CD R&A2006 T - Cafédirect · CHOCOLATIER, CHOCOLATIEST – New product on the block NEW WAYS OF...

CD_R&A2006 T 8/3/07 09:28

P4A TRIBUTE TOLAZARO Krishna Gopalashares histhoughts on agreat man

P5 CHAIRMAN’SSTATEMENTKrishna Gopalatells of a year ofstrengtheningfoundations andtaking stock

P6CEO STATEMENT Penny Newmanreflects on a yearof internal andexternal change,and greater social return

P8HOW THEWORLDCHANGES Building for thefuture, managingpositives, newbrands andFairtrade underfire. How themarketplace hastransformed

CD 1:KRISHNA’SCHOICE

Shareholders talkabout why theyown shares

P18FIRSTCAFÉDIRECTBRANDED CAFÉ Cafédirect opensbranded café withpartner Scolarest

P19NEWCUSTOMERS Customers sharetheir reasons forchoosingCafédirect productsand explain thebusiness benefitsthis brings.Features BristolCity FC, Channel 4

P19AND BACK AT THESUPERMARKET… Key consumerresearch, ouradvertisingcampaign andother promotionalactivities. Has this made adifference?

P20CAFÉDIRECTSTARTS TO GOGLOBALMoving intodifferent markets

P10GROWERS STEPUP TO LATESTCHALLENGES ProducerPartnershipProgrammedevelops three-year plans withgrower partners

P11 INVESTING INCOFFEE QUALITY

P11MEETING NEWQUALITYSTANDARDS One year on: areport on thesuccesses of ourfood safety work

P12MAKING ANIMPACT Digging a bitdeeper into theimpact ongrowers, theirorganisations andtheir communities

P13KENYA -HIV/AIDSPALLIATIVEDAYCARECENTRE

P14OURUNIQUENESS Sylvie Barr tellsthe story behindthe new corporatepositioning andrebranding

P16 REFRESHINGOUR COFFEETASTE ANDEXTENDING OUR RANGE

P17CHOCOLATEY,CHOCOLATIER,CHOCOLATIEST – New product onthe block

P17NEW WAYS OFSHOUTINGABOUT OURDIFFERENCE Reviewing a busy year ofpartnerships toget the messageto more people.Highlights from Hay Festival, KewGardens, Enterpriseweek and “BoilBetter Day”!

BRINGING QUALITY TO LIFECafédirect is proud to bethe UK’s largest Fairtradehot beverage company,producing 100% Fairtradecoffee, tea and chocolatedrinks. Over 16 years ofsuccessful trading, we havebecome a beacon brand in the Fairtrade market,trusted by our loyalcustomers and

inspiring new consumers totry not only Cafédirectproducts, but also otherbrands that carry theFairtrade Mark.

Our grower partners holdshares in the company, siton the Cafédirect Boardand have a say in how ourbusiness is run. Our Gold

Standard ensures we payover and above theminimum Fairtrade priceand invest a percentage ofour profits every year backinto growers’ organisations.This is part of our socialreturn. Together with ourcommitment to long-termtrading relationships, thisenables our growerpartners to increase theirexpertise, improve theirproduct quality and

enhance theirunderstanding ofinternational markets, thus leveraging greaterinfluence in all theirbusiness dealings.

We truly believe that ouralternative approach totrade brings quality to bothour partnerships and ourproducts. It’s a way ofdoing business thatbenefits everyone.

HOW TO USE THIS ANNUAL REPORT – Read it here first, then go online to learn more.

CD1Overview

For environmental reasons,the hard copy of this annualreport is more compact thanin previous years.

There is plenty to read, butwe know from feedback atlast year’s AGM how muchyou enjoyed the videofootage of growers’ workinglives and of their communities.

So this year, we’ve decidedto bring Cafédirect’srelationships and activities tolife online. If you want to findout more, just go towww.cafedirect.co.uk/guidewherever you see theseprompts:

Front cover image:Felix Figueroa, CocoaGrower, Conacado,Dominican Republic.

CD 2:EMMANUELLE’SCHOICE

Camila’s story

CD 3: KATE’SCHOICE

Clive Gardiner andEd Miliband inconversation atCafédirect brandedcafé

CD 4: LOUISE’SCHOICE

Fairtrade United

Outstanding footage and stories we thought you’d really enjoy

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INTRODUCTION

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CD2Growers

CD3Marketing

CD4Sales andNew Customers

CD5Financial Results

2005/06AN INTRODUCTION

REPORT & ACCOUNTS 2005/06 REPORT & ACCOUNTS 2005/06

cafedirect.co.uk/guide


P22DIRECTORSPRESENT THEIRREPORT ANDFINANCIALSTATEMENTS FORTHE YEAR ENDED30 SEPTEMBER2006

P22BUSINESS REVIEWTurnover up 9%from previous year- £21.6m

P23BENEFITS TOOUR GROWERPARTNERS The overallinvestment in PPPwork this year was£684,000. Paid premiums of£1.7m, equates to8% of turnover

P24THE DIRECTORS Who are they?

P25REPORT OF THE AUDITCOMMITTEE

P26REPORT OF THENOMINATIONS &REMUNERATIONCOMMITTEE

P27PROFIT ANDLOSS ACCOUNT

P28BALANCE SHEET

P31OUR THANKS

P32LATESTADVERTISINGCAMPAIGN

CD_R&A2006 T 8/3/07 09:28

It is with great sadnessthat we say goodbye toLazaro. He had been onCafédirect’s Board for twoyears but a friend andmentor of Cafédirect formany more. He was alsoChairman of the RungweSmallholders Tea GrowersAssociation (RSTGA) inTanzania. He was a man ofgreat vision, integrity andcharisma.

Lazaro grew up in Ndala inTanzania, worked around

the country and settled asa tea farmer in Rungwe.He wanted to change theworld for farmers. Hispassion was to championthe Fairtrade system sothat it became the normrather than the exception.His vision was of a worldwhere prices were fairerand where farmers wouldincrease the quality of theirlives through ownership.

All this and more madeLazaro an exceptional

human being whocombined grand thinkingwith practical action.

When I look back on mytime and my work withLazaro from 2005 until hisrecent death, myinvolvement with him wasdeep, emotional, enrichingand constantly challengingabout what Cafédirectwould achieve and do forthis world. In other words,those two years were liketwo decades, and his

creative views mosthelpful. I spent timetravelling the length andbreadth of Tanzania withhim and it never ceased to amaze me how much he knew of the world andits people.

In essence, Lazaro wasworldly wise and yet a verysimple man. He was veryfamily oriented, a trueChristian who supportedhis family, his brothers’children and the childrenof Rungwe as his own.

At Cafédirect we will doour best to make hisdreams come true andpass this torch on to thenext generation. Ourthoughts are with Lazaro’swife, family and the wholecommunity of Rungwewhere he lived.

Rest in peace my brotherLazaro.

Welcome to our annualreport for 2005/06.

The past 12 months hasbeen about strengtheningour foundations ready forthe next phase inCafédirect’s life. Everyonehas worked incredibly hardto build sales in a fiercelycompetitive environment,and I felt strongly that it wastime to take a breath, take stock and reinvigorateourselves for futurechallenges.

I also wanted to make surethat we were well preparedto go the distance asFairtrade increased inpopularity and reach. Weneeded to ask ourselvessome searching and difficultquestions. Could our systems

cope with bigger volumes,more complex orders, anexpanding supplier baseand a widening customerand consumer profile? What did our skill base looklike, and what new expertisedid we need? Particularlygiven our ambition to goglobal, we had to think hardand carefully about theimplications for futureoperations.

I’m clear that Cafédirectmust continue to be acatalyst for change in theconventional businessworld. To do this, we mustcontinue to be pioneers,offering nothing less thantotal commitment in ourrelationships with growers,insisting on excellence in

our trading practices andconstantly improving thequality of all our products.

It is our high standards in allof these areas that havemade Cafédirect one of theleading Fairtrade exemplarsfor others to follow, and we have shown year afteryear that doing business ourway works.

I’m looking forward toCafédirect flourishing as wemove ahead into our nextphase – it’s an exciting time,and I know we can count onyour support on this journey.

Krishna Gopala, ChairmanCafédirect plc

CHAIRMAN’S STATEMENTKrishna Gopala

ONWARDS ANDUPWARDS

A TRIBUTE TO LAZARO, CAFÉDIRECT DIRECTOR 2004/06Krishna Gopala

AGGREY LAZAROMWAKAJILA1941-2006

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OBITUARY

5

OVERVIEW

KRISHNAGOPALA’S CHOICE(CHAIRMAN)

“At our 2006 AGM, I wasdelighted to be able tospeak to shareholdersand hear first hand aboutwhy you wanted to ownshares in Cafédirect. We wanted to capturethis on film and sharethese messages with ourgrower partners. This is a practical way wecan achieve our missionof directly connectinggrowers in the South withconsumers in the North.”

CD 1 - 00.02




Photo: Penny Newman

Krishna with Patrick Shirima and Emilson Malisa, KNCU, Tanzania.Photo: Penny Newman

PENNYNEWMAN’SCHOICE (CEO)

“Lazaro’s infectious energyinspired and invigoratedeveryone he met, and heworked tirelessly towardsrealising Cafédirect’smission. He isremembered withenormous affection byeveryone at Cafédirectand we wanted to sharewith you some of ourfavourite photos, footageand tributes from peoplewho knew him.”

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Dear Shareholder

Three years ago when we launchedour share issue, we said thatCafédirect was doing today whatmany other businesses would dotomorrow. And now they are – you’llhave seen the incredibly swiftexpansion of Fairtrade and otherethically-labelled products onsupermarket shelves.

I am sure that Cafédirect has been acatalyst, a big influence and driver ofthis change. In the past year, this wasalso acknowledged by readers ofReader’s Digest voting Cafédirectone of the most trusted brands in theUK, based on ethical and socialbehaviour towards society. We shouldall feel immensely proud.

Of course, one of the consequencesof our success as a commercial aswell as a social enterprise, is weattract new competitors. This meansthat whilst our vision, purpose andvalues remain the same, how wecommunicate these to consumers hasto evolve. We have to show that theFairtrade Mark is, in fact, a set ofminimum product standards whichCafédirect, with its pioneering spirit,goes far beyond. This is now a realchallenge – to convey our uniquenessin a crowded marketplace, to showconsumers that Cafédirect is andcontinues to be a pioneer in theFairtrade and ethical arena.

Hence a major part of our work thisyear has been to research withconsumers (existing and new),

employees and Friends of Cafédirectto help us to shape our futurecommunications strategy. It hasculminated in a new company logo,the descriptive line “Bringing QualityTo Life” to inform people what thecompany represents and newpackaging that visually brings ourrange into a much more tightlydefined “family” of products. Thesehave recently started to appear onretailers’ shelves.

Whilst this work on the strategyevolved, we continued to focus onthe ongoing promotion of thecompany and its products. Ourturnover for the year grew by 9% to£21.6 million and we paid £1.7 millionin Fairtrade premiums to growers,which equates to 8% of our turnover.

We also recognised that our internalresources needed to bestrengthened. We have put intoplace systems and people to provideus with a solid base for futureexpansion. These investments,together with an increasedinvestment in our Producer PartnershipProgramme (PPP), and an increase inworld prices of our commodities, didput some pressure on our profits.

After analysing these and othermarket changes, we responded byincreasing prices in the Autumn, byaccelerating our new productdevelopment programme, by initiatinginternational expansion and byreducing our sales distribution costs.

Given this, the Board is recommendingthat no financial dividend be declaredfor 2005/06. However, we are pleased tosay that our social return has increased– we increased PPP expenditure by19% to £684,000. This is one of themeasures that we use to demonstrateour social impact with our growerpartners. Like the company, our growerpartners face huge challenges. Thisyear we worked with them to producea three- year plan, including conductingresearch into specific challenges. Oneof these was dealing with climatechange – the biggest challenge facingus – we sponsored a research projectwith Cranfield University to seek cost-effective ways for tea farms to overcomeextended periods of droughts.

We also extended our grower baseto 37 organisations stretching across12 countries. This means that over 1 million people – the farmers andtheir families – now benefit from the

trading relationship with Cafédirect.I am confident that we areaddressing the challenges head on.We have brought out a new companyidentity to convey our uniqueness ofbringing quality to lives, launchednew products, developed new saleschannels to help us build companyawareness, taken on new employees,taken our first steps into theinternational arena in Asia andincreased our social return.

Our continued growth is a testamentto the efforts of our employees, andto our partners who continue to giveus the pick of their crop so that wecan consistently offer superb qualityproducts to our customers andconsumers.

I very much hope you enjoy readingmore about our work in this report, andon the website. As always, I am keen to hear your views. I look forward toseeing you at the AGM on 14th April.

