August 20 Interim Report 2014

C M Communisis plc Interim Report Y K PMS ??? 2014 PMS ??? PMS ??? PMS ??? Non-printing Colours COLOUR COLOUR JOB LOCATION: PRINERGY 3

Communication, channelled

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Contents

Delivering Highlights 5 our Strategy and Interim Report 2014. Implementation 6

Welcome to the Communisis plc Interim Report for 2014, another successful half year in which we continued to deliver for our clients, our employees and our shareholders.

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Communisis plc Interim Report 2014

Contents

Highlights 5

Strategy and Implementation 6

Financial Statements 12 Consolidated Income Statement 12

Consolidated Statement of Comprehensive Income 13

Consolidated Balance Sheet 14

Consolidated Cash Flow Statement 15

Consolidated Statement of Changes in Equity 16

Notes to the Consolidated Financial Statements 17

Shareholder Information 26

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Highlights

This was another strong Financial highlights half-year performance. • Total revenue 40% ahead at £169.3m (H1 2013 £121.2m). Revenue (excluding pass through) up 28% at £116.3m It demonstrates that our (H1 2013 £91.1m) strategy is delivering consistent • Overseas revenue increased faster than expected to 19% of total revenue (H1 2013 13%), close to the Group’s and profitable growth and the 20% target

Board is confident about the • Adjusted operating profit* up 20% to £6.1m (H1 2013 £5.1m) Group’s prospects for the – Transitional costs on major new contracts caused remainder of the year. operating margin on revenue (excluding pass through) to be lower at 5.2% (H1 2013 5.6%). Further progress toward the double-digit target is expected on a full-year basis

• Profit after tax and basic earnings per share more than doubled to £2.2m (H1 2013 £1.0m) and 1.11p (H1 2013 0.55p) respectively Andy Blundell Chief Executive Officer 31 July 2014

Operational highlights Continued Growth • Significant new multi-year contractual relationship secured

– Lloyds Banking Group for new in-bound customer communication services – ten-year term

• Strategically important contract extended

– Procter & Gamble Europe SA for external brand building services in Europe – five-year term

Board changes from 1 August 2014

• Nigel Howes will become Strategic and Corporate Development Director

• Mark Stoner will be promoted from a senior executive role within the Group to Finance Director

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Highlights

This was another strong Financial highlights half-year performance. • Total revenue 40% ahead at £169.3m (H1 2013 £121.2m). • Adjusted earnings per share** grew 18% to 1.75p Revenue (excluding pass through) up 28% at £116.3m (H1 2013 1.49p) (H1 2013 £91.1m) It demonstrates that our • Interim dividend 12% higher at 0.67p strategy is delivering consistent • Overseas revenue increased faster than expected to (H1 2013 0.60p) 19% of total revenue (H1 2013 13%), close to the Group’s • Operating cash flows improved by £13.3m. and profitable growth and the 20% target Working capital unchanged despite a 40% increase Board is confident about the • Adjusted operating profit* up 20% to £6.1m in revenue (H1 2013 £5.1m) Group’s prospects for the • Substantial investments in acquisitions and market- – Transitional costs on major new contracts caused leading technology funded by operating cash flow remainder of the year. operating margin on revenue (excluding pass through) and additional debt. Net debt increased to £36.2m to be lower at 5.2% (H1 2013 5.6%). Further progress (December 2013 £25.7m), with net bank debt less toward the double-digit target is expected on a than 50% of available facilities at £33.3m full-year basis * Adjusted operating profit means profit from operations before • Profit after tax and basic earnings per share more exceptional items and the amortisation of acquired intangibles. than doubled to £2.2m (H1 2013 £1.0m) and 1.11p ** Adjusted earnings per share means fully diluted after new share (H1 2013 0.55p) respectively issues and excluding the after tax effects of exceptional items and the amortisation of acquired intangibles.

Operational highlights Continued Growth • Significant new multi-year contractual relationship • Integrated agency model developed and higher margin secured creative services expanded through the acquisitions of The Communications Agency, Jacaranda and – Lloyds Banking Group for new in-bound customer Public Creative communication services – ten-year term

• Strategically important contract extended

– Procter & Gamble Europe SA for external brand building services in Europe – five-year term

Board changes from 1 August 2014

• Nigel Howes will become Strategic and Corporate • Helen Keays will join as a non-executive Director Development Director

• Mark Stoner will be promoted from a senior executive role within the Group to Finance Director

