Communisis 2016 AGM

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEIn preparing the policy for approval at the AGM, theCommittee carried out a review of the policy during the courseof . Whilst the conclusion from this review was that thereshould be no material changes to the policy at the currenttime, the Committee intends to keep the policy under reviewin . This is to ensure that the policy remains the mostappropriate to support Communisis’ overall business strategyas the Company develops further in , and at the sametime to consider further any developments in market practiceregarding the remuneration structures which listed companiesmay apply, following the work of the Executive RemunerationWorking Group and the UK government’s on-going widerreview of corporate governance. Should the Company wishto make further changes to the policy in , the Companywould expect to consult its major shareholders in advanceof doing so.For completeness, and whilst not solely an item for Directors’remuneration, the Company’s -year authority to operate itsall-employee tax-advantaged Sharesave Scheme will expirein . Accordingly, a resolution will be proposed at theAGM to ask shareholders for authority to allow Communisisto operate this plan for a further -year period.SHAREHOLDER APPROVALAt the AGM on May , shareholders will beasked to approve four resolutions related to directors’remuneration matters: to approve the new Directors’ Remuneration Policy; to approve the Directors’ Remuneration Report (excluding the Directors’ Remuneration Policy); to approve the renewal of the Communisis LTIP; and to approve the renewal of the Communisis Sharesave Scheme.I very much hope that you will support these resolutions atour AGM. I will be available at the meeting to answerany questions about the work of the Committee.Yours sincerelyHELEN KEAYSChair, Remuneration Committee March 51

INTRODUCTION This report contains the material required to be set out as the Directors’ Remuneration Report for the purposes of Part of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations , which amended The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations (“the DRR Regulations”). The first part represents the Directors’ Remuneration Policy. This policy will take effect, subject to the approval of the shareholders, immediately after the AGM. The second part constitutes the Annual Report on Remuneration. DIRECTORS’ REMUNERATION POLICY OUR NEW REMUNERATION POLICY Remuneration for Executive Directors will continue to comprise the following elements: FIXED PAY VARIABLE PAY BASE ANNUAL LONG-TERM TOTAL SALARY PERFORMANCE INCENTIVES REMUNERATION BONUS + + + + =PENSION BENEFITS52

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEThe Directors’ Remuneration Policy as set out in this section of the Directors’ Remuneration Report will, if approvedby shareholders, take effect for all payments made to Directors from the date of the AGM on May .Element and Policy Operation and Performance Changes frompurpose opportunity measures previous policyBase salary No changes.This is the core element Base salaries are reviewed Any salary increases in the N/A No changes.of pay that reflects the periodically against companies policy period will be madeindividual’s role and of similar size and complexity, following consideration ofposition within the Group and any salary increases are business performance and,and reflects capability and applied in line with the outcome as a cap, no increase will takecontribution. of the relevant review with an Executive Director’s salary effect from July in a financial above the median salary for year. Base salaries are paid Chief Executives in the FTSE monthly in cash. SmallCap plus %, determined using data available to the Committee at that time.PensionTo provide market Provide a competitive employer Pension contributions N/Acompetitive levels of sponsored pension plan. are set at a maximum level ofretirement benefits. Pension contributions are paid % of base salary per annum. in relation to membership of the defined contribution section of the Communisis Pension Plan, as a salary supplement in lieu of pension contributions, or as a Company contribution to personal pension arrangements. 53

Element and Policy Operation and Performance Changes from purpose opportunity measures previous policy Benefits To aid retention and Benefits comprise private In any year the values of N/A No changes on general remain competitive within medical cover, car or car benefits for Executive Directors benefits. the marketplace. allowance provision and may vary in line with the cost of fuel card. providing insurance and other benefits without the Committee The Committee reserves the taking action. ability to introduce new benefits where it concludes that it is in A limit on the maximum cash the interests of Communisis value of all benefits has been to do so, having regard to the set at £ , per annum particular circumstances and to for each Executive Director. market practice, provided that Actual levels of benefits will the maximum aggregate value be disclosed each year in the of all benefits in a year will not “single figure” table. exceed the maximum amount stated in this table. Annual performance bonus To motivate employees Bonus levels and the The Committee will not set a The performance measures No changes. and incentivise delivery appropriateness of measures maximum annual bonus level applied may be financial of annual performance are reviewed annually at in excess of % of base salary or non-financial, and can Confirmation given that targets. the commencement of each for the duration of this policy. be corporate, divisional or the weighting towards financial year to ensure they individual measures set for financial measures for continue to support our Awards are paid in cash. any year in such proportions the annual performance strategy. as the Committee considers bonus will always be at No bonus is paid at the appropriate. However, least % for the duration Once set, performance threshold level of performance, the weighting of financial of this policy. measures and targets will with amounts accruing from performance measures will generally remain unchanged that point. not be reduced below % of for the year, except to reflect total annual bonus potential in events such as corporate any year for the duration acquisitions or other major of this policy. transactions where the Committee considers it to be The Committee will consider necessary, in its opinion, to overall Group and financial make appropriate adjustments. performance before any element of bonus is paid, and accordingly may moderate the bonus outturn either upwards (without exceeding the % of base salary cap) or downwards.54

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEElement and Policy Operation and Performance Changes frompurpose opportunity measures previous policyLong-term incentivesThe Company operates Awards can be made on an The maximum value of Performance measures applied No changes in relation tothe Communisis Long annual basis with a vesting LTIP awards which may be to LTIP awards are reviewed the Executive Directors’Term Incentive Plan period of at least three years. granted in any financial year from time to time to ensure participation. The(“LTIP”) to motivate and is equivalent to % of base they remain appropriate and renewed LTIP proposes aincentivise delivery of The Company also has scope salary. aligned with shareholders’ change to dilution limitssustained performance to operate a tax-advantaged interests. (removal of the % inover the long term. If Executive Share Option The threshold level of vesting years limit).approved by shareholders, Scheme. Although there is for LTIP awards will not exceed The Committee may set suchthe Company will continue no plan to make awards to performance conditions onto operate the LTIP after Executive Directors under this % of the total award. LTIP awards as it considersthe AGM. plan at present, the Company appropriate (whether reserves the right to do so financial or non-financial and subject to the £ , limit whether corporate, divisional on HMRC approved options or individual). However, available under this plan. Any performance conditions will such awards would be taken always measure performance into account in making any over a period of at least three awards under the LTIP in the financial years (commencing same year. with the financial year in which the award is made).Share ownership guidelinesTo encourage share Executive Directors are % of base salary for all N/A New element of policyownership by the Executive expected to retain % of Executive Directors. introduced fromDirectors and ensure all shares (net of tax) which AGM .interests are aligned. vest under the LTIP (or any other discretionary long- term incentive arrangement introduced in the future) until such time as they hold a specified value of shares. Only beneficially owned shares and vested share awards (discounted for anticipated tax liabilities) may be counted for the purposes of the guidelines. Share awards do not count prior to vesting. The Remuneration Committee will review Executive Director shareholdings annually in the context of this policy.All-employee share plansTo encourage share The Company operates The exercise price of the options Consistent with normal No changes.ownership by employees, a Sharesave plan for UK is usually equal to the market practice, such awards arethereby allowing them employees. price of the shares at the date not subject to performanceto share in the long-term of invitation to participate less conditions.success of the Group and This is an all-employee tax- a maximum discount of %.align their interests with advantaged share plan andthose of the shareholders. follows the usual form for such The maximum amount that can plans. be invested in the scheme will not exceed the statutory limit Executive Directors are able from time to time (currently to participate in all-employee £ per month). share plans on the same terms as other Group employees. The options vest on the third or fifth anniversary of the commencement of the savings period (depending upon the length of the savings period). 55

REMUNERATION POLICY – CHAIRMAN AND NON-EXECUTIVE DIRECTORS The table below summarises the remuneration elements for the Chairman and Non-Executive Directors. Element and Policy Operation and Performance Changes from purpose opportunity measures previous policy Chairman and Non- The fees paid to the Chairman Fees are paid monthly in cash. N/A No changes. Executive Director fees and the fees of the other Non- Executive Directors aim to be The Chairman and his spouse competitive with other fully also receive medical insurance. listed companies of equivalent size and complexity. The aggregate fees (and any benefits) of the Chairman The fees payable to Non- and Non-Executive Directors Executive Directors are will not exceed the limit from determined by the Board. The time to time prescribed within Chairman’s fee is determined by the Company’s Articles of the Committee. Association for such fees (currently £ , p.a. in Non-Executive Directors will not aggregate). participate in share incentive arrangements. Any increases actually made will be appropriately disclosed. NOTES TO THE REMUNERATION POLICY TABLE . Malus and Clawback . Differences between the Policy on Remuneration Malus (being the forfeiture of unvested awards) and for Directors from the Policy on Remuneration clawback (being the ability of the Company to claim of other employees repayment of paid amounts as a debt) provisions apply to the annual bonus and LTIP. These provisions may be applied Where Communisis’ pay policy for Directors differs to where the Remuneration Committee considers it appropriate its pay policies for groups of employees, this reflects to do so following: the appropriate market rate position for the relevant roles. However, elements of consistency of treatment any material re-statement of the Company’s or a Group are promoted through a single group-wide annual member’s financial results for any period; bonus arrangement (although quantum and the mix of performance metrics vary according to seniority) and individual gross misconduct; or group-wide share plans. any other circumstances that have a sufficiently . Stating Maximum Amounts for the significant impact on the reputation of the Company Remuneration Policy or any Group member. The DRR Regulations and related investor guidance . Travel and Hospitality encourages companies to disclose a cap within which each element of remuneration policy will operate. Where While the Remuneration Committee does not consider it to maximum amounts for elements of remuneration have form part of benefits in the normal usage of that term, it has been set within the Directors’ Remuneration Policy, been advised that corporate hospitality (whether paid for by these will operate simply as caps and are not indicative Communisis or another) and certain instances of business of any aspiration. travel (including any related tax liabilities settled by the Company) for the Directors (and exceptionally their family members) may technically come within the applicable rules and so the Remuneration Committee expressly reserves the right to authorise such activities within its agreed policies.56

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCE. Payments under previous policies the ability to adjust performance measures and targets to reflect events (including corporate actions) and/or to For the avoidance of doubt, in approving this Directors’ ensure the performance measures and targets operate Remuneration Policy, authority is given to the Remuneration as originally intended; Committee to honour any commitments entered into with former or current directors under previous policies (as described in the Termination Policy section below) (including the payment of pensions and the vesting determination of the treatment of individuals who leave of past share awards). employment, based on the rules of the incentive plans, and the treatment of the incentive plans on exceptional. Discretions reserved in operating incentive plans events, such as a change of control of the Company; and The Remuneration Committee will operate the annual the ability to make adjustments to existing awards performance bonus and LTIP according to their respective made under the incentive plans in certain circumstances rules and the above Remuneration Policy table. The (e.g. rights issues, corporate restructurings or Remuneration Committee retains certain discretions, special dividends). consistent with market practice, in relation to the operation and administration of these plans including: the determination of performance measures and targets and resultant vesting and pay-out levels;APPROACH TO RECRUITMENT REMUNERATIONThe Company’s recruitment remuneration policy aims to give the Committee sufficient flexibility to secure the appointment andpromotion of high-calibre executives to strengthen the management team and secure the skill sets to deliver our strategic aims.The following represents principles to be applied by the committee on recruitment of executive directors:The starting point for the Committee will be to look to the policy for The annual performance bonus plan and LTIP will operate as outlined inExecutive Directors as set out in the policy table and structure a package the general policy in relation to any newly appointed Executive Director,in accordance with that policy. Consistent with the DRR Regulations, the including the maximum award levels.caps contained within the general policy for fixed pay will not apply toa recruit although the Committee would not envisage exceeding those All awards for external appointments to compensate for awardscaps in practice. forfeited on leaving a previous employer (“buy-outs”), whether made under the annual performance bonus, LTIP or otherwise (including underFor a new appointment, base salary may be increased over time UKLA Listing Rule . . ), will be capped at the commercial value of thefollowing progress and development in the role rather than being set amount forfeited and will take account of the nature, time-horizonsdirectly at the level of a previous incumbent or at market level. and performance requirements of those awards. In particular, the Committee’s starting point will be to ensure that any awards beingFor an internal appointment, any variable pay element awarded in forfeited which remain subject to outstanding performance requirementsrespect of the prior role may either continue on its original terms or be (other than where substantially complete) will be replaced withadjusted to reflect the new appointment, as appropriate. buy-out awards subject to similar requirements, and any awards with service requirements are also bought out with similar terms. However,For external and internal appointments, the Committee may agree that exceptionally the Committee may relax those obligations in respectthe Company will make a contribution towards legal fees in connection of buy-outs where it considers it to be in the interests of shareholderswith agreeing employment terms. and those factors are, in the view of the Committee, equally reflected in some other way; for example through a discount to the face value of the awards forfeited. For the avoidance of doubt, such buy-out awards are not subject to a formal cap.A new Chairman or Non-Executive Director would be recruited on the terms explained above in respect of the main policy forsuch directors. 57