Yours sincerely,

Penny Newman, Chief Executive,Cafédirect plc

GREATER SOCIALRETURNCEO STATEMENTPenny Newman

HELEN IRELAND’SCHOICE(CORPORATE COMMUNICATIONSMANAGER)

“Part of my role that I really enjoyis looking at new and differentways to communicate the work we do, and highlighting thebenefits this brings to people allover the world. I think film is afantastic tool to engage people,simplify complex messages andbring stories to life. With this inmind, we thought we would filmPenny sharing her thoughts on theyear just gone. This also includesfootage from the trip Penny and I took last February to Mexico and Nicaragua. We met with ourgrower partners to betterunderstand the challenges theyface. It was an amazing trip andone which I will never forget.During the year, a number ofother Cafédirect employees visitedgrower partners to helpstrengthen their knowledge andbuild relationships. Many of mycolleagues have captured theirexperiences in diaries which I haveenjoyed reading. I hope you do too.”

6

OVERVIEW

7

A YEAR TO REMEMBERCD 1 - 00.03

LOUISE’S DIARY - PERUCD 1 - 00.04




Photo: Martin Burton

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For Cafédirect to staysustainable in the longterm, we needed tostrengthen our internalresources. We needed toinvest in our IT systems,expand our office space toaccommodate growingnumbers of employees and re-evaluate ourmanufacturingrequirements to match theevolving customer palateand Cafédirect’s wideroperational needs.

With our continuedgrowth, a need for newroles and responsibilities in the company hasemerged. To strengthenour existing team, we havecreated the role ofManaging Director UK, Clive Gardiner joined us inMay to take on this role.He is a management and

marketing specialist, withover 20 years UK andinternational experience inconsumer goods and ‘B2B’companies. He is a recentMBA graduate of HenleyManagement College.

We also appointed a full-time Human ResourcesManager. Elizabeth Smithjoined us in June. Herprevious experienceincludes spending the lastsix years as HR director atNeal’s Yard Remedies Ltd.

In August, we also broughton board a new FinanceDirector, Richard Scanlon.He brings extensiveexperience in businessdevelopment andinternational finance insenior management roles,and joined us from BAAGatwick Airport.

MANAGING THEPOSITIVES

Like us, growers have theongoing challenge ofdeveloping and managingtheir businesses sustainably.Our Producer PartnershipProgramme hasconcentrated on helpingthem to develop strongergovernance structures,more robust systems andwider management skills.Last year, while higherprices for both tea andcoffee was great news, therise in the market meantthat they had to deal with arange of new factors whichimpacted on their day today working.

This is because fluctuatingprices involve greater risk,and higher volumedemands put pressure onthe ability to supply qualityproducts consistently. This is made harder by thechanging nature of theirclimates. For example, ourtea partners in East Africahave been badly affectedby drought, and our coffeepartners in Mexico wereimpacted by HurricaneStan. Growers need tounderstand how best tomanage this changingmarket and environment,therefore enabling them tocompete successfully on the world stage.

Cafédirect not only

deepened but alsowidened our work with ourgrower partners - taking onanother three new growerpartners this year. In doingso, we are not onlypreparing our partners forthe future but also ensuringCafédirect is able to delivera new exciting productdevelopment programme.The new groups are:

New tea partners -Michimikuru, Kenya andKelliewatte, Sri Lanka.

New coffee partner -Misozi, Rwanda.

NEW BRANDSON THE BLOCK

Everything that bears theFairtrade Mark is notnecessarily equal, either in terms of quality or in terms of thecommitment to Fairtradeby the company that isdoing the selling.

FOR A SMALL COMPANY, CAFÉDIRECT IS GROWING FAST. AS WELL AS THE INTERNALPRESSURES THAT THIS INEVITABLY ENTAILS, LAST YEAR WE HAD TO OPERATE IN ATRANSFORMED – AND FAR MORE COMPETITIVE – MARKETPLACE

However, this isn’t alwaysapparent to the consumerbrowsing a supermarketshelf crammed with newly launched Fairtradeand other ethically-labelledproducts.

Cafédirect used to be a first - time Fairtradeconsumer’s choice whenthey considered what tobuy; now they areincreasingly tempted bysupermarket’s own-labelFairtrade hot beverageranges that are usuallycheaper than brandedproducts.

This competition meantthat our growth slackenedoff last year compared with2004/05. It also means weneed to shout louder aboutwhat makes Cafédirectspecial. We have to cutthrough increasingcustomer confusion aroundthe plethora of labels, andanswer questions like:

“What’s the differencebetween Cafédirect andanother ethical label?”

“Does buying a cheaperFairtrade Marked productdo the same job as a moreexpensive one?”

“Does it taste the same?”

“Does it really matter whatI choose if they’re all doinggood in some way?”.

Increased marketcompetition means we alsohave to prove our worth tothe supermarket buyer toensure our premiumposition on the shelf.

We’ve had to work harderat not only how we presentourselves (our corporatepositioning), but also at ourprice positioning, our tasteoffer and our packaging.

FAIRTRADEUNDER FIRE

As Fairtrade becomes moresuccessful, so it becomesmore of a target for thosewho don’t believe in itsprinciples. This year saw thepublication of a criticalfeature in the FinancialTimes that questioned theintegrity of the FairtradeMark, followed by an articlein the Daily Mail and anarticle published in TheEconomist questioning theefficacy of Fairtrade as amechanism to help farmers.

The consequences of thiskind of writing are notimmediate, but if thecriticisms are not countered,the cumulative effect will beto undermine trust in theFairtrade Mark, and byextension, in our brand.

As a Fairtrade pioneer andone of the largest Fairtradecompanies in the UK, we areoften asked for our views.Because of our directrelationship with growersacross the world, we are ina unique position to obtaintheir opinions anddemonstrate the way thatour Fairtrade businessmodel works.

These type of articles aresomething that we knowwe have to prepare for,and respond to, and we dodedicate resources to this.However, more of this workwill be needed if we are toimprove the understandingof how Fairtrade works andcrucially, how Cafédirectensures that the highestpossible standards arealways met.

HOW THE WORLDCHANGES

Growers sorting coffee.Cesmach, Mexico

Strengthening our teamClive, Richard andElizabeth

BUILDING FORTHE FUTURE

“Speaking to Merling lastyear in Nicaragua, it wasinteresting to hear herviews about the growthof large roasters enteringthe Fairtrade market.”

MERLING PREZA,GENERALMANAGER,PRODECOOP,NICARAGUA CD 1 - 00.05

“I don’t think the problemis that more buyers areentering the Fairtradesystem. We all want morebuyers so that Fairtradecan grow. Where I have adifficulty is when peoplechange the rules of thegame. Other players in the Fairtrade market are not respectingfundamental Fairtradeprinciples.

When a multinational saysit is interested in doingbusiness differently, Idoubt that, because thesuccess of its businessdepends on the very factthat it does not have deeppartnerships withproducers. Instead it hassuppliers which it buysfrom and it makes a profit;it's a very differentrelationship becausemaking profit for itself isthe real purpose. Theyintroduce a Fairtradeproduct as just anotherline in their range, not as

a principle of how they dobusiness. So I don’t havemuch faith in the idea thatwe are going to educatethe transnationals to dobusiness differently. That would meanvoluntarily sacrificingsome of their business,and this I think would bevery difficult for them.”

“I enjoyed reading aboutthe trip Ruth, my PA,took with Isla, ourAssistant Brand Managerfor Tea and Cocoa. Theyvisited our tea partners inKenya. It’s really great tosense their enjoyment ofbuilding their knowledgeand relationship withKeigoi and Michimikuru.”

PENNY NEWMAN’SCHOICE (CEO)

RUTH AND ISLA’SDIARY - KENYACD 1 - 00.06

8

OVERVIEW

9

Chirinos, Coffee Co-operative, Peru

‘Cafédirect takes veryseriously the issuesraised in the FinancialTimes article (9/9/06)...’





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Selling tea to consumers intheir own country alsooffers interesting prospectsfor growers. We haveworked with our otherUgandan partners, Mabaleand Mpanga, to buy andinstall a tea-sachet packingmachine enabling them tosell their tea in their localmarket.

INVESTING INCOFFEE QUALITY

The investment in qualityremains an important focus of our work. Qualityimprovements arefundamental to increase the income to growers. It also helps them maintaintheir competitiveness in adynamic marketplace.

The work on coffee qualitycontrol included workingwith our partner Cecovasa,in Peru. Our partner, Twin,implemented this qualityworkshop programmewhich gave the organisationthe tools required to traintheir farmers in qualityimprovement techniques.They also trained thereceptionistas (individualswho receive the coffee fromthe farmer at the collectionpoint) how to visually assessthe quality of the beans.This means they canimmediately identify thegrading of the coffee as itarrives at the collectionpoint. This work wasrepeated with a number ofour Peruvian coffeepartners.

MEETING NEWQUALITYSTANDARDS

Last year we reported onour Hazard Analysis CriticalControl Points (HACCP)food safety compliancework, which our partner,Imani, has implementedwith six tea partners inUganda and Tanzania. Thishas been one of our largestever investments in assistingour partners to quality-assure their crops. After atwo-year preparationperiod, two of the teafactories, Kibena andWakulima, have almostreached the stage at whichthey can be audited andcertified. This is planned forMarch 2007.

Such work takes steady,determined management.For example, quality andtraceability targets, asdemanded by the new‘British Retail ConsortiumGlobal Standards Foods’document, must be adheredto. The capacity to meetthese targets on aconsistent basis is crucial tofarmers being able toincrease their market sharein the Fairtrade arena aswell as in more mainstreammarkets. Four local Africaninspectors have been trainedto reduce dependency oninternational consultants.

Our tea partner Mpanga,Uganda, has seen anextremely positive benefit ofimplementing a HACCP

system, with the recentconstruction of a factoryworkers’ canteen, showersand toilets. These amenitieshave a double benefit to thebusiness – not only helpingto achieve the HACCPstandards but making thetea workers feel moreappreciated. Theknowledge, and importanceof sanitation, is also sharedwith tea growers’ familiesand their communities.

RELATIONSHIPSThe partnership and mutualunderstanding betweenCafédirect and our growerpartners was deepenedthrough a number of visitsfrom our partnerorganisations. We weredelighted to welcome a totalof 13 representatives from10 of our trading partnerorganisations from Mexico,Peru, Nicaragua, Uganda,Tanzania and Cameroon.

They also found the visitsfruitful and important forstrengthening our directrelationship –

“We are very interested in partnership, and thefact that growers areshareholders shows truepartnership. It’s a two-wayrelationship, not justsuppliers but truepartners”Joseph Kamanu, FactoryManager, Michimikuru, ournewest tea partner in Kenya.

To further enhance ourunderstanding of ourpartners and their workingenvironments and thechallenges they face, 12Cafédirect employees wenton 11 separate visits tosome of our partnerorganisations this year. Their experiences wereoverwhelmingly positiveand all felt they had learnt agreat deal on a professionaland personal level.

As the effects of climatechange are increasingly feltby our partners, ensuring asecure water supply hasbecome a critical issue.

Water shortages due todrought have already badlyaffected our tea partners inEast Africa over the pastyear. To address this, wesponsored a researchproject with CranfieldUniversity to look atrealistic, cost-effective waysfor smallholder tea farmersto overcome severe orextended periods of dryness.The research demonstratedthat with alternative watermanagement systems,yields can be increaseddespite dryness. Themethods investigated willbe implemented as part ofour Producer PartnershipProgramme this year andmonitored for impact. We believe that bringingthe skills of public andprivate sectors togethercan give great results, andwe have undertaken apublic/private partnershipinitiative with the Germangovernment to deal withthe combination of climatechange issues, carbonsequestration andagricultural diversification.

One specific aim is tostrengthen the ability of ourpartners to confront climatechange by looking at

agricultural diversification orother economic options. Thisproject will be carried outover the next three years.

EGGS ANDBASKETSDiversification means thatfarmers are less vulnerableto the fluctuations of oneparticular market. Ourpartners are keenly awarethat managing their risk iskey to building a trulysustainable business.

Our Producer PartnershipProgramme has, forexample, worked withCOCLA, our coffee partnerin Peru, to encourage thecultivation of good qualitycocoa for export markets.We have now started to buytheir cocoa for our drinkingchocolate, Cocodirect. They have also diversifiedinto animal feed, poultryand fruit. Farmers began toproduce passion fruit insmall volumes and byorganising themselvescollectively, they receivedbetween a 65% -100%increase in prices for theirfruit. The same buyersshowed interest in othercitrus fruit, offering thefarmers more options forthe future.

NEW MARKETSWe have helped supportthe growers to trade inother markets. For example,Kayonza and Igara, two ofour tea partners in Uganda,have recently started to selltheir tea to Pakistan. Todate, some $300,000 ofsales have been secured inthis new market, against anoriginal target of $50,000.As a non-traditional andvery large market, Pakistanoffers growers a promisingalternative to sell their teadirectly rather than throughthe Mombasa tea auctions.

Rapid growth in the Fairtrade markethas meant an increase in demand forcoffee, tea and cocoa. Together with asharp rise in the price of tea and coffee,this has been welcome news.