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Strategy and Implementation

Performance review Summary financial performance Jacaranda Productions Limited (“Jacaranda”) and Public Creative Limited (“Public Creative”) were acquired in April The Group’s aspiration and strategic initiatives, set out below, Communisis continued to deliver profitable growth in the first 2014 for £1.5m (with £0.9m being paid in cash and £0.6m in were described in the Strategic Report within the 2013 Annual half of 2014. The results were on target and considerably ahead Communisis shares) and £0.4m in cash respectively with up to Report. This review summarises the performance against those of the same period last year, enabling the Group to maintain its a further £0.5m being payable for Jacaranda dependent on the strategic initiatives and the key financial targets during the first progressive dividend policy. The interim dividend for the first gross profit generated in the three years after acquisition. half of 2014. six months of 2014 has consequently been increased by 12%. The Communications Agency (“TCA”) was acquired in June 2014 Despite a very significant increase in revenue, tight working for up to £8m (with up to £5.8m being paid in cash and £1.45m Aspiration capital control delivered strong operating cash flow that in Communisis shares) of which up to £0.5m is dependent on The Group’s aspiration is to be a market leader in providing was used, together with additional debt, to fund substantial the delivery of projected EBITDA for TCA’s financial year to personalised customer communication services both in the acquisition and investment activity in pursuit of the Group’s 31 October 2014. UK and internationally. strategy for profitable growth. Jacaranda is a video and film production specialist, creating, The key financial targets for the medium term are to deliver a Further details are included in the segmental results and cash managing and measuring the effectiveness of video content double-digit margin on revenue (excluding pass through) and to and net debt sections below. for global brands. It is based in London with a team of six derive more than 20% of revenue from overseas sources whilst people. For over 15 years Jacaranda has been voted in the top continuing to grow those in the UK. Growth and diversification ten independent production companies in Televisual’s annual ‘Corporate Top 50’ awards and has won over 250 creative awards New business development included a second, very significant including The Digital Impact Awards, Cannes Corporate Media Strategic initiatives ten-year contract with Lloyds Banking Group (“LBG”) for the and TV Awards and New York Film and TV Awards. The Group’s aspiration is pursued through a number of strategic outsourcing of all in-bound imaging and mail processing initiatives including: services, which commenced on 1 April 2014, and a five-year Public Creative creates and drives brand awareness with digital extension of an existing contract for external brand building media using web and mobile applications to build loyalty and • growing revenue both organically and through services with Procter & Gamble Europe SA (“P&G”) through to encourage customer advocacy. It is based in London with a team niche acquisitions; December 2019. of eight people. • extending activities to broaden and deepen the The LBG contract resulted in Communisis taking on 14 TCA is a long-established award-winning agency, with broad service offering; existing LBG sites in the UK, including the main operational capabilities and experience across all media channels including • further diversifying the client portfolio beyond the centres in Edinburgh, Leeds and Andover with approximately TV, experiential and digital that specialises in brand response financial services sector; 310 roles transferring from LBG to Communisis under TUPE and customer relationship marketing. TCA has long-standing arrangements. The Group already produces all of LBG’s out- client relationships with leading brands in the financial • following international clients into overseas markets; bound transactional communications, under an existing services, retail and consumer goods sectors. It is based in • investing in specialist, market-leading technologies; outsourcing arrangement, and is now also responsible for London with 42 employees. and handling more than 30 million incoming documents from LBG customers annually, scanning them into a digital format before • continuing to optimise the direct cost and overhead base. indexing and distributing them to the relevant department Improvement in margins is delivered through the combined within LBG for onward processing. By combining its out- effect of better capacity utilisation, the benefit of cost reduction bound and in-bound customer communication activities programmes, synergies from acquisitions and a focus on growing under the management of a single trusted partner, LBG now volumes of higher-margin services. has considerable scope for optimising its entire, end-to-end customer communication process. Optimising the capital structure and managing the exposure to the pension deficit are also priorities as is the continuation With the LBG contract Communisis effectively acquired a new of a progressive dividend policy that has become of increasing in-bound service capability; one that has relevance for other importance to all investor categories. clients and offers considerable scope for growth in the Produce segment.

The extension of the P&G contract, coupled with ongoing expansion into other territories, signals further development of the Group’s brand building services across Europe and provides a solid platform for further growth in the Deploy segment.

Communisis continued to develop its differentiated and integrated agency model through the acquisition of three creative businesses during the period.