SERVICE CONTRACTS NON-EXECUTIVE DIRECTORS EXECUTIVE DIRECTORS Each Non-Executive Director is engaged for an initial period of three years. They are then invited to serve for a further three- The Committee’s policy is that each Executive Director’s year period, after which they are appointed annually. These service agreement should be of indefinite duration, subject to engagements can be terminated by either party as follows: termination at normal retirement age, and should otherwise be terminable by the Company on no more than months’ on six months’ notice in the case of the Chairman; and notice and by the director on six months’ notice. The service agreements of all Executive Directors comply with that on three months’ notice in the case of Non-Executive Directors. policy. None of the service agreements include provision for compensation payments on early termination. Whether any The Non-Executive Directors cannot participate in the such compensation would be payable and the amount of Company’s share option schemes, are not entitled to any any compensation would be determined according to the pension benefit and are not entitled to any payment in law of contract as it applies to the particular circumstances compensation for early termination of their appointment. of an individual case. Contracts do not contain change of control provisions. The Committee reserves flexibility to alter The date of original appointment of each Non-Executive these principles if necessary to secure the recruitment of an Director and the effective date of their latest letter of appropriate candidate but would expect a return to these appointment is: principles within a reasonable timeframe. Latest The date of each Executive Director’s contract is: Date of original appointment appointment date Andy Blundell Contract date Peter Hickson Mark Stoner November Jane Griffiths December May August Peter Harris May Helen Keays July May David Gilbertson August March May August March58

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCETERMINATION POLICY SUMMARYIt is appropriate for the Committee to consider treatments on a termination having regard to all of the relevant factsand circumstances available at that time. This policy applies both to any negotiations linked to notice periods on a terminationand any treatments that the Committee may choose to apply under the discretions available to it under the terms of the annualperformance bonus and LTIP plans. The potential treatments on termination under these plans are summarised below.Incentives If a leaver is deemed to be a If a leaver is deemed to be a ‘bad Other exceptional cases; e.g. ‘good leaver’; i.e. leaving through leaver’; i.e. leaving for disciplinary change in control. voluntary redundancy, serious ill reasons or to join a competitor. health or death or otherwise at the Pro-rated bonus. discretion of the Committee. Leaver will receive a pro-rated awardAnnual Performance Committee has discretion to award No awards made. subject to the application of theBonus a pro-rated bonus. performance conditions at the date of the event, subject to standardLong Term Incentive Leaver will receive a pro-rated award All awards will normally lapse. Committee discretions to increasePlan(“LTIP”) * subject to the application of the vesting taking into account relevant performance conditions. Vesting levels factors. may be varied by the Committee if considered appropriate. Vesting will not be brought forward to the time of cessation of employment unless the Committee considers this appropriate.*Similar treatments would apply to any awards made under the Executive Share Option Scheme in future.The Company has power to enter into settlement agreements with executives and to pay compensation to settle potential legalclaims. In addition, and consistent with market practice, in the event of termination of an Executive Director, the Company maypay a contribution towards the individual’s legal fees and fees for outplacement services as part of a negotiated settlement.Any such fees would be disclosed as part of the detail of termination arrangements. For the avoidance of doubt, the policy doesnot include an explicit cap on the cost of termination payments.In the event of cessation of a Non-Executive Director’s appointment (excluding the Chairman) they would be entitled to athree-months’ notice period. The Chairman, as detailed in his letter of appointment, would be entitled to a six-months’notice period.EXTERNAL APPOINTMENTSNone of the Executive Directors is a director of any company apart from subsidiaries of Communisis. Were any ExecutiveDirectors to take up such an external Non-Executive appointment, they would be permitted to retain any fees earned fromthat appointment. 59

INDICATIVE TOTAL REMUNERATION LEVELS COMMUNISIS TOTAL RENUMERATION OPPORTUNITY £, £, ■ Long term incentives (incl. Sharesave) ■ Annual performance bonus £, % ■ Total fixed pay ££ £ £ % £ % % % £ % % £ % % % £ £ %% % £ % £ Minimum In line with Maximum Minimum In line with Maximum expectation expectation Mark Stoner Andy Blundell The above chart aims to show how the remuneration policy set out above for Executive Directors is applied using the following assumptions. Minimum Consists of base salary, benefits and pension. In line with Base salary is the current base salary. expectation Maximum Benefits measured as benefits paid in as set out in the single figure table. Pension entitlements measured as % of base salary receivable either as a contribution or in cash. £ Base Salary Benefits Pension Total Fixed Andy Blundell Mark Stoner Based on what the director would receive if performance was in line with expectation (excluding share price appreciation and dividends): Annual performance bonus: consists of the on-target bonus ( % of base salary). LTI: consists of the threshold level of vesting ( %). Assumed that the typical annual award is at % of base salary each year. Based on the maximum remuneration receivable (excluding share price appreciation and dividends): Annual performance bonus: consists of the maximum bonus ( % of base salary). LTI: assumes maximum vesting of awards ( % of total award). STATEMENT OF CONSIDERATION OF STATEMENT OF CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE SHAREHOLDER VIEWS IN THE GROUP Each year, the Committee takes into account the approval Pay and employment conditions in the Group is taken into levels of remuneration related matters at our Annual account when setting Executive Directors’ remuneration. The General Meeting in determining that the current Directors’ Committee receives regular updates from the Human Resources Remuneration Policy remains appropriate for the Company. Director on overall pay and conditions in the Group, including (but not limited to) changes in base pay and any staff bonus The Committee also seeks to have a productive dialogue pools in operation. There is also oversight of the all-employee with investors on developments in the remuneration aspects Sharesave scheme which Executive Directors and all other Group of corporate governance generally, and any changes to the employees can participate in on the same terms and conditions. Company’s executive pay arrangements in particular. The Company did not consult with employees in drawing up this Directors’ Remuneration Report.60

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEANNUAL REPORTON REMUNERATIONThe Annual Report on Remuneration outlines how the Committeeimplemented the previous Directors’ Remuneration Policy for thefinancial year ended December . This report, togetherwith the Annual Statement from the Chair of the RemunerationCommittee, will be put to shareholders for approval at the AnnualGeneral Meeting to be held on May . Shareholder approvalis on an advisory basis only.The Company has complied with the principles and provisionsrelating to directors’ remuneration in the UK Corporate GovernanceCode, and these reports have been prepared in accordance withthe Large and Medium-sized Companies and Groups (Accountsand Reports) (Amendment) Regulations (“the Regulations”).Where information disclosed has been subject to audit by theCompany’s auditor Ernst & Young LLP, this is highlighted. 61

PROPOSED IMPLEMENTATION OF REMUNERATION POLICY IN (UNAUDITED INFORMATION) Element of Detail of Implementation of Policy for Remuneration Policy Base salary Base salaries since July review date are as follows: £ , for Andy Blundell and Pension £ , for Mark Stoner. A further review will occur on July . Benefits Annual performance No changes to the overall value of the pension arrangements for Executive Directors are bonus anticipated for . From July the pension entitlement for each Executive Director was set at % of base salary. Long-term incentives There are no proposed changes to the benefits offered to Executive Directors in . All-employee share plans The benefits to be received by Executive Directors in will include life assurance, private Chairman and Non- medical cover, car or car allowance provision and fuel card. Executive Directors’ fees The maximum annual performance bonus for will remain at % of base salary. The proposed performance measures (and their respective weightings) for the annual bonus are as follows: Adjusted EBIT – % Free cash flow – % Personal measures – % The actual performance targets for are not disclosed prospectively as these are considered to be commercially sensitive by the Board. The adjusted EBIT and free cash flow targets for will be disclosed retrospectively in next year’s Directors’ Remuneration Report, which is consistent with the fact the adjusted EBIT targets for are disclosed retrospectively in this report on page . There will be an LTIP grant made in to the Executive Directors and Executive Board members. The performance conditions for this award will be as follows: % of the award will be subject to a performance condition requiring absolute growth in EPS. The performance thresholds for this award will be same as for the LTIP award made in (see page ) with no vesting below a % Compound Annual Growth Rate (“CAGR”) and a % CAGR required for full vesting. EPS growth will be measured over three financial years to December % of the award will be subject to a performance condition requiring absolute growth in TSR. The vesting range will be . % CAGR ( % of this part vests) and . % CAGR ( % of this part vests), with a straight-line vesting between these thresholds. TSR growth will be measured to the third anniversary of the date of the award, with a three month averaging period used to determine the starting and end TSR levels. Continued opportunity to participate in the tax-advantaged Sharesave Plan on the same basis as all other UK employees. Peter Hickson’s fee as Chairman will be £ , per annum. Peter Hickson will step down from the Board after the AGM on May . David Gilbertson’s fee (from March ) is £ , per annum. The Non-Executive Director base fees for will be £ , . Peter Harris and Helen Keays each receive an additional £ , fee as Chair of the Audit Committee and Remuneration Committee respectively. Peter Harris also receives £ , for his role as the Senior Independent Director.62

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEROLE AND MEMBERSHIP OF THE REMUNERATION COMMITTEEThe Committee’s principal responsibilities are: recommending to the Board the remuneration strategy and framework for the Executive Directors and senior managers; determining, within that framework, the individual remuneration arrangements for the Executive Directors and senior managers; and overseeing any major changes in employee benefit structures throughout the Group and reviewing remuneration trends across the Group.The Committee has formal terms of reference which can be viewed on the Company’s website.During , the Committee comprised: Helen Keays (Chair); Peter Hickson; Jane Griffiths; and Peter Harris.The Committee met on six occasions and attendances are given in the table on page .The Chief Executive is invited to attend meetings of the Committee, except when his own remuneration is being discussed.ADVISERS TO THE COMMITTEEFIT Remuneration Consultants LLP (“FIT”), signatories to the Remuneration Consultants Group’s Code of Conduct, were appointedby the Committee following consideration of FIT’s experience in this sector. FIT provides advice to the Committee on all mattersrelating to remuneration, including best practice. FIT provided no other services to the Group and accordingly the Committeewas satisfied that the advice provided by FIT was objective and independent. FIT’s fees in respect of were £ , (excludingVAT). FIT’s fees were charged on the basis of the firm’s standard terms of business for advice provided.At the Committee’s request, administrative advice and support was provided by the Company Secretary, the Company’s HumanResources Director and the Company’s Tax Manager. VOTINGAt the Company’s Annual General Meeting held on May , shareholders approved the Directors’ Remuneration Report forthe year ended December . Below is the result in respect of this resolution, which required a simple majority of the votesto be cast in favour in order for the resolution to be passed:Remuneration Report Votes for % Votes against % ,, . , ., , votes were withheld. 63

IMPLEMENTATION REPORT FOR FOR THE EXECUTIVE DIRECTORS SINGLE TOTAL FIGURE OF REMUNERATION IN (AUDITED INFORMATION) Salary Benefits1 Other Annual LTIP and Pension6 Total ££ ££ Performance Sharesave4,5 ££ ££ ² £ £000 Bonus3 ££ ££ Andy Blundell Nigel Howes Dave Rushton Mark Stoner . Benefits comprise life assurance, private medical cover, car or car allowance provision and fuel card. . An additional amount of £ , was paid to Dave Rushton with regard to settlement of claims in relation to statutory rights. . Details of the performance measures and targets applicable to the annual bonus for are set out below. . LTIP vesting in is summarised below. The value shown in the table above for LTIPs in represents vesting of part of the LTIP award is: a. In relation to Directors other than Dave Rushton, measured by reference to EPS growth to December ( . % of the total award) multiplied by the three-month average share price to December ( . p). b. In relation to Dave Rushton, measured by reference to the EPS growth to December multiplied by the share price on the date of cessation of his employment on June ( p). . The figures in the LTIP column shown above for (representing the vesting of part of the LTIP awards) have been restated from the report. The values in the above table now reflect the value of the Company’s shares on the date of vesting ( March p per share) multiplied by the number of shares vesting, whereas the equivalent figure within the published single figure table was an estimate which reflected the average share price between October and December ( . p per share). . Pension contributions are in line with the Pension entitlements summary on the opposite page. . Nigel Howes ceased to be a director on January . More details can be found on page . . Dave Rushton ceased to be a director on January . More details can be found on page . . The aggregate remuneration of all directors under salary, fees, benefits, cash contributions in lieu of pensions and annual bonus was £ , , ( £ , , ). . There were no payments made to former directors during . ANNUAL PERFORMANCE BONUS The annual performance bonus operated as a bonus pool in which the Executive Directors participated alongside a broad group of senior managers. The performance measure for the annual performance bonus was based on adjusted EBIT (adjusted operating profit). The £ . m adjusted EBIT result for allowed for an accrued bonus pool in which both the Executive Directors and selected senior managers participated. Allocations to Executive Directors from the pool were determined on the basis of the Committee’s judgment, having regard to overall business performance, including both financial and strategic developments in the year. On the basis of the Committee’s judgment, the annual bonuses to the Executive Directors were £ , for Andy Blundell ( £nil) and £ , for Mark Stoner ( £nil). These were calibrated as broadly threshold level bonuses. For completeness, whilst not formulaic, the Committee had budgeted against an adjusted EBIT figure of £ m for for the purposes of considering payment of bonuses at on-target levels. VESTING OF LTIP AWARDS IN The LTIP award was based on % of the award on a share price growth performance condition and on % of the award on an EPS performance condition. See page for a summary of the performance conditions. The share price growth performance condition requires the attainment of share price growth thresholds on the third anniversary of the award date (being June and August ). Accordingly, the single figure table includes an estimated level of vesting for these awards based on the three month average share price to December ( . p; estimated vesting nil). The EPS performance condition CAGR . % to % has been achieved as to . % vesting, meaning that . % of the total LTIP award will vest.64