It has allowed our Producer PartnershipProgramme (PPP) to concentrate onlonger term issues and, for the firsttime, we have worked with our growerpartner organisations to develop three-year plans, instead of just one year.Most importantly, these plans deal withthe long term issues that will face agreat many of the world’s growers inthe future.

First and foremost, the effects ofclimate change. We show examples ofprogrammes designed to deal withdrought and to facilitate diversificationinto new crops so as to lessondependence on just one crop. We alsoshow programmes for selling into newmarkets and for improving quality andquality standards.

All these programmes are in support of the long-term sustainability of ourgrower partners and their families,communities and businesses.

GROWERSSTEP UP TO LATESTCHALLENGES

COFFEEPROCESSING IN MEXICO CD 2 - 00.02

OUR SPECIALRELATIONSHIPCD 2 - 00.01

TEA PROCESSINGIN UGANDACD 2 - 00.03

Kayonza, Uganda

Opening the canteen,Mpanga, Uganda

Cecovasa, Peru

MITIGATING THEEFFECTS OFGLOBALWARMING

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GROWERS

11REPORT & ACCOUNTS 2005/06 REPORT & ACCOUNTS 2005/06




WOLFGANGWEINMANN’SCHOICE(PPP MANAGER)

“Over the last year, I have had the pleasureof meeting and workingwith some of our growerpartners. I’ve seen howthey work and live, andwhy our relationship isspecial to them – thesefilms bring this to life intheir own words.”

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Rio Negro community,Cesmach, Mexico

ON GROWERS, ON THEIR ORGANISATIONS, ON THEIR COMMUNITIES

MEXICO – STRENGTHENING AND DEEPENING OUR LONG TERM RELATIONSHIP

Our partnerships with grower organisations are not a quick fix – we intend that they lastfor many years, and through natural disasters. We work with our grower partners throughgood times and bad ensuring our business relationship doesn’t founder – helping them tocreate thriving businesses and communities.

TANZANIA:COMMUNITY CREDIT –MAKING THE MONEYWORK HARDER

In many parts of Africa it isextremely difficult formarginalised small-holdergrowers to access loans orfinancial institutions. As aresult it can be difficult forthem to make long-termplans or make largeinvestments in their farms.

The farmers at theWakulima factory, part-owned by our tea partner,the Rungwe SmallholdersTea Growers Association(RSTGA), attempted to finda solution. They startedtheir own Savings andCredit Co-operative Union(SACCO) in 1992. However,the savings that farmersmanaged to put by weretiny and interest ratesremained relatively high.

Therefore, one idea toboost the available funds

was to ask RSTGA if theywould agree to release asum from their FairtradePremium Fund to boostSACCO’s reserves.

They agreed to do so, asthey foresaw access to abigger pot of moneywould give them thechance to invest properlyin their farms, pay upfrontfor school fees and offervital seed funding toenable them to begin todiversify into new businessventures.

The average loan nowstands at Tsh300,000,(approximately £121) andencouragingly, morewomen are borrowing tostart their own income-generating activities,confident that they will notbe refused a loan.

Hamisi Kambasili,Chairman of the SACCOmanagement committee,has himself taken out a

loan to improve hishousing situation andinvest in a new grain-milling machine.

“With the new loan andmy other savings, I havebuilt a family home whichis now 90% complete,and the milling machineprovides employment formy brother.

And I have used theincome I am generatingfrom the milling machineto demonstrate my credit-worthiness to a bank foranother new loan.”

MAKING AN IMPACT-

FAIRTRADE BENEFITSCD 2 - 00.06

ALEJANDRO ANDHIS FAMILYCD 2 - 00.05

CAMILA’S STORYCD 2 - 00.07

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GROWERS




cafedirect.co.uk/guidecafedirect.co.uk/guide

AFTER HURRICANESTAN: GETTINGGROWERS BACK INTOBUSINESS CD 2 - 00.04

As reported last year,Cafédirect instigated animmediate appeal in

response to the devastationcaused by Hurricane Stan inOctober 2005. An extra50p from every pack ofPalenque sold went directly to COMPRAS, theumbrella organisation forthe four Mexican coffeepartners most affected bythe disaster.

Thanks to the generosityof our customers, and the additional investmentfrom our PPP monies, we were able to send£105,427. Most of thefunds were used to repaircoffee drying patios, repair water pipes, buyfood and restore wetmilling stations.

POLLUTION DOWN:PRODUCTION UP,QUALITY UP, SALES UP

With Huatusco, one of ourcoffee partners in SouthernMexico, we have beenworking for over a decadeon innovative methods toimprove yields and reducethe environmental impact of coffee processing.

Fairtrade premiums havesupported the acquisition of machinery to treat wastewater in order to reducecontamination by 99%.They have also helped totrain farmers to dry theircoffee cherries thoroughly,resulting in a reduction inenergy used. Also, theyhave improved soil fertilityby encouraging the use ofcompost as part of theorganic conversionprogramme. As a result,coffee quality has risendramatically.

These improvements inquality and their approachto marketing has meantHuatusco now sells 63% ofits members’ coffee to thegourmet, organic orFairtrade markets. In thepast, that figure was just15%. The shift represents anincrease in income of almostUS$1m per year(approximately £509,000).

Huatusco has also sharedits experience andexpertise with other growerorganisations in Mexicoand Nicaragua.

Nearly 3,000 familiesreceived support fromCafédirect’s emergencyresponse, and thoughdamage was too extensiveto be fully covered by thesefunds, according toCOMPRAS, it was “the bestand most generous supportreceived for the coffeeproducer organisations tobe able to rehabilitate theirproduction capacities andensure their economicsurvival after the damages”.

Despite the disaster, thegrowers continued to drytheir coffee and fulfil theirorders for the season andwere back in business.

HuatuscoPhoto: Darren Rees

EMMANUELLE LEDRIAN’S CHOICE(SUPPLY CHAINASSISTANT: TEA/COCOA)

“I ensure that our productsget to the right place atthe right time. What keepsme motivated is knowingthat behind every cup ofcoffee, tea and cocoa is afarmer and his or her family,and that my work reallydoes make a difference. I have been lucky enoughto visit our cocoa partnersin Cameroon, and reallyenjoyed watching thesefilms of life in Peru.”

KENYA - HIV/AIDSPALLIATIVE DAYCARECENTRE

Patients suffering fromAIDS in the Machunguloregion of Kenya now havesomewhere to go duringthe day where they canrelax, take part incommunity activities and,when they are well enough,work as carers for morepoorly patients.

The palliative daycarecentre in Machungulo wasbuilt with money fromKeigoi’s Fairtrade PremiumFund, one of Cafédirect’stea partners in the area. Itwill soon benefit from adispensary and a kitchengarden is being planted inthe grounds to providehealthy food for patientsand their families.

The orphans and widows

will also be cared for at thecentre. The Premium FundCommittee hopes this willhelp to combatdiscrimination againstpeople whose families areaffected by HIV/AIDS.

To date, the cost of thiscentre has been Ksh1.8m(approximately £13,000).

“The community reallyappreciates the projectsfunded by the premiums,not only in this location butin the whole district. Thewhole community feelsthe impact of Fairtrade.”

Reverend Sunday K.Ibuathu, who works at the centre.

Reverend Sunday K.Ibuathu in front of the HIV/AIDS Palliative Daycare Centre, Kenya Photo: Isla Mackay

CD_R&A2006 T 8/3/07 09:29 Page 12

Between 2000 and 2005, we weresubstantially focused on developingour individual brands of premiuminstant and Roast & Ground coffee, aswell as Teadirect and Cocodirect.

However, with the increasing numberof ethically-labelled and Fairtrademarked products flooding onto themarket, we knew this year that we hadto explain to consumers more aboutCafédirect and let them know whatmakes us different from the rest. If we didn’t do that, what was there to stop someone choosing an own-label Fairtrade coffee rather than oneof ours?

Over the year, we ran a series ofworkshops as part of our brandidentity project with various groups,including people who drank ourproducts, growers, employees, Friends

of Cafédirect, and consumers whocurrently didn’t drink our range. Weasked them to help us better expressour values and also asked them whatmakes us special when comparingCafédirect with other Fairtrade hotdrinks brands.

Our current customers told us that thefact that we had always produced onlyFairtrade products was crucial, unlikeother companies which just had oneor two Fairtrade lines. This was also ofgreat interest to new consumers. All felt that it demonstrated that ourcommitment to trading fairly rested atthe very core of our values.

This feedback, combined with otherfindings, highlighted three key aspectsof our work that we needed to shoutabout: firstly being 100% Fairtrade,secondly creating mutually rewarding

relationships that start with respect forthe farmer and end with consumersgetting great quality hot drinks, andthirdly offering people a window intothe growers’ world, and a genuineconnection to the way they live andwork – ‘a virtuous circle’.

We then wanted this uniqueness to beconveyed in a simple and graphic way.Using the C and D of Cafédirect torepresent this virtuous circle, a logowas developed to be used on all thecompany’s packaging and otherpromotional materials. This new logovisually draws the eye to the centre ofthe product where our name isproudly emblazoned.

We also wanted a strapline that wouldexpress our unique company valuesand personality, and emphasise theimpact of our business. We believethat ‘Bringing Quality To Life’embodies everything we stand for – away of working that benefits everyone.

There was also a much more practicalbarrier to overcome. Additionalresearch suggested that customersdidn’t always grasp that Teadirectteabags came from the samecompany as 5065 instant coffee, orCocodirect drinking chocolate. Wewanted people to understand that weare offering a ‘family’ of high qualityFairtrade products, and hopefullyencourage someone who enjoys oneof our Cafédirect Roast & Groundcoffees to ‘cross-purchase’ anotherproduct from our range.

That meant incorporating visualprompts into our packaging to indicatethat all our products come from thesame Cafédirect stable. It has been abig undertaking, and a significantinvestment of time and money.

All our packaging now uses our newlogo in a central position, allowingconsumers to associate our tea,coffee and drinking chocolate morereadily as coming from Cafédirect.Across our range we now flag up thefact that Cafédirect is 100%Fairtrade. There’s a glimpse through

to the stunning landscapes in whichour growers grow their crops. Wealso print the Fairtrade Mark in fullcolour rather than black and white, toemphasise the products’ Fairtradecredentials.

The rebranding exercise extendsthrough to our out-of-home range.Vending fascias, exhibition stands,posters and point-of-sale materialsare all being redesigned and replacedto reinforce the fact that Cafédirectprovides the trade with a one-stop-shop for Fairtrade hot drinks, fullybacked up by a consistent imagereflecting our quality message andFairtrade-plus values.

By the time this annual report isprinted, you will be finding the newlydesigned products on supermarketshelves, in vending machines, on saleat university Fairtrade cafés and in theCafédirect branded café, RegentStreet, London. We very much hopeyou like what you see.

Please do tell us what you think!

OUR UNIQUENESSBUILDING A NEW IDENTITY FOR OUR BRANDSylvie Barr, Head of Marketing “We used this animation at the

recent Hospitality show wherewe talked to our current andpotential customers about ouruniqueness. It brings to life thenew logo.”

NEW LOGOCD 3 - 00.02

“During Fairtrade Fortnight lastyear, I helped to translate for ourSpanish- speaking growerpartners when they visited ourconsumers. This is a great wayfor people who drank theircoffee and tea to meet theexperts behind the products, andfor our grower partners to learnmore about the people whodrink their products – it issomething they really enjoy.”

ALEX GEORGIOU’SCHOICE(SALES CO-ORDINATOR)

14

MARKETING

15

Photo: Stanton Media

ALFONSO’S VISIT TO THE UKCD 3 - 00.01




CD_R&A2006 T 8/3/07 09:29 Page 14

“How did I become acoffee taster? Well, it hasbeen a long process”…

CHOCOLATEY,CHOCOLATIER,CHOCOLATIEST…

Cocodirect has gone down astorm with our retailcustomers, but to offer a one-stop-shop for our out-of-homeclients, we wanted to providethem with a Fairtradechocolate powder thatcould be made with water,sold in vending machines –and tastes deeply,luxuriously chocolatey.

After months of carefulresearch to get the reciperight, it’s now the onlyvending instant chocolate onthe market not to containhydrogenated vegetableoils. These oils convert intotransfats, which have beenproven to be harmful to theheart. The trade havewelcomed ‘CocodirectInstant Chocolate’. It will helpus to get our full out-of-homerange into even more outlets,including sports centres,schools and workplaces.

NEW WAYS OFSHOUTING ABOUTOUR DIFFERENCE

Finding new ways of tellingpeople about our uniquenessis core to our marketing:

HAY FESTIVALIf you had queued for acuppa at the Hay-on-WyeFestival café last May, youwould have found yourselfsurrounded by fellowliterature lovers drinkingCafédirect. Supplying Haygave us a tremendousopportunity to raiseCafédirect’s brand profilewith one of our mostimportant target markets,reaching thousands offestival goers.

