COLOUR AND FINANCIAL STATEMENTS - Communisis · PDF file · 2017-04-07Communisis...

12mm Spine

Communisis plc10 Little Portland StreetLondonW1W 7JG T: +44 (0) 207 382 8950

WWW. COMMUNISIS.COM

CO

MM

UN

ISIS PLC A

NN

UA

L REPO

RT A

ND

FINA

NC

IAL STAT

EMEN

TS 20

16

ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

P160PRINTED BY COMMUNISIS

C M

Y KPMS ???PMS ???PMS ???PMS ???

COLOURCOLOUR

JOB LOCATION:PRINERGY 3

Non-printingColours

COM-P160-R+A16-COVER.indd 1 21/03/2017 17:21

HIGHLIGHTS 4

CHAIRMAN’S STATEMENT 7

STRATEGIC REPORT 9

RISKS AND UNCERTAINTIES 22

CORPORATE SOCIAL RESPONSIBILITY REPORT 26

GOVERNANCE 32

BOARD OF DIRECTORS AND EXECUTIVE BOARD 32

DIRECTORS’ REPORT 35

CORPORATE GOVERNANCE REPORT 40

AUDIT COMMITTEE REPORT 46

STATEMENT OF DIRECTORS’ RESPONSIBILITIES 48

DIRECTORS’ REMUNERATION REPORT 50

FINANCIAL STATEMENTS 69

CONSOLIDATED INCOME STATEMENT 70

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 71

CONSOLIDATED BALANCE SHEET 72

CONSOLIDATED CASH FLOW STATEMENT 73

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 74

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 75

COMPANY BALANCE SHEET 114

STATEMENT OF CHANGES IN EQUITY 115

NOTES TO THE COMPANY FINANCIAL STATEMENTS 116

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF COMMUNISIS PLC 127

SHAREHOLDER INFORMATION 135

CONTENTS

12mm Spine


“ SUCCESS IN 2016 CAME FROM A FOCUS ON CORE ACTIVITIES AND TRANSLATED INTO A NUMBER OF SIGNIFICANT, NEW MULTI-YEAR CONTRACTS. WE HAVE SUCCEEDED IN STRENGTHENING OUR POSITION AS THE LEADER IN UK TRANSACTIONAL COMMUNICATIONS AND FURTHER EXTENDED OUR BRAND DEPLOYMENT SERVICES IN OVERSEAS TERRITORIES. THESE TWIN THEMES WILL CONTINUE TO UNDERPIN OUR GROWTH STRATEGY GOING FORWARD.”

ANDY BLUNDELL Chief Executive 9 March 2017

C M


COLOURCOLOUR


Non-printingColours

3

COM-P160-R+A16-1.indd 3 22/03/2017 21:09

Financial Results 2016 2015 As Reported Constant Currency*

Total revenue (£m) 361.9 354.2 +2% 0%

Adjusted operating profit (£m)** 19.5 18.3 +6% +2%

Adjusted profit before tax (£m)** 16.7 14.5 +15% +9%

Adjusted earnings per share (p)** 6.07 5.18 +17% +10%

Profit before tax (£m) (Note 1) 11.6 17.3 -33% -36%

Proposed final dividend per share (p) 1.61 1.47 +10%

Free cash flow (£m) *** 12.9 12.0 +7%

Net debt (£m) 30.4 39.4 -23%

HIGHLIGHTS

FINANCIAL HIGHLIGHTS Adjusted earnings per share up 17% to 6.07p (2015 5.18p)

Adjusted profit before tax up 15% to £16.7m (2015 £14.5m)

Free cash flow 7% higher at £12.9m (2015 £12.0m)

Net debt reduced by £9m to £30m (2015 £39m)

Full year dividend per share increased by 10% to 2.42p (2015 2.20p)

OPERATIONAL HIGHLIGHTS

GROWTH

Significant new multi-year contractual relationships:

LV= (Liverpool Victoria Friendly Society) for a six-year term for customer fulfilment services from March 2016;

Her Majesty’s Revenue and Customs (“HMRC”) for all outbound customer communication, commencing July 2017 for a five-year term;

Global healthcare client for marketing print management across EMEA (Europe, the Middle East and Africa), with a staged roll-out commencing from the Middle East and then multiple territories, for a three-year term;

Sony Europe for a range of customer communication services, commenced October 2016 for a three-year term.

Increased international presence:

International sales now 26% of Group revenue (2015 18%);

First presence in USA market to be established through an office in New York, expected to open by June 2017, initially providing content-marketing services to our Client, LinkedIn.

ADJUSTED EARNINGS PER SHARE (EPS)

Pen

ce p

er s

ha

re

7.00

4.6

2 5.1

8 6.0

76.00

5.00

4.00

3.00

2.00

1.00

0.00

20

14

20

15

20

16

DIVIDEND PER SHARE

Pen

ce p

er s

ha

re

3.00

2.0

0 2.2

0 2.4

2

2.00

1.00

0.00

20

14

20

15

20

16

ADJUSTED PROFIT BEFORE TAX

£m

18

16

14

12

10

8

6

4

2

0

12

.4 14

.5

16

.7

20

14

20

15

20

16

FREE CASH FLOW

£m

14

6.0

12

.0 12

.912

10

8

6

4

2

0

20

14

20

15

20

16

Note 1: Profit before tax during 2015 included a significant £6.7m one-off release of contingent consideration. Adjusted measures are presented and used by Communisis to give a better understanding of the underlying performance of the Group by excluding the effect of exceptional gains and losses from each year.

* Constant currency: the reported numbers excluding the effects of changes in exchange rates on the translation into sterling of results denominated in foreign currencies.

** Adjusted metrics are stated before exceptional items and the amortisation of acquired intangibles. Adjusted earnings per share is fully diluted and excludes the after-tax effects of exceptional items and the amortisation of acquired intangibles.

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

4

COM-P160-R+A16-1.indd 4 22/03/2017 21:09

Financial Results 2016 2015 As Reported Constant Currency*

Total revenue (£m) 361.9 354.2 +2% 0%

Adjusted operating profit (£m)** 19.5 18.3 +6% +2%

Adjusted profit before tax (£m)** 16.7 14.5 +15% +9%

Adjusted earnings per share (p)** 6.07 5.18 +17% +10%

Profit before tax (£m) (Note 1) 11.6 17.3 -33% -36%

Proposed final dividend per share (p) 1.61 1.47 +10%

Free cash flow (£m) *** 12.9 12.0 +7%

Net debt (£m) 30.4 39.4 -23%

FINANCIAL HIGHLIGHTS Adjusted earnings per share up 17% to 6.07p (2015 5.18p)

Adjusted profit before tax up 15% to £16.7m (2015 £14.5m)

Free cash flow 7% higher at £12.9m (2015 £12.0m)

Net debt reduced by £9m to £30m (2015 £39m)

Full year dividend per share increased by 10% to 2.42p (2015 2.20p)

OPERATIONAL HIGHLIGHTS

GROWTH EFFICIENCY PEOPLE

GROWTH

Significant new multi-year contractual relationships:

LV= (Liverpool Victoria Friendly Society) for a six-year term for customer fulfilment services from March 2016;

Her Majesty’s Revenue and Customs (“HMRC”) for all outbound customer communication, commencing July 2017 for a five-year term;

Global healthcare client for marketing print management across EMEA (Europe, the Middle East and Africa), with a staged roll-out commencing from the Middle East and then multiple territories, for a three-year term;

Sony Europe for a range of customer communication services, commenced October 2016 for a three-year term.

Increased international presence:

International sales now 26% of Group revenue (2015 18%);

First presence in USA market to be established through an office in New York, expected to open by June 2017, initially providing content-marketing services to our Client, LinkedIn.

EFFICIENCY

Implemented a simplified two divisional structure to align with our target Clients and main markets.

Continued to optimise cost base:

Reduction in corporate costs as a result of simplified Group structure;

Operational efficiency programmes delivering benefits in all main manufacturing locations.

PEOPLE

Entered into a partnership with Randstad Sourceright, a global leader in recruitment solutions, to improve our recruitment processes;

Continued investment in our learning and development function.

Note 1: Profit before tax during 2015 included a significant £6.7m one-off release of contingent consideration. Adjusted measures are presented and used by Communisis to give a better understanding of the underlying performance of the Group by excluding the effect of exceptional gains and losses from each year.

* Constant currency: the reported numbers excluding the effects of changes in exchange rates on the translation into sterling of results denominated in foreign currencies.

** Adjusted metrics are stated before exceptional items and the amortisation of acquired intangibles. Adjusted earnings per share is fully diluted and excludes the after-tax effects of exceptional items and the amortisation of acquired intangibles.

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

OUTLOOK

Communisis is well placed to respond to opportunities for client service extension, the application of technology and geographic expansion in our existing and new Client relationships. Our simplified structure is also helping us to optimise our cost base and operational efficiency programmes are delivering benefits in our manufacturing locations.

Trading in the early months of this year has started in line with expectations and the Board is looking forward to another positive year for the Group.

OUTLOOK

Communisis is well placed to respond to opportunities for client service extension, the application of technology and geographic expansion in our existing and new Client relationships. Our simplified structure is also helping us to optimise our cost base and operational efficiency programmes are delivering benefits in our manufacturing locations.

Trading in the early months of this year has started in line with expectations and the Board is looking forward to another positive year for the Group.

5

Communisis plc Annual Report and Financial Statements 2016 | HIGHLIGHTS

COM-P160-R+A16-1.indd 5 22/03/2017 21:09

CHAIRMAN’S STATEMENT

COMMUNISIS DELIVERED A STRONG SET OF RESULTS IN 2016, WHICH WAS OUR SEVENTH CONSECUTIVE YEAR OF GROWTH

RESULTS

Communisis delivered a strong set of results in 2016, which was our seventh consecutive year of growth.

Adjusted profit before tax increased 15% to £16.7m (2015 £14.5m) on revenue that was 2% ahead at £361.9m (2015 £354.2m). Free cash generation was strong, increasing to £12.9m (2015 £12.0m). Year-end net debt reduced by 23% to £30.4m (2015 £39.4m). Adjusted earnings per share was up 17% at 6.07p (2015 5.18p).

These results came about through a focus on our core activities, driven from a simplified group structure that effectively aligns to our main target Clients and markets. In 2016 Communisis won several important new contracts, which assist visibility against our longer-term growth plans.

The Customer Experience division consolidated its market leadership in the UK transactional arena, with important new contracts with Her Majesty’s Revenue and Customs (“HMRC”) and LV= Group. There are interesting opportunities for our company to help its Clients respond through multiple channels, to a more demanding customer base, whilst navigating regulation.

6

COM-P160-R+A16-1.indd 6 22/03/2017 21:09

CHAIRMAN’S STATEMENT

PETER HICKSON Chairman 9 March 2017

RESULTS

Communisis delivered a strong set of results in 2016, which was our seventh consecutive year of growth.

Adjusted profit before tax increased 15% to £16.7m (2015 £14.5m) on revenue that was 2% ahead at £361.9m (2015 £354.2m). Free cash generation was strong, increasing to £12.9m (2015 £12.0m). Year-end net debt reduced by 23% to £30.4m (2015 £39.4m). Adjusted earnings per share was up 17% at 6.07p (2015 5.18p).

These results came about through a focus on our core activities, driven from a simplified group structure that effectively aligns to our main target Clients and markets. In 2016 Communisis won several important new contracts, which assist visibility against our longer-term growth plans.

The Customer Experience division consolidated its market leadership in the UK transactional arena, with important new contracts with Her Majesty’s Revenue and Customs (“HMRC”) and LV= Group. There are interesting opportunities for our company to help its Clients respond through multiple channels, to a more demanding customer base, whilst navigating regulation.

The Brand Deployment division continued to grow rapidly in overseas markets; these territories now account for 26% of Group turnover. In 2016 Communisis secured a major contract with a global healthcare provider and separately a new contract with Sony Europe; both arrangements are multi-year agreements across several countries in EMEA. Brand owners are increasingly concerned to control and co-ordinate their spend in marketing execution on an international basis, which translates as a significant, continued growth opportunity for Communisis.

Successful delivery of the Group’s strategy is dependent upon attracting, developing and retaining a high calibre team. The Board would like to thank everyone who has contributed to another successful year for the Group.

DIVIDEND

The proposed final dividend has been increased by 10% to 1.61p per share, bringing the total dividend for the year to 2.42p per share. The dividend will be payable on 26 May 2017 to shareholders on the register at 28 April 2017.

BOARD CHANGES

David Gilbertson was appointed as Non-Executive Director and Chairman Designate on 1 March 2017. After nine years in the role, I have taken the decision to retire and David will assume the role of Chairman, following the Annual General Meeting on 11 May 2017.

I am proud to have served Communisis and its shareholders for the past nine years. During this time the Group has established itself as a market leader in customer communication. Our growth has seen us enter new service areas, win major long-term outsourcing contracts and create a meaningful presence in international markets. I very much welcome David as my successor and wish him well in the role.

7

Communisis plc Annual Report and Financial Statements 2016 | CHAIRMAN’S STATEMENT

COM-P160-R+A16-1.indd 7 22/03/2017 21:09

WHAT DO WE DO? Communisis specialises in integrated marketing services that improve communications between brands and their customers.

The Group has recently completed a detailed review to refine its Client propositions and how it is positioned in the market.

The new proposition simplifies the go-to-market approach and uses marketing discipline to create demand and preference for our services. The Group has also revitalised its brand identity. More details are available at www.communisis.com

THE NEW PROPOSITION – SHAPING THE FUTURE OF CUSTOMER COMMUNICATION

PURPOSE

Clients are facing unprecedented change, whether regulatory, technological or in consumer behaviour. It is the role of Communisis to help them stay ahead of these challenges.

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

STRATEGIC REPORT

COMMUNISIS SPECIALISES IN INTEGRATED MARKETING SERVICES THAT IMPROVE COMMUNICATIONS BETWEEN BRANDS AND THEIR CUSTOMERS

8

COM-P160-R+A16-1.indd 8 22/03/2017 21:09

WHAT DO WE DO? Communisis specialises in integrated marketing services that improve communications between brands and their customers.

The Group has recently completed a detailed review to refine its Client propositions and how it is positioned in the market.

The new proposition simplifies the go-to-market approach and uses marketing discipline to create demand and preference for our services. The Group has also revitalised its brand identity. More details are available at www.communisis.com

THE NEW PROPOSITION – SHAPING THE FUTURE OF CUSTOMER COMMUNICATION

PURPOSE

Clients are facing unprecedented change, whether regulatory, technological or in consumer behaviour. It is the role of Communisis to help them stay ahead of these challenges.

STRATEGIC REPORT

Communisis creates engaging content and delivers it across multiple customer touch-points; in digital, broadcast and print channels, using a combination of unique strategic insight, customer communications, technology and transformational expertise.

HOW THIS IS DELIVERED FOR CLIENTS

“ONE TO ONE” – THE CUSTOMER EXPERIENCE DIVISION

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

This involves mission-critical personalised communications: customer engagement, corporate video communications, specialised content, “transactional” (being billing, statements, cheques and inbound services) and regulatory communications.

Customer Experience’s clients include Lloyds Banking Group, Centrica, AXA, American Express, Amazon, Scottish Power, BP and HMRC.

“ONE TO MANY” – THE BRAND DEPLOYMENT DIVISION

Creating activation communications in Retail and Fast Moving Consumer Goods (“FMCG”) channels that motivate consumers to experience and buy brands.

Providing brand activation strategy, shopper marketing, marketing supply chain management, fulfilment, logistics and Point Of Sale (“POS”) procurement. Brand Deployment’s clients include Procter & Gamble, Coty, Müller, Heineken, Nokia, Kellogg’s and Bacardi.

COMMUNISIS SPECIALISES IN INTEGRATED MARKETING SERVICES THAT IMPROVE COMMUNICATIONS BETWEEN BRANDS AND THEIR CUSTOMERS

9

Communisis plc Annual Report and Financial Statements 2016 | STRATEGIC REPORT

COM-P160-R+A16-1.indd 9 22/03/2017 21:09

MARKET DYNAMICS Market trends previously identified continue to pertain to the Group as a whole:

outsourcing of incoming and outgoing customer communication and associated services;

clients reducing the number of service providers: the winners being those with scale and a broad range of services;

regulation: increasingly important influence on Clients in areas such as Financial Services;

de-regulation: affecting Clients in areas such as Utilities, to encourage switching between providers;

the rising importance of customer experience to most Clients;

precision marketing through personalised communications;

more consistent messaging in global campaigns; and

the emphasis being placed on content and the desire to transmit that content by the channel most relevant to the customer.

CUSTOMER EXPERIENCE

All analogue activities in this Division happen in the UK, the transactional outbound and inbound services needing to be within the postal jurisdiction. Digital can go cross-border and we have taken a first step with the establishment of a small office in New York to offer content marketing to our Client, LinkedIn. By vertical Client segment, observations include:

banks – looking to protect market share and promote loyalty. Ring-fencing legislation will create opportunities for Communisis;

insurance – 50% of Insurers’ product investment budgets to be aimed at customer experience. There is tension between the Direct and Aggregator providers;

retail – increasing digital influence. Clients’ Marketeers challenged with digital overload; and

public sector – more momentum after Government’s Communications Plan for 2016/17 published with a “Digital by Default” agenda.

BRAND DEPLOYMENT

Brand Deployment is emerging as a new strategic market, defined by the realisation that brand owners can outsource marketing execution to managed service providers to deliver on an international basis. Previously such services had been in-house and frequently devolved, regionally. At present, managed service providers tend to be focussed by geographic groupings in, say, EMEA, Latin America or the USA but longer term it is likely that more truly global solutions will be sought. The main product is POS but brand owners are expecting associated services to be provided alongside, for example, Premiums, experiential and merchandising. There is an important trend within POS toward more semi-permanent or permanent displays, sometimes incorporating digital. This mix is dependent upon geography and relative retail sophistication.

THREE CLEAR STRATEGIES, CREATING VALUE FOR STAKEHOLDERS

Grow sales organically

Extend activities to broaden and deepen the service offering

Increase international presence

HOW HAVE WE PERFORMED? Good progress was made during the year against all three strategic initiatives.

GROWTH

Our growth strategy will continue to focus on the UK market for transactional communications and marketing execution in overseas territories.

GROW SALES ORGANICALLY

The following significant contracts have been announced in 2016:

a six-year contract with LV= for the provision of customer fulfilment services including document composition, digital archiving and transactional output.

HMRC for all outbound customer communication. Awarded in December 2016 for a term of five years with an initial three years and the option of a further two-year extension. Implementation planning is in hand and working towards a go-live date in mid-2017.

a three-year multi-territory agreement with a new global healthcare client awarded in May for marketing print management provision within EMEA including premiums, POS and shopper/creative insight services.

Sony Europe for a range of customer communication services including marketing collateral and point-of-sale across Europe. The arrangement went live in October 2016 for a term of three years.

10

COM-P160-R+A16-1.indd 10 22/03/2017 21:09

BRAND DEPLOYMENT

Brand Deployment is emerging as a new strategic market, defined by the realisation that brand owners can outsource marketing execution to managed service providers to deliver on an international basis. Previously such services had been in-house and frequently devolved, regionally. At present, managed service providers tend to be focussed by geographic groupings in, say, EMEA, Latin America or the USA but longer term it is likely that more truly global solutions will be sought. The main product is POS but brand owners are expecting associated services to be provided alongside, for example, Premiums, experiential and merchandising. There is an important trend within POS toward more semi-permanent or permanent displays, sometimes incorporating digital. This mix is dependent upon geography and relative retail sophistication.

THREE CLEAR STRATEGIES, CREATING VALUE FOR STAKEHOLDERS

GROWTH EFFICIENCY PEOPLE

Grow sales organically

Extend activities to broaden and deepen the service offering

Increase international presence

Optimise direct cost and overhead base, capitalising on synergies

Improve capacity utilisation

Attract and retain the best people

Engage, develop and reward

HOW HAVE WE PERFORMED? Good progress was made during the year against all three strategic initiatives.

GROWTH

Our growth strategy will continue to focus on the UK market for transactional communications and marketing execution in overseas territories.

GROW SALES ORGANICALLY

The following significant contracts have been announced in 2016:

a six-year contract with LV= for the provision of customer fulfilment services including document composition, digital archiving and transactional output.

HMRC for all outbound customer communication. Awarded in December 2016 for a term of five years with an initial three years and the option of a further two-year extension. Implementation planning is in hand and working towards a go-live date in mid-2017.

a three-year multi-territory agreement with a new global healthcare client awarded in May for marketing print management provision within EMEA including premiums, POS and shopper/creative insight services.

Sony Europe for a range of customer communication services including marketing collateral and point-of-sale across Europe. The arrangement went live in October 2016 for a term of three years.

The business wins in the year further diversify the Group away from its traditional strength in servicing the Financial Services sector, with FMCG/Retail now represented to a similar level. As well as further developing the insurance, healthcare and technology sectors, the recent HMRC contract brings a significant move into the public sector. Many of the Group’s largest Clients are leaders in their sectors.

Due to the contractual arrangements in place, there is good medium-term visibility in the business. The average contract life is currently five years. Many of the contracts are for personalised, business-critical communications, such as billing, statements, cheque books and inbound services, or for multi-territory marketing campaigns. As a result of the nature of these services, Communisis becomes deeply embedded with its Clients, with our best relationships taking the form of trusted partnerships. The Group normally negotiates to extend or renew relationships as long as service levels are met, far extending the average contract life.

EXTEND ACTIVITIES TO BROADEN AND DEEPEN THE SERVICE OFFERING

The new structure allows Communisis to provide a visibly more cohesive service offering to existing and new Clients. For example, the new contract with a global healthcare brand within our Brand Deployment division draws heavily on both POS deployment and shopper marketing propositions from that division. Similarly, the new LV= contract spans multiple offerings from the Customer Experience division, encompassing transactional print, digital archiving and document composition.

11


COM-P160-R+A16-1.indd 11 22/03/2017 21:09

Our closeness to Clients, often through having on-site teams with Communisis staff sitting alongside Clients’ marketing teams, facilitates the identification and development of new opportunities which both grows revenue and improves the range of offering we have to our clients.

Several new products and services have been developed during 2016, including:

e-UCN, a Communisis patented system which provides increased security for our cheque Clients within the Banking sector, with positive initial take-up; and

investment emphasis on technology to support Client requirements in areas such as Enterprise Content Management “ECM” and Document Composition software.

INCREASE INTERNATIONAL PRESENCE

With 26% (2015 18%) of Group revenue now generated overseas, the Group continues to expand and widen what has become a successful international footprint. New operations for Brand Deployment opened within Dubai during 2016, and a third German presence has been established in Berlin to complement our existing operations in Frankfurt and Düsseldorf.

Additional Clients continue to be added within the already established European network further extending the Brand Deployment division. This further reduces the risk of Client concentration in any one location and allows for cost efficiencies to be leveraged.

Our Clients take an increasingly global approach to marketing services and to meet this we continue to assess new opportunities both within EMEA and beyond. Extending into new territories on a “sponsored” basis from brand owners has facilitated becoming established and profitable in new territories in a much quicker timeframe than we could have achieved without these valuable Client relationships. We expect to continue this approach outside EMEA during 2017, responding to the needs of our Client base.

Furthermore, our first presence in the USA market will be established this year through an office in New York. Expected to open by June 2017, it will initially provide content-marketing services to our Client, LinkedIn.

We now have 160 people based overseas servicing 50 overseas clients and representing 8% of our worldwide workforce.

EFFICIENCY

Driving efficient operations will underpin the future success of the Group.

OPTIMISE DIRECT COST AND OVERHEAD BASE, CAPITALISING ON SYNERGIES

The new two divisional structure adopted in the year has allowed for significant efficiencies and cost savings including a reduction in the size of the corporate office, de-layering of management and restructuring of the Agency offerings. Further efficiencies have been gained through consolidation of the Chiswell Street, London office into Little Portland Street, London, outsourcing of non-core activities and a reduction in the overall level of Corporate costs.

As part of our previously announced initiative to move to a Shared Service operation, we outsourced the majority of our legal function, facilities management and recruitment activity to third party suppliers during the year. In addition, IT development activity formerly performed by our Indian based development team was transferred to a specialist software provider, accelerating delivery of Client solutions.

Through de-layering and restructuring the workforce, the Group has continued to grow while at the same time reducing headcount and hence further optimising the on-going cost base.

Total Group employees reduced from 2,242 in December 2015 to 2,073 by December 2016.

IMPROVE CAPACITY UTILISATION

The Group continues to invest in the automation of processes in both divisions and has reconfigured the asset base within the transactional area to reduce the amount of leased printing equipment, facilitating a flexible and appropriately geared organisation. Our ability to work in an interconnected manner has improved across our production sites, facilitating the transfer of work between locations. This allows appropriate workload balancing and resource management.

The Group is becoming less capital-intensive with future expenditure now largely focussed on technology to support the delivery of workflow and facilitate multi-channel output as part of our digital strategy. The investment emphasis is on technology to support Client requirements in areas such as ECM and Document Composition.

PEOPLE

We recognise that our people are an essential and valuable element in delivering our growth plans and our focus is on attracting, retaining and developing the best individuals.

ATTRACT AND RETAIN THE BEST PEOPLE

We communicate our strategic goals to all of our managers and empower them to develop both themselves and those for whom they are responsible through focussed training to ensure they can best deliver those goals.

In 2016 we launched the Communisis Academy. This is our online learning and development hub which provides all of our employees with access to tools and materials to support their on-going developmental needs. This is a cloud-based system, available 24/7 regardless of where our employees are based.

Our apprenticeship programme continues to grow. This now encompasses roles available in IT, business administration and digital marketing. Plans are in place to have apprentices over four sites: Liverpool, Edinburgh, Leeds and Andover. In 2016, we partnered with two additional Apprenticeship training providers in anticipation and preparation for the new Apprenticeship Levy, which is due to come into effect in May 2017.

Succession plans have been reviewed during the year and are in place for all senior and business critical roles.

Recruiting the best talent is critical to our on-going success. In 2016, we implemented a Recruitment Process Outsourcing agreement with Randstad Sourceright. This model has gone live in Q1 2017, and allows us access to best practice recruitment tools and practices to support our line managers in finding the best people for their teams. In addition, this approach will enhance our commitment to diversity and equality during the recruitment process.

12

COM-P160-R+A16-1.indd 12 22/03/2017 21:09

EFFICIENCY

Driving efficient operations will underpin the future success of the Group.

OPTIMISE DIRECT COST AND OVERHEAD BASE, CAPITALISING ON SYNERGIES

The new two divisional structure adopted in the year has allowed for significant efficiencies and cost savings including a reduction in the size of the corporate office, de-layering of management and restructuring of the Agency offerings. Further efficiencies have been gained through consolidation of the Chiswell Street, London office into Little Portland Street, London, outsourcing of non-core activities and a reduction in the overall level of Corporate costs.

As part of our previously announced initiative to move to a Shared Service operation, we outsourced the majority of our legal function, facilities management and recruitment activity to third party suppliers during the year. In addition, IT development activity formerly performed by our Indian based development team was transferred to a specialist software provider, accelerating delivery of Client solutions.

Through de-layering and restructuring the workforce, the Group has continued to grow while at the same time reducing headcount and hence further optimising the on-going cost base.

Total Group employees reduced from 2,242 in December 2015 to 2,073 by December 2016.

IMPROVE CAPACITY UTILISATION

The Group continues to invest in the automation of processes in both divisions and has reconfigured the asset base within the transactional area to reduce the amount of leased printing equipment, facilitating a flexible and appropriately geared organisation. Our ability to work in an interconnected manner has improved across our production sites, facilitating the transfer of work between locations. This allows appropriate workload balancing and resource management.

The Group is becoming less capital-intensive with future expenditure now largely focussed on technology to support the delivery of workflow and facilitate multi-channel output as part of our digital strategy. The investment emphasis is on technology to support Client requirements in areas such as ECM and Document Composition.

PEOPLE

We recognise that our people are an essential and valuable element in delivering our growth plans and our focus is on attracting, retaining and developing the best individuals.

ATTRACT AND RETAIN THE BEST PEOPLE

We communicate our strategic goals to all of our managers and empower them to develop both themselves and those for whom they are responsible through focussed training to ensure they can best deliver those goals.

In 2016 we launched the Communisis Academy. This is our online learning and development hub which provides all of our employees with access to tools and materials to support their on-going developmental needs. This is a cloud-based system, available 24/7 regardless of where our employees are based.

Our apprenticeship programme continues to grow. This now encompasses roles available in IT, business administration and digital marketing. Plans are in place to have apprentices over four sites: Liverpool, Edinburgh, Leeds and Andover. In 2016, we partnered with two additional Apprenticeship training providers in anticipation and preparation for the new Apprenticeship Levy, which is due to come into effect in May 2017.

Succession plans have been reviewed during the year and are in place for all senior and business critical roles.

Recruiting the best talent is critical to our on-going success. In 2016, we implemented a Recruitment Process Outsourcing agreement with Randstad Sourceright. This model has gone live in Q1 2017, and allows us access to best practice recruitment tools and practices to support our line managers in finding the best people for their teams. In addition, this approach will enhance our commitment to diversity and equality during the recruitment process.

ENGAGE, DEVELOP AND REWARD

At Communisis we understand that the success of our business strategy is critically dependent upon the involvement of all employees. We appreciate that employee engagement and wellbeing not only benefits our employees, but also has a direct impact upon the performance of our business and we seek to achieve that engagement in a number of ways. During 2016 we:

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

acted upon that feedback at local and company levels;

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

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

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

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

13


COM-P160-R+A16-1.indd 13 22/03/2017 21:09

CREATING VALUE The segmental reporting is aligned with the Group’s strategic direction and the way in which the activities are managed. Revenue, operating profit and margins before exceptional items are reported in two divisions: Customer Experience and Brand Deployment. Pass Through revenues, being those purchased materials that are passed on to Clients at cost with no added value, are reported separately, as are unallocated central costs that support integrated service offerings.

Clients can access services either from a single division or on an integrated basis across both divisions. The Group’s account management process encourages the delivery of a broader range of services by targeting the Client’s total available market.

GROUP

2016 has been a year of solid growth in Group revenue, adjusted operating profit and free cash generation with significant new business wins to underpin growth plans into 2017 and beyond.

Total revenue has grown by 2% to £361.9m (2015 £354.2m), driven by expansion within the international business. Adjusted operating profit rose 6% to £19.5m as a result of growth in Brand Deployment, including £0.9m from favourable exchange rates. This delivered adjusted diluted earnings per share of 6.07p, up from 5.18p in 2015, an increase of 17%.

Higher underlying earnings and lower capital expenditure delivered improving free cash flow of £12.9m (2015 £12.0m) with net debt reducing over the year by £9.0m to £30.4m.

FINANCIAL OVERVIEW

RESULTS The table below is an extract from the Group’s segmental Income Statement with Pass Through further split by operating segment.

2016 £m

2015 £m

REVENUE

Customer Experience 169.3 180.2

Pass Through 15.7 29.6

Total Customer Experience Revenue 185.0 209.8

Brand Deployment 127.3 60.6


Total Brand Deployment Revenue 176.9 144.4

Total Group Revenue 361.9 354.2

ADJUSTED PROFIT FROM OPERATIONS



Central Costs (13.3) (13.0)

Corporate Costs (5.6) (6.4)

Adjusted operating profit 19.5 18.3

Amortisation of acquired intangibles (0.8) (1.2)

Profit from operations before exceptional items 18.7 17.1

Exceptional items (4.3) 4.0

Net finance costs including revaluation gains/(losses) (2.8) (3.8)

Profit before tax 11.6 17.3

Tax (3.0) (2.8)

Profit after tax 8.6 14.5

Earnings per share

Basic 4.12p 6.98p

Adjusted fully diluted 6.07p 5.18p

Adjusted profit before tax (£m) 16.7 14.5

Adjusted EBITDA (£m) 29.4 29.2

Adjusted operating margin (on gross revenue) 5.4% 5.2%

INCREASE IN ADJUSTED EARNINGS PER SHARE

14

COM-P160-R+A16-1.indd 14 22/03/2017 21:09

GROUP

2016 has been a year of solid growth in Group revenue, adjusted operating profit and free cash generation with significant new business wins to underpin growth plans into 2017 and beyond.

Total revenue has grown by 2% to £361.9m (2015 £354.2m), driven by expansion within the international business. Adjusted operating profit rose 6% to £19.5m as a result of growth in Brand Deployment, including £0.9m from favourable exchange rates. This delivered adjusted diluted earnings per share of 6.07p, up from 5.18p in 2015, an increase of 17%.

Higher underlying earnings and lower capital expenditure delivered improving free cash flow of £12.9m (2015 £12.0m) with net debt reducing over the year by £9.0m to £30.4m.

FINANCIAL OVERVIEW

RESULTS The table below is an extract from the Group’s segmental Income Statement with Pass Through further split by operating segment.

2016 £m

2015 £m

REVENUE



Total Customer Experience Revenue 185.0 209.8



Total Brand Deployment Revenue 176.9 144.4

Total Group Revenue 361.9 354.2

ADJUSTED PROFIT FROM OPERATIONS



Central Costs (13.3) (13.0)

Corporate Costs (5.6) (6.4)

Adjusted operating profit 19.5 18.3

Amortisation of acquired intangibles (0.8) (1.2)


Exceptional items (4.3) 4.0

Net finance costs including revaluation gains/(losses) (2.8) (3.8)

Profit before tax 11.6 17.3

Tax (3.0) (2.8)

Profit after tax 8.6 14.5

Earnings per share

Basic 4.12p 6.98p

Adjusted fully diluted 6.07p 5.18p

Adjusted profit before tax (£m) 16.7 14.5

Adjusted EBITDA (£m) 29.4 29.2

Adjusted operating margin (on gross revenue) 5.4% 5.2%

INCREASE IN ADJUSTED EARNINGS PER SHARE

15


COM-P160-R+A16-1.indd 15 22/03/2017 21:09

CENTRAL AND CORPORATE COSTS

Central costs were slightly higher than 2015, driven by increased investment in technology to support the Group’s growth plans. This was offset by reductions in the cost of the plc corporate office due to a reduced number of executive directors.

EXCEPTIONAL ITEMS

In 2016, the Group undertook a number of activities to reduce the cost base of the organisation and outsource non-core activities. Total exceptional costs charged in the year were £4.3m, including £3.6m associated with efficiency improvements within the production units and restructuring within the Agency, PSONA. A further £0.7m of the total charge related to site exit costs at Chiswell Street, London and the Bangalore office following the outsourcing of IT development. In addition £0.4m was a non-cash write off relating to customer relationship assets and certain acquired trade names, offset by a £0.5m fair value revaluation release of contingent consideration in respect of acquisitions in the former Design segment.

In the prior year, the exceptional credit of £4.0m principally consisted of a credit of £6.7m in respect of the renegotiation of the Life Marketing Consultancy Limited (“Life”) acquisition earn-out agreement, a release of £0.4m in respect of a property provision, £2m relating to restructuring activities and £0.5m write off of customer relationship assets. The combined effect of a current year exceptional charge following a prior year exceptional credit has resulted in a decrease in basic earnings per share from 6.98p to 4.12p, despite an increase in operating results.

NET FINANCE COSTS INCLUDING REVALUATION GAINS/(LOSSES)

Lower year-end foreign currency rates impacted the revaluation of non-sterling related balances, delivering a positive £0.9m profit impact within net finance costs.

TAX

The underlying tax rate in 2016 was 23.3% (2015 23.9%), which is above the UK standard rate due primarily to the increasing proportion of profits that are generated in overseas jurisdictions with higher tax rates.

DIVIDEND

The Board has proposed a final dividend of 1.61p per share bringing the total dividend for the year to 2.42p per share, an increase of 10% over 2015. Dividend remains well covered at 2.5 times.

CUSTOMER EXPERIENCE

Gross revenue for the division, including Pass Through, ended at £185.0m, down from £209.8m in 2015, primarily due to the continued impact of conversion from print to digital communication channels, lower agency spend and the reduction of £14m of non-margin-generating Pass Through revenue. Volume erosion was seen across transactional print channels although at lower levels than expected, reflecting on-going customer reluctance to migrate completely from paper to digital formats.

Adjusted operating profit for the segment at £22.2m was £1.4m lower than 2015. A strong performance from the transactional and service units was delivered through successful implementation of efficiency and automation projects, alongside lower than expected volume erosion in transactional. This was offset by lower Cheques and Agency profitability. Cheque revenue eroded by 7%, however this business unit remains profitable and cash generative. The Agency, principally PSONA, and Cross Media Production design activities, experienced a challenging year as marketing budgets came under pressure impacting revenue and margins. The Agency elements of the division were reorganised during the year, moving from ten separate business units to four, delivering a more integrated offering providing Clients with a comprehensive value proposition.

BRAND DEPLOYMENT

Gross revenue including Pass Through grew to £176.9m from £144.4m during the year, impacted positively by a full year of trading in additional countries from 2015 and £6.3m from favourable exchange rates. Non-UK revenue accounted for 53% (2015 47%) of Brand Deployment revenue during 2016.

Adjusted operating profit was 15% higher than 2015 at £16.2m. This included a strong recovery within shopper marketing, and a favourable currency translation from overseas profits of £0.9m.

Growth continued in the principal markets of Germany, Italy and Spain where the initial hub investment is delivering rewards as additional Clients are added to the network. Operations in Eastern Europe (Poland and Romania) delivered improvements on full year impact. In addition, shopper marketing improved profitability due to a significant improvement in conversion of new wins and a lower cost base.

Our new office in Dubai performed well during its inaugural year and is already showing signs of growth.

CASH FLOW AND NET DEBT

The table below summarises the cash flows for the year and the closing net debt position.

2016 £m

2015 £m


Depreciation and other non-cash items 11.2 12.2

Decrease in working capital (0.5) 0.2

Pension scheme contributions (2.8) (2.9)

Interest and tax (4.3) (3.7)

Net operating cash flow before exceptional items 22.3 22.9

Exceptional items (3.7) (2.6)

Net operating cash flow 18.6 20.3

Free cash flow 12.9 12.0

Net capital expenditure 5.7 8.8

Acquisition costs included in exceptional items – (0.5)


Net capital expenditure (5.7) (8.8)

Investment in new contracts (1.2) (2.2)

Acquisition of subsidiary undertaking (0.3) –

Dividends paid (4.8) (4.3)

Share issues net of directly attributable expenses – 0.6

Purchase of shares (0.4) –

Revaluation 2.4 (0.4)

Decrease in bank debt 8.6 5.2

Opening bank debt (28.3) (33.5)

Closing bank debt (19.7) (28.3)

Bank debt (19.7) (28.3)

Unamortised borrowing costs 0.2 0.3

Net bank debt (19.5) (28.0)

Finance lease creditor (1.6) (2.1)

Promissory loan notes (9.3) (9.3)

Net debt (30.4) (39.4)

16

COM-P160-R+A16-1.indd 16 22/03/2017 21:09

CENTRAL AND CORPORATE COSTS

Central costs were slightly higher than 2015, driven by increased investment in technology to support the Group’s growth plans. This was offset by reductions in the cost of the plc corporate office due to a reduced number of executive directors.

EXCEPTIONAL ITEMS

In 2016, the Group undertook a number of activities to reduce the cost base of the organisation and outsource non-core activities. Total exceptional costs charged in the year were £4.3m, including £3.6m associated with efficiency improvements within the production units and restructuring within the Agency, PSONA. A further £0.7m of the total charge related to site exit costs at Chiswell Street, London and the Bangalore office following the outsourcing of IT development. In addition £0.4m was a non-cash write off relating to customer relationship assets and certain acquired trade names, offset by a £0.5m fair value revaluation release of contingent consideration in respect of acquisitions in the former Design segment.

In the prior year, the exceptional credit of £4.0m principally consisted of a credit of £6.7m in respect of the renegotiation of the Life Marketing Consultancy Limited (“Life”) acquisition earn-out agreement, a release of £0.4m in respect of a property provision, £2m relating to restructuring activities and £0.5m write off of customer relationship assets. The combined effect of a current year exceptional charge following a prior year exceptional credit has resulted in a decrease in basic earnings per share from 6.98p to 4.12p, despite an increase in operating results.

NET FINANCE COSTS INCLUDING REVALUATION GAINS/(LOSSES)

Lower year-end foreign currency rates impacted the revaluation of non-sterling related balances, delivering a positive £0.9m profit impact within net finance costs.

TAX

The underlying tax rate in 2016 was 23.3% (2015 23.9%), which is above the UK standard rate due primarily to the increasing proportion of profits that are generated in overseas jurisdictions with higher tax rates.

DIVIDEND

The Board has proposed a final dividend of 1.61p per share bringing the total dividend for the year to 2.42p per share, an increase of 10% over 2015. Dividend remains well covered at 2.5 times.

CASH FLOW AND NET DEBT

The table below summarises the cash flows for the year and the closing net debt position.

2016 £m

2015 £m


Depreciation and other non-cash items 11.2 12.2

Decrease in working capital (0.5) 0.2

Pension scheme contributions (2.8) (2.9)

Interest and tax (4.3) (3.7)

Net operating cash flow before exceptional items 22.3 22.9

Exceptional items (3.7) (2.6)


Free cash flow 12.9 12.0

Net capital expenditure 5.7 8.8

Acquisition costs included in exceptional items – (0.5)


Net capital expenditure (5.7) (8.8)

Investment in new contracts (1.2) (2.2)

Acquisition of subsidiary undertaking (0.3) –

Dividends paid (4.8) (4.3)

Share issues net of directly attributable expenses – 0.6

Purchase of shares (0.4) –

Revaluation 2.4 (0.4)

Decrease in bank debt 8.6 5.2

Opening bank debt (28.3) (33.5)

Closing bank debt (19.7) (28.3)

Bank debt (19.7) (28.3)

Unamortised borrowing costs 0.2 0.3

Net bank debt (19.5) (28.0)

Finance lease creditor (1.6) (2.1)

Promissory loan notes (9.3) (9.3)

Net debt (30.4) (39.4)

17


COM-P160-R+A16-1.indd 17 22/03/2017 21:09

Generating improving amounts of free cash flow and consequent debt reduction has been a priority for the Group, and this has been delivered during 2016 with net debt reducing by 23% to £30.4m during the year.

Free cash flow continued to improve with £12.9m being generated in 2016 (2015 £12.0m). This was as a result of higher underlying earnings, controlled working capital and a reduction in capital expenditure to £5.7m (2015 £8.8m), offset by higher exceptional cash spend of £3.7m (2015 £2.6m). £1.1m of the 2016 exceptional costs are carried forward as 2017 cash outflows.

Dividends paid to shareholders increased by £0.5m to £4.8m.

A net cash inflow of £8.6m (2015 £5.2m) was used to reduce net bank debt at the year end to £19.7m (2015 £28.3m), comfortably within the Group’s facilities of £70m. Average net bank debt during the year was £32.7m (2015 £43.5m). As part of the facility, Communisis has to comply with a number of covenants, including maintaining a multiple of net bank debt to EBITDA and EBITA to net finance costs, both of which were in compliance.

Net debt ended 2016 at £30.4m, £9.0m lower than the prior year. This included £2.4m from the favourable conversion of non-sterling denominated balances, delivering an underlying £6.6m debt improvement. Banking covenants remain well covered with significant headroom.

Promissory loan notes of £9.3m in respect of the Life acquisition of January 2015 were repaid during January 2017 from normal facilities.

Bank facilities remain in place until 31 March 2018 and the Group will seek renewal of these facilities during 2017.

PENSIONS

The Pension Scheme accounting deficit at the year-end increased to £55.5m (2015 £41.1m). This is primarily due to a reduction in the year in UK corporate bond yields resulting in a significant decrease in discount rates from 3.75% to 2.7%, together with higher inflation assumptions which are used in the actuarial calculation of the Pension Scheme liabilities.

Cash contributions to the Pension Scheme are determined by reference to the triennial actuarial valuation, the latest of which was performed as at 31 March 2014, when the deficit was £19.5m. The contributions paid in 2016 towards the accounting deficit were £1.7m plus rental payments of £1.1m through the Central Asset Reserve arrangement. The next triennial valuation is scheduled for the end of March 2017. For further detail please refer to Note 14 to the Consolidated Financial Statements section of this report.

RESERVES

In response to the economic environment and volatility of the accounting pension deficit, the Group completed a capital reduction exercise on 7 December 2016 which generated an additional £22.5m of distributable reserves from the former share premium account, capital redemption reserve and the merger reserve.

NET ASSETS

Net assets as at 31 December 2016 decreased by £8.6m since the prior year. This reduction is due to the adverse movement on the Pension Scheme which, net of tax, reduced net assets by £13.3m. Excluding this, the underlying improvement in net assets, after payment of dividends, was £4.7m.

KEY PERFORMANCE INDICATORS

The key performance indicators, that are commented upon individually elsewhere in this Strategic Report, comprise:

2016 2015

Financial

Adjusted operating profit (£million) 19.5 18.3

Adjusted operating margin on gross revenue (%)

5.4 5.2

Profit before tax (£million) 11.6 17.3

Free cash flow (£million) 12.9 12.0

Net debt (£million) 30.4 39.4

Pension accounting deficit (£million) 55.5 41.1

RISKS AND UNCERTAINTIES

The Group is subject to a number of risks and uncertainties that bring both challenge and opportunity. The Group’s principal risks and uncertainties, together with the mitigating actions, are set out in the Risks and Uncertainties on pages 22 to 25.

CORPORATE SOCIAL RESPONSIBILITY

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

ANDY BLUNDELL MARK STONER Chief Executive Finance Director 9 March 2017 9 March 2017

CREATING ACTIVATION COMMUNICATIONS IN RETAIL AND FAST MOVING CONSUMER GOODS “FMCG” CHANNELS THAT MOTIVATE CONSUMERS TO EXPERIENCE AND BUY BRANDS

18

COM-P160-R+A16-1.indd 18 22/03/2017 21:09

RESERVES

In response to the economic environment and volatility of the accounting pension deficit, the Group completed a capital reduction exercise on 7 December 2016 which generated an additional £22.5m of distributable reserves from the former share premium account, capital redemption reserve and the merger reserve.

NET ASSETS

Net assets as at 31 December 2016 decreased by £8.6m since the prior year. This reduction is due to the adverse movement on the Pension Scheme which, net of tax, reduced net assets by £13.3m. Excluding this, the underlying improvement in net assets, after payment of dividends, was £4.7m.

KEY PERFORMANCE INDICATORS

The key performance indicators, that are commented upon individually elsewhere in this Strategic Report, comprise:

2016 2015

Financial

Adjusted operating profit (£million) 19.5 18.3

Adjusted operating margin on gross revenue (%)

5.4 5.2

Profit before tax (£million) 11.6 17.3

Free cash flow (£million) 12.9 12.0

Net debt (£million) 30.4 39.4

Pension accounting deficit (£million) 55.5 41.1


The Group is subject to a number of risks and uncertainties that bring both challenge and opportunity. The Group’s principal risks and uncertainties, together with the mitigating actions, are set out in the Risks and Uncertainties on pages 22 to 25.


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

ANDY BLUNDELL MARK STONER Chief Executive Finance Director 9 March 2017 9 March 2017

CREATING ACTIVATION COMMUNICATIONS IN RETAIL AND FAST MOVING CONSUMER GOODS “FMCG” CHANNELS THAT MOTIVATE CONSUMERS TO EXPERIENCE AND BUY BRANDS

19


COM-P160-R+A16-1.indd 19 22/03/2017 21:09

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

OUR APPROACH

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

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

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

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

VIABILITY STATEMENT

The Group has prepared five-year forecasts of profitability and cash flow as part of the goodwill impairment testing and, with average contract lives of five years, the Group has good medium term visibility of the business. Despite this, there will always be uncertain factors outside the control of Communisis and forecasting can never take into account unknown future economic, legal or regulatory changes which could impact the business and the markets in which it operates. In recognition of this, the Group has produced a viability assessment based on the three-year period to December 2019, and can confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities as they fall due for the next three years.