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCEPENSION ENTITLEMENTS SUMMARYAndy Blundell and Mark Stoner remain members of the defined contribution section of the Communisis Pension Plan. They receivecontributions each of £ , per annum to the Communisis Pension Plan. Overall pension entitlement is % of base salary.The balance above £ , is paid as a salary supplement. No director participated in a defined benefit scheme in the year.PAYMENTS TO DIRECTORS LEAVING THE GROUPDave Rushton stepped down from the Board on January and ceased to be an employee on June . He was paidsalary, benefits and pension entitlement until June only in accordance with his contractual notice period. As noted above,he was paid an additional £ , in with regard to settlement of claims in relation to statutory rights. He did not receivean annual bonus for . His LTIP award was permitted to vest in respect of , shares only ( . % of the original award)and his LTIP award lapsed in full.Nigel Howes stepped down from the Board on January and ceased to be an employee on January . He was paidsalary, benefits and supplement in lieu of pension until January only in accordance with his contractual notice period.He was paid an additional £ , in January with regard to settlement of claims in relation to statutory rights. He didnot receive an annual bonus for . His and LTIP awards were permitted to vest in respect of , shares only( . % of the original award) for the award and in respect of , shares only ( . % of the original award) for the award. The awards will be exercisable for a period of six months from January .COMPARATIVE TOTAL SHAREHOLDER RETURNThe graph below shows the Company’s Total Shareholder Return performance compared with the FTSE All Share Index.The graph provides a basis for comparison with a relevant equity index, of which Communisis is a constituent, and theCommittee believes that no other published index provides a better comparison. In accordance with the Regulations thegraph shows this performance over an eight-year period. TOTAL SHAREHOLDER RETURN SINCE DECEMBERTSR – value of a unit investment made on December Dec Dec Dec Dec Dec Dec Dec Dec Dec FTSE All-Share Communisis plc 65

TABLE OF HISTORIC DATA The Regulations also require a table setting out the remuneration of the Chief Executive Officer (“CEO”) over an eight-year period which is presented below. Year CEO Single figure ) Annual variable element Long term incentive vesting of total award rates against maximum rates against maximum remuneration (£ opportunity (%) opportunity (%) Andy Blundell Andy Blundell Andy Blundell Andy Blundell Andy Blundell Andy Blundell Andy Blundell Andy Blundell/Steve Vaughan RELATIVE IMPORTANCE OF SPEND ON PAY Year Profit distributed by way Overall expenditure Notes % change of dividend (£ ) on pay (£ ) . Profit distributed by way of dividend has been taken as the dividend paid in respect of , , the relevant financial year. For this is the interim dividend paid (£ , , ) and the , , proposed final dividend of £ , , . No share buy-backs were made in either year. .% .% . Overall expenditure on pay has been taken as the total employee costs (wages and salaries, social security costs and pension costs) as set out in Note . . Employee benefits expense in the Notes to the Consolidated Financial Statements. The increase in percentage of spend on pay reflects inflationary increases and redundancy costs. CEO’S RELATIVE PAY YEAR-ON-YEAR PERCENTAGE CHANGE In accordance with the Regulations, we present in the table CEO Salary Taxable Annual below the percentage change in the prescribed pay elements UK based staff (%) Benefits (%) Bonus (%) (salary, taxable benefits and annual bonus outcome) of the CEO and the average percentage change for UK based staff . . . between Financial Year and Financial Year . . (. ) . DIRECTORS’ INTERESTS (AUDITED INFORMATION) The interests (all being beneficial) of the directors in the Company’s securities are set out below: Director At December At December Peter Hickson Ordinary Shares subject Ordinary Shares subject Andy Blundell to Option to Option Jane Griffiths Shares Shares Peter Harris Helen Keays ,, – ,, – Mark Stoner , ,, , ,, –– –– –– –– –– –– , ,, ,, , of these shares are held by Mr Blundell’s wife. Notes The directors and their families had no interest in the shares of any other company within the Group. There have been no changes in the directors’ interests between the year end and March . The Company will be introducing share ownership guidelines for Executive Directors from the AGM.66

Communisis plc Annual Report and Financial Statements 2016 GOVERNANCESHARE OPTIONS (AUDITED INFORMATION)The number of, and prices at which, options under the Long Term Incentive Plan and Sharesave Scheme have been grantedto directors are set out below. Except for Sharesave options, all options are subject to the performance conditions describedbelow and on page . Options held at Options Options Options Options held at Option Earliest Latest exercise January granted lapsed exercised December price (p) exercise date dateLONG TERM INCENTIVE PLANAndy Blundell , –, , – Nil . . .. , –– – , Nil . . .. , –– – , Nil . . .. – ,, –– , , Nil . . ..Mark Stoner , –, , – Nil . . .. , –– – , Nil . . .. , –– – , Nil . . .. , –– – , Nil . . .. –, –– , Nil . . ..SHARESAVE SCHEMEMark Stoner , – –, –. .. .. –, –– , . .. ..Notes . The range of market price of shares in Communisis plc during the year ended December was . p to . p. The closing price on December was . p. . None of the directors paid for the award of options. . Options granted in the year represent awards with a face value of . % of base salary (£ , ) for Andy Blundell and . % of base salary (£ , ) for Mark Stoner. This has been calculated using the average mid-market price of the three preceding days before the date of grant, being . p for the options granted on March . . Threshold level of vesting for the LTIP awards granted in the year is % of the total number of awards granted. Sharesave options are not subject to performance conditions. . The performance conditions attached to the LTIP awards granted during the year are set out below. . The directors exercised the options indicated in the table above on April when the market price of the Company’s shares was . p. Additionally, former directors Dave Rushton and Nigel Howes exercised the following options in the year. Nigel Howes exercised , options at . p and , options at . p. Dave Rushton exercised , options at . p, , options at . p and , options at . p. . The aggregate gains of directors from share options exercised in was £ , ( : £ , ).GRANTING OF LTIP AWARDS IN EPS PERFORMANCE CONDITIONLTIP awards made to Executive Directors in have the For this condition, EPS will be measured as the adjusted basicfollowing performance condition: earnings per share, calculated on the same basis as for the Company’s accounts (i.e. earnings per share from continuing % of awards are subject to an EPS growth performance operations before exceptional items and amortisation ofcondition. acquired intangibles and the tax effect of these items), over a performance period of three financial years, commencingAn additional underpin condition will apply such that no LTIP with Financial Year and with vesting based on the EPSshares will vest unless the Committee is satisfied as to the in Financial Year .Company’s underlying financial performance over thethree-year LTIP vesting period. EPS Growth (compound annual % of award subject to EPS growth) performance condition vestingThese measures were chosen after careful consideration by Less than % p.a. Nilthe Committee and are regarded as promoting appropriatealignment of interests between management and our % p.a. %shareholders. The focus on EPS aligns our incentive pay directly % p.a. %with one of our key financial targets. . % p.a. % % % p.a. % p.a. or more % Between each defined threshold Straight line vesting 67

SUMMARY OF AND LTIP PERFORMANCE MEASURES SUMMARY OF PERFORMANCE CONDITIONS AND TARGETS FOR LTIP AWARD GRANTED IN Performance Measure Share price growth EPS Growth (compound annual growth) % % Weighting of total award p % p.a. or more Performance targets Max. vesting ( % of this part) Between max. and Straight-line vesting Straight-line vesting threshold vesting Threshold vesting ( % .p . % p.a. of this part) Underpin measure No LTIP shares will vest unless the Committee is satisfied as to the Company’s underlying financial performance over the three-year LTIP vesting period SUMMARY OF PERFORMANCE CONDITIONS AND TARGETS FOR LTIP AWARD GRANTED IN Performance Measure Share price growth EPS Growth (compound annual growth) % % Weighting of total award p % p.a. or more Performance targets Max. vesting ( % of this part) Between max. and Straight-line vesting Straight-line vesting threshold vesting Threshold vesting ( % . p ( June awards)/ . p ( August . % p.a. of this part) awards) Underpin measure No LTIP shares will vest unless the Committee is satisfied as to the Company’s underlying financial performance over the three-year LTIP vesting period PROVISION OF SHARES FOR SHARE PLANS – DILUTION The current estimated dilution from subsisting awards, including executive and all-employee share awards, and assuming, which is most unlikely, that all subsisting options vest in full, is approximately . % of the shares in issue at the date of this report. The Company has an Employee Benefit Trust which as at March holds , shares which may be used to satisfy options granted under the Executive Share Option Scheme and the LTIP and the above estimate of potential dilution is presented on the basis of assuming that the Employee Benefit Trust will satisfy certain outstanding awards. Awards are currently managed to confine commitments within an overall dilution limit for all employee share plans of no more than % of share capital in any -year period and a limit of % of share capital in any -year period for the Company’s discretionary share plans. Subject to approval by shareholders of the LTIP, the % limit in respect of the Company’s discretionary share plans will no longer apply to new LTIP awards. CHAIRMAN AND NON-EXECUTIVE DIRECTOR FEES Salary/Fees Other Benefits Total Total £ £ £ £ Chairman Peter Hickson Non-Executive Directors – Jane Griffiths Peter Harris – Helen Keays – . Other benefits for Peter Hickson include medical insurance benefits for him and his spouse This report was reviewed and approved by the Board on March and signed on its behalf by order of the Board. SARAH CADDY Company Secretary68

FINANCIALSTATEMENTS 69

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2016 Note Before Amortisation Total Before Amortisation Total amortisation of acquired £ amortisation of acquired £ intangibles intangibles of acquired and of acquired and , intangibles exceptional intangibles exceptional items items () and (Note . ) and (Note . ) exceptional £ exceptional £ (, ) (, ) items items (, ) £ £ (, ) Revenue ,– ,, – , Changes in inventories of finished goods and work in progress () – () () – (, ) Raw materials and , consumables used (, ) – (, ) (, ) – Employee benefits expense (, ) (, ) (, ) (, ) Other operating expenses . (, ) (, ) (, ) (, ) Depreciation and amortisation , expense (, ) () Profit from operations (, ) () (, ) (, ) (, ) Finance revenue , , Finance costs , (, ) , (, ) (, ) – Profit before taxation – , , – Income tax expense . (, ) – (, ) (, ) , Profit for the year attributable to equity holders of the parent , (, ) (, ) , (, ) , , ,, Earnings per share .p . p .p .p On profit for the year attributable to equity .p . p .p .p holders and from continuing operations .p .p – basic .p .p – diluted Dividend per share – paid during the year – proposed Dividends paid and proposed during the year were £4.8 million and £3.4 million respectively (2015 £4.3 million and £3.1 million respectively). The accompanying notes are an integral part of these Consolidated Financial Statements. All income and expenses relate to continuing operations.70

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2016 Note £ £ , , Profit for the year , () Other comprehensive loss to be reclassified to profit or loss in subsequent years: () () Exchange differences on translation of foreign operations (Loss) / gain on cash flow hedges taken directly to equity () () Income tax thereon (, ) (, ) Items not to be reclassified to profit or loss in subsequent years: , (, ) Adjustments in respect of prior years due to change in tax rate (, ) , Actuarial losses on defined benefit pension plans (, ) Income tax thereon , (, ) Other comprehensive loss for the year, net of tax Total comprehensive (loss) / income for the year, net of tax Attributable to: Equity holders of the parentThe accompanying notes are an integral part of these Consolidated Financial Statements. 71

CONSOLIDATED BALANCE SHEET 31 DECEMBER 2016 Note £ £ ASSETS , , Non-current assets , , Property, plant and equipment , , Intangible assets , , Trade and other receivables Deferred tax assets , , , , Current assets , , Inventories , , Trade and other receivables , , Cash and cash equivalents , , TOTAL ASSETS – , , EQUITY AND LIABILITIES () Equity attributable to the equity holders of the parent – () Equity share capital , Share premium , () Merger reserve , , ESOP reserve , Capital redemption reserve , Cumulative translation adjustment , , Retained earnings , , Total equity , , , Non-current liabilities , Interest-bearing loans and borrowings , , Trade and other payables , Provisions – Financial liability , , Retirement benefit obligations , , , , Current liabilities Interest-bearing loans and borrowings Trade and other payables Income tax payable Provisions Financial liability Total liabilities TOTAL EQUITY AND LIABILITIES The Consolidated Financial Statements on pages 69 to 113 were approved by the Board on 9 March 2017 and signed on its behalf by: Andy Blundell Mark Stoner Directors The accompanying notes are an integral part of these Consolidated Financial Statements.72

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSCONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2016 Note £ £ Cash flows from operating activities , , Cash generated from operations (, ) (, ) Interest paid (, ) (, ) Interest received Income tax paid , , Net cash flows from operating activities () () (, ) (, ) Cash flows from investing activities (, ) (, ) Acquisition of subsidiary undertakings (net of cash acquired) Purchase of property, plant and equipment (, ) (, ) Purchase of intangible assets Proceeds from the sale of property, plant and equipment () – , , Net cash flows from investing activities (, ) – Cash flows from financing activities – () Share issues net of directly attributable expenses (, ) (, ) Purchase of shares New borrowings (, ) () Repayment of borrowings Debt arrangement fees , , Dividends paid , , , () Net cash flows from financing activities , , Net increase in cash and cash equivalents Cash and cash equivalents at January , , Exchange rate effects Cash and cash equivalents at December Cash and cash equivalents consist of: Cash and cash equivalentsThe accompanying notes are an integral part of these Consolidated Financial Statements. 73

