Interim Results

31 July 2014

Communisis plc

("Communisis" or the "Group")

Interim Results for the six months ended 30 June 2014

Leading provider of personalised customer communication services Communisis plc (LSE: CMS), reports interim results for the six months ended 30 June 2014.

A significant increase in revenue, higher profits, strong cash flow, important new contracts, accelerated growth in international markets and acquisition activity combined to deliver another successful half year.

Financial Highlights

§ Total revenue 40% ahead at £169.3m (H1 2013 £121.2m). Revenue (excluding pass through) up 28% at £116.3m (H1 2013 £91.1m)

§ Overseas revenue increased faster than expected to 19% of total revenue (H1 2013 13%), close to the Group's 20% target

§ Adjusted operating profit* up 18% to £6.1m (H1 2013 £5.1m)

- Transitional costs on major new contracts caused 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

§ Adjusted earnings per share** grew 18% to 1.75p (H1 2013 1.49p)

§ Interim dividend 12% higher at 0.67p (H1 2013 0.60p)

§ Operating cash flows improved by £13.3m. Working capital unchanged despite a 40% increase in revenue

§ Substantial investments in acquisitions and market-leading technology funded by operating cash flow and additional debt. Net debt increased to £36.2m (December 2013 £25.7m), with net bank debt less than 50% of available facilities at £33.3m

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

§ Integrated agency model developed and higher margin creative services expanded through the acquisitions of The Communications Agency, Jacaranda and Public Creative

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

§ Helen Keays will join as a non-executive Director

* Adjusted operating profit means profit from operations before exceptional items and the amortisation of

acquired intangibles.

** Adjusted earnings per share means fully diluted after new share issues and excluding the after tax effects

of exceptional items and the amortisation of acquired intangibles.

Commenting on the results Communisis Chief Executive, Andy Blundell, said:

"This was another strong half-year performance. It demonstrates that our strategy is delivering consistent and profitable growth and the Board is confident about the Group's prospects for the remainder of the year."

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About Communisis

Communisis is the leading provider of personalised customer communication services that specialises in helping clients communicate with their customers more effectively and more profitably in fast-changing markets.

Communisis has a reputation for production excellence and innovation and is trusted by many leading, consumer-facing brands to design, produce and deploy multi-channel personalised customer communications accurately, securely, reliably and at scale.

Performance Review

The Group's aspiration and strategic initiatives, set out below, were described in the Strategic Report within the 2013 Annual Report. This review summarises the performance against those strategic initiatives and the key financial targets during the first half of 2014.

Aspiration

The Group's aspiration is to be a market leader in providing personalised customer communication services both in the UK and internationally.

The key financial targets for the medium term are to deliver a double-digit margin on revenue (excluding pass through) and to derive more than 20% of revenue from overseas sources whilst continuing to grow those in the UK.

Strategic initiatives

The Group's aspiration is pursued through a number of strategic initiatives including:

§ Growing revenue both organically and through niche acquisitions;

§ extending activities to broaden and deepen the service offering;

§ further diversifying the client portfolio beyond the financial services sector;

§ following international clients into overseas markets;

§ investing in specialist, market-leading technologies; and

§ continuing to optimise the direct cost and overhead base.

Improvement in margins is delivered through the combined effect of better capacity utilisation, the benefit of cost reduction programmes, synergies from acquisitions and a focus on growing volumes of higher-margin services.

Optimising the capital structure and managing the exposure to the pension deficit are also priorities as is the continuation of a progressive dividend policy that has become of increasing importance to all investor categories.

Summary financial performance

Communisis continued to deliver profitable growth in the first half of 2014. The results were on target and considerably ahead of the same period last year, enabling the Group to maintain its progressive dividend policy. The interim dividend for the first six months of 2014 has consequently been increased by 12%.

Despite a very significant increase in revenue, tight working capital control delivered strong operating cash flow that was used, together with additional debt, to fund substantial acquisition and investment activity in pursuit of the Group's strategy for profitable growth.