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Strategy and Implementation

Summary financial performance Jacaranda Productions Limited (“Jacaranda”) and Public Operational excellence Creative Limited (“Public Creative”) were acquired in April The Group has made a substantial commitment to the Communisis continued to deliver profitable growth in the first 2014 for £1.5m (with £0.9m being paid in cash and £0.6m in development of a second transactional centre of excellence half of 2014. The results were on target and considerably ahead Communisis shares) and £0.4m in cash respectively with up to at Copley, West Yorkshire to mirror that at Liverpool. This of the same period last year, enabling the Group to maintain its a further £0.5m being payable for Jacaranda dependent on the follows the progressive commencement of the LBG outsourcing progressive dividend policy. The interim dividend for the first gross profit generated in the three years after acquisition. six months of 2014 has consequently been increased by 12%. contract for the production of transactional communications The Communications Agency (“TCA”) was acquired in June 2014 from October 2013. Net capital expenditure during the period Despite a very significant increase in revenue, tight working for up to £8m (with up to £5.8m being paid in cash and £1.45m has consequently been higher than normal at £8.1m of which capital control delivered strong operating cash flow that in Communisis shares) of which up to £0.5m is dependent on £2.5m was acquired under finance leases. Of this £8.1m, was used, together with additional debt, to fund substantial the delivery of projected EBITDA for TCA’s financial year to £6.3m relates to Copley, including £1.3m purchased from LBG. acquisition and investment activity in pursuit of the Group’s 31 October 2014. Additional expenditure of £2.8m to complete the facility will be strategy for profitable growth. Jacaranda is a video and film production specialist, creating, incurred in the second half of 2014. Two market-leading HP T400 Further details are included in the segmental results and cash managing and measuring the effectiveness of video content high-speed colour digital platforms were also commissioned and net debt sections below. for global brands. It is based in London with a team of six under operating leases. people. For over 15 years Jacaranda has been voted in the top A further rationalisation at the Leeds facility has also been Growth and diversification ten independent production companies in Televisual’s annual announced in order to align the cost base with the changing ‘Corporate Top 50’ awards and has won over 250 creative awards New business development included a second, very significant demands of the direct mail market. This, together with including The Digital Impact Awards, Cannes Corporate Media ten-year contract with Lloyds Banking Group (“LBG”) for the certain ongoing costs from previously announced and TV Awards and New York Film and TV Awards. outsourcing of all in-bound imaging and mail processing restructuring programmes and acquisition related services, which commenced on 1 April 2014, and a five-year Public Creative creates and drives brand awareness with digital expenses, has resulted in an exceptional charge of £1.2m extension of an existing contract for external brand building media using web and mobile applications to build loyalty and in the first half of 2014 with most of the associated services with Procter & Gamble Europe SA (“P&G”) through to encourage customer advocacy. It is based in London with a team cash cost falling in the second half. December 2019. of eight people. Segmental results The LBG contract resulted in Communisis taking on 14 TCA is a long-established award-winning agency, with broad existing LBG sites in the UK, including the main operational capabilities and experience across all media channels including Revenue, operating profit and margins before exceptional items centres in Edinburgh, Leeds and Andover with approximately TV, experiential and digital that specialises in brand response are reported in three segments, being Design, Produce and 310 roles transferring from LBG to Communisis under TUPE and customer relationship marketing. TCA has long-standing Deploy. Pass through revenue, being those purchased materials arrangements. The Group already produces all of LBG’s out- client relationships with leading brands in the financial that are passed on to clients at cost with no added value, are bound transactional communications, under an existing services, retail and consumer goods sectors. It is based in reported separately, as are unallocated central costs that support outsourcing arrangement, and is now also responsible for London with 42 employees. integrated service offerings. Certain of these central costs were handling more than 30 million incoming documents from LBG reallocated on a directly attributable basis to the operating customers annually, scanning them into a digital format before segments during the period and the comparatives have been indexing and distributing them to the relevant department restated on a consistent basis accordingly. within LBG for onward processing. By combining its out- bound and in-bound customer communication activities under the management of a single trusted partner, LBG now has considerable scope for optimising its entire, end-to-end customer communication process.

With the LBG contract Communisis effectively acquired a new in-bound service capability; one that has relevance for other clients and offers considerable scope for growth in the Produce segment.

Communisis continued to develop its differentiated and integrated agency model through the acquisition of three creative businesses during the period.

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Strategy and Implementation (continued)

Profitability Total revenue was 40% ahead at £169.3m (H1 2013 £121.2m) with the proportion derived from overseas being 19%, The table below is an extract from the Group’s segmental Income Statement. approaching the medium-term target of 20% and earlier than

Half year Half year expected. Revenue (excluding pass through) increased by 28% ended ended to £116.3m (H1 2013 £91.1m). 30 June 30 June 2014 2013 Growth – Overseas revenues £m £m 20 19.0% Revenue

Design 11.5 9.6 15 13.0% Produce 7 7.8 55.2 % 10 Deploy 27.0 26.3 5.0% 5 3.0% Pass through 53.0 30.1 2.0%

169.3 121.2 0 H1 2010 H1 2011 H1 2012 H1 2013 H1 2014

Overseas revenues (% of total) Adjusted profit from operations

Design 1.6 1.4 Adjusted operating profit increased 20% to £6.1m (H1 2013 Produce 8.7 8.2 £5.1m) whilst operating margin on the same basis, which is a key

Deploy 5.6 3.8 financial metric, was lower at 5.2% (H1 2013 5.6%), principally

Central costs (6.5) (5.5) due to the transition costs on the major new transactional contracts. Progress toward the double-digit target is expected Corporate costs (3.3) (2.8) on a full-year basis. 6.1 5.1

Amortisation of acquired intangibles (0.4) (0.3) Growth in profits 8 5.6% 6.0 Profit from operations before exceptional items 5.7 4.8 5.2% 4.9% 7 Contribution to overheads (on adjusted operating profit excluding pass through) 5.0 6 4.0% £6.1m Design 13.9% 14.6% 4.0 5 £5.1m Produce 11.2% 14.9% 3.0%

4 £4.3m 3.0 % Deploy 20.7% 14.4% £m

Operating margin (on adjusted operating profit excluding pass through) 5.2% 5.6% 3 £3.3m 2.0 2 £2.5m Exceptional items (1.2) (2.1) 1.0 1 Profit from operations after exceptional items 4.5 2.7 0 0.0 Net finance costs (1.6) (1.4) *H1 2010 *H1 2011 *H1 2012 H1 2013 H1 2014

Profit before tax 2.9 1.3 Adjusted operating profit Operating margin (on sales excluding pass through)

Tax (0.7) (0.3) * restated for the effects of IAS19R Profit after tax 2.2 1.0

Earnings per share All segments contributed to the overall increase in revenue. Basic (p) 1.11 0.55 Produce revenue grew significantly as the major new Adjusted (p) 1.79 1.53 transactional contracts from 2013 took effect but this

Adjusted fully diluted (p) 1.75 1.49 underlying growth was offset by reduced demand for direct mail and accelerated erosion in the higher-margin chequebook volumes. The growth in overseas managed services was reflected in both the Deploy segment as fees and in pass