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 Issued Share Capital Merger ESOP Capital Cumulative Retained Total capital premium reduction reserve reserve redemption translation earnings equity ££ adjustment shares £ £ reserve ££ £ £ £ As at January ,, – , () , () , , Profit for the year –– – –– – – , , Other comprehensive loss –– – –– – (, ) (, ) () – Total comprehensive income – – –– – () , , Employee share option schemes – – –– – – – () – – value of services provided –– – – – () , Shares issued – exercise of options – – –– – – Shares issued from ESOP , – –, – – – – – Acquisition of subsidiary (, ) –, – – – – (, ) Transfer between reserves – – –– – – – (, ) Dividends paid – –, () , () As at December ,, – ,, –– – – – Profit for the year –– –– – , ,, Other comprehensive loss –– – ( , )( , ) –– – , Total comprehensive loss –– (, ) (, ) Employee share option schemes –– – – – – – – value of services provided – – – – Shares issued – exercise of options –– – – – – () Shares issued from ESOP –– – – () – Purchase of own shares –– , (, ) – – – () – Issue of capital reduction shares – (, ) (, ) – – (, ) Capital reduction –– – – – – – – () Dividends paid () – – –– –, – – (, ) (, ) As at December ,– – ,, The accompanying notes are an integral part of these Consolidated Financial Statements.74

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 20161. AUTHORISATION OF FINANCIAL are performed to quantify the value of these assets arising.STATEMENTS Intangibles arising are assessed for indicators of impairment annually. Additional information is included in Notes 7 and 11.The Consolidated Financial Statements of Communisis plc(“the Group”) for the year ended 31 December 2016 were ESTIMATESauthorised for issue in accordance with a resolution of thedirectors on 9 March 2017. Communisis plc is a public limited Impairment of Goodwillcompany incorporated and domiciled in England and Waleswhose shares are traded on the London Stock Exchange. The Group determines whether goodwill is impaired on at least an annual basis. This requires an estimation of the value2. ACCOUNTING POLICIES in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to2.1 BASIS OF PREPARATION make an estimate of the expected future cash flows from theThe Consolidated Financial Statements of Communisis cash-generating unit and also to choose a suitable discountplc are for the year ended 31 December 2016. They have rate in order to calculate the present value of those cashbeen prepared in accordance with International Financial flows. The carrying amount of goodwill at 31 December 2016Reporting Standards (“IFRS”) as adopted by the European was £164,021,000 (2015 £164,021,000). Additional informationUnion. is included in Note 12.The Consolidated Financial Statements are presented in Revenue recognitionsterling and all values are rounded to the nearest thousandBritish pounds (£000) except where otherwise indicated. Revenue from transition services provided in accordance with long-term contracts is recognised based on the stage ofNEW STANDARDS AND INTERPRETATIONS completion. This method relies on estimates of total expectedThere are no IFRS or IFRIC (IFRS Interpretations Committee contract revenues and costs, as well as reliable measurementof the IASB) interpretations effective for the first time this of the progress made towards completion. Unless thefinancial year that have had a material impact on the Group. financial outcome of a contract can be estimated with reasonable certainty, no revenue is recognised.2.2 BASIS OF CONSOLIDATIONThe Consolidated Financial Statements comprise the PensionsFinancial Statements of Communisis plc and its subsidiariesas at 31 December each year. The results of subsidiaries The actuarial valuation involves making assumptions aboutprepared for the same reporting year as the parent company mortality rates and future pension increases. Due to theare included in these Consolidated Financial Statements, long-term nature of these plans, such estimates are subjectusing consistent accounting policies. All intra-group balances to significant uncertainty. Discount rates are based onand transactions, including unrealised profits arising from interest rates of AA rated corporate bonds that have terms ofintra-group transactions, have been eliminated in full. maturity approximating to the terms of the relevant pension liability. Additional information is included in Note 14.Subsidiaries are fully consolidated from the date onwhich control is transferred to the Group and cease to be 2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESconsolidated from the date on which control is transferredout of the Group. Where there is a change of control of a FOREIGN CURRENCY TRANSACTIONSsubsidiary, the Consolidated Financial Statements includethe results for the part of the reporting year during which Transactions in foreign currencies are recorded in theCommunisis plc has control. functional currency at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in2.3 SIGNIFICANT ACCOUNTING JUDGEMENTS AND foreign currencies are retranslated at the rate of exchangeESTIMATES ruling at the Balance Sheet date and exchange differencesThe key judgements and assumptions concerning the future arising are recognised in the Income Statement.and other key sources of estimation uncertainty at theBalance Sheet date that have a significant risk of causing a The functional currencies of the overseas subsidiariesmaterial adjustment to the carrying amounts of assets and include the Euro, the Indian Rupee, the Swedish Krone, theliabilities within the next financial year are discussed below. Swiss Franc, the Turkish Lira, the Polish Zloty, the Romanian Leu and the United Arab Emirates Dirham. The assets andJUDGEMENTS liabilities of these overseas subsidiaries are translated intoBusiness combinations sterling at the rate of exchange ruling at the Balance SheetUpon acquisition of another entity the Group evaluates date and their Income Statements are translated at theintangibles arising using methodologies recognised under weighted average exchange rates for the year where this isIFRS 3 Business Combinations. Judgement is required as to a reasonable approximation to actual translation rates. Thewhich intangibles meet the recognition criteria of separable exchange differences arising on the retranslation are takenor contractual, and estimates involving cash flow forecasts directly to a separate component of equity described as the ‘cumulative translation adjustment’. On disposal of a foreign entity, the cumulative amount recognised in equity relating to that particular foreign operation is recognised in the Income Statement. 75

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition PROPERTY, PLANT AND EQUIPMENT date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or a liability Property, plant and equipment is stated at cost less will be recognised in accordance with IAS 39 either in profit accumulated depreciation and accumulated impairment in or loss or as a change to other comprehensive income. If value. Land is not depreciated. the contingent consideration is classed as equity, it is not remeasured until it is finally settled within equity. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows: GOODWILL Freehold property 25 to 50 years Goodwill on acquisitions is initially measured at cost, being the excess of the cost of the business combination over the Long leasehold property 25 to 50 years acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following Short leasehold property 5 to 20 years initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised. Plant, equipment and motor vehicles 3 to 20 years Goodwill is reviewed for impairment annually or more The carrying values of property, plant and equipment frequently if events or changes in circumstances indicate that are reviewed for impairment when events or changes in its carrying value may be impaired. Goodwill is allocated to circumstances indicate the carrying value may not be the related cash-generating units monitored by management recoverable. If any such indication exists, and where the for the purpose of impairment testing. carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. Where goodwill has been allocated to a cash-generating The recoverable amount of property, plant and equipment unit (or group of cash-generating units) and an operation is the greater of fair value less costs to sell and value in use. within that unit (or group of units) is disposed of, the goodwill In assessing value in use, the estimated future cash flows are associated with the operation disposed of is included in the discounted to their present value using a pre-tax discount carrying amount of the operation when determining the gain rate that reflects current market assessments of the time or loss on disposal of the operation. Goodwill disposed of in value of money and the risks specific to the asset. Useful this circumstance is measured based on the relative values economic lives, depreciation methods and residual values of the operations disposed of and the portion of the cash- are reviewed annually. For an asset that does not generate generating unit (or group of units) retained. largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset INTANGIBLE ASSETS belongs. Impairment losses are recognised in the Income Statement. Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible BORROWINGS AND BORROWING COSTS assets created within the business are not capitalised (unless the specific conditions in IAS 38 are met) and expenditure Borrowings are recognised initially at fair value, net of is charged to the Income Statement in the year in which the transaction costs incurred. Borrowings are subsequently expenditure is incurred. stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value (a) Acquired from a business combination is recognised in the Income Statement over the period of the borrowings using the effective interest method. Intangible assets arising from a business combination are capitalised at fair value at the date of acquisition, where Borrowings are classified as current liabilities unless the Group they can be measured reliably. Following initial recognition, has an unconditional right to defer settlement of the liability the cost model is applied to the class of intangible assets. for at least twelve months after the Balance Sheet date. Amortisation charged on assets is recognised in amortisation expense in the Income Statement over the expected life of BUSINESS COMBINATIONS the asset. Intangible assets currently recognised are being amortised over a period of between five and ten years. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured (b) Customer relationships as the aggregate of the consideration transferred, measured at acquisition date fair value. Acquisition costs incurred are Amounts paid to secure customer contracts are capitalised expensed and included in exceptional items. and amortised over the length of the contract. An impairment review is carried out when events or changes in circumstances When the Group acquires a business, it assesses the financial indicate that the carrying value may not be recoverable. assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Assets acquired and liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements are accounted for separately from the business combination in accordance with their nature and applicable IFRSs.76

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)2. ACCOUNTING POLICIES (CONTINUED) TRADE AND OTHER RECEIVABLES Trade and other receivables are recognised and carried(c) Research and development costs at original invoice amount less an allowance for anyResearch costs are expensed as incurred. Expenditure uncollectable amounts. An estimate for doubtful debts ison a development project, such as computer software, made. Bad debts are written off when identified.which is reliably measurable, is capitalised when thetechnical feasibility and commercial viability of the project is IMPAIRMENT OF ASSETSdemonstrated. The Group must intend to, and have available At each reporting date, the Group assesses whether therethe resources to, complete the project and be satisfied that is any indication that an asset may be impaired. Where anthe intangible asset arising from the development project will indicator of impairment exists, the Group makes a formalgenerate probable future economic benefits. estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset isFollowing the initial recognition of the development considered impaired and is written down to its recoverableexpenditure, the cost model is applied requiring the asset to amount. Recoverable amount is the higher of an asset orbe carried at cost less any accumulated amortisation and cash-generating unit’s fair value less costs to sell and its valueaccumulated impairment losses. Any expenditure carried in use. Recoverable amount is determined for an individualforward is amortised over the period of expected future sales asset, unless the asset does not generate cash inflows thatfrom the related project, from the date the asset is available are largely independent of those from other assets or groupsfor use. of assets, in which case impairment is determined at the cash-generating unit level. The carrying amounts of the cash-The carrying value of development costs is reviewed when generating units to which goodwill is allocated and intangiblethere is an indicator of impairment. In addition it is reviewed assets not yet available for use are reviewed annually or moreannually when the asset is not yet in use. frequently when there is an indication of impairment.(d) Computer software costs Value in use is determined by the estimated future pre-taxAcquired computer software and licences are capitalised. cash flows, discounted to their present values using a pre-taxThese costs are amortised over their estimated useful lives discount rate that reflects current market assessments of the(three to eight years). time value of money and the risk specific to the asset.Costs associated with maintaining computer software CASH AND CASH EQUIVALENTSprograms are recognised as an expense as incurred. Costs Cash and cash equivalents in the Balance Sheet comprisethat are directly associated with the production of identifiable cash at bank and in hand and short-term deposits with anand unique software products controlled by the Group, and original maturity of three months or less.that will generate probable economic benefits exceedingcosts beyond one year, are recognised as intangible assets. For the purpose of the Consolidated Cash Flow Statement,Direct costs include the costs of software development cash and cash equivalents are as defined above, net ofemployees. These costs are amortised over their estimated outstanding bank overdrafts.useful lives (three to eight years). TRADE AND OTHER PAYABLESUseful lives are also examined on an annual basis and Trade and other payables are recognised and carried atadjustments, where applicable, are made on a prospective original invoice amount.basis. FINANCIAL INSTRUMENTSINVENTORIES Financial assets and financial liabilities are recognised in theInventories are stated at the lower of cost and net realisable Group’s Balance Sheet when the Group becomes a party tovalue. the contractual provisions of the instrument.Raw materials are stated at purchase cost on a first-in, FINANCIAL LIABILITIESfirst-out basis. For finished goods and work in progress, The Group’s financial liabilities include borrowings and tradecosts include directly attributable material and labour costs and other payables, which are all classified as ‘other financialand certain overhead costs that contribute in bringing the liabilities’. Other financial liabilities are initially measured atinventories to their present location and condition. Selling fair value, net of transaction costs. Other financial liabilitiesexpenses and other administrative overhead expenses are are subsequently measured at amortised cost using theexcluded. effective interest method, with interest expense recognised on an effective yield basis. The effective interest method isNet realisable value is the estimated selling price in the a method of calculating the amortised cost of a financialordinary course of business, less estimated costs of completion liability and of allocating interest expense over the relevantand the estimated costs necessary to make the sale. period. The effective interest rate is the rate that exactly discounts estimated future cash payments through theProvision is made for items of stock that are damaged, expected life of the financial liability, or, where appropriate,obsolete or slow-moving. a shorter period. 77

