Preliminary Results

Communisis plc

("Communisis" or the "Company")

Preliminary Results for the year ended 31 December 2010

Leading marketing services provider ("MSP") Communisis plc (LSE: CMS), reports preliminary results for the year ended 31 December 2010. Profitability has improved and the Company is positioned for future profitable growth.

Financial Highlights

·; Operating profit before exceptional items increased by 10% to £7.9m (2009: £7.2m)

·; Operating cash flow improved with a net cash inflow of £6.2m (2009: £1.2m)

·; Pension deficit reduced to £9.7m (2009: £17.5m)

·; Profit after a tax charge of £0.5m (2009: tax credit of £0.6m) increased to £4.4m (2009: £3.2m)

·; Earnings per share increased by 40% to 3.20p (2009: 2.28p)

·; Final dividend per share of 0.86p, resulting in a full year dividend per share of 1.29p (2009: 1.29p)

·; Refinancing of bank debt facilities totalling £45m for an extended term until 2014 completed in February 2011

Operational Highlights

·; MSP proposition clearly established

o Service offering aligned with market trends

o Data and multi-channel delivery capabilities extended through strategic partnerships

o Investments made in leading technology and in creative and data specialists

·; Customer-centric approach delivered growth and sector diversification

o Important long-term contracts renewed notably with Barclays and the Post Office

o Valuable new business won with major UK brands outside the financial services sector

·; Intelligence Driven Communications ("IDC") led growth in higher value services

o 24% growth in segmental operating profit before exceptional items to £4.1m (2009: £3.3m)

o Good sales progress across all service lines, particularly Data and Campaign Management, with new customer wins including Everything Everywhere, Brighthouse, Tesco and Barclaycard

·; Specialist Production and Sourcing ("SPS") continued to adapt to new market dynamics

o 5% growth in segmental operating profit before exceptional items to £8.3m (2009: £7.9m)

o Ongoing focus on process improvement and cost reduction to maintain margins

o Significant investment in leading technology including the installation of a high speed colour digital production platform

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

"2010 was a year of solid performance during which we made good progress against our key objectives, established Communisis as a leading Marketing Services Provider and delivered improved results in line with our expectations.

2011 has started with a number of substantial new business prospects and major contract wins. We are still operating in an uncertain economic environment which can influence the short-term behaviour of marketeers. The current momentum needs to be maintained with timely conversion of sales prospects into revenues. We believe that our MSP proposition along with our scale, are key differentiating factors that will help us to continue winning profitable new business in a competitive environment."

For further information please contact:

Communisis plc 0113 277 0202Andy Blundell / Nigel Howes

Financial Dynamics 020 7831 3113

James Melville-Ross / Ed Bridges / Matt Dixon

Brewin Dolphin 0845 213 4730

Sean Wyndham Quin / Mark Brady

About Communisis

Communisis is a UK leading marketing services provider, specialising in helping customers make their communications processes more profitable. It helps to reduce costs and improve the effectiveness of the whole business process of customer communications.

Through its proven experience and scale, it works with clients to transform their customer communications processes by enhancing and deploying customer data; providing technology to automate and streamline workflows; and has world-class production capabilities that can output via print and electronic channels.

Chairman's Statement

Profit improvement and customer focus

Communisis made good progress against its key objectives in 2010: our results improved and the Company is positioned for future profitable growth.

We are reporting profits before interest, taxation and exceptional items of £7.9m, a 10% improvement on 2009 with net debt improving to £15.8m. The proposed final dividend is 0.86p bringing the total for the year to 1.29p, unchanged from 2009. The dividend will be payable on 13 May 2011 to shareholders on the register at 15 April 2011.

As a leading Marketing Services Provider Communisis has the capabilities necessary to support its customers' end to end marketing campaigns and to help them deliver more efficient and profitable communications.

With this clear strategic objective in mind we continued to invest in new skills and leading technologies so that our capabilities are aligned with the direction of our market place and the demands of our customers. Our efforts to reshape the business through process improvements and headcount reductions are ongoing.

Customers are at the centre of everything we do. We benefit from a loyal, blue-chip portfolio of customers and our approach delivered both growth and sector diversification during the year. It also enabled us to develop stronger relationships with our existing customers, renew important long term contracts with Barclays and the Post Office and win new business with major UK brands including Everything Everywhere, Brighthouse, Tesco, Britannia, and NATS.

We have ensured that the Company has committed funding by successfully completing a refinancing of bank debt facilities totalling £45.0m with a consortium of banks comprising Barclays, HSBC and Lloyds Banking Group. These facilities are for an extended period until 2014.

Board Changes

Peter King, who has been Finance Director since September 2006, will leave Communisis on 4 March 2011 for personal reasons and by mutual agreement. Nigel Howes will assume the Finance Director responsibilities from the same date until a replacement is appointed. Nigel was a non-executive director of Communisis and Audit Committee Chairman until his appointment as an executive director in September 2010.

On behalf of the Board I would like to thank Peter for his contribution as Finance Director over the last 4 years.