KEW GARDENSAt the Royal BotanicalGardens at Kew, we invitedsupermarket buyers andtrade press to a tastingheld in the tropical PalmHouse. Our aim was tohighlight our growers‘knowledge and skills,specifically how theyimprove the quality of theircoffee, tea and cocoa. Weinvited Beltran Apaza, aCoffee Quality Officer fromCecovasa in Peru to sharehis skills and experience.This resulted in some greatcoverage in trade andconsumer publications andenhanced our relationshipswith trade customers.

ENTERPRISE WEEKDuring Enterprise Week inOctober, we helped toraise the awareness ofsocial enterprises in the UK.The Cafédirect way ofdoing good business wasapplauded by Ed MilibandMP, the Minister for theThird Sector, who said:“Cafédirect is an incredibleexample of how the socialenterprise movement isbringing about a fairersociety while providing areal challenge to the rest ofthe private sector. As thesixth largest coffeeprovider in the UK, theyshow how it is possible tocombine commercialsuccess and dynamism withsocial justice and acommitment to place

ethical values at the heartof everything they do”.

‘BOIL BETTER DAY’!In October 2006, we weredelighted to partnerthe Energy Saving Trust(EST) to launch ‘Boil BetterDay’ as part of EnergySaving Week. Cafédirectsees first hand how climatechanges have impacted on growers’ lives and theirlivelihoods.

The day aimed toencourage people toreduce energyconsumption by boiling lesswater for their daily cuppa.Research from EST showsthat if everyone in the UKcommits to saving just 20%of the energy used everyday, we can help to preventclimate change.

We spoke to the media,MPs and local councils tohighlight this initiative andreceived support fromHilary Benn MP, Secretaryof State for InternationalDevelopment:

“I am delighted to lend mysupport to ‘Boil Better Day’.Many poor countries arestruggling to cope withclimate change. Unless theworld acts together to solvethe problem, the situationcan only get worse. Wemust all get involved...”

BIO CUPAs part of our commitmentto help the environment, in2007 we are launching‘ecotainer’ hot cups for ourout-of-home customers.Sourced from fullyrenewable resources, thesecups use a corn-basedplastic as a moisture barrierrather than a petrochemicalbarrier. This PLA-basedcoating also makes the cup compostable. The cups are certified by theBiodegradable ProductsInstitute.

NEW PRODUCTS, NEW TASTESAND NEW WAYS OF SHOUTINGABOUT OUR DIFFERENCETO KEEP AHEAD IN THE MARKETPLACE MEANS TAKING AFRESH LOOK AT OUR PRODUCTS, HOW THEY TASTE ANDWHERE WE SELL THEM…

KNOW WHERETHE COFFEECOMES FROMCD 3 - 00.05

BELTRAN AT KEWCD 3 - 00.04

OPENING OFREGENT ST CAFÉCD 3 - 00.06

KATE WILLIAMS’SCHOICE(COFFEE BRANDMANAGER)

“Over the year I’ve reallyenjoyed being involved ina range of exciting eventsto try to encourage moreand more consumers tobuy our excellent drinks.Here are a few films thatcapture some of theevents I experienced. I hope you enjoy them!“

16

MARKETING


REFRESHINGOUR COFFEETASTE ANDEXTENDING OURRANGEIn a market where a plethoraof products is now on offer,people’s palates areevolving. We are keenlyaware that we need tocontinually re-evaluate thetaste of all our lines, andinnovate by introducing newproducts to an increasinglysophisticated audience.

Following consumerresearch on 5065 instantcoffee, we discovered thatthe name was not workinghard enough to explain

‘what it does in the jar’.Coffee drinkers’ palates arealso changing, and in the UKinstant market, people nowlike a stronger taste. As wellas renaming it more simply asCafédirect Classic Blend, wehave also refined the blendto reflect our customers’preference for a smoother,more rounded flavour.

As part of giving customersmore choice, we have alsoexpanded our instant rangeto four lines, all packagedto reflect our rebranding tocreate a more coherent‘look’ for Cafédirectproducts. The rangeincludes CafédirectDecaffeinated Organic

Instant and the launch oftwo new instant coffees:

Cafédirect Intense, as itsname implies, has richstimulating properties, idealfor anyone who wantssomething a bit stronger tokickstart their brain cells inthe morning!

Cafédirect Special Selectionis a limited edition singleorigin coffee, 100% Arabica,that has been hand selectedfor quality. The origin for thebeans in this instant willchange according to thedifferent coffee harvestsaround the world and takesour instant coffee to thepremium end of the market.The first Special Selection is

a fresh, vibrant, coffee directfrom the cloud forests ofNicaragua. These beans alsogo into Cloud Forest(formerly known as LasNubes), our single origingourmet wholebean product.Fatima Lopez Rodríguez, theexpert taster at Prodecoop,one of our Nicaraguanpartners, explains what ittakes to ensure only the verybest quality coffee arrivessafely in your cup.

FATIMA LOPEZRODRÍGUEZ,PRODECOOP,NICARAGUACD 3 - 00.03

As well as our range ofinstant coffees, we havebrought out a new smaller pack – tea 40s,perfect if you want to give Teadirect a try!





Photo: Stanton Media

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Next time you are shoppingin London and need a break,head down to 311 RegentStreet where you’ll find thefirst ever Cafédirect brandedcafé on the high street. Wewere given this opportunityby specialist educationcaterers Scolarest, who hasbeen our partner for threeyears and supplies ourproducts to over 300universities across the UK.The Regent Street café,

owned by the University ofWestminster and operatedby Scolarest, is a superbopportunity for students,shoppers and tourists in oneof London’s premier retailenvironments, to bothsample and purchase ourproducts.

The branding inside the caféwas specially commissionedfor the site. We worked withour design agency to

develop the imagery whichdemonstrates how our wayof working brings benefits to famers and theircommunities, and uses theconcept of ‘Twinning’ toemphasise the direct linkbetween growers andconsumers.

The imagery is from theChiapas and Veracruz regionin South East Mexico, whereour single origin Palenque

Roast & Ground coffeecomes from. Cafédirect has worked with ourgrower partners in Mexicosince 1996, and now works with five growerorganisations there.

We look forward to peoplevisiting the café to enjoy ourdelicious drinks and learnmore about the growers and their communities.

NEW CUSTOMERS

During the year, we weredelighted to welcome agrowing number of newcustomers involved in sport, including football, asport our grower partnersalso love to play. Thisincluded Bristol CityFootball Club, where ourdistributor Lindley Cateringnow supplies Cafédirectdrinks to matchgoers, aswell as to banqueting andconference guests. WithBristol’s profile as aFairtrade City and strongawareness of ethicalconsumerism evidentthroughout the WestCountry, switching toCafédirect made perfectsense to the Club’smanagement.

“Bristol City Football Clubtook on Cafédirectbecause we put a hugenumber of supportersthrough our restaurants,and are also a flourishingbanqueting andconference centre so wehad to give the very bestproduct, and Cafédirectmet our needs perfectly.“

Colin Sexton, Group Chief Executive

From another sport, if youfancy a flutter, why not goto Hereford Racecourse,where you’ll be able to sipyour Cafédirect cappuccinoas you count your winnings.

Cricket fans will also beable to buy Cafédirectdrinks at NottinghamshireCounty Cricket Club, whichjust signed its first order.

FIRST CAFÉDIRECT BRANDED CAFÉ

18

SALES AND NEW CUSTOMERS

19

THE STORYBEHIND THE CAFÉCD 4 - 00.02

FAIRTRADEUNITEDCD 4 - 00.01

HALF AN INCHCD 4 - 00.03

LOUISEWHITAKER’SCHOICE(TRADE MARKETINGMANAGER)

“I was lucky to visit ourgrower partners in Peru tosee the difference workingwith Cafédirect has madeto them. I have been ableto share this experiencewith customers on a daily basis. This has moreof an impact and helps to engage people withour brand.”

OUT-OF-HOMESUCCESSCafédirect’s out-of-homesales have grown 41% in the last year and we are delighted to haveintroduced our coffees, teasand hot chocolate to newcustomers. All of this requireswork to support our tradecustomers, who in turn wantto enthuse their customers.This includes providingdedicated promotionalmaterial, growers’ visits toout-of-home outlets,

maintaining a presence attrade fairs and engaging aspecialist trade PR companyto raise our profile andgenerate excitement aroundthe brand.

We were delighted toreceive a ‘HighlyCommended’ in the BrandImpact Category at theAuto Vending InnovationAwards 2006. This categoryrecognises brands that arehaving a significant impactand growth in the industry.Sales of Cafédirect vending

products have doubledover the last three yearsand now account for 11%of our out-of-home sales.

The growth in the number ofcompanies seeking to findnew ways to meet theirCorporate SocialResponsibility (CSR) hasresulted in Cafédirect’sproducts being supplied aspart of a wider commitmentto improving workplaceethics. Offering Cafédirect’sproducts is an easy andtangible illustration of a

company’s CSR practices andalso brings the ‘feel goodfactor’ to employees.

As a result of this trend, wedecided to partner withEthical Performancemagazine, the independentglobal publication for sociallyresponsible business, tosponsor their CSR directoryand run a campaigntargeted at CSR managers.This helped boost awarenessof our brand, and buildrelationships amongst theCSR practitioner audience.

Fairtrade cricket afternoonteas will be served from thestart of the new season.

If you’re enjoying a night in,watch out to see if anyCafédirect branded mugsappear on Channel 4programmes. When ArtizianCatering won the contractto supply hot drinks to thebroadcaster, they were toldit had to be Fairtrade andthat quality was key. Peros,our main out-of-homedistributor, recommendedCafédirect, and since theAutumn, Artizian hassupplied all Channel 4’smeetings, private diningand general catering withCafédirect tea and coffee.

AND BACK AT THESUPERMARKET...

Our retail sales, which nowaccount for 75% of our totalUK business, steadied thisyear to 2% growth. This wasin fact against an overalldecline in the market forsome categories, eg tea -1.6% and instant coffee -0.6% (Source: IRI July 2006), inpart due to the record-breaking hot summer andthe World Cup.

New companies enteredthe market, andsupermarkets brought outtheir own Fairtradeproducts at cheaper prices,leading to much toughercompetitive conditions.

We responded to thistoughening retail market bylearning more about ourretail partners and helpingthem understand more

about us and why we areworthy of more support. We continued to supportour sales with promotionalactivities including multibuys,coupon-at-till offers,targeted mailings andextensive in-store samplings.We have presented tosenior executives fromareas such as corporatesocial responsibility andethical sourcing.

A very positive result wesaw was an initiative inSainsbury’s, where we wereplaced in the centre of theRoast & Ground coffeefixture. Sales across thewhole fixture increased aswell as sales of our ownproducts, proving that whenplaced properly on shelf, wecan act as a ‘beacon brand’drawing consumers in.

“Recent research is alsoencouraging. We nowhave tangible evidencethat our products have a ‘halo’ effect onsupermarket aisles, both in terms of givingcredibility to theFairtrade message and by encouraging people to buy other Fairtradeproducts. The more we can prove this, themore centrally ourproducts will be placed on supermarket shelves,and the more Cafédirectpeople will buy.”

Gina Overton, Trade Marketing Manager,Bridgethorne Limited, ourretail sales partners.

During Fairtrade Fortnight,we ran a week long (5-12 March) newspapercampaign around thetheme of ‘Half an Inch’, to raise awareness ofCafédirect amongstpotential consumers. Thiscampaign was extremelysuccessful and contributedto a doubling of retail salesduring this period.




Photo: Chris Davis


CD_R&A2006 T 8/3/07 09:29 Page 18

Around the world, the message ofFairtrade is spreading and it hasseemed to us for some time thatCafédirect might easily sell just aswell outside the UK as it does athome. It is a terrific prospect: goingglobal means an almost unlimitedmarket, and the more tea, coffeeand cocoa we sell, the bigger

volumes we can buy from growersunder our Fairtrade terms.

We are, of course, already selling inIreland, and we appointed a PRcompany there in June to increaseawareness of our brand.

The profile of Fairtrade in Ireland isrising fast: Dublin is aiming for

Fairtrade status, as are 45 othercities and towns in the Republic.

Cafédirect products are nowavailable in all their majorsupermarkets and in manyindependent stores, a sector that isfar more important in Ireland than inthe UK. Thanks to the efforts of our

distribution partner, National OrganicProducts, sales increased by 19% lastyear and we are looking to doublethat growth over the next 12 months.

We also intend to expand intoIreland’s out-of-home sector, where wewould currently be the only significantFairtrade player in the country.

Looking further afield, we knew wehad to dip our toes carefully in thewater before plunging right in.Over the past 18 months, we haveundertaken extensive marketresearch in Australasia, Europe andAsia to find out where customerswould be most receptive to theCafédirect brand.

One of the keenest markets inFairtrade products is Hong Kong and

the Far East. Ripples of awareness of ethical consumerism have spreadfast across Asia, particularly followingthe 2005 World Trade OrganisationMinisterial Conference held in Hong Kong. We therefore exploredwhat opportunities might beavailable there, and in Singapore.This has resulted in a listing with amajor supermarket chain in HongKong, called Park ‘n’ Shop. Their firstand second orders have now beenplaced and our wholebean, Roast &Ground, and instant coffees will soonbe in 50 stores across the city. Weview this as a key growth area fornext year and beyond.