In making this statement the Directors have considered forecasts for the next three years, which include the Group’s key financial ratios and cash flows over the period, and formed an opinion over the resilience of the Group. This takes into account the current position, the principal risks facing the business in severe but plausible scenarios, and the effectiveness of any mitigating actions. This assessment has considered the potential impacts of these risks on the business model, future performance, solvency and liquidity over the three-year period. The Directors consider the period to December 2019 to be appropriate as this is in line with the period covered by the Group’s financial and strategic planning. Clients have shown an increased willingness to enter into longer contractual terms resulting in improved visibility for the Group from a financial perspective. With more emphasis being placed internally on identifying and managing pervasive risk, the Directors are confident that the Group will operate in line with the three-year forecasts.

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

During the period covered by the three-year assessment, the Group’s banking facilities are due for renewal. This is not expected to present any risk to the viability of the Group and has not therefore featured within the viability stress testing.

Whilst the occurrence of these risks is plausible, the Group is confident that the mitigating actions detailed in the table overleaf are sufficient to minimise the impact. Accordingly, the Board continues to adopt and consider appropriate the going concern basis in preparing the Annual Report and Financial Statements.

GOING CONCERN

The Directors, after making enquiries, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they have adopted the going concern basis in preparing the Financial Statements.

20

COM-P160-R+A16-1.indd 20 22/03/2017 21:09

VIABILITY STATEMENT

The Group has prepared five-year forecasts of profitability and cash flow as part of the goodwill impairment testing and, with average contract lives of five years, the Group has good medium term visibility of the business. Despite this, there will always be uncertain factors outside the control of Communisis and forecasting can never take into account unknown future economic, legal or regulatory changes which could impact the business and the markets in which it operates. In recognition of this, the Group has produced a viability assessment based on the three-year period to December 2019, and can confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities as they fall due for the next three years.

In making this statement the Directors have considered forecasts for the next three years, which include the Group’s key financial ratios and cash flows over the period, and formed an opinion over the resilience of the Group. This takes into account the current position, the principal risks facing the business in severe but plausible scenarios, and the effectiveness of any mitigating actions. This assessment has considered the potential impacts of these risks on the business model, future performance, solvency and liquidity over the three-year period. The Directors consider the period to December 2019 to be appropriate as this is in line with the period covered by the Group’s financial and strategic planning. Clients have shown an increased willingness to enter into longer contractual terms resulting in improved visibility for the Group from a financial perspective. With more emphasis being placed internally on identifying and managing pervasive risk, the Directors are confident that the Group will operate in line with the three-year forecasts.

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

During the period covered by the three-year assessment, the Group’s banking facilities are due for renewal. This is not expected to present any risk to the viability of the Group and has not therefore featured within the viability stress testing.

Whilst the occurrence of these risks is plausible, the Group is confident that the mitigating actions detailed in the table overleaf are sufficient to minimise the impact. Accordingly, the Board continues to adopt and consider appropriate the going concern basis in preparing the Annual Report and Financial Statements.

GOING CONCERN

The Directors, after making enquiries, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they have adopted the going concern basis in preparing the Financial Statements.

21


COM-P160-R+A16-1.indd 21 22/03/2017 21:09

The principal risks and uncertainties facing the business are taken directly from the risk registers and are detailed below. The Group faces other risks which are subject to regular review and have been assessed as lower risk and are therefore not included here. Some risk factors remain beyond the direct control of the Group risk management programme. We can, therefore, only provide reasonable, but not absolute, assurance that key risks are managed to an acceptable level.

The Group continues to monitor the impact of the UK’s decision to exit the EU and other political changes that may affect its operations. Although the UK Government will


Risk area Impact Mitigating actions and management

The Group continues to integrate acquisitions to meet its strategic objectives

The Group’s last acquisition was in January 2015. With the new two divisional structure, the recent acquisitions are now more integrated within the respective divisions with appropriate cost-base control in place. The on-going risk is non-achievement of the full benefits anticipated within the business cases.

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

During 2016 we have adopted a two divisional structure with the benefit of reducing complexity and providing a clearer market proposition to our Client base.

Clients rely upon proven resilient business operations

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

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

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

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

Safeguarding of data and cyber risk

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

The impacts are that:

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

the confidentiality, integrity and availability of information processed by the Group could be compromised by human error, systems failure, equipment malfunction or deliberate unauthorised action, any of which could result in reputational damage and financial loss.

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

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

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

Alignment with new legislation regarding data protection is well underway.


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

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

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

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

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

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

The Group continues to pursue international expansion

The Group now operates in 17 countries (2015 16 countries) outside the UK. International exposure to geo-political volatility and social instability may put the Group operations at risk.

Movements in foreign exchange rates can impact the Group’s sterling reported financial statements.

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

A country Risk Assessment process has been developed along with Country Management Manuals.

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

Advice is sought from expert, in-territory, legal and tax partners.

Management review and audits are in place for international territories.

Deterioration in the economic environment may decrease profitability

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

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

Volume erosion protection is included in contract terms where possible.

have two years to renegotiate its terms of trading and other relevant matters with the EU, continued uncertainty about the process, the timing and the consequences of changes makes contingency planning challenging. We therefore aim to assess items that can result in uncertainty potentially causing damage to the business. Where this occurs, a plan will be drawn up to understand the impact and prevent, or at least limit, the loss.

22

COM-P160-R+A16-1.indd 22 22/03/2017 21:09


The Group continues to integrate acquisitions to meet its strategic objectives

The Group’s last acquisition was in January 2015. With the new two divisional structure, the recent acquisitions are now more integrated within the respective divisions with appropriate cost-base control in place. The on-going risk is non-achievement of the full benefits anticipated within the business cases.

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

During 2016 we have adopted a two divisional structure with the benefit of reducing complexity and providing a clearer market proposition to our Client base.

Clients rely upon proven resilient business operations

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

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

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

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

Safeguarding of data and cyber risk

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

The impacts are that:

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

the confidentiality, integrity and availability of information processed by the Group could be compromised by human error, systems failure, equipment malfunction or deliberate unauthorised action, any of which could result in reputational damage and financial loss.

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

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

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

Alignment with new legislation regarding data protection is well underway.


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

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

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

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

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

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

The Group continues to pursue international expansion

The Group now operates in 17 countries (2015 16 countries) outside the UK. International exposure to geo-political volatility and social instability may put the Group operations at risk.

Movements in foreign exchange rates can impact the Group’s sterling reported financial statements.

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

A country Risk Assessment process has been developed along with Country Management Manuals.

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

Advice is sought from expert, in-territory, legal and tax partners.

Management review and audits are in place for international territories.

Deterioration in the economic environment may decrease profitability

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

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

Volume erosion protection is included in contract terms where possible.

have two years to renegotiate its terms of trading and other relevant matters with the EU, continued uncertainty about the process, the timing and the consequences of changes makes contingency planning challenging. We therefore aim to assess items that can result in uncertainty potentially causing damage to the business. Where this occurs, a plan will be drawn up to understand the impact and prevent, or at least limit, the loss.

23


COM-P160-R+A16-1.indd 23 22/03/2017 21:09


A change in Pension Scheme assumptions could increase the pension deficit

Communisis has continuing obligations under a defined benefit Pension Scheme that is now closed to new entrants. The IAS 19 accounting pension deficit was £55 million as at 31 December 2016 and the funding deficit was approximately £45m at the same date.

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

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

The next triennial valuation will occur in 2017, at which point the future deficit payments will be agreed to provide certainty of cash flows for the Group for the next three years.

Until this valuation is complete, the deficit payments agreed in the 2014 triennial valuation will be maintained.

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

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

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

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

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

Break clauses are reviewed and exercised where possible.


Talent and skills recruitment and retention

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

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

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

The Group has policies and procedures in place for training and development.

Business operational expansion and acquisitions also help to ensure that the Group has the right skills.

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

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

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

In the year ended 31 December 2016 the top five Clients of the Group accounted for approximately 56% of sales (2015 57%).

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

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

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

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

The impacts are that the Group will not:

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

have adequate resources to invest in new technology and services;

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

diversify sufficiently into other market sectors.

The Group’s cost base is regularly reviewed and aligned with projected demand to avoid margin erosion.

A range of financing facilities are utilised with a reasonable degree of headroom over projected funding requirements.

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

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

Business development activities in a range of sectors have reduced the historic reliance on the financial services sector.

24

COM-P160-R+A16-1.indd 24 22/03/2017 21:09


A change in Pension Scheme assumptions could increase the pension deficit

Communisis has continuing obligations under a defined benefit Pension Scheme that is now closed to new entrants. The IAS 19 accounting pension deficit was £55 million as at 31 December 2016 and the funding deficit was approximately £45m at the same date.

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

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

The next triennial valuation will occur in 2017, at which point the future deficit payments will be agreed to provide certainty of cash flows for the Group for the next three years.

Until this valuation is complete, the deficit payments agreed in the 2014 triennial valuation will be maintained.

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

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

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

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

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

Break clauses are reviewed and exercised where possible.


Talent and skills recruitment and retention

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

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

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

The Group has policies and procedures in place for training and development.

Business operational expansion and acquisitions also help to ensure that the Group has the right skills.

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

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

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

In the year ended 31 December 2016 the top five Clients of the Group accounted for approximately 56% of sales (2015 57%).

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

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

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

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

The impacts are that the Group will not:

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

have adequate resources to invest in new technology and services;

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

diversify sufficiently into other market sectors.

The Group’s cost base is regularly reviewed and aligned with projected demand to avoid margin erosion.

A range of financing facilities are utilised with a reasonable degree of headroom over projected funding requirements.

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

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

Business development activities in a range of sectors have reduced the historic reliance on the financial services sector.

25


COM-P160-R+A16-1.indd 25 22/03/2017 21:09

CORPORATE SOCIAL RESPONSIBILITY REPORTCommunisis has continued to elevate the level of Corporate Social Responsibility (“CSR”) internally by improving our processes to track sustainable activities that the business has been involved in whilst ensuring that we support charitable organisations and continue to safeguard the future of our business through our graduate training programme.

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

Details of how the Company attracts and retains the best people, and engages, develops and rewards its employees are contained within the People section of the Strategic Report on page 13.

DIVERSITY

We have an on-going commitment to equality and diversity and have retained accreditation to the Committed2Equality® Standard in 2016. Following an annual audit, our accreditation has improved from Silver to Gold standard.

Communisis has focused on utilising appropriate recruitment processes and techniques to ensure we are able to reach all job seekers and is committed to flexible working arrangements to assist staff with their work-life balance.

GENDER

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

Communisis recognises the requirements of the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, and will be reporting in line with the timetables prescribed.

Our newly-implemented recruitment process outsourcing agreement will involve more training and up-skilling for our line managers to help them support our approach to both diversity and gender equality.

A breakdown by gender of the number of persons who were directors, senior managers and employees of the Group as at 31 December 2016 is set out below.

SUPPORTING OUR SUPPLIERS

Our supply chain is key to the success of Communisis. We work hand in hand with our suppliers to understand our environmental impact and we plan to do more in 2017 to establish a reliable source of data within the supply chain through the strategic adoption of Ecovadis (a supply chain management platform) which will give us greater insights into the businesses that we work with.

SUPPORTING OUR PEOPLE

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

SUPPORTING OUR COMMUNITIES

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

COMMUNISIS CHARITY AND VOLUNTEERING

Support for our nominated charities continued during 2016 with the proceeds from all fundraising events going to Children in Need, Alzheimer’s Society and Macmillan Cancer Support. This arrangement will be reviewed in 2017.

* The category of senior managers comprises the plc Board members, Executive Board members and individuals who report directly into them.

DIRECTORS SENIOR MANAGERS* ALL EMPLOYEES

MALE

67% (4)

FEMALE

33% (2)

MALE

65% (37)

FEMALE

35% (20)

MALE

58% (1205)

FEMALE

42% (868)

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

26

COM-P160-R+A16-1.indd 26 22/03/2017 21:09

Communisis has focused on utilising appropriate recruitment processes and techniques to ensure we are able to reach all job seekers and is committed to flexible working arrangements to assist staff with their work-life balance.

GENDER

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

Communisis recognises the requirements of the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, and will be reporting in line with the timetables prescribed.

Our newly-implemented recruitment process outsourcing agreement will involve more training and up-skilling for our line managers to help them support our approach to both diversity and gender equality.

A breakdown by gender of the number of persons who were directors, senior managers and employees of the Group as at 31 December 2016 is set out below.

SUPPORTING OUR SUPPLIERS

Our supply chain is key to the success of Communisis. We work hand in hand with our suppliers to understand our environmental impact and we plan to do more in 2017 to establish a reliable source of data within the supply chain through the strategic adoption of Ecovadis (a supply chain management platform) which will give us greater insights into the businesses that we work with.

SUPPORTING OUR PEOPLE

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

SUPPORTING OUR COMMUNITIES

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

COMMUNISIS CHARITY AND VOLUNTEERING

Support for our nominated charities continued during 2016 with the proceeds from all fundraising events going to Children in Need, Alzheimer’s Society and Macmillan Cancer Support. This arrangement will be reviewed in 2017.

* The category of senior managers comprises the plc Board members, Executive Board members and individuals who report directly into them.

ALL EMPLOYEES

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

During 2016 our fundraising and donations amounted to £43,670 which has been distributed amongst our nominated charities. A further £4,670 was raised for other local charities giving a grand total of £48,340.

We continued to work with and support The Prince’s Trust through 2016, and will be doing so into 2017.

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

SUSTAINABILITY

In 2016 we established a sustainability forum that is comprised of stakeholders from across the business who can offer insight and expertise in all areas of the business. The purpose of the forum is to share best practice, capture our achievements and help shape the future of sustainability within Communisis.

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

27


COM-P160-R+A16-1.indd 27 22/03/2017 21:09

HEALTH AND SAFETY

KEEPING OUR PEOPLE SAFE

Our drivers for safety are the prevention of injury and loss. We believe that all incidents are preventable and that our employees should be free to work in an environment that does not cause them injury nor ill health.

HEALTH, SAFETY AND WELL-BEING POLICY OBJECTIVES

In 2016, we were not subject to any regulatory enforcement resulting from any breaches of Health and Safety (“H&S”) legislation. All manufacturing sites maintained their safety management certifications to the externally verified standard of Occupational Safety and Health Assessment Standard (“OHSAS”) 18001:2007.

All endeavours are made to maintain a legally compliant business that operates without placing our employees, customers and visitors at risk of injury. We have a mature system of compliance checking through audit that enables us to monitor and improve our systems. This activity is reinforced by external verification audits that are undertaken by SGS, our nominated external verification provider, to the standard of OHSAS18001:2007 that we operate in our production sites.

For 2016 we enhanced our H&S policy to include well-being for the first time. To help us promote issues of good health amongst our employees, we partnered with our occupational health provider to deliver interactive training days with a focus on the promotion of a healthier life style. These covered topics such as diet, exercise, stress and work-life balance.

We are now in the fifth year of running a cycle to work scheme and now have more colleagues than ever enjoying the benefits of a healthier lifestyle that this has brought to them.

We have made some excellent improvements with the provision of H&S training via our online training portal which enables us to provide consistent training throughout the organisation.

Our safety culture continues to mature and our programme of training and knowledge sharing is at the heart of our progress. We have collectively observed and reported 1,278 hazards during 2016 that had the potential to cause harm or injury which is testimony to the focus that our employees have towards creating a safer working environment.

HEALTH, SAFETY AND ENVIRONMENTAL OBSERVATION REPORTS

2000

1500

1000

500

0

13

42

16

25 17

77

12

78

Nu

mb

er o

f rep

ort

s

20

13

20

14

20

15

20

16

During the year we continued our Senior Manager Tour Programme which began in 2014. We achieved 100% attendance on this programme, demonstrating strong leadership from the senior executive team on H&S and engagement with the workforce.

HEALTH AND SAFETY PERFORMANCE

The Reportable Incident Frequency Rate (“RIFR”) and Lost Time Incident Frequency Rate (“LTIFR”) (referred to previously as Lost Time Accident Frequency Rate (“LTAFR”)) have begun to plateau. In 2016 we experienced 11 of these incidents, six of which were reportable under the Reporting of Injuries Diseases and Dangerous Occurrences Regulations 2013 (“RIDDOR”). This is shown in the following chart.

OUR DRIVERS FOR SAFETY ARE THE PREVENTION OF INJURY AND LOSS

Inci

den

t by

typ

e

GROUP HEALTH, SAFETY AND ENVIRONMENTAL PERFORMANCE 2016

Lost Work Days

Dangerous Occurrence/ Property Damage

Near Miss (Incidents)

Environmental Incident

First Aid

Medical Aid

Lost Time Accident LTA (>1 day)

RIDDOR (>7day)

0 50 100 150 200 250

REPORTABLE INCIDENT FREQUENCY RATE AND LOST TIME INCIDENT FREQUENCY RATE

0.60

0.50

0.40

0.30

0.20

0.10

0.00

RIFR

LTIFR

Freq

uen

cy r

ate

28

COM-P160-R+A16-1.indd 28 22/03/2017 21:09

We have made some excellent improvements with the provision of H&S training via our online training portal which enables us to provide consistent training throughout the organisation.

Our safety culture continues to mature and our programme of training and knowledge sharing is at the heart of our progress. We have collectively observed and reported 1,278 hazards during 2016 that had the potential to cause harm or injury which is testimony to the focus that our employees have towards creating a safer working environment.

HEALTH, SAFETY AND ENVIRONMENTAL OBSERVATION REPORTS

2000

1500

1000

500

0

13

42

16

25 17

77

12

78

Nu

mb

er o

f rep

ort

s

20

13

20

14

20

15

20

16

During the year we continued our Senior Manager Tour Programme which began in 2014. We achieved 100% attendance on this programme, demonstrating strong leadership from the senior executive team on H&S and engagement with the workforce.

HEALTH AND SAFETY PERFORMANCE

The Reportable Incident Frequency Rate (“RIFR”) and Lost Time Incident Frequency Rate (“LTIFR”) (referred to previously as Lost Time Accident Frequency Rate (“LTAFR”)) have begun to plateau. In 2016 we experienced 11 of these incidents, six of which were reportable under the Reporting of Injuries Diseases and Dangerous Occurrences Regulations 2013 (“RIDDOR”). This is shown in the following chart.

Both incident frequency rates show a small increase. However, there continues to be some exceptional H&S performance from the production sites throughout the Group, with improved performance for Lost Work Days since their last Lost Time Incident and RIDDOR events. For example, our facilities at Leeds and Crewe have both recorded over a year between these types of events. Our site at Newcastle experienced no injuries during 2016.

2016

2015

2014

Inci

den

t by

typ

e

GROUP HEALTH, SAFETY AND ENVIRONMENTAL PERFORMANCE 2016

Lost Work Days

Dangerous Occurrence/ Property Damage

Near Miss (Incidents)

Environmental Incident

First Aid

Medical Aid

Lost Time Accident LTA (>1 day)

RIDDOR (>7day)

0 50 100 150 200 250

REPORTABLE INCIDENT FREQUENCY RATE AND LOST TIME INCIDENT FREQUENCY RATE

0.60

0.50

0.40

0.30

0.20

0.10

0.002012 2013 2014 2015 2016

RIFR

LTIFR

Freq

uen

cy r

ate


29

COM-P160-R+A16-1.indd 29 22/03/2017 21:09

ENVIRONMENT

MANAGEMENT SYSTEMS

We now operate ISO14001:2004 environmental management systems at all of our production facilities to ensure that we manage our environmental impacts.

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

We operate a greenhouse gas management system which enables us to accurately record and report our emissions. This system ensures consistency and transparency in our activities and is written to support ISO14064-1:2006.

ENVIRONMENTAL LEGAL COMPLIANCE

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

CARBON REDUCTION COMMITMENT (“CRC”) AND GREENHOUSE GAS (“GHG”)

Full compliance was achieved with CRC Phase 2 during 2016. All payments and allowances were made as required. This aspect of our compliance was done in conjunction with Carbon Credentials Energy Services Limited, our compliance partner, who we employ to provide us with technical support.

GHG REPORTING

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

CARBON INTENSITY

Carbon intensity is currently measured as the tonnes of carbon dioxide equivalent (TCO

2e) emitted per tonne of paper

processed. The operational boundary for energy intensity and performance reporting is limited to operational sites which process paper (namely Crewe, Leeds and Liverpool). The operational boundary does not include operations that are based on third-party sites because carbon data is currently not available. Data for the Company’s site at Trafford Wharf was previously included in the 2013 and 2014 figures but this site has now closed. In addition, data for the Company’s Telferton site is only available for 2016. The figures below have been calculated without the Trafford Wharf and Telferton data in order to provide a like-for-like comparison of Total Carbon Intensity over the period.

Baseline Year 2013 2014 2015 2016

Average Site Intensity

0.42 0.51 0.49 0.44

Total Carbon Intensity

1.26 1.52 1.47 1.31

Our carbon intensity for 2016 has improved compared to the previous year. This has been achieved by accomplishing several of the objectives that were set in 2014. Objectives relating to carbon intensity and GHG emissions continue to focus our business in a sustainable manner, whilst others that were set in 2014 such as waste reduction and travel are to be reviewed during 2017.

As part of our obligation to report GHG emissions and our continous improvement process we will provide verification of the emissions statements and data made by the Company in accordance with ISO14064-3. Our current status is maintained at the top scoring of ‘reasonable assurance’ as verified by our external third-party partner.

ENVIRONMENTAL PERFORMANCE MONITORING

BUSINESS IN THE COMMUNITY (“BiTC”) AWARD 2016

We continued to participate in the BiTC awards in 2016. Our company performance was assessed by CSR experts before being placed into an index alongside our contemporaries. We are very pleased to have maintained our Silver award for 2016 which shows that we have emerging maturity of our CSR programmes.

ECOVADIS

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

In 2016 we maintained a Silver rating which placed us in the top 30% of subscribers.

CARBON DISCLOSURE PROJECT (“CDP”)

Our climate change programme submission for 2016 was completed for both our Company performance and how our supply chain is managed. CDP has updated its scoring methodology for 2016, our two entries were scored ‘A-‘ which classed us at one of the top levels, the “Leadership” level.

Baseline Year 2013 2014 2015 2016

Scope 1 1,661 1,603 1,571 1,630

Scope 2 9,234 9,122 8,514 7,486

Scope 3 880 1,012 784 951

Total Gross TCO

2e

11,775 11,737 10,869 10,067

The above table shows the audited and verified data by our external third party partner. This shows that both our Scope 1 and Scope 2 CO

2 equivalent emissions are reducing as a result

of the various initiatives that our sites are undertaking.

3030

COM-P160-R+A16-1.indd 30 22/03/2017 21:09

CARBON INTENSITY

Carbon intensity is currently measured as the tonnes of carbon dioxide equivalent (TCO

2e) emitted per tonne of paper

processed. The operational boundary for energy intensity and performance reporting is limited to operational sites which process paper (namely Crewe, Leeds and Liverpool). The operational boundary does not include operations that are based on third-party sites because carbon data is currently not available. Data for the Company’s site at Trafford Wharf was previously included in the 2013 and 2014 figures but this site has now closed. In addition, data for the Company’s Telferton site is only available for 2016. The figures below have been calculated without the Trafford Wharf and Telferton data in order to provide a like-for-like comparison of Total Carbon Intensity over the period.

Baseline Year 2013 2014 2015 2016

Average Site Intensity

0.42 0.51 0.49 0.44

Total Carbon Intensity

1.26 1.52 1.47 1.31

Our carbon intensity for 2016 has improved compared to the previous year. This has been achieved by accomplishing several of the objectives that were set in 2014. Objectives relating to carbon intensity and GHG emissions continue to focus our business in a sustainable manner, whilst others that were set in 2014 such as waste reduction and travel are to be reviewed during 2017.

As part of our obligation to report GHG emissions and our continous improvement process we will provide verification of the emissions statements and data made by the Company in accordance with ISO14064-3. Our current status is maintained at the top scoring of ‘reasonable assurance’ as verified by our external third-party partner.

ENVIRONMENTAL PERFORMANCE MONITORING

BUSINESS IN THE COMMUNITY (“BiTC”) AWARD 2016

We continued to participate in the BiTC awards in 2016. Our company performance was assessed by CSR experts before being placed into an index alongside our contemporaries. We are very pleased to have maintained our Silver award for 2016 which shows that we have emerging maturity of our CSR programmes.

ECOVADIS

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

In 2016 we maintained a Silver rating which placed us in the top 30% of subscribers.

CARBON DISCLOSURE PROJECT (“CDP”)

Our climate change programme submission for 2016 was completed for both our Company performance and how our supply chain is managed. CDP has updated its scoring methodology for 2016, our two entries were scored ‘A-‘ which classed us at one of the top levels, the “Leadership” level.

Baseline Year 2013 2014 2015 2016

Scope 1 1,661 1,603 1,571 1,630

Scope 2 9,234 9,122 8,514 7,486

Scope 3 880 1,012 784 951

Total Gross TCO

2e

11,775 11,737 10,869 10,067

The above table shows the audited and verified data by our external third party partner. This shows that both our Scope 1 and Scope 2 CO

2 equivalent emissions are reducing as a result

of the various initiatives that our sites are undertaking.

NATURAL RESOURCES CONSUMPTION

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

SUPPLY CHAIN PARTNERSHIPS

We are committed to conducting business responsibly and seek to ensure that our supply chain operates to those same high standards across all areas of our business. This includes employment practices, workplace conditions and, more specifically, the prevention of forced, bonded and trafficked labour. This is upheld through the company’s policies and processes.

The Modern Slavery Act 2015 has introduced changes in UK law focusing on increasing transparency in supply chains. A copy of the Group’s slavery and human trafficking statement can be found on the Company’s website.

Corporate responsibility and sustainability continues to be an important part of our supply chain activities, from supplier due diligence through to audit and performance management. We also continue to deliver a number of supply chain orientated sustainability initiatives, for example moving to box-less envelope supply which has removed the need for around 500,000 boxes in 2016.

31


31

COM-P160-R+A16-1.indd 31 22/03/2017 21:09

GOVERNANCE

BOARD OF DIRECTORSAND EXECUTIVE BOARD

ANDY BLUNDELL

Chief Executive Officer since October 2009 and member of the Board since August 2009.

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

CURRENT EXTERNAL DIRECTORSHIPS: None.

PETER HICKSON

Chairman of the Board since December 2007 and of the Nomination Committee. Peter is also a member of the Audit and Remuneration Committees.

Peter has had senior management experience with a number of large international companies, and previous appointments include Chairman of Chemring Group PLC, Senior Independent Director of Harworth Group plc (formerly Coalfield Resources Plc), Chairman of Anglian Water Group, Finance Director of Power Gen plc, and Non-Executive Directorships at Kazakhmys PLC, London & Continental Railways Limited, Scottish Power plc, Marconi Corporation plc and RAC plc.

CURRENT EXTERNAL DIRECTORSHIPS: Peter is Chairman and a trustee of Orbis Charitable Trust, the sight saving charity.

MARK STONER

Finance Director and member of the Board since August 2014.

Mark joined Communisis in June 2008 as Divisional Finance Director of Print Sourcing and in 2010 was appointed Managing Director of that division, prior to becoming Group Director, Supply Chain and IT in 2012. Prior to joining Communisis, Mark previously held finance roles with NASDAQ listed Atmel in the UK, KPMG, Siemens plc, Rolls Royce Industrial Power Group and British Steel plc.


DAVID GILBERTSON

Independent Non-Executive Director since March 2017 and Chairman Designate. David is a member of the Audit, Remuneration and Nomination Committees and will become Chairman of the Board and Nomination Committee at the close of the 2017 Annual General Meeting.

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

CURRENT EXTERNAL DIRECTORSHIPS: David is Senior Independent Director of Tarsus Group plc, Chairman of the Concerto Group and Old Street Labs Limited as well as Non-Executive Director for Incisive Media (Holdco) Limited. David also has several operational advisory interests and is Governor of Westminster Kingsway City and Islington College.

32

COM-P160-R+A16-1.indd 32 22/03/2017 21:09

GOVERNANCE

BOARD OF DIRECTORSAND EXECUTIVE BOARD

HELEN KEAYS

Independent Non-Executive Director since August 2014. Helen is also Chair of the Remuneration Committee and a member of the Audit and Nomination Committees.

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

CURRENT EXTERNAL DIRECTORSHIPS: Helen is a Non-Executive Director of Domino’s Pizza Group plc and is also a Life Trustee of the Shakespeare Birthplace Trust.

MARK STONER

Finance Director and member of the Board since August 2014.

Mark joined Communisis in June 2008 as Divisional Finance Director of Print Sourcing and in 2010 was appointed Managing Director of that division, prior to becoming Group Director, Supply Chain and IT in 2012. Prior to joining Communisis, Mark previously held finance roles with NASDAQ listed Atmel in the UK, KPMG, Siemens plc, Rolls Royce Industrial Power Group and British Steel plc.


JANE GRIFFITHS

Independent Non-Executive Director since May 2012. Jane is also a member of the Audit, Remuneration and Nomination Committees.

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


DAVID GILBERTSON

Independent Non-Executive Director since March 2017 and Chairman Designate. David is a member of the Audit, Remuneration and Nomination Committees and will become Chairman of the Board and Nomination Committee at the close of the 2017 Annual General Meeting.

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

CURRENT EXTERNAL DIRECTORSHIPS: David is Senior Independent Director of Tarsus Group plc, Chairman of the Concerto Group and Old Street Labs Limited as well as Non-Executive Director for Incisive Media (Holdco) Limited. David also has several operational advisory interests and is Governor of Westminster Kingsway City and Islington College.

PETER HARRIS

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

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

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

33

Communisis plc Annual Report and Financial Statements 2016 | GOVERNANCE

COM-P160-R+A16-1.indd 33 22/03/2017 21:09

COMMITTEES

Membership at 9 March 2017

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

The directors present their Annual Report, Financial Statements and independent auditor’s report for the year ended 31 December 2016.

With the exception of details of directors’ interests which are set out on page 66 of the Directors’ Remuneration Report, the information to be included in the Annual Report and Financial Statements under LR9.8.4C of the UK Financial Conduct Authority’s Listing Rules is set out in this Directors’ Report.

STRATEGIC REPORT

Section 414C of the Companies Act 2006 (“the Act”) requires us to present a fair review of the business during the year to 31 December 2016 and a description of the principal risks and uncertainties facing the Company. The review must be a balanced and comprehensive analysis of both the development and performance of the Company’s business during the financial year, and the position of the Company’s business at the end of the year, consistent with the size and complexity of the business. It also requires us to provide details of expected future developments in the Group and an indication of the Group’s overseas branches. The Strategic Report can be found on pages 9 to 31.

RESULTS AND DIVIDENDS

The results for the year are shown on page 70. An interim dividend of 0.81p per ordinary share was paid on 13 October 2016. The directors now propose a final dividend of 1.61p per ordinary share to be paid on 26 May 2017 to shareholders on the register at close of business on 28 April 2017. This makes total dividends for the year of 2.42p per share (2015 2.20p).

DIRECTORS’ REPORT

EXECUTIVE BOARD

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

ANDY BLUNDELL Chief Executive Officer

MARK STONER Finance Director

ANDREW NEAL Group Human Resources Director

SIMON MARSHALL Chief Marketing Officer

DAVID HERRIDGE Managing Director – Customer Experience

JON WELLINGS Managing Director – Brand Deployment

MARK LEWIS Group Shared Services Director

Audit

Remuneration

Nomination

Administration and Finance*

Peter Hickson u u u u

David Gilbertson u u u u

Peter Harris u u u u

Helen Keays u u u u

Jane Griffiths u u u u

Andy Blundell u

Mark Stoner u

u Committee member

u Committee chair

* Any two directors (one of whom must be the Chairman, the Chief Executive Officer or the Finance Director)

34

COM-P160-R+A16-1.indd 34 22/03/2017 21:09

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

The directors present their Annual Report, Financial Statements and independent auditor’s report for the year ended 31 December 2016.

With the exception of details of directors’ interests which are set out on page 66 of the Directors’ Remuneration Report, the information to be included in the Annual Report and Financial Statements under LR9.8.4C of the UK Financial Conduct Authority’s Listing Rules is set out in this Directors’ Report.

STRATEGIC REPORT

Section 414C of the Companies Act 2006 (“the Act”) requires us to present a fair review of the business during the year to 31 December 2016 and a description of the principal risks and uncertainties facing the Company. The review must be a balanced and comprehensive analysis of both the development and performance of the Company’s business during the financial year, and the position of the Company’s business at the end of the year, consistent with the size and complexity of the business. It also requires us to provide details of expected future developments in the Group and an indication of the Group’s overseas branches. The Strategic Report can be found on pages 9 to 31.

RESULTS AND DIVIDENDS

The results for the year are shown on page 70. An interim dividend of 0.81p per ordinary share was paid on 13 October 2016. The directors now propose a final dividend of 1.61p per ordinary share to be paid on 26 May 2017 to shareholders on the register at close of business on 28 April 2017. This makes total dividends for the year of 2.42p per share (2015 2.20p).

DIRECTORS AND GOVERNANCE

The names and biographical details of the directors who hold office at the date of this report are set out on pages 32 to 33. The directors who served during the year are shown below:

PETER HICKSON Chairman

ANDY BLUNDELL Chief Executive Officer

NIGEL HOWES* Strategic and Corporate Development Director

DAVE RUSHTON* Group Managing Director

MARK STONER Finance Director

JANE GRIFFITHS Non-Executive Director

PETER HARRIS Non-Executive Director

HELEN KEAYS Non-Executive Director

* Stepped down from the Board on 31 January 2016

Additional information relating to the remuneration and share interests of each director is given in the Directors’ Remuneration Report on pages 50 to 68. No director had, during or at the end of the year, any material interest in any contract of significance in relation to the Group’s business.

Details of the directors’ service contracts are set out in the Directors’ Remuneration Report on page 58.

In accordance with the UK Corporate Governance Code, all directors will offer themselves for re-election at the Annual General Meeting (the “AGM”) on 11 May 2017 in line with best market practice.

The corporate governance statement required by Disclosure and Transparency Rule (“DTR”) 7.2.1 is contained within the Corporate Governance Report on pages 40 to 45 as permitted by DTR 7.2.9.

DIRECTORS’ REPORT

35


COM-P160-R+A16-1.indd 35 22/03/2017 21:09

RESEARCH AND DEVELOPMENT

Expenditure on research and development in the year was £nil (2015 £nil).

As we support our clients in their digital transformation from print-based communications to multi-channel communications, content management and multi-channel delivery are fundamental building blocks.

To this end we completed the implementation of our new composition platform in the middle of 2016 and are now moving new and existing clients onto this. Two of our major sales wins in 2016 were as a result of this technology.

We have released six core Application Programming Interfaces for clients to quickly connect to our systems, covering outbound and inbound multi-channel communications. Clients can now send data to us, distribute communications in real-time via any channel, enable us to ingest responses via any channel and then notify their Customer Relationship Management system of customer interactions.

As customer communications become more complex and diverse, so the tools needed to design and manage marketing campaigns also need to evolve. We have carried out significant developments in 2016 to improve the performance of our campaign management platform adding new configuration features to enable clients to map, at a granular level, the allocation of segments and offers to artwork, while automatically generating schedules and costs. This continues our drive to link our technology solutions to, and enhances our creative, data and procurement services enabling us to integrate and innovate in line with, client-specific requirements.

The efficiency and resilience of our manufacturing operations is critical and so we continue to invest in our production platform. We continue to develop inter-site features which enable us to move work quickly around our operations. This enables us to move large portions of client work between sites to free up capacity, upgrade equipment and provide support to further internalisation of disaster recovery. We have also developed the automation and visibility of client material management and supply chain which will deliver lean processes through 2017.

Finally, we continue to expand the technology team, adding people with the right digital skill sets while ring-fencing and cultivating existing internal talent.

SHARE CAPITAL

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

FINANCIAL RISK MANAGEMENT

Disclosures required under paragraph 6 in Schedule 7 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 have been provided in Note 26 to the Consolidated Financial Statements.

PURCHASE OF OWN SHARES

The Directors’ authority to make purchases of the Company’s shares on its behalf is given by resolution of the shareholders and renewed annually at the Company’s Annual General Meeting.

No share buy-backs were undertaken by the Company during 2014 or 2015. However, in March and November 2016 the Communisis plc Employment Benefit Trust acquired 320,000 and 800,000 shares respectively for a total consideration of £441,691.

RESERVES

In response to the economic environment and volatility of the accounting pension deficit, the Group completed a capital reduction exercise on 7 December 2016 which generated an additional £22.5m of distributable reserves from the share premium account, capital redemption reserve and the merger reserve. The changes across the individual reserve balances are detailed further in Note 19 to the Consolidated Financial Statements.

SHARE OPTION SCHEMES

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


The Group’s approach to corporate social responsibility is detailed within its report set out on pages 26 to 31.

POLITICAL DONATIONS

No political expenditure was incurred during the year, nor were any contributions made for political purposes.

EMPLOYMENT POLICY

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

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

MAJOR INTERESTS IN SHARES

The Company was notified under DTR5 of the following major holdings of voting rights associated with its shares as at the year end and changes made as at 8 March 2017:

ShareholderVoting rights as at 31 December 2016

% of total issued share capital

Voting rights as at 8 March 2017


Richard Griffiths and controlled undertakings 39,117,412 18.68 43,892,672 20.96

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

Majedie Asset Management Limited 10,651,768 5.13 10,651,768 5.13

Slater Investments Ltd 10,296,207 4.92 6,262,534 less than 3%

36

COM-P160-R+A16-1.indd 36 22/03/2017 21:09

SHARE CAPITAL

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

FINANCIAL RISK MANAGEMENT

Disclosures required under paragraph 6 in Schedule 7 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 have been provided in Note 26 to the Consolidated Financial Statements.

PURCHASE OF OWN SHARES

The Directors’ authority to make purchases of the Company’s shares on its behalf is given by resolution of the shareholders and renewed annually at the Company’s Annual General Meeting.

No share buy-backs were undertaken by the Company during 2014 or 2015. However, in March and November 2016 the Communisis plc Employment Benefit Trust acquired 320,000 and 800,000 shares respectively for a total consideration of £441,691.

RESERVES

In response to the economic environment and volatility of the accounting pension deficit, the Group completed a capital reduction exercise on 7 December 2016 which generated an additional £22.5m of distributable reserves from the share premium account, capital redemption reserve and the merger reserve. The changes across the individual reserve balances are detailed further in Note 19 to the Consolidated Financial Statements.

SHARE OPTION SCHEMES

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


The Group’s approach to corporate social responsibility is detailed within its report set out on pages 26 to 31.

POLITICAL DONATIONS

No political expenditure was incurred during the year, nor were any contributions made for political purposes.

EMPLOYMENT POLICY

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

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

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

Further details of the way in which we engage with our employees on matters which affect them and encourage their involvement and participation in the performance of the Group is given on page 13 and on pages 26 to 29.

MAJOR INTERESTS IN SHARES

The Company was notified under DTR5 of the following major holdings of voting rights associated with its shares as at the year end and changes made as at 8 March 2017:

Shareholder

Voting rights as at 31 December 2016


Voting rights as at 8 March 2017


Richard Griffiths and controlled undertakings 39,117,412 18.68 43,892,672 20.96

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

Majedie Asset Management Limited 10,651,768 5.13 10,651,768 5.13

Slater Investments Ltd 10,296,207 4.92 6,262,534 less than 3%

37


COM-P160-R+A16-1.indd 37 22/03/2017 21:09

QUALIFYING THIRD PARTY INDEMNITY PROVISION

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

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

FUTURE DEVELOPMENTS

Future developments are described in the Strategic Report on pages 9 to 31.

GOING CONCERN AND VIABILITY

The Directors’ Going Concern and Viability Statements are set out in the Strategic Report on pages 20 to 21.

ANNUAL GENERAL MEETING (“AGM”)

Notice of the AGM to be held on 11 May 2017 is contained in a separate document sent, or made available electronically, to shareholders with this Report and is available on the Company’s website.

DISCLOSURE OF INFORMATION TO THE AUDITOR

In accordance with Section 418(2) of the Act, the directors confirm that, so far as each is aware, there is no relevant audit information of which the auditor is unaware.

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

ADDITIONAL INFORMATION FOR SHAREHOLDERS

The following is additional information required for shareholders as a result of the implementation of the Takeovers Directive into UK law.

At 31 December 2016, the Company’s issued share capital comprised:

Number

£


Ordinary shares of 25p each

209,376,010 52,344,002.50 100

Each share carries one vote with the result that the total voting rights at the same date were 209,376,010.

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

The Company’s issued share capital as at 8 March 2017 was 209,376,010.

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

The Notice of Meeting specifies deadlines for exercising voting rights either in person or by proxy in relation to resolutions to be passed at that meeting. All votes, including proxy votes, will be counted and made available as soon as practicable after the AGM and published on the Company’s website.

There are no restrictions on the transfer of ordinary shares in the Company other than:

the registration of share transfers may be suspended at such times and for such periods (not exceeding 30 days in any year) as the directors may determine;

certain restrictions may, from time to time, be imposed by laws and regulations (for example, insider trading laws and market requirements relating to close periods); and

the restrictions imposed by the Listing Rules of the Financial Conduct Authority, whereby certain employees of the Company require the approval of the Company to deal in the Company’s securities.

A special resolution at a general meeting of the shareholders is required to amend the Company’s Articles of Association.

Directors are re-appointed by ordinary resolution at a general meeting of the shareholders. The Articles provide that the Board can appoint a director but anyone so appointed must be elected by an ordinary resolution at the next AGM. At each AGM, one-third of the directors previously elected at an AGM must retire by rotation. Each retiring director who wishes to continue to serve must be re-elected at the meeting. In line with best practice, the Board conducts annual re-elections for all directors and will follow this policy at the 2017 AGM.

DIRECTORS’ AUTHORITIES

The directors are authorised under the terms of Section 551 of the Act to issue ordinary shares up to a maximum aggregate nominal value of £17,438,180 and under the terms of Section 560 of the Act authorised to issue ordinary shares in connection with a rights issue up to a maximum aggregate nominal value of £34,876,360 (such amount to be reduced by any allotments made under the first part of this paragraph). Pursuant to Section 570 of the Act, the directors are also authorised to allot shares for cash, without first offering them to existing shareholders, up to a limit of 5% of the Company’s issued ordinary share capital. This authority also gives the directors the power to allot shares for cash in connection with a rights issue.

Both these authorities will expire at the Annual General Meeting on 11 May 2017, and the directors will seek to have them renewed at that meeting.

SIGNIFICANT INTERESTS

Directors’ interests in the share capital of the Company as at 8 March 2016 and 31 December 2016 are shown in the table on page 66. Significant interests in voting rights notified under DTR5 are shown on page 37.

38

COM-P160-R+A16-1.indd 38 22/03/2017 21:09

ADDITIONAL INFORMATION FOR SHAREHOLDERS

The following is additional information required for shareholders as a result of the implementation of the Takeovers Directive into UK law.

At 31 December 2016, the Company’s issued share capital comprised:

Number

£


Ordinary shares of 25p each

209,376,010 52,344,002.50 100

Each share carries one vote with the result that the total voting rights at the same date were 209,376,010.

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

The Company’s issued share capital as at 8 March 2017 was 209,376,010.

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

The Notice of Meeting specifies deadlines for exercising voting rights either in person or by proxy in relation to resolutions to be passed at that meeting. All votes, including proxy votes, will be counted and made available as soon as practicable after the AGM and published on the Company’s website.

There are no restrictions on the transfer of ordinary shares in the Company other than:

the registration of share transfers may be suspended at such times and for such periods (not exceeding 30 days in any year) as the directors may determine;

certain restrictions may, from time to time, be imposed by laws and regulations (for example, insider trading laws and market requirements relating to close periods); and

the restrictions imposed by the Listing Rules of the Financial Conduct Authority, whereby certain employees of the Company require the approval of the Company to deal in the Company’s securities.

A special resolution at a general meeting of the shareholders is required to amend the Company’s Articles of Association.

Directors are re-appointed by ordinary resolution at a general meeting of the shareholders. The Articles provide that the Board can appoint a director but anyone so appointed must be elected by an ordinary resolution at the next AGM. At each AGM, one-third of the directors previously elected at an AGM must retire by rotation. Each retiring director who wishes to continue to serve must be re-elected at the meeting. In line with best practice, the Board conducts annual re-elections for all directors and will follow this policy at the 2017 AGM.

DIRECTORS’ AUTHORITIES

The directors are authorised under the terms of Section 551 of the Act to issue ordinary shares up to a maximum aggregate nominal value of £17,438,180 and under the terms of Section 560 of the Act authorised to issue ordinary shares in connection with a rights issue up to a maximum aggregate nominal value of £34,876,360 (such amount to be reduced by any allotments made under the first part of this paragraph). Pursuant to Section 570 of the Act, the directors are also authorised to allot shares for cash, without first offering them to existing shareholders, up to a limit of 5% of the Company’s issued ordinary share capital. This authority also gives the directors the power to allot shares for cash in connection with a rights issue.

Both these authorities will expire at the Annual General Meeting on 11 May 2017, and the directors will seek to have them renewed at that meeting.

SIGNIFICANT INTERESTS

Directors’ interests in the share capital of the Company as at 8 March 2016 and 31 December 2016 are shown in the table on page 66. Significant interests in voting rights notified under DTR5 are shown on page 37.

CONTRACTS WITH SHAREHOLDERS

There are no contracts of significance, or any other contracts between the Company and a controlling shareholder within the meaning of Listing Rule 9.8.4R.

SIGNIFICANT SHARE SCHEMES

The Communisis Employee Benefit Trust holds 0.39% as at 8 March 2017 (2015 0.01%) of the issued share capital of the Company in trust for the benefit of employees of the Group and their dependants. The voting rights of these shares are exercisable by the Trustees.

GREENHOUSE GAS EMISSIONS

All disclosures concerning the Group’s greenhouse gas emissions (as required to be disclosed under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013) are contained in the Corporate Social Responsibility Report forming part of the Strategic Report on pages 26 to 31.

CHANGE OF CONTROL

The Company is party to a number of contracts that could be terminated by the other party in the event of a change of control of the Company. The Company is also party to a number of banking agreements that, upon a change of control of the Company, are terminable by the banks upon provision of written notice.

There are no agreements between the Company and its directors or employees providing for additional compensation for loss of office or employment (whether through resignation, redundancy or otherwise) where such loss of office or employment occurs because of a takeover bid.

AUDITOR

The directors will place a resolution before the AGM to reappoint Ernst & Young LLP as auditor for the ensuing year.

Approved by the Board on 9 March 2017 and signed on its behalf by

SARAH CADDY Company Secretary

39


COM-P160-R+A16-1.indd 39 22/03/2017 21:09

This Report, with the Directors’ Remuneration Report, describes how the Board applies the principles of the UK Corporate Governance Code issued by the Financial Reporting Council, which is publicly available at www.frc.org.uk/ Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-2014.pdf

UK CORPORATE GOVERNANCE CODE COMPLIANCE

During the year under review, the Company has complied with the main provisions of the UK Corporate Governance Code (the “Code”).

BOARD STRUCTURE

The Board currently comprises the Chairman, two executive directors and four independent non-executive directors. David Gilbertson was appointed as an independent Non-Executive Director from 1 March 2017 and will take over as Chairman at the close of the Annual General Meeting (the “AGM”) on 11 May 2017 when Peter Hickson steps down from the Board. On 31 January 2016 Dave Rushton and Nigel Howes, both of whom were Executive Directors, stepped down from the Board.

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

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

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

Biographical details of the Board as at the date of this report can be found on pages 32 to 33.

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

CONFLICTS OF INTERESTS

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

BOARD PROCEEDINGS

The Board schedules eight or nine meetings each year, and also meets at other times as appropriate. During 2016 there were eight scheduled meetings and two ad hoc meetings (some of which were conducted by telephone). The table opposite shows the attendances of each director at meetings of the Board and its standing committees during the year. Details of membership of committees are set out on page 34.

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

strategy;

budget approval and monitoring of performance;

acquisitions and disposals;

approval of the annual report, interim, preliminary and other market updates on the Company’s performance;

approval of significant contracts; and

approval of Group policies.

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

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

RE-ELECTION

In accordance with the Code recommendation, all members of the Board will be submitting themselves for re-election at this year’s AGM to be held on 11 May 2017, with the exception of David Gilbertson who will be standing for election and Peter Hickson who will step down from the Board at the close of the AGM.