People and the Community

I would like to take this opportunity to thank all Communisis employees for their contribution to the results that were achieved in 2010.

We take our commitment to Corporate Responsibility seriously. This is demonstrated by two projects that saw Communisis working with its customers to deliver major charitable benefit; the first with Barclays for Project Quan, in which we mentored students from the Sir George Monoux College in London and the second with The Prince's Trust where our "Celebrity Cookbook" raised funds for the charity under the Million Makers scheme.

Our record on Health & Safety and Environmental matters is one of continuous and sustained improvement.

Outlook

We expect to see a continuation of the trends away from large generic mailing campaigns to more personalised and targeted communications and from paper-based to digital formats. These trends could be accelerated by the effect of increased postal prices for bulk mail which take effect from May 2011. Our plans have anticipated these trends along with the structural changes in demand for our traditional products and services. Together these may result in lower volumes of printed material but lead to improved margins as demand grows for higher value-added services across both of our operating divisions. The Communisis strategy is aligned with these trends. As we strengthen our proposition we will continue to pursue the required level of new sales, invest in technology and manage our cost base in anticipation of these changes in the market.

We have started 2011 with a number of substantial new business prospects and major contract wins. We are still operating in an uncertain economic environment which can influence the short-term behaviour of marketeers. The current momentum needs to be maintained with timely conversion of sales prospects into revenues. We believe that our Marketing Services Provider proposition along with our scale are key differentiating factors that will help us to continue winning profitable new business in a competitive environment.

Peter Hickson

Chairman

Chief Executive's Review

Summary of Progress during the Year

2010 has been a year of solid performance and good progress for Communisis as a leading Marketing Services Provider ("MSP"). In our trading statement of 7 July 2010, we announced an internal reorganisation aligning our activities and people around two core value propositions: Intelligence Driven Communications ("IDC") and Specialist Production and Sourcing ("SPS").

Intelligence Driven Communications ("IDC") helps businesses to increase revenue from their customer base by utilising data to deliver more targeted and relevant multi-channel marketing communication programmes.

The key components of IDC are data and analytics. They facilitate the segmentation of a customer or prospect database, using a combination of lifestyle and credit data, so that organisations understand exactly what their target customers would like to buy, how much they might spend and whether or not they are likely to pay. Communisis also manages content, images and assets to enable customers to ensure that they are used consistently across integrated campaigns. Document composition and output technologies are used to construct communications, which can be delivered effectively through a variety of paper-based and digital channels. IDC also provides feedback to customers on how a particular communication performed, using sophisticated response analysis and information management tools. This ensures that subsequent marketing communication campaigns are modified and improved appropriately.

Specialist Production and Sourcing ("SPS")helps businesses to improve the efficiency and quality of their print-related supply chains as well as the production and delivery of mission-critical documents and marketing communications at reduced cost. The key components of SPS include well developed business process improvement tools to generate efficiencies across the entire supply chain as well as specialist production and sourcing capabilities that can deliver mass communications, with a marketing, compliance or customer service message, in either paper or digital form.

While components of IDC and SPS represent strong independent businesses, it is the combination of the two segments, delivering a fully integrated solution to customers, that provides real business benefit for them and an advantageous competitive position for Communisis on a scale that, in our view, is unmatched by any other UK company in our sector.

Investment

In November 2010 we announced a programme of significant investment in high growth areas of the business funded by a reduction in cost. This was to be achieved through the consolidation of excess logistics capacity into the Newcastle site, with the consequent closure of the Leicester facility, together with a re-organisation of senior management responsibilities and other head office functions, leading to reduced headcount. This programme is on schedule with the headcount reduction and capacity consolidation due to be completed by the end of June 2011.

Our long term aim is to build breadth and depth in the range of services underpinning our MSP proposition. Our plan is to fill any identified gaps by recruiting people with the requisite skills, through strategic partnerships with specialist providers or through a disciplined and selective acquisition strategy. During 2010 we made a number of senior executive appointments in Creative and Data Services (part of IDC) and entered into alliances with Equifax, providing access to credit-referencing data, ExactTarget for mass e-mail marketing purposes and TNT enhancing our postal services. The relationship with Equifax is being further strengthened through the development of a range of marketing products.

Investment in technology continued through the year. In addition to ongoing projects related to quality improvement and automation, the most significant expenditure was committed to high-speed digital colour production. Early in 2010, we installed the first, and currently the only, HP T300 high speed colour digital platform in the UK. This equipment, together with our document composition and data intelligence expertise, puts Communisis at the forefront of technology developments in our sector and allows us to produce premium quality, personalised colour documents at high speed. Following the success of this investment we ordered a second HP T300 at the end of the year for installation and commissioning in April 2011 thus maintaining our leadership position in this crucial production capability. Our objective is to create an output platform that meets our customers' developing needs and expectations, in an increasingly converged and technology-led market place, whilst ensuring that printed documents remain relevant at profitable prices.

Customer focus

Communisis is now better understood as a Marketing Services Provider with the capability to deliver services across the spectrum of customers' end to end marketing campaigns.