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) Amounts taken to equity are transferred to the Income Statement when the hedged transaction affects profit or DERECOGNITION OF FINANCIAL LIABILITIES loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where The Group derecognises financial liabilities when, and only the hedged item is the cost of a non-financial asset or non- when, the Group’s obligations are discharged, cancelled, financial liability, the amounts taken to other comprehensive or they expire. income are transferred to the initial carrying amount of the non-financial asset or liability. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity Initial recognition and subsequent measurement are transferred to the Income Statement. If the hedging instrument expires or is sold, terminated or exercised without The Group uses derivative financial instruments such as replacement or rollover, or if its designation as a hedge is forward currency contracts and interest rate swaps to hedge revoked, amounts previously recognised in equity remain in its foreign currency and interest rate risks respectively. Such other comprehensive income until the forecast transaction or derivative financial instruments are initially recognised firm commitment occurs. at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. The Group uses forward exchange contracts as hedges of its Derivatives are carried as financial assets when the fair exposure to foreign currency risk in forecasted transactions value is positive and as financial liabilities when the fair value and firm commitments. During 2016 and 2015 the Group did is negative. not utilise any hedging instruments other than in respect of interest rates as detailed below. Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge Interest rate hedges accounting and the ineffective portion of an effective hedge, are taken directly to the Income Statement. At 31 December 2016 the Group had two arrangements each of a notional amount of £10,000,000 with maturity dates The fair value of forward currency contracts is the difference being in 2018. Group pays fixed rates of interest of 3.13% and between the forward exchange rate and the contract rate. 2.27% respectively on each arrangement and on both the The forward exchange rate is referenced to current forward Group receives a variable rate equal to LIBOR + 2.0% on the exchange rates for contracts with similar maturity profiles. notional amount. The fair value of interest rate swaps is the difference between PROVISIONS the fixed rate and the one month LIBOR rate implied at the Balance Sheet date, calculated monthly, and discounted to Provisions are recognised when the Group has a present present value. obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying For the purpose of hedge accounting, hedges are classified economic benefits will be required to settle the obligation as cash flow hedges when hedging exposure to variability and a reliable estimate can be made, but there is some in cash flows, that is either attributable to a particular risk uncertainty about the timing of the future expenditure associated with a recognised asset or liability or a highly required in settlement. If the effect of the time value of money probable forecast transaction, or when hedging the foreign is material, provisions are determined by discounting the currency risk in an unrecognised firm commitment. expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, For those derivatives designated as hedges and for which where appropriate, the risks specific to the liability. Where hedge accounting is desired, the hedging relationship is discounting is used, the increase in the provision due to the formally designated and documented at its inception. This passage of time is recognised as a finance cost. documentation identifies the risk management objective and strategy for undertaking the hedge, the hedging instrument, PENSIONS AND SIMILAR OBLIGATIONS the hedged item or transaction, the nature of the risk being hedged and how effectiveness will be measured throughout Group companies operate defined contribution and defined its duration. Such hedges are expected to be highly effective benefit pension plans. in offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually Payments to the defined contribution pension plans are have been highly effective throughout the financial reporting charged as an expense to the Income Statement as incurred periods for which they were designated. when the related employee service is rendered. The Group has no further legal or constructive payment obligations once Cash flow hedges the contributions have been made. The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income, while any ineffective portion is recognised immediately in the Income Statement.78

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)2. ACCOUNTING POLICIES (CONTINUED) No expense is recognised for awards that do not ultimately vest, except for awards where vesting or non-vesting isFor the defined benefit pension plan, the cost of administering conditional upon a market condition, which are treated asthe pension scheme is recognised in employee benefits vesting irrespective of whether or not the market conditionexpense in the Income Statement. The Group determines the is satisfied, provided that all other performance or servicenet interest income/expense on the net defined benefit assets/ conditions are satisfied.liabilities for the year by applying the discount rates used tomeasure the defined benefit obligations at the beginning The Group has an employee share ownership plan (‘ESOP’)of the year to the net defined benefit assets/liabilities at the for the granting of non-transferable options. Shares in thebeginning of the year, taking into account any changes in Group held by the ESOP are accounted for in the same waythe net defined benefit assets/liabilities during the year as as treasury shares and presented in the Balance Sheet as aa result of contributions and benefit payments. The liability deduction from equity described as the ‘ESOP reserve’.recognised in the Balance Sheet in respect of the definedbenefit pension plan is the present value of the defined benefit Where an equity-settled award is cancelled, it is treated asobligation at the Balance Sheet date less the fair value of if it had vested on the date of cancellation, and any costthe plan assets. The defined benefit obligation is calculated not yet recognised in the Income Statement for the awardannually by independent actuaries. The present value of is expensed immediately. This includes any awards wherethe defined benefit obligation is determined by discounting non-vesting conditions within the control of the Group or thethe estimated future cash outflows using interest rates employee are not met. Any compensation paid up to the fairof AA rated corporate bonds that have terms of maturity value of the award at the cancellation or settlement date isapproximating to the terms of the relevant pension liability. deducted from equity, with any excess over fair value beingAA rated corporate bonds are used as the most suitable treated as an expense in the Income Statement.proxy for calculating the discount rate. Where an equity-settled award is forfeited, the total costAll actuarial gains and losses that arise in calculating the recognised in the Income Statement to date for the awardpresent value of the defined benefit obligation and the fair is reversed.value of plan assets are recognised in the ConsolidatedStatement of Comprehensive Income. ESOP RESERVEWhen a settlement or a curtailment occurs, the obligation Communisis plc shares held by the Group are classified inand the related plan assets are remeasured using current shareholders’ equity as the ‘ESOP reserve’ and are recognisedactuarial assumptions and the resultant gain or loss is at cost. Consideration received for the sale of such sharesrecognised in the Income Statement during the period in is also recognised in equity, with any difference betweenwhich the settlement or curtailment occurs. A settlement is the proceeds from sale and the original cost being taken tothe elimination of all obligations for benefits already accrued retained earnings. No gain or loss is recognised in the Incomeand a curtailment is the reduction of future obligations as a Statement on the purchase, sale, issue or cancellation ofresult of a material reduction in the scheme membership or a equity shares.reduction in future entitlement. LEASESSHARE-BASED PAYMENT TRANSACTIONS The determination of whether an arrangement is, or contains,Certain directors and management are eligible to participate a lease is based on the substance of the arrangement atin share-based payment schemes, all of which are equity- the inception date. The determination considers whethersettled. fulfilment of the arrangement is dependent on the use of a specific asset or assets, or the arrangement conveys a right toThe cost of equity-settled transactions with employees is use the assets.measured by reference to their fair value at the date at whichthey are granted. The fair value is determined by an external Finance leases, which transfer to the Group substantially allvaluer using an appropriate model. In valuing equity-settled the risks and benefits incidental to ownership of the leasedtransactions, no account is taken of any vesting conditions, item, are capitalised at the commencement of the lease atother than conditions linked to the price of the shares of the fair value of the leased asset or, if lower, at the presentCommunisis plc (‘market conditions’). value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of theThe cost of equity-settled transactions is recognised, together lease liability on a straight-line basis. Finance charges arewith a corresponding increase in equity, over the period in recognised in the Income Statement.which the performance or service conditions are fulfilled,ending on the date on which the relevant employees become Leased assets are depreciated over the useful life of the asset.fully entitled to the award (‘vesting date’). The cumulative However, if there is no reasonable certainty that the Groupexpense recognised for equity-settled transactions at each will obtain ownership by the end of the lease term, the asset isreporting date reflects the extent to which the vesting period depreciated over the shorter of the estimated useful life of thehas expired and the Group’s best estimate of the number of asset and the lease term.equity instruments that will ultimately vest. 79

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) are recognised on despatch to the postal carrier, and print and other marketing material charges are recognised on Operating lease payments are recognised as an expense in despatch by the supplier. the Income Statement on a straight-line basis over the lease term or in accordance with utilisation of the leased asset Interest when the contract is based on usage. Finance revenue is recognised as the interest accrues using REVENUE the effective interest method, which is the rate that exactly Revenue in the year represents the turnover, net of discounts, discounts estimated future cash receipts through the derived from services provided to customers and sales expected life of the financial instrument to the net carrying of goods. amount. Revenue is recognised at the fair value of the consideration INCOME FROM SUPPLIERS received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue The Group receives rebates from certain suppliers for can be reliably measured. The following specific recognition transactions that, based on the terms of the relevant criteria must also be met before revenue is recognised: contracts and local law, are either remitted to Clients or retained by the Group. If amounts are passed on to Clients Provision of services they are recorded as liabilities until settled or, if retained by The provision of print sourcing services includes the sourcing the Group, are recorded as a reduction to cost of sales as and supply of printed and other marketing material (included earned. These rebates are not complex in nature and there is within Brand Deployment revenue). Revenue from such no management judgement in calculating these. The rebates services is recognised when the significant risks and rewards are typically calculated based on a fixed percentage of of ownership of the material have passed to the client and the purchase value. amount of revenue can be measured reliably; this is usually on despatch by the supplier. EXCEPTIONAL ITEMS Revenue from creative, data and analysis services (included The Group presents separately, on the face of the Income within Customer Experience revenue), is recognised when the Statement, those material items of income and expense service has been provided and customer acknowledgement which, because of the nature and expected infrequency of of stage completion has been received. the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of Revenue from campaign management services (included financial performance in the year. This facilitates comparison within Brand Deployment revenue), is recognised when the with prior periods and to better assess trends in financial service has been provided, on a time basis which is either a performance. monthly or annual charge, or on a management fee basis. INCOME TAX Revenue from delivery of Client projects is recognised by reference to the stage of completion. Stage of completion Current tax is estimated using an appropriate measure according to the nature of the contract such as costs incurred relative to Current tax assets and liabilities for the current year are total anticipated costs or other measures such as contract measured at the amount expected to be recovered from or milestone completion. Where the project outcome cannot be paid to the taxation authorities. The tax rates and tax laws measured reliably, revenue is recognised only to the extent of used to compute the amount are those that are enacted or the expenses recognised that are recoverable. substantively enacted by the Balance Sheet date. Revenue from postal sortation services (included within Deferred tax Customer Experience revenue) is recognised on despatch of the post to the postal carrier. Deferred income tax is provided, using the liability method, on all temporary differences at the Balance Sheet date between Revenue from software licences is recognised over the period the tax bases of assets and liabilities and their carrying of the licence. amounts for financial reporting purposes. Sale of goods Deferred income tax liabilities are recognised for all taxable Revenue is recognised when the significant risks and rewards temporary differences except in respect of taxable temporary of ownership of the goods have passed to the buyer and the differences associated with investments in subsidiaries, where amount of revenue can be measured reliably; this is usually on the timing of the reversal of the temporary differences can be despatch by the Group. controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Pass Through revenue Pass Through revenue is defined as those pre-agreed or Deferred tax assets and liabilities are not recognised if the contracted revenues representing charges for print, postal temporary differences arise from the initial recognition of and other marketing material which are passed onto goodwill, or from the initial recognition (other than in a clients at cost as part of a wider service. Postal charges business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.80

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)2. ACCOUNTING POLICIES (CONTINUED) 2.5 ADOPTION OF NEW AND REVISED STANDARDSDeferred income tax assets are recognised for all deductible The IASB and IFRIC have issued a number of standards andtemporary differences, carry-forward of unused tax assets interpretations with an effective date after 1 January 2017and unused tax losses, to the extent that it is probable that as detailed in the following table. With the exception oftaxable profit will be available against which the deductible the new revenue standard IFRS 15 Revenue from Customerstemporary differences and the carry-forward of unused tax with Contracts (effective 1 January 2018 and replaces IAS 18assets and unused tax losses can be utilised. In respect of Revenue) and the new leases standard IFRS 16 Leases (effectivedeductible temporary differences associated with investments 1 January 2019 and replaces IAS 17 Leases), the Directors doin subsidiaries, deferred tax assets are only recognised to not anticipate that the adoption of these standards andthe extent that it is probable that the temporary differences interpretations will have a material impact on the Group’swill reverse in the foreseeable future and taxable profit will Financial Statements, other than additional disclosures, inbe available against which the temporary differences can the period of initial application.be utilised. Effective for annual periods Effective dateThe carrying amount of deferred income tax assets is ending December (annual periodsreviewed at each Balance Sheet date and reduced to the and thereafter beginning on or after)extent that it is no longer probable that sufficient taxableprofit will be available to allow all or part of the deferred IFRS 9 Financial Instruments 1 January 2018income tax asset to be utilised. (issued in 2010) 1 January 2018Deferred income tax assets and liabilities are measured at Amendments to IFRS 7 and IFRS 9 1 January 2018the tax rates that are expected to apply to the year when Mandatory Effective Date and 1 January 2018the asset is realised or the liability is settled, based on tax Transition Disclosures 1 January 2018rates (and tax laws) that have been enacted or substantively 1 January 2019enacted at the Balance Sheet date. Hedge Accounting and amendments 1 January 2017 to IFRS 9, IFRS 7 and IAS 39 1 January 2017Income tax relating to items recognised in other 1 January 2018comprehensive income or directly in equity is also recognised IFRS 15 Revenue from Contractsin other comprehensive income or directly in equity. with Customers 1 January 2018SALES TAX IFRS 9 Financial InstrumentsRevenues, expenses and assets are recognised net of the (issued in 2014)amount of sales tax except: IFRS 16 Leases where the sales tax incurred on a purchase of goods and services is not recoverable from the taxation authority, in Amendments to IAS 12 – Recognition of which case the sales tax is recognised as part of the cost Deferred Tax Assets for Unrealised Losses of acquisition of the asset or as part of the expense item as applicable; and Amendments to IAS 7 – Disclosure Initiative receivables and payables which are stated with the amount Clarifications to IFRS 15 Revenue from of sales tax included. Contracts with CustomersThe net amount of sales tax recoverable from, or payable to, Amendments to IFRS 2 – Classification andthe taxation authority is included as part of receivables or Measurement of Share-based Paymentpayables in the Balance Sheet. TransactionsDIVIDEND DISTRIBUTION The introduction of IFRS 15 Revenue from Contracts with CustomersThe final dividend distribution to the Company’s shareholders may have a material impact on the amounts reported andis recognised as a liability in the Group’s Financial Statements disclosures made in the Group’s accounts. The Group hasin the year in which the dividend is approved by the Company’s started a project to assess all streams of revenue and theshareholders. Interim dividends are recognised in the year in impact of IFRS 15. This project will be concluded within 2017.which they are paid. It is not practical to provide a reasonable estimate of the effect of IFRS 15 until this project has been completed. The introduction of IFRS 16 Leases may have a material impact on the amounts reported and disclosures made in the Group’s accounts. It is not practical to provide a reasonable estimate of the effect of IFRS 16 until the Group has performed a detailed review. 81