Further details are included in the segmental results and cash and net debt sections below.

Growth and diversification

New business development included a second, very significant ten-year contract with Lloyds Banking Group ("LBG") for the outsourcing of all in-bound imaging and mail processing services, which commenced on 1 April 2014, and a five year extension of an existing contract for external brand building services with Procter & Gamble Europe SA ("P&G") through to December 2019.

The LBG contract resulted in Communisis taking on fourteen existing LBG sites in the UK, including the main operational centres in Edinburgh, Leeds and Andover with approximately 310 roles transferring from LBG to Communisis under TUPE arrangements. The Group already produces all of LBG's out-bound transactional communications, under an existing outsourcing arrangement, and is now also responsible for handling more than 30 million incoming documents from LBG customers annually, scanning them into a digital format before indexing and distributing them to the relevant department 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.

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 acquisitions of three creative businesses during the period.

Jacaranda Productions Limited ("Jacaranda") and Public Creative Limited ("Public Creative") were acquired in April 2014 for £1.5m (with £0.9m being paid in cash and £0.6m in Communisis shares) and £0.4m in cash respectively with up to a further £0.5m being payable for Jacaranda dependent on the gross profit generated in the three years after acquisition.

The Communications Agency ("TCA") was acquired in June 2014 for up to £8m (with up to £5.8m being paid in cash and £1.45m in Communisis shares) of which up to £0.5m is dependent on the delivery of projected EBITDA for TCA's financial year to 31 October 2014.

Jacaranda is a video and film production specialist, creating, managing and measuring the effectiveness of video content for global brands. It is based in London with a team of six people. For over 15 years Jacaranda has been voted in the top ten independent production companies in Televisual's annual 'Corporate Top 50' awards and has won over 250 creative awards including The Digital Impact Awards, Cannes Corporate Media and TV Awards and New York Film and TV Awards.

Public Creative creates and drives brand awareness with digital media using web and mobile applications to build loyalty and encourage customer advocacy. It is based in London with a team of eight people.

TCA is a long-established award-winning agency, with broad capabilities and experience across all media channels including TV, experiential and digital that specialises in brand response and customer relationship marketing. TCA has long-standing client relationships with leading brands in the financial services, retail and consumer goods sectors. It is based in London with 42 employees.

Operational excellence

The Group has made a substantial commitment to the development of a second transactional centre of excellence at Copley, West Yorkshire to mirror that at Liverpool. This follows the progressive commencement of the LBG outsourcing contract for the production of transactional communications from October 2013. Net capital expenditure during the period has consequently been higher than normal at £8.1m of which £2.5m was acquired under finance leases. Of this £8.1m, £6.3m relates to Copley, including £1.3m purchased from LBG. Additional expenditure of £2.8m to complete the facility will be incurred in the second half of 2014. Two market-leading HP T400 high-speed colour digital platforms were also commissioned under operating leases.

A further rationalisation at the Leeds facility has also been announced in order to align the cost base with the changing demands of the direct mail market. This, together with certain ongoing costs from previously announced restructuring programmes and acquisition related expenses, has resulted in an exceptional charge of £1.2m in the first half of 2014 with most of the associated cash cost falling in the second half.

Segmental results

Revenue, operating profit and margins before exceptional items are reported in three segments, being Design, Produce and Deploy. Pass through revenue, 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. Certain of these central costs were reallocated on a directly attributable basis to the operating segments during the period and the comparatives have been restated on a consistent basis accordingly.

Profitability

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

Total revenue was 40% ahead at £169.3m (H1 2013 £121.2m) with the proportion derived from overseas being 19%, approaching the medium-term target of 20% and earlier than expected. Revenue (excluding pass through) increased by 28% to £116.3m (H1 2013 £91.1m).