Customers are at the centre of everything we do. This approach delivered growth and sector diversification during the year and enabled us to retain and win new business. We were successful in re-tendering for two of our most important contracts. Our largest customer, Barclays (which has been a customer since 2002), renewed its contract to deliver a full range of marketing services for a further 5 years until 2015. The Post Office also renewed its contract for a further 5 year term.

There was also a succession of new business wins during 2010, including contracts with Britannia, Brighthouse, RAPP, RBS Retail, NATS, Tesco, Liberata and Everything Everywhere.

Soon after becoming Chief Executive, I announced my personal sponsorship of our Crusade for Customers - which is designed to align the Communisis operations with the future strategic direction of our key customers. Behind the Crusade, there are a range of ongoing initiatives to improve quality, innovation and customer service, informed by an extensive third-party audit of our customer base. Key customer requirements centre on data security, output quality and service reliability. We have seen systematic improvements across all of our main manufacturing sites through 2010, especially in transactional print from our facility in Speke, and achieved very high levels of overall compliance with customer service level agreements.

At the start of the year, we also significantly strengthened our own marketing communications to ensure the capabilities of the business are well understood by our customers and by other stakeholders in the Company.

Trends in Marketing Services

Economy

Demand for discretionary marketing services across the broader economy, particularly in the financial services sector, has come under pressure in the recent period of economic downturn whilst demand for mission-critical documents that are core products for customers, such as statements and regulatory mailings, has not been significantly affected. During the same period Communisis has been able to demonstrate resilience, increased profits and positive cash generation whilst at the same time driving competitive advantage and continuing to invest for the future.

Market

The communications landscape is also becoming more complex within an overall trend towards more personalised communications. In particular:

§ Consumers are more demanding;

§ Online and offline channels are converging;

§ Mobile and social media marketing is exploding; and hence

§ Marketeers need to engage more cost effectively across multiple channels.

This overall trend presents developing opportunities for integrated data and technology-driven services and solutions, representing a customer need that Communisis, with its combined service offering and technology capability is well positioned to exploit.

Service Implications

These market trends are reinforcing a number of current behavioural changes being seen in the customer base:

§ The diminishing role of marketing agencies in controlling marketing activities with services being sourced directly from a broader range of digital media and data specialists or from MSPs with multi-service capabilities;

§ An increasing emphasis on measurable results as a means of assessing campaign effectiveness;

§ An increasing demand for better data, especially through the use of customer intelligence, to improve the efficiency and effectiveness of marketing spend;

§ The increasing use of technology to achieve operational scale in the creation, delivery and measurement of large volumes of highly targeted interactions that serve the unique needs of every customer.

Communisis has well developed plans to deal with the consequent challenges presented by these trends especially those related to volume and revenue declines in some markets for paper-based output. These result either from structural changes in the market, such as the phasing out of cheque usage, or from the effects of de-materialisation as the delivery of communication products moves from paper to digital formats. These changes will be reflected in lower revenues on existing business but an improvement in margins from the planned growth in higher value added sales.

Future Strategy

The principal objectives in 2010 have been to:

§ broaden and deepen the range of high margin services;

§ grow and diversify the customer base;

§ improve efficiencies and reduce costs;

§ invest in technology; and

§ reposition the Company as a Marketing Services Provider.

A great deal has already been achieved in each of these areas. They will continue to be the focus of attention as Communisis pursues its strategic vision of progressing its core activities from:

§ Data processing to database management;

§ Creative services to integrated creative agency;

§ Printed to multi-channel output; and

§ Print Management to Campaign Management.

Our aspiration is for Communisis to be the leading UK Marketing Services Provider, with a growing, customer-led international profile. We want to be renowned for our intelligent use of data and our capability to deliver innovative, secure, efficient and reliable end to end marketing campaign services to excellent quality standards.

We now have a marketing services model that is not tied to a particular territory and one which opens up the possibility of extending our reach into export markets. This would only be through client sponsored initiatives rather than greenfield investment.

Our leadership position will be demonstrated if Communisis has the largest share and is the most profitable player in our strategic market, defined by the capability to deliver both data analysis and high-volume, multi-channel outputs. Our aim is to increase the EBIT margin on revenues (excluding nil-margin pass through sales) progressively over the medium term.

Segmental Performance Review

Results

The outcome for Communisis- in a challenging economic environment- is a profit before interest, taxation and exceptional items of £7.9m, in line with our expectations and 10% ahead of 2009. Our net cash inflow from operations was £6.2m (2009: £1.2m) and year-end net debt was £15.8m (2009: £16.8m).

IDC

IDC's activities comprise the front-end campaign services of data management and analysis, creative, account management, multi-channel document composition and response handling. These services help businesses increase the revenue that they generate from their customer base, utilising data to deliver more targeted and relevant marketing programmes across a range of different channels.

Our IDC division made significant progress in 2010 with profits before interest, taxation and exceptional items of £4.1m, an increase of 24% from 2009. Revenues were 8.1% higher than in 2009 at £25.5m and margins improved from 14.0% to 16.1%

There are three primary services within the IDC segment:

§ Data and Analysis Services acquire and analyse large volumes of consumer lifestyle and credit data and create accurate data sets for use in highly targeted marketing campaigns. The range of services in this area continues to expand as evidenced by a recent strategic partnership with Equifax giving Communisis greater access to credit data. These are complemented by the management of databases which Communisis designs, builds and hosts. New business wins include the award of a credit checking solution for Brighthouse, data analysis solutions for Tesco, the construction of a customer database for RBS, and the expansion of our agreement to provide increasing levels of customer segmentation for Churchill and Direct Line Insurance.

§ Creative Services specialise in turning customers' brand communication strategies into highly creative content. Communisis assists in the creation, management and control of artwork files and other brand assets to enable customers to ensure that the impact of content and images is maximised across multiple media channels. Creative Services plays a helpful first stage role in extending Communisis' broader service offering to current and potential customers. The services in this area have been strengthened through the partnership with ExactTarget which enables us to provide personalised interactive marketing messages in the emerging range of online channels. We have been successful in securing several new business wins and have installed an onsite creative team at Barclaycard.

§ Campaign Management Services use both Communisis' and third party proprietary software tools to optimise the efficiency and effectiveness of customer campaigns at every stage of the process. Multi-Channel Composition software allows us to create highly personalised document composition solutions by accessing content and data from a range of sources and then delivering them through individual or multiple traditional and digital communication channels (including digitally printed mailings, emails, texts and mobile). We have developed our service offering in this area to deliver truly outsourceable campaign management solutions based on better creative treatment of customer segmentation. New business wins include Equinity and Bank of Ireland for marketing procurement, Tesco for the provision of in-store point of sale and T Mobile for local marketing. We were also very pleased to renew our contract with Barclays to deliver complete campaign managed solutions for another 5 years, and be awarded a contract by Everything Everywhere for the provision of marketing services to all their brands, including T Mobile and Orange.

SPS

SPS's activities include increasingly specialist output and sourcing services. There has been some improvement in the pace of market recovery for printed output, particularly during the second half of the year but the marketplace remains challenging. We have therefore taken action during the year to reduce and realign our cost base to reflect the changing nature of the business.

SPS delivered profits before interest, taxation and exceptional items in 2010 of £8.3m, an increase of 5.1% from 2009. Revenues were 0.6% lower than in 2009 at £142.1m and margins improved from 5.5% to 5.8%.

There are four primary services within the SPS segment:

§ Print Sourcing continues to act as an incubator for new client relationships with opportunities for further development across the Group. During the year we have been successful in renewing contracts with BMI and the Post Office following competitive tendering processes. In addition, we have secured new business from a range of sectors including further penetration in social housing with Hyde, retail and leisure with Travelodge and Jet2 and media with Newsweek. We also won NATS as a customer. Following a strategic review we announced the proposed consolidation of excess logistics capacity into our Newcastle facility, and the closure of our Leicester site.

§ Direct Mail and its market have changed dramatically over the past two years as a result of recessionary impacts and the acceleration of new forms of media. During the year we made good progress in transforming our Direct Mail services to meet market needs. First we removed legacy printing equipment and re-aligned our cost base to compensate for the decline in the volumes of traditional direct mail, which we expect to continue. Secondly we invested in and successfully installed a new HP T300 high speed colour digital platform allowing us to meet the trend for more personalised colour documents at high speed with premium quality. Customer take up has exceeded our expectations and personalised colour digital campaigns now account for approximately 10% of our Direct Mail revenues. We intend to be a market leader in this growing market and have placed an order for a further HP T300 which will be commissioned in April 2011.Our ability to secure these two machines stems from our highly valued Foundation Partnership arrangement with Hewlett Packard giving us a real, sustainable competitive advantage. During the year we are pleased to have secured significant new business wins for Tesco Clubcard's mailings and from Virgin Media for digital personalised mailings.

§ Transactional Services, which provide specialised statement production and distribution, continued to make progress during the year. Whilst volumes have reduced across two of our statement contracts we have successfully mitigated the impact with the introduction and implementation of new contracts with Wolseley, the leading supplier of heating, plumbing and building products and TNT. In addition we have recently won new contracts with Liberata, involving the outsourcing of transactional work within the local government sector, and Britannia Building Society which will see work migrate from the existing provider into our Speke facility during 2011. Our aim remains to add further customers to our portfolio and grow the business on an increasingly profitable basis. Investments have been made in process automation, improving operating efficiencies and product integrity, and in our postal services capability in alliance with TNT. We are now delivering consistently high service levels to our transactional customers.

§ Cheques exhibited a very strong performance during the year and remains a valuable asset within our portfolio. We continue to see reduced volumes overall, albeit at lower rates than anticipated. This was exacerbated by Government legislation banning unsolicited cheque mail products. We continue to remove cost from the business so as to maintain margin performance without compromising service levels. During the year we were delighted to announce new contracts with Nationwide and the Bank of England, which further consolidates our leadership position within this specialist market.