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

NON-EXECUTIVE DIRECTOR INDEPENDENCE

Having considered the criteria for independence within the Code, the Board is satisfied that Jane Griffiths, Peter Harris and Helen Keays remain independent and that David Gilbertson was independent upon appointment.

CORPORATE GOVERNANCE REPORT

Board (10 meetings)

Audit (3 meetings)

Remuneration (6 meetings)

Nomination (3 meetings)

Administration and Finance (14 meetings)¹

Peter Hickson 10 3 6 3 –

Andy Blundell 10 – – – 14

Nigel Howes2 1 – – – –

Dave Rushton2 1 – – – –

Mark Stoner 10 – – – 14

Jane Griffiths 10 3 6 3 –

Peter Harris 9 3 4 2 –

Helen Keays 10 3 6 2 –

1. Meetings of the Administration and Finance Committee are held on an ad hoc basis and require the attendance of two directors, one of whom must be the Chairman, Chief Executive Officer or Finance Director.

2. Nigel Howes and Dave Rushton stepped down from the Board on 31 January 2016.

ATTENDANCE BY DIRECTORS AT MEETINGS OF THE BOARD AND COMMITTEES IN 2016

40

COM-P160-R+A16-1.indd 40 22/03/2017 21:09

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

CONFLICTS OF INTERESTS

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

BOARD PROCEEDINGS

The Board schedules eight or nine meetings each year, and also meets at other times as appropriate. During 2016 there were eight scheduled meetings and two ad hoc meetings (some of which were conducted by telephone). The table opposite shows the attendances of each director at meetings of the Board and its standing committees during the year. Details of membership of committees are set out on page 34.

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

strategy;

budget approval and monitoring of performance;

acquisitions and disposals;

approval of the annual report, interim, preliminary and other market updates on the Company’s performance;

approval of significant contracts; and

approval of Group policies.

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

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

RE-ELECTION

In accordance with the Code recommendation, all members of the Board will be submitting themselves for re-election at this year’s AGM to be held on 11 May 2017, with the exception of David Gilbertson who will be standing for election and Peter Hickson who will step down from the Board at the close of the AGM.

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

NON-EXECUTIVE DIRECTOR INDEPENDENCE

Having considered the criteria for independence within the Code, the Board is satisfied that Jane Griffiths, Peter Harris and Helen Keays remain independent and that David Gilbertson was independent upon appointment.

INDUCTION AND DEVELOPMENT

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

David Gilbertson, further to his appointment on 1 March 2017, is currently undergoing a formal and comprehensive induction including meetings with the Executive Board, as well as site tours and meetings with senior management at the Company’s main operating sites.

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

The directors also receive a regular brief on upcoming developments and, if required, training is arranged to cover specific areas for which the directors need to have a more in-depth knowledge. During 2016 the directors and senior management team received training on the legislation and requirements of senior management and board directors in relation to health and safety.

Board (10 meetings)

Audit (3 meetings)

Remuneration (6 meetings)

Nomination (3 meetings)

Administration and Finance (14 meetings)¹

Peter Hickson 10 3 6 3 –

Andy Blundell 10 – – – 14

Nigel Howes2 1 – – – –

Dave Rushton2 1 – – – –

Mark Stoner 10 – – – 14

Jane Griffiths 10 3 6 3 –

Peter Harris 9 3 4 2 –

Helen Keays 10 3 6 2 –

1. Meetings of the Administration and Finance Committee are held on an ad hoc basis and require the attendance of two directors, one of whom must be the Chairman, Chief Executive Officer or Finance Director.

2. Nigel Howes and Dave Rushton stepped down from the Board on 31 January 2016.

ATTENDANCE BY DIRECTORS AT MEETINGS OF THE BOARD AND COMMITTEES IN 2016

41


COM-P160-R+A16-1.indd 41 22/03/2017 21:09

www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-2014��.pdf

BOARD EVALUATION

A Board performance evaluation is conducted annually with the most recent being December 2016. The evaluation process was based on a questionnaire devised for the purpose and circulated to the directors. The performance of the Board as a whole and of each of its principal Committees was considered and included issues such as: the assessment and monitoring of the Group’s strategy and risks; the mix of knowledge and skills on the Board; processes and procedures; oversight; ethics and compliance. The results were collated by the Company Secretary and reviewed by the Chairman who reported significant themes to the Board for consideration and discussion. Given the anticipated appointment of a new Chairman at the time the review was conducted, the Board agreed that it was inappropriate to finalise its objectives for 2017 without the new Chairman’s input. The objectives for 2017 will be disclosed in the 2017 Annual Report. The evaluation process for 2017 is planned for the fourth quarter of the year.

BOARD COMMITTEES

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

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

AUDIT COMMITTEE

During the year, the Audit Committee comprised:

Peter Harris (Chair);

Peter Hickson;

Jane Griffiths; and

Helen Keays.

David Gilbertson became a member of the Audit Committee on 1 March 2017.

Peter Harris and Peter Hickson are assessed as having the required recent and relevant financial expertise required by the Committee. All appointments to the Committee are made by the Board, which considers the required balance of skills and expertise required for the Committee.

The Committee meets as required but not less than three times a year. Three meetings were held during 2016. It also meets in the absence of management for discussions with the external auditor and in the absence of the external auditor when undertaking its annual appraisal of the performance of the auditor.

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

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

The Audit Committee Report is set out on pages 46 to 47.

NOMINATION COMMITTEE

The composition of the Nomination Committee during the year was:

Peter Hickson (Chair);

Jane Griffiths;

Peter Harris; and

Helen Keays

David Gilbertson became a member of the Nomination Committee on 1 March 2017 and will become Chairman of the Committee at the conclusion of the 2017 AGM.

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

The Committee meets as required, but has at least two scheduled meetings throughout the year. Three meetings were held throughout 2016.

The main roles and responsibilities of the Committee are to:

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

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

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

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

As part of its role to review the composition of the Board, the Nomination Committee recommended the appointment of a new non-executive director who would also replace Peter Hickson as Chairman of the Board and Chairman of the Nomination Committee at the close of the 2017 AGM. The Nomination Committee evaluated the balance of skills, experience, independence and knowledge of the Board before preparing a detailed candidate specification, which defined the criteria for the new appointee, in particular, looking for a candidate with the relevant skills to take on the roles of Chairman of the Board and Chairman of the Nomination Committee. The specification was agreed by the Nomination Committee.

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

42

COM-P160-R+A16-1.indd 42 22/03/2017 21:09

The Board recognises the benefits to the Group of diversity in the workforce and in the composition of the Board itself. Whilst the Company will always make appointments based on the best candidate for the role, it does seek to follow the recommendations within the Davies Report and the Code. In 2016 female directors accounted for 33% of the Board composition. More details on diversity and gender across the Group can be found on page 26.

REMUNERATION COMMITTEE

Details of the Remuneration Committee are set out in the Directors’ Remuneration Report on pages 50 to 68.

ADMINISTRATION AND FINANCE COMMITTEE

The Committee comprises any two directors, one of whom must be the Chairman, the Chief Executive Officer or the Finance Director. It may appoint its own Chairman and it meets when necessary.

It is empowered by the Board to:

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

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

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

Peter Harris and Peter Hickson are assessed as having the required recent and relevant financial expertise required by the Committee. All appointments to the Committee are made by the Board, which considers the required balance of skills and expertise required for the Committee.

The Committee meets as required but not less than three times a year. Three meetings were held during 2016. It also meets in the absence of management for discussions with the external auditor and in the absence of the external auditor when undertaking its annual appraisal of the performance of the auditor.

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

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

The Audit Committee Report is set out on pages 46 to 47.

NOMINATION COMMITTEE

The composition of the Nomination Committee during the year was:

Peter Hickson (Chair);

Jane Griffiths;

Peter Harris; and

Helen Keays

David Gilbertson became a member of the Nomination Committee on 1 March 2017 and will become Chairman of the Committee at the conclusion of the 2017 AGM.

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

The Committee meets as required, but has at least two scheduled meetings throughout the year. Three meetings were held throughout 2016.

The main roles and responsibilities of the Committee are to:

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

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

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

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

As part of its role to review the composition of the Board, the Nomination Committee recommended the appointment of a new non-executive director who would also replace Peter Hickson as Chairman of the Board and Chairman of the Nomination Committee at the close of the 2017 AGM. The Nomination Committee evaluated the balance of skills, experience, independence and knowledge of the Board before preparing a detailed candidate specification, which defined the criteria for the new appointee, in particular, looking for a candidate with the relevant skills to take on the roles of Chairman of the Board and Chairman of the Nomination Committee. The specification was agreed by the Nomination Committee.

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

43


COM-P160-R+A16-1.indd 43 22/03/2017 21:09

INTERNAL CONTROL AND RISK MANAGEMENT

The Board is responsible for maintaining a sound system of internal control in the Group and reviewing the effectiveness of financial, operational and compliance controls.

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

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

The Board has overall accountability for ensuring that risks are effectively managed across the Group. In addition, the internal audit function within the Group also has responsibilities for the Risk Management programme. A summary of this process is provided as part of the Viability Statement on pages 20 to 21.

On behalf of the Board, the Audit Committee regularly reviews the effectiveness of the Group’s system of internal control and risk management. These results are reported to, and considered by, the Board.

RELATIONS WITH SHAREHOLDERS

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

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

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

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

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

In 2016 Andy Blundell utilised internet video channels via the Proactive Investor website to extend links to investors; he also presented at the Capital Conference in London.

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

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

Information in relation to those who have a significant direct or indirect holding in the Company are set out in the Directors’ Report on page 37.

GENDER DIVERSITY

Details of the proportions of male and female employees on the Board, in senior management positions and in the organisation as a whole are provided in the Corporate Social Responsibility Report on page 26.

STRUCTURE OF COMPANY’S CAPITAL

Details of the structure of the Company’s capital are set out in the Directors’ Report on pages 35 to 39.



44

COM-P160-R+A16-1.indd 44 22/03/2017 21:09

RELATIONS WITH SHAREHOLDERS

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

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

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

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

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

In 2016 Andy Blundell utilised internet video channels via the Proactive Investor website to extend links to investors; he also presented at the Capital Conference in London.

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

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

Information in relation to those who have a significant direct or indirect holding in the Company are set out in the Directors’ Report on page 37.

GENDER DIVERSITY

Details of the proportions of male and female employees on the Board, in senior management positions and in the organisation as a whole are provided in the Corporate Social Responsibility Report on page 26.

STRUCTURE OF COMPANY’S CAPITAL

Details of the structure of the Company’s capital are set out in the Directors’ Report on pages 35 to 39.



45


COM-P160-R+A16-1.indd 45 22/03/2017 21:09

ANNUAL STATEMENT BY THE CHAIR OF THE AUDIT COMMITTEE

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

Three meetings were held during the year, two of which were scheduled to coincide with the Board’s review and approval of the Group’s Interim Statement and of its Preliminary Results announcement based on the Annual Report and Financial Statements. Attendance records of the meetings held during the year can be found on page 41.

ROLE AND RESPONSIBILITIES

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

the effectiveness of the Group’s internal audit function and Risk Management programme;

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

the independence and effectiveness of the external auditor;

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

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

COMPOSITION

The Committee is composed entirely of non-executive directors and is chaired by Peter Harris. The other members of the Committee are Peter Hickson, Jane Griffiths, Helen Keays and David Gilbertson who joined the Board on 1 March 2017. The relevant experience of each member is described on pages 32 to 33.

INTERNAL AUDIT AND CONTROL

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

There were 488 separate audits completed during 2016. This activity covered areas of compliance including information security, quality, health and safety, environmental matters and business continuity arrangements in addition to financial reporting and internal controls.

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

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

RISK MANAGEMENT

The Group has an established Risk Management programme, details of which are provided in the Strategic Report and Corporate Governance sections.

During the year, the Committee has considered Group Risks, reviewed the effectiveness of the internal audit function, assessed fraud, whistleblowing and anti-bribery measures across the business and also considered the requirements of the Modern Slavery Act. A copy of the Group’s Slavery And Human Trafficking Statement can be found on the Company’s website.

The Committee also focused on health, safety, environment, and information security which involved reviewing internal controls and challenging how risks are appropriately managed. The potential impact of exit from the European Union was also considered in the context of the Group’s strategic risks.

SIGNIFICANT MATTERS RELATED TO THE FINANCIAL STATEMENTS

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

In 2016, such issues included revenue recognition, re-segmentation, capital reductions, goodwill impairment, internal controls and exceptional items.

Of the matters considered during the year the most significant were revenue recognition, goodwill valuation, accounting for re-segmentation and management override:

the Committee continued to monitor the established Group policies for revenue recognition to ensure that they remained appropriate, robust and were consistently applied, particularly in circumstances where revenue recognition was driven by the percentage completion of individual contracts or where other judgments were made in allocating revenue between periods. The Committee also discussed the issue with management relating to the application of these policies and by reviewing reports from the external auditor on the nature and results of the audit tests undertaken;

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

the committee reviewed the re-segmentation performed during 2016. This included assessing the internal reporting under the new segments, the re-allocation and subsequent valuation of goodwill and the appropriateness of disclosures in the Annual Report and Accounts. The committee are satisfied that the changes for the re-segmentation have been appropriately accounted for and reported in line with IFRS8 operating segments and that the goodwill has been accurately and appropriately allocated to the new business segments.

the external auditors highlighted the issue of fraud and management override as a risk on the basis there are pressures upon all public companies to achieve market consensus view in respect of certain targets, which may be subject to judgment, estimation or manipulation to present an improved operating result. The Committee has reviewed all such areas in conjunction with the external auditors and are satisfied that appropriate policies have been followed and that appropriate disclosures have been included in the Annual Report and Financial Statements.

The key areas of focus during 2017 include readiness for the General Data Protection Requirements which are effective from May 2018 and the future implementation of new International Financial Reporting Standards in respect of revenue from customer contracts and lease accounting.

AUDIT COMMITTEE REPORT

46

COM-P160-R+A16-1.indd 46 22/03/2017 21:09

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

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

RISK MANAGEMENT

The Group has an established Risk Management programme, details of which are provided in the Strategic Report and Corporate Governance sections.

During the year, the Committee has considered Group Risks, reviewed the effectiveness of the internal audit function, assessed fraud, whistleblowing and anti-bribery measures across the business and also considered the requirements of the Modern Slavery Act. A copy of the Group’s Slavery And Human Trafficking Statement can be found on the Company’s website.

The Committee also focused on health, safety, environment, and information security which involved reviewing internal controls and challenging how risks are appropriately managed. The potential impact of exit from the European Union was also considered in the context of the Group’s strategic risks.

SIGNIFICANT MATTERS RELATED TO THE FINANCIAL STATEMENTS

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

In 2016, such issues included revenue recognition, re-segmentation, capital reductions, goodwill impairment, internal controls and exceptional items.

Of the matters considered during the year the most significant were revenue recognition, goodwill valuation, accounting for re-segmentation and management override:

the Committee continued to monitor the established Group policies for revenue recognition to ensure that they remained appropriate, robust and were consistently applied, particularly in circumstances where revenue recognition was driven by the percentage completion of individual contracts or where other judgments were made in allocating revenue between periods. The Committee also discussed the issue with management relating to the application of these policies and by reviewing reports from the external auditor on the nature and results of the audit tests undertaken;

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

the committee reviewed the re-segmentation performed during 2016. This included assessing the internal reporting under the new segments, the re-allocation and subsequent valuation of goodwill and the appropriateness of disclosures in the Annual Report and Accounts. The committee are satisfied that the changes for the re-segmentation have been appropriately accounted for and reported in line with IFRS8 operating segments and that the goodwill has been accurately and appropriately allocated to the new business segments.

the external auditors highlighted the issue of fraud and management override as a risk on the basis there are pressures upon all public companies to achieve market consensus view in respect of certain targets, which may be subject to judgment, estimation or manipulation to present an improved operating result. The Committee has reviewed all such areas in conjunction with the external auditors and are satisfied that appropriate policies have been followed and that appropriate disclosures have been included in the Annual Report and Financial Statements.

The key areas of focus during 2017 include readiness for the General Data Protection Requirements which are effective from May 2018 and the future implementation of new International Financial Reporting Standards in respect of revenue from customer contracts and lease accounting.

EXTERNAL AUDIT

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

The Committee is aware of the EU mandated requirement for auditor rotation and will monitor any legal or regulatory developments. There is no present intention to conduct an audit tender.

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

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

The Committee has an established policy for determining the non-audit services that the external auditor can provide and the procedures required for pre-approval of any such engagement. This allows the Committee to satisfy itself that auditor objectivity and independence are safeguarded. The split between audit and non-audit fees for the year to 31 December 2016 and the nature of the non-audit services provided appear in Note 5.5 to the Consolidated Financial Statements. Non-audit fees totalled £9,000 in respect of other assurance services provided during 2016. Given the type of non-audit services provided and at 4% of the external audit fee of £238,000, they are not considered by the Committee to be of a nature or at a level that compromises the objectivity and independence of the external auditor.

Upon the recommendation of the Committee, Ernst & Young LLP will be proposed for re-appointment as auditor by shareholders at the AGM on 11 May 2017.

PETER HARRIS Chair of the Audit Committee 9 March 2017

47


COM-P160-R+A16-1.indd 47 22/03/2017 21:09

GROUP FINANCIAL STATEMENTS PREPARED UNDER IFRS

The directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors have prepared the Group Financial Statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”). Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of the affairs of the Group and of the profit or loss of the Group for that period.

In preparing these Financial Statements, the directors are required to:

select suitable accounting policies and apply them consistently;

make judgments and estimates that are reasonable and prudent;

state whether IFRS as adopted by the EU has been followed, subject to any material departures disclosed and explained in the Group financial statements; and

prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.

The directors are responsible for keeping adequate accounting records, which show and explain the Group’s transactions and disclose with reasonable accuracy, at any time, the financial position of the Group and enable them to ensure that the Financial Statements comply with the Companies Act 2006 and Article 4 of the International Accounting Standards (“IAS”) Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are also responsible for preparing the Directors’ Report, the Strategic Report, the Directors’ Remuneration Report and the Corporate Governance Report in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules.

PARENT COMPANY FINANCIAL STATEMENTS PREPARED UNDER UK GAAP

The directors are responsible for preparing the Parent Company Financial Statements in accordance with applicable United Kingdom law and regulations.

Company law requires the directors to prepare Financial Statements for each financial year. Under that law, the directors have elected to prepare the Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law, the directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit and loss of the Company for that period.


select suitable accounting policies and then apply them consistently;


state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

prepare the Financial Statements on a going concern basis unless they consider that to be inappropriate.

The directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy, at any time, the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

DIRECTORS’ RESPONSIBILITY STATEMENTS PURSUANT TO DTR4

Each of us, for himself or herself and on behalf of each other director who held office on 31 December 2016, confirms that, to the best of his or her knowledge:

the Consolidated Financial Statements, prepared in accordance with IFRS as issued by the IASB and IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation as a whole; and

the Strategic Report and the Directors’ Report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties it faces.

In accordance with Section 418 of the Companies Act 2006, each director in office at the date of this report confirms that:

so far as the director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and

he or she has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

In addition, the directors as at the date of this report consider that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.

By order of the Board.

ANDY BLUNDELL Chief Executive Officer 9 March 2017

MARK STONER Finance Director 9 March 2017

48

COM-P160-R+A16-1.indd 48 22/03/2017 21:09

PARENT COMPANY FINANCIAL STATEMENTS PREPARED UNDER UK GAAP

The directors are responsible for preparing the Parent Company Financial Statements in accordance with applicable United Kingdom law and regulations.

Company law requires the directors to prepare Financial Statements for each financial year. Under that law, the directors have elected to prepare the Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law, the directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit and loss of the Company for that period.


select suitable accounting policies and then apply them consistently;


state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

prepare the Financial Statements on a going concern basis unless they consider that to be inappropriate.

The directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy, at any time, the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

DIRECTORS’ RESPONSIBILITY STATEMENTS PURSUANT TO DTR4

Each of us, for himself or herself and on behalf of each other director who held office on 31 December 2016, confirms that, to the best of his or her knowledge:

the Consolidated Financial Statements, prepared in accordance with IFRS as issued by the IASB and IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation as a whole; and

the Strategic Report and the Directors’ Report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties it faces.

In accordance with Section 418 of the Companies Act 2006, each director in office at the date of this report confirms that:

so far as the director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and

he or she has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

In addition, the directors as at the date of this report consider that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.

By order of the Board.

ANDY BLUNDELL Chief Executive Officer 9 March 2017

MARK STONER Finance Director 9 March 2017

49


COM-P160-R+A16-1.indd 49 22/03/2017 21:09

DIRECTORS’ REMUNERATION REPORT ANNUAL LETTER FROM THE CHAIR OF THE REMUNERATION COMMITTEEDear Shareholder

I am pleased to present the Directors’ Remuneration Report for the year end 31 December 2016 on behalf of the Board.

This Remuneration Report is split into three sections:

this letter introducing the Directors’ Remuneration Report;

the new Directors’ Remuneration Policy; and

the Annual Report on Remuneration.

REMUNERATION IN 2016

As more fully detailed in our Strategic Report, 2016 was a year of continued progress for Communisis despite challenging trading conditions in a number of our markets. As a consequence of this performance and the related growth in profits, the Committee was pleased to approve the payment of annual bonuses for 2016, albeit at broadly threshold levels for our Executive Directors for 2016 (25% of base salary) and was pleased to approve the vesting of part of the 2014 Long-Term Incentive Plan (“LTIP”) award (28.61% vesting).

The Committee also undertook the following actions in 2016:

base salaries were reviewed for Executive Directors as part of the normal, annual review of company-wide salaries. In line with the normal levels of increases made to all staff, Executive Directors’ salaries were increased by 1.51% from 1 July 2016;

as disclosed in the 2015 Directors’ Remuneration Report, the base Non-Executive Directors’ fees for Peter Harris and Helen Keays were increased from £45,000 to £50,000 with effect from the 2016 AGM;

further LTIP awards were made to Executive Directors on 9 March 2016; and

the treatments of remuneration items for the two executive directors who stepped down from our board on 31 January 2016 (Nigel Howes and Dave Rushton) were determined as more fully described on page 65 of this report.


Along with many other listed companies, our first three-year Directors’ Remuneration Policy was approved by our shareholders in 2014 and as this three-year authority is now expiring, we are required to seek our shareholders’ authority for a new Directors’ Remuneration Policy at our 2017 AGM.

The policy to be proposed at the 2017 AGM contains a high degree of consistency with the Company’s previous policy:

no increases to the potential quantum of Executive Directors’ remuneration are proposed;

within the policy, each element of remuneration contains an appropriate “cap”, none of which have been increased from the previous policy (and which are simply caps to comply with the regulations and do not reflect an aspiration in any way);

within the annual bonus we have retained the current maximum opportunity of 100% of base salary per annum. The precise metrics for the annual bonus will be set each year in line with strategic priorities. For 2017, the annual bonus will be based on a mix of demanding adjusted EBIT targets, Free Cash Flow and personal targets. The Committee will also apply a holistic overview of Group performance before approving any annual bonus pay-outs to Executive Directors;

the current LTIP was first established at the Company’s 2007 AGM and the original 10-year authority to operate this plan which was given by our shareholders expires in 2017. Having reviewed the LTIP, the Committee believes it is still “fit for purpose” for the Company, having been updated for various best practice features throughout the last 10 years, including malus and clawback provisions. Accordingly, the Committee is proposing that at the same time as proposing a new Directors’ Remuneration Policy, the Company’s authority to operate its LTIP should also be renewed;

as a smaller quoted company, the Company’s ability to make LTIP awards in any year will always be judged in the light of considerations of affordability and overall shareholder dilution. In 2017 the Company is proposing to make further LTIP awards to its Executive Directors. The awards for 2017 will have performance measures which are weighted 50% to growth in adjusted basic Earnings per Share (“EPS”) and 50% to absolute growth in Total Shareholder Return (“TSR”); and

at the same time as renewing its LTIP, Share Ownership Guidelines for Executive Directors at 100% of base salary will be introduced.

In preparing the policy for approval at the 2017 AGM, the Committee carried out a review of the policy during the course of 2016. Whilst the conclusion from this review was that there should be no material changes to the policy at the current time, the Committee intends to keep the policy under review in 2017. This is to ensure that the policy remains the most appropriate to support Communisis’ overall business strategy as the Company develops further in 2017, and at the same time to consider further any developments in market practice regarding the remuneration structures which listed companies may apply, following the work of the Executive Remuneration Working Group and the UK government’s on-going wider review of corporate governance. Should the Company wish to make further changes to the policy in 2018, the Company would expect to consult its major shareholders in advance of doing so.

For completeness, and whilst not solely an item for Directors’ remuneration, the Company’s 10-year authority to operate its all-employee tax-advantaged Sharesave Scheme will expire in 2017. Accordingly, a resolution will be proposed at the 2017 AGM to ask shareholders for authority to allow Communisis to operate this plan for a further 10-year period.

SHAREHOLDER APPROVAL

At the AGM on 11 May 2017, shareholders will be asked to approve four resolutions related to directors’ remuneration matters:

to approve the new Directors’ Remuneration Policy;

to approve the 2016 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 at our 2017 AGM. I will be available at the meeting to answer any questions about the work of the Committee.

Yours sincerely

HELEN KEAYS Chair, Remuneration Committee 9 March 2017

50

COM-P160-R+A16-1.indd 50 22/03/2017 21:09

DIRECTORS’ REMUNERATION REPORT


Along with many other listed companies, our first three-year Directors’ Remuneration Policy was approved by our shareholders in 2014 and as this three-year authority is now expiring, we are required to seek our shareholders’ authority for a new Directors’ Remuneration Policy at our 2017 AGM.

The policy to be proposed at the 2017 AGM contains a high degree of consistency with the Company’s previous policy:

no increases to the potential quantum of Executive Directors’ remuneration are proposed;

within the policy, each element of remuneration contains an appropriate “cap”, none of which have been increased from the previous policy (and which are simply caps to comply with the regulations and do not reflect an aspiration in any way);

within the annual bonus we have retained the current maximum opportunity of 100% of base salary per annum. The precise metrics for the annual bonus will be set each year in line with strategic priorities. For 2017, the annual bonus will be based on a mix of demanding adjusted EBIT targets, Free Cash Flow and personal targets. The Committee will also apply a holistic overview of Group performance before approving any annual bonus pay-outs to Executive Directors;

the current LTIP was first established at the Company’s 2007 AGM and the original 10-year authority to operate this plan which was given by our shareholders expires in 2017. Having reviewed the LTIP, the Committee believes it is still “fit for purpose” for the Company, having been updated for various best practice features throughout the last 10 years, including malus and clawback provisions. Accordingly, the Committee is proposing that at the same time as proposing a new Directors’ Remuneration Policy, the Company’s authority to operate its LTIP should also be renewed;

as a smaller quoted company, the Company’s ability to make LTIP awards in any year will always be judged in the light of considerations of affordability and overall shareholder dilution. In 2017 the Company is proposing to make further LTIP awards to its Executive Directors. The awards for 2017 will have performance measures which are weighted 50% to growth in adjusted basic Earnings per Share (“EPS”) and 50% to absolute growth in Total Shareholder Return (“TSR”); and

at the same time as renewing its LTIP, Share Ownership Guidelines for Executive Directors at 100% of base salary will be introduced.

In preparing the policy for approval at the 2017 AGM, the Committee carried out a review of the policy during the course of 2016. Whilst the conclusion from this review was that there should be no material changes to the policy at the current time, the Committee intends to keep the policy under review in 2017. This is to ensure that the policy remains the most appropriate to support Communisis’ overall business strategy as the Company develops further in 2017, and at the same time to consider further any developments in market practice regarding the remuneration structures which listed companies may apply, following the work of the Executive Remuneration Working Group and the UK government’s on-going wider review of corporate governance. Should the Company wish to make further changes to the policy in 2018, the Company would expect to consult its major shareholders in advance of doing so.

For completeness, and whilst not solely an item for Directors’ remuneration, the Company’s 10-year authority to operate its all-employee tax-advantaged Sharesave Scheme will expire in 2017. Accordingly, a resolution will be proposed at the 2017 AGM to ask shareholders for authority to allow Communisis to operate this plan for a further 10-year period.

SHAREHOLDER APPROVAL

At the AGM on 11 May 2017, shareholders will be asked to approve four resolutions related to directors’ remuneration matters:

to approve the new Directors’ Remuneration Policy;

to approve the 2016 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 at our 2017 AGM. I will be available at the meeting to answer any questions about the work of the Committee.

Yours sincerely

HELEN KEAYS Chair, Remuneration Committee 9 March 2017

51


COM-P160-R+A16-1.indd 51 22/03/2017 21:09

BASE SALARY

PENSION BENEFITSANNUAL

PERFORMANCE BONUS

LONG-TERM INCENTIVES

TOTAL REMUNERATION+ + + + =

FIXED PAY VARIABLE PAY

The Directors’ Remuneration Policy as set out in this section of the Directors’ Remuneration Report will, if approved by shareholders, take effect for all payments made to Directors from the date of the AGM on 11 May 2017.

Element and purpose

Policy

Operation and opportunity

Performance measures

Changes from previous policy

Base salary

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

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

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

N/A No changes.

Pension

To provide market competitive levels of retirement benefits.

Provide a competitive employer sponsored pension plan.

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

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

N/A No changes.

INTRODUCTION This report contains the material required to be set out as the Directors’ Remuneration Report for the purposes of Part 4 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, which amended The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (“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 2017 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:

52

COM-P160-R+A16-1.indd 52 22/03/2017 21:09

TOTAL REMUNERATION

The Directors’ Remuneration Policy as set out in this section of the Directors’ Remuneration Report will, if approved by shareholders, take effect for all payments made to Directors from the date of the AGM on 11 May 2017.

Element and purpose

Policy




Base salary

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

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

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

N/A No changes.

Pension

To provide market competitive levels of retirement benefits.

Provide a competitive employer sponsored pension plan.

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

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

N/A No changes.

INTRODUCTION This report contains the material required to be set out as the Directors’ Remuneration Report for the purposes of Part 4 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, which amended The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (“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 2017 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:

53


COM-P160-R+A16-1.indd 53 22/03/2017 21:09

Element and purpose

Policy




Benefits

To aid retention and remain competitive within the marketplace.

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

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

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

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

N/A No changes on general benefits.

Annual performance bonus

To motivate employees and incentivise delivery of annual performance targets.

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

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

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

Awards are paid in cash.

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

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

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

No changes.

Confirmation given that the weighting towards financial measures for the annual performance bonus will always be at least 60% for the duration of this policy.

Element and purpose

Policy




Long-term incentives

The Company operates the Communisis Long Term Incentive Plan 2007 (“LTIP”) to motivate and incentivise delivery of sustained performance over the long term. If approved by shareholders, the Company will continue to operate the LTIP after the 2017 AGM.

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

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

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

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

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

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

No changes in relation to the Executive Directors’ participation. The renewed LTIP proposes a change to dilution limits (removal of the 5% in 10 years limit).

Share ownership guidelines

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

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

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

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

100% of base salary for all Executive Directors.

N/A New element of policy introduced from AGM 2017.

All-employee share plans

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

The Company operates a Sharesave plan for UK employees.

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

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

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

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

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

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

No changes.

54

COM-P160-R+A16-1.indd 54 22/03/2017 21:09

Element and purpose

Policy




Benefits

To aid retention and remain competitive within the marketplace.

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

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

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

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

N/A No changes on general benefits.


To motivate employees and incentivise delivery of annual performance targets.

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

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

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

Awards are paid in cash.

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

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

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

No changes.

Confirmation given that the weighting towards financial measures for the annual performance bonus will always be at least 60% for the duration of this policy.

Element and purpose

Policy




Long-term incentives

The Company operates the Communisis Long Term Incentive Plan 2007 (“LTIP”) to motivate and incentivise delivery of sustained performance over the long term. If approved by shareholders, the Company will continue to operate the LTIP after the 2017 AGM.

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

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

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

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

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

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

No changes in relation to the Executive Directors’ participation. The renewed LTIP proposes a change to dilution limits (removal of the 5% in 10 years limit).

Share ownership guidelines

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

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

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

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

100% of base salary for all Executive Directors.

N/A New element of policy introduced from AGM 2017.


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

The Company operates a Sharesave plan for UK employees.

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

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

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

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

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

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

No changes.

55


COM-P160-R+A16-1.indd 55 22/03/2017 21:09

REMUNERATION POLICY – CHAIRMAN AND NON-EXECUTIVE DIRECTORS

The table below summarises the remuneration elements for the Chairman and Non-Executive Directors.

Element and purpose

Policy




Chairman and Non-Executive Director fees

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

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

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

Fees are paid monthly in cash.

The Chairman and his spouse also receive medical insurance.

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

Any increases actually made will be appropriately disclosed.

N/A No changes.

NOTES TO THE REMUNERATION POLICY TABLE

1. Differences between the Policy on Remuneration for Directors from the Policy on Remuneration of other employees

Where Communisis’ pay policy for Directors differs to its pay policies for groups of employees, this reflects the appropriate market rate position for the relevant roles. However, elements of consistency of treatment are promoted through a single group-wide annual bonus arrangement (although quantum and the mix of performance metrics vary according to seniority) and group-wide share plans.

2. Stating Maximum Amounts for the Remuneration Policy

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

3. Malus and Clawback

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

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

individual gross misconduct; or

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

4. Travel and Hospitality

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

5. Payments under previous policies

For the avoidance of doubt, in approving this Directors’ Remuneration Policy, authority is given to the Remuneration Committee to honour any commitments entered into with former or current directors under previous policies (including the payment of pensions and the vesting of past share awards).

6. Discretions reserved in operating incentive plans

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

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

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

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

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

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

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

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

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

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

APPROACH TO RECRUITMENT REMUNERATION

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

The following represents principles to be applied by the committee on recruitment of executive directors:

56

COM-P160-R+A16-1.indd 56 22/03/2017 21:10

REMUNERATION POLICY – CHAIRMAN AND NON-EXECUTIVE DIRECTORS

The table below summarises the remuneration elements for the Chairman and Non-Executive Directors.

Element and purpose

Policy




Chairman and Non-Executive Director fees

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

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

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

Fees are paid monthly in cash.

The Chairman and his spouse also receive medical insurance.

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

Any increases actually made will be appropriately disclosed.

N/A No changes.

3. Malus and Clawback

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

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

individual gross misconduct; or

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

4. Travel and Hospitality

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

5. Payments under previous policies

For the avoidance of doubt, in approving this Directors’ Remuneration Policy, authority is given to the Remuneration Committee to honour any commitments entered into with former or current directors under previous policies (including the payment of pensions and the vesting of past share awards).

6. Discretions reserved in operating incentive plans

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

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

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

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

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

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

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

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

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

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

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

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

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

APPROACH TO RECRUITMENT REMUNERATION

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

The following represents principles to be applied by the committee on recruitment of executive directors:

57


COM-P160-R+A16-1.indd 57 22/03/2017 21:10

SERVICE CONTRACTS

EXECUTIVE DIRECTORS

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

The date of each Executive Director’s contract is:

Contract date

Andy Blundell 2 November 2009

Mark Stoner 1 August 2014

NON-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-year period, after which they are appointed annually. These engagements can be terminated by either party as follows:

on six months’ notice in the case of the Chairman; and

on three months’ notice in the case of Non-Executive Directors.

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

The date of original appointment of each Non-Executive Director and the effective date of their latest letter of appointment is:

Date of original appointment

Latest appointment date

Peter Hickson 10 December 2007 12 May 2016

Jane Griffiths 17 May 2012 7 May 2015

Peter Harris 1 July 2013 12 May 2016

Helen Keays 1 August 2014 1 August 2014

David Gilbertson 1 March 2017 1 March 2017

TERMINATION POLICY SUMMARY

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

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

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

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

Annual Performance Bonus

Committee has discretion to award a pro-rated bonus.

No awards made. Pro-rated bonus.

Long Term Incentive Plan(“LTIP”) *

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

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

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

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

In the event of cessation of a Non-Executive Director’s appointment (excluding the Chairman) they would be entitled to a three-months’ notice period. The Chairman, as detailed in his letter of appointment, would be entitled to a six-months’ notice period.

EXTERNAL APPOINTMENTS

None of the Executive Directors is a director of any company apart from subsidiaries of Communisis. Were any Executive Directors to take up such an external Non-Executive appointment, they would be permitted to retain any fees earned from that appointment.

58

COM-P160-R+A16-1.indd 58 22/03/2017 21:10

NON-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-year period, after which they are appointed annually. These engagements can be terminated by either party as follows:

on six months’ notice in the case of the Chairman; and

on three months’ notice in the case of Non-Executive Directors.

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

The date of original appointment of each Non-Executive Director and the effective date of their latest letter of appointment is:

Date of original appointment

Latest appointment date

Peter Hickson 10 December 2007 12 May 2016

Jane Griffiths 17 May 2012 7 May 2015

Peter Harris 1 July 2013 12 May 2016

Helen Keays 1 August 2014 1 August 2014

David Gilbertson 1 March 2017 1 March 2017

TERMINATION POLICY SUMMARY

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

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

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

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

Annual Performance Bonus

Committee has discretion to award a pro-rated bonus.

No awards made. Pro-rated bonus.

Long Term Incentive Plan(“LTIP”) *

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

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

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

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

In the event of cessation of a Non-Executive Director’s appointment (excluding the Chairman) they would be entitled to a three-months’ notice period. The Chairman, as detailed in his letter of appointment, would be entitled to a six-months’ notice period.

EXTERNAL APPOINTMENTS

None of the Executive Directors is a director of any company apart from subsidiaries of Communisis. Were any Executive Directors to take up such an external Non-Executive appointment, they would be permitted to retain any fees earned from that appointment.

59


COM-P160-R+A16-1.indd 59 22/03/2017 21:10

COMMUNISIS TOTAL RENUMERATION OPPORTUNITY

38%

31%

31%

£1,169

100%

£294

61%

26%

13%

£482

37%

31%

32%

£793

£1,200

£1,000

£800

£600

£400

£200

£0

100%

£442

62%

25%

13%

£716

£0

00

Minimum In line with expectation

Maximum Minimum In line with expectation

Maximum

Andy Blundell Mark Stoner

■ Long term incentives (incl. Sharesave)

■ Annual performance bonus

■ Total fixed pay

Minimum Consists of base salary, benefits and pension.

Base salary is the current base salary.

Benefits measured as benefits paid in 2016 as set out in the single figure table.

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

£000 Base Salary Benefits Pension Total Fixed

Andy Blundell 362 36 44 442

Mark Stoner 249 16 29 294

In line with expectation

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

Annual performance bonus: consists of the on-target bonus (50% of base salary).

LTI: consists of the threshold level of vesting (25%). Assumed that the typical annual award is at 100% of base salary each year.

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

Annual performance bonus: consists of the maximum bonus (100% of base salary).

LTI: assumes maximum vesting of awards (100% of total award).

INDICATIVE TOTAL REMUNERATION LEVELS

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

STATEMENT OF CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE IN THE GROUP

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

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

STATEMENT OF CONSIDERATION OF SHAREHOLDER VIEWS

Each year, the Committee takes into account the approval levels of remuneration related matters at our Annual General Meeting in determining that the current Directors’ Remuneration Policy remains appropriate for the Company.

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

ANNUAL REPORT ON REMUNERATION The Annual Report on Remuneration outlines how the Committee implemented the previous Directors’ Remuneration Policy for the financial year ended 31 December 2016. This report, together with the Annual Statement from the Chair of the Remuneration Committee, will be put to shareholders for approval at the Annual General Meeting to be held on 11 May 2017. Shareholder approval is on an advisory basis only.

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

60

COM-P160-R+A16-1.indd 60 22/03/2017 21:10

Minimum Consists of base salary, benefits and pension.

Base salary is the current base salary.

Benefits measured as benefits paid in 2016 as set out in the single figure table.

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

£000 Base Salary Benefits Pension Total Fixed

Andy Blundell 362 36 44 442

Mark Stoner 249 16 29 294

In line with expectation

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

Annual performance bonus: consists of the on-target bonus (50% of base salary).

LTI: consists of the threshold level of vesting (25%). Assumed that the typical annual award is at 100% of base salary each year.

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

Annual performance bonus: consists of the maximum bonus (100% of base salary).

LTI: assumes maximum vesting of awards (100% of total award).

INDICATIVE TOTAL REMUNERATION LEVELS

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

STATEMENT OF CONSIDERATION OF SHAREHOLDER VIEWS

Each year, the Committee takes into account the approval levels of remuneration related matters at our Annual General Meeting in determining that the current Directors’ Remuneration Policy remains appropriate for the Company.

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

ANNUAL REPORT ON REMUNERATION The Annual Report on Remuneration outlines how the Committee implemented the previous Directors’ Remuneration Policy for the financial year ended 31 December 2016. This report, together with the Annual Statement from the Chair of the Remuneration Committee, will be put to shareholders for approval at the Annual General Meeting to be held on 11 May 2017. Shareholder approval is on an advisory basis only.

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

61


COM-P160-R+A16-1.indd 61 22/03/2017 21:10

PROPOSED IMPLEMENTATION OF REMUNERATION POLICY IN 2017 (UNAUDITED INFORMATION)

Element of Remuneration Policy

Detail of Implementation of Policy for 2017

Base salary Base salaries since 1 July 2016 review date are as follows: £362,400 for Andy Blundell and £248,500 for Mark Stoner. A further review will occur on 1 July 2017.

Pension No changes to the overall value of the pension arrangements for Executive Directors are anticipated for 2017. From 1 July 2013 the pension entitlement for each Executive Director was set at 12% of base salary.

Benefits There are no proposed changes to the benefits offered to Executive Directors in 2017.

The benefits to be received by Executive Directors in 2017 will include life assurance, private medical cover, car or car allowance provision and fuel card.


The maximum annual performance bonus for 2017 will remain at 100% of base salary.

The proposed performance measures (and their respective weightings) for the 2017 annual bonus are as follows:

Adjusted EBIT – 50%

Free cash flow – 25%

Personal measures – 25%

The actual performance targets for 2017 are not disclosed prospectively as these are considered to be commercially sensitive by the Board. The adjusted EBIT and free cash flow targets for 2017 will be disclosed retrospectively in next year’s Directors’ Remuneration Report, which is consistent with the fact the adjusted EBIT targets for 2016 are disclosed retrospectively in this report on page 67.

Long-term incentives There will be an LTIP grant made in 2017 to the Executive Directors and Executive Board members.

The performance conditions for this award will be as follows:

50% of the award will be subject to a performance condition requiring absolute growth in EPS. The performance thresholds for this award will be same as for the LTIP award made in 2016 (see page 67) with no vesting below a 5% Compound Annual Growth Rate (“CAGR”) and a 15% CAGR required for full vesting. EPS growth will be measured over three financial years to 31 December 2019

50% of the award will be subject to a performance condition requiring absolute growth in TSR. The vesting range will be 7.5% CAGR (15% of this part vests) and 17.5% CAGR (100% 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.

Chairman and Non- Executive Directors’ fees

Peter Hickson’s fee as Chairman will be £100,000 per annum. Peter Hickson will step down from the Board after the AGM on 11 May 2017. David Gilbertson’s fee (from 1 March 2017) is £135,000 per annum.

The Non-Executive Director base fees for 2017 will be £50,000. Peter Harris and Helen Keays each receive an additional £5,000 fee as Chair of the Audit Committee and Remuneration Committee respectively. Peter Harris also receives £5,000 for his role as the Senior Independent Director.

ROLE AND MEMBERSHIP OF THE REMUNERATION COMMITTEE

The 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 2016, 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 41.

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

ADVISERS TO THE COMMITTEE

FIT Remuneration Consultants LLP (“FIT”), signatories to the Remuneration Consultants Group’s Code of Conduct, were appointed by the Committee following consideration of FIT’s experience in this sector. FIT provides advice to the Committee on all matters relating to remuneration, including best practice. FIT provided no other services to the Group and accordingly the Committee was satisfied that the advice provided by FIT was objective and independent. FIT’s fees in respect of 2016 were £34,983 (excluding VAT). FIT’s fees were charged on the basis of the firm’s standard terms of business for advice provided.

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

2016 VOTING

At the Company’s Annual General Meeting held on 12 May 2016, shareholders approved the Directors’ Remuneration Report for the year ended 31 December 2015. Below is the result in respect of this resolution, which required a simple majority of the votes to be cast in favour in order for the resolution to be passed:

Votes for % Votes against %

Remuneration Report 94,308,715 99.94 54,988 0.06

5,343,044 votes were withheld.

62

COM-P160-R+A16-1.indd 62 22/03/2017 21:10

PROPOSED IMPLEMENTATION OF REMUNERATION POLICY IN 2017 (UNAUDITED INFORMATION)

Element of Remuneration Policy

Detail of Implementation of Policy for 2017

Base salary Base salaries since 1 July 2016 review date are as follows: £362,400 for Andy Blundell and £248,500 for Mark Stoner. A further review will occur on 1 July 2017.

Pension No changes to the overall value of the pension arrangements for Executive Directors are anticipated for 2017. From 1 July 2013 the pension entitlement for each Executive Director was set at 12% of base salary.

Benefits There are no proposed changes to the benefits offered to Executive Directors in 2017.

The benefits to be received by Executive Directors in 2017 will include life assurance, private medical cover, car or car allowance provision and fuel card.


The maximum annual performance bonus for 2017 will remain at 100% of base salary.

The proposed performance measures (and their respective weightings) for the 2017 annual bonus are as follows:

Adjusted EBIT – 50%

Free cash flow – 25%

Personal measures – 25%

The actual performance targets for 2017 are not disclosed prospectively as these are considered to be commercially sensitive by the Board. The adjusted EBIT and free cash flow targets for 2017 will be disclosed retrospectively in next year’s Directors’ Remuneration Report, which is consistent with the fact the adjusted EBIT targets for 2016 are disclosed retrospectively in this report on page 67.

Long-term incentives There will be an LTIP grant made in 2017 to the Executive Directors and Executive Board members.

The performance conditions for this award will be as follows:

50% of the award will be subject to a performance condition requiring absolute growth in EPS. The performance thresholds for this award will be same as for the LTIP award made in 2016 (see page 67) with no vesting below a 5% Compound Annual Growth Rate (“CAGR”) and a 15% CAGR required for full vesting. EPS growth will be measured over three financial years to 31 December 2019

50% of the award will be subject to a performance condition requiring absolute growth in TSR. The vesting range will be 7.5% CAGR (15% of this part vests) and 17.5% CAGR (100% 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.

Chairman and Non- Executive Directors’ fees

Peter Hickson’s fee as Chairman will be £100,000 per annum. Peter Hickson will step down from the Board after the AGM on 11 May 2017. David Gilbertson’s fee (from 1 March 2017) is £135,000 per annum.

The Non-Executive Director base fees for 2017 will be £50,000. Peter Harris and Helen Keays each receive an additional £5,000 fee as Chair of the Audit Committee and Remuneration Committee respectively. Peter Harris also receives £5,000 for his role as the Senior Independent Director.

ROLE AND MEMBERSHIP OF THE REMUNERATION COMMITTEE

The 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 2016, 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 41.

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

ADVISERS TO THE COMMITTEE

FIT Remuneration Consultants LLP (“FIT”), signatories to the Remuneration Consultants Group’s Code of Conduct, were appointed by the Committee following consideration of FIT’s experience in this sector. FIT provides advice to the Committee on all matters relating to remuneration, including best practice. FIT provided no other services to the Group and accordingly the Committee was satisfied that the advice provided by FIT was objective and independent. FIT’s fees in respect of 2016 were £34,983 (excluding VAT). FIT’s fees were charged on the basis of the firm’s standard terms of business for advice provided.

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

2016 VOTING

At the Company’s Annual General Meeting held on 12 May 2016, shareholders approved the Directors’ Remuneration Report for the year ended 31 December 2015. Below is the result in respect of this resolution, which required a simple majority of the votes to be cast in favour in order for the resolution to be passed:

Votes for % Votes against %

Remuneration Report 94,308,715 99.94 54,988 0.06

5,343,044 votes were withheld.