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 3. SEGMENTAL INFORMATION Corporate Costs, representing the cost of the head office and other plc related costs continue to be reported separately. BUSINESS SEGMENTS The Group’s activities are now predominantly focused in two Pension scheme costs are included in the Corporate Costs main areas which are: segment. Customer Experience; and The Communisis Board, being the Chief Operating Decision Maker, considers the performance of Customer Experience Brand Deployment. and Brand Deployment in assessing the performance of the Group and making decisions about the allocation of The key changes to the previously reported segments are: resources. Segmental disclosures have therefore been presented on this basis. The activities of the previously named Design segment (with the exception of Shopper Marketing) are now included Segment performance is evaluated based on profit from under the new Customer Experience segment along with operations and is measured consistently with profit from Direct Mail, Cheques, Statements and Inbound. operations in the income statement. However, Corporate Costs and Central Costs are managed on a Group basis and Included within the new Brand Deployment segment are are not allocated to operating segments. Print Sourcing, Managed Services and Shopper Marketing. Transfer pricing between business segments is set on an arm’s Pass Through representing pre-agreed or contracted length basis in a manner similar to transactions with third parties. revenues that include an element regarding print, postal and other marketing material which are passed onto clients The revenue and operating profit figures reviewed by the at cost as part of a wider service continues to be reported Chief Operating Decision Maker exclude sales between separately. business segments and, as such, sales between business segments are excluded from the figures in the segmental Central Costs, comprising Marketing, IT, Sourcing and results tables below. Strategic Accounts, continue to be reported separately. The segment results for the year ended 31 December 2016 are as follows: Revenue Customer Brand Pass Central Corporate Total Experience Deployment Through Costs Costs £ Profit from operations before £ £ , amortisation of acquired intangibles £ £ £ – – and exceptional items , , , Amortisation of acquired intangibles , , – (, ) (, ) , Profit from operations before () () – – – () exceptional items – Exceptional items , , – (, ) (, ) , (, ) () – () () (, ) Profit from operations , , – (, ) (, ) , Net finance costs – (, ) Profit before tax , Income tax expense (, ) Profit for the year , Other segmental information: , , Depreciation ,, , Amortisation Revenue includes sales to two customers who each individually represent more than 10% of the Group’s total revenue. Sales to Customer 1 were £88.7m including transactions with the Brand Deployment and Pass Through business segments, and to Customer 2 were £48.7m including transactions with the Customer Experience business segment.82

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)3. SEGMENTAL INFORMATION (CONTINUED)The re-segmented results for the year ended 31 December 2015 are as follows:Revenue Customer Brand Pass Central Corporate Total Experience Deployment Through Costs Costs £Profit from operations before £ £amortisation of acquired intangibles £ £ £ – – ,and exceptional items , , ,Amortisation of acquired intangibles , , – (, ) (, ) ,Profit from operations before () () – – – (, )exceptional items –Exceptional items , , – (, ) (, ) , (, ) , – – () ,Profit from operations , , , – (, ) (, ) (, )Net finance costs – , (, )Profit before tax ,Income tax expenseProfit for the yearOther segmental information: , , Depreciation , , AmortisationRevenue includes sales to two customers who each individually represent more than 10% of the Group’s total revenue. Sales toCustomer 1 were £72.6m including transactions with the Brand Deployment and Pass Through business segments,and to Customer 2 were £50.6m including transactions with the Customer Experience business segment.GEOGRAPHICAL INFORMATION £ £ Revenues from external customers (based on customer’s geographical location) , , United Kingdom , , Other countries , , Non-current assets , , United Kingdom Other countries , ,Non-current assets for this purpose consist of property, plant and equipment and intangible assets. 83

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 4. REVENUE ££ Revenue disclosed in the Income Statement is analysed as follows: ,, ,, Sales revenue ,, Sale of goods Provision of services ££ Finance revenue ,, Interest income on financial assets carried at amortised cost ,, Gain on foreign currency liabilities ,, No revenue was derived from exchanges of goods and services (2015 £nil). £ £ 5. OTHER EXPENSES (, ) (, ) 5.1 TOTAL FINANCE COSTS (, ) (, ) Interest expense for borrowings at amortised cost (, ) (, ) Retirement benefit related cost (Note ) (, ) (, ) 5.2 NET FINANCE COSTS £ £ , , Interest on financial assets measured at amortised cost , , Interest on financial liabilities measured at amortised cost , , Net interest on financial assets and financial liabilities not at fair value through Income Statement Gain on foreign currency liabilities , , Retirement benefit related cost , , 5.3 EMPLOYEE BENEFITS EXPENSE Number Number Wages and salaries , , Social security costs Pension costs ,, Expense of share-based payments Redundancy costs The average monthly number of employees during the year was made up as follows: Customer Experience Brand Deployment Central Costs Corporate Costs84

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)5. OTHER EXPENSES (CONTINUED)COMPENSATION OF KEY MANAGEMENT PERSONNELShort-term employee benefits £ £Post-employment benefits , ,Compensation for loss of office ()Share-based payments (equity-settled) () , ,Total compensation paid to key management personnelKey management personnel consist of statutory directors of the Company along with non-statutory directors who sit on theExecutive Board.An adjustment of £139,000 has been made in the year in respect of actual compensation for loss of office charged and providedfor in the prior year. The charge from the prior year and the subsequent release have both been included within exceptional items inNote 5.4 as part of the ‘exceptional restructuring costs’ charged in each respective period.Details of individual statutory director’s remuneration, with pension entitlements and interests, for the directors of the Company only,are provided within the Directors’ Remuneration Report on pages 50 to 68. Details of the Group’s pension commitments are providedin Note 14 to these Financial Statements. Details of the directors’ interests in employee share incentive plans are provided within theDirectors’ Remuneration Report on pages 50 to 68.5.4 AMORTISATION OF ACQUIRED INTANGIBLES AND EXCEPTIONAL ITEMSProfit from operations is arrived at after charging the following items: £ £Exceptional restructuring costsTrade name impairment , ,Customer relationship asset write off –Contingent consideration write off ()Capital restructure costs – (, )Release of exceptional provision – –Acquisition and set up costs , ()Exceptional items ,Non-exceptional depreciation and amortisation – amortisation of acquired intangibles (, ) , (, )During 2016 the Group incurred £4,260,000 (2015 £2,043,000) in respect of organisational restructuring to reduce the cost base,deliver efficiency improvements and outsource non-core activities. The restructuring costs included £3,606,000 relating to staffrestructuring and £654,000 in respect of the site closures at Chiswell Street, London and the Bangalore office. Of the £4,260,000,£1,088,000 is unpaid at 31 December 2016.The trade name impairment of £232,000 is in relation to Life Marketing Consultancy Limited (“Life”). The trade name was assigneda value of £512,000 at acquisition on 5 January 2015. Trading with this business has been lower than expected resulting in the tradename impairment.The £118,000 customer relationship asset write off (2015 £486,000) relates to customer relationships valued as part of acquisitionaccounting in recent years. It is indicative of the current nature of Client turnover in agency businesses where revenues are projectbased and not usually underpinned by long-term contracts.The £452,000 reduction in contingent consideration relates to fair value revisions of the contingent consideration in respect of theacquisitions of Life Marketing Consultancy Limited and The Meaningful Marketing Group Limited, being £200,000 and £252,000respectively. The £6,665,000 contingent consideration write off in 2015 related to the release of part of the contingent considerationfollowing the renegotiation of the Life earn-out agreement.The £109,000 capital restructure costs relate to non-recurring professional fees in relation to the capital reduction exerciseundertaken during the year to create additional distributable reserves.The £382,000 exceptional provision release in 2015 related to a property provision set up in 2008. This was settled in full in 2015.Acquisition and set up costs in 2015 relate to non-recurring professional fees for acquisition related activities. 85

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 5. OTHER EXPENSES (CONTINUED) £ £ – 5.5 AUDITOR’S REMUNERATION The remuneration of the auditor is analysed as follows: Audit of the Group Financial Statements Other fees to the auditor – local statutory audits for subsidiaries – other taxation services – other assurance services 5.6 OPERATING LEASE PAYMENTS £ £ Minimum lease payments , , Sub-lease receipts (, ) (, ) , , 6. INCOME TAX £ £ The major components of income tax expense for the years ended 31 December 2016 and 2015 are: , , () Tax charged in the Income Statement , Current income tax , () UK corporation tax () () Adjustments in respect of prior years () Overseas tax on profits for the year () () Total current income tax charge () , , Deferred income tax Origination and reversal of temporary differences Adjustments in respect of prior years Adjustments in respect of prior years – due to change in tax rate Total deferred tax credit Tax charge in the Consolidated Income Statement Tax relating to items charged or credited to other comprehensive income (, ) () Deferred income tax () Actuarial losses on pension scheme current year credit (, ) Adjustment in respect of prior years – due to change in tax rate Tax on financial liability Income tax (credit) / charge reported in the Consolidated Statement of Comprehensive Income Current tax adjustments, in respect of prior years, relate to the release of provisions created in respect of prior years’ tax submissions, agreed in the current year.86

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)6. INCOME TAX (CONTINUED)RECONCILIATION OF THE TOTAL TAX CHARGEThe tax expense in the Income Statement for the year is higher (2015 lower) than the average standard rate of Corporation Tax in theUK of 20% (2015 20.25%). The differences are reconciled below:Profit before income tax £ £ , ,At UK statutory income tax rate of % ( . %) , ,Expenses not deductible for tax purposes () (, )Non-taxable income ()Effect of different tax rates of subsidiaries operating in other jurisdictions () – ,Unrecognised tax losses in overseas territories ()Share-based payments () ()Change in deferred tax in respect of rolled over capital gains ,Adjustments in respect of prior yearsAdjustment in respect of prior years – due to change in tax rateTax charge in the Consolidated Income StatementUNRECOGNISED TAX LOSSESThe Group has unrecognised losses amounting to £60,000 (2015 £nil), which arose outside of the UK. No deferred tax asset has beenrecognised in respect of these losses as their future utilisation is remote.DEFERRED TAXDeferred tax included in the Consolidated Balance Sheet is as follows:Accelerated capital allowances £ £Other short-term timing differences ,Losses available for offset against future taxable income () ()Held-over capital gains () ()Capital gains rolled over into replacement assetsShare-based payments – ()Pensions (, )Financial liability ()Customer relationships intangible assets (, ) ()Deferred tax asset () (, ) (, )The realisation of the above current year deferred tax asset is dependent upon the anticipated continuing profitability of the Group.The deferred tax asset is recognised as the directors foresee future profits adequate to assume recovery. 87

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 6. INCOME TAX (CONTINUED) The deferred tax credit included in the Consolidated Income Statement is as follows: Accelerated capital allowances £ £ Other short-term timing differences () () Losses available against future taxable income Held-over capital gains () () Capital gains rolled over into replacement assets () Share-based payments () () Pensions () Customer relationships intangible assets () () () Deferred tax credit () () () The provision for deferred tax at 31 December 2016 has been made at rates between 17% and 20% depending upon the anticipated time of reversal. This reflects the legislation included in Finance Act 2015 and Finance Act 2016 reducing the rate of Corporation Tax to 19% from 1 April 2017 and 17% from April 2020. The changes in Finance Act 2016 were substantively enacted in September 2016. 7. ACQUISITION OF BUSINESS In the year ending 31 December 2016, there have been no changes to valuation inputs of prior year acquisitions. There have, however, been movements in deferred consideration in respect of Psona Limited and movement in contingent consideration in relation to Psona Films Limited, The Meaningful Marketing Group Limited and Life Marketing Consultancy Limited (“Life”) as outlined below. PSONA LIMITED On 9 June 2014, the Group acquired the entire issued share capital of The Communications Agency Limited. On 30 June 2014 the Company’s name was changed to Psona Limited. As part of the purchase agreement deferred consideration of £571,000 was agreed. As at 31 December 2016, a total of £381,000 of the deferred consideration had been paid. A reconciliation of the fair value of the deferred consideration liability is provided below: As at January £ Total consideration paid during period () As at December The results of this business are included within the Customer Experience division. PSONA FILMS LIMITED On 25 April 2014, the Group acquired the entire issued share capital of Jacaranda Productions Limited. On 30 June 2014 the Company’s name was changed to Psona Films Limited. As part of the purchase agreement a contingent consideration was agreed. An amount equal to 10% of annual gross profits of the company was payable to the sellers at the end of each of the three earn-out periods, being the years ended 30 April 2015, 2016 and 2017. The total contingent consideration would in no circumstance exceed the value of £500,000. As at the date of acquisition, the fair value of the contingent consideration was estimated at £200,000, determined using a discounted cash flow method. As at 31 December 2016, a total of £139,000 had been paid out under this arrangement for the earn-out periods ending 30 April 2015 and 30 April 2016. A reconciliation of the fair value of the contingent consideration liability is provided below: As at January £ Total consideration paid during period () As at December The final contingent consideration liability will be settled in 2017. The results of this business are included within the Customer Experience division.88

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)7. ACQUISITION OF BUSINESS (CONTINUED)THE MEANINGFUL MARKETING GROUP LIMITEDOn 15 August 2014, the Group acquired the entire issued share capital of The Meaningful Marketing Group Limited.As part of the purchase agreement a contingent consideration was agreed. An amount of up to £625,000 was payable to thesellers, spread over the earn-out periods (being the 12 months to 14 August 2015, 2016, 2017, 2018 and 2019). The amount payablefor each earn-out period was equal to 10% of Gross Profit between £1m and £1.5m, and 12.5% of Gross Profit over £1.5m. As at thedate of acquisition, the fair value of the contingent consideration was estimated at £257,000, determined using a discounted cashflow method.As at 31 December 2016, a total of £5,000 had been paid out under this arrangement for the earn-out periods ending 14 August2015 and 14 August 2016. At 31 December 2016 the fair value of the contingent consideration was revised to £nil based on forecastprofits from those parts of the company applicable to the earn-out calculation. A reconciliation of the fair value of the contingentconsideration liability is provided below:As at January £Total consideration paid during periodFair value revision – ()As at December –The results of this business are included within the Customer Experience division.LIFE MARKETING CONSULTANCY LIMITEDOn 5 January 2015, the Group acquired the entire share capital of Life.As part of the purchase agreement a contingent consideration was agreed, the mechanism for which was subsequently revised in2015 to maintain incentivisation for the management of Life. As at 31 December 2015, the fair value of all contingent considerationwas revised to £500,000.An assessment of the likely contingent consideration payable was performed by looking at the relative likelihood of a range ofoutcomes of over or under achieving against the current forecasts over the earn-out period. As at 31 December 2016, using thismethodology, the fair value of the contingent consideration was revised to £300,000. A reconciliation of the fair value of thecontingent consideration liability is provided below: As at January £ Fair value revision () As at DecemberThe final contingent consideration liability will be quantified and settled in 2019.The results of this business are included within the Brand Deployment division.The Group has used Level 3 hierarchy valuation techniques to determine the fair value of the contingent consideration.The fair value hierarchy is described in Note 23. 89

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 8. EARNINGS PER SHARE Number Number Weighted average number of ordinary shares (excluding treasury shares) for basic earnings per share ,, ,, Effect of dilution: Share options Weighted average number of ordinary shares (excluding treasury shares) adjusted for the effect of dilution 806,319 (2015 18,722) shares were held in trust at 31 December 2016. Share options in issue for which exercise is currently unlikely (as the option price is higher than the market price) total 4,395,426 (2015 2,443,158) options. Basic and diluted earnings per share is calculated as follows: £ £ Profit attributable to equity holders of the parent , , Earnings per share: Basic .p .p Diluted .p .p EARNINGS PER SHARE FROM CONTINUING OPERATIONS BEFORE EXCEPTIONAL ITEMS AND AMORTISATION OF ACQUIRED INTANGIBLES Net profit from continuing operations before exceptional items and amortisation of acquired intangibles, attributable to equity holders of the parent is derived as follows: Profit after taxation from continuing operations £ £ Exceptional items (Note . ) , , Taxation on exceptional items , Amortisation of acquired intangibles () (, ) Taxation on amortisation of acquired intangibles () Taxation – adjustments in respect of prior years (Note ) () , – () Profit after taxation from continuing operations excluding () exceptional items and amortisation of acquired intangibles , , Adjusted earnings per share: .p Basic .p .p Diluted .p The basis of measurement of adjusted earnings per share is to reflect more accurately the measure of earnings per share used by the market. Adjusted earnings per share uses the same weighted average number of ordinary shares as reported above.90

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)9. DIVIDENDS PAID AND PROPOSEDDeclared and paid during the year £ £Amounts recognised as distributions to equity holders in the year: – ,Final dividend of the year ended December of . p per share – ,Interim dividend of the year ended December of . p per share ,Final dividend of the year ended December of . p per share , –Interim dividend of the year ended December of . p per share , – ,Proposed for approval at AGM (not recognised as a liability as at December) ,Final equity dividend on ordinary shares of . p ( . p) per share ,(based on issued share capital at the date of approval of the Financial Statements)10. PROPERTY, PLANT AND EQUIPMENT Freehold Long Short Plant, Total property leasehold leasehold equipment £ Cost property property and motor At January £ , Additions £ £ vehicles , Transfer , £ () Disposals – (, ) Acquisition of business – – ,, Exchange adjustment – – , () At December – – () , Additions – – , Disposals , – (, ) (, ) Exchange adjustment – At December – – – () , Depreciation – – At January , ,, , Depreciation charge for the year – , , Transfer , – Disposals – – (, ) () Exchange adjustment – – – (, ) At December – Depreciation charge for the year – – ,, , Impairment , – , Disposals – , Exchange adjustment – – , (, ) At December – () Net book value at December – – – (, ) , Net book value at December , – – , Net book value at December , – , , , , , , – – (, ) – , ,, ,, ,,During the year, the two London operations were consolidated into Little Portland Street. On the exit from Chiswell Street, Londonthe remaining net book value of fixtures and fittings in that location were fully impaired. This was charged through exceptional costs(Note 5.4) along with additional costs in relation to the exit.The carrying value of plant and equipment held under finance leases and hire purchase contracts at 31 December 2016 was£2,059,000 (2015 £2,615,000).With the exception of finance leases and hire purchase contracts above, there is no security, nor any restriction on title.Included within plant, equipment and motor vehicles are assets currently in development of £1,500,000 (2015 £202,000).Depreciation is expected to commence in 2017. 91

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 11. INTANGIBLE ASSETS Goodwill Software Customer Trade Licences Total £ assets relationships names £ £ Cost £ At January , assets £ , , Additions – , £ – – , Acquisition of business , – – , Transfer , , – – Disposals – () – – () At December – , – , , Additions , – – – , Disposals , () () () At December – , , – , , Amortisation and impairment – – At January , – – – , Amortisation during the year , , – – – , Impairment (Note . ) , – Transfer , – – () Disposals – , – , At December – () , – – , Amortisation during the year – , Impairment (Note . ) – , – () Disposals () , At December , – , , Net book value at December – () , , Net book value at December – , , Net book value at December – , – , , , , , , , , , , Software assets are amortised evenly over their useful economic lives of between three and eight years. Included in software assets is £336,000 (2015 £1,632,000) currently in development. Amortisation is expected to commence in 2017. As at 31 December 2016 the forecast revenue for some of the customer relationships within recent acquisitions had declined from initial expectations resulting in an indication of impairment. A prudent view has therefore been taken to reduce the relevant customer relationship assets accordingly and £118,000 (2015 £486,000) has been recorded in exceptional items (Note 5.4). The trade name asset addition arose on the acquisition of Life and is being amortised on a straight-line basis over its useful life of five years. The asset was impaired by £232,000 during the year (2015 £nil) in response to trading being lower than expected (Note 5.4). Included within Licences are amounts spent for the development of software which Communisis has the exclusive right to sell within the UK. There are a number of assets included within software that have been fully amortised but are still in use by the Group. The total cost and accumulated amortisation of these assets at 31 December 2016 is £8,954,000 (2015 £5,920,000). As at 31 December 2016, the Group had not entered into any contractual commitments for the acquisition of intangible assets (2015 £128,000).92

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)12. IMPAIRMENT OF GOODWILLGoodwill acquired through business combinations is allocated for impairment testing purposes to two cash-generating units(“CGUs”), which are reportable segments, as follows: Customer Experience; and Brand Deployment.The reportable CGUs reflect the changes to the segments that occurred during the year, as detailed in Note 3.These represent the lowest level within the Group at which goodwill is monitored for internal management purposes.The carrying amount of goodwill allocated to cash-generating units is as follows:Customer Experience ££Brand Deployment ,, ,, ,,The Group conducts annual impairment tests on the carrying value of goodwill using value in use calculations. The key assumptionsincluded in the value in use calculations are revenue growth, product and services mix and profit margins, the long-term growthrates and the discount rate applied.The Group prepares cash flow forecasts for these CGUs based on the most recent annual budgets approved by the Board. Theseare based upon detailed budgets for the coming year and internal forecasts of future growth over a five-year period and cashflows beyond the five-year period are extrapolated using external forecasts of expected growth rates. Further information on theassumptions used within the major CGUs is detailed below.KEY ASSUMPTIONS USED IN VALUE IN USE CALCULATIONSThe calculation of value in use for all CGUs is most sensitive to the following assumptions: revenue growth rates; product and services mix and profit margins; and growth rates used to extrapolate cash flows beyond the budget period.In addition, the calculation of value in use is sensitive to movements in the discount rate.Revenue growth included in the approved financial budgetsThe revenue forecast in the Customer Experience cash flow projections, based on financial budgets, is a decline of 3% in 2017 followedby growth of between 5% and 6% in years two to five.The revenue forecast in the Brand Deployment cash flow projections, based on financial budgets, is growth of 17% in 2017 andbetween 4% and 7% in years two to five.Product and services mix and profit marginsBrand Deployment is expected to have an increased share of Group revenues relative to Customer Experience over the five-yearforecast period.The Group profit margin, based on gross revenue, is projected to increase from 5.4% in 2016 to 7.6% by the end of the detailedforecast period. 93

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 12. IMPAIRMENT OF GOODWILL (CONTINUED) Profit growth rate used to extrapolate cash flows beyond the budget period The profit growth rate used to extrapolate cash flow projections beyond the budget period for all CGUs is considered to be a representative rate for the markets to which these segments are dedicated and in line with long-term economic growth forecasts. Profit growth rates have been assessed individually for each CGU. Profit growth rates of 2.3% have been used for Customer Experience and 2.7% for Brand Deployment. Discount rates The pre-tax discount rate applied to the Customer Experience cash flow projections is 12.2% and to Brand Deployment cash flow projections is 11.9%. This is the Group’s weighted average cost of capital adjusted to a pre-tax rate and adjusted to reflect management’s view of the market assessment of specific risks associated with each separate CGU. Customer Experience Goodwill at Revenue Profit margin Terminal Pre-tax Brand Deployment December growth rates years - growth rates discount rate £ , years - (based on gross % % % revenue) . . , % %, %, %, % . . Respectively %, %, %, % Respectively %, %, %, % Respectively %, %, %, % Respectively The comparatives below are stated using the segmentation in place at the time. Produce Goodwill at Revenue Profit margin Terminal Pre-tax Deploy December growth rates years - growth rates discount rate Design £ , years - (based on revenue % % % excluding . . , %, %, - %, - % pass through) . . , Respectively % . . %, %, %, % %, %, %, % Respectively Respectively %, %, %, % %, %, %, % Respectively Respectively %, %, %, % Respectively Goodwill was allocated to each individual CGU using a relative value approach during the re-segmentation which was completed in 2016. The growth rates used in years two to five are below the growth rates expected by management for the business. In 2016 no impairment charges have been made (2015 £nil). The headroom at 31 December 2016 was £35 million in the Customer Experience division and £87 million in the Brand Deployment division. SENSITIVITY TO CHANGES IN ASSUMPTIONS There are reasonably possible changes in key assumptions within the Customer Experience division which could erode the headroom. The sensitivity to each of these reasonably possible changes is detailed below. In each sensitivity assessment, all other items assumptions other than the assumption being sensitised, remained equal: short-term revenue growth rates in years two to five would need to reduce from between 5% and 6% to between 1% and 2%, to remove all headroom on the Customer Experience impairment test; the pre-tax discount rate would need to increase (in absolute terms) by 3% to remove all headroom within the Customer Experience impairment test; on average, long-term profit growth rates would need to be reduced (in absolute terms) by 2% to remove all headroom in the Customer Experience division; profit margin would need to drop by 2% in years two to five, which equates to a 15% drop in overall divisional profits, to remove all headroom in the Customer Experience division. There are no reasonably possible changes in key assumptions within the Brand Deployment division which could erode the headroom to the point at which an impairment is necessary.94

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)13. SHARE-BASED PAYMENTSThe Communisis Long Term Incentive Plan 2007Certain directors and managers are eligible to participate in this plan at the discretion of the Remuneration Committee.The exercise price in respect of options granted under the scheme is £nil. There are no cash settlement alternatives.There are no options granted under this scheme prior to 2014 which are still outstanding.For options granted under this scheme in 2014 a maximum of 60% of the options will vest on the attainment of certain share pricethresholds and the remaining 40% will vest on the attainment of growth in earnings per share over the financial years 2014-16.The share price measure is calculated by reference to the average share price in the final three months of the three year performanceperiod in comparison with the average share price in the three months immediately preceding grant (“Base Share Price”). If theclosing average share price is 10p above the Base Share Price, 25% of this tranche of options will vest; if the closing average shareprice exceeds 105p, 100% of this tranche will vest; for attainment between these thresholds, vesting will occur on a straight-line prorata basis. The earnings per share performance will be measured on the basis of adjusted basic earnings per share (being earningsper share from continuing operations before exceptional items and amortisation of acquired intangible assets and the tax effect ofthese items). Vesting will be calculated by comparing earnings per share at the end of financial year 2016 to the earnings per shareat 31 December 2013 and calculating the compound annual growth rate. On the basis of this compound growth rate, 70.91% of thistranche of options will vest in 2017 on the third anniversary of the date of grant.For options granted under this scheme in 2015 a maximum of 20% of the options will vest on the attainment of certain share pricethresholds and the remaining 80% will vest on the attainment of growth in earnings per share over the financial years 2015-17. Theshare price measure is calculated by reference to the average share price in the final three months of the three year performanceperiod in comparison with the average share price in the three months immediately preceding grant (“Base Share Price”). If theclosing average share price is 10p above the Base Share Price, 25% of this tranche of options will vest; if the closing average shareprice exceeds 90p, 100% of this tranche will vest; for attainment between these thresholds, vesting will occur on a straight-line prorata basis. The earnings per share performance will be measured on the basis of adjusted basic earnings per share (being earningsper share from continuing operations before exceptional items and amortisation of acquired intangible assets and the tax effect ofthese items). Vesting will be calculated by comparing earnings per share at the end of financial year 2017 to the earnings per share at31 December 2014 and calculating the compound annual growth rate. If the compound earnings per share growth reaches 7.5% perannum 25% of this tranche of options will vest, increasing to 100% vesting if earnings per share growth exceeds 15% per annum;for attainment between these thresholds vesting will occur on a straight-line pro rata basis.For options granted under this scheme in 2016 all options will vest on the attainment of growth in earnings per share over thefinancial years 2016-18. The earnings per share performance will be measured on the basis of adjusted basic earnings per share(being earnings per share from continuing operations before exceptional items and amortisation of acquired intangible assets andthe tax effect of these items). Vesting will be calculated by comparing earnings per share at the end of financial year 2018 to theearnings per share at 31 December 2015 and calculating the compound annual growth rate. If the compound earnings per sharegrowth reaches 5% per annum, 15% of this tranche of options will vest; at 6% compound annual growth, 20% of the options vest;at 7.5% growth rate 25% of the options vest; at a compound annual growth rate of 10%, 75% of the options vest and if the compoundannual growth in earnings per share exceeds 15% per annum there is 100% vesting; for attainment between these thresholds vestingwill occur on a straight-line pro rata basis.The Remuneration Committee will only sanction vesting of the awards granted if they are satisfied as to the Group’s underlyingfinancial performance in the performance period.The fair value of options granted under the Long Term Incentive Plan 2007 in the year to 31 December 2016 was estimated on the dateof grant using a binomial simulation option pricing model, taking into account the terms and conditions upon which the optionswere granted. The following weighted average assumptions were used in that model: an expected life of three years; share price atthe date of grant of 47p (2015 55p); estimated annualised dividend yield of approximately 4.68% (2015 3.44%); risk-free interest rateof 0.51% (2015 0.66%) and expected volatility of 38.72% (2015 40.25%). The weighted average fair value of the share options granted inthe year ended 31 December 2016 under this plan was 41p (2015 44p).The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns which may occur.The expected volatility reflects historical volatility adjusted for future trends, which may also not necessarily be the actual outcome.Both the historical and expected volatilities reflect the volatility of the share prices of Communisis plc and comparator companies. 95

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 13. SHARE-BASED PAYMENTS (CONTINUED) The Executive Share Option Scheme 2010 Certain directors and managers are eligible to participate in this scheme at the discretion of the Remuneration Committee. The exercise price of the options granted under this scheme is equal to the market value of the shares on the date of grant. No options were granted under this scheme in the year ended 31 December 2016 nor in the year ended 31 December 2015. The Sharesave Scheme All UK employees (including executive directors) are eligible to participate in the Communisis Sharesave Scheme. The exercise price of the options is usually equal to the market price of the shares at the date of invitation to participate less a maximum discount of 20%. The options vest on the third anniversary of the commencement of the savings period. Any options which have not been exercised within six months of the vesting date lapse. In respect of the Sharesave options granted in the year ended 31 December 2016, the weighted average fair value of these options granted was estimated at the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used in that model: option holders will exercise their option at expiry; share price at the date of grant of 44p; estimated annualised dividend yield of approximately 5.00%; risk-free interest rate of 0.63% and expected volatility of 38.89%. The volatility has been determined by reference to Communisis plc’s and comparator companies’ historical volatility over a three- year period, adjusted for expected future trends, to reflect the share price of Communisis plc in the future. The exercise price is 45.75p for options exercisable three years after the date of grant. The weighted average fair value of the share options granted under this scheme in the year ended 31 December 2014 was 7.8p. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share. The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and movements in, share options during the year. Outstanding at the beginning of the year Number WAEP Number WAEP Granted during the year Forfeited during the year ,, .p ,, .p Exercised during the year ,, .p ,, .p Expired during the year (, , ) .p (, , ) .p ( ,) .p (, , ) .p Outstanding at the end of the year (, , ) .p (,) .p Exercisable at the end of the year ,, .p ,, .p – – , .p 1The weighted average share price at the date of exercise for the options exercised in the year ended 31 December 2016 was 45p (2015 44p). The weighted average remaining contractual life for the share options outstanding as at 31 December 2016 is 1.70 years (2015 2.08 years). The weighted average fair value of all options granted during the year was 25p (2015 43p). The range of exercise prices for options outstanding at the end of the year was nil - 57.5p (2015 nil - 57.5p). The number of share options for which the exercise price is nil total 5,906,359 (2015 6,048,291).96

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)14. RETIREMENT BENEFIT PLANSThe Group operates the Communisis Pension Plan which comprises a defined contribution and defined benefit section.DEFINED CONTRIBUTION SECTIONThe Group operates a UK defined contribution arrangement within all UK trading Group companies. The assets of the arrangementsare held separately from those of the Group.Group companies are required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund thebenefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.The total cost charged to income of £3,105,000 (2015 £3,156,000) represents contributions payable to these arrangements by theGroup at specified rates. As at 31 December 2016 all contributions due in respect of the current reporting period had been paid overto the arrangements (2015 all paid over).The Group expects to contribute £3,000,000 to the defined contribution pension arrangements in 2017.DEFINED BENEFIT SECTIONThe section is closed to all members with no employees accruing further benefits under the plan.The following tables summarise the components of net benefit expense recognised in the Consolidated Income Statement and theamounts taken to the Consolidated Statement of Comprehensive Income:Recognised in profit from operations £ £Administration costsGains on settlements () () –Recognised in arriving at profit from operations () (, ) ()Interest expense (, )Interest income , (, ) ,Net interest on defined benefit liability (, ) (, ) (, )Net benefit expenseTaken to the Consolidated Statement of Comprehensive Income , (, )Actual return on scheme assets (excluding interest income) (, )Actuarial (losses) / gains arising from changes in financial assumptions ,Actuarial gains arising from changes in demographic assumptions – (, )Actuarial losses recognised in the Consolidated Statement of Comprehensive Income (, ) 97

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 14. RETIREMENT BENEFIT PLANS (CONTINUED) Benefit (liability) / asset The following table summarises the funded status and amounts recognised in the Consolidated Balance Sheet for the defined benefit pension plan. Defined benefit obligation £ ) £ Value of plan assets ) (, (, ) Net pension deficit , , (, (, ) The defined benefit obligation comprises £208,357,000 (2015 £177,486,000) arising from a partly funded plan. Changes in the fair value of the funded status of the defined benefit plan are as follows: ££ Opening net pension deficit (, ) (, ) Contributions by employer , , Gains on settlements – Net interest expense (, ) Administration costs () (, ) Actuarial loss () (, ) (, ) Closing net pension deficit (, ) (, ) The plan carried out a Trivial Commutation exercise during the year in which a number of members chose to commute a proportion of their benefits. The plan also carried out a Small Pot Lump Sum exercise during the year, in which a number of members chose to take benefits as cash. These exercises resulted in a settlement gain of £352,000 in the year (2015 £nil). The HSBC section of the plan, relating to a number of former HSBC employees under a TUPE arrangement, was closed to future accrual on 16 January 2013. During the prior year, the HSBC section liabilities were transferred in full to a third party insurer and no further net liability remains in respect of the HSBC section. The 2015 reconciliation of the assets and liabilities included a settlement item in respect of this buy-out. Since the HSBC section assets have previously been set equal to the liabilities, the effect of the settlement was zero and therefore had no profit or loss impact. Present value of the defined benefit obligation Changes in the present value of the defined benefit obligation are as follows: Opening defined benefit obligation £ £ Interest expense Benefits paid , , Actuarial loss / (gain) arising from changes in financial assumptions , , Actuarial gain arising from changes in demographic assumptions (, ) (, ) Creditor extinguished on settlements , () (, ) Closing defined benefit obligation – (, ) (, ) , , Value of plan assets £ £ Changes in the value of plan assets are as follows: , , Opening plan assets , , Interest income () () Administration costs , , Contributions by employer (, ) (, ) Benefits paid , (, ) Actual return on scheme assets (excluding interest income) (, ) (, ) Assets distributed on settlements Closing plan assets , ,98

Communisis plc Annual Report and Financial Statements FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)14. RETIREMENT BENEFIT PLANS (CONTINUED)The values of major categories of Plan assets and the relative percentage of the total Plan assets are as follows:Asset category £ %£ %Assets with a quoted market price in an active market:Emerging Market Equities ,,Liability Driven Investments ,,Diversified Growth Funds ,,Property Income Fund ,,Others ,,Insured Liabilities ,,Cash ,,None of the above represents equities or bonds issued by the Group, nor properties owned by the Group.Communisis Trustee (2011) Company Limited (the Trustee) has been appointed by Communisis to administer and manage theCommunisis Pension Plan on behalf of the members in accordance with the terms of the Trust Deed & Rules of the Plan and relevantlegislation. There are currently four Trustee directors, two who are company-nominated (one of who is the Independent Chairman)and two who are member-nominated. One of the member-nominated Trustees is a current pensioner of the Communisis PensionPlan and the other an active contributing member. Member-nominated Trustee directors are usually appointed for a three-year termbut are then eligible for re-appointment subject to a vote of the membership.The overall management of the investment of the assets of the Communisis Pension Plan is the responsibility of the Plan Trustees.However, the day to day execution of the investment and associated transactions is delegated to the Plan’s appointed InvestmentManagers.The Trustees’ agreed investment strategy is based on analysis of the liability profile of the Plan and the risk and returns expected fromthe various asset classes held over the longer term. The primary objective of the Trustees is to operate a strategy which provides longterm growth and security for all beneficiaries.The risk that the investments may not be sufficient to cover the Plan liabilities is one which is monitored by the Trustees and theiradvisers as well as by the Company. The funding position and the divergence of invested assets is under regular review.The Communisis Pension Plan invests in Liability Driven Investments (“LDI”) to reduce investment risk and to manage the liabilitiesin order to reduce fluctuations in the Plan’s funding levels. The objective of LDI is to have sufficient assets to meet both current andfuture liabilities as they fall due. LDI involves the use of derivatives such as swaps and other financial instruments.The Group expects to pay £3,900,000 to the defined benefit pension scheme in 2017, of which £1,150,000 relates to annual rent and£900,000 to administration costs.In February 2012 the Group and the Trustees agreed to an arrangement involving the securitisation of a rental stream on one of theGroup’s freehold properties to help address the pension fund deficit. In connection with the arrangement certain freehold propertywas transferred to a limited partnership established by the Group. The partnership is controlled by, and its results are consolidatedby, the Group. The fair value of the assets transferred was £9,750,000 and on the same date the Plan used the contribution to acquirean interest in the partnership for its fair value of £9,750,000. The Plan’s partnership interest entitles it to a distribution of £1,150,000each year from the income of the partnership over 15 years. The Plan’s interest in the partnership does not qualify as a Plan asset forthe Group.In addition to the rental payments referred to above, in order to remove the deficit, a further recovery plan (subject to reassessmentfollowing future triennial valuations) has been agreed. This comprises eight annual contributions, payable by 5 October each year from2015 up to and including 2022. These contributions increase annually in line with increases in the dividend per share declared by theGroup, with a minimum annual increase in line with RPI inflation. A contribution of £1,686,000 was paid during 2016 (2015 £1,500,000). 99

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 14. RETIREMENT BENEFIT PLANS (CONTINUED) Assumptions Independent qualified actuaries have updated the accounting deficit valuation to take account of the requirements of IAS 19 Employee Benefits in order to assess the liabilities of the scheme at 31 December 2016. The last triennial valuation was performed at 31 March 2014 with the next valuation due to be calculated at 31 March 2017. The principal weighted average assumptions used to determine benefit obligations for the Group’s plan are shown below: Discount rate %% Inflation assumption – Retail Prices Index Inflation assumption – Consumer Prices Index .. .. .. Mortality rates Mortality rates have assumed the base table of 110% of S1PA consistent with the prior year. Assumed life expectancy for a member aged 65 is as follows: Current pensioners: Years Years Male Female . . . . Future pensioners: Male . . Female . . Sensitivity analysis has been performed to determine the impact on the defined benefit obligation as a result of reasonable changes in the key assumptions occurring at the end of the reporting period. A change of 0.1 percentage points in the discount rate would have the following effects: Increase Decrease £ £ Discount rate , Effect on profit from operations () Effect on defined benefit obligation (, ) A change of . percentage points in the consumer price index would have the following effect: Increase Decrease £ £ Inflation – consumer price index , Effect on defined benefit obligation (, ) An increase of one year in life expectancy would have the following effect: Increase £ Effect on defined benefit obligation , The Plan is exposed to inflation and interest rate risk and changes in the life expectancy of pensioners. The Group’s exposure to equity market risk is mitigated by a diverse portfolio of investments. The weighted average duration of the defined benefit obligation at 31 December 2016 is approximately 17 years (31 December 2015 17 years).100