Andy Blundell

Chief Executive

Financial Performance Report

Communisis has benefitted from greater stability in its markets in 2010 and this, coupled with further efficiency gains, has enabled us to increase profit from operations before interest, taxation and exceptional items by 10% and earnings per share by 40%. Challenges remain but the Company has made good progress during the year and is positioned for future profitable growth.

The summarised segmental Income Statement is shown in the table below:

Our Intelligence Driven Communications ("IDC") division continues to grow and has had a very successful year with profit from operations increasing by 24% to £4.1m from £3.3m.

A particularly encouraging feature of the IDC result is the strong performance of the data business (Ai) the Company acquired in December 2008. In its second full year under Communisis ownership Ai delivered significant profit growth and successfully sold its services to existing Communisis customers. Communisis offered a maximum of £12.6m for Ai and deferred up to £8m with any payment contingent on subsequent financial performance. The period over which this performance was measured concluded on 31 August 2010. Discussions with the vendors continue with the expectation that the additional consideration payable will be in the region of £5.4m.

In 2010 our Specialist Production and Sourcing division ("SPS") has borne the majority of the ongoing reorganisation costs, has considerably expanded its digital capability successfully commissioning a class leading investment in a high speed colour digital platform and has delivered 5% profit growth. With the benefits of further efficiency gains still to come, this business can look forward to further success in 2011.

Corporate costs, which now include only those costs associated with running the head office and central support services, have increased in 2010 with additional expenditure on corporate activity. These costs can be expected to fall back to more normal levels in 2011 and will in addition benefit from the restructuring announced towards the end of the year.

Two items have been disclosed which both by their nature and size make them exceptional. First a reduction in the pension deficit was delivered as a consequence of completing phase two of our project to reduce the liability imposed on our balance sheet by the defined benefit pension scheme. This resulted in a net exceptional gain of £2.6m. The transaction is discussed further below.

Secondly the Company announced its intention in November 2010, subject to consultation, to address overhead levels and close its Leicester logistics centre. This consultation has taken place and we expect the transfer of these logistics operations to Newcastle to be completed by 30 June 2011. The benefits of reduced overhead costs are already evident. It remains our intention to reinvest a significant proportion of the anticipated savings in new capabilities. The costs associated with the changes include primarily redundancy payments and a provision for dilapidation work to the Leicester warehouse and total £2.9m.

Interest costs are slightly higher than in 2009 primarily as the exposure to future interest rate rises has been mitigated by two interest rate hedges entered into part way through 2009. Whilst exposure to future rate rises is limited, not all of the debt has benefitted from the low real rates that have prevailed throughout 2010. With the refinancing of the committed debt facility (discussed below) we have stopped hedge accounting and have recycled the resulting loss through the Income Statement. Brought forward hedging reserves have been recycled through the profit and loss account and loan arrangement fees associated with the previous refinancing exercise have been amortised.

The underlying tax rate paid by the Company has been approximately 28% for the full year. As reported in the 2010 interim statement, the successful resolution of an outstanding tax issue in respect of a former subsidiary based in the USA has resulted in the write back of a provision of £0.9m. Looking forward an effective tax rate around the standard rate can be anticipated.

Cash flow and net debt

Cashflow management in 2010 has again been strong. We achieved a £6.2m net cash inflow from operating activities and overall reduced net debt by a further £1m to £15.8m at the end of 2010.

The full year cash flows are summarised in the table below:

With the existing committed bank facilities due to expire by early 2012, we have completed the process of renewal. With lower debt levels targeted in the medium term, we have reduced the size of the committed facility from £50m to £40m whilst retaining the services of both Barclays and Lloyds Banking Group and adding HSBC. A syndicated arrangement was signed on 24 February 2011 with all three banks under which we enjoy a fully revolving £40m credit facility with a term of 3.5 years until mid 2014 and an overdraft of £5m which is renewable on a quarterly basis.

Continued strong inventory and customer debt management meant that the Company had net current liabilities at 31 December 2010. In contrast to the situation at 31 December 2009, in order to reduce interest costs, we have used cash balances previously held on deposit to reduce drawn down long term loans at 31 December 2010.

The contract acquisitions cash outflow of £1.8m represents a payment made to Barclays in consideration of their renewal for a third successive term of our managed service contract. This contract now extends to December 2015 and its renewal is an important endorsement of the value of both our IDC and SPS services. The payment has been capitalised and will be amortised over the remainder of the contract term.

The Board has taken a decision to maintain the 2010 dividend at 2009 levels. In doing so we have maintained dividend cover at between 2 and 2.5 times excluding exceptional items in line with our established policy. Our aim is to preserve cash to fund our future investment and strategic growth ambitions.