63


COM-P160-R+A16-1.indd 63 22/03/2017 21:10

IMPLEMENTATION REPORT FOR 2016

SINGLE TOTAL FIGURE OF REMUNERATION IN 2016 FOR THE EXECUTIVE DIRECTORS (AUDITED INFORMATION)

Salary Benefits1 Other

Annual Performance

Bonus3

LTIP and Sharesave4,5 Pension6 Total

2016£000

2015£000

2016£000

2015£000

2016²£000

2015£000

2016£000

2015£000

2016£000

2015£000

2016£000

2015£000

2016£000

2015£000

Andy Blundell 360 354 36 36 0 0 89 0 32 44 43 42 560 476

Nigel Howes7 265 263 28 28 0 0 0 0 19 25 31 31 343 347

Dave Rushton8 133 263 6 16 9 0 0 0 5 25 16 32 169 336

Mark Stoner 247 242 16 14 0 0 61 0 22 10 29 29 375 295

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

2. An additional amount of £8,622 was paid to Dave Rushton with regard to settlement of claims in relation to statutory rights.

3. Details of the performance measures and targets applicable to the annual bonus for 2016 are set out below.

4. LTIP vesting in 2016 is summarised below. The value shown in the table above for LTIPs in 2016 represents vesting of part of the 2014 LTIP award is:

a. In relation to Directors other than Dave Rushton, measured by reference to EPS growth to 31 December 2016 (28.61% of the total award) multiplied by the three-month average share price to 31 December 2016 (37.5832p).

b. In relation to Dave Rushton, measured by reference to the EPS growth to 31 December 2015 multiplied by the share price on the date of cessation of his employment on 30 June 2016 (35p).

5. The figures in the LTIP column shown above for 2015 (representing the vesting of part of the 2013 LTIP awards) have been restated from the 2015 report. The values in the above table now reflect the value of the Company’s shares on the date of vesting (25 March 2016 46p per share) multiplied by the number of shares vesting, whereas the equivalent figure within the published 2015 single figure table was an estimate which reflected the average share price between 1 October 2015 and 31 December 2015 (47.964p per share).

6. Pension contributions are in line with the Pension entitlements summary on the opposite page.

7. Nigel Howes ceased to be a director on 31 January 2016. More details can be found on page 65.

8. Dave Rushton ceased to be a director on 31 January 2016. More details can be found on page 65.

9. The aggregate remuneration of all directors under salary, fees, benefits, cash contributions in lieu of pensions and annual bonus was £1,447,000 (2015 £1,454,000).

10. There were no payments made to former directors during 2016.

ANNUAL PERFORMANCE BONUS 2016

The 2016 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 2016 annual performance bonus was based on adjusted EBIT (adjusted operating profit). The £19.5m adjusted EBIT result for 2016 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 2016 annual bonuses to the Executive Directors were £89,000 for Andy Blundell (2015 £nil) and £61,000 for Mark Stoner (2015 £nil). These were calibrated as broadly threshold level bonuses.

For completeness, whilst not formulaic, the Committee had budgeted against an adjusted EBIT figure of £20m for 2016 for the purposes of considering payment of bonuses at on-target levels.

VESTING OF LTIP AWARDS IN 2016

The 2014 LTIP award was based on 60% of the award on a share price growth performance condition and on 40% of the award on an EPS performance condition. See page 68 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 10 June 2017 and 1 August 2017). Accordingly, the single figure table includes an estimated level of vesting for these awards based on the three month average share price to 31 December 2016 (37.5832p; estimated vesting nil).

The EPS performance condition CAGR 7.5% to 15% has been achieved as to 71.5245% vesting, meaning that 28.61% of the total 2014 LTIP award will vest.

PENSION ENTITLEMENTS SUMMARY

Andy Blundell and Mark Stoner remain members of the defined contribution section of the Communisis Pension Plan. They receive contributions each of £10,000 per annum to the Communisis Pension Plan. Overall pension entitlement is 12% of base salary. The balance above £10,000 is paid as a salary supplement. No director participated in a defined benefit scheme in the year.

PAYMENTS TO DIRECTORS LEAVING THE GROUP

Dave Rushton stepped down from the Board on 31 January 2016 and ceased to be an employee on 30 June 2016. He was paid salary, benefits and pension entitlement until 30 June 2016 only in accordance with his contractual notice period. As noted above, he was paid an additional £8,622 in 2016 with regard to settlement of claims in relation to statutory rights. He did not receive an annual bonus for 2016. His 2014 LTIP award was permitted to vest in respect of 14,453 shares only (7.2% of the original award) and his 2015 LTIP award lapsed in full.

Nigel Howes stepped down from the Board on 31 January 2016 and ceased to be an employee on 31 January 2017. He was paid salary, benefits and supplement in lieu of pension until 31 January 2017 only in accordance with his contractual notice period. He was paid an additional £5,700 in January 2017 with regard to settlement of claims in relation to statutory rights. He did not receive an annual bonus for 2016. His 2014 and 2015 LTIP awards were permitted to vest in respect of 49,272 shares only (24.64% of the original award) for the 2014 award and in respect of 172,777 shares only (37.97% of the original award) for the 2015 award. The awards will be exercisable for a period of six months from 31 January 2017.

COMPARATIVE TOTAL SHAREHOLDER RETURN

The graph below shows the Company’s Total Shareholder Return performance compared with the FTSE All Share Index. The graph provides a basis for comparison with a relevant equity index, of which Communisis is a constituent, and the Committee believes that no other published index provides a better comparison. In accordance with the Regulations the graph shows this performance over an eight-year period.

TOTAL SHAREHOLDER RETURN SINCE 31 DECEMBER 2008

TSR

– v

alu

e o

f a 1

00

un

it in

vest

men

t ma

de

on

31

Dec

emb

er 2

00

8

31 Dec 2008 31 Dec 2009 31 Dec 2010 31 Dec 2011 31 Dec 2012 31 Dec 2013 31 Dec 2014 31 Dec 2015 31 Dec 2016

Communisis plc FTSE All-Share

250

200

150

100

50

0

64

COM-P160-R+A16-1.indd 64 22/03/2017 21:10

IMPLEMENTATION REPORT FOR 2016

SINGLE TOTAL FIGURE OF REMUNERATION IN 2016 FOR THE EXECUTIVE DIRECTORS (AUDITED INFORMATION)

Salary Benefits1 Other

Annual Performance

Bonus3

LTIP and Sharesave4,5 Pension6 Total

2016£000

2015£000

2016£000

2015£000

2016²£000

2015£000

2016£000

2015£000

2016£000

2015£000

2016£000

2015£000

2016£000

2015£000

Andy Blundell 360 354 36 36 0 0 89 0 32 44 43 42 560 476

Nigel Howes7 265 263 28 28 0 0 0 0 19 25 31 31 343 347

Dave Rushton8 133 263 6 16 9 0 0 0 5 25 16 32 169 336

Mark Stoner 247 242 16 14 0 0 61 0 22 10 29 29 375 295

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

2. An additional amount of £8,622 was paid to Dave Rushton with regard to settlement of claims in relation to statutory rights.

3. Details of the performance measures and targets applicable to the annual bonus for 2016 are set out below.

4. LTIP vesting in 2016 is summarised below. The value shown in the table above for LTIPs in 2016 represents vesting of part of the 2014 LTIP award is:

a. In relation to Directors other than Dave Rushton, measured by reference to EPS growth to 31 December 2016 (28.61% of the total award) multiplied by the three-month average share price to 31 December 2016 (37.5832p).

b. In relation to Dave Rushton, measured by reference to the EPS growth to 31 December 2015 multiplied by the share price on the date of cessation of his employment on 30 June 2016 (35p).

5. The figures in the LTIP column shown above for 2015 (representing the vesting of part of the 2013 LTIP awards) have been restated from the 2015 report. The values in the above table now reflect the value of the Company’s shares on the date of vesting (25 March 2016 46p per share) multiplied by the number of shares vesting, whereas the equivalent figure within the published 2015 single figure table was an estimate which reflected the average share price between 1 October 2015 and 31 December 2015 (47.964p per share).

6. Pension contributions are in line with the Pension entitlements summary on the opposite page.

7. Nigel Howes ceased to be a director on 31 January 2016. More details can be found on page 65.

8. Dave Rushton ceased to be a director on 31 January 2016. More details can be found on page 65.

9. The aggregate remuneration of all directors under salary, fees, benefits, cash contributions in lieu of pensions and annual bonus was £1,447,000 (2015 £1,454,000).

10. There were no payments made to former directors during 2016.

ANNUAL PERFORMANCE BONUS 2016

The 2016 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 2016 annual performance bonus was based on adjusted EBIT (adjusted operating profit). The £19.5m adjusted EBIT result for 2016 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 2016 annual bonuses to the Executive Directors were £89,000 for Andy Blundell (2015 £nil) and £61,000 for Mark Stoner (2015 £nil). These were calibrated as broadly threshold level bonuses.

For completeness, whilst not formulaic, the Committee had budgeted against an adjusted EBIT figure of £20m for 2016 for the purposes of considering payment of bonuses at on-target levels.

VESTING OF LTIP AWARDS IN 2016

The 2014 LTIP award was based on 60% of the award on a share price growth performance condition and on 40% of the award on an EPS performance condition. See page 68 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 10 June 2017 and 1 August 2017). Accordingly, the single figure table includes an estimated level of vesting for these awards based on the three month average share price to 31 December 2016 (37.5832p; estimated vesting nil).

The EPS performance condition CAGR 7.5% to 15% has been achieved as to 71.5245% vesting, meaning that 28.61% of the total 2014 LTIP award will vest.

PENSION ENTITLEMENTS SUMMARY

Andy Blundell and Mark Stoner remain members of the defined contribution section of the Communisis Pension Plan. They receive contributions each of £10,000 per annum to the Communisis Pension Plan. Overall pension entitlement is 12% of base salary. The balance above £10,000 is paid as a salary supplement. No director participated in a defined benefit scheme in the year.

PAYMENTS TO DIRECTORS LEAVING THE GROUP

Dave Rushton stepped down from the Board on 31 January 2016 and ceased to be an employee on 30 June 2016. He was paid salary, benefits and pension entitlement until 30 June 2016 only in accordance with his contractual notice period. As noted above, he was paid an additional £8,622 in 2016 with regard to settlement of claims in relation to statutory rights. He did not receive an annual bonus for 2016. His 2014 LTIP award was permitted to vest in respect of 14,453 shares only (7.2% of the original award) and his 2015 LTIP award lapsed in full.

Nigel Howes stepped down from the Board on 31 January 2016 and ceased to be an employee on 31 January 2017. He was paid salary, benefits and supplement in lieu of pension until 31 January 2017 only in accordance with his contractual notice period. He was paid an additional £5,700 in January 2017 with regard to settlement of claims in relation to statutory rights. He did not receive an annual bonus for 2016. His 2014 and 2015 LTIP awards were permitted to vest in respect of 49,272 shares only (24.64% of the original award) for the 2014 award and in respect of 172,777 shares only (37.97% of the original award) for the 2015 award. The awards will be exercisable for a period of six months from 31 January 2017.

COMPARATIVE TOTAL SHAREHOLDER RETURN

The graph below shows the Company’s Total Shareholder Return performance compared with the FTSE All Share Index. The graph provides a basis for comparison with a relevant equity index, of which Communisis is a constituent, and the Committee believes that no other published index provides a better comparison. In accordance with the Regulations the graph shows this performance over an eight-year period.

TOTAL SHAREHOLDER RETURN SINCE 31 DECEMBER 2008

TSR

– v

alu

e o

f a 1

00

un

it in

vest

men

t ma

de

on

31

Dec

emb

er 2

00

8

31 Dec 2008 31 Dec 2009 31 Dec 2010 31 Dec 2011 31 Dec 2012 31 Dec 2013 31 Dec 2014 31 Dec 2015 31 Dec 2016

Communisis plc FTSE All-Share

250

200

150

100

50

0

65


COM-P160-R+A16-1.indd 65 22/03/2017 21:10

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 of total remuneration (£000)

Annual variable element award rates against maximum opportunity (%)

Long term incentive vesting rates against maximum opportunity (%)

2016 Andy Blundell 560 25 29







2009 Andy Blundell/Steve Vaughan 442 6 0

RELATIVE IMPORTANCE OF SPEND ON PAY

Year

Profit distributed by way of dividend (£000)

Overall expenditure on pay (£000)

Notes

1. Profit distributed by way of dividend has been taken as the dividend paid in respect of the relevant financial year. For 2016 this is the interim dividend paid (£1,696,000) and the proposed final dividend of £3,358,000. No share buy-backs were made in either year.

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

2015 4,5911 96,6482

2016 5,054 98,619

% change 10.08% 2.04%

The increase in percentage of spend on pay reflects inflationary increases and redundancy costs.

CEO’S RELATIVE PAY

In accordance with the Regulations, we present in the table below the percentage change in the prescribed pay elements (salary, taxable benefits and annual bonus outcome) of the CEO and the average percentage change for UK based staff between Financial Year 2015 and Financial Year 2016.

YEAR-ON-YEAR PERCENTAGE CHANGE

Salary (%)

Taxable Benefits (%)

Annual Bonus (%)

CEO 1.51 6.03 100.00

UK based staff 1.67 (8.88) 100.80

DIRECTORS’ INTERESTS (AUDITED INFORMATION)

The interests (all being beneficial) of the directors in the Company’s securities are set out below:

At 31 December 2016 At 31 December 2015

Director

Ordinary Shares

Shares subject to Option

Ordinary Shares


Peter Hickson 1,360,778 – 1,360,778 –

Andy Blundell1 362,843 1,977,778 298,687 1,811,942

Jane Griffiths – – – –

Peter Harris – – – –

Helen Keays – – – –

Mark Stoner 148,910 1,230,549 98,944 848,406

1 23,000 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 8 March 2017.

The Company will be introducing share ownership guidelines for Executive Directors from the 2017 AGM.

SHARE OPTIONS (AUDITED INFORMATION)

The number of, and prices at which, options under the Long Term Incentive Plan 2007 and Sharesave Scheme have been granted to directors are set out below. Except for Sharesave options, all options are subject to the performance conditions described below and on page 68.

Options held at 1 January 2016

Options granted

Options lapsed

Options exercised

Options held at 31 December 2016

Option price (p)

Earliest exercise date

Latest exercise date

LONG TERM INCENTIVE PLAN

Andy Blundell 896,942 – 800,249 96,693 – Nil 26.03.2016 25.03.2018

300,000 – – – 300,000 Nil 11.06.2017 10.06.2019

615,000 – – – 615,000 Nil 15.04.2018 14.04.2020

– 1,062,778 – – 1,062,778 Nil 10.03.2019 09.03.2021

Mark Stoner 200,000 – 178,440 21,560 – Nil 26.03.2016 25.03.2018

100,000 – – – 100,000 Nil 11.06.2017 10.06.2019

100,000 – – – 100,000 Nil 02.08.2017 01.08.2019

420,000 – – – 420,000 Nil 15.04.2018 14.04.2020

– 583,009 – – 583,009 Nil 10.03.2019 09.03.2021

SHARESAVE SCHEME

Mark Stoner 28,406 – – 28,406 – 31.68 01.12.2015 31.05.2016

– 27,540 – – 27,540 45.75 01.06.2019 30.11.2019

Notes

1. The range of market price of shares in Communisis plc during the year ended 31 December 2016 was 34.50p to 49.00p. The closing price on 31 December 2016 was 43.38p.

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

3. Options granted in the year represent awards with a face value of 124.81% of base salary (£445,572) for Andy Blundell and 99.85% of base salary (£244,428) for Mark Stoner. This has been calculated using the average mid-market price of the three preceding days before the date of grant, being 46.00p for the options granted on 9 March 2016.

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

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

6. The directors exercised the options indicated in the table above on 6 April 2016 when the market price of the Company’s shares was 45.75p. Additionally, former directors Dave Rushton and Nigel Howes exercised the following options in the year. Nigel Howes exercised 106,349 options at 45.7139p and 53,902 options at 45.23p. Dave Rushton exercised 30,000 options at 43.50p, 27,540 options at 45.75p and 14,453 options at 39.81p.

7. The aggregate gains of directors from share options exercised in 2016 was £161,858 (2015: £167,776).

GRANTING OF LTIP AWARDS IN 2016

LTIP awards made to Executive Directors in 2016 have the following performance condition:

100% of awards are subject to an EPS growth performance condition.

An additional underpin condition will apply such that 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.

These measures were chosen after careful consideration by the Committee and are regarded as promoting appropriate alignment of interests between management and our shareholders. The focus on EPS aligns our incentive pay directly with one of our key financial targets.

66

COM-P160-R+A16-1.indd 66 22/03/2017 21:10

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 of total remuneration (£000)

Annual variable element award rates against maximum opportunity (%)

Long term incentive vesting rates against maximum opportunity (%)








2009 Andy Blundell/Steve Vaughan 442 6 0

RELATIVE IMPORTANCE OF SPEND ON PAY

Year

Profit distributed by way of dividend (£000)

Overall expenditure on pay (£000)

Notes

1. Profit distributed by way of dividend has been taken as the dividend paid in respect of the relevant financial year. For 2016 this is the interim dividend paid (£1,696,000) and the proposed final dividend of £3,358,000. No share buy-backs were made in either year.

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

2015 4,5911 96,6482

2016 5,054 98,619

% change 10.08% 2.04%

The increase in percentage of spend on pay reflects inflationary increases and redundancy costs.

CEO’S RELATIVE PAY

In accordance with the Regulations, we present in the table below the percentage change in the prescribed pay elements (salary, taxable benefits and annual bonus outcome) of the CEO and the average percentage change for UK based staff between Financial Year 2015 and Financial Year 2016.

YEAR-ON-YEAR PERCENTAGE CHANGE

Salary (%)

Taxable Benefits (%)

Annual Bonus (%)

CEO 1.51 6.03 100.00

UK based staff 1.67 (8.88) 100.80

DIRECTORS’ INTERESTS (AUDITED INFORMATION)

The interests (all being beneficial) of the directors in the Company’s securities are set out below:

At 31 December 2016 At 31 December 2015

Director

Ordinary Shares


Ordinary Shares


Peter Hickson 1,360,778 – 1,360,778 –

Andy Blundell1 362,843 1,977,778 298,687 1,811,942

Jane Griffiths – – – –

Peter Harris – – – –

Helen Keays – – – –

Mark Stoner 148,910 1,230,549 98,944 848,406

1 23,000 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 8 March 2017.

The Company will be introducing share ownership guidelines for Executive Directors from the 2017 AGM.

SHARE OPTIONS (AUDITED INFORMATION)

The number of, and prices at which, options under the Long Term Incentive Plan 2007 and Sharesave Scheme have been granted to directors are set out below. Except for Sharesave options, all options are subject to the performance conditions described below and on page 68.

Options held at 1 January 2016

Options granted

Options lapsed

Options exercised

Options held at 31 December 2016

Option price (p)

Earliest exercise date

Latest exercise date

LONG TERM INCENTIVE PLAN

Andy Blundell 896,942 – 800,249 96,693 – Nil 26.03.2016 25.03.2018

300,000 – – – 300,000 Nil 11.06.2017 10.06.2019

615,000 – – – 615,000 Nil 15.04.2018 14.04.2020

– 1,062,778 – – 1,062,778 Nil 10.03.2019 09.03.2021

Mark Stoner 200,000 – 178,440 21,560 – Nil 26.03.2016 25.03.2018

100,000 – – – 100,000 Nil 11.06.2017 10.06.2019

100,000 – – – 100,000 Nil 02.08.2017 01.08.2019

420,000 – – – 420,000 Nil 15.04.2018 14.04.2020

– 583,009 – – 583,009 Nil 10.03.2019 09.03.2021

SHARESAVE SCHEME

Mark Stoner 28,406 – – 28,406 – 31.68 01.12.2015 31.05.2016

– 27,540 – – 27,540 45.75 01.06.2019 30.11.2019

Notes

1. The range of market price of shares in Communisis plc during the year ended 31 December 2016 was 34.50p to 49.00p. The closing price on 31 December 2016 was 43.38p.

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

3. Options granted in the year represent awards with a face value of 124.81% of base salary (£445,572) for Andy Blundell and 99.85% of base salary (£244,428) for Mark Stoner. This has been calculated using the average mid-market price of the three preceding days before the date of grant, being 46.00p for the options granted on 9 March 2016.

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

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

6. The directors exercised the options indicated in the table above on 6 April 2016 when the market price of the Company’s shares was 45.75p. Additionally, former directors Dave Rushton and Nigel Howes exercised the following options in the year. Nigel Howes exercised 106,349 options at 45.7139p and 53,902 options at 45.23p. Dave Rushton exercised 30,000 options at 43.50p, 27,540 options at 45.75p and 14,453 options at 39.81p.

7. The aggregate gains of directors from share options exercised in 2016 was £161,858 (2015: £167,776).

GRANTING OF LTIP AWARDS IN 2016

LTIP awards made to Executive Directors in 2016 have the following performance condition:

100% of awards are subject to an EPS growth performance condition.

An additional underpin condition will apply such that 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.

These measures were chosen after careful consideration by the Committee and are regarded as promoting appropriate alignment of interests between management and our shareholders. The focus on EPS aligns our incentive pay directly with one of our key financial targets.

EPS PERFORMANCE CONDITION

For this condition, EPS will be measured as the adjusted basic earnings per share, calculated on the same basis as for the Company’s accounts (i.e. earnings per share from continuing operations before exceptional items and amortisation of acquired intangibles and the tax effect of these items), over a performance period of three financial years, commencing with Financial Year 2016 and with vesting based on the EPS in Financial Year 2018.

EPS Growth (compound annual growth)

% of award subject to EPS performance condition vesting

Less than 5% p.a. Nil

5% p.a. 15%

6% p.a. 20%

7.5% p.a. 25%

10% p.a. 75%

15% p.a. or more 100%

Between each defined threshold Straight line vesting

67


COM-P160-R+A16-1.indd 67 22/03/2017 21:10

SUMMARY OF 2015 AND 2014 LTIP PERFORMANCE MEASURES SUMMARY OF PERFORMANCE CONDITIONS AND TARGETS FOR LTIP AWARD GRANTED IN 2015

Performance Measure Share price growth EPS Growth (compound annual growth)

Weighting of total award 20% 80%

Performance targets Max. vesting

(100% of this part)

90p 15% p.a. or more

Between max. and threshold vesting

Straight-line vesting Straight-line vesting

Threshold vesting (25% of this part)

65.5133p 7.5% p.a.

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 2014

Performance Measure Share price growth EPS Growth (compound annual growth)

Weighting of total award 60% 40%

Performance targets Max. vesting

(100% of this part)

105p 15% p.a. or more

Between max. and threshold vesting

Straight-line vesting Straight-line vesting

Threshold vesting (25% of this part)

74.629p (10 June 2014 awards)/71.43p (1 August 2014 awards)

7.5% p.a.

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 4.25% of the shares in issue at the date of this report. The Company has an Employee Benefit Trust which as at 8 March 2017 holds 806,316 shares which may be used to satisfy options granted under the Executive Share Option Scheme and the LTIP and the above estimate of potential dilution is presented on the basis of assuming that the Employee Benefit Trust will satisfy certain outstanding awards. Awards are currently managed to confine commitments within an overall dilution limit for all employee share plans of no more than 10% of share capital in any 10-year period and a limit of 5% of share capital in any 10-year period for the Company’s discretionary share plans. Subject to approval by shareholders of the 2017 LTIP, the 5% limit in respect of the Company’s discretionary share plans will no longer apply to new LTIP awards.

CHAIRMAN AND NON-EXECUTIVE DIRECTOR FEES

Salary/Fees £000

Other Benefits £000

Total 2016 £000

Total 2015 £000

Chairman Peter Hickson1

100

1

101

99

Non-Executive Directors

Jane Griffiths 50 – 50 48

Peter Harris 58 – 58 53

Helen Keays 53 – 53 50

1. Other benefits for Peter Hickson include medical insurance benefits for him and his spouse

This report was reviewed and approved by the Board on 9 March 2017 and signed on its behalf by order of the Board.


68

COM-P160-R+A16-1.indd 68 22/03/2017 21:10

C M


COLOURCOLOUR


Non-printingColours

69

FINANCIAL STATEMENTS

COM-P160-R+A16-2.indd 69 22/03/2017 21:16

70

CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2016

2016 2015

Before Amortisation Before Amortisation amortisation of acquired amortisation of acquired of acquired intangibles of acquired intangibles intangibles and intangibles and and exceptional and exceptional exceptional items exceptional items items (Note 5.4) Total items (Note 5.4) Total Note £000 £000 £000 £000 £000 £000

Revenue 4 361,932 – 361,932 354,220 – 354,220

Changes in inventories of finished goods and work in progress (291) – (291) (284) – (284)

Raw materials and consumables used (191,210) – (191,210) (181,363) – (181,363)

Employee benefits expense 5.3 (95,094) (3,525) (98,619) (94,605) (2,043) (96,648)

Other operating expenses (45,921) (742) (46,663) (48,709) 6,024 (42,685)

Depreciation and amortisation expense (9,945) (809) (10,754) (10,967) (1,174) (12,141)

Profit from operations 19,471 (5,076) 14,395 18,292 2,807 21,099

Finance revenue 4 963 – 963 81 – 81

Finance costs 5.1 (3,765) – (3,765) (3,915) – (3,915)

Profit before taxation 16,669 (5,076) 11,593 14,458 2,807 17,265

Income tax expense 6 (3,956) 990 (2,966) (3,701) 911 (2,790)

Profit for the year attributable to equity holders of the parent 12,713 (4,086) 8,627 10,757 3,718 14,475

Earnings per share 8

On profit for the year attributable to equity holders and from continuing operations

– basic 6.08p 4.12p 5.19p 6.98p

– diluted 6.07p 4.12p 5.18p 6.97p

Dividend per share

– paid during the year 2.29p 2.04p

– proposed 1.61p 1.47p

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.

2016 2015 Note £000 £000

Profit for the year 8,627 14,475

Other comprehensive loss to be reclassified to profit or loss in subsequent years:

Exchange differences on translation of foreign operations 1,129 (167)

(Loss) / gain on cash flow hedges taken directly to equity (29) 74

Income tax thereon 6 3 (19)

Items not to be reclassified to profit or loss in subsequent years:

Adjustments in respect of prior years due to change in tax rate 6 (411) (782)

Actuarial losses on defined benefit pension plans 14 (15,972) (3,559)

Income tax thereon 6 2,715 641

Other comprehensive loss for the year, net of tax (12,565) (3,812)

Total comprehensive (loss) / income for the year, net of tax (3,938) 10,663

Attributable to:

Equity holders of the parent (3,938) 10,663


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2016

COM-P160-R+A16-2.indd 70 22/03/2017 21:16

71

Communisis plc Annual Report and Financial Statements 2016 | FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2016

2016 2015

Before Amortisation Before Amortisation amortisation of acquired amortisation of acquired of acquired intangibles of acquired intangibles intangibles and intangibles and and exceptional and exceptional exceptional items exceptional items items (Note 5.4) Total items (Note 5.4) Total Note £000 £000 £000 £000 £000 £000

Revenue 4 361,932 – 361,932 354,220 – 354,220

Changes in inventories of finished goods and work in progress (291) – (291) (284) – (284)

Raw materials and consumables used (191,210) – (191,210) (181,363) – (181,363)

Employee benefits expense 5.3 (95,094) (3,525) (98,619) (94,605) (2,043) (96,648)

Other operating expenses (45,921) (742) (46,663) (48,709) 6,024 (42,685)

Depreciation and amortisation expense (9,945) (809) (10,754) (10,967) (1,174) (12,141)

Profit from operations 19,471 (5,076) 14,395 18,292 2,807 21,099

Finance revenue 4 963 – 963 81 – 81

Finance costs 5.1 (3,765) – (3,765) (3,915) – (3,915)

Profit before taxation 16,669 (5,076) 11,593 14,458 2,807 17,265

Income tax expense 6 (3,956) 990 (2,966) (3,701) 911 (2,790)

Profit for the year attributable to equity holders of the parent 12,713 (4,086) 8,627 10,757 3,718 14,475

Earnings per share 8

On profit for the year attributable to equity holders and from continuing operations

– basic 6.08p 4.12p 5.19p 6.98p

– diluted 6.07p 4.12p 5.18p 6.97p

Dividend per share

– paid during the year 2.29p 2.04p

– proposed 1.61p 1.47p

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).


All income and expenses relate to continuing operations.

2016 2015 Note £000 £000

Profit for the year 8,627 14,475

Other comprehensive loss to be reclassified to profit or loss in subsequent years:

Exchange differences on translation of foreign operations 1,129 (167)

(Loss) / gain on cash flow hedges taken directly to equity (29) 74

Income tax thereon 6 3 (19)

Items not to be reclassified to profit or loss in subsequent years:

Adjustments in respect of prior years due to change in tax rate 6 (411) (782)

Actuarial losses on defined benefit pension plans 14 (15,972) (3,559)

Income tax thereon 6 2,715 641

Other comprehensive loss for the year, net of tax (12,565) (3,812)

Total comprehensive (loss) / income for the year, net of tax (3,938) 10,663

Attributable to:

Equity holders of the parent (3,938) 10,663


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2016

COM-P160-R+A16-2.indd 71 22/03/2017 21:16

72

CONSOLIDATED BALANCE SHEET31 DECEMBER 2016

2016 2015 Note £000 £000

ASSETS Non-current assets

Property, plant and equipment 10 21,638 23,083

Intangible assets 11 187,903 192,367

Trade and other receivables 16 821 631

Deferred tax assets 6 6,406 3,906

216,768 219,987

Current assets

Inventories 15 6,968 7,775

Trade and other receivables 16 66,203 55,106

Cash and cash equivalents 18 38,294 32,719

111,465 95,600

TOTAL ASSETS 328,233 315,587

EQUITY AND LIABILITIES

Equity attributable to the equity holders of the parent

Equity share capital 19 52,344 52,302

Share premium 19 – 5,986

Merger reserve 19 519 15,600

ESOP reserve 19 (297) (10)

Capital redemption reserve 19 – 1,375

Cumulative translation adjustment 19 327 (802)

Retained earnings 65,322 52,363

Total equity 118,215 126,814

Non-current liabilities

Interest-bearing loans and borrowings 20 58,751 62,189

Trade and other payables 22 1,511 11,474

Provisions 21 42 42

Financial liability 23 228 162

Retirement benefit obligations 14 55,479 41,145

116,011 115,012

Current liabilities

Interest-bearing loans and borrowings 20 614 592


Income tax payable 2,210 1,351

Provisions 21 215 25

Financial liability 23 – 37

94,007 73,761

Total liabilities 210,018 188,773

TOTAL EQUITY AND LIABILITIES 328,233 315,587

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


CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2016

2016 2015 Note £000 £000

Cash flows from operating activities

Cash generated from operations 30 22,909 24,153

Interest paid (2,065) (2,318)

Interest received 18 33

Income tax paid (2,250) (1,557)

Net cash flows from operating activities 18,612 20,311

Cash flows from investing activities

Acquisition of subsidiary undertakings (net of cash acquired) 7 (252) (42)

Purchase of property, plant and equipment (3,225) (4,349)

Purchase of intangible assets (3,808) (6,841)

Proceeds from the sale of property, plant and equipment 118 196

Net cash flows from investing activities (7,167) (11,036)

Cash flows from financing activities

Share issues net of directly attributable expenses 49 570

Purchase of shares (442) –

New borrowings 5,000 3,000

Repayment of borrowings (8,000) –

Debt arrangement fees – (10)

Dividends paid 9 (4,773) (4,273)

Net cash flows from financing activities (8,166) (713)

Net increase in cash and cash equivalents 3,279 8,562

Cash and cash equivalents at 1 January 32,719 24,503

Exchange rate effects 2,296 (346)

Cash and cash equivalents at 31 December 38,294 32,719

Cash and cash equivalents consist of:



COM-P160-R+A16-2.indd 72 22/03/2017 21:16

73


CONSOLIDATED BALANCE SHEET31 DECEMBER 2016

2016 2015 Note £000 £000

ASSETS Non-current assets

Property, plant and equipment 10 21,638 23,083

Intangible assets 11 187,903 192,367

Trade and other receivables 16 821 631


216,768 219,987

Current assets

Inventories 15 6,968 7,775



111,465 95,600

TOTAL ASSETS 328,233 315,587


Equity attributable to the equity holders of the parent



Merger reserve 19 519 15,600



Cumulative translation adjustment 19 327 (802)

Retained earnings 65,322 52,363

Total equity 118,215 126,814




Provisions 21 42 42



116,011 115,012

Current liabilities

Interest-bearing loans and borrowings 20 614 592


Income tax payable 2,210 1,351



94,007 73,761



The Consolidated Financial Statements on pages 69 to 113 were approved by the Board on 9 March 2017 and signed on its behalf by:



CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2016

2016 2015 Note £000 £000

Cash flows from operating activities

Cash generated from operations 30 22,909 24,153

Interest paid (2,065) (2,318)

Interest received 18 33

Income tax paid (2,250) (1,557)

Net cash flows from operating activities 18,612 20,311

Cash flows from investing activities

Acquisition of subsidiary undertakings (net of cash acquired) 7 (252) (42)

Purchase of property, plant and equipment (3,225) (4,349)

Purchase of intangible assets (3,808) (6,841)

Proceeds from the sale of property, plant and equipment 118 196

Net cash flows from investing activities (7,167) (11,036)

Cash flows from financing activities

Share issues net of directly attributable expenses 49 570

Purchase of shares (442) –

New borrowings 5,000 3,000

Repayment of borrowings (8,000) –

Debt arrangement fees – (10)

Dividends paid 9 (4,773) (4,273)

Net cash flows from financing activities (8,166) (713)

Net increase in cash and cash equivalents 3,279 8,562

Cash and cash equivalents at 1 January 32,719 24,503

Exchange rate effects 2,296 (346)

Cash and cash equivalents at 31 December 38,294 32,719

Cash and cash equivalents consist of:



COM-P160-R+A16-2.indd 73 22/03/2017 21:16

74

Capital Capital Cumulative Issued Share reduction Merger ESOP redemption translation Retained Total capital premium shares reserve reserve reserve adjustment earnings equity £000 £000 £000 £000 £000 £000 £000 £000 £000

As at 1 January 2015 49,757 8,036 – 11,427 (72) 1,375 (635) 45,818 115,706

Profit for the year – – – – – – – 14,475 14,475

Other comprehensive loss – – – – – – (167) (3,645) (3,812)

Total comprehensive income – – – – – – (167) 10,830 10,663

Employee share option schemes – value of services provided – – – – – – – 148 148

Shares issued – exercise of options 548 120 – – – – – (98) 570

Shares issued from ESOP – – – – 62 – – (62) –

Acquisition of subsidiary 1,997 – – 2,003 – – – – 4,000

Transfer between reserves – (2,170) – 2,170 – – – – –

Dividends paid – – – – – – – (4,273) (4,273)

As at 31 December 2015 52,302 5,986 – 15,600 (10) 1,375 (802) 52,363 126,814


Other comprehensive loss – – – – – – 1,129 (13,694) (12,565)

Total comprehensive loss – – – – – – 1,129 (5,067) (3,938)




Purchase of own shares – – – – (442) – – – (442)

Issue of capital reduction shares – – 15,081 (15,081) – – – – –

Capital reduction – (5,996) (15,081) – – (1,375) – 22,452 –

Dividends paid – – – – – – – (4,773) (4,773)

As at 31 December 2016 52,344 – – 519 (297) – 327 65,322 118,215


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016

1. AUTHORISATION OF FINANCIAL STATEMENTSThe Consolidated Financial Statements of Communisis plc (“the Group”) for the year ended 31 December 2016 were authorised for issue in accordance with a resolution of the directors on 9 March 2017. Communisis plc is a public limited company incorporated and domiciled in England and Wales whose shares are traded on the London Stock Exchange.

2. ACCOUNTING POLICIES2.1 BASIS OF PREPARATION

The Consolidated Financial Statements of Communisis plc are for the year ended 31 December 2016. They have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union.

The Consolidated Financial Statements are presented in sterling and all values are rounded to the nearest thousand British pounds (£000) except where otherwise indicated.

NEW STANDARDS AND INTERPRETATIONS

There are no IFRS or IFRIC (IFRS Interpretations Committee of the IASB) interpretations effective for the first time this financial year that have had a material impact on the Group.

2.2 BASIS OF CONSOLIDATION

The Consolidated Financial Statements comprise the Financial Statements of Communisis plc and its subsidiaries as at 31 December each year. The results of subsidiaries prepared for the same reporting year as the parent company are included in these Consolidated Financial Statements, using consistent accounting policies. All intra-group balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is a change of control of a subsidiary, the Consolidated Financial Statements include the results for the part of the reporting year during which Communisis plc has control.

2.3 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The key judgements and assumptions concerning the future and other key sources of estimation uncertainty at the Balance Sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

JUDGEMENTS

Business combinations

Upon acquisition of another entity the Group evaluates intangibles arising using methodologies recognised under IFRS 3 Business Combinations. Judgement is required as to which intangibles meet the recognition criteria of separable or contractual, and estimates involving cash flow forecasts

COM-P160-R+A16-2.indd 74 22/03/2017 21:16

75


Capital Capital Cumulative Issued Share reduction Merger ESOP redemption translation Retained Total capital premium shares reserve reserve reserve adjustment earnings equity £000 £000 £000 £000 £000 £000 £000 £000 £000

As at 1 January 2015 49,757 8,036 – 11,427 (72) 1,375 (635) 45,818 115,706


Other comprehensive loss – – – – – – (167) (3,645) (3,812)

Total comprehensive income – – – – – – (167) 10,830 10,663




Acquisition of subsidiary 1,997 – – 2,003 – – – – 4,000

Transfer between reserves – (2,170) – 2,170 – – – – –

Dividends paid – – – – – – – (4,273) (4,273)

As at 31 December 2015 52,302 5,986 – 15,600 (10) 1,375 (802) 52,363 126,814


Other comprehensive loss – – – – – – 1,129 (13,694) (12,565)

Total comprehensive loss – – – – – – 1,129 (5,067) (3,938)




Purchase of own shares – – – – (442) – – – (442)

Issue of capital reduction shares – – 15,081 (15,081) – – – – –

Capital reduction – (5,996) (15,081) – – (1,375) – 22,452 –

Dividends paid – – – – – – – (4,773) (4,773)

As at 31 December 2016 52,344 – – 519 (297) – 327 65,322 118,215


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016

1. AUTHORISATION OF FINANCIAL STATEMENTSThe Consolidated Financial Statements of Communisis plc (“the Group”) for the year ended 31 December 2016 were authorised for issue in accordance with a resolution of the directors on 9 March 2017. Communisis plc is a public limited company incorporated and domiciled in England and Wales whose shares are traded on the London Stock Exchange.

2. ACCOUNTING POLICIES2.1 BASIS OF PREPARATION

The Consolidated Financial Statements of Communisis plc are for the year ended 31 December 2016. They have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union.

The Consolidated Financial Statements are presented in sterling and all values are rounded to the nearest thousand British pounds (£000) except where otherwise indicated.

NEW STANDARDS AND INTERPRETATIONS

There are no IFRS or IFRIC (IFRS Interpretations Committee of the IASB) interpretations effective for the first time this financial year that have had a material impact on the Group.

2.2 BASIS OF CONSOLIDATION

The Consolidated Financial Statements comprise the Financial Statements of Communisis plc and its subsidiaries as at 31 December each year. The results of subsidiaries prepared for the same reporting year as the parent company are included in these Consolidated Financial Statements, using consistent accounting policies. All intra-group balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is a change of control of a subsidiary, the Consolidated Financial Statements include the results for the part of the reporting year during which Communisis plc has control.


The key judgements and assumptions concerning the future and other key sources of estimation uncertainty at the Balance Sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

JUDGEMENTS

Business combinations

Upon acquisition of another entity the Group evaluates intangibles arising using methodologies recognised under IFRS 3 Business Combinations. Judgement is required as to which intangibles meet the recognition criteria of separable or contractual, and estimates involving cash flow forecasts

are performed to quantify the value of these assets arising. Intangibles arising are assessed for indicators of impairment annually. Additional information is included in Notes 7 and 11.

ESTIMATES

Impairment of Goodwill

The Group determines whether goodwill is impaired on at least an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2016 was £164,021,000 (2015 £164,021,000). Additional information is included in Note 12.

Revenue recognition

Revenue from transition services provided in accordance with long-term contracts is recognised based on the stage of completion. This method relies on estimates of total expected contract revenues and costs, as well as reliable measurement of the progress made towards completion. Unless the financial outcome of a contract can be estimated with reasonable certainty, no revenue is recognised.

Pensions

The actuarial valuation involves making assumptions about mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. Discount rates are based on interest rates of AA rated corporate bonds that have terms of maturity approximating to the terms of the relevant pension liability. Additional information is included in Note 14.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FOREIGN CURRENCY TRANSACTIONS

Transactions in foreign currencies are recorded in the functional currency at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the Balance Sheet date and exchange differences arising are recognised in the Income Statement.

The functional currencies of the overseas subsidiaries include the Euro, the Indian Rupee, the Swedish Krone, the Swiss Franc, the Turkish Lira, the Polish Zloty, the Romanian Leu and the United Arab Emirates Dirham. The assets and liabilities of these overseas subsidiaries are translated into sterling at the rate of exchange ruling at the Balance Sheet date and their Income Statements are translated at the weighted average exchange rates for the year where this is a reasonable approximation to actual translation rates. The exchange differences arising on the retranslation are taken directly to a separate component of equity described as the ‘cumulative translation adjustment’. On disposal of a foreign entity, the cumulative amount recognised in equity relating to that particular foreign operation is recognised in the Income Statement.

COM-P160-R+A16-2.indd 75 22/03/2017 21:16

76

2. ACCOUNTING POLICIES (CONTINUED) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment in value. Land is not depreciated.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:

Freehold property 25 to 50 years

Long leasehold property 25 to 50 years

Short leasehold property 5 to 20 years

Plant, equipment and motor vehicles 3 to 20 years

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists, and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Useful economic lives, depreciation methods and residual values are reviewed annually. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in the Income Statement.

BORROWINGS AND BORROWING COSTS

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Income Statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the Balance Sheet date.

BUSINESS COMBINATIONS

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value. Acquisition costs incurred are expensed and included in exceptional items.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Assets acquired and liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements are accounted for separately from the business combination in accordance with their nature and applicable IFRSs.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or a liability will be recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classed as equity, it is not remeasured until it is finally settled within equity.

GOODWILL

Goodwill on acquisitions is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised.

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that its carrying value may be impaired. Goodwill is allocated to the related cash-generating units monitored by management for the purpose of impairment testing.

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and an operation within that unit (or group of units) is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operations disposed of and the portion of the cash-generating unit (or group of units) retained.

INTANGIBLE ASSETS

Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets created within the business are not capitalised (unless the specific conditions in IAS 38 are met) and expenditure is charged to the Income Statement in the year in which the expenditure is incurred.

(a) Acquired from a business combination

Intangible assets arising from a business combination are capitalised at fair value at the date of acquisition, where they can be measured reliably. Following initial recognition, the cost model is applied to the class of intangible assets. Amortisation charged on assets is recognised in amortisation expense in the Income Statement over the expected life of the asset. Intangible assets currently recognised are being amortised over a period of between five and ten years.

(b) Customer relationships

Amounts paid to secure customer contracts are capitalised and amortised over the length of the contract. An impairment review is carried out when events or changes in circumstances indicate that the carrying value may not be recoverable.

2. ACCOUNTING POLICIES (CONTINUED) (c) Research and development costs

Research costs are expensed as incurred. Expenditure on a development project, such as computer software, which is reliably measurable, is capitalised when the technical feasibility and commercial viability of the project is demonstrated. The Group must intend to, and have available the resources to, complete the project and be satisfied that the intangible asset arising from the development project will generate probable future economic benefits.

Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure carried forward is amortised over the period of expected future sales from the related project, from the date the asset is available for use.

The carrying value of development costs is reviewed when there is an indicator of impairment. In addition it is reviewed annually when the asset is not yet in use.

(d) Computer software costs

Acquired computer software and licences are capitalised. These costs are amortised over their estimated useful lives (three to eight years).

Costs associated with maintaining computer software programs are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will generate probable economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the costs of software development employees. These costs are amortised over their estimated useful lives (three to eight years).

Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

INVENTORIES

Inventories are stated at the lower of cost and net realisable value.

Raw materials are stated at purchase cost on a first-in, first-out basis. For finished goods and work in progress, costs include directly attributable material and labour costs and certain overhead costs that contribute in bringing the inventories to their present location and condition. Selling expenses and other administrative overhead expenses are excluded.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Provision is made for items of stock that are damaged, obsolete or slow-moving.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)


COM-P160-R+A16-2.indd 76 22/03/2017 21:16

77


Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or a liability will be recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classed as equity, it is not remeasured until it is finally settled within equity.

GOODWILL

Goodwill on acquisitions is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised.

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that its carrying value may be impaired. Goodwill is allocated to the related cash-generating units monitored by management for the purpose of impairment testing.

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and an operation within that unit (or group of units) is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operations disposed of and the portion of the cash-generating unit (or group of units) retained.

INTANGIBLE ASSETS

Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets created within the business are not capitalised (unless the specific conditions in IAS 38 are met) and expenditure is charged to the Income Statement in the year in which the expenditure is incurred.

(a) Acquired from a business combination

Intangible assets arising from a business combination are capitalised at fair value at the date of acquisition, where they can be measured reliably. Following initial recognition, the cost model is applied to the class of intangible assets. Amortisation charged on assets is recognised in amortisation expense in the Income Statement over the expected life of the asset. Intangible assets currently recognised are being amortised over a period of between five and ten years.

(b) Customer relationships

Amounts paid to secure customer contracts are capitalised and amortised over the length of the contract. An impairment review is carried out when events or changes in circumstances indicate that the carrying value may not be recoverable.

2. ACCOUNTING POLICIES (CONTINUED) (c) Research and development costs

Research costs are expensed as incurred. Expenditure on a development project, such as computer software, which is reliably measurable, is capitalised when the technical feasibility and commercial viability of the project is demonstrated. The Group must intend to, and have available the resources to, complete the project and be satisfied that the intangible asset arising from the development project will generate probable future economic benefits.

Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure carried forward is amortised over the period of expected future sales from the related project, from the date the asset is available for use.

The carrying value of development costs is reviewed when there is an indicator of impairment. In addition it is reviewed annually when the asset is not yet in use.

(d) Computer software costs

Acquired computer software and licences are capitalised. These costs are amortised over their estimated useful lives (three to eight years).

Costs associated with maintaining computer software programs are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will generate probable economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the costs of software development employees. These costs are amortised over their estimated useful lives (three to eight years).


INVENTORIES

Inventories are stated at the lower of cost and net realisable value.

Raw materials are stated at purchase cost on a first-in, first-out basis. For finished goods and work in progress, costs include directly attributable material and labour costs and certain overhead costs that contribute in bringing the inventories to their present location and condition. Selling expenses and other administrative overhead expenses are excluded.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Provision is made for items of stock that are damaged, obsolete or slow-moving.

TRADE AND OTHER RECEIVABLES

Trade and other receivables are recognised and carried at original invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made. Bad debts are written off when identified.

IMPAIRMENT OF ASSETS

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the higher of an asset or cash-generating unit’s fair value less costs to sell and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case impairment is determined at the cash-generating unit level. The carrying amounts of the cash-generating units to which goodwill is allocated and intangible assets not yet available for use are reviewed annually or more frequently when there is an indication of impairment.

Value in use is determined by the estimated future pre-tax cash flows, discounted to their present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purpose of the Consolidated Cash Flow Statement, cash and cash equivalents are as defined above, net of outstanding bank overdrafts.

TRADE AND OTHER PAYABLES

Trade and other payables are recognised and carried at original invoice amount.

FINANCIAL INSTRUMENTS

Financial assets and financial liabilities are recognised in the Group’s Balance Sheet when the Group becomes a party to the contractual provisions of the instrument.

FINANCIAL LIABILITIES

The Group’s financial liabilities include borrowings and trade and other payables, which are all classified as ‘other financial liabilities’. Other financial liabilities are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.



COM-P160-R+A16-2.indd 77 22/03/2017 21:16

78

2. ACCOUNTING POLICIES (CONTINUED) DERECOGNITION OF FINANCIAL LIABILITIES

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled, or they expire.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

Initial recognition and subsequent measurement

The Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its foreign currency and interest rate risks respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting and the ineffective portion of an effective hedge, are taken directly to the Income Statement.