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Strategy and Implementation (continued)

Profitability Total revenue was 40% ahead at £169.3m (H1 2013 £121.2m) through revenue. Fees generated by the creative and digital with the proportion derived from overseas being 19%, agencies acquired in the last nine months have increased The table below is an extract from the Group’s segmental Income Statement. approaching the medium-term target of 20% and earlier than revenue in the Design segment but they have been offset by

Half year Half year expected. Revenue (excluding pass through) increased by 28% lower sales in data caused by a decline in demand for prospect ended ended to £116.3m (H1 2013 £91.1m). lists from the insurance sector which has been the historical 30 June 30 June 2014 2013 focus of the Group’s data activities. Growth – Overseas revenues £m £m The changing mix of activities together with the costs incurred 20 19.0% Revenue during the learning curve and transitioning phases of major new transactional contracts largely account for the overall Design 11.5 9.6 15 13.0% reduction in margin during the period and for the various Produce 7 7.8 55.2 % 10 changes in contribution margins between the segments. Deploy 27.0 26.3 5.0% Central and corporate costs have increased by £1.5m as a result 5 3.0% Pass through 53.0 30.1 2.0% of the additional expenditure on systems infrastructure, 0 169.3 121.2 H1 2010 H1 2011 H1 2012 H1 2013 H1 2014 strategic account management and support services needed

Overseas revenues (% of total) for the growing business. Adjusted profit from operations The exceptional charge of £1.2m largely reflects the further Design 1.6 1.4 Adjusted operating profit increased 20% to £6.1m (H1 2013 rationalisation and restructuring costs referred to above. Produce 8.7 8.2 £5.1m) whilst operating margin on the same basis, which is a key The 2014 tax charge is based on the estimated effective rate Deploy 5.6 3.8 financial metric, was lower at 5.2% (H1 2013 5.6%), principally for the year of 24.6% which is higher than the standard rate of Central costs (6.5) (5.5) due to the transition costs on the major new transactional contracts. Progress toward the double-digit target is expected 21.5% as it includes the taxation of certain overseas profits in Corporate costs (3.3) (2.8) on a full-year basis. higher-rate jurisdictions. 6.1 5.1 Profit after tax and basic earnings per share more than doubled Amortisation of acquired intangibles (0.4) (0.3) Growth in profits to £2.2m (H1 2013 £1.0m) and 1.11p (2013 0.55p) respectively, 8 5.6% 6.0 Profit from operations before exceptional items 5.7 4.8 5.2% reflecting the lower level of exceptional items in 2014 and a 4.9% 7 reduction in the dilutive effect of new share issues in the first Contribution to overheads (on adjusted operating profit excluding pass through) 5.0 6 4.0% £6.1m half of 2013. Design 13.9% 14.6% 4.0 5 £5.1m Dividends of 1.20p per share were paid in the first half of 2014 Produce 11.2% 14.9% 3.0% in respect of 2013 and an interim dividend of 0.67p per share

4 £4.3m 3.0 % Deploy 20.7% 14.4% £m will be paid for 2014, an increase of 12% on the prior year. Operating margin (on adjusted operating profit excluding pass through) 5.2% 5.6% 3 £3.3m 2.0 The dividend will be paid on 9 October 2014 to shareholders £2.5m 2 on the register at the close of business on 12 September 2014. Exceptional items (1.2) (2.1) 1.0 1 Profit from operations after exceptional items 4.5 2.7 Progressive dividend policy 0 0.0 Net finance costs (1.6) (1.4) *H1 2010 *H1 2011 *H1 2012 H1 2013 H1 2014 0.80 Adjusted operating profit Operating margin Profit before tax 2.9 1.3 0.70 +12% (on sales excluding pass through) +9% 0.67pps Tax (0.7) (0.3) 0.60 +10% * restated for the effects of IAS19R +16% 0.60pps 0.50 0.55pps Profit after tax 2.2 1.0 share 0.50pps

per 0.40 Earnings per share 0.43pps All segments contributed to the overall increase in revenue. 0.30 Pence Basic (p) 1.11 0.55 Produce revenue grew significantly as the major new 0.20

Adjusted (p) 1.79 1.53 transactional contracts from 2013 took effect but this 0.10

underlying growth was offset by reduced demand for direct 0.00 Adjusted fully diluted (p) 1.75 1.49 H1 2010 H1 2011 H1 2012 H1 2013 H1 2014 mail and accelerated erosion in the higher-margin chequebook volumes. The growth in overseas managed services was reflected in both the Deploy segment as fees and in pass

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Strategy and Implementation (continued)

Cash flow and net debt The operating cash flow of £6.7m, together with additional debt, has been used to fund investments in the Group’s strategy The table below summarises the cash flows for the period and the closing net debt position. for profitable growth. These comprised the acquisitions of the Jacaranda, Public Creative and TCA agencies, investment in Half year Half year ended ended new contracts and the capital expenditure associated with the 30 June 30 June development of a second transactional centre of excellence at 2014 2013 Copley, West Yorkshire. £m £m The resulting net bank debt of £33.3m was less than 50% of the Profit from operations before exceptional items 5.7 4.8 Group’s enlarged facilities of £70m, as described below, but Depreciation and other non-cash items 5.6 4.5 intra-period fluctuations in working capital increased the level Increase in working capital (0.2) (12.2) of indebtedness between reporting periods so that average net Pension scheme contributions (0.6) (0.6) bank debt during the period was £45.1m. Net bank debt at the Interest and tax (1.9) (0.7) period end and average net bank debt during the period were