Pensions

The pension deficit recorded under International Accounting Standards has reduced from £17.5m at the end of 2009 to just £9.7m at 31 December 2010. This movement is attributable to three main factors. First, the successful conclusion of phase two of our initiative to reduce the overall pension exposure completed during 2010. The project delivered a net reduction in the deficit on an accounting basis of £5.5m and was reported in our 2010 interim statement. Second, the Government's announcement in July 2010 gave us an opportunity to reconsider, with the pension scheme Trustees, the appropriate measure of inflation used when determining statutory increases in retirement benefits. Following legal advice the Trustees have adopted the Consumer Prices Index instead of the Retail Prices Index for this purpose. The change has resulted in a £3.9m reduction in the accounting deficit. Third the reduction in gilt yields over the year has more than offset positive investment returns such that the net deficit movement attributable to these factors is an increase of £1.6m.

We will continue to review options for managing the funding deficit which should have also benefited from these actions. The triennial valuation will be updated in 2011. In the meantime we will work with the Trustees to optimise the scheme's investment strategy and maintain the existing and affordable recovery payment plan that has already been agreed with them and approved by the Pension Regulator.

Peter King

Finance Director

Statement of Directors' Responsibilities

Consolidated Financial Statements prepared under IFRS

The directors are responsible for preparing the Annual Report and the Consolidated Financial Statements in accordance with applicable United Kingdom law and regulations and International Financial Reporting Standards ('IFRS') as adopted by the European Union.

Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors must not approve the financial statements for the Group unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. Under IFRS, the directors are required to prepare financial statements that present fairly the financial position of the Group and the financial performance and cash flows of the Group for that period. In preparing these financial statements, the directors are required to:

·; select suitable accounting policies and apply them consistently;

·; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·; make judgments and estimates that are reasonable and prudent;

·; provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance;

·; state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the 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 proper 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 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.

Consolidated Income Statement

for the year ended 31 December 2010

Dividends paid and proposed during the year were £1.2 million and £1.2 million respectively (2009 £3.5 million and £0.6 million respectively).

The accompanying notes are an integral part of this Consolidated Income Statement.

All income and expenses relate to continuing operations.

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2010

The accompanying notes are an integral part of this Consolidated Statement of Comprehensive Income.

Consolidated Balance Sheet

31 December 2010

The accompanying notes are an integral part of this Consolidated Balance Sheet.

Consolidated Cash Flow Statement

for the year ended 31 December 2010

The accompanying notes are an integral part of this Consolidated Cash Flow Statement.

Consolidated Statement of Changes in Equity

for the year ended 31 December 2010

The accompanying notes are an integral part of this Consolidated Statement of Changes in Equity.

1 Segmental information

Business segments

Management has determined the operating segments based on the reports reviewed by the Board that are used to make strategic decisions.

The Group's activities are nowfocused in two main areas which are:

·; Intelligence Driven Communications ('IDC') which aims to help businesses increase the revenue that they generate from their customer base, utilising data to deliver more targeted and relevant marketing programmes across a range of different channels. Three key services are offered under the IDC banner - Data & Analysis, Campaign Management and Creative.

·; Specialist Production and Sourcing ('SPS')which aims to help businesses improve the efficiency and quality of their supply chains at reduced cost. Four key services are offered under the SPS banner - Print Sourcing, Direct Mail, Transactional Services and Cheques.

The Communisis Board considers the performance of IDC and SPS in assessing the performance of the Group and making decisions about the allocation of resources. Segmental disclosures have therefore been presented on this basis.

The key changes to our previously reported segments are:

·; Absolute Intuistic and the other activities of our previously named Technology & Services segment are included under the new IDC segment.

·; Our Print Sourcing revenues are now subdivided between the SPS and Pass Through segments. Our core Print Sourcing will be categorised in SPS.

·; Pass Through is defined as those revenues representing print and/or postage that is passed onto clients at cost and was previously reported under Print Sourcing.

·; The revenue and profit associated with data and response handling previously included within our Direct Mail segment is included within IDC. The remainder of our Direct Mail business which is associated with specialist output is included within SPS. Factory overheads have been attributed to both segments.

·; Our Cheque, Statement and Billing businesses (previously Transactional) have been included within SPS.

·; Costs previously described as 'Central Costs' which comprised marketing, IT infrastructure, Group procurement and Group Sales have now been allocated between the two operating segments - IDC and SPS. We have retained an element of Central Cost now classified as Corporate Costs as these represent the cost of our head office, main board and other plc related costs.

Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the Consolidated Financial Statements. However, Group financing (including finance costs and finance income) and income taxes are managed on a group basis and are not allocated to operating segments.

A software asset with net book value of £2,063,000 (2009 £2,295,000) has been allocated to segment assets as follows: IDC £576,000, SPS £1,379,000 and Corporate Costs £108,000. The amortisation charge on the asset for 2010 has been allocated to segments as follows: IDC £30,000 (2009 £10,000), SPS £202,000 (2009 £230,000). Parts of this asset are still in development and so are not being depreciated.

Transfer pricing between business segments is set on an arms length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment profits include sales between business segments. Those sales are eliminated on consolidation and are not included in the revenue figures below.