The fair value of forward currency contracts is the difference between the forward exchange rate and the contract rate. The forward exchange rate is referenced to current forward exchange rates for contracts with similar maturity profiles.

The fair value of interest rate swaps is the difference between the fixed rate and the one month LIBOR rate implied at the Balance Sheet date, calculated monthly, and discounted to present value.

For the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging exposure to variability in cash flows, that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction, or when hedging the foreign currency risk in an unrecognised firm commitment.

For those derivatives designated as hedges and for which hedge accounting is desired, the hedging relationship is formally designated and documented at its inception. This documentation identifies the risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how effectiveness will be measured throughout its duration. Such hedges are expected to be highly effective in offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income, while any ineffective portion is recognised immediately in the Income Statement.

Amounts taken to equity are transferred to the Income Statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the Income Statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in other comprehensive income until the forecast transaction or firm commitment occurs.

The Group uses forward exchange contracts as hedges of its exposure to foreign currency risk in forecasted transactions and firm commitments. During 2016 and 2015 the Group did not utilise any hedging instruments other than in respect of interest rates as detailed below.

Interest rate hedges

At 31 December 2016 the Group had two arrangements each of a notional amount of £10,000,000 with maturity dates being in 2018. Group pays fixed rates of interest of 3.13% and 2.27% respectively on each arrangement and on both the Group receives a variable rate equal to LIBOR + 2.0% on the notional amount.

PROVISIONS

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made, but there is some uncertainty about the timing of the future expenditure required in settlement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

PENSIONS AND SIMILAR OBLIGATIONS

Group companies operate defined contribution and defined benefit pension plans.

Payments to the defined contribution pension plans are charged as an expense to the Income Statement as incurred when the related employee service is rendered. The Group has no further legal or constructive payment obligations once the contributions have been made.

2. ACCOUNTING POLICIES (CONTINUED) For the defined benefit pension plan, the cost of administering the pension scheme is recognised in employee benefits expense in the Income Statement. The Group determines the net interest income/expense on the net defined benefit assets/liabilities for the year by applying the discount rates used to measure the defined benefit obligations at the beginning of the year to the net defined benefit assets/liabilities at the beginning of the year, taking into account any changes in the net defined benefit assets/liabilities during the year as a result of contributions and benefit payments. The liability recognised in the Balance Sheet in respect of the defined benefit pension plan is the present value of the defined benefit obligation at the Balance Sheet date less the fair value of the plan assets. The defined benefit obligation is calculated annually by independent actuaries. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of AA rated corporate bonds that have terms of maturity approximating to the terms of the relevant pension liability. AA rated corporate bonds are used as the most suitable proxy for calculating the discount rate.

All actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recognised in the Consolidated Statement of Comprehensive Income.

When a settlement or a curtailment occurs, the obligation and the related plan assets are remeasured using current actuarial assumptions and the resultant gain or loss is recognised in the Income Statement during the period in which the settlement or curtailment occurs. A settlement is the elimination of all obligations for benefits already accrued and a curtailment is the reduction of future obligations as a result of a material reduction in the scheme membership or a reduction in future entitlement.

SHARE-BASED PAYMENT TRANSACTIONS

Certain directors and management are eligible to participate in share-based payment schemes, all of which are equity-settled.

The cost of equity-settled transactions with employees is measured by reference to their fair value at the date at which they are granted. The fair value is determined by an external valuer using an appropriate model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Communisis plc (‘market conditions’).

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.



COM-P160-R+A16-2.indd 78 22/03/2017 21:16

79


Amounts taken to equity are transferred to the Income Statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the Income Statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in other comprehensive income until the forecast transaction or firm commitment occurs.

The Group uses forward exchange contracts as hedges of its exposure to foreign currency risk in forecasted transactions and firm commitments. During 2016 and 2015 the Group did not utilise any hedging instruments other than in respect of interest rates as detailed below.

Interest rate hedges

At 31 December 2016 the Group had two arrangements each of a notional amount of £10,000,000 with maturity dates being in 2018. Group pays fixed rates of interest of 3.13% and 2.27% respectively on each arrangement and on both the Group receives a variable rate equal to LIBOR + 2.0% on the notional amount.

PROVISIONS

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made, but there is some uncertainty about the timing of the future expenditure required in settlement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

PENSIONS AND SIMILAR OBLIGATIONS

Group companies operate defined contribution and defined benefit pension plans.

Payments to the defined contribution pension plans are charged as an expense to the Income Statement as incurred when the related employee service is rendered. The Group has no further legal or constructive payment obligations once the contributions have been made.

2. ACCOUNTING POLICIES (CONTINUED) For the defined benefit pension plan, the cost of administering the pension scheme is recognised in employee benefits expense in the Income Statement. The Group determines the net interest income/expense on the net defined benefit assets/liabilities for the year by applying the discount rates used to measure the defined benefit obligations at the beginning of the year to the net defined benefit assets/liabilities at the beginning of the year, taking into account any changes in the net defined benefit assets/liabilities during the year as a result of contributions and benefit payments. The liability recognised in the Balance Sheet in respect of the defined benefit pension plan is the present value of the defined benefit obligation at the Balance Sheet date less the fair value of the plan assets. The defined benefit obligation is calculated annually by independent actuaries. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of AA rated corporate bonds that have terms of maturity approximating to the terms of the relevant pension liability. AA rated corporate bonds are used as the most suitable proxy for calculating the discount rate.

All actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recognised in the Consolidated Statement of Comprehensive Income.

When a settlement or a curtailment occurs, the obligation and the related plan assets are remeasured using current actuarial assumptions and the resultant gain or loss is recognised in the Income Statement during the period in which the settlement or curtailment occurs. A settlement is the elimination of all obligations for benefits already accrued and a curtailment is the reduction of future obligations as a result of a material reduction in the scheme membership or a reduction in future entitlement.


Certain directors and management are eligible to participate in share-based payment schemes, all of which are equity-settled.

The cost of equity-settled transactions with employees is measured by reference to their fair value at the date at which they are granted. The fair value is determined by an external valuer using an appropriate model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Communisis plc (‘market conditions’).

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting or non-vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance or service conditions are satisfied.

The Group has an employee share ownership plan (‘ESOP’) for the granting of non-transferable options. Shares in the Group held by the ESOP are accounted for in the same way as treasury shares and presented in the Balance Sheet as a deduction from equity described as the ‘ESOP reserve’.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the Income Statement for the award is expensed immediately. This includes any awards where non-vesting conditions within the control of the Group or the employee are not met. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the Income Statement.

Where an equity-settled award is forfeited, the total cost recognised in the Income Statement to date for the award is reversed.

ESOP RESERVE

Communisis plc shares held by the Group are classified in shareholders’ equity as the ‘ESOP reserve’ and are recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to retained earnings. No gain or loss is recognised in the Income Statement on the purchase, sale, issue or cancellation of equity shares.

LEASES

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The determination considers whether fulfilment of the arrangement is dependent on the use of a specific asset or assets, or the arrangement conveys a right to use the assets.

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability on a straight-line basis. Finance charges are recognised in the Income Statement.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.



COM-P160-R+A16-2.indd 79 22/03/2017 21:16

80

2. ACCOUNTING POLICIES (CONTINUED) Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term or in accordance with utilisation of the leased asset when the contract is based on usage.

REVENUE

Revenue in the year represents the turnover, net of discounts, derived from services provided to customers and sales of goods.

Revenue is recognised at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Provision of services

The provision of print sourcing services includes the sourcing and supply of printed and other marketing material (included within Brand Deployment revenue). Revenue from such services is recognised when the significant risks and rewards of ownership of the material have passed to the client and the amount of revenue can be measured reliably; this is usually on despatch by the supplier.

Revenue from creative, data and analysis services (included within Customer Experience revenue), is recognised when the service has been provided and customer acknowledgement of stage completion has been received.

Revenue from campaign management services (included within Brand Deployment revenue), is recognised when the service has been provided, on a time basis which is either a monthly or annual charge, or on a management fee basis.

Revenue from delivery of Client projects is recognised by reference to the stage of completion. Stage of completion is estimated using an appropriate measure according to the nature of the contract such as costs incurred relative to total anticipated costs or other measures such as contract milestone completion. Where the project outcome cannot be measured reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable.

Revenue from postal sortation services (included within Customer Experience revenue) is recognised on despatch of the post to the postal carrier.

Revenue from software licences is recognised over the period of the licence.

Sale of goods

Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably; this is usually on despatch by the Group.

Pass Through revenue

Pass Through revenue is defined as those pre-agreed or contracted revenues representing charges for print, postal and other marketing material which are passed onto clients at cost as part of a wider service. Postal charges

are recognised on despatch to the postal carrier, and print and other marketing material charges are recognised on despatch by the supplier.

Interest

Finance revenue is recognised as the interest accrues using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount.

INCOME FROM SUPPLIERS

The Group receives rebates from certain suppliers for transactions that, based on the terms of the relevant contracts and local law, are either remitted to Clients or retained by the Group. If amounts are passed on to Clients they are recorded as liabilities until settled or, if retained by the Group, are recorded as a reduction to cost of sales as earned. These rebates are not complex in nature and there is no management judgement in calculating these. The rebates are typically calculated based on a fixed percentage of purchase value.

EXCEPTIONAL ITEMS

The Group presents separately, on the face of the Income Statement, those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year. This facilitates comparison with prior periods and to better assess trends in financial performance.

INCOME TAX

Current tax

Current tax assets and liabilities for the current year are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the Balance Sheet date.

Deferred tax

Deferred income tax is provided, using the liability method, on all temporary differences at the Balance Sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill, or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

2. ACCOUNTING POLICIES (CONTINUED) Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised. In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each Balance Sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the Balance Sheet date.

Income tax relating to items recognised in other comprehensive income or directly in equity is also recognised in other comprehensive income or directly in equity.

SALES TAX

Revenues, expenses and assets are recognised net of the amount of sales tax except:

where the sales tax incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

receivables and payables which are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Balance Sheet.

DIVIDEND DISTRIBUTION

The final dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s Financial Statements in the year in which the dividend is approved by the Company’s shareholders. Interim dividends are recognised in the year in which they are paid.



COM-P160-R+A16-2.indd 80 22/03/2017 21:16

81


are recognised on despatch to the postal carrier, and print and other marketing material charges are recognised on despatch by the supplier.

Interest

Finance revenue is recognised as the interest accrues using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount.

INCOME FROM SUPPLIERS

The Group receives rebates from certain suppliers for transactions that, based on the terms of the relevant contracts and local law, are either remitted to Clients or retained by the Group. If amounts are passed on to Clients they are recorded as liabilities until settled or, if retained by the Group, are recorded as a reduction to cost of sales as earned. These rebates are not complex in nature and there is no management judgement in calculating these. The rebates are typically calculated based on a fixed percentage of purchase value.

EXCEPTIONAL ITEMS

The Group presents separately, on the face of the Income Statement, those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year. This facilitates comparison with prior periods and to better assess trends in financial performance.

INCOME TAX

Current tax

Current tax assets and liabilities for the current year are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the Balance Sheet date.

Deferred tax




2. ACCOUNTING POLICIES (CONTINUED) Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised. In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.




SALES TAX

Revenues, expenses and assets are recognised net of the amount of sales tax except:

where the sales tax incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

receivables and payables which are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Balance Sheet.

DIVIDEND DISTRIBUTION

The final dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s Financial Statements in the year in which the dividend is approved by the Company’s shareholders. Interim dividends are recognised in the year in which they are paid.

2.5 ADOPTION OF NEW AND REVISED STANDARDS

The IASB and IFRIC have issued a number of standards and interpretations with an effective date after 1 January 2017 as detailed in the following table. With the exception of the new revenue standard IFRS 15 Revenue from Customers with Contracts (effective 1 January 2018 and replaces IAS 18 Revenue) and the new leases standard IFRS 16 Leases (effective 1 January 2019 and replaces IAS 17 Leases), the Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s Financial Statements, other than additional disclosures, in the period of initial application.



Effective for annual periods Effective date ending 31 December 2017 (annual periods and thereafter beginning on or after)

IFRS 9 Financial Instruments (issued in 2010) 1 January 2018

Amendments to IFRS 7 and IFRS 9 Mandatory Effective Date and Transition Disclosures 1 January 2018

Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39 1 January 2018

IFRS 15 Revenue from Contracts with Customers 1 January 2018

IFRS 9 Financial Instruments (issued in 2014) 1 January 2018

IFRS 16 Leases 1 January 2019

Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017

Amendments to IAS 7 – Disclosure Initiative 1 January 2017

Clarifications to IFRS 15 Revenue from Contracts with Customers 1 January 2018

Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions 1 January 2018

The introduction of IFRS 15 Revenue from Contracts with Customers may have a material impact on the amounts reported and disclosures made in the Group’s accounts. The Group has started a project to assess all streams of revenue and the impact of IFRS 15. This project will be concluded within 2017. 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.

COM-P160-R+A16-2.indd 81 22/03/2017 21:16

82

3. SEGMENTAL INFORMATIONBUSINESS SEGMENTS

The Group’s activities are now predominantly focused in two main areas which are:

Customer Experience; and

Brand Deployment.

The key changes to the previously reported segments are:

The activities of the previously named Design segment (with the exception of Shopper Marketing) are now included under the new Customer Experience segment along with Direct Mail, Cheques, Statements and Inbound.

Included within the new Brand Deployment segment are Print Sourcing, Managed Services and Shopper Marketing.

Pass Through representing pre-agreed or contracted revenues that include an element regarding print, postal and other marketing material which are passed onto clients at cost as part of a wider service continues to be reported separately.

Central Costs, comprising Marketing, IT, Sourcing and Strategic Accounts, continue to be reported separately.

Corporate Costs, representing the cost of the head office and other plc related costs continue to be reported separately.

Pension scheme costs are included in the Corporate Costs segment.

The Communisis Board, being the Chief Operating Decision Maker, considers the performance of Customer Experience and Brand Deployment in assessing the performance of the Group and making decisions about the allocation of resources. Segmental disclosures have therefore been presented on this basis.

Segment performance is evaluated based on profit from operations and is measured consistently with profit from operations in the income statement. However, Corporate Costs and Central Costs are managed on a Group basis and are not allocated to operating segments.

Transfer pricing between business segments is set on an arm’s length basis in a manner similar to transactions with third parties.

The revenue and operating profit figures reviewed by the Chief Operating Decision Maker exclude sales between business segments and, as such, sales between business segments are excluded from the figures in the segmental results tables below.

Customer Brand Pass Central Corporate Experience Deployment Through Costs Costs Total £000 £000 £000 £000 £000 £000

Revenue 169,292 127,297 65,343 – – 361,932

Profit from operations before amortisation of acquired intangibles

and exceptional items 22,184 16,216 – (13,349) (5,580) 19,471

Amortisation of acquired intangibles (599) (210) – – – (809)

Profit from operations before exceptional items 21,585 16,006 – (13,349) (5,580) 18,662

Exceptional items (3,128) (495) – (29) (615) (4,267)

Profit from operations 18,457 15,511 – (13,378) (6,195) 14,395

Net finance costs (2,802)

Profit before tax 11,593

Income tax expense (2,966)

Profit for the year 8,627

Other segmental information:

Depreciation 3,838 159 – 207 144 4,348

Amortisation 4,714 1,084 – 548 60 6,406

Revenue includes sales to two 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.

The segment results for the year ended 31 December 2016 are as follows:

3. SEGMENTAL INFORMATION (CONTINUED)The re-segmented results for the year ended 31 December 2015 are as follows:


Revenue 180,194 60,605 113,421 – – 354,220

Profit from operations before amortisation of acquired intangibles and exceptional items 23,559 14,088 – (12,958) (6,397) 18,292

Amortisation of acquired intangibles (872) (302) – – – (1,174)


Exceptional items (1,795) 6,623 – – (847) 3,981







Depreciation 4,345 109 – 328 97 4,879

Amortisation 5,891 631 – 732 8 7,262


GEOGRAPHICAL INFORMATION

2016 2015 £000 £000

Revenues from external customers (based on customer’s geographical location)

United Kingdom 266,153 289,816

Other countries 95,779 64,404

361,932 354,220

Non-current assets


Other countries 97 161

209,541 215,450

Non-current assets for this purpose consist of property, plant and equipment and intangible assets.



COM-P160-R+A16-2.indd 82 22/03/2017 21:16

83


Corporate Costs, representing the cost of the head office and other plc related costs continue to be reported separately.

Pension scheme costs are included in the Corporate Costs segment.

The Communisis Board, being the Chief Operating Decision Maker, considers the performance of Customer Experience and Brand Deployment in assessing the performance of the Group and making decisions about the allocation of resources. Segmental disclosures have therefore been presented on this basis.

Segment performance is evaluated based on profit from operations and is measured consistently with profit from operations in the income statement. However, Corporate Costs and Central Costs are managed on a Group basis and are not allocated to operating segments.

Transfer pricing between business segments is set on an arm’s length basis in a manner similar to transactions with third parties.

The revenue and operating profit figures reviewed by the Chief Operating Decision Maker exclude sales between business segments and, as such, sales between business segments are excluded from the figures in the segmental results tables below.


Revenue 169,292 127,297 65,343 – – 361,932

Profit from operations before amortisation of acquired intangibles

and exceptional items 22,184 16,216 – (13,349) (5,580) 19,471

Amortisation of acquired intangibles (599) (210) – – – (809)


Exceptional items (3,128) (495) – (29) (615) (4,267)







Depreciation 3,838 159 – 207 144 4,348

Amortisation 4,714 1,084 – 548 60 6,406


The segment results for the year ended 31 December 2016 are as follows:

3. SEGMENTAL INFORMATION (CONTINUED)The re-segmented results for the year ended 31 December 2015 are as follows:


Revenue 180,194 60,605 113,421 – – 354,220

Profit from operations before amortisation of acquired intangibles and exceptional items 23,559 14,088 – (12,958) (6,397) 18,292

Amortisation of acquired intangibles (872) (302) – – – (1,174)


Exceptional items (1,795) 6,623 – – (847) 3,981







Depreciation 4,345 109 – 328 97 4,879

Amortisation 5,891 631 – 732 8 7,262


GEOGRAPHICAL INFORMATION

2016 2015 £000 £000

Revenues from external customers (based on customer’s geographical location)


Other countries 95,779 64,404

361,932 354,220

Non-current assets


Other countries 97 161

209,541 215,450

Non-current assets for this purpose consist of property, plant and equipment and intangible assets.



COM-P160-R+A16-2.indd 83 22/03/2017 21:16

84

4. REVENUERevenue disclosed in the Income Statement is analysed as follows:

2016 2015 £000 £000

Sales revenue

Sale of goods 142,733 148,864

Provision of services 219,199 205,356

361,932 354,220

Finance revenue

Interest income on financial assets carried at amortised cost 18 33

Gain on foreign currency liabilities 945 48

963 81

No revenue was derived from exchanges of goods and services (2015 £nil).

5. OTHER EXPENSES5.1 TOTAL FINANCE COSTS

2016 2015 £000 £000

Interest expense for borrowings at amortised cost 2,289 2,493

Retirement benefit related cost (Note 14) 1,476 1,422

3,765 3,915

5.2 NET FINANCE COSTS

2016 2015 £000 £000

Interest on financial assets measured at amortised cost 18 33

Interest on financial liabilities measured at amortised cost (2,289) (2,493)

Net interest on financial assets and financial liabilities not at fair value through Income Statement (2,271) (2,460)


Retirement benefit related cost (1,476) (1,422)

(2,802) (3,834)

5.3 EMPLOYEE BENEFITS EXPENSE

2016 2015 £000 £000

Wages and salaries 82,150 83,122

Social security costs 8,155 8,031

Pension costs 4,409 4,050

Expense of share-based payments 505 148

Redundancy costs 3,400 1,297

98,619 96,648

2016 2015 Number Number

The average monthly number of employees during the year was made up as follows:

Customer Experience 1,514 1,687

Brand Deployment 478 481

Central Costs 145 141

Corporate Costs 27 42

2,164 2,351

5. OTHER EXPENSES (CONTINUED)COMPENSATION OF KEY MANAGEMENT PERSONNEL

2016 2015 £000 £000

Short-term employee benefits 2,531 2,705

Post-employment benefits 91 165

Compensation for loss of office (139) 719

Share-based payments (equity-settled) 342 (93)

Total compensation paid to key management personnel 2,825 3,496

Key management personnel consist of statutory directors of the Company along with non-statutory directors who sit on the Executive Board.

An adjustment of £139,000 has been made in the year in respect of actual compensation for loss of office charged and provided for in the prior year. The charge from the prior year and the subsequent release have both been included within exceptional items in Note 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 provided in Note 14 to these Financial Statements. Details of the directors’ interests in employee share incentive plans are provided within the Directors’ Remuneration Report on pages 50 to 68.

5.4 AMORTISATION OF ACQUIRED INTANGIBLES AND EXCEPTIONAL ITEMS

2016 2015 £000 £000

Profit from operations is arrived at after charging the following items:

Exceptional restructuring costs 4,260 2,043

Trade name impairment 232 –

Customer relationship asset write off 118 486

Contingent consideration write off (452) (6,665)

Capital restructure costs 109 –

Release of exceptional provision – (382)

Acquisition and set up costs – 537

Exceptional items 4,267 (3,981)Non-exceptional depreciation and amortisation – amortisation of acquired intangibles 809 1,174

5,076 (2,807)

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 staff restructuring 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 assigned a value of £512,000 at acquisition on 5 January 2015. Trading with this business has been lower than expected resulting in the trade name impairment.

The £118,000 customer relationship asset write off (2015 £486,000) relates to customer relationships valued as part of acquisition accounting in recent years. It is indicative of the current nature of Client turnover in agency businesses where revenues are project based and not usually underpinned by long-term contracts.

The £452,000 reduction in contingent consideration relates to fair value revisions of the contingent consideration in respect of the acquisitions of Life Marketing Consultancy Limited and The Meaningful Marketing Group Limited, being £200,000 and £252,000 respectively. The £6,665,000 contingent consideration write off in 2015 related to the release of part of the contingent consideration following 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 exercise undertaken 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.



COM-P160-R+A16-2.indd 84 22/03/2017 21:16

85


4. REVENUERevenue disclosed in the Income Statement is analysed as follows:

2016 2015 £000 £000

Sales revenue

Sale of goods 142,733 148,864

Provision of services 219,199 205,356

361,932 354,220

Finance revenue

Interest income on financial assets carried at amortised cost 18 33


963 81

No revenue was derived from exchanges of goods and services (2015 £nil).

5. OTHER EXPENSES5.1 TOTAL FINANCE COSTS

2016 2015 £000 £000

Interest expense for borrowings at amortised cost 2,289 2,493

Retirement benefit related cost (Note 14) 1,476 1,422

3,765 3,915

5.2 NET FINANCE COSTS

2016 2015 £000 £000

Interest on financial assets measured at amortised cost 18 33

Interest on financial liabilities measured at amortised cost (2,289) (2,493)

Net interest on financial assets and financial liabilities not at fair value through Income Statement (2,271) (2,460)


Retirement benefit related cost (1,476) (1,422)

(2,802) (3,834)

5.3 EMPLOYEE BENEFITS EXPENSE

2016 2015 £000 £000


Social security costs 8,155 8,031

Pension costs 4,409 4,050

Expense of share-based payments 505 148

Redundancy costs 3,400 1,297

98,619 96,648


The average monthly number of employees during the year was made up as follows:


Brand Deployment 478 481

Central Costs 145 141

Corporate Costs 27 42

2,164 2,351

5. OTHER EXPENSES (CONTINUED)COMPENSATION OF KEY MANAGEMENT PERSONNEL

2016 2015 £000 £000

Short-term employee benefits 2,531 2,705

Post-employment benefits 91 165

Compensation for loss of office (139) 719

Share-based payments (equity-settled) 342 (93)

Total compensation paid to key management personnel 2,825 3,496

Key management personnel consist of statutory directors of the Company along with non-statutory directors who sit on the Executive Board.

An adjustment of £139,000 has been made in the year in respect of actual compensation for loss of office charged and provided for in the prior year. The charge from the prior year and the subsequent release have both been included within exceptional items in Note 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 provided in Note 14 to these Financial Statements. Details of the directors’ interests in employee share incentive plans are provided within the Directors’ Remuneration Report on pages 50 to 68.

5.4 AMORTISATION OF ACQUIRED INTANGIBLES AND EXCEPTIONAL ITEMS

2016 2015 £000 £000

Profit from operations is arrived at after charging the following items:

Exceptional restructuring costs 4,260 2,043

Trade name impairment 232 –

Customer relationship asset write off 118 486

Contingent consideration write off (452) (6,665)

Capital restructure costs 109 –

Release of exceptional provision – (382)

Acquisition and set up costs – 537

Exceptional items 4,267 (3,981)Non-exceptional depreciation and amortisation – amortisation of acquired intangibles 809 1,174

5,076 (2,807)

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 staff restructuring 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 assigned a value of £512,000 at acquisition on 5 January 2015. Trading with this business has been lower than expected resulting in the trade name impairment.

The £118,000 customer relationship asset write off (2015 £486,000) relates to customer relationships valued as part of acquisition accounting in recent years. It is indicative of the current nature of Client turnover in agency businesses where revenues are project based and not usually underpinned by long-term contracts.

The £452,000 reduction in contingent consideration relates to fair value revisions of the contingent consideration in respect of the acquisitions of Life Marketing Consultancy Limited and The Meaningful Marketing Group Limited, being £200,000 and £252,000 respectively. The £6,665,000 contingent consideration write off in 2015 related to the release of part of the contingent consideration following 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 exercise undertaken 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.



COM-P160-R+A16-2.indd 85 22/03/2017 21:16

86

5. OTHER EXPENSES (CONTINUED)5.5 AUDITOR’S REMUNERATION

The remuneration of the auditor is analysed as follows:

2016 2015 £000 £000

Audit of the Group Financial Statements 150 139

Other fees to the auditor – local statutory audits for subsidiaries 88 90

– other taxation services – 9

– other assurance services 9 9

247 247

5.6 OPERATING LEASE PAYMENTS

2016 2015 £000 £000

Minimum lease payments 11,364 12,129

Sub-lease receipts (1,098) (1,019)

10,266 11,110

6. INCOME TAXThe major components of income tax expense for the years ended 31 December 2016 and 2015 are:

2016 2015 £000 £000

Tax charged in the Income Statement

Current income tax

UK corporation tax 2,736 2,553

Adjustments in respect of prior years 197 (133)

Overseas tax on profits for the year 787 994

Total current income tax charge 3,720 3,414

Deferred income tax

Origination and reversal of temporary differences (636) (607)

Adjustments in respect of prior years (105) 50

Adjustments in respect of prior years – due to change in tax rate (13) (67)

Total deferred tax credit (754) (624)

Tax charge in the Consolidated Income Statement 2,966 2,790

Tax relating to items charged or credited to other comprehensive income

Deferred income tax

Actuarial losses on pension scheme current year credit (2,715) (641)

Adjustment in respect of prior years – due to change in tax rate 411 782

Tax on financial liability (3) 19

Income tax (credit) / charge reported in the Consolidated Statement of Comprehensive Income (2,307) 160

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.

6. INCOME TAX (CONTINUED)RECONCILIATION OF THE TOTAL TAX CHARGE

The tax expense in the Income Statement for the year is higher (2015 lower) than the average standard rate of Corporation Tax in the UK of 20% (2015 20.25%). The differences are reconciled below:

2016 2015 £000 £000

Profit before income tax 11,593 17,265

At UK statutory income tax rate of 20% (2015 20.25%) 2,319 3,497

Expenses not deductible for tax purposes 317 275

Non-taxable income (97) (1,333)

Effect of different tax rates of subsidiaries operating in other jurisdictions 204 290

Unrecognised tax losses in overseas territories 60 –

Share-based payments 110 234

Change in deferred tax in respect of rolled over capital gains (26) (23)


Adjustment in respect of prior years – due to change in tax rate (13) (67)


UNRECOGNISED TAX LOSSES

The Group has unrecognised losses amounting to £60,000 (2015 £nil), which arose outside of the UK. No deferred tax asset has been recognised in respect of these losses as their future utilisation is remote.

DEFERRED TAX

Deferred tax included in the Consolidated Balance Sheet is as follows:

2016 2015 £000 £000

Accelerated capital allowances 925 1,074

Other short-term timing differences (185) (155)

Losses available for offset against future taxable income (387) (509)

Held-over capital gains – 153

Capital gains rolled over into replacement assets 436 467

Share-based payments (176) (185)

Pensions (7,331) (5,306)

Financial liability (39) (36)

Customer relationships intangible assets 351 591

Deferred tax asset (6,406) (3,906)

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.



COM-P160-R+A16-2.indd 86 22/03/2017 21:16

87


5. OTHER EXPENSES (CONTINUED)5.5 AUDITOR’S REMUNERATION

The remuneration of the auditor is analysed as follows:

2016 2015 £000 £000

Audit of the Group Financial Statements 150 139

Other fees to the auditor – local statutory audits for subsidiaries 88 90

– other taxation services – 9

– other assurance services 9 9

247 247

5.6 OPERATING LEASE PAYMENTS

2016 2015 £000 £000

Minimum lease payments 11,364 12,129

Sub-lease receipts (1,098) (1,019)

10,266 11,110

6. INCOME TAXThe major components of income tax expense for the years ended 31 December 2016 and 2015 are:

2016 2015 £000 £000

Tax charged in the Income Statement

Current income tax

UK corporation tax 2,736 2,553


Overseas tax on profits for the year 787 994

Total current income tax charge 3,720 3,414

Deferred income tax

Origination and reversal of temporary differences (636) (607)

Adjustments in respect of prior years (105) 50

Adjustments in respect of prior years – due to change in tax rate (13) (67)

Total deferred tax credit (754) (624)


Tax relating to items charged or credited to other comprehensive income

Deferred income tax

Actuarial losses on pension scheme current year credit (2,715) (641)

Adjustment in respect of prior years – due to change in tax rate 411 782

Tax on financial liability (3) 19

Income tax (credit) / charge reported in the Consolidated Statement of Comprehensive Income (2,307) 160

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.

6. INCOME TAX (CONTINUED)RECONCILIATION OF THE TOTAL TAX CHARGE

The tax expense in the Income Statement for the year is higher (2015 lower) than the average standard rate of Corporation Tax in the UK of 20% (2015 20.25%). The differences are reconciled below:

2016 2015 £000 £000

Profit before income tax 11,593 17,265

At UK statutory income tax rate of 20% (2015 20.25%) 2,319 3,497

Expenses not deductible for tax purposes 317 275

Non-taxable income (97) (1,333)

Effect of different tax rates of subsidiaries operating in other jurisdictions 204 290

Unrecognised tax losses in overseas territories 60 –


Change in deferred tax in respect of rolled over capital gains (26) (23)


Adjustment in respect of prior years – due to change in tax rate (13) (67)


UNRECOGNISED TAX LOSSES

The Group has unrecognised losses amounting to £60,000 (2015 £nil), which arose outside of the UK. No deferred tax asset has been recognised in respect of these losses as their future utilisation is remote.

DEFERRED TAX

Deferred tax included in the Consolidated Balance Sheet is as follows:

2016 2015 £000 £000

Accelerated capital allowances 925 1,074

Other short-term timing differences (185) (155)

Losses available for offset against future taxable income (387) (509)

Held-over capital gains – 153

Capital gains rolled over into replacement assets 436 467

Share-based payments (176) (185)

Pensions (7,331) (5,306)

Financial liability (39) (36)

Customer relationships intangible assets 351 591

Deferred tax asset (6,406) (3,906)

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.



COM-P160-R+A16-2.indd 87 22/03/2017 21:16

88

6. INCOME TAX (CONTINUED)The deferred tax credit included in the Consolidated Income Statement is as follows:

2016 2015 £000 £000

Accelerated capital allowances (149) (55)

Other short-term timing differences (19) 187

Losses available against future taxable income 166 (78)

Held-over capital gains (153) (17)

Capital gains rolled over into replacement assets (31) (75)


Pensions (337) (397)

Customer relationships intangible assets (240) (393)

Deferred tax credit (754) (624)

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 BUSINESSIn 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:

2016 £000

As at 1 January 2016 383

Total consideration paid during period (193)

As at 31 December 2016 190

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:

2016 £000




The final contingent consideration liability will be settled in 2017.


7. ACQUISITION OF BUSINESS (CONTINUED)THE MEANINGFUL MARKETING GROUP LIMITED

On 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 the sellers, spread over the earn-out periods (being the 12 months to 14 August 2015, 2016, 2017, 2018 and 2019). The amount payable for 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 the date of acquisition, the fair value of the contingent consideration was estimated at £257,000, determined using a discounted cash flow 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 August 2015 and 14 August 2016. At 31 December 2016 the fair value of the contingent consideration was revised to £nil based on forecast profits from those parts of the company applicable to the earn-out calculation. A reconciliation of the fair value of the contingent consideration liability is provided below:

2016 £000


Total consideration paid during period – Fair value revision (252)

As at 31 December 2016 –


LIFE MARKETING CONSULTANCY LIMITED

On 5 January 2015, the Group acquired the entire share capital of Life.

As part of the purchase agreement a contingent consideration was agreed, the mechanism for which was subsequently revised in 2015 to maintain incentivisation for the management of Life. As at 31 December 2015, the fair value of all contingent consideration was revised to £500,000.

An assessment of the likely contingent consideration payable was performed by looking at the relative likelihood of a range of outcomes of over or under achieving against the current forecasts over the earn-out period. As at 31 December 2016, using this methodology, the fair value of the contingent consideration was revised to £300,000. A reconciliation of the fair value of the contingent consideration liability is provided below:

2016 £000


Fair value revision (200)


The 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.



COM-P160-R+A16-2.indd 88 22/03/2017 21:16

89


6. INCOME TAX (CONTINUED)The deferred tax credit included in the Consolidated Income Statement is as follows:

2016 2015 £000 £000

Accelerated capital allowances (149) (55)

Other short-term timing differences (19) 187

Losses available against future taxable income 166 (78)

Held-over capital gains (153) (17)

Capital gains rolled over into replacement assets (31) (75)


Pensions (337) (397)

Customer relationships intangible assets (240) (393)

Deferred tax credit (754) (624)


7. ACQUISITION OF BUSINESSIn 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:

2016 £000





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:

2016 £000




The final contingent consideration liability will be settled in 2017.


7. ACQUISITION OF BUSINESS (CONTINUED)THE MEANINGFUL MARKETING GROUP LIMITED

On 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 the sellers, spread over the earn-out periods (being the 12 months to 14 August 2015, 2016, 2017, 2018 and 2019). The amount payable for 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 the date of acquisition, the fair value of the contingent consideration was estimated at £257,000, determined using a discounted cash flow 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 August 2015 and 14 August 2016. At 31 December 2016 the fair value of the contingent consideration was revised to £nil based on forecast profits from those parts of the company applicable to the earn-out calculation. A reconciliation of the fair value of the contingent consideration liability is provided below:

2016 £000


Total consideration paid during period – Fair value revision (252)

As at 31 December 2016 –


LIFE MARKETING CONSULTANCY LIMITED

On 5 January 2015, the Group acquired the entire share capital of Life.

As part of the purchase agreement a contingent consideration was agreed, the mechanism for which was subsequently revised in 2015 to maintain incentivisation for the management of Life. As at 31 December 2015, the fair value of all contingent consideration was revised to £500,000.

An assessment of the likely contingent consideration payable was performed by looking at the relative likelihood of a range of outcomes of over or under achieving against the current forecasts over the earn-out period. As at 31 December 2016, using this methodology, the fair value of the contingent consideration was revised to £300,000. A reconciliation of the fair value of the contingent consideration liability is provided below:

2016 £000


Fair value revision (200)


The 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.



COM-P160-R+A16-2.indd 89 22/03/2017 21:16

90

8. EARNINGS PER SHARE

2016 2015 Number Number 000 000

Weighted average number of ordinary shares (excluding treasury shares) for basic earnings per share 209,211 207,306

Effect of dilution:

Share options 336 408

Weighted average number of ordinary shares (excluding treasury shares) adjusted for the effect of dilution 209,547 207,714

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.

2016 2015 £000 £000

Basic and diluted earnings per share is calculated as follows:

Profit attributable to equity holders of the parent 8,627 14,475

Earnings per share:

Basic 4.12p 6.98p

Diluted 4.12p 6.97p

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:

2016 2015 £000 £000

Profit after taxation from continuing operations 8,627 14,475

Exceptional items (Note 5.4) 4,267 (3,981)

Taxation on exceptional items (819) (521)

Amortisation of acquired intangibles 809 1,174

Taxation on amortisation of acquired intangibles (171) (307)

Taxation – adjustments in respect of prior years (Note 6) – (83)

Profit after taxation from continuing operations excluding

exceptional items and amortisation of acquired intangibles 12,713 10,757

Adjusted earnings per share:

Basic 6.08p 5.19p

Diluted 6.07p 5.18p

The basis of measurement of adjusted earnings per share is to reflect more accurately the measure of earnings per share used by the market.

Adjusted earnings per share uses the same weighted average number of ordinary shares as reported above.

9. DIVIDENDS PAID AND PROPOSED 2016 2015Declared and paid during the year £000 £000

Amounts recognised as distributions to equity holders in the year:

Final dividend of the year ended 31 December 2014 of 1.33p per share – 2,758

Interim dividend of the year ended 31 December 2015 of 0.73p per share – 1,515

Final dividend of the year ended 31 December 2015 of 1.47p per share 3,077 –

Interim dividend of the year ended 31 December 2016 of 0.81p per share 1,696 –

4,773 4,273

Proposed for approval at AGM (not recognised as a liability as at 31 December)

Final equity dividend on ordinary shares of 1.61p (2015 1.47p) per share (based on issued share capital at the date of approval of the Financial Statements) 3,358 3,076

10. PROPERTY, PLANT AND EQUIPMENT

Plant, Long Short equipment Freehold leasehold leasehold and motor property property property vehicles Total £000 £000 £000 £000 £000

Cost

At 1 January 2015 8,213 176 2,260 62,786 73,435

Additions 4 – 32 2,778 2,814

Transfer – – 601 (627) (26)

Disposals – – – (3,177) (3,177)

Acquisition of business – – 2 114 116

Exchange adjustment – – – (1) (1)

At 31 December 2015 8,217 176 2,895 61,873 73,161

Additions 23 – 405 2,932 3,360

Disposals – – – (3,218) (3,218)

Exchange adjustment – – – 39 39

At 31 December 2016 8,240 176 3,300 61,626 73,342

Depreciation

At 1 January 2015 3,648 176 524 43,841 48,189

Depreciation charge for the year 281 – 201 4,397 4,879

Transfer – – 63 (67) (4)

Disposals – – – (2,988) (2,988)


At 31 December 2015 3,929 176 788 45,185 50,078


Impairment – – – 334 334

Disposals – – – (3,077) (3,077)


At 31 December 2016 4,209 176 999 46,320 51,704

Net book value at 31 December 2016 4,031 – 2,301 15,306 21,638



During the year, the two London operations were consolidated into Little Portland Street. On the exit from Chiswell Street, London the 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.



4.12p

4.12p

COM-P160-R+A16-2.indd 90 22/03/2017 21:16

91


8. EARNINGS PER SHARE

2016 2015 Number Number 000 000

Weighted average number of ordinary shares (excluding treasury shares) for basic earnings per share 209,211 207,306

Effect of dilution:

Share options 336 408

Weighted average number of ordinary shares (excluding treasury shares) adjusted for the effect of dilution 209,547 207,714

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.

2016 2015 £000 £000

Basic and diluted earnings per share is calculated as follows:

Profit attributable to equity holders of the parent 8,627 14,475

Earnings per share:

Basic 4.12p 6.98p

Diluted 4.12p 6.97p

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:

2016 2015 £000 £000

Profit after taxation from continuing operations 8,627 14,475

Exceptional items (Note 5.4) 4,267 (3,981)

Taxation on exceptional items (819) (521)

Amortisation of acquired intangibles 809 1,174

Taxation on amortisation of acquired intangibles (171) (307)

Taxation – adjustments in respect of prior years (Note 6) – (83)

Profit after taxation from continuing operations excluding

exceptional items and amortisation of acquired intangibles 12,713 10,757

Adjusted earnings per share:

Basic 6.08p 5.19p

Diluted 6.07p 5.18p

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.







4,773 4,273



10. PROPERTY, PLANT AND EQUIPMENT

Plant, Long Short equipment Freehold leasehold leasehold and motor property property property vehicles Total £000 £000 £000 £000 £000

Cost

At 1 January 2015 8,213 176 2,260 62,786 73,435

Additions 4 – 32 2,778 2,814

Transfer – – 601 (627) (26)

Disposals – – – (3,177) (3,177)

Acquisition of business – – 2 114 116

Exchange adjustment – – – (1) (1)

At 31 December 2015 8,217 176 2,895 61,873 73,161

Additions 23 – 405 2,932 3,360

Disposals – – – (3,218) (3,218)


At 31 December 2016 8,240 176 3,300 61,626 73,342

Depreciation

At 1 January 2015 3,648 176 524 43,841 48,189


Transfer – – 63 (67) (4)

Disposals – – – (2,988) (2,988)


At 31 December 2015 3,929 176 788 45,185 50,078


Impairment – – – 334 334

Disposals – – – (3,077) (3,077)


At 31 December 2016 4,209 176 999 46,320 51,704




During the year, the two London operations were consolidated into Little Portland Street. On the exit from Chiswell Street, London the 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.



COM-P160-R+A16-2.indd 91 22/03/2017 21:16

92

11. INTANGIBLE ASSETS Customer Software relationships Trade Goodwill assets assets names Licences Total £000 £000 £000 £000 £000 £000

Cost

At 1 January 2015 221,634 21,741 30,714 – 1,109 275,198

Additions – 4,355 – – 91 4,446

Acquisition of business 18,564 31 995 512 – 20,102

Transfer – 26 – – – 26

Disposals – (342) (200) – – (542)

At 31 December 2015 240,198 25,811 31,509 512 1,200 299,230

Additions – 2,206 – – 86 2,292

Disposals – (761) – – – (761)

At 31 December 2016 240,198 27,256 31,509 512 1,286 300,761

Amortisation and impairment

At 1 January 2015 76,177 11,390 11,676 – 410 99,653

Amortisation during the year – 2,978 4,069 102 113 7,262

Impairment (Note 5.4) – – 486 – – 486

Transfer – 4 – – – 4

Disposals – (342) (200) – – (542)

At 31 December 2015 76,177 14,030 16,031 102 523 106,863


Impairment (Note 5.4) – – 118 232 – 350

Disposals – (761) – – – (761)

At 31 December 2016 76,177 16,550 19,093 403 635 112,858

Net book value at 31 December 2016 164,021 10,706 12,416 109 651 187,903


Net book value at 31 December 2014 145,457 10,351 19,038 – 699 175,545

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).

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:


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:

2016 2015 £000 £000


Brand Deployment 77,330 77,330

164,021 164,021

The Group conducts annual impairment tests on the carrying value of goodwill using value in use calculations. The key assumptions included in the value in use calculations are revenue growth, product and services mix and profit margins, the long-term growth rates and the discount rate applied.

The Group prepares cash flow forecasts for these CGUs based on the most recent annual budgets approved by the Board. These are based upon detailed budgets for the coming year and internal forecasts of future growth over a five-year period and cash flows beyond the five-year period are extrapolated using external forecasts of expected growth rates. Further information on the assumptions used within the major CGUs is detailed below.

KEY ASSUMPTIONS USED IN VALUE IN USE CALCULATIONS

The 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 budgets

The revenue forecast in the Customer Experience cash flow projections, based on financial budgets, is a decline of 3% in 2017 followed by 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 and between 4% and 7% in years two to five.

Product and services mix and profit margins

Brand Deployment is expected to have an increased share of Group revenues relative to Customer Experience over the five-year forecast period.

The Group profit margin, based on gross revenue, is projected to increase from 5.4% in 2016 to 7.6% by the end of the detailed forecast period.



COM-P160-R+A16-2.indd 92 22/03/2017 21:16

93


11. INTANGIBLE ASSETS Customer Software relationships Trade Goodwill assets assets names Licences Total £000 £000 £000 £000 £000 £000

Cost

At 1 January 2015 221,634 21,741 30,714 – 1,109 275,198

Additions – 4,355 – – 91 4,446

Acquisition of business 18,564 31 995 512 – 20,102

Transfer – 26 – – – 26

Disposals – (342) (200) – – (542)

At 31 December 2015 240,198 25,811 31,509 512 1,200 299,230

Additions – 2,206 – – 86 2,292

Disposals – (761) – – – (761)

At 31 December 2016 240,198 27,256 31,509 512 1,286 300,761

Amortisation and impairment

At 1 January 2015 76,177 11,390 11,676 – 410 99,653


Impairment (Note 5.4) – – 486 – – 486

Transfer – 4 – – – 4

Disposals – (342) (200) – – (542)

At 31 December 2015 76,177 14,030 16,031 102 523 106,863


Impairment (Note 5.4) – – 118 232 – 350

Disposals – (761) – – – (761)

At 31 December 2016 76,177 16,550 19,093 403 635 112,858



Net book value at 31 December 2014 145,457 10,351 19,038 – 699 175,545

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).

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:


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:

2016 2015 £000 £000


Brand Deployment 77,330 77,330

164,021 164,021

The Group conducts annual impairment tests on the carrying value of goodwill using value in use calculations. The key assumptions included in the value in use calculations are revenue growth, product and services mix and profit margins, the long-term growth rates and the discount rate applied.

The Group prepares cash flow forecasts for these CGUs based on the most recent annual budgets approved by the Board. These are based upon detailed budgets for the coming year and internal forecasts of future growth over a five-year period and cash flows beyond the five-year period are extrapolated using external forecasts of expected growth rates. Further information on the assumptions used within the major CGUs is detailed below.

KEY ASSUMPTIONS USED IN VALUE IN USE CALCULATIONS

The 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 budgets

The revenue forecast in the Customer Experience cash flow projections, based on financial budgets, is a decline of 3% in 2017 followed by 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 and between 4% and 7% in years two to five.

Product and services mix and profit margins

Brand Deployment is expected to have an increased share of Group revenues relative to Customer Experience over the five-year forecast period.

The Group profit margin, based on gross revenue, is projected to increase from 5.4% in 2016 to 7.6% by the end of the detailed forecast period.



COM-P160-R+A16-2.indd 93 22/03/2017 21:16

94

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.

Profit margin Goodwill at Revenue years 2-5 31 December growth rates (based on gross Terminal Pre-tax 2016 years 2-5 revenue) growth rates discount rate £000 % % % %

Customer Experience 86,691 5%, 5%, 5%, 6% 12%, 12%, 13%, 13% 2.3 12.2 Respectively Respectively

Brand Deployment 77,330 6%, 7%, 4%, 4% 10%, 10%, 11%, 11% 2.7 11.9 Respectively Respectively

The comparatives below are stated using the segmentation in place at the time.

Profit margin years 2-5 Goodwill at Revenue (based on revenue 31 December growth rates excluding Terminal Pre-tax 2015 years 2-5 pass through) growth rates discount rate £000 % % % %

Produce 58,902 5%, 2%, -1%, -1% 13%, 13%, 13%, 13% 2.2 12.2 Respectively Respectively

Deploy 44,014 10%, 9%, 8%, 8% 23%, 23%, 23%, 22% 2.7 11.7 Respectively Respectively

Design 61,105 18%, 18%, 14%, 15% 17%, 18%, 18%, 19% 2.9 11.7 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.

13. SHARE-BASED PAYMENTSThe Communisis Long Term Incentive Plan 2007

Certain 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 price thresholds 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 performance period in comparison with the average share price in the three months immediately preceding grant (“Base Share Price”). If the closing average share price is 10p above the Base Share Price, 25% of this tranche of options will vest; if the closing average share price exceeds 105p, 100% of this tranche will vest; for attainment between these thresholds, vesting will occur on a straight-line pro rata basis. The earnings per share performance will be measured on the basis of adjusted basic earnings per share (being earnings per share from continuing operations before exceptional items and amortisation of acquired intangible assets and the tax effect of these items). Vesting will be calculated by comparing earnings per share at the end of financial year 2016 to the earnings per share at 31 December 2013 and calculating the compound annual growth rate. On the basis of this compound growth rate, 70.91% of this tranche 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 price thresholds and the remaining 80% will vest on the attainment of growth in earnings per share over the financial years 2015-17. The share price measure is calculated by reference to the average share price in the final three months of the three year performance period in comparison with the average share price in the three months immediately preceding grant (“Base Share Price”). If the closing average share price is 10p above the Base Share Price, 25% of this tranche of options will vest; if the closing average share price exceeds 90p, 100% of this tranche will vest; for attainment between these thresholds, vesting will occur on a straight-line pro rata basis. The earnings per share performance will be measured on the basis of adjusted basic earnings per share (being earnings per share from continuing operations before exceptional items and amortisation of acquired intangible assets and the tax effect of these items). Vesting will be calculated by comparing earnings per share at the end of financial year 2017 to the earnings per share at 31 December 2014 and calculating the compound annual growth rate. If the compound earnings per share growth reaches 7.5% per annum 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 the financial 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 and the tax effect of these items). Vesting will be calculated by comparing earnings per share at the end of financial year 2018 to the earnings per share at 31 December 2015 and calculating the compound annual growth rate. If the compound earnings per share growth 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 compound annual growth in earnings per share exceeds 15% per annum there is 100% vesting; for attainment between these thresholds vesting will occur on a straight-line pro rata basis.

The Remuneration Committee will only sanction vesting of the awards granted if they are satisfied as to the Group’s underlying financial performance in the performance period.

The fair value of options granted under the Long Term Incentive Plan 2007 in the year to 31 December 2016 was estimated on the date of grant using a binomial simulation option pricing model, taking into account the terms and conditions upon which the options were granted. The following weighted average assumptions were used in that model: an expected life of three years; share price at the date of grant of 47p (2015 55p); estimated annualised dividend yield of approximately 4.68% (2015 3.44%); risk-free interest rate of 0.51% (2015 0.66%) and expected volatility of 38.72% (2015 40.25%). The weighted average fair value of the share options granted in the 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.



COM-P160-R+A16-2.indd 94 22/03/2017 21:16

95


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.

Profit margin Goodwill at Revenue years 2-5 31 December growth rates (based on gross Terminal Pre-tax 2016 years 2-5 revenue) growth rates discount rate £000 % % % %

Customer Experience 86,691 5%, 5%, 5%, 6% 12%, 12%, 13%, 13% 2.3 12.2 Respectively Respectively

Brand Deployment 77,330 6%, 7%, 4%, 4% 10%, 10%, 11%, 11% 2.7 11.9 Respectively Respectively

The comparatives below are stated using the segmentation in place at the time.

Profit margin years 2-5 Goodwill at Revenue (based on revenue 31 December growth rates excluding Terminal Pre-tax 2015 years 2-5 pass through) growth rates discount rate £000 % % % %

Produce 58,902 5%, 2%, -1%, -1% 13%, 13%, 13%, 13% 2.2 12.2 Respectively Respectively

Deploy 44,014 10%, 9%, 8%, 8% 23%, 23%, 23%, 22% 2.7 11.7 Respectively Respectively

Design 61,105 18%, 18%, 14%, 15% 17%, 18%, 18%, 19% 2.9 11.7

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.

13. SHARE-BASED PAYMENTSThe Communisis Long Term Incentive Plan 2007

Certain 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 price thresholds 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 performance period in comparison with the average share price in the three months immediately preceding grant (“Base Share Price”). If the closing average share price is 10p above the Base Share Price, 25% of this tranche of options will vest; if the closing average share price exceeds 105p, 100% of this tranche will vest; for attainment between these thresholds, vesting will occur on a straight-line pro rata basis. The earnings per share performance will be measured on the basis of adjusted basic earnings per share (being earnings per share from continuing operations before exceptional items and amortisation of acquired intangible assets and the tax effect of these items). Vesting will be calculated by comparing earnings per share at the end of financial year 2016 to the earnings per share at 31 December 2013 and calculating the compound annual growth rate. On the basis of this compound growth rate, 70.91% of this tranche 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 price thresholds and the remaining 80% will vest on the attainment of growth in earnings per share over the financial years 2015-17. The share price measure is calculated by reference to the average share price in the final three months of the three year performance period in comparison with the average share price in the three months immediately preceding grant (“Base Share Price”). If the closing average share price is 10p above the Base Share Price, 25% of this tranche of options will vest; if the closing average share price exceeds 90p, 100% of this tranche will vest; for attainment between these thresholds, vesting will occur on a straight-line pro rata basis. The earnings per share performance will be measured on the basis of adjusted basic earnings per share (being earnings per share from continuing operations before exceptional items and amortisation of acquired intangible assets and the tax effect of these items). Vesting will be calculated by comparing earnings per share at the end of financial year 2017 to the earnings per share at 31 December 2014 and calculating the compound annual growth rate. If the compound earnings per share growth reaches 7.5% per annum 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 the financial 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 and the tax effect of these items). Vesting will be calculated by comparing earnings per share at the end of financial year 2018 to the earnings per share at 31 December 2015 and calculating the compound annual growth rate. If the compound earnings per share growth 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 compound annual growth in earnings per share exceeds 15% per annum there is 100% vesting; for attainment between these thresholds vesting will occur on a straight-line pro rata basis.

The Remuneration Committee will only sanction vesting of the awards granted if they are satisfied as to the Group’s underlying financial performance in the performance period.

The fair value of options granted under the Long Term Incentive Plan 2007 in the year to 31 December 2016 was estimated on the date of grant using a binomial simulation option pricing model, taking into account the terms and conditions upon which the options were granted. The following weighted average assumptions were used in that model: an expected life of three years; share price at the date of grant of 47p (2015 55p); estimated annualised dividend yield of approximately 4.68% (2015 3.44%); risk-free interest rate of 0.51% (2015 0.66%) and expected volatility of 38.72% (2015 40.25%). The weighted average fair value of the share options granted in the 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.



COM-P160-R+A16-2.indd 95 22/03/2017 21:16

96

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.

2016 2016 2015 2015 Number WAEP Number WAEP

Outstanding at the beginning of the year 8,689,152 16.89p 9,858,796 25.61p

Granted during the year 6,315,280 22.63p 2,820,000 0.00p

Forfeited during the year (2,287,200) 27.73p (1,173,485) 19.53p

Exercised during the year 1 (502,518) 9.81p (2,306,287) 24.71p

Expired during the year (1,912,929) 0.69p (509,872) 50.64p

Outstanding at the end of the year 10,301,785 21.35p 8,689,152 16.89p

Exercisable at the end of the year – – 304,052 20.60p

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).

14. RETIREMENT BENEFIT PLANSThe Group operates the Communisis Pension Plan which comprises a defined contribution and defined benefit section.

DEFINED CONTRIBUTION SECTION

The Group operates a UK defined contribution arrangement within all UK trading Group companies. The assets of the arrangements are held separately from those of the Group.

Group companies are required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.

The total cost charged to income of £3,105,000 (2015 £3,156,000) represents contributions payable to these arrangements by the Group at specified rates. As at 31 December 2016 all contributions due in respect of the current reporting period had been paid over to the arrangements (2015 all paid over).

The Group expects to contribute £3,000,000 to the defined contribution pension arrangements in 2017.

DEFINED BENEFIT SECTION

The section is closed to all members with no employees accruing further benefits under the plan.

The following tables summarise the components of net benefit expense recognised in the Consolidated Income Statement and the amounts taken to the Consolidated Statement of Comprehensive Income:

2016 2015 £000 £000

Recognised in profit from operations

Administration costs (857) (786)

Gains on settlements 352 –

Recognised in arriving at profit from operations (505) (786)

Interest expense (6,466) (6,650)

Interest income 4,990 5,228

Net interest on defined benefit liability (1,476) (1,422)

Net benefit expense (1,981) (2,208)

Taken to the Consolidated Statement of Comprehensive Income

Actual return on scheme assets (excluding interest income) 18,990 (5,594)

Actuarial (losses) / gains arising from changes in financial assumptions (34,962) 703

Actuarial gains arising from changes in demographic assumptions – 1,332

Actuarial losses recognised in the Consolidated Statement of Comprehensive Income (15,972) (3,559)



COM-P160-R+A16-2.indd 96 22/03/2017 21:16

97


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 8,689,152 16.89p 9,858,796 25.61p

Granted during the year 6,315,280 22.63p 2,820,000 0.00p

Forfeited during the year (2,287,200) 27.73p (1,173,485) 19.53p

Exercised during the year 1 (502,518) 9.81p (2,306,287) 24.71p

Expired during the year (1,912,929) 0.69p (509,872) 50.64p


Exercisable at the end of the year – – 304,052 20.60p

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 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).

14. RETIREMENT BENEFIT PLANSThe Group operates the Communisis Pension Plan which comprises a defined contribution and defined benefit section.

DEFINED CONTRIBUTION SECTION

The Group operates a UK defined contribution arrangement within all UK trading Group companies. The assets of the arrangements are held separately from those of the Group.

Group companies are required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.

The total cost charged to income of £3,105,000 (2015 £3,156,000) represents contributions payable to these arrangements by the Group at specified rates. As at 31 December 2016 all contributions due in respect of the current reporting period had been paid over to the arrangements (2015 all paid over).

The Group expects to contribute £3,000,000 to the defined contribution pension arrangements in 2017.

DEFINED BENEFIT SECTION

The section is closed to all members with no employees accruing further benefits under the plan.

The following tables summarise the components of net benefit expense recognised in the Consolidated Income Statement and the amounts taken to the Consolidated Statement of Comprehensive Income:

2016 2015 £000 £000

Recognised in profit from operations



Recognised in arriving at profit from operations (505) (786)

Interest expense (6,466) (6,650)


Net interest on defined benefit liability (1,476) (1,422)

Net benefit expense (1,981) (2,208)

Taken to the Consolidated Statement of Comprehensive Income


Actuarial (losses) / gains arising from changes in financial assumptions (34,962) 703

Actuarial gains arising from changes in demographic assumptions – 1,332

Actuarial losses recognised in the Consolidated Statement of Comprehensive Income (15,972) (3,559)



COM-P160-R+A16-2.indd 97 22/03/2017 21:16

98

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.

2016 2015 £000 £000

Defined benefit obligation (208,357) (177,486)

Value of plan assets 152,878 136,341

Net pension deficit (55,479) (41,145)

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:

2016 2015 £000 £000

Opening net pension deficit (41,145) (39,098)

Contributions by employer 3,619 3,720


Net interest expense (1,476) (1,422)


Actuarial loss (15,972) (3,559)

Closing net pension deficit (55,479) (41,145)

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:

2016 2015 £000 £000

Opening defined benefit obligation 177,486 183,321

Interest expense 6,466 6,650

Benefits paid (8,069) (7,219)

Actuarial loss / (gain) arising from changes in financial assumptions 34,962 (703)

Actuarial gain arising from changes in demographic assumptions – (1,332)

Creditor extinguished on settlements (2,488) (3,231)

Closing defined benefit obligation 208,357 177,486

Value of plan assets

Changes in the value of plan assets are as follows:

2016 2015 £000 £000

Opening plan assets 136,341 144,223






Assets distributed on settlements (2,136) (3,231)

Closing plan assets 152,878 136,341

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:

2016 2016 2015 2015 £000 % £000 %

Asset category

Assets with a quoted market price in an active market:

Emerging Market Equities 14,018 9 10,177 6

Liability Driven Investments 23,407 15 19,142 14

Diversified Growth Funds 91,154 60 88,057 65

Property Income Fund 13,410 9 13,079 10

Others

Insured Liabilities 2,500 2 2,500 2

Cash 8,389 5 3,386 3

152,878 100 136,341 100

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 the Communisis Pension Plan on behalf of the members in accordance with the terms of the Trust Deed & Rules of the Plan and relevant legislation. 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 Pension Plan and the other an active contributing member. Member-nominated Trustee directors are usually appointed for a three-year term but are then eligible for re-appointment subject to a vote of the membership.

The overall management of the investment of the assets of the Communisis Pension Plan is the responsibility of the Plan Trustees. However, the day to day execution of the investment and associated transactions is delegated to the Plan’s appointed Investment Managers.

The Trustees’ agreed investment strategy is based on analysis of the liability profile of the Plan and the risk and returns expected from the various asset classes held over the longer term. The primary objective of the Trustees is to operate a strategy which provides long term growth and security for all beneficiaries.

The risk that the investments may not be sufficient to cover the Plan liabilities is one which is monitored by the Trustees and their advisers as well as by the Company. The funding position and the divergence of invested assets is under regular review.

The Communisis Pension Plan invests in Liability Driven Investments (“LDI”) to reduce investment risk and to manage the liabilities in order to reduce fluctuations in the Plan’s funding levels. The objective of LDI is to have sufficient assets to meet both current and future 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 the Group’s freehold properties to help address the pension fund deficit. In connection with the arrangement certain freehold property was transferred to a limited partnership established by the Group. The partnership is controlled by, and its results are consolidated by, the Group. The fair value of the assets transferred was £9,750,000 and on the same date the Plan used the contribution to acquire an interest in the partnership for its fair value of £9,750,000. The Plan’s partnership interest entitles it to a distribution of £1,150,000 each year from the income of the partnership over 15 years. The Plan’s interest in the partnership does not qualify as a Plan asset for the Group.

In addition to the rental payments referred to above, in order to remove the deficit, a further recovery plan (subject to reassessment following future triennial valuations) has been agreed. This comprises eight annual contributions, payable by 5 October each year from 2015 up to and including 2022. These contributions increase annually in line with increases in the dividend per share declared by the Group, with a minimum annual increase in line with RPI inflation. A contribution of £1,686,000 was paid during 2016 (2015 £1,500,000).



COM-P160-R+A16-2.indd 98 22/03/2017 21:16

99


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.

2016 2015 £000 £000


Value of plan assets 152,878 136,341


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:

2016 2015 £000 £000

Opening net pension deficit (41,145) (39,098)



Net interest expense (1,476) (1,422)


Actuarial loss (15,972) (3,559)

Closing net pension deficit (55,479) (41,145)

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:

2016 2015 £000 £000

Opening defined benefit obligation 177,486 183,321

Interest expense 6,466 6,650


Actuarial loss / (gain) arising from changes in financial assumptions 34,962 (703)

Actuarial gain arising from changes in demographic assumptions – (1,332)

Creditor extinguished on settlements (2,488) (3,231)

Closing defined benefit obligation 208,357 177,486

Value of plan assets

Changes in the value of plan assets are as follows:

2016 2015 £000 £000

Opening plan assets 136,341 144,223






Assets distributed on settlements (2,136) (3,231)

Closing plan assets 152,878 136,341

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:

2016 2016 2015 2015 £000 % £000 %

Asset category

Assets with a quoted market price in an active market:

Emerging Market Equities 14,018 9 10,177 6

Liability Driven Investments 23,407 15 19,142 14

Diversified Growth Funds 91,154 60 88,057 65

Property Income Fund 13,410 9 13,079 10

Others

Insured Liabilities 2,500 2 2,500 2

Cash 8,389 5 3,386 3

152,878 100 136,341 100

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 the Communisis Pension Plan on behalf of the members in accordance with the terms of the Trust Deed & Rules of the Plan and relevant legislation. 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 Pension Plan and the other an active contributing member. Member-nominated Trustee directors are usually appointed for a three-year term but are then eligible for re-appointment subject to a vote of the membership.

The overall management of the investment of the assets of the Communisis Pension Plan is the responsibility of the Plan Trustees. However, the day to day execution of the investment and associated transactions is delegated to the Plan’s appointed Investment Managers.

The Trustees’ agreed investment strategy is based on analysis of the liability profile of the Plan and the risk and returns expected from the various asset classes held over the longer term. The primary objective of the Trustees is to operate a strategy which provides long term growth and security for all beneficiaries.

The risk that the investments may not be sufficient to cover the Plan liabilities is one which is monitored by the Trustees and their advisers as well as by the Company. The funding position and the divergence of invested assets is under regular review.

The Communisis Pension Plan invests in Liability Driven Investments (“LDI”) to reduce investment risk and to manage the liabilities in order to reduce fluctuations in the Plan’s funding levels. The objective of LDI is to have sufficient assets to meet both current and future 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 the Group’s freehold properties to help address the pension fund deficit. In connection with the arrangement certain freehold property was transferred to a limited partnership established by the Group. The partnership is controlled by, and its results are consolidated by, the Group. The fair value of the assets transferred was £9,750,000 and on the same date the Plan used the contribution to acquire an interest in the partnership for its fair value of £9,750,000. The Plan’s partnership interest entitles it to a distribution of £1,150,000 each year from the income of the partnership over 15 years. The Plan’s interest in the partnership does not qualify as a Plan asset for the Group.

In addition to the rental payments referred to above, in order to remove the deficit, a further recovery plan (subject to reassessment following future triennial valuations) has been agreed. This comprises eight annual contributions, payable by 5 October each year from 2015 up to and including 2022. These contributions increase annually in line with increases in the dividend per share declared by the Group, with a minimum annual increase in line with RPI inflation. A contribution of £1,686,000 was paid during 2016 (2015 £1,500,000).



COM-P160-R+A16-2.indd 99 22/03/2017 21:16

100

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:

2016 2015 % %

Discount rate 2.70 3.75

Inflation assumption – Retail Prices Index 3.25 3.15

Inflation assumption – Consumer Prices Index 2.25 2.15

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:

2016 2015 Years YearsCurrent pensioners:

Male 20.9 20.9

Female 23.2 23.1

Future pensioners:

Male 22.6 22.5

Female 25.1 25.0

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 £000 £000

Discount rate

Effect on profit from operations (46) 41

Effect on defined benefit obligation (3,600) 3,600

A change of 0.1 percentage points in the consumer price index would have the following effect:


Inflation – consumer price index

Effect on defined benefit obligation 2,200 (2,200)

An increase of one year in life expectancy would have the following effect:

Increase £000

Effect on defined benefit obligation 6,100

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).



15. INVENTORIES 2016 2015 £000 £000

Raw materials 3,952 4,163

Work in progress 2,339 2,585

Finished goods 677 1,027

6,968 7,775

All inventories are held at the lower of cost and net realisable value.

16. TRADE AND OTHER RECEIVABLES 2016 2015 £000 £000

Trade receivables 44,505 35,263

Prepayments, accrued income and other receivables 22,519 20,474

67,024 55,737

Current 66,203 55,106

Non-current 821 631

67,024 55,737

Trade receivables are non-interest bearing and generally on 30-90 days’ credit terms with an average of 48 days. The carrying value of trade receivables is considered a reasonable approximation of fair value. All of the Group’s trade and other receivables have been reviewed for indicators of impairment.

The doubtful debt provision has moved as follows:

2016 2015 £000 £000

At 1 January 306 158

Provisions made during the year 1,104 148

Released during the year (6) –

At 31 December 1,404 306

In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The Group trades only with recognised, creditworthy third parties. The top 10 customers make up 44% of the receivables balance (2015 57%). Generally, customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

The Group has in place trade credit insurance arrangements which cover 31% of the Group’s turnover up to a maximum aggregate claim in any one year of £4,000,000. The concentration of credit risk is therefore limited to the carrying value of trade debtors not covered by the credit insurance. The directors believe that there is no further credit provision required in excess of the allowance for doubtful debts, in respect of the portion not covered by the credit insurance and an excess of £40,000 in respect of the portion covered by the credit insurance. Certain trade receivables were found to be impaired and a provision of £1,404,000 (2015 £306,000) is carried at the year end. Trade receivables are shown net of this doubtful debt provision.

COM-P160-R+A16-2.indd 100 22/03/2017 21:16

101


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:

2016 2015 % %

Discount rate 2.70 3.75

Inflation assumption – Retail Prices Index 3.25 3.15

Inflation assumption – Consumer Prices Index 2.25 2.15

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:

2016 2015 Years YearsCurrent pensioners:

Male 20.9 20.9

Female 23.2 23.1

Future pensioners:

Male 22.6 22.5

Female 25.1 25.0

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:


Discount rate

Effect on profit from operations (46) 41

Effect on defined benefit obligation (3,600) 3,600

A change of 0.1 percentage points in the consumer price index would have the following effect:


Inflation – consumer price index

Effect on defined benefit obligation 2,200 (2,200)

An increase of one year in life expectancy would have the following effect:

Increase £000

Effect on defined benefit obligation 6,100

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).



15. INVENTORIES 2016 2015 £000 £000

Raw materials 3,952 4,163

Work in progress 2,339 2,585

Finished goods 677 1,027

6,968 7,775

All inventories are held at the lower of cost and net realisable value.


Trade receivables 44,505 35,263

Prepayments, accrued income and other receivables 22,519 20,474

67,024 55,737

Current 66,203 55,106

Non-current 821 631

67,024 55,737

Trade receivables are non-interest bearing and generally on 30-90 days’ credit terms with an average of 48 days. The carrying value of trade receivables is considered a reasonable approximation of fair value. All of the Group’s trade and other receivables have been reviewed for indicators of impairment.

The doubtful debt provision has moved as follows:

2016 2015 £000 £000

At 1 January 306 158

Provisions made during the year 1,104 148

Released during the year (6) –

At 31 December 1,404 306

In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The Group trades only with recognised, creditworthy third parties. The top 10 customers make up 44% of the receivables balance (2015 57%). Generally, customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

The Group has in place trade credit insurance arrangements which cover 31% of the Group’s turnover up to a maximum aggregate claim in any one year of £4,000,000. The concentration of credit risk is therefore limited to the carrying value of trade debtors not covered by the credit insurance. The directors believe that there is no further credit provision required in excess of the allowance for doubtful debts, in respect of the portion not covered by the credit insurance and an excess of £40,000 in respect of the portion covered by the credit insurance. Certain trade receivables were found to be impaired and a provision of £1,404,000 (2015 £306,000) is carried at the year end. Trade receivables are shown net of this doubtful debt provision.

COM-P160-R+A16-2.indd 101 22/03/2017 21:16

102

16. TRADE AND OTHER RECEIVABLES (CONTINUED)In addition, some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows:

2016 2015 £000 £000

Overdue by less than 30 days 1,407 1,678

30 – 60 days overdue 550 68


90+ days 327 659

2,584 2,430

Management have considered the unimpaired receivables past due and do not consider there is any change in credit risk that requires any additional provisions to be required.

17. FINANCIAL ASSETS AND LIABILITIES17.1 FINANCIAL ASSETS BY CATEGORY

The IAS 39 categories of financial asset included in the Consolidated Balance Sheet and the headings in which they are included are as follows:

2016 2015 £000 £000

Current assets

Trade and other receivables – loans and receivables 59,008 49,107

Cash and cash equivalents 38,294 32,719

97,302 81,826

17.2 FINANCIAL LIABILITIES BY CATEGORY

The IAS 39 categories of financial liability included in the Consolidated Balance Sheet and the headings in which they are included are as follows:

2016 2015 £000 £000


Interest-bearing loans and borrowings – Financial liabilities measured at amortised cost 58,000 61,000

Unamortised loan arrangement fees (176) (352)

Trade and other payables – Financial liabilities measured at amortised cost 652 11,093

Financial liabilities 228 162

Hire purchase commitments 927 1,541

Provisions 42 42

59,673 73,486

Current liabilities

Trade and other payables – Financial liabilities measured at amortised cost 87,603 66,833

Financial liabilities – 37

Hire purchase commitments 614 592

Provisions 215 25

88,432 67,487

59,008

38,294

97,302

1,407

550

300

327

2,584

18. CASH AND CASH EQUIVALENTS 2016 2015 £000 £000

Cash at bank and in hand 38,294 32,719

Cash at bank earns interest at floating rates based on daily bank deposit rates. The fair value of cash and cash equivalents is £38,294,000 (2015 £32,719,000).

19. EQUITY SHARE CAPITAL AND RESERVES 2016 2015

Number of Number of shares £000 shares £000

Allotted and fully paid

Ordinary shares of 25p each 209,376,010 52,344 209,205,898 52,302

At the year end the Group had one class of ordinary shares which carry no right to fixed income.

During the year, the Group issued and subsequently cancelled £15,080,119.50 of B ordinary shares of £0.01 each (“capital reduction shares”), as part of a capital reduction exercise.

The Group has two share option schemes under which options to subscribe for the Company’s shares have been granted to employees (Note 13).

SHARE PREMIUM RESERVE

This represents the share premium attaching to those shares issued upon the exercise of certain share options.

In December 2016 the whole of the share premium reserve was cancelled as part of a capital reduction exercise to create additional distributable reserves. At 31 December 2016 the share premium reserve was £nil (2015 £5,986,000).

During 2015 the year a transfer of £2,170,000 had been made to the merger reserve to more accurately present the premium attached to shares issued for the acquisitions carried out in 2013 and 2014.

MERGER RESERVE

This represents the share premium attaching to those shares issued upon the acquisition of subsidiaries.

In December 2016 £15,081,000 of the merger reserve, reflecting the reserve within Communisis plc Company accounts, was capitalised as capital reduction shares and subsequently cancelled as part of a capital reduction exercise to create additional distributable reserves. At 31 December 2016 the merger reserve on consolidation was £519,000 (2015 £15,600,000).

During 2015 a transfer of £2,170,000 had been made from the share premium reserve to more accurately present the premium attached to shares issued for the acquisitions carried out in 2013 and 2014. A further movement of £2,003,000 in 2015 related to the acquisition of Life.

ESOP RESERVE

The ESOP reserve is used to record the investment in Communisis plc shares held by the employee share ownership plan (“ESOP”). The ESOP is for the benefit of all employees and can be used in conjunction with any of the Group’s share schemes. The ESOP reserve holds 806,319 shares at 31 December 2016 (2015 18,722) with an average cost of 36.83p (2015 53.16p) and the market value of these shares is £349,781 (2015 £7,676).

CAPITAL REDEMPTION RESERVE

The capital redemption reserve is used to record the effect of share capital buy-backs made by the Company where the nominal value of share capital acquired is transferred to this reserve.

In December 2016 the whole of the capital redemption reserve was cancelled as part of a capital reduction exercise to create additional distributable reserves. At 31 December 2016 the capital redemption reserve was £nil (2015 £1,375,000).

CUMULATIVE TRANSLATION ADJUSTMENT

The cumulative translation adjustment reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.



COM-P160-R+A16-2.indd 102 22/03/2017 21:16

103


16. TRADE AND OTHER RECEIVABLES (CONTINUED)In addition, some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows:

2016 2015 £000 £000

Overdue by less than 30 days 1,407 1,678



90+ days 327 659

2,584 2,430

Management have considered the unimpaired receivables past due and do not consider there is any change in credit risk that requires any additional provisions to be required.

17. FINANCIAL ASSETS AND LIABILITIES17.1 FINANCIAL ASSETS BY CATEGORY

The IAS 39 categories of financial asset included in the Consolidated Balance Sheet and the headings in which they are included are as follows:

2016 2015 £000 £000

Current assets

Trade and other receivables – loans and receivables 59,008 49,107

Cash and cash equivalents 38,294 32,719

97,302 81,826

17.2 FINANCIAL LIABILITIES BY CATEGORY

The IAS 39 categories of financial liability included in the Consolidated Balance Sheet and the headings in which they are included are as follows:

2016 2015 £000 £000


Interest-bearing loans and borrowings – Financial liabilities measured at amortised cost 58,000 61,000

Unamortised loan arrangement fees (176) (352)

Trade and other payables – Financial liabilities measured at amortised cost 652 11,093

Financial liabilities 228 162

Hire purchase commitments 927 1,541

Provisions 42 42

59,673 73,486

Current liabilities

Trade and other payables – Financial liabilities measured at amortised cost 87,603 66,833

Financial liabilities – 37

Hire purchase commitments 614 592

Provisions 215 25

88,432 67,487


Cash at bank and in hand 38,294 32,719

Cash at bank earns interest at floating rates based on daily bank deposit rates. The fair value of cash and cash equivalents is £38,294,000 (2015 £32,719,000).

19. EQUITY SHARE CAPITAL AND RESERVES 2016 2015

Number of Number of shares £000 shares £000



At the year end the Group had one class of ordinary shares which carry no right to fixed income.

During the year, the Group issued and subsequently cancelled £15,080,119.50 of B ordinary shares of £0.01 each (“capital reduction shares”), as part of a capital reduction exercise.

The Group has two share option schemes under which options to subscribe for the Company’s shares have been granted to employees (Note 13).

SHARE PREMIUM RESERVE



During 2015 the year a transfer of £2,170,000 had been made to the merger reserve to more accurately present the premium attached to shares issued for the acquisitions carried out in 2013 and 2014.

MERGER RESERVE


In December 2016 £15,081,000 of the merger reserve, reflecting the reserve within Communisis plc Company accounts, was capitalised as capital reduction shares and subsequently cancelled as part of a capital reduction exercise to create additional distributable reserves. At 31 December 2016 the merger reserve on consolidation was £519,000 (2015 £15,600,000).

During 2015 a transfer of £2,170,000 had been made from the share premium reserve to more accurately present the premium attached to shares issued for the acquisitions carried out in 2013 and 2014. A further movement of £2,003,000 in 2015 related to the acquisition of Life.

ESOP RESERVE





CUMULATIVE TRANSLATION ADJUSTMENT

The cumulative translation adjustment reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.



COM-P160-R+A16-2.indd 103 22/03/2017 21:16

104

20. INTEREST-BEARING LOANS AND BORROWINGS

2016 2015 Maturity £000 £000

Current

Hire purchase contracts August 2019 614 592

614 592

Non-current

Hire purchase contracts August 2019 927 1,541

£65,000,000 bank loan (2015 £65,000,000) March 2018 57,824 60,648

58,751 62,189

Hire purchase

See Note 25 for full details.

Bank overdrafts

The bank overdrafts are principally denominated in sterling and bear interest at rates set by reference to the UK Base Rate. The overdrafts are secured by cross guarantee arrangements with the relevant banks. At 31 December 2016 and 31 December 2015 bank overdraft facilities of £5,000,000 were available but not utilised.

£65,000,000 Bank loan

This loan is secured by a cross guarantee arrangement and is repayable in March 2018. Interest is charged at LIBOR plus a rate of between 1.75% and 2.5% depending on the ratio of net debt to EBITDA in the preceding performance period.

The Group is subject to a number of covenants in relation to its borrowing, which, if breached, would result in its loans becoming immediately repayable. These covenants specify certain maximum limits in terms of net debt as a multiple of EBITDA and interest payable as a multiple of EBITA. At the year end, and throughout the year, the Group was not in breach of any bank covenants.

At 31 December 2016, the Group had available £7,000,000 (2015 £4,000,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

With the exception of hire purchase agreements, early repayment is possible under the terms of all the borrowing facilities listed above at no cost by giving more than five days’ notice.


21. PROVISIONS

Onerous Litigation Dilapidation leases provisions provisions Total £000 £000 £000 £000

At 1 January 2016 – 25 42 67

Arising during year 168 – 136 304

Utilised (89) (14) – (103)

Released during the year – (11) – (11)

At 31 December 2016 79 – 178 257

Current 2016 79 – 136 215

Non-current 2016 – – 42 42

At 31 December 2016 79 – 178 257

Current 2015 – 25 – 25

Non-current 2015 – – 42 42

At 31 December 2015 – 25 42 67

Onerous leases

The exceptional property provisions related primarily to the estimated costs for the rental obligations in respect of the exits from Bangalore and Chiswell Street, London. The provisions reflected the estimated net cost to the Group over the remainder of the lease period. At 31 December 2016 the provision for Chiswell Street, London had been settled in full.

Litigation provisionsThis provision represented management’s best estimate of the outcome of potential historical contractual liabilities. At 31 December 2016 this provision has been settled in full with the remaining balance being released to the Income Statement.

Dilapidation provisions

The dilapidation provisions represent the estimated costs required to reinstate premises to a state as required under the lease. At the year end, provisions existed for premises in London and Edinburgh which expire in 2017 and 2021 respectively.

22. TRADE AND OTHER PAYABLES

2016 2015 £000 £000

Trade payables 58,188 45,018

Other payables 2,727 6,369

Taxation and social security 3,980 3,887

Accruals and deferred income 27,584 27,956

92,479 83,230

Current 90,968 71,756

Non-current 1,511 11,474

92,479 83,230

Trade and other payables are non-interest bearing and generally on 30-90 days’ credit terms. The carrying values are considered to be a reasonable approximation of fair value.


COM-P160-R+A16-2.indd 104 22/03/2017 21:16

105


20. INTEREST-BEARING LOANS AND BORROWINGS

2016 2015 Maturity £000 £000

Current

Hire purchase contracts August 2019 614 592

614 592

Non-current

Hire purchase contracts August 2019 927 1,541

£65,000,000 bank loan (2015 £65,000,000) March 2018 57,824 60,648

58,751 62,189

Hire purchase

See Note 25 for full details.

Bank overdrafts

The bank overdrafts are principally denominated in sterling and bear interest at rates set by reference to the UK Base Rate. The overdrafts are secured by cross guarantee arrangements with the relevant banks. At 31 December 2016 and 31 December 2015 bank overdraft facilities of £5,000,000 were available but not utilised.

£65,000,000 Bank loan


The Group is subject to a number of covenants in relation to its borrowing, which, if breached, would result in its loans becoming immediately repayable. These covenants specify certain maximum limits in terms of net debt as a multiple of EBITDA and interest payable as a multiple of EBITA. At the year end, and throughout the year, the Group was not in breach of any bank covenants.

At 31 December 2016, the Group had available £7,000,000 (2015 £4,000,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

With the exception of hire purchase agreements, early repayment is possible under the terms of all the borrowing facilities listed above at no cost by giving more than five days’ notice.


21. PROVISIONS

Onerous Litigation Dilapidation leases provisions provisions Total £000 £000 £000 £000

At 1 January 2016 – 25 42 67

Arising during year 168 – 136 304

Utilised (89) (14) – (103)


At 31 December 2016 79 – 178 257

Current 2016 79 – 136 215

Non-current 2016 – – 42 42

At 31 December 2016 79 – 178 257

Current 2015 – 25 – 25

Non-current 2015 – – 42 42

At 31 December 2015 – 25 42 67

Onerous leases

The exceptional property provisions related primarily to the estimated costs for the rental obligations in respect of the exits from Bangalore and Chiswell Street, London. The provisions reflected the estimated net cost to the Group over the remainder of the lease period. At 31 December 2016 the provision for Chiswell Street, London had been settled in full.

Litigation provisionsThis provision represented management’s best estimate of the outcome of potential historical contractual liabilities. At 31 December 2016 this provision has been settled in full with the remaining balance being released to the Income Statement.


The dilapidation provisions represent the estimated costs required to reinstate premises to a state as required under the lease. At the year end, provisions existed for premises in London and Edinburgh which expire in 2017 and 2021 respectively.

22. TRADE AND OTHER PAYABLES

2016 2015 £000 £000

Trade payables 58,188 45,018

Other payables 2,727 6,369



92,479 83,230

Current 90,968 71,756

Non-current 1,511 11,474

92,479 83,230

Trade and other payables are non-interest bearing and generally on 30-90 days’ credit terms. The carrying values are considered to be a reasonable approximation of fair value.


COM-P160-R+A16-2.indd 105 22/03/2017 21:16

106

23. FINANCIAL LIABILITIES

2016 2015 £000 £000

Current liabilities:

Interest rate swaps – 37

Non-current liabilities:

Interest rate swaps 228 162

228 199

INTEREST RATE SWAPS

At 31 December 2016 the Group has two arrangements each of a notional amount of £10,000,000 with maturity dates being in 2018. The Group pays fixed rates of interest of 3.13% and 2.27% respectively on each arrangement and on both the Group receives a variable rate equal to LIBOR + 2.0% on the notional amount.

FAIR VALUE HIERARCHY

The Group used the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable either directly or indirectly;

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

As at 31 December 2016, the Group held the following financial instruments measured at fair value:

2016 Level 1 Level 2 Level 3 £000 £000 £000 £000

Financial liabilities at fair value through profit or loss Interest rate swaps 228 – 228 –

During the year there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into or out of Level 3 fair value measurements.

As disclosed within Note 27, the fair value of loans has been calculated using Level 2 valuation techniques.

24. OBLIGATIONS UNDER OPERATING LEASESOPERATING LEASE COMMITMENTS – GROUP AS LESSEE

Motor vehicles and machinery leases

The Group has entered into commercial leases on motor vehicles and items of machinery. These leases have a remaining life of between one and seven years.

Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:

2016 2015 £000 £000

No later than one year 6,115 7,575

After one year but no more than five years 8,518 14,935

After five years 93 40

14,726 22,550


24. OBLIGATIONS UNDER OPERATING LEASES (CONTINUED)Land and building leases

The Group has entered into commercial land and building leases. These leases have a remaining life of between one and ten years.


2016 2015 £000 £000



After five years 8,879 9,475

26,948 26,118

OPERATING LEASE COMMITMENTS – GROUP AS LESSOR

Surplus land and building leases

The Group has entered into commercial land and building leases consisting of the Group’s surplus office and manufacturing buildings. These properties have been sublet and the leases have a remaining life of seven years.

Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:

2016 2015 £000 £000




7,363 7,644

25. HIRE PURCHASE COMMITMENTSThe Group has entered into hire purchase contracts for various items of plant and machinery with a purchase option at the end of the lease term, for a nominal fee. Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows:

2016 2015

Present Present value of value of Minimum payments Minimum payments payments (Note 20) payments (Note 20) £000 £000 £000 £000

Within one year 666 614 670 592

After one year but no more than five years 956 927 1,623 1,541

Total minimum lease payments 1,622 1,541 2,293 2,133

Less amounts representing finance charges (81) – (160) –

Present value of minimum lease payments 1,541 1,541 2,133 2,133


COM-P160-R+A16-2.indd 106 22/03/2017 21:16

107


23. FINANCIAL LIABILITIES

2016 2015 £000 £000





228 199

INTEREST RATE SWAPS

At 31 December 2016 the Group has two arrangements each of a notional amount of £10,000,000 with maturity dates being in 2018. The Group pays fixed rates of interest of 3.13% and 2.27% respectively on each arrangement and on both the Group receives a variable rate equal to LIBOR + 2.0% on the notional amount.

FAIR VALUE HIERARCHY

The Group used the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable either directly or indirectly;

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

As at 31 December 2016, the Group held the following financial instruments measured at fair value:

2016 Level 1 Level 2 Level 3 £000 £000 £000 £000

Financial liabilities at fair value through profit or loss Interest rate swaps 228 – 228 –

During the year there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into or out of Level 3 fair value measurements.

As disclosed within Note 27, the fair value of loans has been calculated using Level 2 valuation techniques.

24. OBLIGATIONS UNDER OPERATING LEASESOPERATING LEASE COMMITMENTS – GROUP AS LESSEE

Motor vehicles and machinery leases

The Group has entered into commercial leases on motor vehicles and items of machinery. These leases have a remaining life of between one and seven years.


2016 2015 £000 £000



After five years 93 40

14,726 22,550


24. OBLIGATIONS UNDER OPERATING LEASES (CONTINUED)Land and building leases

The Group has entered into commercial land and building leases. These leases have a remaining life of between one and ten years.


2016 2015 £000 £000




26,948 26,118

OPERATING LEASE COMMITMENTS – GROUP AS LESSOR

Surplus land and building leases

The Group has entered into commercial land and building leases consisting of the Group’s surplus office and manufacturing buildings. These properties have been sublet and the leases have a remaining life of seven years.

Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:

2016 2015 £000 £000




7,363 7,644

25. HIRE PURCHASE COMMITMENTSThe Group has entered into hire purchase contracts for various items of plant and machinery with a purchase option at the end of the lease term, for a nominal fee. Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows:

2016 2015

Present Present value of value of Minimum payments Minimum payments payments (Note 20) payments (Note 20) £000 £000 £000 £000

Within one year 666 614 670 592

After one year but no more than five years 956 927 1,623 1,541

Total minimum lease payments 1,622 1,541 2,293 2,133

Less amounts representing finance charges (81) – (160) –

Present value of minimum lease payments 1,541 1,541 2,133 2,133


COM-P160-R+A16-2.indd 107 22/03/2017 21:16

108

26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIESThe Group’s principal financial instruments comprise bank loans and overdrafts (Note 20), cash and short-term deposits (Note 18), forward currency contracts and interest rate swaps (Note 23). The main purpose of these financial instruments is to raise finance for the Group’s operations and to manage exchange rate and interest rate risk. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are cash flow interest rate risk, foreign currency risk, liquidity risk and credit risk.

CASH FLOW INTEREST RATE RISK

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s medium-term debt obligations with a floating interest rate.

All borrowings are held on floating rate terms and so the Group is exposed to interest rate movements on these borrowings. The Group’s policy is to monitor interest rate exposure on this floating rate debt and maintain interest rate swaps through separate financial instruments where appropriate. At the end of 2016 the Group has two arrangements each with a notional amount of £10,000,000, covering 100% of the year end bank debt (2015 71%).

At 31 December 2016, if interest rates had been 100 basis points higher for the full financial year, with all other variables held constant, this would have resulted in a reduction of pre-tax profits of £380,000 and a post-tax reduction in equity of £304,000; if interest rates had been lower by 25 basis points throughout the financial year the pre-tax profits would have been £95,000 higher and the post-tax impact on equity would have been an increase of £76,000.

FOREIGN CURRENCY RISK

The Group operates principally in the UK with approximately 26% (2015 18%) of sales denominated in currencies other than sterling and of this figure, 24% (2015 16%) of sales arising from companies operating with functional currencies other than sterling.

The majority of foreign currency transactions are naturally hedged from buying and selling within the same currency. Where this is not the case, and Communisis is entering into a significant foreign currency transaction with no natural hedge in place, the Group enters into forward foreign exchange contracts to control these risks. There were no foreign currency contracts outstanding at the year end (2015 none).

LIQUIDITY RISK

The Group regularly monitors its risk to a shortage of funds, taking account of the maturity profile of its financial assets and liabilities and the projected cash flows from operations.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through a mix of medium-term funding of committed floating rate facilities supplemented by uncommitted bank overdraft facilities.

In 2013 the Group refinanced its borrowings which are repayable in March 2018. At 31 December 2016 none of the Group’s medium-term debt matures in less than twelve months (2015 £nil), 100% matures between one and two years from the Balance Sheet date (2015 £nil) and none matures between two to five years from the Balance Sheet date (2015 100%).

The directors consider this funding structure to be adequate for the Group’s current requirements.

The maturity profile of the Group’s financial liabilities at 31 December 2016 is shown in Note 27.

CREDIT RISK

The Group trades only with recognised, creditworthy third parties. Generally, customers who wish to trade on credit terms are subject to credit verification procedures. During the year the Group has entered into trade credit insurance arrangements which cover 31% of the Group’s turnover up to a maximum aggregate claim in any one year of £4,000,000. The concentration of credit risk is therefore limited to the carrying value of trade receivables not covered by the credit insurance as disclosed in Note 16. The Group’s exposure to credit risk arises from the default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. As at the Balance Sheet date there are no significant concentrations of credit risk within the Group.

The credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, is managed by Group treasury in accordance with Group policy. Investments of surplus funds are only made with established banks approved by the Board. The Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

CAPITAL MANAGEMENT

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support the business and maximise shareholder value.

The Group monitors capital using a gearing ratio, being bank debt divided by equity plus bank debt. The policy is to maintain the gearing ratio below 50%. Within bank debt the Group includes all interest-bearing bank loans and borrowings, less cash and cash equivalents.


26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

2016 2015 £000 £000

Interest-bearing bank loans and borrowings 58,000 61,000

Less cash and cash equivalents (38,294) (32,719)

Bank Debt 19,706 28,281

Equity 118,215 126,814

Capital and Bank Debt 137,921 155,095

Gearing ratio 14.29% 18.23%

For the purposes of capital management, the Group considers undiscounted interest-bearing loans and borrowings as the appropriate measure for the purposes of determining bank debt.

27. FINANCIAL INSTRUMENTS

The following table sets out the maturity of the Group’s financial liabilities, based on contractual undiscounted payments.

More Within 1 1-2 2-3 3-4 4-5 than year years years years years 5 years TotalAt 31 December 2016 £000 £000 £000 £000 £000 £000 £000

Trade and other payables 90,968 503 449 149 149 261 92,479

£65,000,000 bank loan 1,317 58,329 – – – – 59,646

Interest rate swaps 137 91 – – – – 228

Provisions 215 42 – – – – 257

Hire purchase 666 666 290 – – – 1,622

93,303 59,631 739 149 149 261 154,232


Trade and other payables 71,756 10,519 100 603 43 209 83,230

£65,000,000 bank loan 1,595 1,595 61,399 – – – 64,589

Interest rate swaps 98 61 40 – – – 199

Provisions 25 – – – – 42 67

Hire purchase 670 666 666 291 – – 2,293

74,144 12,841 62,205 894 43 251 150,378

Carrying value is considered to approximate fair value for all of the Group’s financial instruments other than bank loans, which have a carrying value of £57,824,000 (2015 £60,648,000) and a fair value of £59,470,000 (2015 £64,244,000). The fair value of loans has been calculated using Level 2 valuation techniques reflecting the borrowing rate at the end of the reporting period and any unamortised arrangement fees relating to those borrowings. The known non-performance risk at 31 December 2016 was assessed to be insignificant.


COM-P160-R+A16-2.indd 108 22/03/2017 21:16

109


26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIESThe Group’s principal financial instruments comprise bank loans and overdrafts (Note 20), cash and short-term deposits (Note 18), forward currency contracts and interest rate swaps (Note 23). The main purpose of these financial instruments is to raise finance for the Group’s operations and to manage exchange rate and interest rate risk. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are cash flow interest rate risk, foreign currency risk, liquidity risk and credit risk.

CASH FLOW INTEREST RATE RISK

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s medium-term debt obligations with a floating interest rate.

All borrowings are held on floating rate terms and so the Group is exposed to interest rate movements on these borrowings. The Group’s policy is to monitor interest rate exposure on this floating rate debt and maintain interest rate swaps through separate financial instruments where appropriate. At the end of 2016 the Group has two arrangements each with a notional amount of £10,000,000, covering 100% of the year end bank debt (2015 71%).

At 31 December 2016, if interest rates had been 100 basis points higher for the full financial year, with all other variables held constant, this would have resulted in a reduction of pre-tax profits of £380,000 and a post-tax reduction in equity of £304,000; if interest rates had been lower by 25 basis points throughout the financial year the pre-tax profits would have been £95,000 higher and the post-tax impact on equity would have been an increase of £76,000.

FOREIGN CURRENCY RISK

The Group operates principally in the UK with approximately 26% (2015 18%) of sales denominated in currencies other than sterling and of this figure, 24% (2015 16%) of sales arising from companies operating with functional currencies other than sterling.

The majority of foreign currency transactions are naturally hedged from buying and selling within the same currency. Where this is not the case, and Communisis is entering into a significant foreign currency transaction with no natural hedge in place, the Group enters into forward foreign exchange contracts to control these risks. There were no foreign currency contracts outstanding at the year end (2015 none).

LIQUIDITY RISK

The Group regularly monitors its risk to a shortage of funds, taking account of the maturity profile of its financial assets and liabilities and the projected cash flows from operations.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through a mix of medium-term funding of committed floating rate facilities supplemented by uncommitted bank overdraft facilities.

In 2013 the Group refinanced its borrowings which are repayable in March 2018. At 31 December 2016 none of the Group’s medium-term debt matures in less than twelve months (2015 £nil), 100% matures between one and two years from the Balance Sheet date (2015 £nil) and none matures between two to five years from the Balance Sheet date (2015 100%).

The directors consider this funding structure to be adequate for the Group’s current requirements.

The maturity profile of the Group’s financial liabilities at 31 December 2016 is shown in Note 27.

CREDIT RISK

The Group trades only with recognised, creditworthy third parties. Generally, customers who wish to trade on credit terms are subject to credit verification procedures. During the year the Group has entered into trade credit insurance arrangements which cover 31% of the Group’s turnover up to a maximum aggregate claim in any one year of £4,000,000. The concentration of credit risk is therefore limited to the carrying value of trade receivables not covered by the credit insurance as disclosed in Note 16. The Group’s exposure to credit risk arises from the default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. As at the Balance Sheet date there are no significant concentrations of credit risk within the Group.

The credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, is managed by Group treasury in accordance with Group policy. Investments of surplus funds are only made with established banks approved by the Board. The Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

CAPITAL MANAGEMENT

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support the business and maximise shareholder value.

The Group monitors capital using a gearing ratio, being bank debt divided by equity plus bank debt. The policy is to maintain the gearing ratio below 50%. Within bank debt the Group includes all interest-bearing bank loans and borrowings, less cash and cash equivalents.


26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

2016 2015 £000 £000

Interest-bearing bank loans and borrowings 58,000 61,000

Less cash and cash equivalents (38,294) (32,719)

Bank Debt 19,706 28,281

Equity 118,215 126,814

Capital and Bank Debt 137,921 155,095

Gearing ratio 14.29% 18.23%

For the purposes of capital management, the Group considers undiscounted interest-bearing loans and borrowings as the appropriate measure for the purposes of determining bank debt.

27. FINANCIAL INSTRUMENTS

The following table sets out the maturity of the Group’s financial liabilities, based on contractual undiscounted payments.


Trade and other payables 90,968 503 449 149 149 261 92,479

£65,000,000 bank loan 1,317 58,329 – – – – 59,646

Interest rate swaps 137 91 – – – – 228

Provisions 215 42 – – – – 257

Hire purchase 666 666 290 – – – 1,622

93,303 59,631 739 149 149 261 154,232


Trade and other payables 71,756 10,519 100 603 43 209 83,230

£65,000,000 bank loan 1,595 1,595 61,399 – – – 64,589

Interest rate swaps 98 61 40 – – – 199

Provisions 25 – – – – 42 67

Hire purchase 670 666 666 291 – – 2,293

74,144 12,841 62,205 894 43 251 150,378

Carrying value is considered to approximate fair value for all of the Group’s financial instruments other than bank loans, which have a carrying value of £57,824,000 (2015 £60,648,000) and a fair value of £59,470,000 (2015 £64,244,000). The fair value of loans has been calculated using Level 2 valuation techniques reflecting the borrowing rate at the end of the reporting period and any unamortised arrangement fees relating to those borrowings. The known non-performance risk at 31 December 2016 was assessed to be insignificant.


COM-P160-R+A16-2.indd 109 22/03/2017 21:16

110

28. CAPITAL COMMITMENTSAt 31 December 2016, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £494,000 (2015 £38,000).

29. CONTINGENT LIABILITIESThe Group has contingent liabilities where it has provided rental guarantees to landlords in respect of certain leasehold properties occupied by companies that were formerly subsidiaries in the Group, but have subsequently been sold. The principal risk is that current leasehold occupants will become insolvent and that guarantees will be called, resulting in a material cash cost to the Group. To the extent that they have not already been called, these guarantees represent contingent liabilities of the Group. Other than those leases for which the liability is considered to be remote, the Group has guaranteed rentals on a lease with remaining terms of seven years, with an annual rental of £1,135,000. No provision for this guarantee has been made in the Financial Statements because, at the Balance Sheet date, the directors believe that it is not probable that it will be called.

30. CASH GENERATED FROM OPERATIONS

2016 2015 £000 £000

Continuing operations

Profit before tax 11,593 17,265

Adjustments for:

Amortisation of intangible assets arising on business acquisitions 809 1,174

Depreciation and other amortisation 9,945 10,967

Exceptional items 4,267 (3,981)

Loss / (profit) on sale of property, plant & equipment 25 (7)

Share-based payment charge 505 148

Net finance costs 2,802 3,834

Additional contribution to the defined benefit pension plan (2,836) (2,941)

Cash cost of exceptional items (3,700) (2,553)

Changes in working capital:

Decrease in inventories 904 845

(Increase) / Decrease in trade and other receivables (9,912) 3,311

Increase / (Decrease) in trade and other payables 8,507 (3,909)

Cash generated from operations 22,909 24,153

31. RELATED PARTY TRANSACTIONSDuring the year the directors were remunerated for services provided to the Group. This is disclosed in the Directors’ Remuneration Report on pages 50 to 68. The directors are included within key management personnel, for whom details of compensation are disclosed in Note 5.3.

There were no other related party transactions in the year.


32. INVESTMENTS

The Consolidated Financial Statements include the Financial Statements of Communisis plc, the ultimate parent undertaking, and all subsidiary undertakings. The Group’s subsidiary operations are listed in the following table. The registered offices for each subsidiary are referenced in the table and listed on page 113.

% Equity % Equity Country of Registered interest interest Name incorporation office 2016 2015 Immediate parent

Absolute Data Solutions Limited England & Wales 1 100 100 Communisis Data Intelligence Limited

Art Master of Chelsea Limited England & Wales 1 100 100 Wakefield Holdings Limited

B2E Consulting Limited England & Wales 1 100 100 Communisis Data Intelligence Limited

Bangquote Limited England & Wales 1 100 100 Dataform (Northern) Limited

Canada 2 Limited England & Wales 1 100 100 Communisis Dataform Limited

Chorley Direct Mail Limited England & Wales 1 100 100 Waddingtons House Limited

Communisis 2012 Limited England & Wales 1 100 100 Communisis plc

Communisis BBF Limited England & Wales 1 100 100 Robot No.6 Limited

Communisis Broadprint Limited England & Wales 1 100 100 Robot No.7 Limited

Communisis Capital Partner Limited England & Wales 1 100 100 Communisis UK Limited

Communisis Chorleys Limited England & Wales 1 100 100 Waddingtons House Limited

Communisis-CRM Limited England & Wales 1 100 100 Waddingtons House Limited

Communisis Data Intelligence Limited England & Wales 1 100 100 Communisis UK Limited

Communisis Dataform Limited England & Wales 1 100 100 Communisis plc

Communisis Dataform South West Limited England & Wales 1 100 100 Communisis Dataform Limited

Communisis Digital Limited England & Wales 1 100 100 Communisis UK Limited

Communisis Europe Limited England & Wales 1 100 100 Communisis plc

Communisis Group Strategic Partnerships Limited England & Wales 1 100 100 Communisis UK Limited

Communisis International Limited England & Wales 1 100 100 Communisis plc

Communisis One Limited England & Wales 1 100 100 Communisis Chorleys Limited

Communisis Security Products Limited England & Wales 1 100 100 Robot No.7 Limited

Communisis Trustee Company Limited England & Wales 1 100 100 Waddington Limited

Communisis Trustee (2011) Company Limited England & Wales 1 100 100 Communisis plc

Communisis UK Limited England & Wales 1 100 100 Communisis plc

Dataform (Digital) Limited England & Wales 1 100 100 Communisis Dataform Limited

Dataform (Midlands) Limited England & Wales 1 100 100 Communisis Dataform Limited

Dataform (Northern) Limited England & Wales 1 100 100 Communisis Dataform Limited

E.K. Lickfold Limited England & Wales 1 100 100 Waddingtons House Limited

Geronimo Marketing and England & Wales 1 100 100 The Meaningful Marketing Group Communications Limited Limited

House of Dubreq Limited England & Wales 1 100 100 Waddington Limited

Imagio Limited England & Wales 1 100 100 Wakefield Holdings Limited

Intuistic Limited England & Wales 1 100 100 Communisis Data Intelligence Limited

Jacaranda Productions Limited England & Wales 1 100 100 Robot No.6 Limited

Jaypak Limited England & Wales 1 100 100 Waddington Limited

John Mansfield Timber Limited England & Wales 1 100 100 Communisis plc

John Waddington Properties England & Wales 1 100 100 Imagio Limited

Johnsen & Jorgensen Plastic Limited England & Wales 1 100 100 Waddington Limited

Ken Stokes Limited England & Wales 1 100 100 Robot No.6 Limited


COM-P160-R+A16-2.indd 110 22/03/2017 21:16

111


28. CAPITAL COMMITMENTSAt 31 December 2016, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £494,000 (2015 £38,000).

29. CONTINGENT LIABILITIESThe Group has contingent liabilities where it has provided rental guarantees to landlords in respect of certain leasehold properties occupied by companies that were formerly subsidiaries in the Group, but have subsequently been sold. The principal risk is that current leasehold occupants will become insolvent and that guarantees will be called, resulting in a material cash cost to the Group. To the extent that they have not already been called, these guarantees represent contingent liabilities of the Group. Other than those leases for which the liability is considered to be remote, the Group has guaranteed rentals on a lease with remaining terms of seven years, with an annual rental of £1,135,000. No provision for this guarantee has been made in the Financial Statements because, at the Balance Sheet date, the directors believe that it is not probable that it will be called.

30. CASH GENERATED FROM OPERATIONS

2016 2015 £000 £000

Continuing operations

Profit before tax 11,593 17,265

Adjustments for:

Amortisation of intangible assets arising on business acquisitions 809 1,174

Depreciation and other amortisation 9,945 10,967

Exceptional items 4,267 (3,981)

Loss / (profit) on sale of property, plant & equipment 25 (7)

Share-based payment charge 505 148

Net finance costs 2,802 3,834

Additional contribution to the defined benefit pension plan (2,836) (2,941)

Cash cost of exceptional items (3,700) (2,553)

Changes in working capital:

Decrease in inventories 904 845

(Increase) / Decrease in trade and other receivables (9,912) 3,311

Increase / (Decrease) in trade and other payables 8,507 (3,909)

Cash generated from operations 22,909 24,153

31. RELATED PARTY TRANSACTIONSDuring the year the directors were remunerated for services provided to the Group. This is disclosed in the Directors’ Remuneration Report on pages 50 to 68. The directors are included within key management personnel, for whom details of compensation are disclosed in Note 5.3.

There were no other related party transactions in the year.


32. INVESTMENTS

The Consolidated Financial Statements include the Financial Statements of Communisis plc, the ultimate parent undertaking, and all subsidiary undertakings. The Group’s subsidiary operations are listed in the following table. The registered offices for each subsidiary are referenced in the table and listed on page 113.


Absolute Data Solutions Limited England & Wales 1 100 100 Communisis Data Intelligence Limited

Art Master of Chelsea Limited England & Wales 1 100 100 Wakefield Holdings Limited

B2E Consulting Limited England & Wales 1 100 100 Communisis Data Intelligence Limited

Bangquote Limited England & Wales 1 100 100 Dataform (Northern) Limited

Canada 2 Limited England & Wales 1 100 100 Communisis Dataform Limited

Chorley Direct Mail Limited England & Wales 1 100 100 Waddingtons House Limited

Communisis 2012 Limited England & Wales 1 100 100 Communisis plc

Communisis BBF Limited England & Wales 1 100 100 Robot No.6 Limited

Communisis Broadprint Limited England & Wales 1 100 100 Robot No.7 Limited

Communisis Capital Partner Limited England & Wales 1 100 100 Communisis UK Limited

Communisis Chorleys Limited England & Wales 1 100 100 Waddingtons House Limited

Communisis-CRM Limited England & Wales 1 100 100 Waddingtons House Limited

Communisis Data Intelligence Limited England & Wales 1 100 100 Communisis UK Limited

Communisis Dataform Limited England & Wales 1 100 100 Communisis plc

Communisis Dataform South West Limited England & Wales 1 100 100 Communisis Dataform Limited

Communisis Digital Limited England & Wales 1 100 100 Communisis UK Limited

Communisis Europe Limited England & Wales 1 100 100 Communisis plc

Communisis Group Strategic Partnerships Limited England & Wales 1 100 100 Communisis UK Limited

Communisis International Limited England & Wales 1 100 100 Communisis plc

Communisis One Limited England & Wales 1 100 100 Communisis Chorleys Limited

Communisis Security Products Limited England & Wales 1 100 100 Robot No.7 Limited

Communisis Trustee Company Limited England & Wales 1 100 100 Waddington Limited

Communisis Trustee (2011) Company Limited England & Wales 1 100 100 Communisis plc

Communisis UK Limited England & Wales 1 100 100 Communisis plc

Dataform (Digital) Limited England & Wales 1 100 100 Communisis Dataform Limited

Dataform (Midlands) Limited England & Wales 1 100 100 Communisis Dataform Limited

Dataform (Northern) Limited England & Wales 1 100 100 Communisis Dataform Limited

E.K. Lickfold Limited England & Wales 1 100 100 Waddingtons House Limited

Geronimo Marketing and England & Wales 1 100 100 The Meaningful Marketing Group Communications Limited Limited

House of Dubreq Limited England & Wales 1 100 100 Waddington Limited

Imagio Limited England & Wales 1 100 100 Wakefield Holdings Limited

Intuistic Limited England & Wales 1 100 100 Communisis Data Intelligence Limited

Jacaranda Productions Limited England & Wales 1 100 100 Robot No.6 Limited

Jaypak Limited England & Wales 1 100 100 Waddington Limited

John Mansfield Timber Limited England & Wales 1 100 100 Communisis plc

John Waddington Properties England & Wales 1 100 100 Imagio Limited

Johnsen & Jorgensen Plastic Limited England & Wales 1 100 100 Waddington Limited

Ken Stokes Limited England & Wales 1 100 100 Robot No.6 Limited


COM-P160-R+A16-2.indd 111 22/03/2017 21:16

112

32. INVESTMENTS (CONTINUED)


Kieon Limited England & Wales 1 100 100 Waddington Limited

Laser Image Limited England & Wales 1 100 100 Robot No.6 Limited

Life Marketing Consultancy Limited England & Wales 1 100 100 Communisis plc

McCorquodale Colour Display Limited England & Wales 1 100 100 Robot No.7 Limited

Mono-Web Limited England & Wales 1 100 100 Waddington Limited

NEWJMTCO Limited England & Wales 1 100 100 Communisis plc

PFB Advertising Limited England & Wales 1 100 100 Communisis One Limited

Print Directive Limited England & Wales 1 100 100 Communisis Dataform Limited

Psona Limited England & Wales 1 100 100 Psona Group Limited

Psona Films Limited England & Wales 1 100 100 Psona Group Limited

Psona Glasgow Limited England & Wales 1 100 100 Psona Group Limited

Psona Group Limited England & Wales 1 100 100 Communisis plc

Psona 12 Limited England & Wales 1 100 100 Psona Group Limited

Public Creative Limited England & Wales 1 100 100 Psona Limited

Robot No.6 Limited England & Wales 1 100 100 Communisis plc

Robot No.7 Limited England & Wales 1 100 100 Robot No.6 Limited

Standard Check Book Company Limited England & Wales 1 100 100 Robot No.7 Limited

Subbuteo Sports Games Limited England & Wales 1 100 100 Waddington Limited

Supervision Entertainment Limited England & Wales 1 100 100 Waddington Limited

The Communications Agency One Limited England & Wales 1 100 100 Waddington Limited

The Garden Marketing Limited England & Wales 1 100 100 Communisis 2012 Limited

The Meaningful Marketing Group Limited England & Wales 1 100 100 Psona Group Limited

Waddington Limited England & Wales 1 100 100 Communisis plc

Waddingtons Business Forms Limited England & Wales 1 100 100 Waddington Limited

Waddingtons Games Limited England & Wales 1 100 100 Waddington Limited

Waddingtons House Limited England & Wales 1 100 100 Waddington Limited

Waddingtons Playing Card Company Limited England & Wales 1 100 100 Waddington Limited

Waddingtons Security Print Limited England & Wales 1 100 100 Communisis plc

Waddingtons Videomaster Limited England & Wales 1 100 100 Waddington Limited

Wakefield Holdings Limited England & Wales 1 100 100 Communisis UK Limited

Yomego Limited England & Wales 1 100 100 Robot No.7 Limited

Communisis Belgie NV Belgium 2 100 100 Communisis Europe Limited

Communisis Deutschland GmbH Germany 3 100 100 Communisis Europe Limited

Communisis Digital Private Limited India 4 100 100 Communisis Digital Limited

Communisis France SARL France 5 100 100 Communisis Europe Limited

Communisis Hellas Marketing Services EPE Greece 6 100 100 Communisis Europe Limited

Communisis Inc. USA 7 100 100 Communisis I nternational Limited

Communisis Ireland Limited Ireland 8 100 100 Communisis UK Limited

Communisis Italia Srl Italy 9 100 100 Communisis Europe Limited

Communisis Marketing Services LLC United Arab Emirates 10 49 – Communisis International Limited

Communisis Nederland B.V. Netherlands 11 100 100 Communisis Europe Limited

Communisis NI Limited Northern Ireland 12 100 100 Robot No.7 Limited





Communisis Pension Funding Limited Scotland 13 100 100 Communisis Capital Partner Limited / Partnership GDE Limited / Communisis Trustee (2011)

Company Limited

GDE Limited Scotland 13 100 100 Communisis UK Limited

M.Y.E Limited Scotland 13 100 100 Waddingtons House Limited

Communisis Poland Sp.z.o.o Poland 14 100 100 Communisis International Limited

Communisis Portugal LDA Portugal 15 100 100 Communisis Europe Limited

Communisis Romania S.R.L Romania 16 100 100 Communisis Europe Limited

Communisis Spain SL Spain 17 100 100 Communisis Europe Limited

Communisis Suisse Sàrl Switzerland 18 100 100 Communisis Europe Limited

Communisis Sverige AB Sweden 19 100 100 Communisis Europe Limited

Communisis Turkey Ofis Hizmetleri Pazarlama Ticaret Limited Sirketi Turkey 20 100 100 Communisis Europe Limited

Editions Publishing Limited Scotland 21 100 100 Communisis UK Limited

Reference (from table above) Registered Office

1 Communisis House, Manston Lane, Leeds LS15 8AH

2 Pegasus Park, De Kleetlaan 12A, 1831 Diegem, Belgium

3 Am Kronberger Hang 8, 65824, Schwalbach am Taunus, Germany

4 #41, Patalamma Temple Street, Near South End Circle, Basavanagudi, Bangalore, Karnataka, India – 560004

5 53 rue Boissiere, 75116 Paris, France

6 Patroklou 1 & Paradissou, Athens, 151 25, Greece

7 1209 Orange Street, Wilmington, Delaware 19801, USA

8 Suite 3, One Earlfort Centre, Dublin, Ireland

9 Via Monte Napoleone n.29, 20121 Milan, Italy

10 Standard Chartered Tower, Level 5, Emmar Square, DownTown Burj Khalifa, Dubai, United Arab Emirates

11 Monfor Offices – 4th floor, Sir Winston Churchilllaan 299, 2288 DC Rijswijk, The Netherlands

12 Marlborough House, 30 Victoria Street, Belfast BT1 3GG

13 1 Rutland Court, Edinburgh EH3 8EY

14 ul. Mila 2, 00-180, Warszawa, Poland

15 Av. Do Brasil, 15 - 1°, 1749-112, Lisbon, Portugal

16 Bulevardul Dimitrie Pompei nr. 5-7, Cladirea Hermes Business, Etaj 2, Biroul, 205, Sector 2, Bucuresti, 020335, Romania

17 Calle Gurtubay 4, 3° derecha, 28001 Madrid, Spain

18 11 chemin du Faubourg-de-Cruseilles, Carouge, 1227, Geneva, Switzerland

19 Berga Backe 2, Box 68, 182 11 Danderyd, Sweden

20 Kucukbakkalkoy Mahallesi, Vedat Gunyol Caddesi, Defne Sokak No:1 Flora Residence Kat:18 Daire:1801-1802-1803, Atas,ehir / Istanbul, 34750, Turkey

21 50 Lothian Road, Edinburgh, Midlothian EH3 9WL

COM-P160-R+A16-2.indd 112 22/03/2017 21:16

113




Kieon Limited England & Wales 1 100 100 Waddington Limited

Laser Image Limited England & Wales 1 100 100 Robot No.6 Limited

Life Marketing Consultancy Limited England & Wales 1 100 100 Communisis plc

McCorquodale Colour Display Limited England & Wales 1 100 100 Robot No.7 Limited

Mono-Web Limited England & Wales 1 100 100 Waddington Limited

NEWJMTCO Limited England & Wales 1 100 100 Communisis plc

PFB Advertising Limited England & Wales 1 100 100 Communisis One Limited

Print Directive Limited England & Wales 1 100 100 Communisis Dataform Limited

Psona Limited England & Wales 1 100 100 Psona Group Limited

Psona Films Limited England & Wales 1 100 100 Psona Group Limited

Psona Glasgow Limited England & Wales 1 100 100 Psona Group Limited

Psona Group Limited England & Wales 1 100 100 Communisis plc

Psona 12 Limited England & Wales 1 100 100 Psona Group Limited

Public Creative Limited England & Wales 1 100 100 Psona Limited

Robot No.6 Limited England & Wales 1 100 100 Communisis plc

Robot No.7 Limited England & Wales 1 100 100 Robot No.6 Limited

Standard Check Book Company Limited England & Wales 1 100 100 Robot No.7 Limited

Subbuteo Sports Games Limited England & Wales 1 100 100 Waddington Limited

Supervision Entertainment Limited England & Wales 1 100 100 Waddington Limited

The Communications Agency One Limited England & Wales 1 100 100 Waddington Limited

The Garden Marketing Limited England & Wales 1 100 100 Communisis 2012 Limited

The Meaningful Marketing Group Limited England & Wales 1 100 100 Psona Group Limited

Waddington Limited England & Wales 1 100 100 Communisis plc

Waddingtons Business Forms Limited England & Wales 1 100 100 Waddington Limited

Waddingtons Games Limited England & Wales 1 100 100 Waddington Limited

Waddingtons House Limited England & Wales 1 100 100 Waddington Limited

Waddingtons Playing Card Company Limited England & Wales 1 100 100 Waddington Limited

Waddingtons Security Print Limited England & Wales 1 100 100 Communisis plc

Waddingtons Videomaster Limited England & Wales 1 100 100 Waddington Limited

Wakefield Holdings Limited England & Wales 1 100 100 Communisis UK Limited

Yomego Limited England & Wales 1 100 100 Robot No.7 Limited

Communisis Belgie NV Belgium 2 100 100 Communisis Europe Limited

Communisis Deutschland GmbH Germany 3 100 100 Communisis Europe Limited

Communisis Digital Private Limited India 4 100 100 Communisis Digital Limited

Communisis France SARL France 5 100 100 Communisis Europe Limited

Communisis Hellas Marketing Services EPE Greece 6 100 100 Communisis Europe Limited

Communisis Inc. USA 7 100 100 Communisis I nternational Limited

Communisis Ireland Limited Ireland 8 100 100 Communisis UK Limited

Communisis Italia Srl Italy 9 100 100 Communisis Europe Limited

Communisis Marketing Services LLC United Arab Emirates 10 49 – Communisis International Limited

Communisis Nederland B.V. Netherlands 11 100 100 Communisis Europe Limited

Communisis NI Limited Northern Ireland 12 100 100 Robot No.7 Limited





Communisis Pension Funding Limited Scotland 13 100 100 Communisis Capital Partner Limited / Partnership GDE Limited / Communisis Trustee (2011)

Company Limited

GDE Limited Scotland 13 100 100 Communisis UK Limited

M.Y.E Limited Scotland 13 100 100 Waddingtons House Limited

Communisis Poland Sp.z.o.o Poland 14 100 100 Communisis International Limited

Communisis Portugal LDA Portugal 15 100 100 Communisis Europe Limited

Communisis Romania S.R.L Romania 16 100 100 Communisis Europe Limited

Communisis Spain SL Spain 17 100 100 Communisis Europe Limited

Communisis Suisse Sàrl Switzerland 18 100 100 Communisis Europe Limited

Communisis Sverige AB Sweden 19 100 100 Communisis Europe Limited

Communisis Turkey Ofis Hizmetleri Pazarlama Ticaret Limited Sirketi Turkey 20 100 100 Communisis Europe Limited

Editions Publishing Limited Scotland 21 100 100 Communisis UK Limited

Reference (from table above) Registered Office

1 Communisis House, Manston Lane, Leeds LS15 8AH

2 Pegasus Park, De Kleetlaan 12A, 1831 Diegem, Belgium

3 Am Kronberger Hang 8, 65824, Schwalbach am Taunus, Germany

4 #41, Patalamma Temple Street, Near South End Circle, Basavanagudi, Bangalore, Karnataka, India – 560004

5 53 rue Boissiere, 75116 Paris, France

6 Patroklou 1 & Paradissou, Athens, 151 25, Greece

7 1209 Orange Street, Wilmington, Delaware 19801, USA

8 Suite 3, One Earlfort Centre, Dublin, Ireland

9 Via Monte Napoleone n.29, 20121 Milan, Italy

10 Standard Chartered Tower, Level 5, Emmar Square, DownTown Burj Khalifa, Dubai, United Arab Emirates

11 Monfor Offices – 4th floor, Sir Winston Churchilllaan 299, 2288 DC Rijswijk, The Netherlands

12 Marlborough House, 30 Victoria Street, Belfast BT1 3GG

13 1 Rutland Court, Edinburgh EH3 8EY

14 ul. Mila 2, 00-180, Warszawa, Poland

15 Av. Do Brasil, 15 - 1°, 1749-112, Lisbon, Portugal

16 Bulevardul Dimitrie Pompei nr. 5-7, Cladirea Hermes Business, Etaj 2, Biroul, 205, Sector 2, Bucuresti, 020335, Romania

17 Calle Gurtubay 4, 3° derecha, 28001 Madrid, Spain

18 11 chemin du Faubourg-de-Cruseilles, Carouge, 1227, Geneva, Switzerland

19 Berga Backe 2, Box 68, 182 11 Danderyd, Sweden

20 Kucukbakkalkoy Mahallesi, Vedat Gunyol Caddesi, Defne Sokak No:1 Flora Residence Kat:18 Daire:1801-1802-1803, Atas,ehir / Istanbul, 34750, Turkey

21 50 Lothian Road, Edinburgh, Midlothian EH3 9WL

COM-P160-R+A16-2.indd 113 22/03/2017 21:16

114

2016 2015 Note £000 £000

ASSETS

Non-current assets

Property, plant and equipment 6 173 636

Intangible assets 7 154 76

Investments 8 228,565 215,477


230,316 217,364

Current assets


Cash and cash equivalents 10 115 113

5,715 3,131

TOTAL ASSETS 236,031 220,495




Merger reserve 16 – 15,081



Retained earnings 17 26,824 11,239

Total equity 78,871 85,973



Trade and other payables 12 613 10,180


Loans due to group undertakings 70,787 44,386


135,959 120,120

Current liabilities





21,201 14,402



The Company has taken advantage of the exemption provided by section 408 of the Companies Act 2006 not to publish its individual Income Statement. The loss for the year attributable to the members of the Company was £658,000 (2015 £6,364,000).

The Financial Statements on pages 114 to 126 were approved by the Board on 9 March 2017 and signed on its behalf by:


The accompanying notes are an integral part of these Financial Statements.

COMPANY BALANCE SHEET31 DECEMBER 2016


Capital Capital Issued Share reduction Merger ESOP redemption Retained Total capital premium shares reserve reserve reserve earnings equity £000 £000 £000 £000 £000 £000 £000 £000

As at 1 January 2015 49,757 8,036 – 10,908 (72) 1,375 22,281 92,285

Loss for the year – – – – – – (6,364) (6,364)

Other comprehensive loss – – – – – (393) (393)

Total comprehensive loss – – – – – – (6,757) (6,757)

Employee share option schemes – value of services provided – – – – – – 148 148

Shares issued – exercise of options 548 120 – – – – (98) 570

Shares issued from ESOP – – – – 62 – (62) –

Acquisition of subsidiary 1,997 – – 2,003 – – – 4,000

Transfer between reserves – (2,170) – 2,170 – – – –

Dividends paid – – – – – – (4,273) (4,273)

As at 31 December 2015 52,302 5,986 – 15,081 (10) 1,375 11,239 85,973

Loss for the year – – – – – – (658) (658)

Other comprehensive loss – – – – – – (1,783) (1,783)



Shares issued – exercise of options 42 10 – – - – (3) 49

Shares issued from ESOP – – – – 155 – (155) -

Purchase of own shares – – – – (442) – – (442)

Issue of capital reduction shares – – 15,081 (15,081) – – – –

Capital reduction – (5,996) (15,081) – – (1,375) 22,452 –

Dividends paid – – – – – – (4,773) (4,773)

As at 31 December 2016 52,344 – – – (297) – 26,824 78,871


STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2016

COM-P160-R+A16-2.indd 114 22/03/2017 21:16

115


2016 2015 Note £000 £000

ASSETS

Non-current assets

Property, plant and equipment 6 173 636

Intangible assets 7 154 76

Investments 8 228,565 215,477


230,316 217,364

Current assets


Cash and cash equivalents 10 115 113

5,715 3,131

TOTAL ASSETS 236,031 220,495




Merger reserve 16 – 15,081



Retained earnings 17 26,824 11,239

Total equity 78,871 85,973



Trade and other payables 12 613 10,180


Loans due to group undertakings 70,787 44,386


135,959 120,120

Current liabilities





21,201 14,402



The Company has taken advantage of the exemption provided by section 408 of the Companies Act 2006 not to publish its individual Income Statement. The loss for the year attributable to the members of the Company was £658,000 (2015 £6,364,000).

The Financial Statements on pages 114 to 126 were approved by the Board on 9 March 2017 and signed on its behalf by:





Capital Capital Issued Share reduction Merger ESOP redemption Retained Total capital premium shares reserve reserve reserve earnings equity £000 £000 £000 £000 £000 £000 £000 £000

As at 1 January 2015 49,757 8,036 – 10,908 (72) 1,375 22,281 92,285

Loss for the year – – – – – – (6,364) (6,364)

Other comprehensive loss – – – – – (393) (393)



Shares issued – exercise of options 548 120 – – – – (98) 570

Shares issued from ESOP – – – – 62 – (62) –

Acquisition of subsidiary 1,997 – – 2,003 – – – 4,000

Transfer between reserves – (2,170) – 2,170 – – – –

Dividends paid – – – – – – (4,273) (4,273)

As at 31 December 2015 52,302 5,986 – 15,081 (10) 1,375 11,239 85,973

Loss for the year – – – – – – (658) (658)

Other comprehensive loss – – – – – – (1,783) (1,783)



Shares issued – exercise of options 42 10 – – - – (3) 49

Shares issued from ESOP – – – – 155 – (155) -

Purchase of own shares – – – – (442) – – (442)

Issue of capital reduction shares – – 15,081 (15,081) – – – –

Capital reduction – (5,996) (15,081) – – (1,375) 22,452 –

Dividends paid – – – – – – (4,773) (4,773)

As at 31 December 2016 52,344 – – – (297) – 26,824 78,871


STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2016

COM-P160-R+A16-2.indd 115 22/03/2017 21:16

116

1. AUTHORISATION OF FINANCIAL STATEMENTS AND STATEMENT OF COMPLIANCE WITH FRS 101The Financial Statements of Communisis plc (the “Company”) for the year ended 31 December 2016 were authorised for issue on 9 March 2017 and the Balance Sheet was signed on the Board’s behalf by Andy Blundell and Mark Stoner. Communisis plc is incorporated and domiciled in England and Wales.

The Company Financial Statements are prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and in accordance with applicable United Kingdom law and accounting standards.

The Company’s Financial Statements are presented in sterling and all values are rounded to the nearest thousand pounds (£000) except where otherwise indicated.

The results of Communisis plc are included in the Consolidated Financial Statements of Communisis plc which are available from Communisis House, Manston Lane, Leeds LS15 8AH.

The principal accounting policies adopted by the Company are set out in note 2.

2. ACCOUNTING POLICIES 2.1 BASIS OF PREPARATION

The accounting policies which follow set out those policies which apply in preparing the Financial Statements for the year ended 31 December 2016.

The Company has taken advantage of the following disclosure exemptions under FRS 101:

(a) the requirements of paragraphs 45(b) and 46-52 of IFRS 2 Share based Payment, because the share-based payment arrangement concerns its own equity instruments and its separate Financial Statements are presented alongside the Consolidated Financial Statements of the Group and the disclosures are included in the Consolidated Financial Statements of the Group in which the entity is consolidated;

(b) the requirements of IFRS 7 Financial Instruments: Disclosures, as the disclosures are included in the Consolidated Financial Statements of the Group in which the entity is consolidated;

(c) the requirements of paragraphs 91-99 of IFRS 13 Fair Value Measurement as the disclosures are included in the Consolidated Financial Statements of the Group in which the entity is consolidated;

(d) the requirement in paragraph 38 of IAS 1 Presentation of Financial Statements to present comparative information in respect of:

(i) paragraph 79(a)(iv) of IAS 1;

(ii) paragraph 73(e) of IAS 16 Property Plant and Equipment;

(iii) paragraph 118(e) of IAS 38 Intangible Assets;

(e) the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134 to 136 of IAS 1 Presentation of Financial Statements;

(f) the requirements of IAS 7 Statement of Cash Flows;

(g) the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;

(h) the requirements of paragraph 17 of IAS 24 Related Party Disclosures;

(i) the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member; and

(j) the requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d)-134(f) and 135(c)-135(e) of IAS 36 Impairment of Assets as the disclosures are included in the Consolidated Financial Statements of the Group in which the entity is consolidated.

The Company has taken advantage of the exemption provided by section 408 of the Companies Act 2006 not to publish its individual Income Statement and related notes.

The Company has net current liabilities of £15,486,000 as at 31 December 2016 (2015 net current liabilities of £11,271,000). The Company’s objectives, policies and processes for managing its liquidity risk, as well as potential exposure to cash flow interest rate risk, are described in Note 26 in the Consolidated Financial Statements.

Through the Group, the Company has considerable financial resources and as a consequence, the directors believe that the Company is well placed to manage its business risks successfully.

After making enquiries, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements.


ESTIMATION UNCERTAINTY

The key assumptions concerning the future and other key sources of estimation uncertainty at the Balance Sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

PENSIONS

The actuarial valuation involves making assumptions about discount rates, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. Additional information is included in Note 18.

NOTES TO THE COMPANY FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016


2. ACCOUNTING POLICIES (CONTINUED)2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INTANGIBLE ASSETS

Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets created within the business are not capitalised (unless specific conditions are met) and expenditure is charged to the Income Statement in the year in which the expenditure is incurred.

Acquired computer software and licenses are capitalised. These costs are amortised over their estimated useful lives (three to eight years).

Costs associated with maintaining computer software programs are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Company, and that will generate probable economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the costs of software development employees. These costs are amortised over their estimated useful lives (three to eight years).


PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment in the Financial Statements of the Company are stated at cost, less aggregate depreciation and any provision for impairment.





COM-P160-R+A16-2.indd 116 22/03/2017 21:16

117


(e) the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134 to 136 of IAS 1 Presentation of Financial Statements;

(f) the requirements of IAS 7 Statement of Cash Flows;

(g) the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;

(h) the requirements of paragraph 17 of IAS 24 Related Party Disclosures;

(i) the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member; and

(j) the requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d)-134(f) and 135(c)-135(e) of IAS 36 Impairment of Assets as the disclosures are included in the Consolidated Financial Statements of the Group in which the entity is consolidated.

The Company has taken advantage of the exemption provided by section 408 of the Companies Act 2006 not to publish its individual Income Statement and related notes.

The Company has net current liabilities of £15,486,000 as at 31 December 2016 (2015 net current liabilities of £11,271,000). The Company’s objectives, policies and processes for managing its liquidity risk, as well as potential exposure to cash flow interest rate risk, are described in Note 26 in the Consolidated Financial Statements.

Through the Group, the Company has considerable financial resources and as a consequence, the directors believe that the Company is well placed to manage its business risks successfully.

After making enquiries, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements.


ESTIMATION UNCERTAINTY

The key assumptions concerning the future and other key sources of estimation uncertainty at the Balance Sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

PENSIONS

The actuarial valuation involves making assumptions about discount rates, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. Additional information is included in Note 18.



2. ACCOUNTING POLICIES (CONTINUED)2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INTANGIBLE ASSETS

Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets created within the business are not capitalised (unless specific conditions are met) and expenditure is charged to the Income Statement in the year in which the expenditure is incurred.

Acquired computer software and licenses are capitalised. These costs are amortised over their estimated useful lives (three to eight years).

Costs associated with maintaining computer software programs are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Company, and that will generate probable economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the costs of software development employees. These costs are amortised over their estimated useful lives (three to eight years).


PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment in the Financial Statements of the Company are stated at cost, less aggregate depreciation and any provision for impairment.





INVESTMENTS

Investments are shown at cost less provision for impairment. The cost of an investment is measured as the aggregate of the consideration transferred, measured at acquisition date fair value. Any contingent consideration will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or a liability will be recognised in accordance with IAS 39 either in profit and loss or in other comprehensive income. If the contingent consideration is classed as equity, it is not remeasured until it is finally settled within equity.

Investments are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that its carrying value may be impaired. Investments are allocated to the related cash-generating units monitored by management for the purpose of impairment testing.

TRADE AND OTHER RECEIVABLES

Trade and other receivables, which generally have 30-90 days’ credit terms, are recognised and carried at original invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made. Bad debts are written off when identified.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

TRADE AND OTHER PAYABLES

Trade and other payables, which generally have 30-90 days’ credit terms, are recognised and carried at original invoice amount.

INCOME TAX

Current tax, being UK corporation tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the Balance Sheet date.




COM-P160-R+A16-2.indd 117 22/03/2017 21:16

118

2. ACCOUNTING POLICIES (CONTINUED)Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised. In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.




FOREIGN CURRENCIES

The Company’s functional currency and presentation currency is pounds sterling. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the Balance Sheet date. All differences are taken to the Income Statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

PENSION COSTS

The Company operates defined contribution and defined benefit pension plans.

Payments to defined contribution pension plans are charged as an expense to the Income Statement as incurred when the related employee service is rendered. The Company has no further legal or constructive payment obligations once the contributions have been made.

The defined benefit pension plan is a Group scheme, as detailed in the Group accounting policies note in the Group Consolidated Financial Statements on pages 78 to 79.

In accordance with the Company policy in respect of the defined benefit pension scheme, a proportion equating to 12.3% of all movements on the defined benefit scheme is recognised within the Company accounts. This proportion is based on the number of members employed by the Company at the time that the Scheme was closed to future accrual. The proportionate split is applied to all costs, settlements and actuarial gains and losses as detailed below.

The cost of administering the defined benefit pension scheme are recognised in employee benefits expense in the Income Statement.

When a settlement (eliminating all obligations for benefits already accrued) or a curtailment (reducing future obligations as a result of a material reduction in the scheme membership or a reduction in future entitlement) occurs, the obligation and the related plan assets are re-measured using current actuarial assumptions and the resultant gain or loss is recognised in the Income Statement during the period in which the settlement or curtailment occurs.

All actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recognised immediately in the Statement of Comprehensive Income.

LEASES

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to the use of assets

Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term or in accordance with utilisation of the leased asset if more appropriate.

EMPLOYEE SHARE OWNERSHIP PLAN

Communisis plc shares held by the Company are classified in shareholders’ equity as the ‘ESOP reserve’ and are recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to retained earnings. No gain or loss is recognised in the Income Statement on the purchase, sale, issue or cancellation of equity shares.

BORROWINGS


Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least twelve months after the Balance Sheet date.

NOTES TO THE COMPANY FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)


2. ACCOUNTING POLICIES (CONTINUED)PROVISIONS

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made, but there is some uncertainty about the timing of the future expenditure required in settlement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.


Certain directors and management are eligible to participate in share-based payment schemes all of which are equity- settled, in return for services provided to Communisis plc.

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuer using an appropriate model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Communisis plc (‘market conditions’).

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance or service conditions are satisfied.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the Income Statement for the award is expensed immediately. This includes any award where non-vesting conditions within the control of the Company or the employee are not met. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the Income Statement.


COM-P160-R+A16-2.indd 118 22/03/2017 21:16

119


In accordance with the Company policy in respect of the defined benefit pension scheme, a proportion equating to 12.3% of all movements on the defined benefit scheme is recognised within the Company accounts. This proportion is based on the number of members employed by the Company at the time that the Scheme was closed to future accrual. The proportionate split is applied to all costs, settlements and actuarial gains and losses as detailed below.

The cost of administering the defined benefit pension scheme are recognised in employee benefits expense in the Income Statement.

When a settlement (eliminating all obligations for benefits already accrued) or a curtailment (reducing future obligations as a result of a material reduction in the scheme membership or a reduction in future entitlement) occurs, the obligation and the related plan assets are re-measured using current actuarial assumptions and the resultant gain or loss is recognised in the Income Statement during the period in which the settlement or curtailment occurs.

All actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recognised immediately in the Statement of Comprehensive Income.

LEASES

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to the use of assets

Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term or in accordance with utilisation of the leased asset if more appropriate.

EMPLOYEE SHARE OWNERSHIP PLAN

Communisis plc shares held by the Company are classified in shareholders’ equity as the ‘ESOP reserve’ and are recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to retained earnings. No gain or loss is recognised in the Income Statement on the purchase, sale, issue or cancellation of equity shares.

BORROWINGS


Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least twelve months after the Balance Sheet date.



2. ACCOUNTING POLICIES (CONTINUED)PROVISIONS

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made, but there is some uncertainty about the timing of the future expenditure required in settlement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.


Certain directors and management are eligible to participate in share-based payment schemes all of which are equity- settled, in return for services provided to Communisis plc.

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuer using an appropriate model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Communisis plc (‘market conditions’).

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance or service conditions are satisfied.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the Income Statement for the award is expensed immediately. This includes any award where non-vesting conditions within the control of the Company or the employee are not met. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the Income Statement.


DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

Initial recognition and subsequent measurement

The Company uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its foreign currency and interest rate risks respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting and the ineffective portion of an effective hedge, are taken directly to the Income Statement.

The fair value of interest rate swaps is the difference between the fixed rate and the one month LIBOR rate implied at the Balance Sheet date, calculated monthly, and discounted to present value.

For the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging exposure to variability in cash flows, that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction, or when hedging the foreign currency risk in an unrecognised firm commitment.

For those derivatives designated as hedges and for which hedge accounting is desired, the hedging relationship is formally designated and documented at its inception. This documentation identifies the risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how effectiveness will be measured throughout its duration. Such hedges are expected to be highly effective in offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Cash flow hedgesThe effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in the Income Statement.

Amounts taken to equity are transferred to the Income Statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the Income Statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.

COM-P160-R+A16-2.indd 119 22/03/2017 21:16

120

3. OPERATING COSTS AND INCOMEAUDITOR’S REMUNERATION

The auditor’s remuneration charge relating to the year was £20,500 (2015 £20,000).

The Company is exempt from disclosing remuneration for non-audit services as the Group accounts are required to include the information required by Regulation 4(1)(b) of the Companies Regulations 2005 in respect of the Group.

EMPLOYEE BENEFITS EXPENSE

2016 2015 £000 £000


Social security costs 233 456

Pension costs 163 302

Expense of share-based payments 251 (9)

Redundancy costs 181 89

3,038 4,412


The average number of persons employed by the Company during the year was:

United Kingdom 27 42

DIRECTORS’ REMUNERATION

Details of individual directors’ remuneration, pension entitlements and interests of the directors in Communisis plc are provided within the Directors’ Remuneration Report on pages 50 to 68.







4,773 4,273



5. DEFERRED TAXDeferred tax included in the Balance Sheet is as follows:

2016 2015 £000 £000

Depreciation in excess of capital allowances / (Accelerated capital allowances) 47 (24)

Temporary differences 102 83


Pension 1,106 931

Financial liability 39 36

Deferred tax asset 1,424 1,175




6. PROPERTY, PLANT AND EQUIPMENT Short leasehold Plant and property equipment Total £000 £000 £000

Cost

1 January 2016 – 1,492 1,492

Additions 346 3 349

Disposals (346) – (346)

31 December 2016 – 1,495 1,495

Depreciation

1 January 2016 – 856 856

Charge for year 13 132 145

Disposals (13) – (13)

Impairment – 334 334

31 December 2016 – 1,322 1,322

Net book value at 31 December 2016 – 173 173


On the exit from Chiswell Street, London and the consolidation of operations into Little Portland Street, the remaining net book value of plant and equipment in Chiswell Street was fully impaired.

7. INTANGIBLE ASSETS Computer software £000

Cost

1 January 2016 202

Additions 138

31 December 2016 340

Amortisation

1 January 2016 126

Charge for year 60


Net book value at 31 December 2016 154


COM-P160-R+A16-2.indd 120 22/03/2017 21:16

121


3. OPERATING COSTS AND INCOMEAUDITOR’S REMUNERATION

The auditor’s remuneration charge relating to the year was £20,500 (2015 £20,000).

The Company is exempt from disclosing remuneration for non-audit services as the Group accounts are required to include the information required by Regulation 4(1)(b) of the Companies Regulations 2005 in respect of the Group.

EMPLOYEE BENEFITS EXPENSE

2016 2015 £000 £000


Social security costs 233 456

Pension costs 163 302

Expense of share-based payments 251 (9)

Redundancy costs 181 89

3,038 4,412


The average number of persons employed by the Company during the year was:

United Kingdom 27 42

DIRECTORS’ REMUNERATION

Details of individual directors’ remuneration, pension entitlements and interests of the directors in Communisis plc are provided within the Directors’ Remuneration Report on pages 50 to 68.







4,773 4,273



5. DEFERRED TAXDeferred tax included in the Balance Sheet is as follows:

2016 2015 £000 £000

Depreciation in excess of capital allowances / (Accelerated capital allowances) 47 (24)

Temporary differences 102 83


Pension 1,106 931

Financial liability 39 36

Deferred tax asset 1,424 1,175




6. PROPERTY, PLANT AND EQUIPMENT Short leasehold Plant and property equipment Total £000 £000 £000

Cost

1 January 2016 – 1,492 1,492

Additions 346 3 349

Disposals (346) – (346)

31 December 2016 – 1,495 1,495

Depreciation

1 January 2016 – 856 856

Charge for year 13 132 145

Disposals (13) – (13)

Impairment – 334 334

31 December 2016 – 1,322 1,322



On the exit from Chiswell Street, London and the consolidation of operations into Little Portland Street, the remaining net book value of plant and equipment in Chiswell Street was fully impaired.

7. INTANGIBLE ASSETS Computer software £000

Cost

1 January 2016 202

Additions 138


Amortisation

1 January 2016 126

Charge for year 60




COM-P160-R+A16-2.indd 121 22/03/2017 21:16

122

8. INVESTMENTS Shares Provisions Total £000 £000 £000

Subsidiaries

As at 1 January 2016 391,733 (176,256) 215,477

Additions 13,288 – 13,288

Fair value adjustment (200) – (200)

31 December 2016 404,821 (176,256) 228,565

The addition relates to the Company’s investment in Communisis Europe Limited. On 8 December 2016 the Company waived and released the rights and entitlement to repayment of the outstanding intercompany loan in exchange for an allotment of £13,287,929 ordinary shares of £1.00 each. The allotment of shares was deemed to be paid upon the capitalisation taking place.

On the same day, the additional share capital of Communisis Europe Limited was subsequently cancelled by way of a capital reduction with £13,287,929 being credited to the reserves of Communisis Europe Limited. The carrying value of the investment in Communisis Europe Limited was unaffected by the capital reduction.

On 5 January 2015 the Company acquired 100% of the voting shares of Life Marketing Consultancy Limited (“Life”), a private company based in England. Communisis plc acquired Life for consideration of £14,000,000 plus a contingent earn-out element with a fair value of £500,000 at 31 December 2015. The fair value of the contingent consideration was reassessed during the year and adjusted to £300,000 as described within Note 7 to the Consolidated Financial Statements.

Details of the Company’s investments are outlined in Note 32 in the Consolidated Financial Statements.


Trade receivables 475 317

Amounts owed by group undertakings 3,478 1,486

Other receivables 527 495

Prepayments and accrued income 289 163

VAT receivable 622 557

Corporation tax 209 –

5,600 3,018

Current 5,600 3,008

Non-current – 10

5,600 3,018


Cash at bank and in hand 115 113

11. INTEREST BEARING LOANS AND BORROWINGS 2016 2015 Maturity £000 £000

Current

Bank overdrafts On demand 6,651 6,167

6,651 6,167

Non-current

£65,000,000 bank loan (2015 £65,000,000) March 2018 57,824 60,648

64,475 66,815



11. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED)

Bank overdrafts

The bank overdrafts are principally denominated in sterling and bear interest at rates set by reference to the UK Base Rate. The overdrafts are secured by cross guarantee arrangements with the relevant banks.