Net operating cash flow before exceptional items 8.6 (4.2) respectively 1.5 times and 2 times EBITDA for the 12 months to

Exceptional items (1.9) (2.4) June 2014. Interest cover from adjusted operating profit for the period was 3.8 times. Both measures reflect the Group’s Net operating cash flow 6.7 (6.6) disciplined approach to debt management. Net capital expenditure (5.6) (2.7)

Free cash flow 1.1 (9.3) Bank debt and facilities

Investment in new contracts (1.4) (0.4) 80

Acquisition of subsidiary undertakings (5.8) – 70

Dividends paid (2.3) (2.1) 60

Debt arrangement fees (0.1) – 50 40 Share issues net of directly attributable expenses 0.3 18.4 £m 30 Other (0.3) 0.2 20 (Increase) / decrease in bank debt (8.5) 6.8 10 Opening bank debt (25.4) (18.5) 0 Closing bank debt (33.9) (11.7) 12M to June 10 12M to June 11 12M to June 12 12M to June 13 12M to June 14

Bank debt (33.9) (11.7) Total facilities Average intra Period-end bank debt period bank debt Unamortised borrowing costs 0.6 0.2

Net bank debt (33.3) (11.5) Capital structure Finance lease creditor (2.9) (1.4) The Group’s financial position was strengthened with a £10m Net debt (36.2) (12.9) extension of its banking facilities in June 2014 on the same terms. The enlarged facilities now comprise a £65m revolving Operating cash flow was £13.3m better than in the Net cash flow from operating activities and free cash flow credit facility committed until March 2018 and a £5m overdraft corresponding period in 2013 as a result of increased 9.0 that is renewable annually. profitability and tighter working capital management. 7.0 Working capital was virtually unchanged during the period 5.0 Board appointments despite a 40% increase in revenue, a pattern that is expected 3.0 The Board is being strengthened, with changes in responsibility to continue. 1.0 (1.0) and two new appointments. £m

(3.0) After three years as Finance Director, during which the Group’s (5.0) financial performance and position has been radically improved ( 7.0) and strengthened, Nigel Howes will be relinquishing this role to (9.0) concentrate on his other executive responsibilities as Strategic (11.0) 2010 2011 2012 2013 2014 and Corporate Development Director. These include the

Net cash flow from operating activities Free cash flow continuing acquisition programme, international expansion and other initiatives that are key elements of the Group’s growth strategy.

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Strategy and Implementation (continued)

Cash flow and net debt The operating cash flow of £6.7m, together with additional Mark Stoner, who has held a number of senior financial and debt, has been used to fund investments in the Group’s strategy operational management roles within Communisis over the The table below summarises the cash flows for the period and the closing net debt position. for profitable growth. These comprised the acquisitions of the last six years, will join the Board on 1 August 2014 as Finance Jacaranda, Public Creative and TCA agencies, investment in Director. He is a chartered management accountant. Prior to Half year Half year ended ended new contracts and the capital expenditure associated with the joining Communisis, Mark was UK Finance Director of NASDAQ 30 June 30 June development of a second transactional centre of excellence at quoted Atmel Inc. having previously held finance roles within 2014 2013 Copley, West Yorkshire. KPMG, Siemens plc, Rolls Royce Industrial Power Group and £m £m British Steel plc. The resulting net bank debt of £33.3m was less than 50% of the Profit from operations before exceptional items 5.7 4.8 Group’s enlarged facilities of £70m, as described below, but Helen Keays will also join the Board on 1 August 2014 as a Depreciation and other non-cash items 5.6 4.5 intra-period fluctuations in working capital increased the level non-executive Director. She is currently a non-executive Increase in working capital (0.2) (12.2) of indebtedness between reporting periods so that average net Director of Majestic Wine plc and Domino’s Pizza Group plc Pension scheme contributions (0.6) (0.6) bank debt during the period was £45.1m. Net bank debt at the and was previously a non-executive Director of Mattioli Interest and tax (1.9) (0.7) period end and average net bank debt during the period were Woods plc. Helen has considerable marketing and consumer

Net operating cash flow before exceptional items 8.6 (4.2) respectively 1.5 times and 2 times EBITDA for the 12 months to communications experience across a number of sectors

Exceptional items (1.9) (2.4) June 2014. Interest cover from adjusted operating profit for including retail, telecommunications and financial services the period was 3.8 times. Both measures reflect the Group’s having held executive management positions within Vodafone Net operating cash flow 6.7 (6.6) disciplined approach to debt management. plc, Sears plc and GE Capital. Net capital expenditure (5.6) (2.7) Free cash flow 1.1 (9.3) Bank debt and facilities Outlook Investment in new contracts (1.4) (0.4) 80 Communisis operates in fast-moving markets that have Acquisition of subsidiary undertakings (5.8) – 70 different challenges and opportunities. The progressive Dividends paid (2.3) (2.1) 60 migration from paper to digital formats suits the integrated 50 Debt arrangement fees (0.1) – model within the Design segment. Produce specialises in 40 Share issues net of directly attributable expenses 0.3 18.4 £m in-bound and out-bound transactional communications and 30 Other (0.3) 0.2 is gaining market share through the adoption of high-speed 20 (Increase) / decrease in bank debt (8.5) 6.8 colour technology. This, together with the increasing trend 10 toward outsourcing, provides opportunities to offset volume Opening bank debt (25.4) (18.5) 0 erosion in the more mature markets. There is a developing Closing bank debt (33.9) (11.7) 12M to June 10 12M to June 11 12M to June 12 12M to June 13 12M to June 14 interest in the Group’s efficient and consistent approach to Bank debt (33.9) (11.7) Total facilities Average intra Period-end bank debt period bank debt brand building services both in the UK and internationally, Unamortised borrowing costs 0.6 0.2 leading to growth in the Deploy segment. Net bank debt (33.3) (11.5) Capital structure The strong half-year performance demonstrates that the Finance lease creditor (2.9) (1.4) Group’s strategy is delivering consistent and profitable growth The Group’s financial position was strengthened with a £10m Net debt (36.2) (12.9) and the Board is confident about the Group’s prospects for the extension of its banking facilities in June 2014 on the same remainder of the year. terms. The enlarged facilities now comprise a £65m revolving Net cash flow from operating activities and free cash flow credit facility committed until March 2018 and a £5m overdraft 9.0 that is renewable annually. 7.0 5.0 Board appointments 3.0 Andy Blundell 1.0 The Board is being strengthened, with changes in responsibility Chief Executive Officer (1.0) and two new appointments. £m

Net cash flow from operating activities Free cash flow continuing acquisition programme, international expansion Finance Director and other initiatives that are key elements of the Group’s growth strategy.

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Consolidated Income Statement Consolidated Statement of Comprehensive Income for the half year ended 30 June 2014: unaudited for the half year ended 30 June 2014: unaudited

Half year ended Half year ended Year ended Half year Half year Year 30 June 2014 30 June 2013 31 Dec 2013 ended ended ended 30 June 30 June 31 Dec Before Before Before 2014 2013 2013 amortisation Amortisation amortisation Amortisation amortisation Amortisation of acquired of acquired of acquired of acquired of acquired of acquired £000 £000 £000 intangibles intangibles intangibles intangibles intangibles intangibles and and and and and and Profit for the period 2,170 947 4,860 exceptional exceptional exceptional exceptional exceptional exceptional items items Total items items Total items items Total Other comprehensive (loss) / income to be reclassified to profit or loss in subsequent periods: Note £000 £000 £000 £000 £000 £000 £000 £000 £000 Exchange differences on translation of foreign operations (223) 38 (118) Revenue 1 169,343 – 169,343 121,213 – 121,213 270,148 – 270,148 Gain on cash flow hedges taken directly to equity 15 31 43 Changes in inventories of finished goods and work in progress 357 – 357 14 – 14 (459) – (459) Income tax thereon (4) (7) (10)

Raw materials and consumables used (97,436) – (97,436) (65,493) – (65,493) (149,921) – (149,921) Items not to be reclassified to profit or loss in subsequent periods:

Employee benefits expense (41,791) (706) (42,497) (31,347) (2,800) (34,147) (67,053) (3,882) (70,935) Actuarial losses on defined benefit pension plans (3,812) (109) (6,622)

Other operating expenses (19,441) (501) (19,942) (15,576) 684 (14,892) (31,887) 407 (31,480) Income tax thereon 762 25 1,322

Depreciation and amortisation expense (4,973) (429) (5,402) (3,664) (357) (4,021) (7,571) (827) (8,398) Adjustments in respect of prior years due to change in tax rate – – (651)

Profit from operations 1 6,059 (1,636) 4,423 5,147 (2,473) 2,674 13,257 (4,302) 8,955 Other comprehensive loss for the period, net of tax (3,262) (22) (6,036) Finance revenue 3 6 – 6 52 – 52 34 – 34 Total comprehensive (loss) / income for the period, net of tax (1,092) 925 (1,176) Finance costs 3 (1,550) – (1,550) (1,479) – (1,479) (2,540) (176) (2,716) Attributable to: Profit before taxation 4,515 (1,636) 2,879 3,720 (2,473) 1,247 10,751 (4,478) 6,273 Equity holders of the parent (1,092) 925 (1,176) Income tax expense 4 (1,012) 303 (709) (1,070) 770 (300) (2,844) 1,431 (1,413)

Profit for the period attributable The accompanying notes are an integral part of these Consolidated Financial Statements. to equity holders of the parent 3,503 (1,333) 2,170 2,650 (1,703) 947 7,907 (3,047) 4,860

Earnings per share 5

On profit for the period attributable to equity holders and from continuing operations

– basic 1.79p 1.11p 1.53p 0.55p 4.31p 2.65p

– diluted 1.75p 1.08p 1.49p 0.53p 4.19p 2.58p

Dividend per share 6

– paid 1.20p 1.10p 1.68p

– proposed 0.67p 0.60p 1.20p

Dividends paid and proposed during the period were £2.3 million and £1.3 million respectively (30 June 2013 £2.1 million and £1.1 million respectively, 31 December 2013 £3.3 million and £2.3 million respectively).

All income and expenses relate to continuing operations.

The accompanying notes are an integral part of these Consolidated Financial Statements.