Sales to external customers disclosed in geographical information are based on the customers' geographical location.

The reporting segments have changed in the year following the reorganisation of the Group's operations. As a result, the comparative information has been restated and aligned with the new segmental disclosure.

Business segments

The segment results for the year ended 31 December 2010 are as follows:

Revenue includes sales to four customers who each individually represent more than 10% of the Group's total revenue. Sales to Customer 1 were £30.8m, Customer 2 were £28.2m, Customer 3 were £26.7m and Customer 4 were £26.3m, and included transactions with each business segment.

The segment results for the year ended 31 December 2009, restated to reflect the new segmental reporting structure, are as follows:

Revenue includes sales to four customers who each individually represent more than 10% of the Group's total revenue. Sales to Customer 1 were £29.1m, Customer 2 were £28.8m, Customer 3 were £23.0m and Customer 4 were £27.0m, and included transactions with each business segment.

2 Finance costs and finance revenue by category of financial instruments

3 Exceptional items

On 30 June 2008, the Group disposed of the Bath operation which comprised Communisis' Bath Business Forms and Economailer businesses, both of which were part of the SPS segment (formerly Direct Mail & Business Forms). At 31 December 2010, £450,000 (2009 £450,000) of deferred consideration was due to the Group in respect of this sale. During 2009, £650,000 of the deferred consideration was written off in return for early payment of £3,000,000 of the remaining balance.

The exceptional property provisions relate primarily to the estimated costs for the rental obligations, dilapidations and other costs of surplus premises which are long-term in nature. The provision reflects the estimated discounted net cost to the Group over the remainder of the lease period (maximum 2 years). This provision has been classified as exceptional by virtue of its size and the fact that the liabilities arise from businesses that ceased to be part of Communisis' trading activities some years ago and therefore the costs are not related to current operating activities.

During the year the Group incurred costs of £2,894,000 (2009 £nil) in respect of restructuring, of which £1,094,000 related to the closure of the Leicester facility, and the remainder related to further optimisation of the overall cost base of the Group to create the right organisational structure to move the Group forward. Since the project relates to transforming the business for the future, these costs are not directly related to current operations and therefore disclosed as exceptional.

The £2,585,000 settlement gain relates to an enhanced transfer value exercise completed in 2010 for deferred members of the defined benefit pension scheme. The amount is the net of the £5,526,000 settlement gain, partially offset by £2,941,000 enhancements and associated fees.

4 Income tax

The major components of income tax expense for the years ended 31 December 2010 and 2009 are:

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.

Unrecognised tax losses

The Group has unrecognised losses, which arose outside of the UK, for which there is no expiry date, of £3,079,000 (2009 £3,437,000) that are available for offset against future taxable profits of the companies in which the losses arose. No deferred tax assets have been recognised in respect of any of these losses as their future utilisation is uncertain and they may not be used to offset taxable profits elsewhere in the Group.

5 Earnings per share

279,628 (2009 279,628) shares were held in trust at 31 December 2010.

Share options in issue for which exercise is currently unlikely (as the option price is higher than the average market price) total 2,375,867 (2009 6,218,971) options. As a consequence, these options have not been included in the diluted earnings per share in the current year.

Earnings per share from continuing operations before exceptional items

Net profit from continuing operations before exceptional items and attributable to equity holders of the parent is derived as follows:

Adjusted earnings per share uses the same weighted average number of ordinary shares as reported above.

6 Dividends paid and proposed

7 Cash generated from operations

8 Additional Information

Communisis plc is a public limited company incorporated and domiciled in England and Wales. The Company's ordinary shares are traded on the London Stock Exchange.

The preliminary announcement is prepared on the same basis as set out in the previous year's financial statements.

The financial information for the year ended 31 December 2010 and 31 December 2009 is abridged and has been extracted from the 2010 statutory accounts of Communisis plc which were approved by the Board of Directors on 3 March 2011, along with this preliminary announcement, but have not yet been delivered to the Registrar of Companies. The auditors have issued an unqualified opinion on the 2010 statutory accounts. The 2009 statutory accounts have been delivered to the Registrar of Companies. The auditors' report on the 2009 statutory accounts was unqualified

Risks and Uncertainties

The operation of a public company involves a series of risks and uncertainties across a range of strategic, commercial, operational and financial areas. Communisis has a robust internal control and risk management process, outlined in the Corporate Governance Report. This process is designed to provide assurance but cannot seek to avoid all risks.

The more significant risks and uncertainties faced by the Group which could cause the Group's actual results to vary materially from historical and expected results are set out below.

Economic environment

Our business depends upon the level of marketing spend from our customers. In an economic environment of depressed spending levels and defensive marketing strategies, there is a risk that marketing spend amongst our customers will be severely constrained. Our plans make an assumption that this will occur to a certain extent, and long-term contractual relationships also give some insulation. However, the level of fixed cost in some of our operations makes it difficult to respond rapidly to large falls in demand. Therefore, Group profit levels would be materially affected if a prolonged, widespread and significant marketing spend reduction in excess of our expectations were to occur.