Adjusted operating profit increased 18% to £6.1m (H1 2013 £5.1m) whilst operating margin on the same basis, which is a key financial metric, was lower at 5.2% (H1 2013 5.6%), principally due to the transition costs on the major new transactional contracts. Progress toward the double-digit target is expected on a full- year basis.

All segments contributed to the overall increase in revenue. Produce revenue grew significantly as the major new transactional contracts from 2013 took effect but this 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 through revenue. Fees generated by the creative and digital agencies acquired in the last nine months have increased revenue in the Design segment but they have been offset by lower sales in data caused by a decline in demand for prospect lists from the insurance sector which has been the historical focus of the Group's data activities.

The changing mix of activities together with the costs incurred during the learning curve and transitioning phases of major new transactional contracts largely account for the overall reduction in margin during the period and for the various changes in contribution margins between the segments. Central and corporate costs have increased by £1.5m as a result of the additional expenditure on systems infrastructure, strategic account management and support services needed for the growing business.

The exceptional charge of £1.2m largely reflects the further rationalisation and restructuring costs referred to above.

The 2014 tax charge is based on the estimated effective rate for the year of 24.6% which is higher than the standard rate of 21.5% as it includes the taxation of certain overseas profits in higher-rate jurisdictions.

Profit after tax and basic earnings per share more than doubled to £2.2m (H1 2013 £1.0m) and 1.11p (2013 0.55p) respectively, reflecting the lower level of exceptional items in 2014 and a reduction in the dilutive effect of new share issues in the first half of 2013.

Dividends of 1.20p per share were paid in the first half of 2014 in respect of 2013 and an interim dividend of 0.67p per share will be paid for 2014, an increase of 12% on the prior year. The dividend will be paid on 9 October 2014 to shareholders on the register at the close of business on 12 September 2014.

Cash and net debt

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

Operating cash flow was £13.3m better than in the corresponding period in 2013 as a result of increased profitability and tighter working capital management. Working capital was virtually unchanged during the period despite a 40% increase in revenue, a pattern that is expected to continue.

The operating cash flow of £6.7m, together with additional debt, has been used to fund investments in the Group's strategy for profitable growth. These comprised the acquisitions of the Jacaranda, Public Creative and TCA agencies, investment in new contracts and the capital expenditure associated with the development of a second transactional centre of excellence at Copley, West Yorkshire.

The resulting net bank debt of £33.3m was less than 50% of the Group's enlarged facilities of £70m, as described below, but intra-period fluctuations in working capital increased the level of indebtedness between reporting periods so that average net bank debt during the period was £45.1m. Net bank debt at the period end and average net bank debt during the period were respectively 1.5 times and 2 times EBITDA for the twelve months to June 2014. Interest cover from adjusted operating profit for the period was 3.8 times. Both measures reflect the Group's disciplined approach to debt management.

Capital structure

The Group's financial position was strengthened with a £10m extension of its banking facilities in June 2014 on the same terms. The enlarged facilities now comprise a £65m revolving credit facility committed until March 2018 and a £5m overdraft that is renewable annually.

Board appointments

The Board is being strengthened, with changes in responsibility and two new appointments.

After three years as Finance Director, during which the Group's financial performance and position has been radically improved and strengthened, Nigel Howes will be relinquishing this role to concentrate on his other executive responsibilities as Strategic and Corporate Development Director. These include the continuing acquisition programme, international expansion and other initiatives that are key elements of the Group's growth strategy.

Mark Stoner, who has held a number of senior financial and operational management roles within Communisis over the last six years, will join the Board on 1 August 2014 as Finance Director. He is a chartered management accountant. Prior to joining Communisis, Mark was UK Finance Director of NASDAQ quoted Atmel Inc. having previously held finance roles within KPMG, Siemens plc, Rolls Royce Industrial Power Group and British Steel plc.