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Consolidated Income Statement Consolidated Statement of Comprehensive Income for the half year ended 30 June 2014: unaudited for the half year ended 30 June 2014: unaudited

Raw materials and consumables used (97,436) – (97,436) (65,493) – (65,493) (149,921) – (149,921) Items not to be reclassified to profit or loss in subsequent periods:

Employee benefits expense (41,791) (706) (42,497) (31,347) (2,800) (34,147) (67,053) (3,882) (70,935) Actuarial losses on defined benefit pension plans (3,812) (109) (6,622)

Other operating expenses (19,441) (501) (19,942) (15,576) 684 (14,892) (31,887) 407 (31,480) Income tax thereon 762 25 1,322

Depreciation and amortisation expense (4,973) (429) (5,402) (3,664) (357) (4,021) (7,571) (827) (8,398) Adjustments in respect of prior years due to change in tax rate – – (651)

Earnings per share 5

On profit for the period attributable to equity holders and from continuing operations

– basic 1.79p 1.11p 1.53p 0.55p 4.31p 2.65p

– diluted 1.75p 1.08p 1.49p 0.53p 4.19p 2.58p

Dividend per share 6

– paid 1.20p 1.10p 1.68p

– proposed 0.67p 0.60p 1.20p

All income and expenses relate to continuing operations.

The accompanying notes are an integral part of these Consolidated Financial Statements.

1413

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Consolidated Balance Sheet Consolidated Cash Flow Statement

30 June 2014: unaudited for the half year ended 30 June 2014: unaudited

Half year Half year Year Half year Half year Year ended ended ended ended ended ended 30 June 30 June 31 Dec 30 June 30 June 31 Dec 2014 2013 2013 2014 2013 2013

£000 £000 £000 Note £000 £000 £000

ASSETS Cash flows from operating activities Non-current assets Cash generated from operations 7 8,699 (5,866) 4,732 Property, plant and equipment 24,509 18,370 21,254 Interest paid (732) (795) (1,458) Intangible assets 195,841 169,436 181,721 Interest received 6 28 37 Trade and other receivables 240 69 203 Deferred tax assets 3,091 2,364 2,510 Income tax (paid) / received (1,191) 30 (570)

223,681 190,239 205,688 Net cash flows from operating activities 6,782 (6,603) 2,741 Current assets

Inventories 8,131 8,283 9,609 Cash flows from investing activities Trade and other receivables 61,285 49,394 52,955 Acquisition of subsidiary undertakings (net of cash acquired) (5,818) (13) (4,070) Cash and cash equivalents 21,095 15,307 18,642 Purchase of property, plant and equipment (4,141) (1,957) (5,592) 90,511 72,984 81,206 Proceeds from the sale of property, plant and equipment 5 1,150 1,210 TOTAL ASSETS 314,192 263,223 286,894 Purchase of intangible assets (2,765) (2,251) (15,638)

EQUITY AND LIABILITIES Net cash flows from investing activities (12,719) (3,071) (24,090) Equity attributable to the equity holders of the parent

Equity share capital 49,728 47,850 4 8,60 1 Cash flows from financing activities Share premium 8,032 5,852 6,799 Share issues net of directly attributable expenses 310 18,429 18,407 Merger reserve 11,427 11,427 11,427 New borrowings 11,000 – 44,000 Capital redemption reserve 1,375 1,375 1,375 Repayment of borrowings – (13,000) (40,000) ESOP reserve (72) (77) (77) Debt arrangement fees (100) – (550) Cumulative translation adjustment (562) (183) (339) Retained earnings 70,380 76,353 73,369 Dividends paid 6 (2,333) (2,104) (3,270)

Total equity 140,308 142,597 141,155 Net cash flows from financing activities 8,877 3,325 18,587

Non-current liabilities Net increase / (decrease) in cash and cash equivalents 2,940 (6,349) (2,762) Interest-bearing loans and borrowings 56,438 27,271 43,672 Cash and cash equivalents at 1 January 18,642 21,548 21,548 Trade and other payables 3,915 223 192 Exchange rate effects (487) 108 (144) Retirement benefit obligations 31,432 21,705 27,670 91,785 49,199 71,534 Cash and cash equivalents at end of period 21,095 15,307 18,642

Current liabilities Cash and cash equivalents consist of: Interest-bearing loans and borrowings 885 924 677 Cash and cash equivalents 21,095 15,307 18,642 Trade and other payables 79,276 67,78 1 7 1,419 Income tax payable 1,291 823 1,441 The accompanying notes are an integral part of these Consolidated Financial Statements. Provisions 641 1,868 647 Financial liability 6 31 21 82,099 71,427 74,205 Total liabilities 173,884 120,626 145,739 TOTAL EQUITY AND LIABILITIES 314,192 263,223 286,894

The accompanying notes are an integral part of these Consolidated Financial Statements.

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Consolidated Balance Sheet Consolidated Cash Flow Statement

30 June 2014: unaudited for the half year ended 30 June 2014: unaudited

Half year Half year Year Half year Half year Year ended ended ended ended ended ended 30 June 30 June 31 Dec 30 June 30 June 31 Dec 2014 2013 2013 2014 2013 2013

£000 £000 £000 Note £000 £000 £000

223,681 190,239 205,688 Net cash flows from operating activities 6,782 (6,603) 2,741 Current assets

EQUITY AND LIABILITIES Net cash flows from investing activities (12,719) (3,071) (24,090) Equity attributable to the equity holders of the parent

Total equity 140,308 142,597 141,155 Net cash flows from financing activities 8,877 3,325 18,587

The accompanying notes are an integral part of these Consolidated Financial Statements.

