide salaries. reviewed the LTIP, the Committee believes it is still “fit for In line with the normal levels of increases made to all staff, purpose” for the Company, having been updated for various Executive Directors’ salaries were increased by . % from best practice features throughout the last years, including malus and clawback provisions. Accordingly, the Committee July ; is proposing that at the same time as proposing a new Directors’ Remuneration Policy, the Company’s authority to as disclosed in the Directors’ Remuneration Report, operate its LTIP should also be renewed; the base Non-Executive Directors’ fees for Peter Harris and Helen Keays were increased from £ , to £ , with as a smaller quoted company, the Company’s ability to make effect from the AGM; LTIP awards in any year will always be judged in the light of considerations of affordability and overall shareholder further LTIP awards were made to Executive Directors dilution. In the Company is proposing to make further on March ; and LTIP awards to its Executive Directors. The awards for will have performance measures which are weighted % to the treatments of remuneration items for the two executive growth in adjusted basic Earnings per Share (“EPS”) and % directors who stepped down from our board on January to absolute growth in Total Shareholder Return (“TSR”); and (Nigel Howes and Dave Rushton) were determined as at the same time as renewing its LTIP, Share Ownership more fully described on page of this report. Guidelines for Executive Directors at % of base salary will be introduced.50