Following more detailed consumerresearch, we believe that thepremium end of this market is where

Cafédirect will work best, and ourgourmet, single-origin and organicproducts seem the perfect fit.

To present ourselves to buyers fromother countries, we decided toexhibit in the Autumn at SIAL inParis, one of the biggestinternational food and drink tradefairs in the world.

Helping us on the stand wereNimrod Wambette, a coffee farmerfrom the Gumutindo co-operative inUganda, Jane Nyamburo from theKenya Tea Development Agency,and Marilec Sevilla, an expert incoffee quality from COMPRAS, ourpartner in Mexico. Their enthusiasmfor Cafédirect and our Fairtradevalues vibrantly brought our standto life, and we were thrilled by theresponse we received for our ethosand our product range.

So far, this has led to a trial in 50 of Galeries Lafayette’s majordepartment stores throughoutFrance in the Spring and there arepromising leads in a number ofother countries.

Moving into such different marketsis both incredibly exciting and just a little daunting! We have a lot tolearn about how best to support theCafédirect brand in these countries.We have to think differently, marketdifferently, and very likely packageour products differently.

If we get it right, the opportunitiesare huge. As a Fairtrade pioneer, weare ambitious, and we love thinkingbig. If we can successfully marketCafédirect globally, we would look todevelop sales and operations hubsto service the appropriate regions,including ways to trade with moresmallholder farmers.

Crucially, of course, we will be ableto share our learning about howcommerce works in these diversemarkets with our current 37 growerpartner organisations, enabling themto build knowledge, understandingand relationships with parts of theworld they may never have tradedwith before.

20 21REPORT & ACCOUNTS 2005/06 REPORT & ACCOUNTS 2005/06

SALES AND NEW CUSTOMERS

Hong KongPhoto: Getty Images

CAFÉDIRECT STARTSTO GO GLOBAL

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THE DIRECTORS PRESENT THEIR REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2006

23

DIRECTORS’ REPORTThe directors present their report and financial statements for the yearended 30 September 2006.

PRINCIPAL ACTIVITIESThe principal activity of the company in the year under review was that ofbrand management and trading in Fairtrade products with the brandnames Cafédirect, Teadirect and Cocodirect, to help to promote fairerpractice in international trade.

No significant change in the nature of these activities occurred during the year.

BUSINESS REVIEWCompared with last year, turnover was 9% higher at £21.6 million. Thestrongest growth was in our “out-of-home” sector where sales were upover 40% year on year. Our sales to the retail sector also grew but at amore modest 2%, in an increasingly competitive market. The proliferationof new Fairtrade and ethical products and retailers’ own label Fairtradeproducts is a noticeable trend. Sales grew across all of the company’sproduct lines – coffee, tea and drinking chocolate.

The company’s focus during the year has been to continue to promote thecompany’s brands strongly and invest in the infrastructure of the company.In particular, there has been a strong push on price promotional activities.Whilst being a major contributor to sales growth, this investment hasaffected our gross margin percentage, which reduced by 3.9 points to28.9%. In addition, the average cost of tea purchased during the year wasover 20% higher than the previous year, further contributing to thereduction in gross margin percentage. Fluctuations in the cost of rawmaterials and exchange rates remain the company’s biggest uncertainties.To mitigate these risks, the company takes out forward exchange contractsto cover expected purchases over the next 12 months on a rolling basisand from time to time commodity options are purchased – whilst stillpaying our producers the full Cafédirect Fairtrade price.

The company made a significant investment in computerised supply chaincontrol systems during the year. In total, £0.36 million has been invested todate, with a further £0.1 million planned for next year. Although this ishigher than the £0.1 million originally envisaged in the company’sprospectus at the time of the public share offer in 2004, the complete scopeof the programme has been broader than planned. In addition, it wasdecided to bring in professional external project management resources tolead the project.

The company has continued to invest in people during the year, with a newUK Managing Director, Clive Gardiner, being recruited in May 2006.Average staff numbers have increased from 26 to 31, requiring extendedoffice premises to be leased and fitted out. Overall, administrationexpenses have increased by £0.5 million to £6.3 million. Marketing andselling expenses to promote the company’s brands represent more thanhalf of these administration costs at £3.2 million. Spend in this categorywas maintained at the 2005 level, with focus being switched to more directpromotional activities as a result of the competitive retail market.

The company made a small profit before tax of £48,385. The company’scash balance reduced by £1.4 million during the year, mainly as a result ofincreased working capital (£0.7 million), capital expenditure (£0.3 million)and tax and dividend payments (£0.4 million). In particular, the company’sstocks increased partly as a result of (i) the higher level of sales; (ii) thedecision to hold stock in a centralised hub run by a third party (to give

DIRECTORS

Krishna GopalaRaúl del AguilaGraham FishRaymond KimaroFiona McAnenaTim MorganPenny NewmanRichard ScanlonGeoff Tudhope

SECRETARY

Stuart Raistrick

REGISTERED OFFICE

24 Great King StreetEdinburgh EH3 6QN

COMPANY REGISTRATION NO.

SC141496

BUSINESS ADDRESS

City Cloisters Suite B3196 Old StreetLondon EC1V 9FR

AUDITORS

Baker TillyChartered Accountants2 Bloomsbury StreetLondon WC1B 3ST

REGISTRARS

Brewin DolphinSecuritiesPO Box 512National House36 St Ann StreetManchester M60 2EP

SOLICITORS

Wrigleys19 Cookridge StreetLeeds LS2 3AG

BANKERS

Triodos Bank NVBrunel House11 The PromenadeBristol BS8 3NN

Natwest Bank plc15 BishopsgateLondon EC2P 2AP

CAFÉDIRECT PLC - REPORT &FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2006

FINANCIALS

improved service to out-of-home customers); and (iii) temporary stock-buildto ensure adequate cover during a switch to a new freeze-dried coffeemanufacturer around the year-end. Debtors and creditors both increasedmainly due to specific difficulties implementing the new accounting systemaround the year-end. This resulted in cash collection and payment ofinvoices not being made in a timely manner at the year-end. The companyhas a small number of partners with offsetting debtor and creditor balanceswhich make up a significant part of the total balances.

The company plans to continue to grow its market share in the fast-growingout-of-home sector, whilst continuing to invest to increase penetration in theretail market. The company will look to recover its gross margin percentageby increasing prices where possible. International expansion will also be apriority over the next couple of years. The ratio of stock, debtors andcreditors to turnover will be a key management focus in 2007 as thecompany aims to reduce this ratio in order to improve liquidity and cashflow.

BENEFITS TO OUR GROWER PARTNERSAs a result of our increased turnover and stock-build, we have been able topurchase more from our producer partners in Latin America, the Caribbeanand Africa. Coffee purchases of 3,542 tonnes were over 23% up on lastyear. Tea purchases of 1,346 tonnes were also 18% higher. Cocoapurchases once again exceeded 100 tonnes. Growth in purchases isexpected to moderate in 2007 as a result of reducing stock as apercentage of turnover.

The market price of coffee beans during the year was higher than theprevious year, particularly Robusta, although it continues to tradesignificantly below the Fairtrade minimum price. Due to these price rises,the market price represented a higher percentage of the Fairtrademinimum price in 2006 than in 2005 and therefore, despite the increasedvolumes of purchases we paid slightly lower coffee premiums this year thanlast year at £1.10 million (2005: £1.15 million). Tea prices rose 20% year onyear and because we pay a fixed premium per kilogram of tea purchased,the premiums we paid to tea producer organisations increased to £0.54million (2005: £0.47 million) in line with the increased tonnage. In total wepaid premiums of £1.66 million (2005: £1.63 million) to producerorganisations, which equates to 8% of our turnover. Producers groups havechosen to spend these funds in various ways including second payments tofarmers, community projects such as schools and health clinics, medicalinsurance and establishment of savings groups leading to benefits thatinclude improved health and education and enhanced income levels.

Our other commitments to the Fairtrade criteria include:

- ensuring that our producer partners have access to necessary pre-finance, which is vital for them to access local bank loans, as well as toinvest in the production of the following crop

- payment of licence fees to the Fairtrade Foundation for use andpromotion of the Fairtrade Mark

Through our Producer Partnership Programmes (PPP) work, in a changingenvironment and market place we have continued to adopt a pro-activeand forward-looking approach. We have expanded our number of producerpartners to 37, with the addition of new tea partners, Michimikuru in Kenyaand Kelliewatte in Sri Lanka, and a new coffee partner, Misozi in Rwanda.To prepare our tea partners for the anticipated British Retail Code GlobalStandard on Food, the PPP has been working in advance with six of our teapartners on implementing the relevant food safety methodology. On thewider issue of climate change, co-operation has been obtained from theGerman Technical Cooperation (GTZ) to look at ways of strengthening thecapacity of producer partners to tackle increasing environmentalchallenges. We have also been working with Cranfield University onresearch that identifies cost-effective ways for our East African partners toovercome growing water shortages.

The overall investment in our PPP work this year was £684,000. Thisrepresents an increase of 19% over the corresponding amount in 2005 andrepresents 93% (2005: 42%) of the company’s profit (before charging taxand PPP). In addition we were able to use the remainder of our two-yeargrant of £86,218 from the Business Linkages Challenge Fund and, throughour partner, the PPP also raised an additional £438,815 which provided uswith additional capacity to support and strengthen producer organisations,without additional cost to the company.

The long-term nature of our relationship with producer partners means thatwe are available to support them when they face emergency situations aswas the case for our Mexican partners this year, when hit by HurricaneStan. Cafédirect was able to respond to this situation immediately andprovide the vital support required for growers to recover from the damagecaused, continue with their harvest and thereby safeguard their future. Ithas also meant that as grower organisations have matured, the PPP has

been able to offer support on an increasingly specialised level. At Huatuscoin Mexico for example, the PPP has been involved in implementinginnovative coffee processing technology that has reduced costs anddamage to the environment. COCLA in Peru, meanwhile, has beensupported in diversifying into cocoa production and now providesCafédirect with cocoa as well as coffee.

This core element of our Gold Standard Policy has established the long-term relationships which ensure continued supply during times of marketvolatility, and supported nearly 260,000 farmers and their families insustaining their businesses and their communities.

RESULTS & DIVIDENDSThe results for the year are set out on page 27.

In view of the company’s results for the year, and taking into account futureinvestment plans, the directors are not recommending the payment of adividend for the year (2005: 2p per share). The retained profit for the year,amounting to £31,427 will be transferred to reserves (2005: £568,118).

DIRECTORS AND DIRECTORS’ INTERESTSThe directors who served during the year and their beneficial interests inthe share capital of the company were as follows:

2006 2005No of shares No of shares

Krishna Gopala (Chair) - -

Raúl del Aguila - -

Graham Fish Appointed 14 June 2006 1,700 -

Jean Floodgate Resigned 28 March 2006 - -

Phil King (Finance Director) Resigned 19 September 2006 1,000 1,000

Fiona McAnena 500 500

Tim Morgan 1,000 1,000

Lazaro Mwakajila Deceased 25 October 2006 - -

Penny Newman (Chief Executive) 1,500 1,500

Richard Scanlon (Finance Director) Appointed 19 September 2006 - -

Geoff Tudhope 3,000 3,000

There have been no changes in the interests of directors between 30 September 2006 and the date of this report.

SUBSTANTIAL SHAREHOLDINGSAs at the date of this report, the company is aware of the followingshareholdings:

Number of shares % of total

Twin Trading Ltd 907,500 10.1%

Traidcraft plc 905,000 10.1%

Equal Exchange Trading Ltd 903,000 10.0%

Oxfam Activities Ltd 903,000 10.0%

Cafédirect Producers Ltd 440,000 4.9%

Rathbone Nominees 315,650 3.5%

No other shareholder owns more than 3% of the company’s shares. Thecompany limits the number of shares in which a shareholder has an interestto a maximum of 15% of the company’s issued Ordinary shares.

ANALYSIS OF ORDINARY SHAREHOLDERS AT 30 SEPTEMBER 2006Number of Number of % of total Number of % of totalshares shareholders shareholders shares shares

1 – 300 1,261 27.6 377,350 4.2

301 – 500 1,511 33.1 743,800 8.3

501 – 1,000 1,183 26.0 1,113,400 12.4

1,001 – 5,000 549 12.0 1,502,800 16.7

5,001 – 10,000 32 0.7 289,050 3.2

10,001 and over 29 0.6 4,969,000 55.2

4,565 100.0 8,995,400 100.0

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GUARDIANS’ SHAREThere is one Guardians’ share, held by the Guardian Share Company Ltd. Thiscompany is equally owned by the four founders of Cafédirect (EqualExchange Trading Ltd, Oxfam Activities Ltd, Traidcraft plc and Twin TradingLtd) and Cafédirect Producers Ltd, and has the right to nominate a directorto the company’s Board. Its consent is also required for the appointment ofthe Chair of the Board and for any changes to the company’s Gold Standard.

POLITICAL AND CHARITABLE DONATIONSDuring the year the company donated £100 to Trees for Life to offsetcarbon emissions used by Shareholders travelling to the Annual GeneralMeeting. No political donations were made during the year.

EMPLOYEESIt is our policy to keep our employees informed, through the companyintranet and other communications, on our performance and on mattersaffecting them as employees.

It is also our policy to give proper consideration to applications foremployment received from people with disabilities, and to give employeeswho become disabled every opportunity to continue their employment.

Share Incentive Plan (SIP)There were no awards made this year. There are 15,300 unallocated sharesremaining in the Trust.

PensionsAll employees are entitled to join the company’s defined contributionpension scheme after completing three months’ service. The companycontributes an amount equal to 9% of basic salary provided the employeecontributes at least 1% of their basic salary.

HealthcareThe company operates a private healthcare scheme which all employeesare entitled to join after completing three months’ service.

PAYMENT OF SUPPLIERSAs part of our Fairtrade commitment, in addition to ensuring that ourproducer partners have access to necessary pre-finance, we aim to pay thebalance of money owed within three working days of receipt of invoice,supported by a bill of lading. For all other purchases, it is our policy toagree payment terms with suppliers when negotiating business transactionsand to pay suppliers in accordance with contractual or other legalobligations. Trade creditors at 30 September represented 61 days (2005: 30 days) of annual purchases. The increase is mainly due to specificdifficulties implementing the new accounting system around the year-endas set out in the Business Review.

STATEMENT AS TO DISCLOSURE OF INFORMATIONTO AUDITORSThe directors who were in office on the date of approval of these financialstatements have confirmed, as far as they are aware, that there is norelevant audit information of which the auditors are unaware. Each of thedirectors have confirmed that they have taken all the steps that they oughtto have taken as directors in order to make themselves aware of anyrelevant audit information and to establish that it has been communicatedto the auditor.

AUDITORSA resolution to reappoint Baker Tilly, Chartered Accountants, as auditorswill be put to the members at the Annual General Meeting.

By order of the Board

Stuart RaistrickSecretary

19 February 2007

CORPORATE GOVERNANCE STATEMENT

CODE OF BEST PRACTICEThe Board recognises that the New Combined Code on CorporateGovernance, published by the Financial Reporting Council in July 2003,represents best practice for public companies and is committed to working

towards compliance with the code in a manner that is appropriate to thecompany’s size and structure.

THE BOARDAt 30 September 2006, in line with the structure put in place at the time ofthe share issue, the Board consisted of:

Non executive chair

Chief executive

Finance director

2 Independent non executive directors

2 Producer directors

1 Guardian nominee director

1 Consumer director

Each year, one third of the eligible directors retire, in rotation, at theAnnual General Meeting in accordance with the company’s Articles ofAssociation. Accordingly, Raúl del Aguila retires and, being eligible, offershimself for re-election. The selection of new directors is delegated to theNominations and Remuneration committee, which makes recommendationsto the Board. Cafédirect Producers Ltd and the Guardian Share CompanyLtd nominate the producer directors and the Guardians’ nominee directorrespectively.

THE DIRECTORSEXECUTIVE DIRECTORSPenny Newman (50) joined the company as Managing Director in 1999and was appointed as Chief Executive in 2003. Penny has a wealth ofbusiness strategy and marketing experience built up with a number ofFMCG companies including Avon, Fabergé, Wella and the Body Shop.

Richard Scanlon (44), who is a Chartered Accountant, was appointedFinance Director in September 2006. Richard was previously BusinessDevelopment Director of Gatwick Airport and spent over 11 years with TI Group plc, now part of Smiths Group plc.

NON-EXECUTIVE DIRECTORSKrishna Gopala (44) was appointed Chair in June 2005. Krishna brings awealth of international business experience from time spent withentrepreneurial and Fortune 100 companies and the venture capitalindustry. He also brings a strong commitment to the principles of Fairtrade.

Geoff Tudhope (56) was appointed a director in 2001, and was appointedchair of the Nominations and Remuneration Committee in 2003. Followinga career in ICI plc, Geoff is now a business mentor to CEOs with Merryck &Co, a founder of the Globally Responsible Leadership Initiative and anadvisor to the World’s Children’s Prize for the Rights of the Child.

Graham Fish (52) was appointed a director in 2006. Graham has over 25years experience in the UK consumer food sector, and until recently wasGroup Commercial Director of Exel plc.

Guardian nominee directorTim Morgan (42) was appointed as the Guardians’ nominee director in 2003and as Chairman of the Audit Committee in 2005. Tim is a CharteredAccountant, and until recently was Finance Director of Traidcraft plc.

Producer directorsRaúl del Aguila (47) was appointed a director in 2004. Raúl is a director ofthe COCLA co-operative in Peru, producing coffee and cocoa.

Raymond Kimaro (62) was appointed a director in December 2006.Raymond is the Chair of Cafédirect Producers Ltd and General Manager ofthe coffee growers co-operative at Kilimanjaro known as KNCU.

Consumer directorFiona McAnena (42) was appointed a director in November 2004. Fionaheads up the innovation team at PepsiCo UK & Ireland, is a director of theEnvironment Council and is on the Board of the Marketing Society.

The Board is responsible for setting strategy, approving budgets, capitalexpenditure, investments and disinvestments. A report, in English andSpanish, summarising the company’s financial and operational performanceis sent to the directors each four week period. The aim is to provide eachdirector with information seven days in advance of Board meetings toenable the directors to make informed judgements on matters referred tothe Board. The Board meets at least four times a year.

DIRECTORS’ REMUNERATIONThe Board has established a Nominations and Remunerations committee,consisting entirely of non-executive directors and their terms of reference,and details of each director’s remuneration, are explained on pages 26 and 27.

The Board will consider in 2007 whether the report of the Nominations andRemuneration committee should be an item on the agenda of the AGM in2008 and succeeding years.

SHAREHOLDER INFORMATIONThe Board invites all shareholders to participate at the AGM and providesthe annual report, Company announcements and other information on thewebsite at www.cafedirect.co.uk.

If you have any questions about: transfer of shares, change of name oraddress, lost share certificates, death of a registered holder of shares, orany other query relating to the company’s shares please contact theRegistrar on 0845 600 9662, or at the following address:

Brewin Dolphin SecuritiesPO Box 512National House, 36 St Ann StreetManchesterM60 2EP

DIRECTORS’ RESPONSIBILITIESThe directors are responsible for preparing the annual report and thefinancial statements in accordance with applicable law and United KingdomGenerally Accepted Accounting Practice.

Company law requires the directors to prepare financial statements foreach financial year which give a true and fair view of the state of affairsof the company and of the profit or loss of the company for that period.In preparing those financial statements, the directors are required to:

a. select suitable accounting policies and then apply them consistently;

b. make judgements and estimates that are reasonable and prudent;

c. state whether applicable accounting standards have been followed,subject to any material departures disclosed and explained in thefinancial statements; and

d. prepare the financial statements on the going concern basis unless it isinappropriate to presume that the company will continue in business.

The directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of thecompany and to enable them to ensure that the financial statements complywith the requirements of the Companies Act 1985. They are also responsiblefor safeguarding the assets of the company and hence for taking reasonablesteps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of thecorporate and financial information included on the company’s website.Legislation in the United Kingdom governing the preparation anddissemination of financial statements may differ from legislation in otherjurisdictions.

INTERNAL CONTROLThe directors have responsibility for the company’s system of internalcontrol and for reviewing its effectiveness. Such systems are designed tomanage, rather than eliminate, the risk of failure to achieve businessobjectives and can only provide reasonable, and not absolute, assuranceagainst material misstatement or loss. The directors confirm that theprocess for identifying, evaluating and managing the significant risks facedby the company is in accordance with the Turnbull Guidance, was in placethroughout the accounting period and up to the date when the financialstatements were approved, and is regularly reviewed by the Board.

Management are responsible for the identification and evaluation ofsignificant risks and for the design and implementation of appropriateinternal controls. These risks are assessed on an ongoing basis and may beassociated with internal or external factors. Management report regularlyto the Board on the key risks and on the way that these are managed, andalso reports to the Board on any significant changes to the company’sbusiness and on any risks associated with these changes. There is activeBoard involvement in assessing the key business risks facing the companyand determining the appropriate course of action for managing these risks.

The directors have established procedures designed to provide an effectivesystem of internal control, with the following features:

- budgetary control over all departments, measuring performance againstpre-determined targets on a four weekly basis

- regular forecasting and reviews covering trading performance, assets,liabilities and cash flow

- delegated limits of authority covering key financial commitmentsincluding capital expenditure and recruitment

- identification and management of key business risks

The Board, through the Audit Committee, has reviewed the effectivenessof the company’s system of internal control during the year.

GOING CONCERNThe directors confirm that, after making appropriate enquiries, they have areasonable expectation that the company has adequate resources to continueoperating for the foreseeable future. Accordingly, the directors continue toadopt the going concern basis in the preparation of the accounts.

Krishna GopalaChair

19 February 2007

REPORT OF THE AUDIT COMMITTEE ON BEHALF OF THE BOARDCommittee members during the year have been:

Tim Morgan (Chair from 9 December 2005) Guardian nominee director

Jean Floodgate (Chair until 9 December 2005) Independent non-executive director

Phil King (to 9 December 2005) Finance director

Stuart Raistrick Company secretary

Richard Scanlon, who replaced Phil King as Finance Director inSeptember 2006, provides support and information to the Committee,but in keeping with good practice is not formally a member. This meansthat the ongoing membership of the Committee is two people (TimMorgan and Stuart Raistrick), which is considered adequate for acompany of the size and scale of Cafédirect plc. Both members haveconsiderable experience of financial reporting and of risk management.Looking ahead, the Board would like to have a third formal member ofthe Audit Committee, to add further skills and resilience to this group,but at present there are not suitable non-executive directors availablewithin the Cafédirect Board to undertake this role.

The purpose of the Audit Committee is to establish formal andtransparent arrangements regarding financial reporting and internalcontrol principles and to maintain an appropriate relationship with theCompany’s auditors.

Our aim as a Committee is to ensure compliance with allrecommendations of Corporate Governance as they apply to a companyof our size. We meet at least three times a year and our key areas ofactivity include:

• Monitoring the integrity of the financial statements

• Leading the Board’s oversight of the risk register

• Working with the external auditors and monitoring the ongoing audit,legal and banking requirements of the company

• Working with the Nominations and Remuneration committee to createthe framework and approach for the Board Capability Audit

The 2005 financial statements were the first to be audited by Baker Tilly,selected following a tender process. There were no major issues arisingfrom the audit and the handover of audit firm progressed smoothly.

The need for an Internal Audit function was reviewed and consideredinappropriate at this stage. The requirement will be reassessed next yearin the context of the Company’s continued growth.

25

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During 2007, the Audit Committee will focus on continuedimplementation of the company’s new accounting system as this is furtherrefined and developed, as well as leading the Board Capability Auditafter a number of changes to the Board membership over the past year.

Tim MorganChair – Audit Committee

19 February 2007

REPORT OF THE NOMINATIONS AND REMUNERATIONCOMMITTEE ON BEHALF OF THE BOARDCommittee members during the year have been:

Geoff Tudhope (Chair) Independent non-executive director

Krishna Gopala Non-executive Chair of the Board

Lazaro Mwakajila (from 9 December 2005 to 25 October 2006) Non-executive producer director

Tim Morgan (to 9 December 2005) Guardians’ nominee director

Elizabeth Smith Secretary (Cafédirect’s HR manager)

The committee’s purpose is to oversee on behalf of the Board formal andtransparent arrangements in the spirit of the Cafédirect Gold Standard andthe Guardian Share Company Ltd regarding the appointment, developmentand reward of the Executive Team and the Board (excluding remunerationof non-executive Directors).

Our aim is to comply with all provisions of the Directors’ Remuneration ReportRegulations 2002 and the Combined Code as they apply to a company of our size. The committee met formally three times in the past year.

NOMINATIONSKey activities:• Together with the Audit Committee, recommend a Board capability

template of skills, knowledge, experience and mindset needed to helpguide the strategy.

• Identify and nominate for approval of the Board, candidates to fill Boardvacancies.

- Following the resignation of Phil King, Finance Director, an externalsearch and selection process involving both Board and staff membersresulted in the recruitment of Richard Scanlon in July 2006 and hisappointment to the Board in September. A brief description ofRichard’s career is included in the Board section.

- Due to the resignation on health grounds of Jean Floodgate, one ofthe independent non-executive directors, the Committeerecommended to the Board that a search for a successor with supplychain experience internationally be undertaken. The selection processinvolved Board and Executive Team members and Graham Fish wasappointed in June 2006. A brief description of Graham’s career isincluded in the Board section.

- Raymond Kimaro was appointed in December 2006 as one of the twonon-executive producer directors following the unfortunate death ofLazaro Mwakajila. Raymond, who has a long history with Cafédirect, isalso the Chair of Cafédirect Producers Ltd and General Manager ofthe coffee growers’ co-operative at Kilimanjaro known as KNCU. Hehas agreed to serve one term of three years.

• Identify and recommend to the Board, succession plans for directorsand oversee succession plans for the remaining Executive Teammembers.

To strengthen the Executive and enable a quicker pace in achieving thestrategy, two new roles were created and filled externally:

- Managing Director UK, Clive Gardiner, in May 2006. Clive has wideretail marketing and selling experience, most recently in generalmanagement in Asia for BMG in the music industry.

- Human Resources Manager, Elizabeth Smith, in June 2006. Elizabethis an experienced HR professional most recently employed by NealsYard Remedies Ltd.

- In replacement of Phil King, Wolfgang Weinmann, PPP manager, wasrecommended for appointment as a director of Cafédirect ProducersLtd in December 2006.

REMUNERATIONKey activities:• Determine and agree with the Board the policy, externally

benchmarked, for the remuneration of the CEO, Finance Director andremaining Executive Team members. This sets the framework forconsidering remuneration for all employees.

• Determine the remuneration of the Chair of Cafédirect. Theremuneration of all other non-executive directors is determined by theChair of Cafédirect and the executive members of the Board.

• Approve the design of any performance related pay schemes and shareincentive plans.

• Determine the policy and scope for pension arrangements for eachexecutive director and the remaining members of the Executive Team.Again, this sets the framework for considering pension policy for allemployees.

Executive DirectorsOur objective is to ensure that executive directors are fairly rewarded fortheir contribution to the overall performance of the company, and that theirremuneration is set in such a manner to attract, retain and motivate suitableindividuals with due regard to the effect on the operating costs of thecompany. Remuneration is benchmarked to a hybrid portfolio of likebusinesses in both the social enterprise and mainstream sectors.

Basic entitlements:Each executive director has a service contract which is subject to a notice periodof 3 months.

Each executive director is paid a basic salary subject to review on 1October each year. In addition, the executive directors are entitled to ashare in any annual bonus awarded to all employees dependent onachievement of specific business targets. The benefit of private medicalinsurance is available to all employees, including executive directors.

Pension provision:Executive directors are entitled to join the company’s defined contributionpension scheme after completing three months’ service. The companycontributes an amount equal to 9% of basic salary provided the employeecontributes at least 1% of their basic salary.

Share Incentive Plan (SIP):There were no awards made during the year. Payments totalling £8,700(2005: £6,600) were made to employees who left the company during theyear in respect of their share entitlements.

CHAIR AND NON-EXECUTIVE DIRECTORS’ FEESThe remuneration of the Chair and the non-executive directors is at levelsintended to attract individuals of an appropriate calibre and commitment.

The Chair and the non-executive directors do not have service contracts.Each non-executive director receives an annual fee plus a fee for acting aschair of a Board committee. The Chair and the non-executive directors arenot entitled to participate in the company’s share incentive plan, or anyperformance pay scheme or pension scheme and would not receive anycompensation in the event of early termination.

The fees of the Chair and the non-executive directors remain at the levelsset with effect from 1st October 2005.

DIRECTORS’ REMUNERATIONFees Salary Bonus Pension Taxable Total

contribs benefits£ £ £ £ £ £

Krishna Gopala (Chair) 15,000 - - - - 15,000

Penny Newman (Chief Executive) - 72,000 954 6,480 1,125 80,559

Phil King (Finance Director)* - 47,895 954 4,311‡ 2,754 55,914

Richard Scanlon (Finance Director)** - 10,436 - - 4,500 14,936

Jean Floodgate*** 4,250 - - - - 4,250

Geoff Tudhope 8,500 - - - - 8,500

Tim Morgan 8,000 - - - - 8,000

Raúl del Aguila 7,500 - - - - 7,500

Lazaro Mwakajila 7,500 - - - - 7,500

Fiona McAnena 7,500 - - - - 7,500

Graham Fish**** 3,750 - - - - 3,750

62,000 130,331 1,908 10,791 8,379 213,409

*resigned 19 September 2006

**appointed 19 September 2006

*** resigned 28 March 2006

****appointed 14 June 2006

‡not paid into the company’s pension scheme

Fees for Tim Morgan and Raúl del Aguila were paid to their employers,Traidcraft plc and the COCLA coffee and cocoa co-operative in Peru,respectively.

In addition to the above, the Board asked Krishna Gopala and GeoffTudhope to work on a special project during the year and fees totalling£43,750 and £4,925 respectively have been accrued in respect of this work.These costs are recoverable from a third party organisation and havetherefore been included in the balance sheet as ‘Other Debtors’.

PERFORMANCE EVALUATION OF THE BOARDThe agenda formation, information sharing and decision making processesof the Board were extensively reviewed in the past year.

Geoff TudhopeChair - Nominations and Remuneration Committee

19 February 2007

INDEPENDENT AUDITORS’ REPORT TO THEMEMBERS OF CAFÉDIRECT PLCWe have audited the financial statements on pages 27 to 31.

This report is made solely to the company’s members, as a body, inaccordance with section 235 of the Companies Act 1985. Our audit workhas been undertaken so that we might state to the company’s membersthose matters we are required to state to them in an auditor’s report andfor no other purpose. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the company andcompany’s members as a body, for our audit work, for this report, or forthe opinions we have formed.

Respective responsibilities of directors and auditorsThe directors’ responsibilities for preparing the annual report and thefinancial statements in accordance with applicable law and United KingdomAccounting Standards (United Kingdom Generally Accepted AccountingPractice) are set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the financial statements in accordance withrelevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give atrue and fair view and are properly prepared in accordance with theCompanies Act 1985. We also report to you whether in our opinion theinformation given in the Directors’ Report is consistent with the financialstatements.

In addition we report to you if, in our opinion, the company has not keptproper accounting records, if we have not received all the information andexplanations we require for our audit, or if information specified by lawregarding directors’ remuneration and other transactions is not disclosed.

We read other information contained in the annual report, and considerwhether it is consistent with the audited financial statements. This otherinformation comprises the information on pages 2 to 21 the Directors’Report and the Corporate Governance Statements. We consider theimplications for our report if we become aware of any apparentmisstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinionWe conducted our audit in accordance with International Standards onAuditing (UK and Ireland) issued by the Auditing Practices Board. An auditincludes examination, on a test basis, of evidence relevant to the amountsand disclosures in the financial statements. It also includes an assessmentof the significant estimates and judgements made by the directors in thepreparation of the financial statements, and of whether the accountingpolicies are appropriate to the company’s circumstances, consistentlyapplied and adequately disclosed.

We planned and performed our audit so as to obtain all the informationand explanations which we considered necessary in order to provide uswith sufficient evidence to give reasonable assurance that the financialstatements are free from material misstatement, whether caused by fraudor other irregularity or error. In forming our opinion we also evaluated theoverall adequacy of the presentation of information in the financialstatements.

OpinionIn our opinion- the financial statements give a true and fair view, in accordance with

United Kingdom Generally Accepted Accounting Practice, of the state ofthe company’s affairs as at 30 September 2006 and of its profit for theyear then ended and have been properly prepared in accordance withthe Companies Act 1985; and

- the information given in the Directors’ Report is consistent with the financialstatements.

BAKER TILLYRegistered Auditor

Chartered Accountants2 Bloomsbury StreetLondon WC1B 3ST

28 February 2007

PROFIT AND LOSS ACCOUNT FOR THE YEARENDED 30 SEPTEMBER 2006

RestatedNotes 2006 2005

£ £

TURNOVER 1 21,592,472 19,754,383

Cost of sales 2 (15,360,557) (13,280,541)

Gross profit 6,231,915 6,473,842

Administration expenses 3 (6,302,301) (5,808,347)

OPERATING (LOSS)/PROFIT (70,386) 665,495

Investment income 4 132,647 155,286Interest payable 5 (13,876) (18,655)

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 6 48,385 802,126

Taxation 8 (16,958) (234,008)

PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 17 31,427 568,118

The operating loss for the year arises from the company’s continuingoperations.

No separate Statement of Total Recognised Gains and Losses has beenpresented as all such gains and losses have been dealt with in the profitand loss account.

27

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29

NOTES TO THE FINANCIAL STATEMENTS

28

FINANCIALS

BALANCE SHEET – 30 SEPTEMBER 2006Restated

Notes 2006 2005£ £

FIXED ASSETS

Tangible assets 10 270,857 40,839

CURRENT ASSETS

Stocks 11 4,417,644 2,934,143Debtors 12 4,734,218 3,490,013Cash at bank and in hand 2,483,478 3,859,299

11,635,340 10,283,455

CREDITORS: Amounts falling due within one year 13 (4,858,562) (3,135,927)

NET CURRENT ASSETS 6,776,778 7,147,528

TOTAL ASSETS LESS CURRENT LIABILITIES 7,047,635 7,188,367

PROVISIONS FOR LIABILITIES AND CHARGES 14 (7,749) -

NET ASSETS 7,039,886 7,188,367

CAPITAL AND RESERVES

Called up share capital 15 2,248,850 2,248,850Share premium account 16 3,303,691 3,303,691Profit and loss account 17 1,487,345 1,635,826

EQUITY SHAREHOLDERS’ FUNDS 18 7,039,886 7,188,367

Approved and authorised for issue by the Board on 19 February 2007

Tim MorganDirector

CASH FLOW STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2006

Notes 2006 2005£ £

Cash flow from operating activities 19a (761,177) (215,019)

Returns on investments and servicing of finance 19b 118,771 136,631

Taxation (240,426) (47,478)

Capital expenditure and servicing of finance 19b (318,176) 2,468

Equity dividends paid (179,654) -

CASH (OUTFLOW) BEFORE FINANCING (1,380,662) (123,398)

Financing 19b - 20,625

(DECREASE) IN CASH IN THE PERIOD (1,380,662) (102,773)

RECONCILIATION OF NET CASH FLOW 2006 2005TO MOVEMENT IN DEBT £ £

(Decrease) in cash in the period (1,380,662) (102,773)

(Increase) in loan from Shared Interest Ltd. (478,051) (51,554)

MOVEMENT IN NET FUNDS IN PERIOD (1,858,713) (154,327)

NET FUNDS AT 1 OCTOBER 2005 19c 3,664,070 3,818,397

NET FUNDS AT 30 SEPTEMBER 2006 1,805,357 3,664,070

ACCOUNTING POLICIES

BASIS OF ACCOUNTINGThe financial statements have been prepared under the historical costconvention and in accordance with applicable accounting standards.

The following accounting policies are consistent with those used inprevious years with the exception of the implementation of FinancialReporting Standard 21 – Post Balance Sheet Events which has resulted inthe restatement of the comparatives in relation to the recognition ofdividends payable.

TANGIBLE FIXED ASSETS Fixed assets are stated at historical cost.

Depreciation is provided on all tangible fixed assets at rates calculated towrite each asset down to its estimated residual value evenly over itsexpected useful life, as follows:-

Long leasehold land and buildings Over the life of the lease

Office equipment and furniture Over three years on a straight line basis

STOCKS AND WORK IN PROGRESS Stocks and work in progress are valued at the lower of cost and netrealisable value. Cost of finished goods and work in progress includesoverheads appropriate to the stage of manufacture. Net realisable value isbased upon estimated selling price less further costs expected to beincurred to completion and disposal. Provision is made for obsolete andslow-moving items.

FOREIGN CURRENCIES Assets and liabilities denominated in foreign currencies are translated atthe rate of exchange ruling at the balance sheet date. Transactions inforeign currencies are recorded at the rate ruling at the date of thetransaction. All differences are taken to the profit and loss account.

RETIREMENT BENEFITSThe company operates a defined contribution scheme where the amountcharged to the profit and loss account in respect of pension costs and otherpost retirement benefits is the contributions payable in the year. Differencesbetween contributions payable in the year and contributions actually paidare shown as either accruals or prepayments in the balance sheet.

DEFERRED TAXATION Deferred tax is recognised in respect of all timing differences that haveoriginated but not reversed at the balance sheet date where transactionsor events that result in an obligation to pay more tax in the future or a rightto pay less tax in the future have occurred at the balance sheet date.Timing differences are differences between the company’s taxable profitsand its results as stated in the financial statements that arise from theinclusion of gains and losses in tax assessments in periods different fromthose in which they are recognised in the financial statements.

Deferred tax is measured at the average tax rates that are expected toapply in the periods in which timing differences are expected to reverse,based on tax rates and laws that have been enacted or substantiallyenacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

LEASED ASSETS AND OBLIGATIONS Where assets are financed by leasing agreements that give rightsapproximating to ownership ("finance leases"), the assets are treated as ifthey had been purchased outright. The amount capitalised is the presentvalue of the minimum lease payments payable during the lease term. Thecorresponding leasing commitments are shown as obligations to the lessor.