Competition

Communisis operates in highly competitive markets and the Group's products and services are characterised by continually evolving industry standards and changing technology driven by the demands of the Group's customers. We invest in product development to sustain competitive advantage. However, if we fail to keep pace with technological, product and process change, the Group may experience delay or fail in introducing new or enhanced services.

We review our pricing and take action to control our cost base to ensure that we remain competitive and protect our margins. Failure to do either of the above may result in materially lower margins and loss of market share.

Operational disruption

Given the nature of our products and services, disruption of our manufacturing and distribution facilities could impact our revenues and profits. This risk is managed through a process including systems of standard operating procedures, regulatory compliance, monitoring, audit, multiple sourcing and business continuity management.

A failure of the Group's information systems platform would affect all our sites. The Group therefore maintains back-up and disaster recovery plans.

While the Group maintains insurance at appropriate levels, some of these operational risks could result in losses and liabilities in excess of our insurance coverage or in uninsured losses and liabilities.

Information Security

As our customers increasingly adopt data driven communications there is a risk that the confidentiality, integrity and availability of the information processed could be compromised by factors such as human error, systems failure, equipment malfunction or deliberate unauthorised action which may cause reputational damage and financial loss to the business.

There are a number of controls in place to manage this risk including Information Security policies and procedures which have been designed specifically to accommodate each area of our business and are subject to regular third party review and certification.

Pensions liabilities

The interaction of, amongst other things, increased life expectancy, equity market performance and low interest rates over several years has had a significant negative impact on the funding levels of the Group's pension plan.

This has materially and adversely affected the pension plan funding obligations of the Group and action has been taken in previous years to mitigate the effects of these factors by means of the closure to new entrants of the defined benefit sections of the Group's pension plan and increased pension contributions from our employees. In addition, with effect from 30 November 2007, the defined benefit sections of the Group's pension plan were closed to future benefit accruals, and replaced by a new defined contribution section.

Market movements over the last couple of years have significantly increased the funding deficit as measured by the triennial valuation of the plan. Any further decline in equity markets, improvement in life expectancy, or adverse movement in interest rates could further increase that deficit.

In both 2009 and 2010, the Company has taken significant steps to reduce the deficit, and the risk, although not eliminated, is reduced. There is an affordable deficit recovery plan agreed between the Company and the Trustees.

Liabilities arising from past disposals

Over the past few years the Group has made a number of disposals. In many cases the Group has agreed to retain the contingent risk, as guarantor, of known or pre-sale liabilities. Any material changes in known or potential pre-sale liabilities could result in a cash outflow from the Group and have a material adverse effect on the Group's business, financial condition and results.

In particular, the recent serious deterioration in the economic climate has significantly increased the risk that the current tenants of leasehold properties previously occupied by the Group may fail, and that the financial obligations attaching to those properties could, therefore, fall to be met by Communisis.

Environmental risk

The Group seeks to conduct its activities in such a manner that there is no, or minimal, damage to the environment. Financial and/or reputational risk could arise if we do not apply our resources in such a way as to achieve the protection or improvement of the natural environment.

Network and systems

The Group's operations depend crucially on complex networks and systems and on the ability to access similar networks belonging to other parties. Failures in these networks or systems may mean that we cannot serve our customers, exposing us to potential claims and loss of those customers and to costs of repair or modification of the systems.

High dependency on few high value customers

The Group is dependent upon a small number of high value customers; 71.5% of the Group's turnover is derived from its top ten customers. If we were to lose one or more of these customers without replacing them this could result in a material adverse effect on the Group's business and operations.

Off-shoring

We continue to see a trend towards sourcing print and print-related products from manufacturers outside the United Kingdom. Whilst our product range and customer base normally imply time-critical delivery, making overseas sourcing more difficult, there is a risk that increasing sophistication in overseas suppliers may impact on our ability to retain turnover levels within the United Kingdom. To the extent that business is lost to this lower cost competition, there is a risk that the Group's activities could be adversely affected.

Technological change and declining markets

As outlined above in the context of competition risk, the Group's activities are subject to constant technological development and change. Certain of our businesses operate in market sectors where there is a strong risk that electronic technology will supersede paper-based communications.

The Group fully recognises this risk and is actively involved in developing, often in tandem with our customers, new methods of providing information which will, in due course, replace existing products.

In addition, the Group maintains an active programme to increase efficiency in areas of operation facing declining markets in order to maintain profitability. The success of this work should protect us from loss of market share and turnover, but there is a clear risk that if we fail to meet the evolving requirements of our customers there will be a material adverse effect on the Group's results.

Funding

Whilst in the long term, equity finance could be obtained, in the medium and short term the Group funding for working capital requirements, support for existing debt levels and capital investment programme is heavily reliant upon bank funding. Recent instability in the UK corporate banking sector coupled with reduced competition in this sector has changed the terms on which the Group borrows increasing the risk of covenant breach. The Group has long established and very effective cash flow management and forecasting routines to monitor this exposure.