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Consolidated Statement of Notes to the Consolidated Changes in Equity Financial Statements for the half year ended 30 June 2014: unaudited for the half year ended 30 June 2014: unaudited 1 Segmental information Capital Cumulative Issued Share Merger ESOP redemption translation Retained Total Business segments capital premium reserve reserve reserve adjustment earnings equity The segment results for the half year ended 30 June 2014 are as follows: £000 £000 £000 £000 £000 £000 £000 £000

As at 1 January 2014 48,601 6,799 11,427 (77) 1,375 (339) 73,369 141,155 Pass Central Corporate Design Produce Deploy Through Costs Costs Total Profit for the period – – – – – – 2,170 2,170 £000 £000 £000 £000 £000 £000 £000 Other comprehensive loss – – – – – (223) (3,039) (3,262)

Total comprehensive loss – – – – – (223) (869) (1,092) Revenue 11,566 77,784 27,024 52,969 – – 169,343

Employee share option schemes: Profit from operations before value of services provided – – – – – – 218 218 amortisation of acquired intangibles and exceptional items 1,619 8,716 5,637 – (6,561) (3,352) 6,059 Shares issued – exercise of options 298 12 – – – – – 310 Amortisation of acquired intangibles (223) (206) – – – – (429) Acquisition of subsidiaries 829 1,221 – – – – – 2,050 Profit from operations before exceptional items 1,396 8,510 5,637 – (6,561) (3,352) 5,630 Shares issued from ESOP – – – 5 – – (5) – Exceptional items – (939) – – (198) (70) (1,207) Dividends paid – – – – – – (2,333) (2,333) Profit from operations 1,396 7,571 5,637 – (6,759) (3,422) 4,423 As at 30 June 2014 49,728 8,032 11,427 (72) 1,375 (562) 70,380 140,308

The restated* segment results for the half year ended 30 June 2013 were as follows: As at 1 January 2013 35,251 22 11,427 (346) 1,375 (221) 77,679 125,187 Pass Central Corporate Profit for the period – – – – – – 947 947 Design Produce Deploy Through Costs Costs Total

Other comprehensive income / (loss) – – – – – 38 (60) (22) £000 £000 £000 £000 £000 £000 £000

Total comprehensive income – – – – – 38 887 925 Revenue 9,616 55,203 26,294 30,100 – – 121,213

Employee share option schemes: Profit from operations before value of services provided – – – – – – 160 160 amortisation of acquired intangibles Shares issued – firm placing and exceptional items 1,421 8,237 3,809 – (5,454) (2,866) 5,147 and placing & open offer 12,500 7,500 – (20) – – 20 20,000 Amortisation of acquired intangibles (132) (225) – – – – (357)

Transaction costs – (1,670) – – – – – (1,670) Profit from operations before exceptional items 1,289 8,012 3,809 – (5,454) (2,866) 4,790

Shares issued – exercise of options 99 – – – – – – 99 Exceptional items 207 (1,728) (112) – (468) (15) (2,116)

Shares issued from ESOP – – – 289 – – (289) – Profit from operations 1,496 6,284 3,697 – (5,922) (2,881) 2,674 Dividends paid – – – – – – (2,104) (2,104)

As at 30 June 2013 47,850 5,852 11,427 (77) 1,375 (183) 76,353 142,597 The restated* segment results for the year ended 31 December 2013 were as follows: Pass Central Corporate Design Produce Deploy Through Costs Costs Total As at 1 January 2013 35,251 22 11,427 (346) 1,375 (221) 77,679 125,187 £000 £000 £000 £000 £000 £000 £000 Profit for the year – – – – – – 4,860 4,860 Revenue 20,939 117,357 55,887 75,965 – – 270,148 Other comprehensive loss – – – – – (118) (5,918) (6,036) Profit from operations before Total comprehensive loss – – – – – (118) (1,058) (1,176) amortisation of acquired intangibles Employee share option schemes: and exceptional items 3,605 17,049 9,632 – (11,389) (5,640) 13,257 value of services provided – – – – – – 307 307 Amortisation of acquired intangibles (378) (449) – – – – (827) Shares issued – firm placing and Profit from operations before exceptional items 3,227 16,600 9,632 – (11,389) (5,640) 12,430 placing and open offer 12,500 7,500 – (20) – – – 19,980 Exceptional items 123 (2,942) (112) – (380) (164) (3,475) Transaction costs – (1,672) – – – – – (1,672) Profit from operations 3,350 13,658 9,520 – (11,769) (5,804) 8,955 Shares issued – exercise of options 99 – – – – – – 99

Shares issued from ESOP – – – 289 – – (289) – * Certain central costs were reallocated on a directly attributable basis to the operating segments during the period and the Acquisition of subsidiary 751 949 – – – – – 1,700 comparatives have been restated on a consistent basis accordingly. Dividends paid – – – – – – (3,270) (3,270)

As at 31 December 2013 48,601 6,799 11,427 (77) 1,375 (339) 73,369 141,155

The accompanying notes are an integral part of these Consolidated Financial Statements.

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