Lease payments are treated as consisting of capital and interest elements,and the interest is charged to the profit and loss account in proportion tothe remaining balance outstanding.

All other leases are “operating leases” and the annual rentals are chargedto profit and loss on a straight line basis over the lease term.

TURNOVER Turnover represents the invoiced value, net of Value Added Tax, of goodssold and services provided to customers.

1 TURNOVER AND PROFIT ON ORDINARYACTIVITIES BEFORE TAXATION

The company’s turnover and profit before taxation were all derived from itsprincipal activity. Sales were made in the following geographical markets:

2006 2005£ £

United Kingdom 21,189,512 19,416,903Overseas sales 402,960 337,480

21,592,472 19,754,383

2 COST OF SALES INCLUDING PREMIUMS PAID TO PRODUCER ORGANISATIONS

2006 2005£ £

Opening stock as at 1 October 2,934,143 3,273,007Purchases 15,182,983 11,310,411Premiums 1,661,075 1,631,266Closing stock as at 30 September (4,417,644) (2,934,143)

15,360,557 13,280,541

3 ADMINISTRATION EXPENSES2006 2005

£ £

Staff costs (see note 7) 1,156,249 1,011,153Marketing and selling costs 3,150,315 3,190,609Producer partnership programmes (PPP) 683,628 574,370Property-related costs 169,368 124,475Depreciation 93,889 64,150Other administrative expenses 1,048,852 843,590

6,302,301 5,808,347

To further the company’s long term commitment, expenditure on ProducerPartnership Programmes (PPP) funds business development programmes,tailored to the needs of each producer organisation, including marketing,quality control, crop husbandry and crop diversification. 2006 PPP spend of£683,628 is 19% higher than the corresponding amount in 2005 andrepresents 93% (2005: 42%) of the company’s profit (before charging taxand PPP).

4 INVESTMENT INCOME2006 2005

£ £

Bank interest receivable 132,647 155,286

5 INTEREST PAYABLE2006 2005

£ £

On bank loans and overdrafts 428 -On other loans 13,448 18,655

13,876 18,655

6 PROFIT ON ORDINARY ACTIVITIES2006 2005

£ £

Profit on ordinary activities before taxation is stated after charging:

Depreciation and amounts written off tangible fixed assets:Charge for the year - owned assets 93,889 64,150

(Gain)/Loss on disposal of fixed assets (5,731) 270

Exchange (gains)/losses (11,006) 3,083

Operating lease rentals:- Plant and machinery 7,570 10,260- Land & buildings 127,786 81,993

Auditors’ remuneration 25,000 15,000

Remuneration of auditors for non-audit work - taxation 2,000 -

7 EMPLOYEES2006 2005

No. No.

The average monthly number of persons (including directors) employed by the company during the year was:

Sales 13 14Operations and administration 18 12

31 26

2006 2005£ £

Staff costs for above persons:Wages and salaries 972,746 862,471Social security costs 113,960 92,767Other pension costs 69,543 55,915

1,156,249 1,011,153

EXECUTIVE DIRECTORS’ REMUNERATION 2006 2005£ £

Emoluments 144,929 127,190Amounts paid to money purchase pension schemes 6,480 6,120

Total emoluments 151,409 133,310

No. No.

The number of directors to whom relevant benefits were accruing under money purchase pension schemes was 1 1

8 TAXATION2006 2005

£ £

Current tax:UK corporation tax on profits of the period 5,126 223,679Adjustments in respect of previous periods 1,756 12,656

Total current tax 6,882 236,335

Deferred tax:Origination and reversal of timing differences 10,076 (2,327)

Total deferred tax 10,076 (2,327)

TOTAL TAX 16,958 234,008

Factors affecting tax charge for period: 2006 2005£ £

The tax assessed for the period is higher than the standard rate of corporation tax in the UK (30%). The differences are explained below:Profit on ordinary activities before tax 48,385 802,126

Profit on ordinary activities multiplied by small companies marginal rate of corporation tax in the UK 30% (2005: 30%) 14,516 240,638

Effects of:Expenses not deductible for tax purposes/(income not taxable) 1,569 2,836Capital allowances in excess of depreciation (9,568) 13,015Share incentive plan relief - (14,040)Other timing differences (626) 234Benefit of small companies starting rate (765) (19,004)Adjustment to tax charge in respect of previous periods 1,756 12,656

Tax charge for period 6,882 236,335

9 DIVIDENDSRestated

2006 2005£ £

Ordinary sharesFinal 2p per share (2005: £Nil) 179,908 -


CD_R&A2006 T 8/3/07 09:29 Page 28

10 TANGIBLE FIXED ASSETSShort Furniture

leasehold fixtures Computerimprovements & fittings equipment Total

£ £ £ £

Cost 1 October 2005 96,679 144,606 - 241,285Transfers 6,226 (115,974) 109,748 -Additions 63,535 73,912 211,929 349,376Disposals - (30,100) - (30,100)

30 September 2006 166,440 72,444 321,677 560,561

Depreciation1 October 2005 90,098 110,348 - 200,446Transfers 1,485 (82,937) 81,452 -Charged in the year 32,780 10,892 50,217 93,889Disposals - (4,631) - (4,631)

30 September 2006 124,363 33,672 131,669 289,704

Net book value30 September 2006 42,077 38,772 190,008 270,857

30 September 2005 6,581 34,258 - 40,839

11 STOCKS2006 2005

£ £

Raw materials and consumables 2,780,642 1,859,726Work in progress 678,937 416,633Finished goods and goods for resale 958,065 657,784

4,417,644 2,934,143

12 DEBTORS2006 2005

£ £

Due within one year:Trade debtors 4,317,248 3,095,551Other debtors 394,189 307,943Prepayments and accrued income 22,781 86,519

4,734,218 3,490,013

Included in other debtors is £Nil in relation to deferred tax (2005: £2,327).

13 CREDITORS: Amounts falling due within one year

Restated2006 2005

£ £

Bank loans and overdraft 4,841 -Trade creditors 2,782,138 954,514Dividends 254 -Corporation tax 5,126 236,335Other taxation and social security 33,678 32,065Other creditors 717,993 223,082Accruals and deferred income 1,314,532 1,689,931

4,858,562 3,135,927

Other creditors include a loan of £673,280 (2005: £195,229) relating to abuyer revolving credit facility from the Shared Interest Society Ltd. This loanis unsecured and is due to be repaid within three months.

14 PROVISION FOR LIABILITIES AND CHARGESDeferredtaxation

£

Balance at 1 October 2005* (2,327)Transfer from profit and loss account 10,076

Balance at 30 September 2006 7,749*included within other debtors

2006 2005£ £

Provision for deferred tax has been made as follows:Excess of tax allowances over depreciations 10,148 (881)Other timing differences (2,399) (1,446)

Balance at 30 September 2006 7,749 (2,327)

15 SHARE CAPITAL2006 2005

£ £

Authorised:14,999,999 ordinary shares of 25p each 3,750,000 3,750,000

Allotted and called up 8,995,400 ordinary shares of 25p each 2,248,850 2,248,850

In addition to the above allotted and called up share capital there is oneGuardians’ share of 25p which is fully paid.

The Guardians’ share differs from the Ordinary shares in that it has the rightto safeguard the company’s mission and its guiding principles. There is oneGuardians’ share, held by the Guardian Share Company Ltd, a companyequally owned by the founders of Cafédirect plc (Equal Exchange TradingLtd, Oxfam Activities Ltd, Traidcraft plc and Twin Trading Ltd) andCafédirect Producers Ltd. It has the right to nominate a director to thecompany’s Board and its consent is also required for the appointment ofthe Chair of the Board, for any changes to the company’s Gold Standardand for certain changes to the Memorandum and Articles of Association.

Share Incentive PlanDuring 2005, 35,400 Ordinary shares of 25p each were issued under thecompany’s Share Incentive Plan to employees based on their length ofservice. During 2006, payments totalling £8,700 (2005: £6,600) were madeto employees who left the company during the year in respect of theirshare entitlements.

16 SHARE PREMIUM ACCOUNT2006 2005

£ £

Balance at 1 October 3,303,691 3,277,141Premium on shares issued during the year - 26,550

Balance at 30 September 3,303,691 3,303,691

17 PROFIT AND LOSS ACCOUNT£

Balance at 1 October 2004 1,067,708Profit 568,118Dividend (179,908)

Balance at 30 September 2005 as originally stated 1,455,918Prior period adjustment 179,908

Balance at 30 September 2005 as restated 1,635,826Profit for the year 31,427Dividend (179,908)

At 30 September 2006 1,487,345

Prior period adjustmentIn the current year the company has adopted FRS 21 – Post Balance SheetEvents – for the first time. As a result dividends can only be recognisedonce they have been passed at a General Meeting of the Members in thecase of final dividends, and the period in which they were paid in the caseof interim dividends.

This has had the effect of increasing the brought forward profit and lossreserve by reversing the proposed dividend of £179,908 in 2005 andreducing the creditors by the same amount.

18 RECONCILIATION OF MOVEMENT INSHAREHOLDERS’ FUNDS

£

Shareholders funds at 1 October 2004 6,522,974Profit 568,118Dividend (179,908)Proceeds from issue of shares 97,275

Shareholders funds at 30 September 2005 as originally stated 7,008,459Prior period adjustment 179,908

Shareholders funds at 30 September 2005 as restated 7,188,367Profit for the year 31,427Dividend (179,908)

Shareholders funds at 30 September 2006 7,039,886

19 CASH FLOWS2006 2005

£ £

a Reconciliation of operating profit to net cash inflow from operating activities

Operating (loss)/profit (70,386) 665,495Depreciation 93,889 64,150(Profit)/Loss on sale of fixed assets (5,731) 270(Increase)/decrease in stocks (1,483,501) 338,864(Increase) in debtors (1,244,205) (960,808)Increase/(decrease) in creditors 1,948,757 (322,990)

Net cash flow from operating activities (761,177) (215,019)

2006 2005£ £

b Analysis of cash flows for headings netted in the cash flow

RETURNS ON INVESTMENTS AND SERVICING OF FINANCEInterest received 132,647 155,286Interest paid (13,876) (18,655)

NET CASH INFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 118,771 136,631

CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTPurchase of tangible fixed assets (349,376) (41,847)Proceeds from sale of fixed assets 31,200 44,315

NET CASH (OUTFLOW)/INFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (318,176) 2,468

FINANCINGIssue of ordinary share capital - 20,625

NET CASH INFLOW FROM FINANCING - 20,625

c Analysis of net cash At 1 October At 30 September2005 Cash flow 2006

£ £ £

Cash in hand, at bank 3,859,299 (1,375,821) 2,483,478Bank overdraft - (4,841) (4,841)Loan from Shared Interest Ltd (195,229) (478,051) (673,280)

Net cash 3,664,070 (1,858,713) 1,805,357

20 COMMITMENTS UNDER OPERATING LEASESAt 30 September 2006 the company had annual commitments under non-cancellableoperating leases as follows:

2006 2005£ £

Land and buildings expiring in the first year - 34,164expiring in the second to fifth year 108,174 -

Otherexpiring in the second to fifth year 7,570 2,160

115,744 36,324

21 PENSION COMMITMENTSThe company operates a defined contribution pension scheme. The assets ofthe scheme are held separately from those of the company in anindependently administered fund. The pension cost charge representscontributions payable by the company to the fund and amounted to £69,543(2005: £55,915). Contributions totalling £6,613 (2005: £6,165) were payableto the fund at the year end and are included in creditors.

22 COMMITMENTSAt 30 September 2006 the company was committed to purchase £1,443,611(2005: £1,421,065) of coffee beans, £44,779 (2005: £199,980) of tea and£26,398 (2005: £12,565) of cocoa beans.

23 RELATED PARTY DISCLOSURES2006 2005

£ £

The following are included in the financial statements:

Debtor balances with related partiesTrade debtors 467,603 280,085

Creditor balances with related partiesTrade creditors 327,218 228,867Accruals 72,946 104,635

Transactions with related partiesSale of goods 2,329,494 2,366,687Purchase of goods 6,156,925 5,058,100Services provided 895,946 655,276Dividends paid 72,370 -

The related parties comprise the four original shareholder companies EqualExchange Trading Ltd, Oxfam Activities Ltd, Traidcraft plc and Twin TradingLtd, who each hold around 10% of the share capital of the company.

Thanks to shareholders, grower partners, employees and customers fortaking part in the films.

Our thanks also to all the team at Cafédirect, our PPP partners, sales andagency partners, Louise Tickle, Peter Newman, all the team at HostUniversal, Outsorcery and Stanton Media for putting this annual report andmicrosite together. We welcome your thoughts on this report andsuggestions for future editions.

Cafédirect plc, City Cloisters, Suite B3, 196 Old Street, London, EC1V [email protected] www.cafedirect.co.uk

Printed on 100% post consumer waste recycled paper.Printed using non toxic vegetable based inks.

Back cover: Latest advertising campaign.

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