£65,000,000 Bank loan


The Company is subject to a number of covenants in relation to its borrowing, which, if breached, would result in its loans becoming immediately repayable. These covenants specify certain maximum limits in terms of net debt as a multiple of EBITDA, and interest payable as a multiple of EBITA. At the year end and throughout the year the Company was not in breach of any bank covenants.

At 31 December 2016, the Company had available £7,000,000 (2015 £4,000,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

Early repayment is possible under the terms of all the borrowing facilities listed above at no cost by giving more than five days’ notice.

12. TRADE AND OTHER PAYABLES 2016 2015 £000 £000

Trade and other payables 2,190 262

Amounts due to group companies 21 9

Other payables 130 269

Corporation tax payable – 4,076



15,036 18,353

Current 14,423 8,173

Non-current 613 10,180

15,036 18,353

13. FINANCIAL LIABILITIES 2016 2015 £000 £000





228 199

INTEREST RATE SWAPS

At 31 December 2016 the Company has two arrangements each of a notional amount of £10,000,000 with maturity dates being in 2018. The Company pays fixed rates of interest of 3.13% and 2.27% respectively on each arrangement and on both the Company receives a variable rate equal to LIBOR + 2.0% on the notional amount.

COM-P160-R+A16-2.indd 122 22/03/2017 21:16

123


8. INVESTMENTS Shares Provisions Total £000 £000 £000

Subsidiaries

As at 1 January 2016 391,733 (176,256) 215,477

Additions 13,288 – 13,288

Fair value adjustment (200) – (200)

31 December 2016 404,821 (176,256) 228,565

The addition relates to the Company’s investment in Communisis Europe Limited. On 8 December 2016 the Company waived and released the rights and entitlement to repayment of the outstanding intercompany loan in exchange for an allotment of £13,287,929 ordinary shares of £1.00 each. The allotment of shares was deemed to be paid upon the capitalisation taking place.

On the same day, the additional share capital of Communisis Europe Limited was subsequently cancelled by way of a capital reduction with £13,287,929 being credited to the reserves of Communisis Europe Limited. The carrying value of the investment in Communisis Europe Limited was unaffected by the capital reduction.

On 5 January 2015 the Company acquired 100% of the voting shares of Life Marketing Consultancy Limited (“Life”), a private company based in England. Communisis plc acquired Life for consideration of £14,000,000 plus a contingent earn-out element with a fair value of £500,000 at 31 December 2015. The fair value of the contingent consideration was reassessed during the year and adjusted to £300,000 as described within Note 7 to the Consolidated Financial Statements.

Details of the Company’s investments are outlined in Note 32 in the Consolidated Financial Statements.


Trade receivables 475 317

Amounts owed by group undertakings 3,478 1,486

Other receivables 527 495

Prepayments and accrued income 289 163

VAT receivable 622 557

Corporation tax 209 –

5,600 3,018

Current 5,600 3,008

Non-current – 10

5,600 3,018


Cash at bank and in hand 115 113

11. INTEREST BEARING LOANS AND BORROWINGS 2016 2015 Maturity £000 £000

Current

Bank overdrafts On demand 6,651 6,167

6,651 6,167

Non-current

£65,000,000 bank loan (2015 £65,000,000) March 2018 57,824 60,648

64,475 66,815



11. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED)

Bank overdrafts

The bank overdrafts are principally denominated in sterling and bear interest at rates set by reference to the UK Base Rate. The overdrafts are secured by cross guarantee arrangements with the relevant banks.

£65,000,000 Bank loan


The Company is subject to a number of covenants in relation to its borrowing, which, if breached, would result in its loans becoming immediately repayable. These covenants specify certain maximum limits in terms of net debt as a multiple of EBITDA, and interest payable as a multiple of EBITA. At the year end and throughout the year the Company was not in breach of any bank covenants.

At 31 December 2016, the Company had available £7,000,000 (2015 £4,000,000) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

Early repayment is possible under the terms of all the borrowing facilities listed above at no cost by giving more than five days’ notice.

12. TRADE AND OTHER PAYABLES 2016 2015 £000 £000

Trade and other payables 2,190 262

Amounts due to group companies 21 9

Other payables 130 269

Corporation tax payable – 4,076



15,036 18,353

Current 14,423 8,173

Non-current 613 10,180

15,036 18,353

13. FINANCIAL LIABILITIES 2016 2015 £000 £000





228 199

INTEREST RATE SWAPS

At 31 December 2016 the Company has two arrangements each of a notional amount of £10,000,000 with maturity dates being in 2018. The Company pays fixed rates of interest of 3.13% and 2.27% respectively on each arrangement and on both the Company receives a variable rate equal to LIBOR + 2.0% on the notional amount.

COM-P160-R+A16-2.indd 123 22/03/2017 21:16

124

14. PROVISIONS Onerous Litigation Dilapidation leases provisions provisions Total £000 £000 £000 £000

At 1 January 2016 – 25 – 25

Arising during the year 89 – 127 216

Utilised (89) (14) – (103)


At 31 December 2016 – – 127 127

Onerous leases

The property provision related primarily to the estimated costs for the rental obligations, dilapidations and other costs in respect of the exit from Chiswell Street, London. The provision reflected the estimated net cost to the Company over the remainder of the lease period. At 31 December 2016 the premises had been exited and the provision settled in full.

Litigation provisions

This provision represented management’s best estimate of the outcome of potential historical contractual liabilities. At 31 December 2016 this provision has been settled in full with the remaining balance being released to the Income Statement.


The dilapidation provision represents the estimated costs required to reinstate the Chiswell Street, London premises to a state as required under the lease. It is expected that the costs will be incurred within one year of the Balance Sheet date.

15. CALLED UP SHARE CAPITAL 2016 2015 Number of Number of shares £000 shares £000



The Company has one class of ordinary shares which carry no right to fixed income.

During the year the Company issued 170,112 ordinary shares with a nominal value of £42,528.

155,659 of the shares, with a nominal value of £38,915, were issued in respect of Sharesave options for consideration of £49,314. The difference of £10,399 between the consideration received and the nominal value has been taken to the share premium reserve.

The remaining 14,453 shares were issued at nominal value in respect of the long term incentive plan with an amount of £3,613 debited to retained earnings.

During the year, the Company also issued and subsequently cancelled £15,080,119.50 of B ordinary shares of £0.01 each (“capital reduction shares”), as part of a capital reduction exercise, detailed in Note 16.

The Company has two share option schemes under which options to subscribe for the Company’s shares have been granted to employees (Note 19).

16. RESERVESSHARE PREMIUM



During 2015 a transfer of £2,170,000 had been made to the merger reserve to more accurately present the premium attached to shares issued for the acquisitions carried out in 2013 and 2014.

MERGER RESERVE


In December 2016 the whole of the merger reserve was capitalised as capital reduction shares and subsequently cancelled as part of a capital reduction exercise to create additional distributable reserves. At 31 December 2016 the merger reserve was £nil (2015 £15,081,000).



16. RESERVES (CONTINUED)During 2015 a transfer of £2,170,000 had been made from the share premium reserve to more accurately present the premium attached to shares issued for the acquisitions carried out in 2013 and 2014. A further movement of £2,003,000 in 2015 related to the acquisition of Life.

ESOP RESERVE





17. RETAINED EARNINGS 2016 2015 £000 £000

As at 1 January 11,239 22,281

Loss for the financial year (658) (6,364)

Ordinary dividends paid (4,773) (4,273)

Adjustment in respect of prior years due to change in tax rate (47) (90)

Net (loss) / gain on cash flow hedges taken directly to equity (26) 55

Actuarial losses on defined benefit pension plans (1,965) (437)

Income tax on items taken directly to Comprehensive Income 255 79

Employee share option schemes – value of services provided 505 148

Shares options exercised (3) (98)

Shares issued from ESOP (155) (62)

Capital reduction 22,452 –

As at 31 December 26,824 11,239

18. RETIREMENT BENEFIT PLANSThe Company operates the Communisis Pension Plan which comprises a defined contribution and defined benefit section.

DEFINED CONTRIBUTION SECTIONThe Company operates UK defined contribution arrangements. The assets of the arrangements are held separately from those of the Company.

The Company is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Company with respect to the retirement benefit scheme is to make the specified contributions.

The total cost charged to income of £165,000 (2015 £194,000) represents contributions payable to these arrangements by the Company at specified rates. As at 31 December 2016, there were no contributions due in respect of the current reporting period that had not been paid over to the arrangements (2015 none).

The Company expects to contribute £0.1m (2015 £0.2m) to the defined contribution pension arrangements in 2017.

DEFINED BENEFIT SECTIONThese Financial Statements include a proportion of the Group pension deficit and charge which has been allocated to the Company based on the number of members employed by the Company at the time the Scheme was closed to future accrual.

2016 2015 £000 £000


Fair value of plan assets 18,372 16,338


Detailed disclosure can be found in Note 14 to the Group Consolidated Financial statements on pages 97 to 100.

COM-P160-R+A16-2.indd 124 22/03/2017 21:16

125


14. PROVISIONS Onerous Litigation Dilapidation leases provisions provisions Total £000 £000 £000 £000

At 1 January 2016 – 25 – 25

Arising during the year 89 – 127 216

Utilised (89) (14) – (103)


At 31 December 2016 – – 127 127

Onerous leases

The property provision related primarily to the estimated costs for the rental obligations, dilapidations and other costs in respect of the exit from Chiswell Street, London. The provision reflected the estimated net cost to the Company over the remainder of the lease period. At 31 December 2016 the premises had been exited and the provision settled in full.

Litigation provisions

This provision represented management’s best estimate of the outcome of potential historical contractual liabilities. At 31 December 2016 this provision has been settled in full with the remaining balance being released to the Income Statement.


The dilapidation provision represents the estimated costs required to reinstate the Chiswell Street, London premises to a state as required under the lease. It is expected that the costs will be incurred within one year of the Balance Sheet date.

15. CALLED UP SHARE CAPITAL 2016 2015 Number of Number of shares £000 shares £000



The Company has one class of ordinary shares which carry no right to fixed income.

During the year the Company issued 170,112 ordinary shares with a nominal value of £42,528.

155,659 of the shares, with a nominal value of £38,915, were issued in respect of Sharesave options for consideration of £49,314. The difference of £10,399 between the consideration received and the nominal value has been taken to the share premium reserve.

The remaining 14,453 shares were issued at nominal value in respect of the long term incentive plan with an amount of £3,613 debited to retained earnings.

During the year, the Company also issued and subsequently cancelled £15,080,119.50 of B ordinary shares of £0.01 each (“capital reduction shares”), as part of a capital reduction exercise, detailed in Note 16.

The Company has two share option schemes under which options to subscribe for the Company’s shares have been granted to employees (Note 19).

16. RESERVESSHARE PREMIUM



During 2015 a transfer of £2,170,000 had been made to the merger reserve to more accurately present the premium attached to shares issued for the acquisitions carried out in 2013 and 2014.

MERGER RESERVE


In December 2016 the whole of the merger reserve was capitalised as capital reduction shares and subsequently cancelled as part of a capital reduction exercise to create additional distributable reserves. At 31 December 2016 the merger reserve was £nil (2015 £15,081,000).



16. RESERVES (CONTINUED)During 2015 a transfer of £2,170,000 had been made from the share premium reserve to more accurately present the premium attached to shares issued for the acquisitions carried out in 2013 and 2014. A further movement of £2,003,000 in 2015 related to the acquisition of Life.

ESOP RESERVE





17. RETAINED EARNINGS 2016 2015 £000 £000

As at 1 January 11,239 22,281

Loss for the financial year (658) (6,364)

Ordinary dividends paid (4,773) (4,273)

Adjustment in respect of prior years due to change in tax rate (47) (90)

Net (loss) / gain on cash flow hedges taken directly to equity (26) 55

Actuarial losses on defined benefit pension plans (1,965) (437)

Income tax on items taken directly to Comprehensive Income 255 79

Employee share option schemes – value of services provided 505 148

Shares options exercised (3) (98)

Shares issued from ESOP (155) (62)

Capital reduction 22,452 –

As at 31 December 26,824 11,239

18. RETIREMENT BENEFIT PLANSThe Company operates the Communisis Pension Plan which comprises a defined contribution and defined benefit section.

DEFINED CONTRIBUTION SECTIONThe Company operates UK defined contribution arrangements. The assets of the arrangements are held separately from those of the Company.

The Company is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Company with respect to the retirement benefit scheme is to make the specified contributions.

The total cost charged to income of £165,000 (2015 £194,000) represents contributions payable to these arrangements by the Company at specified rates. As at 31 December 2016, there were no contributions due in respect of the current reporting period that had not been paid over to the arrangements (2015 none).

The Company expects to contribute £0.1m (2015 £0.2m) to the defined contribution pension arrangements in 2017.

DEFINED BENEFIT SECTIONThese Financial Statements include a proportion of the Group pension deficit and charge which has been allocated to the Company based on the number of members employed by the Company at the time the Scheme was closed to future accrual.

2016 2015 £000 £000


Fair value of plan assets 18,372 16,338


Detailed disclosure can be found in Note 14 to the Group Consolidated Financial statements on pages 97 to 100.

COM-P160-R+A16-2.indd 125 22/03/2017 21:16

126

19. SHARE-BASED PAYMENTSThe Company operates two schemes, details of which can be found in Note 13 to the Group Consolidated Financial Statements on pages 95 to 96.

The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year.


Exercised during the year1 502,518 9.81p 2,306,287 24.71p


1 The 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 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).

20. OTHER FINANCIAL COMMITMENTSAt 31 December 2016 the Company had annual commitments under non-cancellable operating leases for assets as set out below:

Land and buildings 2016 2015 £000 £000

Operating leases which expire:

– within one year 55 179

– in two to five years 10 90

65 269

Other 2016 2015 £000 £000




73 144

21. CONTINGENT LIABILITIESThe Company has contingent liabilities where it has provided rental guarantees to landlords in respect of certain leasehold properties occupied by companies that were formerly subsidiaries in the Group, but have subsequently been sold. The principal risk is that current leasehold occupants will become insolvent and that guarantees will be called, resulting in a material cash cost to the Group. To the extent that they have not already been called, these guarantees represent contingent liabilities of the Company. Other than those leases for which the liability is considered to be remote, the Company has guaranteed rentals on a lease with remaining terms of seven years, with an annual rental of £1,135,000. No provision for this guarantee has been made in the Financial Statements because, at the Balance Sheet date, the directors believe that it is not probable that it will be called.

22. RELATED PARTY TRANSACTIONSThe Company has taken advantage of the exemption under paragraph 8(k) of FRS 101 not to disclose related party transactions with its wholly owned subsidiaries. Remuneration of key management personnel is disclosed in the Directors’ Remuneration Report on pages 50 to 68.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF COMMUNISIS PLCFOR THE YEAR ENDED 31 DECEMBER 2016


In our opinion:

the Financial Statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2016 and of the Group’s profit for the year then ended;

the Group Financial Statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and

WHAT WE HAVE AUDITED

Communisis plc’s Financial Statements comprise:

Group Parent company

Consolidated Balance Sheet as at 31 December 2016 Company Balance Sheet as at 31 December 2016

Consolidated Income Statement for the year then endedCompany Statement of Changes in Equity for the year then ended

Consolidated Statement of Comprehensive Income for the year then ended

Related notes 1 to 22 to the Financial Statements

Consolidated Statement of Changes in Equity for the year then ended

Consolidated Statement of Cash Flows for the year then ended


The financial reporting framework that has been applied in the preparation of the Group Financial Statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company Financial Statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’.

OVERVIEW OF OUR AUDIT APPROACH

Risks of material misstatement Revenue recognition

Valuation of goodwill

Management override

(New in 2016) Accounting for a change in segments

Audit scope We performed an audit of the complete financial information of five components and audit procedures on specific balances for a further 11 components.

The components where we performed full or specific audit procedures accounted for 100% of adjusted profit before tax* and 100% of revenue.

Materiality Overall Group materiality was £780,000 which represents 5% of adjusted profit before tax*.

* Profit before tax adjusted for non-recurring items as defined in the ‘Our application of materiality’ section of this report

OUR OPINION ON THE FINANCIAL STATEMENTS

COM-P160-R+A16-2.indd 126 22/03/2017 21:16

127


19. SHARE-BASED PAYMENTSThe Company operates two schemes, details of which can be found in Note 13 to the Group Consolidated Financial Statements on pages 95 to 96.

The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year.


Exercised during the year1 502,518 9.81p 2,306,287 24.71p


1 The 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 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).

20. OTHER FINANCIAL COMMITMENTSAt 31 December 2016 the Company had annual commitments under non-cancellable operating leases for assets as set out below:

Land and buildings 2016 2015 £000 £000




65 269

Other 2016 2015 £000 £000




73 144

21. CONTINGENT LIABILITIESThe Company has contingent liabilities where it has provided rental guarantees to landlords in respect of certain leasehold properties occupied by companies that were formerly subsidiaries in the Group, but have subsequently been sold. The principal risk is that current leasehold occupants will become insolvent and that guarantees will be called, resulting in a material cash cost to the Group. To the extent that they have not already been called, these guarantees represent contingent liabilities of the Company. Other than those leases for which the liability is considered to be remote, the Company has guaranteed rentals on a lease with remaining terms of seven years, with an annual rental of £1,135,000. No provision for this guarantee has been made in the Financial Statements because, at the Balance Sheet date, the directors believe that it is not probable that it will be called.

22. RELATED PARTY TRANSACTIONSThe Company has taken advantage of the exemption under paragraph 8(k) of FRS 101 not to disclose related party transactions with its wholly owned subsidiaries. Remuneration of key management personnel is disclosed in the Directors’ Remuneration Report on pages 50 to 68.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF COMMUNISIS PLCFOR THE YEAR ENDED 31 DECEMBER 2016


In our opinion:

the Financial Statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2016 and of the Group’s profit for the year then ended;

the Group Financial Statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and

WHAT WE HAVE AUDITED

Communisis plc’s Financial Statements comprise:

Group Parent company

Consolidated Balance Sheet as at 31 December 2016 Company Balance Sheet as at 31 December 2016

Consolidated Income Statement for the year then endedCompany Statement of Changes in Equity for the year then ended

Consolidated Statement of Comprehensive Income for the year then ended


Consolidated Statement of Changes in Equity for the year then ended

Consolidated Statement of Cash Flows for the year then ended


The financial reporting framework that has been applied in the preparation of the Group Financial Statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company Financial Statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’.

OVERVIEW OF OUR AUDIT APPROACH

Risks of material misstatement Revenue recognition

Valuation of goodwill

Management override

(New in 2016) Accounting for a change in segments

Audit scope We performed an audit of the complete financial information of five components and audit procedures on specific balances for a further 11 components.

The components where we performed full or specific audit procedures accounted for 100% of adjusted profit before tax* and 100% of revenue.

Materiality Overall Group materiality was £780,000 which represents 5% of adjusted profit before tax*.

* Profit before tax adjusted for non-recurring items as defined in the ‘Our application of materiality’ section of this report

the parent company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’; and

the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation.

OUR OPINION ON THE FINANCIAL STATEMENTS

COM-P160-R+A16-2.indd 127 22/03/2017 21:16

128

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF COMMUNISIS PLCFOR THE YEAR ENDED 31 DECEMBER 2016 (CONTINUED)

OUR ASSESSMENT OF RISK OF MATERIAL MISSTATEMENT

We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the procedures below which were designed in the context of the Financial Statements as a whole and, consequently, we do not express any opinion on these individual areas.

Risk

Our response to the risk

Key observations communicated to the Audit and Risk Committee

REVENUE RECOGNITION

Refer to the Audit Committee Report (pages 46 to 47); and Notes 2 and 4 to the Group Financial Statements

The Group has reported revenues of £361.9m (2015 £354.2m). We identified three specific risks of fraud and error in respect of improper revenue recognition given the nature of the Group’s products and services as follows:

Inappropriate cut-off of revenue.

Inappropriate accounting for complex contractual arrangements.

Inappropriate recording of accrued income.

There is no change in the risk profile in the current year.

At each full and specific scope audit location with significant revenue streams:

We performed walkthroughs of each significant class of revenue transactions and assessed the design effectiveness of key controls. For two components we tested the operating effectiveness of controls.

For revenue recognised close to the period end, we vouched transactions above our testing threshold to documentation supporting recognition of revenue.

For revenue accrued but unbilled at the period end, we vouched transactions above our testing threshold to documentation supporting recognition of revenue on a stage of completion basis.

Our procedures in relation to inappropriate accounting for complex contractual arrangements ensured that the policies adopted were appropriate and consistently applied.

We performed other substantive, transactional testing and analytical procedures to validate the recognition of revenue throughout the year. Where practicable, at component level we performed testing over full populations of transactions using data analysis.

For revenue recorded through journal entries outside of normal business processes, we performed testing to establish whether a service had been provided or a sale had occurred in the financial year to support the revenue recognised.

We also considered the adequacy of the Group’s disclosure of accounting policies for revenue recognition in Notes 2 and 4 to the Financial Statements respectively.

At each full and specific scope audit location with significant revenue streams (16 components) we performed audit procedures which covered 100% of the Group’s revenue. All procedures were performed by the primary team.

Based on the procedures performed, we did not identify any evidence of material misstatement in the revenue recognised in the year or revenue deferred at 31 December 2016.

Risk



VALUATION OF GOODWILL


We focused on this area due to the size of the goodwill balance (£164m) (2015 £164m) and because the directors’ assessment of ‘value in use’ of the Group’s Cash Generating Units (“CGUs”) involves assumptions about the future performance of the business and the discount rates applied to future cash flow forecasts.

The risk level has remained the same as the prior period despite changes to CGUs on re-segmentation, as indicators of impairment in the Design CGU remained in place for the first half of the year before re-segmentation.

We challenged management’s assumptions used in its impairment models for assessing the recoverability of the carrying value of goodwill. We focused on the appropriateness of CGU identification, the method applied to estimate recoverable values, discount rates and forecast cash flows.

Specifically:

We have validated that the CGUs identified are the lowest level at which management monitors goodwill.

We tested the method applied in the value in use calculation as compared to the requirements of IAS 36 Impairment of Assets and the mathematical accuracy of management’s model.

We obtained an understanding of, and assessed the basis for, key underlying assumptions for the 2017 budget.

We have validated that the cash flow forecasts used in the valuation are consistent with information approved by the Board and have reviewed the historical accuracy of management’s forecasts.

We challenged management on its cash flow forecasts and the implied growth rates for 2017 and beyond by considering evidence available to support these assumptions and their consistency with findings from other areas of our audit.

The discount rates and long term growth rates applied within the model were assessed by an EY business valuation specialist, including comparison to economic and industry forecasts where appropriate.

For all CGUs, we performed sensitivity analyses by stress testing key assumptions in the model with downside scenarios to understand the parameters that, should they arise, could lead to a different conclusion in respect of the carrying value of goodwill.

We considered the appropriateness of the related disclosures provided in Note 12 to the Group Financial Statements.

The entire goodwill balance was subject to full scope audit procedures.

Based on the results of our work, we agree with management’s conclusion that no impairment of goodwill is required in the current year. We agree with management’s assessment of the reasonably possible changes in key assumptions that would result in an impairment in any CGU and the disclosure given in Note 12 to the Financial Statements.


COM-P160-R+A16-2.indd 128 22/03/2017 21:16

129



OUR ASSESSMENT OF RISK OF MATERIAL MISSTATEMENT

We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the procedures below which were designed in the context of the Financial Statements as a whole and, consequently, we do not express any opinion on these individual areas.

Risk



REVENUE RECOGNITION


The Group has reported revenues of £361.9m (2015 £354.2m). We identified three specific risks of fraud and error in respect of improper revenue recognition given the nature of the Group’s products and services as follows:

Inappropriate cut-off of revenue.

Inappropriate accounting for complex contractual arrangements.

Inappropriate recording of accrued income.

There is no change in the risk profile in the current year.

At each full and specific scope audit location with significant revenue streams:

We performed walkthroughs of each significant class of revenue transactions and assessed the design effectiveness of key controls. For two components we tested the operating effectiveness of controls.

For revenue recognised close to the period end, we vouched transactions above our testing threshold to documentation supporting recognition of revenue.

For revenue accrued but unbilled at the period end, we vouched transactions above our testing threshold to documentation supporting recognition of revenue on a stage of completion basis.

Our procedures in relation to inappropriate accounting for complex contractual arrangements ensured that the policies adopted were appropriate and consistently applied.

We performed other substantive, transactional testing and analytical procedures to validate the recognition of revenue throughout the year. Where practicable, at component level we performed testing over full populations of transactions using data analysis.

For revenue recorded through journal entries outside of normal business processes, we performed testing to establish whether a service had been provided or a sale had occurred in the financial year to support the revenue recognised.

We also considered the adequacy of the Group’s disclosure of accounting policies for revenue recognition in Notes 2 and 4 to the Financial Statements respectively.

At each full and specific scope audit location with significant revenue streams (16 components) we performed audit procedures which covered 100% of the Group’s revenue. All procedures were performed by the primary team.

Based on the procedures performed, we did not identify any evidence of material misstatement in the revenue recognised in the year or revenue deferred at 31 December 2016.

Risk



VALUATION OF GOODWILL


We focused on this area due to the size of the goodwill balance (£164m) (2015 £164m) and because the directors’ assessment of ‘value in use’ of the Group’s Cash Generating Units (“CGUs”) involves assumptions about the future performance of the business and the discount rates applied to future cash flow forecasts.

The risk level has remained the same as the prior period despite changes to CGUs on re-segmentation, as indicators of impairment in the Design CGU remained in place for the first half of the year before re-segmentation.

We challenged management’s assumptions used in its impairment models for assessing the recoverability of the carrying value of goodwill. We focused on the appropriateness of CGU identification, the method applied to estimate recoverable values, discount rates and forecast cash flows.

Specifically:

We have validated that the CGUs identified are the lowest level at which management monitors goodwill.

We tested the method applied in the value in use calculation as compared to the requirements of IAS 36 Impairment of Assets and the mathematical accuracy of management’s model.

We obtained an understanding of, and assessed the basis for, key underlying assumptions for the 2017 budget.

We have validated that the cash flow forecasts used in the valuation are consistent with information approved by the Board and have reviewed the historical accuracy of management’s forecasts.

We challenged management on its cash flow forecasts and the implied growth rates for 2017 and beyond by considering evidence available to support these assumptions and their consistency with findings from other areas of our audit.

The discount rates and long term growth rates applied within the model were assessed by an EY business valuation specialist, including comparison to economic and industry forecasts where appropriate.

For all CGUs, we performed sensitivity analyses by stress testing key assumptions in the model with downside scenarios to understand the parameters that, should they arise, could lead to a different conclusion in respect of the carrying value of goodwill.

We considered the appropriateness of the related disclosures provided in Note 12 to the Group Financial Statements.

The entire goodwill balance was subject to full scope audit procedures.

Based on the results of our work, we agree with management’s conclusion that no impairment of goodwill is required in the current year. We agree with management’s assessment of the reasonably possible changes in key assumptions that would result in an impairment in any CGU and the disclosure given in Note 12 to the Financial Statements.


COM-P160-R+A16-2.indd 129 22/03/2017 21:16

130

Risk



(NEW IN 2016) ACCOUNTING FOR A CHANGE IN SEGMENTS

Refer to the Audit Committee Report (pages 46 to 47); and Notes 3 to the Group Financial Statements

In 2016 the Group reorganised its reportable segments, creating two new segments from the previous three.

As a result of this, the level of disclosure in the 2016 Financial Statements has decreased. The change in segments is also reflected in the various statements from members of the board that are included within this Annual Report and Accounts.

There is significant risk of error in disclosures within a year of change.

We have reviewed internal reporting to the Chief Operating Decision Maker (CODM) and determined that this is in line with the new operating structure.

We have reviewed the impact of this change on the allocation of goodwill to CGUs as has been reported by the Group.

We have considered the resultant impact on the carrying value of goodwill through a review of impairment testing performed at the time of the reorganisation.

We have considered the appropriateness of the disclosure of these changes included in the Group Financial Statements.

Based on the work we have performed we have concluded that the change to two segments is reported and disclosed appropriately in the Annual Report and Accounts in accordance with IFRS 8 Operating Segments.

We have concluded that the goodwill allocated on reorganisation was not impaired at the time of the reorganisation.

FRAUD AND MANAGEMENT OVERRIDE

Refer to the Audit Committee Report (pages 46 to 47)

There are incentives and pressures to meet market consensus. As a result, there is a risk that balances in the Financial Statements which are subject to estimation or management judgement may be manipulated to present an improved result.

We have three specific areas of focus:

Revenue recognition relating to specific transactions under the terms of complex customer arrangements, such as transition fees (primarily covered through the response to the revenue recognition risk).

The capitalisation of internally generated intangible assets. Costs may be capitalised that do not specifically relate to the relevant project or may be irrecoverable from an identifiable project.

Manipulation of results through accounting for the pension scheme through selecting favourable assumptions.

We performed general procedures at each in-scope location and at Group level in relation to the risk, including:

Testing the appropriateness of a sample of journal entries, following defined criteria, recorded in the general ledger.

Understanding material accounting estimates and corroborating to supporting documentation.

We performed specific procedures to respond to our areas of focus. We:

Understood the nature of material intangible assets through inquiry and inspection of output.

Challenged management on significant intangible assets as to whether the costs incurred meet the recognition criteria set out in IAS 38 Intangible Assets.

Tested a sample of intangible asset additions to supporting documents to confirm the nature of the cost and value capitalised.

Intangible assets are primarily recorded in two of the full scope locations. Our general procedures were performed across all in-scope locations.

The defined benefit pension liability is reviewed and challenged with reference to the key assumptions made by management. We determined an appropriate range for each key assumption for the specific scheme and compared to those provided by management.

Revenue recognition is concluded on separately above.

We concluded on revenue separately.

We concluded that the intangible asset projects tested satisfied the recognition criteria in IAS 38 Intangible assets and that no impairment was identified.

We have reviewed the key pension assumptions used in determining the pension liability and confirm that they are within an appropriate range.


We identified no matters from the results of our general procedures performed.


THE SCOPE OF OUR AUDIT

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each component within the Group. Taken together, this enables us to form an opinion on the Consolidated Financial Statements. We take into account size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment and other factors such as recent internal audit results when assessing the level of work to be performed at each entity.

In assessing the risk of material misstatement to the Group Financial Statements, and to ensure we had adequate quantitative coverage of significant accounts in the Financial Statements, of the 25 reporting components of the Group,


2016 2015 % Group % Group adjusted adjusted profit % Group profit % Group Reporting components Number before tax revenue See note Number before tax revenue

Full scope 5 96% 94% 1,2 5 90% 93%

Specific scope 11 4% 6% 2,3 10 10% 7%

Full and specific scope coverage 16 100% 100% 15 100% 100%

Remaining components 9 0% 0% 4 9 0% 0%

Total reporting components 25 100% 100% 24 100% 100%

Notes

1. One of the five full scope components relates to the parent company whose activities include the Group’s treasury management and consolidation adjustments. The Group audit risk in relation to the carrying value of goodwill was subject to audit procedures on the entire balance.

2. The Group audit risk in relation to revenue recognition was subject to full audit procedures at each of the full and specific scope locations with significant revenue streams.

3. The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts selected for testing by the primary audit team.

4. The remaining nine components contributed less than a net 0.5% of adjusted profit before tax and none are individually more than 0.5% of the Group’s adjusted profit before tax.

INVOLVEMENT WITH COMPONENT TEAMS

In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us as the primary audit team. All audit work performed for the purposes of the audit of the Group Financial Statements was undertaken by the primary audit team.

OUR APPLICATION OF MATERIALITY

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the Financial Statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

COM-P160-R+A16-2.indd 130 22/03/2017 21:16

131


Risk



(NEW IN 2016) ACCOUNTING FOR A CHANGE IN SEGMENTS

Refer to the Audit Committee Report (pages 46 to 47); and Notes 3 to the Group Financial Statements

In 2016 the Group reorganised its reportable segments, creating two new segments from the previous three.

As a result of this, the level of disclosure in the 2016 Financial Statements has decreased. The change in segments is also reflected in the various statements from members of the board that are included within this Annual Report and Accounts.

There is significant risk of error in disclosures within a year of change.

We have reviewed internal reporting to the Chief Operating Decision Maker (CODM) and determined that this is in line with the new operating structure.

We have reviewed the impact of this change on the allocation of goodwill to CGUs as has been reported by the Group.

We have considered the resultant impact on the carrying value of goodwill through a review of impairment testing performed at the time of the reorganisation.

We have considered the appropriateness of the disclosure of these changes included in the Group Financial Statements.

Based on the work we have performed we have concluded that the change to two segments is reported and disclosed appropriately in the Annual Report and Accounts in accordance with IFRS 8 Operating Segments.

We have concluded that the goodwill allocated on reorganisation was not impaired at the time of the reorganisation.

FRAUD AND MANAGEMENT OVERRIDE

Refer to the Audit Committee Report (pages 46 to 47)

There are incentives and pressures to meet market consensus. As a result, there is a risk that balances in the Financial Statements which are subject to estimation or management judgement may be manipulated to present an improved result.

We have three specific areas of focus:

Revenue recognition relating to specific transactions under the terms of complex customer arrangements, such as transition fees (primarily covered through the response to the revenue recognition risk).

The capitalisation of internally generated intangible assets. Costs may be capitalised that do not specifically relate to the relevant project or may be irrecoverable from an identifiable project.

Manipulation of results through accounting for the pension scheme through selecting favourable assumptions.

We performed general procedures at each in-scope location and at Group level in relation to the risk, including:

Testing the appropriateness of a sample of journal entries, following defined criteria, recorded in the general ledger.

Understanding material accounting estimates and corroborating to supporting documentation.

We performed specific procedures to respond to our areas of focus. We:

Understood the nature of material intangible assets through inquiry and inspection of output.

Challenged management on significant intangible assets as to whether the costs incurred meet the recognition criteria set out in IAS 38 Intangible Assets.

Tested a sample of intangible asset additions to supporting documents to confirm the nature of the cost and value capitalised.

Intangible assets are primarily recorded in two of the full scope locations. Our general procedures were performed across all in-scope locations.

The defined benefit pension liability is reviewed and challenged with reference to the key assumptions made by management. We determined an appropriate range for each key assumption for the specific scheme and compared to those provided by management.


We concluded on revenue separately.

We concluded that the intangible asset projects tested satisfied the recognition criteria in IAS 38 Intangible assets and that no impairment was identified.

We have reviewed the key pension assumptions used in determining the pension liability and confirm that they are within an appropriate range.


We identified no matters from the results of our general procedures performed.


we selected 16 components covering entities within the UK, Europe and the Middle East, which represent the principal business units within the Group.

Of the 16 components selected, we performed an audit of the complete financial information of five components (“full scope components”) which were selected based on their size or risk characteristics. For a further 11 components (“specific scope components”), we performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the Financial Statements either because of the size of these accounts or their risk profile. For the remaining nine components, audit procedures were undertaken as set out in Note 4 below to respond to any potential risks of material misstatement to the Group Financial Statements.

THE SCOPE OF OUR AUDIT

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each component within the Group. Taken together, this enables us to form an opinion on the Consolidated Financial Statements. We take into account size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment and other factors such as recent internal audit results when assessing the level of work to be performed at each entity.

In assessing the risk of material misstatement to the Group Financial Statements, and to ensure we had adequate quantitative coverage of significant accounts in the Financial Statements, of the 25 reporting components of the Group,


2016 2015 % Group % Group adjusted adjusted profit % Group profit % Group Reporting components Number before tax revenue See note Number before tax revenue

Full scope 5 96% 94% 1,2 5 90% 93%

Specific scope 11 4% 6% 2,3 10 10% 7%

Full and specific scope coverage 16 100% 100% 15 100% 100%

Remaining components 9 0% 0% 4 9 0% 0%

Total reporting components 25 100% 100% 24 100% 100%

Notes

1. One of the five full scope components relates to the parent company whose activities include the Group’s treasury management and consolidation adjustments. The Group audit risk in relation to the carrying value of goodwill was subject to audit procedures on the entire balance.

2. The Group audit risk in relation to revenue recognition was subject to full audit procedures at each of the full and specific scope locations with significant revenue streams.

3. The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts selected for testing by the primary audit team.

4. The remaining nine components contributed less than a net 0.5% of adjusted profit before tax and none are individually more than 0.5% of the Group’s adjusted profit before tax.

INVOLVEMENT WITH COMPONENT TEAMS

In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us as the primary audit team. All audit work performed for the purposes of the audit of the Group Financial Statements was undertaken by the primary audit team.

OUR APPLICATION OF MATERIALITY

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the Financial Statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Group to be £780,000 (2015 £560,000), which is 5% (2015 5%) of profit before tax adjusted for non-recurring items reported by the Group. We believe that adjusted profit before tax provides us with a consistent year on year basis for determining materiality and is the most relevant performance measure to the stakeholders of the entity. Non-recurring items are set out in Note 5.4 of the Group’s Financial Statements.

Starting basis

Adjustments

Materiality

Profit before tax – £11.6m

Profit before tax adjusted for non-recurring items of £15.9m (materiality basis) Materiality of £780,000 (5% of materiality basis)

Adjustment for non-recurring items

Exceptional costs of £4.3m

COM-P160-R+A16-2.indd 131 22/03/2017 21:16

132

During the course of our audit, we reassessed initial materiality and the only change in the final materiality from our original assessment at planning was to reflect the actual reported performance of the Group in the year.

Performance materialityThe application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance materiality was 75% (2015 75%) of our planning materiality, namely £580,000 (2015 £420,000). We have set performance materiality at this percentage to ensure that uncorrected and undetected misstatements in all accounts do not exceed our materiality level.

Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement of that component. In the current year, the range of performance materiality allocated to full and specific scope components was £117,000 to £350,000 (2015 £84,000 to £252,000).

Reporting thresholdAn amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £39,000 (2015 £28,000), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the Financial Statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts 2016 to identify material inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect based on,

or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR

As explained more fully in the Directors’ Responsibilities Statement set out on pages 48 to 49, the directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion:

the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

based on the work undertaken in the course of the audit:

– the information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements are prepared is consistent with the Financial Statements.

– the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.


Matters on which we are required to report by exception

ISAS (UK AND IRELAND) REPORTING We are required to report to you if, in our opinion, financial and non-financial information in the Annual Report is:

materially inconsistent with the information in the audited Financial Statements; or

apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or

otherwise misleading.

In particular, we are required to report whether we have identified any inconsistencies between our knowledge acquired in the course of performing the audit and the directors’ statement that they consider the Annual Report and Accounts taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the entity’s performance, business model and strategy; and whether the Annual Report appropriately addresses those matters that we communicated to the Audit Committee that we consider should have been disclosed.

We have no exceptions to report.

COMPANIES ACT 2006 REPORTING In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have identified no material misstatements in the Strategic Report or Directors’ Report.

We are required to report to you if, in our opinion:

adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

the parent company Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or

certain disclosures of directors’ remuneration specified by law are not made; or

we have not received all the information and explanations we require for our audit.


LISTING RULES REVIEW REQUIREMENTS

We are required to review:

the directors’ statement in relation to going concern and longer-term viability, both set out on pages 20 to 21; and

the part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review.



COM-P160-R+A16-2.indd 132 22/03/2017 21:16

133


or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR

As explained more fully in the Directors’ Responsibilities Statement set out on pages 48 to 49, the directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion:

the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

based on the work undertaken in the course of the audit:

– the information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements are prepared is consistent with the Financial Statements.

– the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.


Matters on which we are required to report by exception

ISAS (UK AND IRELAND) REPORTING We are required to report to you if, in our opinion, financial and non-financial information in the Annual Report is:

materially inconsistent with the information in the audited Financial Statements; or

apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or

otherwise misleading.

In particular, we are required to report whether we have identified any inconsistencies between our knowledge acquired in the course of performing the audit and the directors’ statement that they consider the Annual Report and Accounts taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the entity’s performance, business model and strategy; and whether the Annual Report appropriately addresses those matters that we communicated to the Audit Committee that we consider should have been disclosed.


COMPANIES ACT 2006 REPORTING In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have identified no material misstatements in the Strategic Report or Directors’ Report.

We are required to report to you if, in our opinion:

adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

the parent company Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or

certain disclosures of directors’ remuneration specified by law are not made; or

we have not received all the information and explanations we require for our audit.


LISTING RULES REVIEW REQUIREMENTS

We are required to review:

the directors’ statement in relation to going concern and longer-term viability, both set out on pages 20 to 21; and

the part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review.



COM-P160-R+A16-2.indd 133 22/03/2017 21:16

134

Statement on the directors’ assessment of the principal risks that would threaten the solvency or liquidity of the entity

ISAS (UK AND IRELAND) REPORTING We are required to give a statement as to whether we have anything material to add or to draw attention to in relation to:

the directors’ confirmation in the Annual Report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;

the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated;

the directors’ statement in the Financial Statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least twelve months from the date of approval of the Financial Statements; and

the directors’ explanation in the Annual Report as to how they have assessed the prospects of the entity, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We have nothing material to add or to draw attention to.

Christabel Cowling (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Leeds

9 March 2017

Notes:

1. The maintenance and integrity of the Communisis plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

2. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.


SHAREHOLDER INFORMATION

2017 FINANCIAL CALENDAR9 March 2017 Preliminary results announcement

27 April 2017 Ex-dividend date for the final dividend

28 April 2017 Record date to be eligible for the final dividend

11 May 2017 Annual General Meeting

26 May 2017 Final dividend payment date

3 August 2017 Interim results announcement

14 September 2017 Ex-dividend date for the interim dividend

15 September 2017 Record date to be eligible for the interim dividend

13 October 2017 Interim dividend payment date

ANNUAL GENERAL MEETING (“AGM”) 2017This year’s AGM will be held at the offices of Liberum Capital Limited, Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY on Thursday 11 May 2017.

The meeting will start at 12 noon and registration will be available from 11.30 am.

HOW TO GET IN TOUCHRegistered Office Communisis plc Communisis House Manston Lane Leeds LS15 8AH Tel: +44 (0) 113 222 6500 Fax: +44 (0) 113 222 6501 Registered in England and Wales Number 02916113

Company SecretarySarah Caddy

Head OfficeCommunisis plc 10 Little Portland Street London W1W 7JG Tel: +44 (0) 207 382 8950

Communisis plc Annual Report and Financial Statements 2016 | SHAREHOLDER INFORMATION

COM-P160-R+A16-2.indd 134 22/03/2017 21:16

135

Statement on the directors’ assessment of the principal risks that would threaten the solvency or liquidity of the entity

ISAS (UK AND IRELAND) REPORTING We are required to give a statement as to whether we have anything material to add or to draw attention to in relation to:

the directors’ confirmation in the Annual Report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;

the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated;

the directors’ statement in the Financial Statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least twelve months from the date of approval of the Financial Statements; and

the directors’ explanation in the Annual Report as to how they have assessed the prospects of the entity, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We have nothing material to add or to draw attention to.

Christabel Cowling (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Leeds

9 March 2017

Notes:

1. The maintenance and integrity of the Communisis plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

2. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.


SHAREHOLDER INFORMATION

2017 FINANCIAL CALENDAR9 March 2017 Preliminary results announcement

27 April 2017 Ex-dividend date for the final dividend

28 April 2017 Record date to be eligible for the final dividend

11 May 2017 Annual General Meeting

26 May 2017 Final dividend payment date

3 August 2017 Interim results announcement

14 September 2017 Ex-dividend date for the interim dividend

15 September 2017 Record date to be eligible for the interim dividend

13 October 2017 Interim dividend payment date

ANNUAL GENERAL MEETING (“AGM”) 2017This year’s AGM will be held at the offices of Liberum Capital Limited, Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY on Thursday 11 May 2017.

The meeting will start at 12 noon and registration will be available from 11.30 am.

HOW TO GET IN TOUCHRegistered Office Communisis plc Communisis House Manston Lane Leeds LS15 8AH Tel: +44 (0) 113 222 6500 Fax: +44 (0) 113 222 6501 Registered in England and Wales Number 02916113

Company SecretarySarah Caddy

Head OfficeCommunisis plc 10 Little Portland Street London W1W 7JG Tel: +44 (0) 207 382 8950

ADVISORSAuditor Ernst & Young LLP1 Bridgewater Place Water Lane Leeds LS11 5QR

Stockbrokers Liberum Capital Limited Ropemaker Place 25 Ropemaker StreetLondon EC2Y 9LY

Corporate LawyersEversheds LLP Clarion Solicitors LLP Pinsent Masons LLP Ward Hadaway LLP

Principal Bankers Barclays Bank PLC HSBC Bank plc Lloyds Banking Group plc Royal Bank of Scotland plc

Communisis plc Annual Report and Financial Statements 2016 | SHAREHOLDER INFORMATION

COM-P160-R+A16-2.indd 135 22/03/2017 21:16

136

REGISTRAR AND SHAREHOLDING ENQUIRIESAdministrative enquiries about the holding of Communisis shares, such as change of address, change of ownership and dividend payments should be directed to our registrar, Capita Asset Services:

By phone

Please call 0871 664 0300 and calls will be charged at 12p per minute plus your phone company’s access charge. If you are outside the United Kingdom, please call +44 371 664 0300 and calls will be charged at the applicable international rate. Lines are open between 09.00 to 17.30 Monday to Friday excluding public holidays in England and Wales.

By email

[email protected]

Online

You can use the Share Portal at www.capitashareportal.com

To register for this service, you will require your investor code which can be located on a recent tax voucher or on your share certificate.

For all other enquiries, please contact Capita Asset Services by post at the following address:

Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU

DIVIDENDSWe encourage shareholders to have dividends paid directly into their bank account to ensure efficient payment and cleared funds on the payment date. If you have a UK bank account you can sign up for this service on the Share Portal by clicking on ‘your dividend options’ and following the on-screen instructions or by contacting Capita Asset Services on the number above.

ELECTRONIC COMMUNICATIONS Shareholders can register to receive shareholder information electronically. Registering for electronic communications is very straightforward. Just visit www.capitashareportal.com You will require your investor code which can be located on a recent tax voucher or on your share certificate.

BOILER ROOM SCAMS Unfortunately, we are aware that in the past some of our shareholders were targeted by fraudsters who made offers to buy their shares at prices substantially in excess of the market price. General information on boiler room scams and how to report a suspected scam, is available from the FCA’s website at www.fca.org.uk/consumers/scams

COM-P160-R+A16-2.indd 136 22/03/2017 21:16

HIGHLIGHTS 4

CHAIRMAN’S STATEMENT 7

STRATEGIC REPORT 9

RISKS AND UNCERTAINTIES 22

CORPORATE SOCIAL RESPONSIBILITY REPORT 26

GOVERNANCE 32

BOARD OF DIRECTORS AND EXECUTIVE BOARD 32

DIRECTORS’ REPORT 35

CORPORATE GOVERNANCE REPORT 40

AUDIT COMMITTEE REPORT 46

STATEMENT OF DIRECTORS’ RESPONSIBILITIES 48

DIRECTORS’ REMUNERATION REPORT 50

FINANCIAL STATEMENTS 69

CONSOLIDATED INCOME STATEMENT 70

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 71

CONSOLIDATED BALANCE SHEET 72

CONSOLIDATED CASH FLOW STATEMENT 73

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 74

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 75

COMPANY BALANCE SHEET 114

STATEMENT OF CHANGES IN EQUITY 115

NOTES TO THE COMPANY FINANCIAL STATEMENTS 116

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF COMMUNISIS PLC 127

SHAREHOLDER INFORMATION 135

CONTENTS

12mm Spine


12mm Spine

Communisis plc10 Little Portland StreetLondonW1W 7JG T: +44 (0) 207 382 8950

WWW. COMMUNISIS.COM

CO

MM

UN

ISIS PLC A

NN

UA

L REPO

RT A

ND

FINA

NC

IAL STAT

EMEN

TS 20

16

ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

P160PRINTED BY COMMUNISIS

C M


COLOURCOLOUR


Non-printingColours


WWW.COMMUNISIS.COM

COLOUR AND FINANCIAL STATEMENTS - Communisis · PDF file · 2017-04-07Communisis...

Documents

Transcript of COLOUR AND FINANCIAL STATEMENTS - Communisis · PDF file · 2017-04-07Communisis...