Helen Keays will also join the Board on 1 August 2014 as a non-executive Director. She is currently a non-executive Director of Majestic Wine plc and Domino's Pizza Group plc and was previously a non-executive Director of Mattioli Woods plc. Helen has considerable marketing and consumer communications experience across a number of sectors including retail, telecommunications and financial services having held executive management positions within Vodafone plc, Sears plc and GE Capital.

Outlook

Communisis operates in fast-moving markets that have different challenges and opportunities. The progressive migration from paper to digital formats suits the integrated model within the Design segment. Produce specialises in in-bound and out-bound transactional communications and is gaining market share through the adoption of high-speed colour technology. This, together with the increasing trend toward outsourcing, provides opportunities to offset volume erosion in the more mature markets. There is a developing interest in the Group's efficient and consistent approach to brand building services both in the UK and internationally, leading to growth in the Deploy segment.

The strong half-year performance demonstrates that the Group's strategy is delivering consistent and profitable growth and the Board is confident about the Group's prospects for the remainder of the year.

Consolidated Income Statement

for the half year ended 30 June 2014: unaudited

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).The accompanying notes are an integral part of these Consolidated Financial Statements. All income and expenses relate to continuing operations.

Consolidated Statement of Comprehensive Income

for the half year ended 30 June 2014: unaudited

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

Consolidated Balance Sheet

30 June 2014: unaudited

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

Consolidated Cash Flow Statement

for the half year ended 30 June 2014: unaudited

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

Consolidated Statement of Changes in Equity

for the half year ended 30 June 2014: unaudited

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

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

1 Segmental information

Business segments

The segment results for the half year ended 30 June 2014 are as follows:

The restated* segment results for the half year ended 30 June 2013 were as follows:

The restated* segment results for the year ended 31 December 2013 were as follows:

* Certain central costs were reallocated on a directly attributable basis to the operating segments during the period and the comparatives have been restated on a consistent basis accordingly.

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

2 Amortisation of acquired intangibles and exceptional items

3 Net finance costs

4 Income tax

The tax charge on continuing operations for the period is based upon an effective rate of 24.62%.

Finance Act 2013 confirmed that the corporation tax rate was to be reduced to 21% from 1 April 2014; the rate will fall to 20% from 1 April 2015. As the legislation introducing these reductions has been substantively enacted the provision for deferred tax has been made at 20%.

5 Earnings per share

134,675 (30 June 2013 143,964, 31 December 2013 143,964) shares were held in trust at 30 June 2014.

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

5 Earnings per share (continued)

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:

The basis of measurement of adjusted EPS is to reflect more accurately the measure of EPS used by the market. Adjusted earnings per share uses the same weighted average number of ordinary shares as reported above.

6 Dividends paid and proposed

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

7 Cash generated from operations

Notes to the Consolidated Financial Statements

for the half year ended 30 June 2014: unaudited

8 Acquisitions

On 25 April 2014, the Group acquired the entire issued share capital of Jacaranda Productions Limited ("Jacaranda"). Jacaranda is a video and film production specialist, creating, managing and measuring the effectiveness of video content for global brands. It is based in London with a team of six people. For over 15 years Jacaranda has been voted in the top ten independent production companies in Televisual's annual 'Corporate Top 50' awards and has won over 250 creative awards including The Digital Impact Awards, Cannes Corporate Media and TV Awards and New York Film and TV Awards.

The consideration payable by Communisis amounted to £1,676,000, including acquired cash of £117,000. The consideration was satisfied in cash of £876,000 and through the issue of 913,242 new ordinary shares of 25p each in the share capital of Communisis (the "Consideration Shares") to the value of £600,000 based on the middle market closing price of 65.7 pence per ordinary share.

As part of the purchase agreement a contingent consideration has been agreed. An amount equal to ten percent of annual gross profits of the company will be 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 shall in no circumstance exceed the value of £500,000. As at the date of acquisition, the fair value of the contingent consideration has been estimated at £200,000, determined using a discounted cash flow method.

Details of the consideration paid and book values of assets and liabilities as at the date of acquisition are set out below: